Many observers have become unduly excited about what they depict as efforts to break the dollar hegeomony, such as the joint effort by the so-called BRICS nations to form a development bank. While having a suite of internationals funding entities, particularly ones focused on activities that in theory increase the collective benefits of relying on a reserve currency, are seen to be important, it does not follow that launching useful new funding institutions will break dollar dominance. As much as US abuse of its position as issuer of the reserve currency is correctly resented, there isn’t a competitor waiting in the wings. The Eurozone has blown it with its failure to clean up even sicker banks than the US has, and by compounding a bad situation with its adherence to destructive austerity policies. China clearly has the potential to displace the US longer-term, but it is unwilling to run the requisite trade deficits, since that means exporting demand and hence jobs. And no country had made the transition from being a major exporter to being consumer-driven smoothly; a crisis or protracted malaise would also delay China displacing the US as currency top dog.
But not being able to get rid of the dollar any time soon does not mean that countries that the US is trying to punish by using its influence over international payments system won’t find nearer-term escape routes. Russia, which has become America’s enemy number one apparently for its sins of interceding in Syria, (when Congress was firmly opposed to military action), successfully standing up against a US-backed coup in Ukraine, of collaborating with Iran, and harboring Edward Snowden, has become the target of increasingly stringent economic sanctions. The ones that really bite are those aimed at Russian banks, which have foreign currency exposures, and have used foreign capital markets to issue debt and equity.
Russia today announced that it plans to launch a new payments system so that it will no longer need to use the payments system SWIFT. From RT:
Russia intends to have its own international inter-bank system up and running by May 2015. The Central of Russia says it needs to speed up preparations for its version of SWIFT in case of possible ”challenges” from the West.
“Given the challenges, Bank of Russia is creating its own system for transmitting financial messaging… It’s time to hurry up, so in the next few months we will have certain work done. The entire project for transmitting financial messages will be completed in May 2015,” said Ramilya Kanafina, deputy head of the national payment system department at the Central Bank of Russia (CBR).
Calls not to use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system in Russian banks began to grow as relations between Russia and the West deteriorated over sanctions. So far, SWIFT says despite pressure from some Western countries to join the anti-Russian sanctions, it has no intention of doing so…
SWIFT, is currently one of Russia’s main connections to the international banking system, and if turned off, could hurt the Russian economy, in the short-term. Globally it transmits orders for transactions worth more than $6 trillion, and involves more than 10,000 financial institutions in 210 countries. According to SWIFT’s statute, the system has national groups of members and users in each country. In Russia it’s ROSSWIFT – the second biggest worldwide SWIFT association after the US.
I welcome reader comment, but I believe there are two issues here. First is that even though SWIFT is still open for business with Russia, it could be cut off at a future date. It can’t have escaped Moscow’s attention that Iran’s central bank and most other major banks were barred from SWIFT in 2012. From the Wall Street Journal:
The European Union said it was banning any kind of financial transactions with blacklisted Iranian financial firms, but U.S. policy makers made it clear they would keep up pressure for wider action.
The Belgium-based Society for Worldwide Interbank Financial Telecommunication, or Swift, a financial communication and clearing system used by most of the world’s major banks, said it would comply with the EU order.
The ban applies only to Iran banks that the EU has placed on a sanctions blacklist. They include Iran’s central bank and more than a dozen other firms.
The U.S. Congress, meanwhile, is asking transactions with all Iranian banks to be ended, and is threatening penalties against Swift’s board and directors if they don’t cut all ties with Iran’s financial sector. U.S. lawmakers argue that Iran is shifting funding for its nuclear program out of the sanctioned banks into other firms.
Second is that setting up a payments channel outside SWIFT can enable Russia to establish a financial system for those who don’t want to be subject to US dictates. Banks that did business with Iran, both before and after the SWIFT sanctions, were hit with money-laundering sanctions. The payments were dollar payments and were cleared thought the banks’ New York branches, making them subject to US law. All dollar transactions between banks are settled at the end of the business day in New York; interbank payment systems ultimately depend on a central bank backstop, and many large payments run over the Fed’s interbank system, Fedwire. So there’s no way of engineering around this issue, at least as of now. Benjamin Lawsky, New York’s superintendent of financial services, threatened to yank the license for the New York branch of the first miscreant he dealt with, Standard Chartered.
