America: Military clout wanes but dollar reigns supreme

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Maswood Alam Khan from Maryland, USA | Published: July 09, 2014 00:00:00 | Updated: November 30, 2024 06:01:00

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There was always a consensus in American Congress and among the Americans that the United States would never ignore rising threats in any near or distant lands and allow any terrorist groups or dictatorial regimes to gain sanctuary in any corner of this planet. President George W. Bush once famously told a joint session of Congress: "The only way to defeat terrorism as a threat to our way of life is to stop it, eliminate it and destroy it where it grows."
Today in many parts of the world, terrorism is growing unfettered; dictators behind an artificial facade of democracy are trampling their citizens who get in their tyrannical way of grabbing and looting national resources. But, alas, America is abnormally silent. American allies are increasingly losing their trust in American gun-power in case they are attacked by their traditional enemies and the foes of America are getting more and more emboldened to unleash their reign of terror to fulfill their hegemonic ambitions.
The United States is still, by any count, the greatest military power on earth. But they seem to have diminishing political will to exert their military muscles to discipline the rogues. Then, what's the point of having this superb military prowess if the country can't use it to punish the Syrian dictator, exert its diplomacy to compel the Shias and the Sunnis to co-exist and send its troops and drones to stop the ISIS (The Islamic State in Iraq and the Levant) forces from establishing their so-called caliphate?
After nearly 6,600 American deaths in Iraq and Afghanistan, at a cost of more than $2 trillion there and in the broader "war on terror," the United States may perhaps be facing an acute shortage of fund due to congressional acrimonies or the political and military will to respond aggressively to the resurgence of the terrorists and tyrants at many hot spots of the world.
But American power in arm-twisting a rogue nation through financial sanctions has been proven all the more powerful as has been evident in countries like Iran, Sudan, and Cuba at no expense of human blood or weapons of destructions, thanks to omnipotent power of American dollar. In the province of money, this great superpower is still in full charge. American military clout may be waning in parts of the world; but on the strength of its sanctioning power America can still wield its global influence no less powerfully than its military strength.   
In the global financial system American currency is still the king, and under US law, all dollar-denominated transactions must be cleared under the nose of US authorities.
THE CASE OF BNP-PARIBAS: The global banking giant, French bank BNP-Paribas, the world's fifth largest bank, has of late felt in their bones the real intensity of American dollar power as they have agreed to accept a US$ 8.9 billion fine slapped by America. BNP has pleaded guilty to two criminal charges for violating US sanctions against Sudan, Cuba and Iran.
What was BNP's fault? Between 2004 and 2012, BNP used "sophisticated schemes" to move more than $8.8 billion for blacklisted entities through the U.S. financial system.
In addition to the humongous amount of fine, BNP-Paribas had to agree to fire 13 of their personnel. And strangely, the bank was also compelled to cease processing certain types of U.S. dollar transactions for one year.
Such suspension would put the bank in a difficult situation with unpredictable consequences and may scare its shareholders. Dollar payment through converting other currencies into dollars is an integral service to trade financing, investments, and other international deals. If BNP is unable to provide that service, it will have to find another bank to do it on their behalf, which means it risks losing business. Suspending the bank's ability to facilitate dollar payments is a type of penalty that no other bank had ever to suffer.
The fine and the unprecedented ban highlights Washington's extraordinary ability to hold foreign banks to U.S. sanctions laws, even if their customers have nothing to do with the United States.
The punishment awarded to BNP has been so harsh and humiliating for France that French President François Hollande had to request President Barack Obama for a lighter penalty, but Obama dismissed the idea that he could intervene.
Some observers believe the BNP punishment, though a little bit excessive, was a good lesson for other unruly bankers to take note of.
BNP is not the only bank that has been penalised by America. Of course, Americans don't use the harsh word penalty or fine when a prestigious bank is punished; they prefer a mild term 'settlement'. Between October 2013 and June 2014, 10 big banks, ironically mostly American banks, have been slapped with 'settlement' tags by the US authorities. Of those banks, JP Morgan Chase had to bow their head for a settlement of US$ 23.4 billion, Bank of America US$ 35.60 billion, BNP-Paribas US$ 8.9 billion, Wells Fargo US$ 5.3, and Credit Suisse US$ 2.6 billion.
 'DOLLAR CLEARING': One may wonder how America holds and exerts such a grand power in shepherding, and punishing when necessary, almost all the banks around the world.
