France Has Hissy Fit Over BNP Paribas Fine and Dollar Dominance

Posted on by

France appears to have taken its public relations strategy for dealing with $8.9 billion fine against BNP Paribas from an old saying among lawyers: “If you have the facts on your side, pound the facts. If you have the law on your side, pound the law. If you have neither on your side, pound the table.” Here’s the guts of the French compliant, which is that the US is abusing the power of dollar dominance, courtesy the Financial Times:

France’s political and business establishment has hit out against the hegemony of the dollar in international transactions after US authorities fined BNP Paribas $9bn for helping countries avoid sanctions.

Michel Sapin, the French finance minister, called for a “rebalancing” of the currencies used for global payments, saying the BNP Paribas case should “make us realise the necessity of using a variety of currencies”….

Mr Sapin said he would raise the need for a weightier alternative to the dollar with fellow eurozone finance ministers when they meet in Brussels on Monday, although he declined to go into detail about what practical steps might emerge.

This talk is a lot of hot air. Mind you, we’ve been critics of US foreign policy, particularly in the Middle East, but the French position is ridiculous.

First, BNP Paribas broke US laws. No and, ifs, or buts about it. BNP Paribas made itself subject to US laws by having operations in the US, which were necessary for the bank to have access to Fedwire, the Fed’s system for processing large transactions. Payment system experts like Perry Merhling point out that private inter-bank payment systems also depend on being backstopped by a central bank. Even though the transactions in question originated offshore, they were cleared through BNP’s New York branch. From the Department of Justice’s press release, emphasis ours:

According to court documents submitted today, BNP Paribas S.A. (BNPP), a global financial institution headquartered in Paris, agreed to enter a guilty plea to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities subject to U.S. economic sanctions. The agreement by the French bank to plead guilty is the first time a global bank has agreed to plead guilty to large-scale, systematic violations of U.S. economic sanctions…

According to documents released publicly today, over the course of eight years, BNPP knowingly and willfully moved more than $8.8 billion through the U.S. financial system on behalf of sanctioned entities, including more than $4.3 billion in transactions involving entities that were specifically designated by the U.S. Government as being cut off from the U.S. financial system. BNPP engaged in this criminal conduct through various sophisticated schemes designed to conceal from U.S. regulators the true nature of the illicit transactions. BNPP routed illegal payments through third party financial institutions to conceal not only the involvement of the sanctioned entities but also BNPP’s role in facilitating the transactions. BNPP instructed other financial institutions not to mention the names of sanctioned entities in payments sent through the United States and removed references to sanctioned entities from payment messages to enable the funds to pass through the U.S. financial system undetected.

Now you can point out that domestic money launderers like Wachovia got off much easier, but that’s not terribly persuasive. All you are now debating is the fairness of the punishment, not the conduct at issue. If you have out of state license plates and are caught speeding, it’s almost a given you’ll pay a bigger fine than a native. That’s the bias in most law enforcement around the world, and BNP Paribas was no naif. Similarly, it was also well known that the US was deadly serious about what it calls “terrorist finance” and about using its power of financial sanctions against countries it regards as opposed to its interests. I’m hardly plugged in, but I knew in 2007 that this was a top priority for not just the US but the ECB, because a colleague who was consulting to the Treasury on terrorist finance could get Trichet on the phone. If a not-well-connected blogger had picked that up, you can be sure BNP Paribas knew it in spades. They thought they could fool the authorities and get away with it and they lost.

As to the French threat about diversifying away from the dollar, as we’ve said elsewhere, it is at least 20 years away from happening. The dollar is the reserve currency and has no ready competitors. The euro could have been a contender for ending dollar dominance, but the way the Troika has lurched from crisis to crisis has pretty much put that idea to rest. Because the US has been running trade deficits for decades, there is a large stockpile of dollars in foreign hands, a necessary condition for reserve currency status. No county is willing to run sustained trade deficits (as in send demand abroad and hurt the living standards of domestic workers) to achieve that result. That, by the way, was the logic of the Rubin “strong dollar” policy: allowing other countries to keep their currencies low against the dollar enables the US to continue to run trade deficits and preserves dollar dominance.

The other advantages of the dollar include the US Treasury market, which is traded actively in all major financial centers and serves as the benchmark for pricing dollar-denominated debt instruments. The Fed (like it or not) has demonstrated itself as willing and able to serve as lender of the last resort. The adeptness of the authorities in rescuing financial firms (the failure to punish the perps is another matter) is reassuring to international investors and currency users. By contrast, Europe has only a small Euro denominated bond market, which is dominated by sovereign issuers (and the liquidity of many of those bonds depends on the munificence of the ECB).

Now it is true that countries like China and Russia are pushing for more and more trade transactions to be denominated in non-dollar currencies. But if the US is involved in any way, use of dollars is inevitable. And while China has plans to create institutions to engage in international development and payment settlements, those are a long way from being established, let alone mature. Most important, the renminbi will not replace the dollar until China is prepared to run trade deficits, and there’s no evidence it is willing to cross that Rubicon.

Moreover, the value of international financial transactions greatly exceeds those related to trade, and the dollar is the largest single currency used in those exchanges. The Financial Times story acknowledges these issues:

More than half of cross-border loans and deposits are transacted in dollars and in the last global survey of the $5tn a day foreign exchange market, the dollar was on one side of 87 per cent of all trades. Despite efforts to diversify, many central banks say that they still see no real alternative to the safety and liquidity of the US Treasury market, and hold more than 60 per cent of their reserves in dollars.

A senior French official cast doubt on the government’s ability to stimulate the further use of the euro in international trade: “In the end it is hard to know what they can really do. The market really decides these things.”

The lack of any serious successors means dollar dominance is certain to continue for at least the next decade. When a transition starts to take place, it is more likely to be chaotic rather than orderly, as the period from World War I to the end of World War II, when the change from a sterling-dominated era to the dollar era, attests. So dollar haters, be careful what you wish for.

