International counseling to replace dollar by euro for trading with Iran

, , , ,

SHAFAQNAFollowing US restrictions on global trading with Iran, international counseling has started to replace dollar by euro for trading with Iran. If it happens, this motivation is one step forward to free Europe from excessive dependence on dollar.

In recent months, since US President Trump made global headlines with his announcement that the U.S. would no longer participate in the Iran nuclear deal, and withdrew the U.S. from it, international attention has shifted to new priorities.

The U.S. has started taking key steps to ramp up economic pressure on the Iran, including imposing new sanctions. Having unilaterally reimposed sanctions on Iran, US President Donald Trump’s administration is threatening to penalize companies doing business with the Islamic Republic by denying them access to US banks.

In response to the Trump administration’s stance, European leaders announced the plan had been fine-tuned and that payments to Iran could also be processed in a way that made them far less dependent on American dollars.

In public, they project confidence in the ability to evade US sanctions. In private, however, they concede the scheme largely depends on SWIFT keeping Iranian banks connected to its system. Infighting in US administration is continuing on cutting or preserving Iran’s access to SWIFT global payment network, ahead of the implementation of new economic sanctions against the Islamic Republic in November. European finance ministers will try to persuade the Trump administration not to cut off Iran’s access to Swift.

The Trump administration is due to reimpose hefty sanctions against Iran on November 4, including secondary sanctions on financial messaging services to the Central Bank of Iran and some Iranian financial institutionsn, financial times reported

As reimpostion of the second round of US sanctions draw near, European finance ministers will try to persuade the Trump administration not to cut off Iran’s access to Swift, the global financial messaging service, in meetings with Steven Mnuchin, the US treasury secretary, at the IMF gathering in Bali this week.

“Our ask is why bother ripping out all of the electrical cables from a building if you can switch off a light,” a European diplomat who confirmed the planned meetings has told the London’s Financial Times. If you can designate a bank [for sanctions] then there’s no need to force Swift to disconnect from Iran.” The disagreement over Swift was heading for “a diplomatic train wreck”, according to another person familiar with the matter. European officials who met US officials last month to ask for leniency have so far drawn a blank. “We did a démarche to the administration, but it was a complete blockage; they didn’t listen to our argument,” said a second European official.

Pushing for Iran to remain connected to the Swift banking system

This is while an internal battle is being fought inside the Trump administration to save Iran’s access to international financial markets, providing Tehran with a critical lifeline ahead of the implementation of harsh new economic sanctions, according to multiple US officials who spoke to the Washington Free Beacon.

Top officials in the Trump administration’s treasury department—including some who hope to save the landmark nuclear agreement—are said to be pushing for Iran to remain connected to the Swift banking system, an international system that facilitates cross-border transactions.

Swift leaders were in Washington last week holding meetings with Trump administration officials to ensure that Iran retains its access to the international banking system, which has helped keep the Iranian economy afloat as European allies seek to continue doing business with the Islamic Republic, according to US officials familiar with the situation.

The fact that dollar is used widely makes things so difficult

In response to the Trump administration’s stance, Germany, France, and Britain, together with Russia and China, have announced plans to circumvent the dollar, US banks, and US government scrutiny.

Plans may be a bit strong, given that few details have been provided. But the three countries have described in general terms the creation of a stand-alone financial entity, owned and organized by the governments in question, to facilitate transactions between Iran and foreign companies. Those companies will presumably settle their claims in euros, not dollars, freeing them from dependence on US banks. Is this scheme viable? While there is no purely technical obstacle to creating an alternative payments channel, doing so is certain to enrage Trump, who will presumably respond with another round of tariffs against the offending countries. Such, unfortunately, is the price of political independence, at least for now.

The fact that the dollar is used so widely makes doing so difficult. Banks and companies prefer using dollars because so many other banks and companies use dollars and expect their counterparties to do likewise. Shifting to another currency would require coordinated action. But with the governments of three large European countries having announced just such coordination, such a scenario can no longer be excluded. It is worth recalling how dollar gained international prominence in the first place. Before 1914, it played essentially no international role. But a geopolitical shock, together with an institutional change, transformed the dollar’s status, project-syndicate.

If Iran receives euros rather than dollars

If the geopolitical shock of Trump’s unilateralism spurs an institutional innovation that makes it easier for European banks and companies to make payments in euros, then the transformation could be swift . If Iran receives euros rather than dollars for its oil exports, it will use those euros to pay for merchandise imports. With companies elsewhere earning euros rather than dollars, there will be less reason for central banks to hold dollars in order to intervene in the foreign exchange market and stabilize the local currency against the greenback. One motivation for establishing the euro was to free Europe from excessive dependence on dollar.

 

Read more from shafaqna:

Araqchi: Europeans should implement mechanisms of banking and trade transactions to Iran before November 4

Major powers agree to continue trade with Iran despite U.S. sanctions

JCPOA and the future of international relations

 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *