US Fines a Bank in France and It Pays the US the Fine
|July 5, 2014||Posted by Staff under Editorials|
This 2014 excerpt of the New York Times, Jly 1, is by Neil Irwin.
French bank BNP Paribas is paying $9 billion in penalties to the United States for a conspiracy to allow money transfers to Sudan and other blacklisted nations. The penalty is a bit more than the bank’s total earnings for 2013.
The dollar is the global reserve currency. That role gives the United States power over what happens in the world even in spheres that would have little to do with finance. In other words, a French bank must comply with United States foreign policy, which set economic sanctions on those nations, or it will pay a very high price.
The dollar is by a wide margin the most widely used currency for international trade and for foreign governments, wealthy individuals, or corporations looking to park cash. If you are a bank in Paris or Jakarta or São Paulo, you can’t really serve your clients unless you are able to connect them to dollars. Sudan or Iran cannot easily gain access to the global financial system by going to a bank in a more sympathetic country.
President François Hollande of France reportedly gave President Obama an earful about the looming BNP Paribas penalty in a recent meeting.
This unique form of power the United States possesses won’t necessarily last forever. A century ago, the British pound had the dominant global role now held by the dollar.
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. (Among other things, China would need to develop a much deeper market for bonds denominated in its currency than now exists, and start allowing the freer transfer of capital into and out of the country.)
But as a practical matter, as long as all roads to the global financial system lead through New York, and the dollar-based payments systems, the US elite will have a leg up in international affairs that other countries may not like very much, but can’t really do anything about.
Ed. Notes: The dollar rules not just because the US and its economy is the biggest but also because the US, for all its faults, is still less corrupt and more reliable than other big nations, like China, Russia, India, and Brazil. If any place wants to supplant the US, all it has to do is get along with its neighbors — practice free trade with them — and treat its own people honestly and fairly — honor contracts and uphold fair laws. Wouldn’t that be a great way to compete? Be more cooperative!
Once a number of currencies reach parity with the dollar, then perhaps they will agree to create a truly global, non-national currency, that would be moderated by a world bank or the UN or whatever agency proves itself to be the most honest and competent.
It might become harder for anyone to impose financial sanctions. Then, instead of penalties, America might improve the behavior of other countries by first improving its own and setting a better example. America could geonomize — create a perfectly fair and efficient economy — and the rest of the world would probably quickly copy what works, just as now they copy American music and fads.