Print Friendly, PDF & Email


  1. Ruben

    “Most important, the renminbi will not replace the dollar until China is prepared to run trade deficits, and there’s no evidence it is willing to cross that Rubicon.”

    They are also looking at a basket of currencies, gold, commodities, and a trans-sovereign unit, so no single country has to run large trade deficits like the US does. I think it’s going to happen a lot faster than you assume. See:

    1. Yves Smith Post author

      Looking and having something move forward are two very different propositions. No respectable economist is going to support the idea of a commodity backed currency. We tried that with the gold standard and it produced both deflation and even more frequent bank crises than we have now. As for some other approach, like a basket or a trans-sovereign unit, a similar idea had far more support in Bretton Woods (the Bancor) and it didn’t get implemented then when there was far more cooperation among major countries than now. There aren’t even talks tabled anywhere on the Chinese ideas, nor even any serious discussion of these proposals in Western policy circles. The Chinese may think these ideas are serious, and in the future they could get traction, but they aren’t being taken up in a meaningful way where it matters. And Chinese belligerence with Japan, the Philippines, Vietnam, and Taiwan are making its immediate neighbors much less inclined to play ball with China. China is managing the difficult feat in that part of the world of making the US look like the less bad hegemon.

      I think we are inevitably going to go through a rough period as the dollar hegemony fades and no clear successor emerges. But the death of the dollar is no where near as imminent as people who are (correctly) fed up with US imperialism would like.

      1. Ruben

        The thing is that the USG is pushing a bit too hard on several fronts and thus forcing other major nations to cooperate, making the basket and the trans-sovereign starting to look increasingly valid despite the major pain involved in the transformation. These kind of things tend to happen fast, as in abrupt regime-shift theory, not gradually and slowly as you and probably most business people anticipate. FWIW, don’t ever bet a large sum on gradualism in complex dynamics systems with many players :-)

        1. steelhead23

          Great comment Ruben – cataclysmic change dominates the universe. But I am reminded that when the rabble ended the Ancien Regime in 1789, chaos and mayhem ruled for decades thereafter. So, even as a 99%er, I find it hard to cheer for cataclysmic change.

        2. Andrew P

          The way I see it, nations can trade with their own currencies, and once this happens, it may eventually become more convenient to arrange for some kind of index of currencies to be used in order to mitigate exchange rate risk.

        3. slotowner

          I think you are advancing what they would like vs. what is practical. Central banks currently use a basket of reserves that is made of mostly dollars followed by also ran. There is a huge reason, the dollars dominance. While this is obvious, it is that natural vs. an artificial state. Artificial states are inherently unstable & need to be constantly balanced & adjusted leading to errors, inefficiencies & mis-allocations.
          To change the current mix, most major countries in the world would need to take serious economic pain to take sub-optimal positions. Looking at the limited tolerance the EU countries, China, & Japan are allowing now, I don’t see them doing more than gripe since any effort to diversify from the dollar would require a substantial appreciation of their currencies & a trade hit.

      2. Rosario

        We’ve only tried it explicitly with gold and or silver. Anyway, the US dollar is already heavily hinged on two “commodities” petroleum and military power (therefore political/legal power). The power of a unit of exchange has always been tied to the society it came from not the theories behind it. Units of exchange by legal mandate only operates well if there are plenty of resources and leadership is competent. We have neither of those conditions being met (for the former, at least not with our current consumption levels in the “first-world”). I’m happy to allow someone to try something different even if it turns out to be a catastrophe. As far as I can see we are already headed for catastrophe. The blind optimism in existing paradigms is not helping anything.

        1. Ben Johannson

          I’m going to assume you mean your statement in the technical sense, given that a metaphysical argument wouldn’t be worth responding to.

          On that basis, if the value of the dollar is linked to oil, then why do oil prices fluctuate daily?

          1. Mark P.

            ‘On that basis, if the value of the dollar is linked to oil, then why do oil prices fluctuate daily?’


            I’ll go further. If someone had said to me, say, eight years ago that, hypothetically, one day the Saudis might stop taking payment for oil exclusively in dollars and the dollar might nevertheless continue as global reserve currency, I’d have responded that they were fatuously naive — that the day the petrodollar ended was by definition the day US dollar hegemony was finished.

            As the saying goes: predicting is hard, especially about the future. Cataclysmic change does happen. Nevertheless, there’s simply no replacement for dollar hegemony on the horizon at the moment. It’s conceivable that dollar hegemony could even outlast the petrodollar, which is an extraordinary reality.

          2. Rosario

            Sorry for the long response, but it is the only way I can clarify my thoughts in some way. I am concerned with the tasks done by the machine not the cogs that allow it to work. This is an analogy to the difference between why the US dollar is used in the manner that it is used (which is completely political/social in nature) and how that dollar operates within an intellectual/ideological economic system (with its mathematical theorems) in which it is the primary mode of exchange (here is where the oil price fluctuates, priced in the US dollar I may add). Yes, currency does operate in a metaphysical state. It is not material. I’m was simply trying to illuminate that a commodity based currency is actually a very rational concept, and the idea of “deflation” (and the subsequent fear of it within the currency paradigm) is the result of a constant-growth ideology. Economies more rationally tied to natural resource ceilings must contract in a healthy way based on resource capacity (our system does not contract in a healthy way and it insists on its old bad behavior after it “recovers”). All of the global currency models do not do this, therefore, our bubbles, and their following crashes are sloppy adjustments to imbalances in “market” behavior (which are ultimately imbalances in resource consumption). This behavior is the result of the application of Keynesian economic theory. I am not discarding the steps Keynesianism made to future economic models, I just believe it has run its course. I also do not see MMT providing this space because it just expands Keynesian theory and discards proposals for hard ties to ecology. We have lessened (to a certain degree) the damage economic downturns have done to society, but we have transferred that damage to our environment (explosive growth with little connection to resource limits then crashes that create waste and ruin). Admittedly, part of this is the result of the massive productive capacity of modern technology, but our economic model has exacerbated excessive consumption and wastefulness by decoupling this technology to the limits of the natural environment. On to the beginnings of a solution. Imagine regional (geographical) currencies linked to a manifold of commodities (I prefer resources since this lessens our disconnect to their importance). These currencies are linked to each other by their common connection to resources and their valuation of resources relative to other each other would influence any trade between regions. A currency of the US Southwest would place a higher value on water resources compared to the currency of the US Northwest. Therefore, if you wished to live in the US Southwest you would have to submit to its ecology (with little water) and practice an appropriate economy for that region and not an abstraction of a global/political/social system. Elucidate this for your relevant region. Does this have some of the trappings of protectionism? Yes, and it should. Again, the concern is over the degradation of natural environments, which we must rely upon to survive, not abstractions like free trade and free floating currencies (whatever they may mean to an individual). Despite our best efforts, nature continues to frustrate our absolute human ambitions (endless growth, utopia, etc.), and this is okay. Our species should sustain a slow burn rather than an explosion.

