
Europe Finally Has an Excuse to Challenge the Dollar - walterbell
https://www.bloomberg.com/view/articles/2018-09-25/europe-finally-has-an-excuse-to-challenge-the-dollar
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curiousgal
> _Such transactions, presumably in euros and pounds sterling, would not be
> transparent to American authorities._

Then why make this plan public?

~~~
mrtksn
I think it's not a clandestine operation but just a challenge to the US
demands, therefore it's public?

US: Don't trade with Iran because politics

UK, DE, FR, CN, RU: Sorry, We like the deal we made and we would like to trade
with Iran.

US: If any company trades with Iran, won't be able to trade with the USA. Make
your choise.

UK, DE, FR, CN, RU: Okay then, we will create an infrastructure where the USA
won't be able to legally identify and sanction our companies that trade with
Iran.

~~~
snaky
US: Nice. Then we will just roll the dice once a week and point our finger to
random big company of yours.

~~~
antr
RoW: Good luck defending arbitrary behaviour in front of a court

~~~
anomaly_
As opposed to the EU’s totally non-arbitrary action against US technology
multinationals from a tax and competition perspective?

~~~
lumberjack
How ironic that you do not even realise how entitled you are to make such a
remark. The EU is regulating its own markets. The US is trying to stop the EU
from trading with Iran.

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grecy
> _The cost of defying American sanctions can be steep: in 2015, BNP Paribas
> SA, the French bank, paid a penalty of almost $9 billion for violating U.S.
> sanctions against Iran, Cuba and Sudan_

I'm cruious, who imposes that fine and how do they enforce payment?

Can the US Government FORCE a French Bank to pay them a fine? Surely a French
bank could just say "no thanks".

~~~
qubax
> I'm cruious, who imposes that fine

The executive branch can ( via executive order, treasury sanctions, etc ) and
of course congress can.

> and how do they enforce payment?

By threat of financial collapse.

> Can the US Government FORCE a French Bank to pay them a fine?

Yes and no. Are we going to invade france and force the bank to pay the fine?
No. Could we threaten to place sanctions on the bank and exclude it from
international financial system. Yes.

> Surely a French bank could just say "no thanks".

It can. But then it would immediately collapse. No international bank can
survive a US sanction because the US runs the international finance system.
There is reason why the swiss banking system submitted to US demands to turn
over customer data a few years ago. Economic sanctions on switzerland would
turn it into north korea or venezuela.

People mistakenly think that US sanctions means that the US won't do business
with a certain country. US sanctions means that everyone doing business with
the US can't do business with a certain country.

US sanctions essentially forces the world to choose between the US and country
X. The US being the largest economy and the heart of the international
financial system wins every time.

It's why there is so much drama with US sanctions on iran. It's not that we
won't do business with iran. It's that everyone who wants a business
relationship with the US can't do business with iran.

~~~
grecy
Thanks very much for the detailed answer, I had no idea how it worked.

So it seems likely that nothing will change until the US is not the heart of
the international financial system...

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dalbasal
" _Germany, France, Britain, China and Russia to create special financial
infrastructure to work with Iran_ "

hmmm... There's a story here about Iran-US, a story about the "western
coalition," a story about the dollar's special status (maybe). There's also a
story about this "special financial infrastructure/ vehicle."

WTF is that infrastructure? Why are Germany, France & Britain and keen on
this? These thing can (often) have ulterior motives or outcomes. Other than
trading in other currencies, what does this do?

On the diplomatic "story" this really demonstrates the new multipolar world,
once you step out of the military realm and into an economic one. China, the
EU & the US are similar size/strength. No stable teams...

~~~
orbifold
Well the UK is about to leave the team, without it the EU is significantly
weaker...

~~~
Yptur
Or perhaps significantly stronger. The UK was historically the naysayer of the
EU, opposing more integration. Now the strongest Economies are Germany and
France which are both very much in favor of a closer EU. If this leads to the
EU being quicker in decision making and pooling more of their resources it
could mean a big boon to the EU.

On the other hand the UK used to be kind of a watchdog of the EU so that role
might have to be filled by either someone else or one can hope that the EU
politicians will have enough pressure from their own countries.

Lastly even though the UK is in the process of leaving, basically all the
politicians responsible for it have either back paddled or just quit. The UK
might yet fall back into the fold, only this time without their special
status.

~~~
NeedMoreTea
Given the unpopularity and utter ineptitude of the UK's brexit "negotiations"
I'm tempted to say _might_ be in the process of leaving.

They're making such a mess, I would not be the least surprised to see the DUP
withdraw support and a surprise election result. The Labour conference seems
to be moving them towards a second referendum.

