WHY THE U.S. WILL CONTINUE TO RULE THE INTERNATIONAL PAYMENTS SYSTEM / BARRON´S MAGAZINE

Why the U.S. Will Continue to Rule the International Payments System

By Ben Walsh 


German Foreign Minister Heiko Maas Photo: ODD ANDERSEN/AFP/Getty Images 


What would it look like if you de-Americanized a major part of the international payments system? Germany, or at least its foreign minister, wants to find out.

The U.S. dollar’s status in the global economy means that freezing the dollar assets of individuals or institutions can deal a catastrophic financial blow.

Another stick that the U.S. wields is its influence over Swift, the system banks use to facilitate international payments. The U.S. wants Iran to be cut off from Swift by Nov. 4. The Germans, however, want to figure out a way around this because they want to de-fang the sanctions the Trump administration put in place after it withdrew from the Iran nuclear deal. The stakes are huge, as Cardiff Garcia and Darius Rafieyan explained earlier this month: The last time Iran was cut off from Swift, the country’s oil revenue dropped by half.

Basically, Germany and European powers that haven’t withdrawn from the deal would then theoretically be able to ignore the U.S. sanctions, at least on this other not-yet-developed payments system, which would give Iran a carrot to stick with the deal. (Iran is, in many ways, economically closer to Europe than the U.S.)

Interesting idea, but as they say, good luck with that: “People familiar with Swift said that creating a second, European Swift without U.S. ties or a dedicated European messaging link to Tehran would not work given they would remain part of the same group that includes U.S. members,” Reuters reports. “The issue was not Swift but longstanding European frustration with the dollar’s dominance in global finance and the cross-border political power it confers on the United States, they said.”

The consequences of the new U.S. sanctions are starting to be seen: Earlier this week French energy behemoth Total pulled out of a $4.8 billion Iranian gas-project it had agreed to just last year.

Long term, the more consequential shift in global payments systems and reserve currencies has to do with China, which wants to chip away at the dollar’s status and pull the financial center of gravity toward the yuan and yuan-denominated assets. There are plenty of roadblocks to that goal, namely capital controls, but the aspiration is clearly there.