          3. Ruben

            The validity of your counterfactual depends on the assumption of a linear relation between the value of the USD and oil prices, but the hypothesis that the USD is backed by the oil commodity does not need that assumption.

        1. Ben Johannson

          The Mises article is a joke. The author completely misses the connection between real wage decline and deflationary pressures, nor does he appear to understand liquidity preference. The argument that at some point people will have to spend just as much as they would without deflation is non-sensical. I don’t ever have to take the vacation I put off, I can keep my car for years more and I can decide not to buy a house.

          Kid level thinking.

            1. skippy

              OpenThePodBayDoorsHAL seems to have not read Yves book and blindly references AET on NC, wee bit of a grok fail imo.

              skippy… I’m reminded of a eviscerated person suggesting where to eat… sigh.

      3. Andrew P

        Why does there have to be any reserve currencies at all? Why can’t every major nation simply trade in its own currency and the currency of whomever it is trading with? And for trade with a few less trustworthy or less creditworthy nations, they can use gold. With today’s electronic markets, it should be possible for settlement in any fiat currency to be done almost instantly.

        1. Ben Johannson

          What if Burkino Faso has no gold? Or much of anything else that would be wanted? Developing nations are where the problem lay because they often have little to offer other than raw materials or sweatshop labor conditions. If, on the other hand, you’re big, productive and offer a great diversity of products, you typically won’t have a problem. We can all agree the current system keeps poor countries in perpetual debt-servitude to the developed world; the question is what workable alternative can we come up with.

  2. Erwin Gordon

    Yves, don’t for a minute imagine that ALL of the TBTF banks have not been engaging in this sort of activity. Given how deeply insolvent are all of these institutions those activities were the principal ones for bringing funds into the banks. The indignation of the French is precisely because they ALL know that they are ALL doing it (i.e. breaking the law) but the US decides to selectively prosecute the English (HSBC) and French (Banque Paribas) for political reasons. If you consider how wonderfully the US is screwing all of its so-called friends (i.e. France, Germany – Ukraine, Poland – see news report of Foreign Minister’s comments on US relation, etc – FATCA) just in the interest of self preservation, of course they are ALL looking at moving away from the US economically. What Russia and China have started in terms of de dollarisation, the US will finish the job with its asinine policies.

    1. Yves Smith Post author

      I suggest you read up on this case. It is very clear that the US sanctions against Iran were working, in terms of hurting the Iranian economy. Mind you, I think the policy was sorely misguided, our entirely Middle Eastern policies are destructive, but that is not the issue here, we are discussing your unsubstantiated assertion that the TBTF banks were doctoring wires just like Standard Chartered and BNP Paribas,

      In fact, even Chinese banks backed off from defying the ban:

      After years of sanctions that have prevented Iran from collecting oil revenues or its civilians from dealing in the open market, with former president Ahmadinejad claiming that the country was economically sound, a recent governmental change revealed a far more difficult situation. After moderate Hassan Rouhani was appointed the country’s new prime minister, Iran began to open up and admitted that it was suffering major financial issues.

      Since coming to power in August 2013 Rouhani has made major efforts to meet with Western leaders to discuss how it can rejoin global markets.

      One of Iran’s biggest problems was that it could not do business in the global marketplace because it had been banned from using the essential SWIFT money-transfer system. This meant that the country was unable to collect oil revenues or take part in the import and export of any goods. Some businesspeople there took matters into their own hands, bringing goods across the border and paying for items in cash or taking money to neighboring countries’ banks and transferring cash to Chinese banks in order to pay for goods. However, this practice was quickly stopped after regulators began fining the Chinese banks and threatening them with similar sanctions.

      Moreover, as quite a few media outlets reported, the reason Standard Chartered and BNP Paribas were so keen to do this business is that it was lucrative compared to bread and butter money transfers precisely because other banks had abandoned the market, as in they were complying with the ban.

      Please stop making stuff up to try to score points.

  3. Erwin Gordon

    And you’re seriously mistaken if you think the dollar will continue to dominate for the next decade. Within 2-3 years there will be little to any trade among the BRIC countries and the majority of its trading partners that will be in dollars. With countries in the EU joining in, I would be surprised if the dollar is still playing a major role in twice that time.

    1. Yves Smith Post author

      I will make a very large bet with you to the reverse. The US is the consumer of the last resort. No country is willing to run large trade deficits, which is a necessary condition to being the reserve currency. You can hate dollar dominance all you want to, but your personal antipathy does not change the facts on the ground and the lack of changes in who is running deficits and surpluses. China keeps its currency in a dirty peg to maintain a trade surplus. The Euro is absolutely not a candidate to replace the dollar any time soon. Go read the comments section at the Financial Times on this article, which will have more English and Eurozone readers at this hour than Americans. There is virtually no support for your position. People who are in the business of trading currencies and dealing in international markets don’t agree with you at all.