18 months ago I thought claims "it might not happen" foolish, now I'm starting
to think it might not happen. :)

~~~
plopilop
They _are_ in the process of leaving. They activated article 50, which
automatically starts a process of departure lasting 24 months. This period can
only be prolonged by unanimity vote, I'm not even sure it can be cancelled.
Concerning the prolongation, not going to happen.

Also there's no way the rest of EU is going to accept for UK to stay in the EU
with the same privileges as previously (non use of euro, tax exemptions...).
Especially since UK was one of the most critical members, now EU has more
incentive to move forward.

Personally I can't see how UK can rejoin the EU without applying from scratch
like Serbia and so on.

~~~
NeedMoreTea
No way to one of the largest net contributors of the EU budget? I wouldn't
take that bet. Sure things in politics have a way of biting back.

It's vanishingly unlikely in the time remaining, but I would not be surprised
to see huge amounts of flexibility magically appearing, if the UK somehow
gained a different administration supporting remain or a second referendum.
Even at this stage.

~~~
plopilop
Honestly, given how the negoctiations led by Michel Barnier on the EU side has
been openly skeptical towards Brexit negociations, I doubt it.

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david927
We're at an interesting crossroads in modern history where US hegemony is
slipping away, as viewed in declining US Dollar dominance.

I wonder if this will end with a bang or a whimper.

~~~
_Codemonkeyism
Ended in a bang the last times an empire fell and a new one was rising.

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sanatgersappa
When are we 'exporting democracy' to Europe? Oh, wait.

~~~
snaky
That very thing started from 'exporting democracy' to Iran in 1953.

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doombolt
I wonder if Russia could use banks of Crimea to trade with Iran. USA does not
want anything to do with those anyway. So they already exist as clean room
institutions.

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sbt
The US cannot sustainably force the EU to suspend trade with a third country.
Sanctions, at least employed in this way, is a weapon which use reduces its
effectiveness. Like everything the Trump administration does, reneging on the
JCPoA represents an extreme trade-off in favor of short-term gain at greater
expense in the long-term.

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menotyou
Historically the US-Dollar became dominant in the 50/60ties when the oil
exporting countries were partially forced, partially by their own preference
staring factoring their oil bills in USD. One reason among others was that
only the USD market was big enough to provide enough liquidity for the oil
market. Other exporters then started billing their export goods in USD Dollars
so they could pay their oil bill with the Dollars earned.

Ever since this becoming more a self sustainable system by which more goods
were billed in USD because more exporters wanted to buy imports billed in USD.
The US itself as only country as extraordinary privilege in the world could
just print the currency at will, while others had to sell products to earn the
currency.

The other side of the deal was, that Europe an Japan were using their economic
capacities producing civilian goods, whereas the U.S. could buy these goods
with printed money and could use the capacities to build up an otherwise
unsustainable large military sector to protect their allies.

As another effect, USD trades are ultimately settled buy the U.S. Fed, so the
U.S. can effectively get countries or companies out of the market as long the
settlement is done in USD.

Fast forward today: The Euro is as big as USD. With EUR or CNY you can buy all
products you want to have. When Russia, Venezuela and Iran decide to sell Oil
or Gas there is little technical need to stick for USD. Further Trump cutting
the U.S. side of the deal. Why should Europe other further grant the
extraordinary privilege to the U.S? And why it would put it's own countries
and companies a the risk of Feds goodwill to perform the settlement? Given
Trumps apparent will to use the USD as a weapon, it is a question of national
security for Europe, UK, Japan, Iran and the BRICS to change to a different
regime.

My personal expectation is that settlement in EUR will be only transitional
before SDRs issued by the BIS will become the final currency of choice. These
will resemble the "Bancor" proposed by Keyenes before the Bretton Woods system
was implemented

~~~
sigvirt
There is similar premise in James Rickards 2014 book The Death of Money. He
describes trade dynamics and international organizations, including the Bank
for International Settlements and their unit/basket of reserve currencies
called Special Drawing Rights. Several years ago China was on about having the
Yuan declared a reserve currency so it would be included as one of the
currencies which comprise an SDR unit.

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Arcadcomp
Europe is going downhill and it is really sad. Hope there won't be another war
or something.

------
IBM
Sanctions are one of the most powerful tools in the US toolbox short of war.
In fact it's more important than war when dealing with Great Power adversaries
because they have nukes. The US should aggressively block any attempt to get
around it.

Trump shouldn't have pulled out of the Iran deal, but preserving that power
for the future is more important.