Federal and British regulators were outraged over his move, but Federal regulators swiftly recognized that Lawsky had done them a huge favor. They vastly upped the ante when they went after other foreign banks that were defying the US by doing business through US payment systems with blacklisted foreign countries. Lawsky fined Standard Chartered for $340 million in 2012 and the Federal fines were an additional $327 million. As staggering as that was deemed to be at the time, it paled next to the $8.9 billion in fines plus criminal charges against BNP Paribas earlier this year. (Lawsky also hit Standard Chartered with a $300 million fine in August for continuing compliance failures.)
But many foreign banks, and even foreign regulators, were incensed by the magnitude of fines the US imposed for money laundering (as in using the US payments system to conduct transactions with verboten parties). French newspapers and politicians howled over the $8.9 billion fine against BNP Paribas. If the Russian payment system works (as in is NSA-proof, you can bet the US will set its best hacking talent against it), it would allow banks like BNP Paribas and Standard Chartered to deal with Iran. It would likely please them no end to get a bit of revenge on the US that way.
In addition, there are likely businesses in Europe that are not keen about how complying with the EU sanctions against Russia is hurting their business. It isn’t clear how many would be willing to walk on the wild side and defy sanctions, but processing transactions through a Russian-controlled payment system would be far less susceptible to detection than through SWIFT.
In other words, this measure is intended to reduce the effectiveness of using the dollar dominance in payments as a weapon. Whether the Russians can launch a robust enough system quickly is an open question, but this is a sensible defensive and potentially offensive measure. It may have longer-term ramifications if other countries that are not happy with the US decide to employ it for practical or political reasons. Stay tuned.
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Well, let’s go to basics. What’s a payment system? It’s a means of moving cash from A to B. Cash is an electronic record – but can be, at some times, “actualised”. If a bank has an account in currency X, it can mean only one of two things – ultimately, an account with a central bank that rules that given currency (bank will have a nostro at a correspondent bank in the right jurisdiction, who will have a nostro at the CB), or a vault full of cash.
SWIFT system is great to the extent that all CBs cooperate. If you set up a “hostile” payment system, you can reasonably clear only currencies of CBs that cooperate – or you need vaultfuls of cash, and that has its own risks (imagine if most of USD from Russia/China trade is in China’s CB vault – that’s a strategic weapon of its own..)
So even if Russia sets up a side-system, and ECB/BoE/Fed decides that any bank that they provide nostro to cannot transact via that system (in their currency), it takes out a large chunk of possible transactions. If China wants to trade with Russia in CNY/RUB, they can do it now outside SWIFT (not that easily but doable).
So yes, you can set up a system, the question is useability. If most people want/need to trade in USD/EUR, the system will be of little use I believe.
Correct, since as I indicated, payment systems depend on central bank backstops, and that requires that it be in the same currency.
However, this system will have the Russian central bank backstopping it, which greatly increases the viability of large transactions. And as we indicated, parties that want to do business now with Russia but might be afraid of detection via Swift will have an alternate channel.
Another way of looking at this is that Europe is taking an additional hit due to the sanctions. This route will facilitate evading sanctions. And the parties to participate will presumably transact with Russia in rubles, then do the conversion to whatever their currency is. That could have the effect of reducing Russia’s need for foreign exchange.
Russian CB can backstop USD transactions only to the extent of their USD reserves, assuming their USD reserves as held so that they can be kept outside of reach of US. Backing the payment system with RCB USD reserves also puts the participants in he system at political risk – if Russia needs to spend the part of the reserves for whatever reason, the backing of the system goes down. At some point, it can come between Russia self interests and the payments system, and the results is more or less inevitable (maybe not the first time, maybe not the second time, but sometime).
That said, China could set up an alternate USD system, where it would use it’s massive USD reserves as a “nostro” for all comers. The ability to do it would be much better (bigger vault), although ultimately whoever would do it would be at China’s mercy which I guess is not much different than US mercy.. But China, as opposed to Russia can’t easily get rid of its USD reserves unless it wants to devalue CNF (which it well may want, given what’s happening).
So, if China was coming with this, and said it would be used for their Africa/Asia trade, I could believe it – although even then it could prove to be hard to avoid US interference (should US wish). But picking a cold war with China over this vs. Russia would be much harder for US overall.
