Europe’s SPV: Challenging the dominance of the dollar

Finally, the dominance of the US in the international money exchange system is being challenged

US President Donald Trump
US President Donald Trump

The news that hit the headlines this week was the reaction to Donald Trump’s opening volley when he addressed the UN general Council last Tuesday.  

He started off with a recap of his accomplishments, declaring that his administration ‘has accomplished more than almost any administration in the history of our country’, a declaration that drew the laughter of the audience that included so many world leaders.  

President Donald Trump went on to reassert his “America First” perspective, chastising regimes in Iran and Venezuela and offering a blunt rejection of the multilateral underpinnings of the very body he addressed.  

But, for me, the more important news from New York was the story that the EU is planning a ‘special purpose vehicle’ to establish an independent payment channel allowing European and other companies to legally continue financial transactions with Iran while avoiding exposure to US sanctions.  

Finally, the dominance of the US in the international money exchange system is being challenged.  

The move is a direct reproach to President Trump’s policy on Iran and his unilateral decision to withdraw from the nuclear agreement in May, and sets the stage for a serious confrontation between the US and Europe.  

On Wednesday, Federica Mogherini, the High Representative of the EU for Foreign Affairs and Security Policy and Javad Zarif, Iran’s Foreign Minister, announced the setting up of a ‘special purpose vehicle’ (SPV) after a meeting at the UN of the parties committed to the deal Iran, the EU, the UK, Russia and China.  

According to Mogherini the new SPV ‘will mean that EU states will be setting up a legal entity to facilitate legitimate financial transactions with Iran, and this will allow European companies to continue trade with Iran.’ The challenge to Trump could not be more obvious.  

Mogherini insisted that Iran has fully committed to its obligations under the nuclear agreement that was reneged unilaterally by the US. The new mechanism will facilitate payments related to Iran’s oil trade, exports and imports and ‘reassure economic operators pursuing legitimate business with Iran’ meaning that such transactions would bypass the US.  

The system will enable the world’s economies to trade with each other fully independent of SWIFT (Society for Worldwide Interbank Financial Telecommunication) the largest financial messaging system in the world.  

In this manner, Europe will provide an infrastructure that guarantees that transactions would not be reported to American regulators.  

This move strikes at the heart of the current economic and financial system which is held together by the dollar. By providing an alternative, the stage is set for what potentially could be the ascendancy of other global reserve currencies, and/or a world of bilateral trade agreements that bypass both the US Dollar and SWIFT entirely. Washington’s ‘veto powers’ on global trade will then be a thing of the past.  

This piece of important news that was lost in a cacophony of irrelevancies means that the EU is launching a credible challenge to the global dominance of the US dollar.  

Bloomberg columnist Leonid Bershidsky interprets this move as one showing ‘Europe finally having an excuse to challenge the dollar’. He concluded his column by saying; ‘No currency’s international dominance has lasted for ever, and there’s no reason for the US dollar to be the exception to this rule’. 

Even more telling, he continued: ‘Trump’s confidence in his ability to weaponise the dollar against adversaries and stubborn allies alike could eventually backfire for the US as efforts to push the dollar off  its pedestal grow ever more serious.’  

The new SPV would be a global means to avoid idiotic US sanctions. It is absurd for one person, in this case Trump, to decide single-handedly a sanction policy for the entire world.  

The push for such a channel reflects growing calls in countries such as France and Germany for the EU to adopt tools that will allow it to pursue its foreign-policy goals with less recourse to an unpredictable US ‘ally’. 

The decision to set up the so-called SPV coincides with a new EU push for a stronger international role for the euro.  

Meanwhile, Trump has warned countries they had to choose between doing business with the US, the world’s largest economy, or Iran. The administration deployed teams of officials from the departments of Treasury and State to lay the groundwork for the re-imposition of sanctions previously lifted under the nuclear agreement with Iran, targeting industries ranging from energy to chemicals to clothing.  

“To keep the deal alive we need concrete solutions so that payment channels can be kept open and trade with Iran remains possible,” German Foreign Minister Heiko Maas said after the meeting in New York. “We’re working hard on this with our European partners.”  

On the other hand Javier Solana, a former Nato secretary-general and EU foreign envoy who was a long-time promoter of diplomacy with Iran, thinks that the US’s international financial clout means Europe’s efforts are unlikely to bear much fruit. 

“The power of the US today is not military, it’s the dollar,” Solana said earlier this month in an interview in Madrid, “They squeeze you out.” 

Late in the day  

Writing in his blog on the Malta Independent website, former Labour leader and Prime Minister, Alfred Sant, joined the large number of objectors to the planning permit given for the so-called massive ‘db project’ in Pembroke by saying it was a “huge mistake” and a “disaster” in terms of public interest.  

Labour MEP Alfred Sant
Labour MEP Alfred Sant

His objection, really, was not on planning grounds or to the permit as such, but to the transfer of public land to the developers. In fact, he depicted the project as ‘part of a series of disasters in terms of the public interest that have included among others Chambray, Tigné Point and Smart City.’  

In that sense, Sant’s volley came a bit late. It should have been launched when the terms of the transfer of the land were made public.  

Even those who disagree with Sant’s opposition to the project as a matter of principle, think that, in this case, public land was given away for peanuts.  

Sant is no stupid man and his using the news of the PA permit approval to criticise somewhat late in the day the transfer of the land to the developers makes his criticism less honest than it seems to be.