      1. Deaf Smith County

        The comments above have in common the belief that dollar dominance has a chance to end within a two or more decades, black swans notwithstanding. “Making predictions is tough, especially about the future” – Yoga Berra, philosopher extraordinare.

        1. Mark P.

          Huh, you beat me to it.

          In any event, short of black swans, the world is what it is and Yves would win her wager

        2. Bobbo

          Here is the black swan I see coming: The gold market freezes up, which causes a loss in confidence in the dollar. All those overseas dollars, which currently give the dollar it strength, suddenly become a liability as they are no longer perceived as a reliable store of value. The feature that gives the system stability now will become tomorrow’s albatross. What happens then? A return to the gold standard? Of course not. We are never going back to a fixed exchange standard. Ever. Gold bugs, get over it! Instead, gold will become the de facto reserve asset, even without an exchange standard, even without the blessing of the economists, even without a conscious policy decision to make it so. World trade will continue to be transacted in dollars. Central banks will continue to manage their fiat currencies. Life will go on much as it did before based on the global payments structure already in place.

          But the US will no longer be able to keep running twin trade and budget deficits as it has for the last 40 years, and US influence will decline. This could happen over a very short period of time — perhaps three months? The trigger could be something as simple as a run on one of the bullion banks. This is where the entire world financial structure is the most vulnerable IMO.

          1. Yves Smith Post author

            No one cares re the gold market except goldbugs. It went down hundreds of dollars in days and had absolutely on impact on financial markets.

    2. vlade

      For BRIC countries to seriously trade in some other ccy than USD, they would have to abandon (or at least one of them) they policy they love the most – protectionism. It’s impossible to have a well tradeable ccy with an internal market protectionism (which is why for example JPY never became true trade ccy).

      The only real candidate against USD was EUR, but it’s hard to argue to replace USD hegemony with something half of people think won’t exist in five years.

      1. Clive

        The JPY is also a good example of why having a tonne of sovereign debt isn’t in and of itself sufficient to enable a particular currency to act as a reserve. Japan doesn’t, erm, exactly lack for outstanding JGBs. But JGBs are almost exclusively held internally within Japanese entities (e.g. the BoJ via QE, the national pension fund or individual savers). Which goes back to, as you say, the “you also have to have a trade deficit” theory. Japan needs to absorb other currencies — mainly of course USDs — because historically it sold more of its exported stuff than it bought other countries’ imported stuff. It didn’t need other countries to be net JPY holders because of all the JPY Japan had given them in exchange for the stuff those countries had sold to Japan — that was a situation which simply didn’t happen.

        If Japan were willing to persistently run trade deficits, it would have the potential to be a regional reserve currency — I myself would stop short at saying it might be a global reserve — because it would have the other piece of the puzzle in place (a deep — although perhaps not especially liquid — market in JGBs). But just having either one of these things without the other isn’t sufficient. Both are required.

      2. Andrew P

        No they won’t. They can always trade in their own currencies and the currency of whomever they are trading with. It is messier and has more exchange rate risk, but less political risk.

  4. Yonatan

    The fine applied to BNP is nothing to do with dodgy TBTF banking policies. It is to do with the French sale of Mistral vessels to Russia. The US has ordered France to sacrifice its real economy for the benefit of the US. France so far is going ahead with the deal.

    1. Yves Smith Post author

      Evidence, please? Cases like this are years in the making. The US didn’t cook this up overnight. And how do you explain the actions of Benjamin Lawsky, the New York financial services superintendent, who is operating largely independently of the Treasury and other Federal regulators? Lawsky was the one who threatened to yank Standard Chartered’s license, and also got the full year suspension of BNP from dollar clearing services, which is a huge punishment. And as Bill Black pointed out, this fine is actually not all that significant to a bank the size of BNP. So as far as France is concerned, it is more a blow to the ego than real damage.

      Plus you fail to understand that domestic politics are a much bigger motivator. The Dems are in trouble for the Congressional midterms and really needed to be able to say they’d gotten a bank on something criminal. Now in fact, what people want is the execs to be prosecuted, which did not happen here. Nevertheless, the Administration has decided that bigger fines are in order to burnish its credentials between now and November, so banks that have cases maturing now are going to be hit harder than ones that were investigated or sued earlier. And foreign miscreants will get it worse than domestic ones.

      1. Katniss Everdeen

        Paul Craig Roberts agrees with Yonatan. He sees this fine as a shot across the bow to European business interests who are opposing Washington’s attempted takedown of Russia and Putin which continues apace in Ukraine.

        ” Using concocted charges, Washington has stolen $9 billion from France’s largest bank for doing business with countries disapproved by Washington. This was Washington’s warning to European business to comply with Washington’s sanctions. Washington even told France that the fine would be rescinded or reduced if France broke its contract with Russia to supply two helicopter carriers. Other such moves against European businesses are in the works. The purpose is to intimidate European businesses from opposing sanctions against Russia.”

        While these charges are hardly “concocted,” as you rightly point out, BNP Paribas is hardly unique in its lawbreaking. It’s the size of the penalty that is surprising given past law “enforcement” performance. I’d tend to agree that there is more here than mere political posturing. And it’s certainly not about actual punishment.

        1. Yves Smith Post author

          The fine was rumored to be in the $8+ billion range for weeks and the French were upset then. I’ve seen nothing from people who read the French press regularly to support PCR’s claim, and you’d expect similar accounts to be all over the French media if true. And if this did happen, I suspect this was taken out of context, as in the French were ripshit about the idea that BNP would pay a monster fine and complained through official channels. The US said, “You want no fine? Call off the helicopter carrier deal,” knowing that was a no-lose offer, as in it the French were almost certain to say no, but if they said yes, the US would get something it really wanted.

      2. Jim Haygood

        ‘Nevertheless, the Administration has decided that bigger fines are in order to burnish its credentials between now and November.’