I never said they could or would backstop USD transactions. That is your straw man. I have no idea whether they want to do that on a small scale or not, but that was not part of the argument I was making.
To have any kind of serious payment system, you need to be the central bank for the currency issuer.
I am saying this makes a large transaction system in ruble viable. All sorts of FX desks do currency crosses. Any bank with a decent sized operation in London will do them. So you can swap out of ruble outside this system.
Now the issue is whether having a better ruble transaction system, a means to keep your identity more hidden if you are really paranoid (as in you are evading EU tier three sanctions) and you want to evade those sanction is enough to lead to more leakage around the European Tier III sanctions. I have to think it would, but whether or not it amounts to enough to make any real difference to Russia is very much up in the air.
The alternative, generally speaking, if you want to evade sanctions, is barter. This used to be a bread and butter activity for people like Marc Rich and Adnand Kashoggi. But that’s not considered to be viable for a decent-sized economy for any length of time.
yves, firstly apologies, you’re right and had it explicitly in the post. i was doing five things at once and missed it.
but to be honest, w/o usd or eur any payment system russia caomes with is irrelevant. iran can sell its oil for rubles right now if it wants, but it can’t use the roubles to buy what it then wants. sc/bnp can be still cut off usd clearing as a penalty even if they deal with iran in roubles.
trade needs payments system with multiple currencies, preferably ones that are unlikely to be subject to blanket capital controls (sanctions are realatively targeted, and hisorically not used that much until recently iirc), and that have good liquidity. cbs of states that would suffer the most from us tend not to meet the second two criteria.
that’s why i (wrongly) assumed it was about usd, since w/o it (or eur clearing) it’s a non starter i believe.
Iran’s central bank had been trading directly with Standard Chartered for its oil sales. Standard Chartered doctored those wires and did that (and other Iran and Sudan transactions) through its New York branch. Standard Chartered was absolutely furious that the US was telling them who they could and could not do business with and were even defiant while Lawsky was throwing the book at them.
Now with the SWIFT block against all the major Iranian banks, routing payments through another currency is a non-starter.
In theory, Iran could use a non-SWIFT network to get to a bank (or better yet, daisy chain it through a couple of institutions to better hide the customer of origin) to get to a bank where the rubles were converted to something more useful. The dollar is only the invoicing currency. You do have more FX risk, but Iran can buy what it needs abroad with Euros as well, it doesn’t need dollars per se, just a very well accepted foreign currency. So the question is how much British and Continental banks are willing to cooperate.
Well, I disagree with the “routing payments through anothor currency is a non-starter”. All it needs is a billateral agreement between Iran and Russia – in fact, all it needs is for Iran CB to open a rouble account in with Russia’s CB (or a bank). Not sure whether this is what your last para says though.
As you say, for Russia’s payment system to be of value, it needs to get UK/EU banks to play along. I doubt that they would, becasue it could end up with them being cut off SWIFT/USD clearing anyways, which is a non-trivial part of their business. In theory, you could have an EU bank that would not be on SWIFT, since it still would be on EUR SEPA (Single Euro Payment Area), so could act as gateway there. But again, to get all of that you don’t really need a full-flung payments system.
Thinking about it as I write, it could be that the Russian “system” could amount to a little more than streamlining the beaurocracy and providing some extra APIs to internal rouble clearing system to non-Russian banks, which could be done quickly – and then finding EUR banks that are willing to leave SWIFT (or never really needed it) and act as gateways into SEPA. That means that Iranians (or whoever) can buy whatever they want from EUR companies – as long as EU plays along and doesn’t cut off the little bank in the middle.
Note that then it still wouldn’t be “Russian” system, as it would depend on EU, and the ultimate power would rest with EU.
vlade,
Russia and China’s USD treasury securities are sitting in an account at the NY Fed. By law, USD can’t leave the US banking system. Russia and China could cash in their treasury securities and exchange the resulting reserves on the open market and wire their currency home, or they could buy US goods with the dough. That’s all they can do. [I think Russians have the highest number of physical USD in coffee cans and private safeboxes, but that’s not enough to run a country.]
