Swift code bank logo is displayed on an iPhone 6s on top of Euro banknotes in this picture illustration made in Zenica, Bosnia and Herzegovina, January 26, 2016.   REUTERS/Dado Ruvic/File Photo
The SWIFT logo displayed on an iPhone on top of Euro banknotes. Reuters/Dado Ruvic

A major reason the global trading and financial system is at risk is US dollar hegemony, allowing Washington to impose sanctions on any nation that does not toe America’s line or that carries out activities that the US government deems threatening to its national interests. US President Donald Trump imposed sanctions of any nation that buys Iranian oil or does business with the Islamic Republic, causing hardship for Iran and the countries buying its energy. European enterprises were in effect barred from investing in or selling products to Iran, undermining their financial prospects and pushing the European Union’s member states into prolonged periods of economic stagnation. Not being able to sell its oil or receive foreign investment are slowing down if not destroying the Iranian economy.

This is just one example of the many US sanctions imposing on countries around the world. They all have devastating effects, prompting some victimized nations to de-dollarize. Russia and China are using each other’s currencies for trade and investment. Russia is even seeking non-dollar loans and stockpiling gold. The latest de-dollarization attempt is the establishment of an alternative payments systems proposed by China, Russia and the EU.

The proposal was to bypass the US-dominated SWIFT payment system, which must go through US financial institutions and therefore is subject to American laws even if the transactions might have nothing to do with the US. Such blatant abuse of US power has put the world economy and financial systems in jeopardy.

For example, US sanctions imposed for corruption, human-rights abuses and land policies (taking land away from whites) probably contributed, at least in part, to Zimbabwe’s hyperinflation and perpetual poverty. Unable to mount economic enhancement programs rendered the African country unable to repay loans as well as worsened its people’s economic plight, jeopardizing the international system and the region’s geopolitical stability. Many Zimbabweans were forced to seek a better life in neighboring countries, causing racial tensions between the migrant and local populations and governments.

Without an alternative payment system to SWIFT, the US will likely continue exercising extraterritoriality, subjecting the world to its laws and threatening sanctions on nations that would not toe its line, thereby risking the global economic and financial systems.

In this regard, the world should support China, Russia and EU for proposing an alternative payment system using their currencies for trade transactions. If it materializes, it could enhance and stabilize world trade and financial markets. An alternative payment system could render US sanctions ineffective, freeing nations to promote trade and investment. As reserve currencies, the world could also take yuan- and/or euro-denominated loans, bypassing the US-controlled International Monetary Fund (IMF) and World Bank and their counterproductive loan conditions, such as requiring borrowers to implement austerity programs in periods of economic slowdowns or recessions.

Besides, China is the largest trade partner to some 120 countries around the globe, thus using the yuan to settle transactions is not only feasible, but would also be efficient, because that would would avoid currency-exchange costs and volatility. This, in part, probably explains the success of China’s Belt and Road Initiative.

Trade between China and the more than 80 countries (and counting) that are participating in its BRI has increased strongly, culminating in more than US$6.5 trillion in 2018 in part because the yuan was the major medium of exchange

According to Chinese government statistics, trade between China and the more than 80 countries (and counting) that are participating in its BRI has increased strongly, culminating in more than US$6.5 trillion in 2018 in part because the yuan was the major medium of exchange. Additionally, hundreds of billions of yuan were invested in the participating countries, culminating in a “win-win” situation because all parties gain in terms of economic growth and increase in trade.

As the BRI experiences demonstrated, the world can not only survive but also prosper without the US dollar. This, in part, explains why the US government’s harsh policies against China failed despite Trump claiming the contrary. Instead of stifling BRI, increasing numbers of nations, including US allies, are joining it or expressing interested in doing so.

Furthermore, diluting the importance of the greenback could force the US to be a more responsible stakeholder, cooperating with rather than threatening other nations to get its way. This is not only because of an alternative source of money, but even the most hawkish US politicians would not risk a nuclear holocaust to stifle a non-greenback payment system as proposed by China, Russia and the EU.

Taking the “de-dollarization” debate to its logical conclusion, an alternative payment system would promote and strengthen the global economic and financial systems. In the absence of US dollar hegemony and therefore extraterritoriality, countries would be able to pursue their rights of self-determination. Governments should and must pursue and maximize the interests or well-being of their countries and people.

However, establishing an alternative payment system requires strong political will and commitment from the participants to make it work. There will be no doubt that the US government would pressure or threaten its allies or foreign politicians not to go that route, just like it is spreading fear-mongering rhetoric about China’s “predatory economic practices” or “threat to freedom-loving countries.”

The US should view an alternative payment system not as a challenge to US supremacy, but simply as a way to enhance other countries’ economic and financial interests. Taking that line of thought would likely promote and strengthen the world’s economic and financial system.

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