The US dollar is no longer used by Tehran and Baghdad in bilateral trade, giving way to the euro and local currencies, as well as direct barter of goods.
“the two countries have at least $8 billion in transactions in the worst times”
Baghdad purchases a large variety of Iranian goods, helping to maintain high employment rates.
Iraq is the second country after China in terms of trade volume with Iran.
Exports to China are almost exclusively petrochemical products.
China is the second-largest economy in the world and the fastest-growing major emerging market.
China has a voracious appetite for energy but has little oil of its own.
Iran is a major oil producer, and China is Iran’s biggest customer.
Oil is priced in dollars and dollars flow through the U.S. banking system.
Trump’s Iran sanctions make it impossible for China to pay Iran in dollars.
If U.S. sanctions prohibit dollar payments for Iranian oil, then Iran and China may have no choice but to transact in yuan.
SWIFT
Europe is also showing signs it wants to escape dollar hegemony.
German Foreign Minister Heiko Maas recently called for a new EU-based payments system
independent of the U.S. and SWIFT (Society for Worldwide Interbank Financial Telecommunication)
that would not involve dollar payments.
SWIFT in the nerve center of the global financial network.
All major banks transfer all major currencies using the SWIFT message system.
Cutting a nation off from SWIFT is like taking away its oxygen.
The U.S. had previously banned Iran from the dollar payments system (FedWire), which it controls,
but Iran turned to SWIFT to transfer euros and yen in order to maintain its receipt of hard currency for oil exports.
In 2013, the U.S. successfully kicked Iran out of SWIFT.
This was a crushing blow to Iran because it could not receive payment in hard currencies for its oil.
This pushed Iran to the bargaining table, which resulted in the Iran nuclear deal with the U.S. and its allies in 2015.
Now Trump has negated that U.S.-Iran deal and is putting pressure on its allies to once again refuse to do business with Iran.
And Congress is again pushing to exclude Iran from SWIFT as part of a sanctions program.
The difficulty this time is that our European allies are not fully on board
and are seeking ways to keep the nuclear deal alive and work around U.S. sanctions.
Hence... Europe’s solution is to therefore create new nondollar payment channels.
In the longer run, this is just one more development pushing the world at large away from dollars and toward alternatives of all kinds,
including new payment systems and cryptocurrencies.
It’s also one more sign that dollar dominance in global finance may end sooner than most expect.
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