The reason why Russia wants this alternate system is because Obama told the Fed to close access to Russia’s accounts. Not all of them, I’m sure, but they can identify accounts within the foreign banks. This was never allowed or planned in the original design for the Fed, but the US makes its own schoolyard rules on the fly. I think these sanctions could be seen in future as the beginning of the end of the reserve currency 20 years from now if US admins keep acting so stupidly, or provokes a war that builds their economies. But Yves is right, there is no way the USD is threatened now.
You can use the Treasuries as backstop for any USD accounts (which are just claims on USD). See eurodollar transactions which is how banks and others get around USD account regulations (In fact, eurodollar was set up explicitly to help Soviets access USD). But as pointed above, this wasn’t about USD anyways.
As I wrote above as well, for trade currency you need to be liquid and have reasonably small chance of blanket capital controls. The more US starts using sanctions (which for all terms and purposes are capital controls), the more attractivness of USD as a trade currency falls. If you have a common good, and you weaponise it, alternative will be found. But the alternative may be no RUB/CNF/etc., but a sort of free for all, which would be a massive drag on trade until a few major choices re-establish themselves (paradoxically, it could lead to trade currency based on a commodity). But those choices will still need to be highly liquid in volumes to support global trades, and with little to no blanket capital controls.
vlade,
Yeahbut, those treasuries stay physically in the US, as Frank N. Newman explains in his Freedom From National Debt. Newman was Deputy Secretary of the Treasury. He says it more than a couple of times: those financial instruments cannot leave the US banking system, by law. Since they are like fed govt CDs, there are in the buyer’s bank securities account at the Fed, including those of foreigners. [I have no idea what people did operationally when they were physically printed before April 2013 and they had to clip their coupons. Mail ’em in? ;-)] It is these securities accounts that Obama slapped sanctions on contra the agreement long ago to treat their assets there as we would ambassadorial residences and consulates.
I fully understand it. In fact, the treasuries are little more than a record in a computer somewhere. But that doesn’t mean you can trace beneficial ownership easily. I’m told that a lot of Chinese purchases, and a lot of Russian purchases in the recent years were run by less-traceable entities.
And, as I pointed out, while US is happy to slap sanctions on Russia, I doubt it would be willing to slap full-scale capital controls on China (if for nothing else, lots of US govt still thinks, despite all the evidence, that China is needed to finance the US deficit), as it would kill quite a few US companies immediately (just about any consumer electronic company..), and I doubt EU would follow as well, as China is a much bigger market for Germany than Russia.
While attempts to weaponise the financial system will ultimately hamper that very same system (not least because, as here, the potential targets will try to develop countermeasures), I really doubt this will function as it has been proposed by Russia.
The problem is, sooner or later, you need a SWIFT gateway. While transactions are movable within the alt-SWIFT system, eventually you need an institution who is willing to act as a hand-off between alt-SWIFT and SWIFT if you want to have endpoints in the “conventional” global financial infrastructure. That institution would, in a crisis, simply get labelled as a sanctioned entity and common-or-garden SWIFT-participating institutions would have to cease doing business with it. Otherwise, they’d face a threat of sanctions evasion.
SWIFT only acted against Iran, and then not as comprehensively as the US wanted. I agree the risk is still there, but it is one thing for Swift to cut off Iranian banks that are utterly inconsequential payment system players. If, say, Standard Chartered and Paribas decide to transact with Russia’s system out of general cussedness, there is no way they’d be cut off from Swift. And if the transactions aren’t routed through the US (and why should they be?), the US has no ability to impose sanctions.
And how could the US even prove this was happening? They do not have the right to inspect the books and records of foreign banks in foreign jurisdictions. The foreign banks that got caught on Iran etc. money laundering was on transactions done in their US branches, which are subject to US supervision.
The only way the US might find out is if the government hacked into US bank systems overseas. If you want to escalate the international outrage over US spying, that would be just the way to go about it.
The UK and Europeans are ripshit about what they see as US overreach, so the ECB is not likely to knuckle on this issue. They might give some minor face-saving concessions that they can play up into looking like more than they really are.
So per above, if any major UK or European banks decide to interface with this system, the Russians come out ahead and the US will find it hard to do much.
US can stop SC/BNP in transacting USD (replace US/USD) reasonably effectively, if they want to. It’s a nuclear choice though.
