The Greenback Chokehold

The world cannot accept the US as a global “economic policeman,” declared France’s foreign minister, commenting on the Trump administration’s decision to withdraw from the Iran deal and reimpose harsh US sanctions on any companies that do business with Tehran.


US power may not be what it once was, as Willis wrote last week, but US dominance of the global financial system is one area where Washington still rules the roost. Some two-thirds of international trade and lending is done in dollars, according to the Bank for International Settlements. A similar percentage of governments’ global reserves are held in greenbacks.

Now, if you want to do business in dollars without shuttling them around in briefcases or keeping them stuffed in your mattress, you’ll have to deal at some stage with US correspondent banks. And that’s where Washington can put you over a barrel, by threatening to cut you off from the US financial system if you violate sanctions. That’s precisely what the Iran sanctions do.

European leaders have proposed legislation to deflect the impact of US sanctions, but few CEOs are likely to bet their firms on that. Exclusion from the US financial system would have an immediate and crippling impact, while lawyering it all out could take years. If the US wants to play hardball, then it’s a world of hurt for European companies, which are all deeply entwined with the US financial system.

Over the longer term, of course, alternatives to the dollar-based international financial structure may gain momentum. The Euro accounts for about a fifth of global reserves and lending. But breaking the bond with the US would be extremely costly today.

Beijing, for its part, is keen to boost the renminbi as an international reserve and transactions currency, but only a fraction of non-Chinese trade is RMB-denominated and international RMB reserves remain miniscule. Various governments are also experimenting with sovereign cryptocurrencies as a way to get around US financial system and sanctions, but these bids are in their infancy.

For now, whether the French (or others) can accept it or not, the dollar’s dominance still gives Washington tremendous leverage over friends and foes alike.

It was inevitable that Prime Minister Narendra Modi would make India's elections a referendum on Narendra Modi, and now that the vast majority of 600 million votes cast have been counted, it's clear he made the right call.

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Among the 23 men and women now seeking the Democratic Party's nomination to take on Donald Trump in next year's election, the frontrunner, at least for now, has spent half a century in politics. Former Vice President Joe Biden, first elected to the US Senate in 1972, is the very epitome of the American political establishment.

Yet, the dominant political trend in many democracies today is public rejection of traditional candidates and parties of the center-right and center-left in favor of new movements, voices, and messages. Consider the evidence from some recent elections:

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It's Friday, and Signal readers deserve at least one entirely upbeat news story.

José Obdulio Gaviria, a Colombian senator for the rightwing Democratic Center party, is an outspoken opponent of government attempts to make peace with the FARC rebel group after 50 years of conflict.

On his way into a meeting earlier this week, Gaviria collapsed. It was later reported that he had fainted as a result of low blood pressure probably caused by complications following recent open heart surgery.

A political rival, Senator Julian Gallo, quickly came to his rescue and revived him using resuscitation skills he learned as—irony alert—a FARC guerrilla. CPR applied by Gallo helped Gaviria regain consciousness, before another senator, who is also professional doctor, took over. Gaviria was taken to hospital and appears to have recovered.

Because some things will always be more important than politics.