Trump to Unleash Hell on Europe?

Europe has announced a special trade channel called Instex. This allows European firms to avoid SWIFT and bypass U.S. sanctions on Iran.

Instex is now operational and facilitates transactions between European and Iranian companies. There is no actual money-transfers between European and Iranian banks. Germany, France and the U.K. finalized the Instex system in January to allow companies to trade with Iran without the use of the U.S. dollars or American banks. They are also working to open Instex to more economic operators from third countries.

Some of the Iranian MPs however oppose the trade mechanism. Instex is mainly intended at facilitating the trade of basic goods such as food and medical products, but not oil sales. The MPs think that the mechanism would only be effective if it allows oil to be imported from Iran. No matter how, with the operation of Instex, the USD status as a global reserve currency could be threatened.

On May 7, the U.S. Treasury Department issued a statement saying “entities that transact with the Iranian regime… expose themselves to considerable sanctions risk…” The U.S. ire was sparked by cracks appearing in the dollar’s reserve status.

Without reserve status, and with more countries emboldened to use Instex, the U.S. hegemony on U.S. dollars as the de facto currency of world trade will collapse. That’s a disaster for a currency no longer backed by gold or sheer trust. It would mean U.S. printing of dollars will no longer be an acceptable way out of a situation. As the world moves to transact less in dollars, U.S. influence on trade, bank payments and settlements become both irregular and irrelevant. U.S. influence in finance and hence politics will diminish. More so, if China, Russia, Europe and India opt out of the once mighty dollar.

It may be time for China, India and other Asian nations to develop their own payment mechanism without the USD. It is feasible from a payment mechanism point of view but could prove politically unacceptable.

How will Trump react? Fire and Fury? Tariffs? Sanctions? But it will be too late! A new economic idea has begun!

Reference:

1. Trump To Unleash Hell On Europe: EU Announces Channel To Circumvent SWIFT And Iran Sanctions Is Now Operational, Tyler Durden, ZeroHedge, 28 June 2019

2. INSTEX Worthless Without Oil Import, Financial Tribune, 03 July 2019