By Khalid Hussain
The United States of America appears to have cast all legality aside in a new move to penalize Iran. First, the ostensibly independent Society for Worldwide Interbank Financial Telecommunication (SWIFT) illegally cut a raft of Iranian banks—including the Central Bank of Iran—off from its system last week under pressure from the US to do so. This cut Iran from the international banking system as no bank transfers can take place without using the SWIFT routing codes.
Anticipating this, as reported by Asia Times last week, Tehran has turned to crypto. “Stablecoins” value can be pegged to fiat currencies or to exchange-traded commodities such as gold, silver, and other precious and industrial metals and commodities. These can also be centralized where they can be backed by fiat and exchange-traded commodities directly, or in a decentralized fashion via leveraging other crypto-currencies.
It, therefore, sends chills down all sovereign spines that the blockchain currency phenomenon appears to have suddenly gone under with all major cryptocurrencies registering massive losses. The coincidence is too much to believe to have happened without political string-pulling in the crypto markets behind the scenes.
On the illegal move forcing SWIFT to cut off Iran, US Treasury Secretary Steven Terner Mnuchin said the move was “the right decision to protect the integrity of the international financial system.” Economists hold that while the global economy is too big to be badly affected by the move, the exclusion of Iran emphasises the danger of using a single national currency as the means for international payments. The USA is simply too to refuse its bullying in what should be an impartial means for monetary transactions between countries. This is a biased system thanks to the American delegation that went to the 1944 Bretton Woods Conference, where the rules of the post-WWII economic order were decided. It is doubly ironic that the US killed the multilateral system with the Nixon Shock in 1970 yet it continues to push for the old Bretton Woods rules that play in American hands!
The SWIFT ban is a wakeup call to other countries. The RT channel owned by Russia holds that the US has gone rogue, and cannot be allowed to dictate economic or political policy to the rest of the world. Hence it advises the “sooner the rest of the world develops an alternative payments system, the better.”
The US has now fully reapplied sanctions that were lifted under the 2015 Joint Comprehensive Plan of Action (JCPOA), or Iran deal, dealing a hammer blow to the Islamic Republic’s economy. In the absence of a global overhaul to the current payments system, Iran will pay a high price. Now, unable to receive payments for its oil exports—which account for 60 percent of the country’s total exports—Tehran faces a substantial recession ahead.
Meanwhile, the use of bitcoin for commercial payments has dropped dramatically this year. This has happened even as the original digital coin starts to fulfill one of the basic features of any payment currency: stability. Blockchain researcher Chainalysis data shows the value of bitcoins handled by major payment processors has shriveled nearly 80 percent in the year to September. This suggests the severe pressure cryptocurrency has been under to mature from being a speculative asset to a serious alternative to state-issued money. Of course, America cannot cotton to that. So it is interesting to note Bitcoin slumped on this to its lowest this year, tumbling as much as 10 percent and taking losses in the world’s best-known digital coin to 25 percent within a week.
The United States has put into effect the harshest round of sanctions on Iran to date. Blackballing Iran of SWIFT means scaling back Tehran’s ability to do business with foreign entities significantly. As a result of these sanctions, and mounting pressure from the Americans, SWIFT cut off services to Iran’s Central Bank. Although SWIFT is a Belgium-based company, yet its biggest clients are in the United States. This means it is exceedingly difficult for SWIFT to not to take American threats seriously.
The sanctions are part two of the U.S. campaign stemming from the withdrawal from Joint Comprehensive Plan of Action (JCPOA). There has been a severe criticism of the unilateral American violation of the JCPOA from other world powers. China and Russia, have stated that they will continue to do business with Tehran, buying and selling goods in euros instead of dollars. European countries, however, are largely reliant on SWIFT, and without it, lack a sustainable means to make or receive payments from Iran.
Germany has been the most vocal about the new sanctions, with Heiko Maas, German foreign minister saying: “Europe should not allow the US to act over our heads and at our expense. For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system.”
France’s Finance Minister, Bruno Le Maire, joined the call to action, stating: “With Germany, we are determined to work on an independent European or Franco-German financing tool which would allow us to avoid being the collateral victims of U.S. extra-territorial sanctions, adding “I want Europe to be a sovereign continent, not a vassal, and that means having totally independent financing instruments that do not today exist.”
Though little progress has been made towards a SWIFT alternative, it’s clear that the European Union is getting fed up with U.S. overreach in the geopolitical space and getting more aggressive in its plans to move away from the U.S. dollar and U.S. controlled payment instruments.
Leaders in the European Union have mulled creating an alternative payments system to bypass US sanctions and keep the JCPOA alive. However, such a solution still remains in the works and cannot materialize immediately. The American illegal moves to penalize Iran might spur them into action. Once approved by the EU, SWIFT could then be advised to work with the European Union, Russians and Chinese to set this up as soon as possible.
Khalid Hussain is Resident Editor of TLTP – You may contact Khalid Hussain at Resident.Editor@tltpnews.com.pk
The Law Today Pakistan, commonly known as TLTP, is the largest news wire service, headquartered in Islamabad. The service is providing fast, comprehensive and verified news on superior courts adjudications, regulatory framework of fiscal, monitory and external sectors, economic regulatory bodies amid apex institutions regulating the financial system. TLTP is empowering readers of more than 12 national English dailies in the country.