German Minister Seeks Global Payment System Independent of US: Thank You Trump
Mike Mish Shedlock
In the biggest sign yet of Trump's deteriorating relationship with the most of the world, Germany’s foreign minister Heiko Maas called for Global Payments System Free of US.
> "As Europeans, we have clearly told the Americans that we consider phasing out the nuclear deal with Iran a mistake.," Maas said in an op-ed for Handelsblatt on Wednesday. "Meanwhile, first U.S. sanctions are back in force. In this situation, it is of strategic importance that we clearly tell Washington: we want to work together. But we will not let you act over our heads. Therefore, it was right to protect European companies from legal sanctions," he said.
> "It is therefore essential that we strengthen European autonomy by setting up payment channels independent of the U.S., creating a European Monetary Fund and building an independent SWIFT system. The devil is in a thousand details," he added. "But every day that the (Iran) agreement continues to exist is better than the highly explosive crisis that otherwise looms in the Middle East."
> Mass said that while history and a striving for peace had bound Europe and America, "looking back does not lead to the future. It is high time to re-evaluate our partnership - not to leave it behind, but to renew and preserve it," he said, noting that "the U.S. and Europe have drifted apart for years."
What's This All About?
The UN and EU disagree with Trump pulling out of the Iran nuclear accord.
Even Trump administration officials admit Iran was honoring terms of the deal. Pulling out of the accord is the US's right, but it was also foolish.
The worst aspect of the setup is the US unilaterally placed sanctions on Iran, and forced the entire world to go along.
The US will fine or sanction any firm or country that deals with Iran.
Following Trump's Iran sanctions, EC president Jean-Claude Juncker said the EU will activate a 'blocking statute' to avoid Iran sanctions.
So did Euroinetlligence.
This is the ultimate bluff. The statute would allow the EU to impose sanctions on European companies that comply with US sanctions. In other words, it would give EU companies a choice between pest and cholera. Needless to say, this has not been agreed. Nor will it be. It is a sign of the helplessness and panic of EU leaders that they even talk about it.
Whole World in Trump's Hands
It's absurd that Trump Sets Sanction Policy for Entire World.
The U.S. expects all countries to cut oil imports from Iran to “zero” by Nov. 4 or risk sanctions, a senior U.S. State Department official said regarding Trump administration’s Iran policy as Washington tries to politically and economically isolate Tehran.
War it Is
Trump's actions against Iran constitute war. Label it economic war if you want. Moreover, the whole world must comply. Any country that doesn't will find itself at economic war with the US as Trump will sanction them.
Donald Trump's Sanctions Hurt Millions of Ordinary People
The National Iranian American Council says Donald Trump's Sanctions Hurt Millions of Ordinary People.
> The snapback of Iran sanctions, which went into effect on August 6th, 2018, has had an immense impact on the Iranian and Iranian-American community. These sanctions effectively punish 80 million ordinary Iranians, who are being plunged into economic misery and denied basic necessities such as life-saving medicine and safe civilian aircraft.
Why? Trump's ego says he can negotiate a better deal.
Flashback Irony September 26, 2017: Trump’s Top General Says Iran Honoring Nuke Deal.
Peter Schiff gets parts of the story correct in German Foreign Minister Pushing for De-Dollarization of World Payment System.
> Over the last couple of years, we’ve been reporting on efforts to remove the US dollar from its throne as the world reserve currency. We’ve primarily seen moves toward de-dollarization from countries like China and Russia, and other nations within their orbits. It’s easy for Americans to dismiss efforts to undermine the dollar as desperate moves by their enemies that will never gain any kind of international traction. But now we’re beginning to hear the same de-dollarization rhetoric from American allies.
> SWIFT is the Society for Worldwide Interbank Financial Telecommunication. The system enables financial institutions to send and receive information about financial transactions in a secure, standardized environment. Since the dollar is the world reserve currency, SWIFT facilitates the international dollar system.
> SWIFT give the US a great deal of leverage over other countries. The US has used the system as a stick before. In 2014 and 2015, it blocked several Russian banks from SWIFT as relations between the two countries deteriorated. Last fall, the US threatened to lock China out of the dollar system if it didn’t follow UN sanctions on North Korea.
> It’s understandable why other countries would want to limit their exposure to SWIFT, and more broadly the US dollar. And many countries are making moves in that direction. For instance, the Russians have been dumping US Treasuries and buying gold. China has also been buying gold. Many analysts believe the two countries are buying gold specifically to minimize their dependence on the US dollar and possibly to create a foundation for an alternate payment system.