When you have a foreign currency check to cash, your bank, in order to convert the check into US Dollars or into your local currency from US Dollars, must rout your check through a U.S. dollar-transfer system, a mechanism also known as "Dollar Clearing". This nexus between your bank and the "Dollar Clearing" in the United States gives American authorities jurisdiction over the transaction and subjects your bank to U.S. law. If the U.S. authorities debar your bank from handling your checks for any justifiable reasons you are undone; you can never cash your check.
A foreign bank does not need any U.S. subsidiary to route their international transactions through the United States. What a bank needs is a membership with the New York-based "Clearing House Interbank Payments System (CHIPS)." CHIPS is a huge clearing house which processes US$ 1.5 trillion worth of transactions daily.
When the United States blacklists a country, a company or an individual like you or me or bin-Laden, not only do American banks and U.S. branches of foreign banks have to comply, but so do all the financial institutions of the world that process dollar payments.
The dominance of the U.S. dollar in global trades gives American authorities the ability to go after individuals and banks all over the world, if and when necessary. The U.S.A is the only country that can do this because the U.S. dollar is the reserve currency and most of the global trades, especially the oil trades, are denominated in dollars.
Like any other bank, BNP as usual was routing hundreds of billions of dollars daily through this "Clearing House Interbank Payments System". But they did a blunder.
Between July 2006 and June 2007, BNP processed US$ 6.4 billion worth of transactions for blacklisted Sudanese entities and individuals, including US$ 4.0 billion for a bank owned by the Sudanese government. And BNP went ahead with this illicit banking despite warnings from lawyers and senior compliance personnel of the bank. The bank also processed US$ 1.7 billion in transactions for customers in Cuba. More daringly, when some payments to Cuba were blocked, BNP doctored the transactional documents by lumping transactions together and stripping them of identifying information to conceal their recipients. Plus, through 2012, BNP did more than $650 million worth of business with Iran, including working with a company in Dubai that was a front office for an Iranian oil company. BNP-Paribas in fact went completely out of the banking way to conceal prohibited transactions, cover its tracks, and deceive the U.S. authorities.
A GLOBAL FINANCIAL POLICEMAN: Now, one may wonder, why some rogue countries and their banks can't get rid of the "Dollar Power" that is like a yoke around their necks. Well, some countries tried to free themselves from the shackles of dollar hegemony that has long been imposed by Uncle Sam, but their efforts were mostly to no avail.
The sun is not setting pretty soon on dollar supremacy, and with it, on American power. Many financial gurus question: "Can the Euro Replace the Dollar as a Global Currency?" The answer is "Yes", but it will take ages. Euro is coming up, but at a very slow pace. In many areas of the world, the euro is replacing the dollar. But Euro's rise will never signal a collapse of US Dollar.
The reason is it is in no one's best interest for the dollar to collapse since it would completely destroy the global economy. More importantly, the U.S. is the world's best customer.
With Euro zone now burning in economic crises the chance of Euro to capture the throne of global currency is a far cry.
There was once upon a time the Roman coinage which was the world's pre-eminent currency. And only a few decades back it was the British pound. Time has changed. Today, it's the US dollar to which global investors flock as a safe and secure haven for their money. Highly liquid and historically reliable, nothing else comes even remotely close to the greenback's dominant position in the international monetary system.
The Chinese are not obviously happy with US supremacy in money matters. China has more than $3.0 trillion of dollar foreign exchange reserves, $1.3 trillion of them held in US Treasuries. If any country would like to see a de-Americanised financial world it will be the People's Republic of China. But, for all the progress of the last 30 years, China for now still remains a much smaller economy than the US and in any case is nowhere near ready financially to assume the pivotal role of a global financial policeman.
Such is the dollar's dominance that investors might find it suicidal to put their money in any other currency. More than 60 per cent of global foreign exchange reserves are held in US dollars, which also account for more than 80 per cent of global foreign exchange trading. By the same token, US Treasuries are the very backbone of the global financial system. They are the supposed "risk-free asset" against which everything else is benchmarked, and as such are the collateral of choice in a huge array of financial market transactions.
The dollar's hegemony is simply all pervasive.
The writer started his banking             career in Agrani Bank and retired as a General Manager                                 of Bangladesh Krishi Bank.                    maswood@hotmail.com