July 15th, 2014
11:33 AM ET

The danger of America's 'economic drone'

For more What in the World watch Sundays at 10 a.m. & 1 p.m. ET on CNN

By Global Public Square staff

We’re sure you heard about the Paris-based bank, BNP Paribas, which fell afoul of Washington's regulators and agreed to plead guilty to a felony and pay a staggering $8.9 billion fine – larger than its annual profits.

So it must have violated a slew of laws, right? Actually, no. It hadn't violated French law, or EU law, or any of its obligations under the WTO or the United Nations. It hadn't even violated a French-American treaty.

What in the world?

BNP Paribas violated a set of unilateral American sanctions, passed by Congress, that were never affirmed or followed by the European Union or France.And neither the buyers nor the sellers in any of the transactions BNP was involved in were Americans.

So what was Washington's hold on BNP? It all centers on the central role that the dollar plays in today's globalized economy. You see, even if two foreign companies want to do a deal, assuming it’s a large transaction, the deal is likely to be denominated in dollars – the currency that everyone has access to, is available in ample supply, is a symbol of stability and, as a result, remains the world's reserve currency.

But here's the catch: If the deal is denominated in dollars, at some point it has to go through an institution with an American banking license, which gives it access to the Federal Reserve System. Without this access, no bank can really function in the global economy today.

Welcome to America's economic nuclear weapon.

In fact, it's even more lethal because, unlike nukes, only America has this weapon. And in some ways this power has grown as economies have become more globalized and trade and capital flow faster around the world.

It’s this weapon that is the real force behind the Iranian sanctions, the reason that Iran simply cannot conduct much international trade anymore. It’s this weapon that lies behind the threats to ramp up sanctions against Russia that, if acted upon, would ensure that Russian banks, companies, and businessmen named would lose access to the dollar window and thus, make all their transactions more difficult and expensive.

Now this might seem a good thing when you consider what BNP has pled guilty to – aiding and abetting the tyrannical, murderous, even genocidal regime in Sudan.And it has brought Iran to the negotiating table. And Russia should worry about the costs of its actions in Ukraine.

But, but, but…The problem is that this is a unilateral American power that is prone to abuse. Right now, in wielding this weapon, a handful of American officials are prosecutors, judges, juries and hangmen. They accuse a company, determine that it’s guilty, threaten to withdraw access to the dollar, and then levy fines.

The Economist says that the legal process used against BNP Paribas – with no agreed upon rules, no checks and balances, no appeals process was – “closer to an extortion racket than justice.”

And in America's usual chaotic and entrepreneurial system, this means that local regulators can pursue their own agendas for self-serving motives. In the BNP case, New York's regulator got a portion of the fine that is four times the size of his agency's annual budget.

The capriciousness with which the U.S. has sometimes used its authority has led to growing resentment across the world, from France to Moscow to Beijing. For now, the dollar reigns supreme. But if these actions proliferate, it will fuel the search for some alternative system that does not place countries at the mercy of any and every American regulator.

This dollar window is somewhat like another favorite American weapon – the killer drone. When used in a carefully controlled set of circumstances, for vital and justifiable reasons, against truly nefarious people it serves a powerful purpose. But if used too often, or loosely, carelessly and arrogantly, it can produce a backlash that undermines the basic objective.

BNP got what it deserved.

But perhaps it's time for the United States to set up a proper system with checks and balances that determines when this exorbitant privilege of having the world's reserve currency can be used as a deadly weapon of economic war.


soundoff (19 Responses)
  1. palintwit

    Q: What's the difference between Hitler's SS and Sarah Palin's tea party patriots?
    A: The SS wear hobnailed jack boots and tea party patriots wear size 34 floppy clown shoes.

    July 15, 2014 at 11:49 am | Reply
    • So True

      Don't forget the SS drank beer and tea party patriots drink Everclear from Mason jars on the "lean to" of their trailers.

      July 16, 2014 at 10:00 am | Reply
    • Mark

      I don't understand what Sarah Palin has to do with the Money Changers attack on BNP. What's her connection or do you just dislike the woman.

      July 28, 2014 at 6:10 pm | Reply
  2. Mac

    BNP, Barclays, BP ... there seems to be some kind of alphabetic logic here. Crédit Agricole and Commerzbank next?

    July 15, 2014 at 12:26 pm | Reply
  3. EWRQWER1234

    VENEZUELANS HAVE CITY BANK ACOUNT IN USA.

    GENOCIDE PROYECT RODOLFO VALLEJOS.

    HAVE AN ACCOUNT.

    July 15, 2014 at 1:10 pm | Reply
  4. EERTWERTWRQWER1234

    VENEZUELANS HAVE CITY BANK ACOUNT IN USA.

    GENOCIDE PROJECT RODOLFO VALLEJOS.

    HAVE AN ACCOUNT.

    July 15, 2014 at 1:11 pm | Reply
  5. chri§§y

    And yet Congress feels they have a leg to stand on in the action of sueing Obama for passing law without their consent?? And they havent proved that he in fact did that even! Oh perhaps i should be more specific...i mean REPUBLICAN congress people! Anyway it seems a bit two faced given the way they pass laws governing other countries banking policies doesnt it? Of course i may have interpreted this story wrong and if so i would appreciate some productive interpretation please.

    July 15, 2014 at 2:56 pm | Reply
  6. Joey Isotta-Fraschini©

    I am happy to see that my nation has this power. I am not partial to the current fad of aspiring to a weaker, more vulnerable America.
    As I understand the article, the USA is just saying what can and cannot be done with its own currency, not with other nations' dimes and nickels. I don't see any reason that we cannot do that.

    July 15, 2014 at 10:37 pm | Reply
    • Jeffr

      "I am happy to see that my nation has this power. I am not partial to the current fad of aspiring to a weaker, more vulnerable America. As I understand the article, the USA is just saying what can and cannot be done with its own currency, not with other nations' dimes and nickels. I don't see any reason that we cannot do that."

      And it is exactly the arrogance and ignorance of people like you that will bring this nation to its knees. Eventually, these mafia methods will catch up with this country. USA became strong because of productivity and creativity, something that bums like you don't possess. If you have nothing left to contribute, just bullying, you will fail.

      September 14, 2014 at 5:51 pm | Reply
  7. chri§§y

    Agree @ Joey. And i wasnt saying we couldnt, i was saying its hypocritical of Congress to think they can sue the POTUS for alegedly doing exactly what they feel is ok for themselves to do!

    July 16, 2014 at 7:09 am | Reply
  8. The GOP Solution

    The GOP Prayer/Mantra/Solution: Dear God...With your loving kindness, help us to turn all the Old, Sick, Poor, Non-white, Non-christian, Female, and Gay people into slaves. Then, with your guidance and compassion, we will whip them until they are Young, Healthy, Rich, White, Christian, Male, and Straight. Or until they are dead. God...Grant us the knowledge to then turn them into Soylent Green to feed the military during the next "unfunded/off-the-books" war. God...Give us the strength during our speeches to repeatedly yell........TAX CUTS FOR THE RICH!!!..........and........GET RID OF SS AND MEDICARE!!!
    In your name we prey (purposely misspelled, or is it?)........Amen

    July 16, 2014 at 9:58 am | Reply
  9. JC

    How about less emotion and more reality.

    The bank in question knew the rules and chose to ignore them. The case against the bank was strong and the bank chose not to fight it.

    July 16, 2014 at 12:01 pm | Reply
  10. chri§§y

    Lol @ JC you seriously thought that was emotion? Not at all. As Joey said its absurd. As for the rest obviously they knew...they arent fighting it.

    July 16, 2014 at 12:35 pm | Reply
  11. chri§§y

    And to clarify...the absurd part is republicans sueing the POTUS.

    July 16, 2014 at 12:37 pm | Reply
  12. j. von hettlingen

    For this reason the BRICS want to create their own development bank to compete with the World Bank. The next step would be for China and Russia to find a new reserve currency to replace the dollar. They seem to have enough of Pax Americana and are trying to set up a new world order.

    July 17, 2014 at 10:59 am | Reply
  13. chri§§y

    Havent they been doing that with the bitcoin i think its called? Lol

    July 19, 2014 at 1:21 pm | Reply
  14. Yuanrong

    Is this the Triffin dilemma in action or real power? Perhaps it is both.

    July 20, 2014 at 11:37 am | Reply
  15. james roberts

    "The capriciousness with which the U.S. has sometimes used its authority has led to growing resentment across the world, from France to Moscow to Beijing. For now, the dollar reigns supreme. But if these actions proliferate, it will fuel the search for some alternative system that does not place countries at the mercy of any and every American regulator."..... This is why Saddam Hussein, Iraq, wanted to sell oil without USD as currency, and why BRICS agreed to fund a $100B alternative to IMF. The world is tired of USA, Baby Huey (Big, powerful, dumb), doing whatever it wants, whenever it wants. Can't wait for counter force to grow; slap down time coming soon, sooner than most know

    July 21, 2014 at 5:54 pm | Reply

Post a comment


 

CNN welcomes a lively and courteous discussion as long as you follow the Rules of Conduct set forth in our Terms of Service. Comments are not pre-screened before they post. You agree that anything you post may be used, along with your name and profile picture, in accordance with our Privacy Policy and the license you have granted pursuant to our Terms of Service.

Follow

Get every new post delivered to your Inbox.

Join 4,762 other followers