The U.S. had previously banned Iran from the dollar payments system (FedWire), which it controls, but Iran turned to SWIFT to transfer euros and yen in order to maintain its receipt of hard currency for oil exports.
In 2013, the U.S. successfully kicked Iran out of SWIFT. This was a crushing blow to Iran because it could not receive payment in hard currencies for its oil.
This pushed Iran to the bargaining table, which resulted in the Iran nuclear deal with the U.S. and its allies in 2015. Now Trump has negated that U.S.-Iran deal and is putting pressure on its allies to once again refuse to do business with Iran.
And Congress is again pushing to exclude Iran from SWIFT as part of a sanctions program.
The difficulty this time is that our European allies are not on board and are seeking ways to keep the nuclear deal alive and work around U.S. sanctions.
Europe’s solution is to therefore create new nondollar payment channels.
In the short run, the U.S. is likely to enforce its sanctions rigorously. European businesses will probably go along with the U.S. because they don’t want to lose business in the U.S. itself or be banned from the U.S. dollar payments system.
But in the longer run, this is just one more development pushing the world at large away from dollars and toward alternatives of all kinds, including new payment systems and cryptocurrencies.
It’s also one more sign that dollar dominance in global finance may end sooner than most expect. We are getting dangerously close to that point right now.
- Source, James Rickards via the Daily Reckoning
