(本文翻譯自 陳冲 當年上駟打臉下駟 今日對俄金融制裁 2022.03.01.)
The most popular news these days undoubtedly is the Russia-Ukraine war. Reading about the proposal for financial sanctions against Russia and cutting Russian banks off from Swift reminded me of an anecdote.
Mar. 2, 2009, the then Governor of the People’s Bank of China, Zhou Xiaochuan, wrote an essay on PBOC website titled “Reform the International Monetary System”. The voluminous essay was “nothing more than the Version 1.5 of the Bancor concept proposed by Keynes at the 1944 Bretton Woods Conference.” And the next day, former President Obama who was sworn in as President just two months ago told a White House press conference that he couldn’t agree with Zhou’s opinion, claiming that “the dollar is extraordinarily strong right now”, and “don't believe that there's a need for a global currency (SDR)” to replace U.S. dollar. Was there a need for the newly-elected American President to come forward and put out the fire just because an Asian country’s central bank chief wrote an essay on the website? The reason was so clear: It was no trivial matter and touched the sore spot that the President couldn’t endure any more. The concept calling for a global currency may not only affect the status of the U.S. dollar in the international monetary system but the policy U.S. print a large amount of money to gain great profit with little cost. And the most important of all, those who disobey the king must receive international sanctions! If the U.S. didn’t stand out and do something, how can it keep its leader position in the future?
When it comes to global reserve currency, the sense of crisis of the American President is, frankly speaking, very similar to that of the Russian President when he observed the eastward expansion of NATO. The motivation of U.S. for suppressing the rise of Japanese yen, euro, and even the renminbi is actually the same as the Russia's purpose of sending troops to Ukraine – to maintain its hegemonic position.
After the Bretton Woods Conference, US dollar has officially replaced the British pound as the global reserve currency. And the later U.S. aid programs like The Marshall Plan consolidated U.S. dollar’s position in the market while it somewhat paid some price. To maintain its main global reserve currency position, the U.S. would peg the dollar to gold, based on its commitment, at a price of $35 an ounce. In 1971, President Nixon unilaterally closed the gold “window” and the dollar convertibility to gold ended. However, through dollar standard, the position of the U.S. dollar as the most important global trade settlement currency is hard to shake. Coincidentally, SWIFT (Society for Worldwide Interbank Financial Telecommunication) was established in 1973 after the abolition of the gold standard. At the beginning, it consisted of 239 banks in 15 countries, and now more than 10,000 members. Based on the consensus to provide financial institutions a data processing platform and common standard for transactions while didn’t want global payments be controlled by American major banks, SWIFT is headquartered in Europe. Even so, U.S. dollar is still the main currency for trade, clearing and settlement, so to completely escape the influence of the U.S. is quite difficult.
U.S. sanctions against Russia, in fact, do not need to go through SWIFT. SWIFT is nothing but a cooperative society based in Europe. To impose sanctions through SWIFT will only undermine the neutrality of the platform. If the U.S. wants to use financial means to fight against other countries, organizations or individuals, it can simply do it through US banks. It is not a problem even if it is not a US bank because almost all banks have U.S. dollar assets (accounts), which must be transferred through US banks. As we can see, the U.S. sanctions against North Korea, Iran, the Chief Executive of Hong Kong, or even terrorists in the past had all no hindrance. This time using SWIFT as a tool may simply show west countries’ determination to defend Russia.
Interestingly, that year, Obama refuted loudly in the White House, repeatedly emphasizing that the dollar was “extraordinary strong” and the United States” the strongest economy in the world”. And now, after times of large-scale QE, the U.S. national debt hit new record high. Maybe it’s time for the IMF to revisit and rethink the SDR enhanced edition. As for whether it will trigger a liquidity crisis in the global short-term money market after the SWIFT sanctions, that’s not the politicians’ concern!