Effectively, they would say that anyone who provides USD nostro to SC/BNP will be denied USD nostro at Fed. No nostro, no currency transactions (except backed by real assets somewhere, preferably unonitorable by US gov’t).
Accounts go something like – your individual account is a sub-account in a bank’s “general retail account” (or equivalent), which in turn (via various) gets rolled into a nostro with the CB (directly or via a nostro at a correspondent). No nostro with CB, problems with having an account..
Of course, if you deny nostro to Citi to stop them doing nostro to BNP, then you kill Citi’s USD transactions too.. Nuclear winter all around.
Please read my comment above! Why do you keep straw manning what I wrote???? I NEVER said that this was about setting up a USD system in Russia. That is barmy except on a very trivial scale, say to accommodate Russian banks doing consumer level transactions, like FX with tourists (basically internal crosses in dollar). I make VERY clear in the post that any payment system needs to be backstopped by the central bank that is the lender of last resort in that currency. That means this would not be a USD system.
If transactions are in USD, and of any size, they will be cleared ultimately in New York and subject to US oversight. The whole point of this system is to get outside that payment regime.
Biggest things you foget:
1. Russia biggest trading partners are Europe and china. both have more than credible currency,both are hungry for oil.
2. US is not the top producers of goods and russia does not need to buy arabian oil with dollar.
3. Singapore+ hong kong total transaction is already bigger than NY. And hong kong might be bigger than NY in a decade if china gets their way. (China and hong kong direct connection electronic trade had barely begin. when that is done, NY will look like a poor village in bulgaria)
so Is there ANY reason the russian fundamentally need dollar? Push come to shove, the russian can always say: if You only accept dollar, how about if we give you Chinese Yuan + oil at 110% of dollar market value and do the transaction in Hong Kong of Shanghai.
Just remember, not only russian barely buys anything from US or need US dollar, They are also backed by CHINA geopolitically. (Mcdonald suddenly getting rough up in china and russia all of a sudden? Or chinese credit card now is defacto eurasian standard, etc etc.)
Dollar prospect in asia is already dimming considerably and entirely gone in Russia. That’s a huge market.
I don’t think that the country providing the world’s reserve currency necessarily has to run trade or current account deficits with the rest of the world.
For many years after the WWII the U.S ran current account surpluses and that certainly didn’t prevent the dollar from being the global reserve currency.
Bretton-Woods necessitated the U.S. run a trade surplus or balance so as to maintain the dollar’s value and avoid a gold run. It could not work any other way as countries wanted to maintain that state of affairs. Today they don’t want a trade balance with the U.S., they want to run trade surpluses.
“We can’t all trade our way out of this mess.” F24 debate, unknown commentator. But the common sense overrides all and everything. And besides which, and also too, and then – who cares?
A reserve currency is a reserve currency because it can be easily obtained and is easily tradable. The USD continues as a world reserve currency in part because it runs a trade deficit and the world is awash in dollars (easily obtainable). When Bretton Woods was erected the US knew it wanted to be the reserve currency but it also knew it had a trade surplus which means that the US economy would be sucking in US dollars. In order to make dollars easily obtainable the IMF and the World Bank were created. These two institutions STILL weren’t enough to ensure a strong supply of dollars existed which necessitated the Marshall Plan and all sorts of US financial and military aide to the world. So, yes a reserve currency can exist in the currency of a nation with a trade surplus but there must be institutions and mechanism to pump that currency into the wider world markets otherwise the trade surplus will eventually just suck that currency back into the coffers of the nation with the trade surplus.
Right.
China could perhaps keep its surpluses and have financial institutions provide yuan lending abroad, at cheap rates.
A reserve currency is a reserve currency because the rest of the world wants to net save in that currency; they consider it safe.
For a currency to become a reserve currency it is a precondition that everyone has it. The only that happens is a trade deficit:
http://cobblehillbilly.blogspot.com/2014/10/if-i-wasnt-clear-burden-or-privilege.html
While there is no single currency ready to step up to the challenge of acting as a reserve, what about the IMF SDR?
There is some chatter out there about a basket of currencies eventually replacing the dollar, by including the Euro, RMB and some others. This would provide a smoother transition.
Finally, a crack in the US facade of unquestioned universal hegemony. For the US it’s a poke in the eye suggesting that at least someone is willing to imagine that the US doesn’t get to call all of the shots all of the time. That’s liable to provoke a response directly proportional to its success. Another step down the road toward an eventual heavyweight showdown.