        Assuming that you are right, reflect on the implications of that statement from a foreign p.o.v.: the whims of a U.S. political campaign cost a French bank $9 billion.

        Casual confiscations and arbitrary punishments, particularly of foreign investors, are the hallmarks of banana republics, which is what the U.S. has become.

        1. NotTimothyGeithner

          The Democrats have done polling, and if Obama had been seen as tough, he would be at 60% because they could blame the GOP and W with no problem. They picked the French because very serious types think they are wimps, and they hope this will give them breathing room.

      3. damian

        “Evidence, please?” is merely a rhetorical game – you have offered no “evidence” other than the Treasury / DOJ self serving Obama press releases.

        Logic is what this debate is about – Much, much, worse types of bank fraud have been ignored by the DOJ committed by US banks, that directly affect standards of commerce with nowhere near the fine level as this. I understand that the cumulative transactions were somewhere around $30-50 Billion which at a $9 Billion fine is huge

        This is about the Mistral ships required to be cancelled by the US and real French jobs versus the banks in France a tradeoff that couldn’t be ignored.

        The parallel US punitive actions on many fronts is now reached a point where a real alternative to settlement of transactions outside of the BIS is inevitable – at any point in time for any change in the rules the US can kill a country (see Argentina)

        This transaction system is equivalent of entrapment – sooner or later the rules are changed to tag some country on the hit list. Those that ignore the risks have incalculable exposures.

        1. Yves Smith Post author

          Please provide French media sources. I see one assertion in Counterpunch with no citation. Paul Craig Roberts isn’t always reliable on banking; he’s gotten stuff wrong before. If the Mistral ship offer came AFTER the French contacted the US upset at the prospective fines, it puts a completely different color on the exchange.

      4. OpenThePodBayDoorsHAL

        The fact remains that this is total utter and complete favoritism when selecting a bank to be the target all of a sudden of truth-telling and law enforcement. I mean how much unpunished financial crime has been covered on these pages, and now Oh Look they find BNP is worth prosecuting? (sorry, not prosecuting, I meant to say fining. Prosecuting responsible individuals would be a meaningful penalty, fines are just a blip in the annual report).

        1. Mark P.

          ‘The fact remains that this is total utter and complete favoritism when selecting a bank to be the target’

          And so what? In realpolitik terms, in fact, it’s a fairly astute choice of target ‘pour encourager les autres’ — think of the strategic calculus, for instance, from the POV of Merkel and the German elites when they consider that the US could have gone after Deutsche Bank similarly.

    2. washunate

      That was my assumption as well. France has always been more interested in trading with Russia and Iran than the US neoliberals care for. After all, for us, the Middle East is basically the other side of the world, but for them, it’s the near east.

      I think of Obama’s 2007 article in Foreign Affairs about policy toward Iran, for example.

  5. Clive

    The British Pound ended up losing the role of a reserve currency. This happened not because the British government wanted it to happen, but because they pursued policies incompatible with maintaining the GBP as a reserve currency.

    Specifically, this included an insistence on running trade surpluses which entailed (amongst other things) currency controls. In the end, this was the kiss of death for the GBP as a reserve currency once the US demonstrated that it was willing to have unlimited flows of USDs in and out of the US itself. Why would you want to hold GBPs knowing that you couldn’t convert them on demand if you needed to ?

    If anyone seriously thinks that the RMB, the Rouble or some synthetic currency comprised of a basket of these plus, say, gold and other commodities is going to do the trick, you’re living in a fantasy world. Try getting more than a few hundreds of thousands of USDs equivalent of RMBs in and out of China (for example) and see if your local correspondent bank will be able to do this for you without hassles, form filling and high fees. USDs are the only game in town for international settlements beyond the travel money size of transactions and will be until the Chinese let their currency float. Don’t hold your breaths on that one, unless you want to turn blue. And as for the notion that, say, Boeing will sell this month’s deliveries of Dreamliners in exchange for gold (real or paper) that is self evidently ridiculous. That market is shallow so just this kind of transaction would affect pricing. When the GBP was much more of a petro currency (and was/is a far more liquid market than gold) there were occasions when a large payment for an oil delivery would affect the GBP/USD rate. In USDs, no matter what the transaction, no matter how big it is, it’s always a drop in the ocean.

    I suppose Boeing might consider receiving a shipment of oil (if we were doing a thought-experiment on these lines), but what would they do with it ? Turn it into USDs at the first available opportunity of course.

    The USD is here to stay, unless some pretty monumental changes happen in an unfeasibly short space of time.

    1. vlade

      Indeed. Especially when you take into account that it’s not only USD that matters, but the massive US Gov debs market too – so you can trade your ccy easily, and at the same time park it in a safe interest bearing asset. It’s not just whether you can buy the currency, but also what do you do with it. Are you going to park a billion in an account with some Chinese bank? You sure can’t buy a billion USD worth of Chinese gov’t debt easily, not compared with buying of one yard of UST (not to mention mix of maturities and whatever..)

      If the USD debt market evaporated overnight, then USD hegemony would start to go as well. As long as there’s going to be a lot of (safe or safeish) USD assets compared to other ones, the USD will have its hegemony.

  6. Working Class Nero

    This is really just internal French politics; since the Front National are going to hammer the Socialsts for BNP Paribas, the Socialists are getting out in front with some anti-dollar rhetoric. In the end though the FN is the only French political party really critiquing US imperialism and are on record for supporting Keynes’ bancor and other foreign trade ideas. But no worries, none of the mainstream pro-globalization UMPS politicians are serious about resisting US hegemony.

  7. John

    I’ve seen the French splitting hairs in the press over the BNP Paribas deal. The thing to consider, like elsewhere, politics is at thick of the French rhetoric. Right-wingers loathe anything Anglo, particularly American and one way to drum up support is to pontificate how evil Americans are at trying to take down a defenseless bank. We, the French, always do things better, is the mindset. Some in the French electorate respond to this kind of bigotry. The BNP Paribas case answered their prayers and now is the time rise show their true colours. That evil dollar!

