Iran Sanctions to Undermine Dominance of US Dollar: European Diplomats

The issue has come up as the Trump administration considers aggressive sanctions aimed at expelling Iran from the international banking system. As the deadline for sanctioning Iran’s oil industry approaches, the spotlight has shifted to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an entity led by representatives of major banks from the world’s 10 largest economies that helps banks around the world communicate with each other on transactions.

The United States doesn’t control the global group, but Trump could threaten to ban those board members from working in the US financial system if they help Iranian banks defy US sanctions.

That move is potent because SWIFT facilitates global and local financial flows by providing the financial industry a secure way of communicating. By pressuring SWIFT to expel Iran from the network, the US could significantly damage Iran’s economy.

But that possibility is also raising questions about how the world might react. One Western diplomat said the move could be enough to accelerate talks about the need for alternative systems that don't rely on the US dollar and US policy, a move that could eventually end up hurting the US dollar.

“At the moment, sanctions are effective because of US financial dominance as the global reserve currency — forcing SWIFT out of Iran could incentivize China or Russia to establish their own SWIFT system, which is not in any of our interests,” the diplomat told the Washington Examiner.

“What is going on with SWIFT could also be applied to Russia or China,” a European diplomat said. “And then what is going to happen to the financial system as a whole?”

Despite those warnings, many Iran hawks in Washington are eager to pressure SWIFT to stop dealing with Iran.

"SWIFT sanctions are a necessary move to keep the renewed U.S. sanctions airtight,” US Rep. Peter Roskam, R-Ill., said. “Without SWIFT sanctions, Iran would have a far easier time withstanding or avoiding our re-imposed sanctions.”

Russian President Vladimir Putin has stoked fears that the US dollar would be weakened if it went too hard against Iran.

“We are seeing what is happening with the sanctions that are essentially illegal restrictions,” Putin said during a July diplomatic summit in South Africa. “I believe this is a big strategic mistake on their behalf because they are thus undermining confidence in the dollar as a reserve currency. This is the bottom line.”

The US president announced on May 8 that Washington was walking away from the 2015 nuclear agreement, officially known as the Joint Comprehensive Plan of Action (JCPOA), despite warnings from other parties to the deal, including Washington’s allies.

Trump also said he would reinstate US nuclear sanctions on Iran and impose "the highest level" of economic bans on the Islamic Republic.

The JCPOA was reached in July 2015 between Iran and the five permanent members of the UN Security Council - the United States, Britain, France, Russia and China - plus Germany.