Will it work? Almost beside the point. The US is itching for a fight and Russia is making preparations accordingly. Good for Russia! They’re doing what the American voting public is apparently unwilling or unable to do at this point – stand up to its openly fraudulent government.
Best way for the American voting public to stand up to its openly fraudulent government is to stop voting. Once voter turnout reaches between 5-10%, the system will be effectively delegitimized and the lies about will of the people can stop. This would be the most peaceful way to go about reforming or replacing the current system once it is exposed as a captured process that serves only the few and not the many. It will be pretty hard to rule with a winning majority of only 3% of the available vote without exposing the election process as a sham. It would be fun to watch our banana republic officials claim huge voter turnouts numbers when, in fact, no one showed up at the polls. Voting is a lie we tell ourselves and the sooner we stop doing it the better.
Footnote: When voter turnout in Crimea reached 90% in the referendum recently, officials here called it a fraud, meaning they do not recognize any vote that disagrees with them no matter how large.
Without opening up that can of worms again, I agree and I didn’t. Watched a very insightful piece on Iraq II War Vets this morning on PBS while exercising. It gives me hope. The kids know what’s going on, even if for now they feel powerless to stop it.
” The US is itching for a fight [with] Russia… ”
I don’t disagree. But since the US no longer manufactures much it now buys its rocket engines from Russia.
A rhetorical question to US govt: does your right hand know what your left hand is doing?
http://www.theguardian.com/science/2014/may/15/us-space-military-programme-russia-sanctions
Good points. Ordinarily, I’d say when it comes to critical weapons systems at least, US interests are probably on the ball. But lately, I’m not so sure. The whole Ukraine misadventure, even with the presumed 10 dimensional chess calculations going on in the background, has thus far been an unmitigated nightmare. But who knows? Maybe they have a long game strategy yet to be revealed that will make us all swoon in respect when it’s finally revealed to us mere mortals.
“And no country had made the transition from being a major exporter to being consumer-driven smoothly”
I’ll say!
Good points have been made on why the US dollar isn’t going away, no matter how much we may want it to go away. I can’t help but suspect that it really is all about the Chinese. They understand “saving face” and have no wish to crash the dollar overnight. For one thing, the economic firestorm that would create might lead to the Chinese getting their fingers burnt too. Besides, who wants the responsibility of picking up the pieces and it all falls apart? However I believe a key part of Chinese thinking is their fear of the US military and what a desperate America might do if it lashes out. They’ve seen nothing but US irresponsibility for years now, and this while America gets its way. No one wants to see how American politicians behave when they don’t get their way(like the Snowden temper tantrum). Therefore providing the US with the softest landing possible is in the Chinese interest. if a soft landing is not possible then the next best thing is for the Chinese to keep kicking the can down the road.
Besides, who wants the responsibility of picking up the pieces and it all falls apart?
The Chinese understand what Americans have apparently forgotten: it’s a bitch being the hegemon. Our lives could be so much easier if we weren’t. But having “won” the cold war, we’re now a prisoner to its mentality. Now instead of one enemy, we have nothing but enemies, including it seems, ourselves.
Being a hegemon is absolute paradise for those people represented by the upward pointed red bar in Pavlina Tcherneva’s now-famous graph. Don’t forget to disaggregate, y’all!
It’s good work being a gazillionaire if you can find it.
I have been following sott.net “Puppet-Masters” here:
http://www.sott.net/category/16-Puppet-Masters
It frequently covers non-USD currency deals Russia, Iran, China, and others use to finance deals and projects. My impression is that these deals outside of USD are growing numerous and large.
While it is not nearly as good as Naked Capitalism and rarely includes links to support its articles and includes a lot of biased reporting (RT for example) it also includes good articles like Intercept, and gives a Russian perspective of world events…which is very very different than one gets reading U.S. media.
I am one of those folks that Yves talks about consistently tilting towards the fall of the US dollar, sooner than she thinks.
Yves, it is BRICKS now, not BRCS as you have it. Missing India is significant in my book because the BRICKS make up a preponderance of the world population.
I believe that China is also working with a German bank to set up an alternative clearing house.