    Keep in mind France is a closed country. Everything is dubbed, and English is rarely spoken in a country that hosts the the most foreign tourists in the world at any given time. French only want to buy things made in France. Many French are not convinced in order to succeed in global business, one must master English. And it shows. French schools do a horrible job at teaching English. Unfortunately, their competitive ranking against its neighbours (ie Belgium) and globally will continue to slip as a result.

    Back to BNP Paribas. The first bit of spin the French echo chamber released when the fine was announced was the bank followed European and French law so there was no harm. Dutifully the press here in Europe followed the French line. Around this time Hollande apparently asked Obama in a back-room discussion to weigh-in. Obama tactfully told him the case is under legal proceedings and there was nothing he could do.

    The French have a great deal of pride in their domestic industry champions.

    Here in Belgium the government is thinking about selling off its stake (10%) in the bank because of the bank’s crimes.

    1. Yassine

      You are right that the French government reaction is entirely political and cannot be understood outside of the French political context. Reinforced by the recent “victories” of the Front National in municipal and European elections, we are now witnessing an intensification in the run to the far-right in the political rhetoric, and the declarations surrounding the BNP fine are only meant to stoke up nationalist sentiment.

      However, I do not follow you at all in the sweeping generalization you make about the “mythical” French people. France is not a closed country by any measure (immigration, emigration, import, exports, cultural influence, scientific cooperation, etc). Right-wingers do not loathe anything Anglo : Sarkozy was the one to reintegrate France in NATO central command. There is no general mindset that we do things better. French people do not want to buy only French products. And on and on.

      From the fact that you say “we the French” and then “Here in Belgium” and the general tone of your commentary, I get that you loathe your country and have decided to seek greener pasture elsewhere. And that’s totally fine. But please stop spreading misinformation and prejudices about French people to American audiences. Most of them are already ignorant enough about anything that goes on outside their borders.

  8. Moneta

    The lack of any serious successors means dollar dominance is certain to continue for at least the next decade
    Agreed but… It does not matter whether France broke the rules or not… we are at the point in the cycle where they will condition themselves to believe that they are forced to break them to protect themselves from American hegemony. This is a sign that the level of anger will rise globally.

  9. Jim Haygood

    Here is how a politicized currency affects working people, as opposed to big banks:

    As government regulators crack down on the financing of terrorists and drug traffickers, many big banks are abandoning the business of transferring money from the United States to other countries, moves that are expected to reverse years of declines in the cost of immigrants sending money home to their families.

    The government’s efforts to root out illicit activity have effectively put the banks into a law enforcement role, industry experts say. And the result is undercutting another public policy goal — helping immigrants, who are primarily low income, move into mainstream banking.

    The pendulum has swung so far, participants in the industry say, that regulators are pushing banks out of some activities considered beneficial to the broader economy.

    “The money transfer business has become the whipping boy of regulators who want to show how tough they are,” said Paul S. Dwyer Jr., chief executive of Viamericas, a money transfer company based in Maryland with a large focus on Mexico.


    Between FATCA, AML and anti-terrorist financing, the U.S. has become a new Soviet Union where refusenik emigrants will be unable to leave with much more than the clothes on their backs.

  10. Carolinian

    I think this is a fascinating discussion. Could dollar supremacy be the real “Deep State”?

    Also, good to hear that French chavinism is still alive and well.I had begun to worry that it had been killed off by Hollywood and McDonalds.

    1. Steven

      Take a look at “Imperial Brain Trust: The Council on Foreign Relations and United States Foreign Policy” by Laurence H. Shoup and William Minter. I believe you are correct. The ‘Money Power’ and the deep state are one and the same. The children of this country’s Robber Barons converted their fortunes into money, managed by Wall Street and its banks. The reasons for doing so are too numerous and varied to mention here but my favorite comes from Ferdinand Lundberg’s “America’s 60 Families” (Vanguard Press, New York, 1937, p. 7):
      “But the securities of American millionaires can be exchanged in a flash for any currency in the world, for land, for other stocks and bonds. The wealth of the Indian princes is immobile, static; the wealth of their American counterparts is mobile, dynamic. In the money markets of the world the feudal wealth of the Indian princes is of no consequence.”
      This country’s industrial peasants were promised a piece of the action or at least a better life for their children if they kept silent and kept their shoulders to the wheel. But now we know what those promises were worth. For much of the 20th century this country’s Money Power was busy liquefying the wealth it extracted from the blood and sweat of its industrial shipping serfs (i.e. turning it into money) and shipping it out of the country.

      But wait! Through the magic of fractional reserve banking, leverage and other forms of financial engineering it gets even better! You can stretch that wealth much further, buy up much more of the world much faster than you ever could trying to acquire more wealth through old-fashioned peasant-oppressing Industrial Capitalism.

      Roughly the first half of the 20th century was spent trying to buy labor peace by buying off necessary elements of the ‘working class’. But all these unsavory compromises with labor, not to mention the increasingly desperate and unsustainable expedients like planned obsolescence and deep-marketing, were beginning to interfere with the acquisition of more money. Prosperous labor is unruly labor. About the only thing positive to come out of all this kowtowing to the principles of economic democracy was some real wealth that could be used as collateral for more debt creation by Wall Street, its banks and its captive government.

  11. Jose

    to run sustained trade deficits (as in send demand abroad and hurt the living standards of domestic workers)

    It ain’t necessarily so.

    A country such as the U.S. could send demand abroad via an overvalued exchange rate and simultaneously run high enough public deficits in order to sustain aggregate demand.

    Under such a scenario: 1) full employment is achieved and 2) domestic workers will have higher living standards thanks to low priced imports.

    Keeping the dollar as a reserve currency is not incompatible with the interests of U.S. workers. These are being hurt by bad policy choices (austerity), not by the trade deficit.