Here's a good article about OFAC, the Treasury Department group that handles
sanctions:

[https://www.reuters.com/article/us-usa-sanctions-insight-
idU...](https://www.reuters.com/article/us-usa-sanctions-insight-
idUSBREA3D1O820140414)

~~~
smnrchrds
> The US should aggressively block any attempt to get around it.

The ubiquity of US dollars in international trade allows US to torpedo the
economy of any country it so desires. It is like the US has a kill switch to
shut down any economy it wishes to. But the only reason the rest of the world
plays along and allows the kill switch to exist is that they trust the US to
use it responsibly and only in extreme circumstances. Now with the erosion of
that trust, it is to be expected for the world to move towards eliminating
that threat.

~~~
Havoc
>The ubiquity of US dollars in international trade allows US to torpedo the
economy of any country it so desires.

And that's exactly why this is necessary. The above is only cool if you're
part of the ~5% of the world that is American.

~~~
westiseast
It’s been a fair trade off of benefits/drawbacks in the past - you don’t have
to hold gold, you can hold a currency that is stable and reliable, you can use
it to trade around the world for modern goods and services. You put yourself
at the mercy of the US, but if the US follows international rules and acts
multilaterally and you’re not North Korea, the risks are small.

~~~
Havoc
>It’s been a fair trade off of benefits/drawbacks in the past - you don’t have
to hold gold, you can hold a currency that is stable and reliable

I'd contend that holding a basket of currencies is even more stable and
reliable. Basic diversification logic would suggest that a basket of USD / EUR
/ GBP / AUD / CAD / NOK is safer than just USD.

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csense
If you want to do business with Iran, why don't you just use Bitcoin?

~~~
ur-whale
This is about control. If they built such a system on Bitcoin, they would have
none.

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NicoJuicy
There is no way to do this? Lol

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cylinder
Why is the EU so obsessed with propping up this Iranian regime?

~~~
_Codemonkeyism
Because they would not like to have a (nuclear) war in their neighborhood,
it's easy for the US to stirr up war for 50y in the middle east when the
middle east is far away.

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chvid
This article makes absolutely no sense.

The EU chosing Iran over the US?!

That is not what is going to happen over the reopened Iran deal. What is going
to happen is that the EU will fall in line and Iran will be forced to withdraw
its activities in Syria, Iraq, Yemen ... due to the severity of the economic
hardship caused by the sanctions.

~~~
sghiassy
It’s about Europe choosing sovereignty over their own international politics
rather than cow towing to the US. It’s not the EU preferring Iran over the US

~~~
tragic
But if the means you choose to demonstrate your sovereignty is to defy a new
wave of American sanctions on Iran, then you certainly _are_ choosing Iran
over the United States, as a brief glance at any recent news headlines will
tell you. The current POTUS, and the large number of congressmen who hate Iran
with a rather deranged fervour, will certainly interpret it that way.

~~~
plopilop
You're twisting the narrative here. US _are_ the one who decided to quit the
deal they signed in 2015. The one defying everyone else is the US, not the EU.

So either the EU decides to submit to the US or decides to grow a spine. It
appears it's the latter. Too bad for the US.

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bepotts
Sounds about as likely as that EU army that was supposed to make the EU
independent of NATO, and thus, the US. How's that working out?

The EU constantly talks about challenging US power (Macron and Merkel in
particular), but almost never do. I'm sure this will be more of the same.

~~~
jsiepkes
Well for one because with the current leadership in the US there is for the
first time in history enough incentive to actually push through.

~~~
bepotts
Like I've said, the EU said the same thing about an EU army and that army is
nowhere to be found. Even on the petty insults Europe falters, like when they
all got pissed about the US leaving the Paris Climate Accords and yet the US
lead the world on reducing climate emissions.

The unfortunate (for them) truth about the EU is that outside of its economy,
the EU is irrelevant on the international stage. People want access to their
market, but Europe cannot project any force outside of their own borders.
Outside of maybe Iran, there isn't a single country in the world that curbs
their actions due to fears about what the EU will do. Even countries inside
the EU act without fear of what the EU will do, just look at Poland.

I'd even venture to say most people in the world don't even know it exists.
People know about Germany, France, and those countries individually, but
people only know about the EU because of the news Brexit caused.

The United States has allies AND leadership in every region of the country -
Europe doesn't. If all this commotion has to do with the Iran deal, the other
major players in the region (Israel, Saudis, and UAE) all have close ties to
the US and will be following American leadership and ignoring whatever Europe
says. So I don't even see how Europe successfully protects Iran in this case.

So sure, Europe can talk all it wants about how they want to get rid of US
leadership. But American leadership is felt all over the world, and major
countries in almost every region will follow the US and not Europe.

Sometimes having a big ass army, economic and cultural hegemony, and a history
of being in other people's affairs gives you some clout.