I believe that there will be a rearrangement of the global financial structure within 5 years…..and yes, it is being done as “carefully” as possible so as to not cause the global plutocrats of the US empire to bring on nuclear winter as sore losers.
BRCS was a typo. I”ve been running on no sleep.
But it is BRICS, which is a change from BRICs, because South Africa is part of this deal.
I don’t expect you to keep up on everything but it now includes Kenya as well, I believe.
It is BRICKS until it is more
“If the Russian payment system works (as in is NSA-proof, you can bet the US will set its best hacking talent against it)”
Yeah, that isn’t a very smart thing for our Facebook friends (that we never knew we had… ^_^) to do. Messing with the national infrastructure of a foreign country isn’t a good idea and never has been. Combined with the general consensus that Russia was behind the JPMorgan hacking incident and this course of action could get out of hand real quick.
In 1982 the KGB allegedly stole software that manages the flow of natural gas pipelines. Unbeknownst to the Russians the CIA had inserted a ‘logic bomb’ into the software before it was stolen. I’m pretty sure that if Langley actually did this they thought that this hack would cause the loss of millions of dollars worth of natural gas putting downward pressure on the Russian economy. What actually happened is that this caused a huge explosion that was estimated to be around one fifth the magnitude of an atomic weapon. This plausible event combined with other avoidable circumstances; the US deployment of missiles capable of a nuclear first strike in 1979, NATO military exercises codenamed Able Archer, the monumental idiocy and less than stellar career of General Alexander Haig, etc. almost led to World War III.
In recent years that has been an effort to cast doubt upon this story. Though it’d be just like the CIA to leak something like this and then later try to re-write history to protect their reputation. It’s what Haig tried to do in his twilight years. In any case the United States itself may have already been the victim of a logic bomb attack on it’s national infrastructure, I’m speaking of course of the Northeast blackout of 2003.
But that’s another story for another day.
It will be interesting to see how Russia goes about this. As others here have noted, they have already done bilateral workarounds.
SWIFT is a messaging network. Private money creation and forex trading are done by banks worldwide.
I’m totally lost in the dust. But I’ll say this anyway because I have no shame whatsoever: Hello Planet Earth: what will you be able to give up so that financialism can thrive? And do you recommend that we adjust our human activities accordingly? Or what? And then, how complicated can it really be?
I’m an amateur historian. What I know of sanctions is they seldom work but more reliably put up prices. Trade always finds a way.
As Yves has mentioned above, sanctioned countries can piggyback their deals through third parties. They can do a good many other things too.
It comes down to a handshake agreement. SWIFT? It’s not so much that it’s a “secure” system, it’s much more the relationships that it creates and allows. At the end of the day, one bank manager calls another and asks for the money. Swift members are all good for it, or they wouldn’t be swift members.
It’s a trust society much more than it is a technological, “secure” system.
That’s the hard bit. Pushing numbers through a line is easy. Getting a person on the phone who can authorize a billion dollar transfer, and then have that money apppear is the hard part. Giving the sending bank recourse afterward, in the case of fraud or error is also hard, and not solved with bigger prime numbers.
Russia built a platform! So did my neighbor. Adoption of the system, along with continuing adaption and maintenance of the system is the tricky bit.
Just adding that ‘the banks’ are still pissed at russia for it’s voluntary default in the 90’s. That works against adoption of their system.
“what if putin decides to turn it off one day? Yanno, one day he gets cranky, tears his shirt off and rides out of town on a horse, bareback, holding an AK and carrying just enough children to feed him for week.”
All of this depends on honor among thieves. What bank is going to be foolish enough to trust a Russian SWIFT system, or Russian rule of law? That’s like putting your hand in Fenrir’s mouth.
Russia isn’t the old USSR. Putin is far more respectful of international law than we’ve been.
The New York Times doesn’t want you to understand this Vladimir Putin speech (Nov 6, 2014) by Patrick Smith, former International Herald Tribune’s bureau chief in Hong Kong and then Tokyo from 1985 to 1992. During this time he also wrote “Letter from Tokyo” for the New Yorker. Frequent contributor to the New York Times, the Nation, the Washington Quarterly, and other publications.
Also, US regulators could presumably prohibit banks that do business in the US from using a Russian system. Likewise, US court judgments are still going to bite banks that do any business in the US.
Dream on.