> US sanctions directly impact the Belgium-based SWIFT system. Unless it gets an exemption from the sanctions, it will be required to cut off targeted Iranian banks or face US retaliation. According to the FT, “These could include asset freezes and US travel bans for the individuals, and restrictions on banks’ ability to do business in the US.”
Reserve Currency Nonsense
Russia dumping treasuries is meaningless. So is China buying gold. If the latter had any relevance, the price of gold would be higher.
China is nowhere near ready to dethrone the dollar as the world's reserve currency.
Schiff says the "US uses dollar-dominance as a billy club to keep other countries in line."
Contextually, that's not accurate. Dollar dominance is not the key, the SWIFT payment system is the key. SWIFT can deal in currencies other than the US dollar.
"Axis of Gold" Silliness From Rickards via Schiff
> There are already efforts underway to create alternative payment systems using gold that would enable countries to operate outside the dollar-dominated SWIFT system. Earlier this year, financial expert Jim Rickards wrote about a developing “axis of gold.” He said, “This gold-based payments system will dilute and ultimately eliminate the impact of US dollar-based sanctions.”
> While the US can effectively lock out countries from the dollar system, they have very little control when countries start doing business in gold. Since gold is physical, not digital, there is no way for it to be hacked, frozen or electronically diverted. It cannot be interdicted through SWIFT. Gold is fungible and non-traceable, and the yellow metal is relatively easy to transport.
There is no "Axis of Gold". It's another Rickard's fantasy. Turkey and Russia are meaningless. China is not about to back its currency with gold.
What Did Schiff Get Right?
Schiffs comments regarding Swift are accurate, especially the leverage it provides.
It is entirely "understandable why other countries would want to limit their exposure to SWIFT".
Maas' proposal is not at all about reserve currencies, or de-dollarization per se. Yet, that could be a welcome side effect.
Merkel on Alternate SWIFT Idea
Reuters reports Merkel Cool on EU Independent Payment System to Save Iran Deal.
> German Chancellor Angela Merkel said on Wednesday she agreed with her foreign minister that relations with the United States were changing but she stopped short of backing his call for a separate EU payments system to save a nuclear deal with Iran.
> “On the question of independent payment systems, we have some problems in our dealings with Iran, no question, on the other hand we know that on questions of terrorist financing, for example, SWIFT is very important,” Merkel told reporters, referring to the global SWIFT network that facilitates many of the world’s cross-border transactions.
> 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.
> EU diplomats said U.S. President Donald Trump’s America First stance on trade and Iran was fueling a rethink about EU dependency on the U.S. financial system.
> “He is forcing us to explore alternatives …or we can’t carry out our own policies,” a diplomat said.
> However, European powers appear to be struggling to find or agree on effective options.
> Merkel, leader of Germany’s conservative bloc, said she had read the article by Maas and that its broad thrust, calling for a new approach to the United States, chimed with her thinking.
> “It was an important contribution as it expresses in other words what I have said, that the transatlantic relationship is changing, we need to take more responsibility, Europe has to take its fate into its own hands,” she told a news conference alongside the visiting president of Angola.
Europe Not Ready
> Iran’s Foreign Minister Mohammad Javad Zarif said Sunday that Europe had not yet shown it was willing to “pay the price” of defying Washington in order to save the nuclear deal.
> Zarif said European governments had put forward proposals to maintain oil and banking ties with Iran after the second phase of US sanctions return in November.
> But he told Iran’s Young Journalist Club website that these measures were more “a statement of their position than practical measures”.
> “Although they have moved forward, we believe that Europe is not yet ready to pay the price (of truly defying the US),” Zarif said.
No Resolve, Yet
Merkel is nothing but a wishy-washy has-been who once blew with the wind but is now floundering in the wind. She is not ready to act.
So, even if China agreed to pay Iran in gold, how would Iran get food, medicine, parts, civilian aircraft, and machinery?
The gold axis thesis as a means of avoiding sanctions is pure silliness.
There is one sanction avoidance mechanism that has potential even if EU wimps out.
As I commented on June 30, Turkey Ideally Placed to Defeat Trump Sanctions on Iran.
Turkey said it will not honor US sanctions. Thus, Turkey can buy goods from EU countries and pass them straight to Iran which it borders.
Trump could of course then demand all trade with Turkey be shut down. Turkey could respond by unleashing a wave of millions of migrants into Greece.
Perhaps that would spur Merkel and the EU to openly defy Trump, on everything.
Under this scenario, Trump would be the catalyst that provides the impetus for the EU to tell the US to go to hell.
I would cheer. So would Schiff, albeit for some different reasons.
For further discussion of de-dollarization and reserve currency ideas, please see China's Alleged "Victory Plan" Over the US Dollar.
Mike "Mish" Shedlock