IN HEFTY BNP FINE , A LESSON IN THE DOLLAR'S
GLOBAL MIGHT !
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....Even if you are a bank as gigantic as BNP PARIBAS ,
$ 9 billion is a lot of money. Shareholders of the French bank
know that all too well , as that is what they are paying in
penalties to the United States for a conspiracy to allow money
transfers to Sudan and other blacklisted nations.
The case is remarkable for the size of the penalty , which is
a bit more than the bank's 2013 earnings . But it may be
more interesting for the lesson it teaches about how the U.S '
financial power , goes hand in hand with its role in foreign
affairs. In short : The dollar is the global reserve currency ,
the bedrock of the world financial system . And that role gives
the U.S surprising power over what happens in the world ,
even in spheres that would have little to do with finance.
In the case of BNP , the French bank was accused of ( and has
now admitted ) facilitating transactions with Sudan , Iran and
Cuba. These were engineered out of its Geneva office , which
covered up transactions with Sudan.
Yet it is now facing a huge penalty and the forced
resignations of 13 executives , who may be banned from the
banking industry , because of actions taken from the Justice
Department , the Fed and the N.Y State financial regulator.
In other words , a French bank must comply with U.S foreign
policy , which led to economic sanctions on those nations ,
or it will pay a very high price.
And for BNP , or really any bank of any size around the world ,
there is no choice but to comply .
The dollar is by a wide margin the currency used most for
international trade and for foreign governments , wealthy
individuals or corporations looking to park cash.
If you are a bank in Paris or Sao Paulo , Brazil , you cannot
really serve your clients unless you are able to connect them
to the global market for dollars. And you cannot do that
unless you are in good standing with U.S regulators.
This unique form of power will not necessarily last for ever .
A century ago , the British pound had the dominant global
role now held by the dollar.
But the potential rivals for this position have problems of their
own . The Euro is only a couple of years removed from an
existential crisis.
China is pushing to internationalize the renminbi , and while its
currency is being used more for trade within Asia , it has a long
way to go to become a truly global currency.
As a practical matter , as long as all roads to the global
financial system lead through N.York and the dollar-based
payments systems , Americans will have a leg up in the
international affairs that other countries may not like very much, but
cannot really do anything about.
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