  12. washunate

    It’s interesting trying to put a specific time table on it. The post-Bretton Woods system collapsed in the 1990s. I agree it is possible we can keep limping along for another 20 years. There has been no meaningful leftist opposition/alternative in the US during this time period; if anything, educated liberals are more cooperative than ever with bailouts and the police state. The US in particular is so wealthy we could probably do it longer than 20 years before the top 10% or so of educated technocrats are squeezed so tightly they start sympathizing downward rather than upward.

    But the thing is, it’s all done in secret. Those of us on the outside really have no idea the depths of the fraud and the kinds of promises and side deals that have been made. The system could literally unravel tomorrow. Bailouts and the police state and other bandages of extreme inequality work right up until they don’t.

  13. Piero

    If the U.S. is actually so deadly serious about “terror financing” then why did we let HSBC off with a comparative slap on the wrist when they were caught red handed having repeatedly engaged in just that along with massive amounts of laundering of drug cartel money?

    1. lakewoebegoner

      BNP’s biggest mistake was not locating its USA HQ in Texas and employing a few thousand back office employees in some outpost in El Paso, thereby getting the Texas Congressional delegation of BNP’s side

      HSBC has a big presence in Buffalo NY via its No. America consumer lending branch >>> Cuomo and Schumer’s interests are aligned with HSBC (discreetly of course).

      HSBC was bad—-but not enough to destroy a few thousand jobs in Rust Belt Buffalo.

      BNP’s crimes could easily have been made public on a quiet news day (like this past 3rd of July) and quietly mentioned page 17 on the NY Times—-if Team Obama wanted too.

    2. Yves Smith Post author

      Drug cartels are not terrorists. Terrorist financing efforts are specifically aimed at Middle Eastern designated baddies and official enemies of the state. The “war on drugs” is not included.

  14. Stefan

    “The US was deadly serious about what it calls “terrorist finance”.”

    What a pile of horseshit. PC Roberts hit the nail on the head. Yes of course, the US is shocked, shocked, that its banking system is used in the cause of terrorism. Does anyone remember Iran-Contra, etc., etc. etc.? US “sanctions” are not in the interests of preventing “terrorism”. Give me a break! The US: the greatest terrorist state in the world today by far! The US: in Washington, a pack of sociopaths that have destroyed 7 countries and are on the way to destroying the Ukraine, with Russian regime change in the works. The French, like the rest of the Europeans, cannot easily exist without Russia, and the US, in the grip of its will-to-power, could care less. France is indeed being warned. Sadly, the Euro politicians are cowed.

    1. christine

      Not only can’t the French, like most of Europe, exist without Russia but they have and always will have centuries of common history with Russia (and pretty much every country in Europe) and affinities which cannot be undone by the kind of outside pressures Washington is pathetically trying to impose on it. Likewise, the bond between China and France won’t be easy to break: after all, they were the first ones to recognize the enormous potential it has and openly acknowledge it as an independent and sovereign country. If I recall, Nixon sh***t a serious brick over it. France has been in friendly terms with Iran for centuries as well and France refused to play along with the US in that idiotic embargo against Cuba. Lastly, one should not forget the tumultuous relationship between France and NATO and, to this day and even though a full member of it, France still has a foot out and would pull out in a jiffy. To view France as a puppet ready to jump when Washington says so is… ludicrous at best! Proof is… Marine Le Pen is getting enormous support. Not because of her stand on immigration (the woman is well aware of the Geneva Convention and has declared her commitment to abide by it) but because of the failed Washington foreign policies and its refusal to impose on it own banks the draconian settlement conditions it keeps imposing on all foreign bank. If Washington’s undeclared goal is to run this country to the ground, all it has to do is keep on manufacturing enemies like there is no tomorrow while refusing to clean house here, in this country. 320 million people live here. 7 billions live outside of this country and zero point energy, occulted in this country, is being developed worldwide. With all its military might, this country cannot survive by using an old paradigm Israel and the US keep following: threats, blackmail, tit-for-tat, bomb-bomb-Iran. The weapons of the immature… Europe will do just fine. As an American myself, I wish this country kept its nose out of everyone’s business and decided to grow up and discipline its own banks.

  15. steelhead23

    It would be fun to have a larger discussion of the effects of the dollar’s reserve status, but I have a somewhat different cheer to make as regards this case. Bank secrecy is a menace to we proles. I have previously posted my disdain for Switzerland’s banking secrecy laws as they facilitate wealth and income hiding that facilitates tax evasion – and as we can see from this BNP case, worse. There are clearly reasons for banks to be secure, but hiding things as a matter on normal business likely has an adverse cultural effect – encouraging fraud. That’s one reason we need aggressive regulators, not lap dogs like Holder.

  16. Tom Verso

    excellent discussion

    Regarding “Reserve Currency” … Is it possible that the concept itself is relegated to the history of economics.
    Consider: Russia and Iran; China and Russia; China and South Korea … are examples of trade being conducted without dollars or any other ‘reserve currency.

  17. juliania

    Yves and other economists, I absolutely have to bow to you on such prognostications of dollar supremacy, but are not sanctions getting a very bad name in this tug of war between European countries and the US over Ukraine? You have been posting some of the articles that tell a far different story than mainstream press has been willing to cover, and the sanctions on Russia that have been imposed seem totally unjustified. (See Robert Parry’s recent piece in Sunday’s listing.) Since the implications have been even trending to a cold war scenario, I would think the dollar is beginning to stand on shaky grounds to say the least. But again, I am no economist.

  18. John Merryman

    Is this based on an assumption that world trade remains relatively stable? Not to say it won’t, but it does seem like we are creating another credit bubble to enable all that trade…. What happens the next time it pops?
    With computers today, it seems a barter market/auction might be feasible. What say a couple of big corporations pool their resources and start their own currency/trading unit in such a system, then let it grow from there. Paypal and ebay for the big boys.

  19. Gaianne

    The idea that a currency is not backed by some form of real–as opposed to paper–wealth is doubtful. The US dollar is backed by (mostly Saudi) oil and (US) plutonium (military force): The backing is there and it is real.

