US fines on non-US banks for breaking the country's various sanctions is rankling the international community, and speeding up the rise of the renminbi and rouble as alternate trade currencies.

​As the US dollar is the international currency, US sanctions against regimes it does not like – those in Iran, Sudan and Cuba, for example – have enormous consequences. According to the Society for Worldwide Interbank Financial Telecommunication (Swift), more than 80% of world trade is denominated in US dollars, and so to have this lifeline removed is extremely serious.  

Non-US banks once considered that they were not doing anything illegal by acting as a conduit for trade finance with sanctioned countries – after all, their home jurisdictions had not applied the sanctions. But as dollar transactions are likely to pass through the US at some point, banks doing this business, such as Standard Chartered and ING, have incurred the wrath of the US authorities and ended up with heavy fines.

The latest bank in trouble is France’s BNP Paribas, and the suggestions are that the fine will be in the region of $10bn and the bank may face a criminal charge. France has threatened economic retaliation if this goes ahead, which prompted the response from US president Barack Obama that, in the US, presidents do not intervene in the legal process. But then, other countries do not use banking laws as part of their foreign policy armoury.

What is certain is that big international banks will not be doing this kind of business in future. But there is another impact – the use of currencies other than the dollar for trade is going to increase even faster​ than it would do anyway through globalisation. ​

Expect the renminbi and the rouble to be increasingly used as trade currencies. Less than 2% of world trade was denominated in the Chinese currency back in January 2012, according to Swift. By October 2013, this had grown to 8.66%, making it the second most used currency after the dollar, and placing it ahead of the euro. Russia is the latest country to fear sanctions, and VTB’s chief executive Andrei Kostin told the newspaper the Financial Times that expanding the use of non-dollar currencies was one of the state-owned bank’s main tasks.

The era of American hegemony is drawing to a close to be replaced by a several competing power blocs. US exceptionalism – in imposing US laws beyond its borders and on non-US institutions – is hastening this process. From a pragmatic point of view, this should be an improvement – falling out with the US becomes less fatal. On the other hand, do not expect China or Russia to be any less severe with transgressors of their world view.


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