the source of US power

FT columnist Wolfgang Münchau explains that acceptance of the US dollar as a global currency gives the country extraordinary power. The United States alone can impose and enforce extraterritorial sanctions. This privilege is not available to other countries because no currency exists to replace the US dollar.

The dollar … has been an integral part of US foreign policy for many years. Its role as the global anchor currency allows the US to cut off an entire country from access to international commerce and finance, as in the case of Iran. Or a group of individuals as in the case of Russia.

The euro [in contrast] was not designed as a geopolitical instrument. ….

The biggest problem with the US president’s decision to pull out of the Iran nuclear deal is the extraterritorial effect. European companies that defy the US sanctions would be cut off from US financial and product markets. So would the banks that fund those companies. Multinational companies or banks cannot afford that. Mr Trump can behave in this way because the US is ultimately in control of all dollar-based financial flows, including those that originate outside the US.

The EU cannot impose extraterritorial sanctions on US companies ….

Instead of hyperventilating about Mr Trump, Europeans might want to reflect on what got them into this mess. The EU would be more resilient today if it had not handled the eurozone crisis the way it did, and if its founders had made the euro more robust from the outset.

Wolfgang Münchau, “The euro must be made more robust to rival the dollar“, Financial Times, 28 May 2017.


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