    Of course the US has gimmicked the system to its advantage, but that gimmick can only hold while there is real wealth and power to leverage.

    When the US oil production goes back into decline in two years (as the fracking goes dry) and the Saudi decline steepens, much will depend on how Russian production–slipping into gentle decline right now–is doing.

    If the US gets the global war it is seeking then everything will switch and depend on the success of the war or lack of it. That the US is willfully choosing such a high-risk, high-stakes gamble is a hint about how things stand right now.


  20. Andrew P

    What will happen when the US has another financial crash, and is forced to undertake desperate measures like an elimination of cash and seriously negative interest rates? Who will want to hold a currency like that?

  21. cebepe

    The French finance minister’s whining is sickening when one remembers that the French bank was found guilty of complicity in genocide. The minister should be lamenting that his country was unable and presumably unwilling to do anything about it.

  22. /L

    Well is there any alternative to
    China at the helm of a global reserve currency?
    The Euro (aka Bundesbank/Reichbank)? There is no euroland and ECB is not a real central bank that can act as real lender of last resort. There needs to be plentiful of bonds to trade not necessary US budget deficit (one can issue bonds without budget deficit) but trade deficit.
    And if USD was abandoned where will the export tigers get their surplus from if no one have deficits, and that have mainly been provided by US big trade deficit. They produce surplus for ultimately US to consume in exchange for fiat dollars.
    Of course US have benefited from those mercantilist dupes that take the perching of IMF, WB and so on at face value and produce more than they self consume and need to import, many to not have internal deficit spending in their fiat currency because they don’t understand how the fiat monetary system works.

    One can have and I have plenty of critics of US foreign policy and also domestic, but I get scared jut by the thought of getting those extreme authoritarian mercantilists at the helm of a global reserve currency. It will be out of the frying pan, into the fire. It have already wrought extreme misery to Europe with the Germans as masters of EU local reserve currency, nobody in his right mind would want that on a global scale?
    China would probably be better than Germany, they at least do help by using the power of their fiat-currency nationally to get things going. EU/Germany is beyond salvation. At the crisis at the shift of 80/90s US urged EUrope to help out and them to do some deficit spending to get things going, but of course EU refused and waited for US deficit spending to kick in globally. Then they (EU/germany) can with strait face condemn US large deficits and urge US to be thrifty as them self.

  23. /L

    Of course the US dollar has back up.

    “We trade little pieces of paper (our currency, in the form of a trade deficit) for Asia’s amazing array of products and services. We are smart enough to know this is a patently unfair deal unless we offer something of great value along with those little pieces of paper. That product is a strong US Pacific Fleet, which squares the transaction nicely.”

    Asia: the Military-Market Link,” published by the U.S. Naval Institute in January 2002, Professor Thomas Barnett of the US Naval War College

  24. /L

    Michel Sapin, the French finance minister is probably primarily addressing national politics, Marine Le Pen and Front Nationals growing success is not only because complaining about EU dominance but also in Gaullist spirit condemning US dominance over France as causes of their “misery”.

    Well Marine Le Pen has some points:
    “We’ve made a great deal of foreign policy mistakes under Washington’s influence, but the worst of them is Syria,”
    “We [National Front] have been the only party to stand against the option of intervening in Syria. When the crisis first started, we said France is supplying arms to jihadists, who would spread terror if they win. That’s what already happened in Libya.”
    “That’s the way the US acts in the international arena. But what is even more horrible, is that one can’t hear the voices of European countries,”

  25. theinhibitor

    “First, BNP Paribas broke US laws. No and, ifs, or buts about it. BNP Paribas made itself subject to US laws by having operations in the US, which were necessary for the bank to have access to Fedwire, the Fed’s system for processing large transactions.”

    Yes, but BNPP went through JP Morgan, that stated they “unwittingly” participated, which we all know is complete BS. Therefore, shouldn’t JP Morgan be in the same boat? But of course not, they are literally the government’s right hand banking institution! So I clearly understand France’s opinion of this whole matter.

    And Yves, you seem to miss the important concept of confidence. You see, not running trade deficits may make it hard to overcome the hegemony of the dollar, but getting the entire civilized world annoyed at using the petrodollar, and by extension a loss of confidence in the American Gov, leads many to believe that the dollar is a riskier asset, whether or not it may be, which leads to selling.

    1. Yves Smith Post author

      No, you need to read up on the case. BNP Paribas doctored the records. JPM gets off clean because there was no way they could have known with wires with the identity of the real customers hidden. And these transactions in progress are handled by computers or low-level staff because they are routine and take place in huge volumes.

  26. nothing but the truth

    the bretton woods I collapsed in 1970 because the US had abused its power beyond what the system could handle.

    The current system will survive till the advantages extracted by the US are reasonable. Otherwise the others will start building an alternative in seriousness. Once that attempt starts, it is over for the USD.

    The problem is not others trying to move away from the dollar, it is the Americans becoming too obvious in their attempts to get foreign resources for seigniorage.

    At the moment all the players in the world have settled on monotonic asset inflation. At some point that will lead to political problems in the old world. Politicians the world over know the reality of paper money, they don’t need to read MMT to (mis) understand seiniorage. They know the game the US plays. Once the games goes against them (as in the Arab spring riots over food), they will look to save their own skin, not the USD.

  27. nothing but the truth

    yves says they broke the rules. (legalese)

    he french minister is saying the rules are wrong. (politics)

    rules are made by the political process. If political players are complaining about the rules (bretton woods) “change” may happen.

    1. Yves Smith Post author

      No, these are banks and they are wards of the state. The REAL threat was that the US could have yanked BNP’s US banking licenses, which would be like a gunshot wound in the torso. BNP would have taken enormous damage and might not have survived.

      You are missing the power dynamics. Banks live at the sufferance of the state. BNP forgot that.

Comments are closed.