The Greenback Chokehold

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.

Microsoft announced earlier this year the launch of a new United Nations representation office to deepen their support for the UN's mission and work. Many of the big challenges facing society can only be addressed effectively through multi-stakeholder action. Whether it's public health, environmental sustainability, cybersecurity, terrorist content online or the UN's Sustainable Development Goals, Microsoft has found that progress requires two elements - international cooperation among governments and inclusive initiatives that bring in civil society and private sector organizations to collaborate on solutions. Microsoft provided an update on their mission, activities for the 75th UN General Assembly, and the team. To read the announcement from Microsoft's Vice President of UN Affairs, John Frank, visit Microsoft On The Issues.

Over the past eight days, the US-China relationship got notably hotter. None of the new developments detailed below is big enough by itself to kill hopes for better relations next year, but collectively they point in a dangerous direction.

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Kevin Sneader, global managing partner for McKinsey & Company, provides perspective on how the pandemic has influenced climate action:

Has the pandemic helped or harmed efforts to tackle climate change?

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