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October 8, 2018
15
to a December
paper by Barry
Eichengreen of
the Univers i t y
of Cal i fornia at
Berkeley and two
researchers from the
European Central Bank.
While any serious ero-
sion of the dollar’s status
would take years, the U.S.
can’t take its preeminence
for granted, says Eichengreen:
“Being the incumbent interna-
tional currency is an advantage, but
it’s not the only thing that matters.”
The most immediate risk to the dol-
lar is that the U.S. will overplay its hand
on inancial sanctions, particularly those
against Iran and countries that do business
with Iran. In May the Trump administration
withdrew fr
om the 2015 deal that eased sanc-
tions on Iran in exchange for that country’s
promise to stop certain nuclear activities. The
U.S. will reimpose sanctions on Nov. 4 and is suc-
cessfully pressuring companies outside the U.S. not
to do business with Tehran (page 42). European com-
panies and banks could be punished by the U.S. if they
inadvertently transact with sanctioned Iranian groups
such as the Islamic Revolutionary Guard Corps.
European leaders, in response to what they perceive
as an infringement on their sovereignty, are openly work-
ing on a payments system that would enable their compa-
nies to do business with Iran without getting snagged by the
U.S. Treasury Department and its powerful Oice of Foreign
Assets Control. One idea is to set up a government-funded
organization, which would be less vulnerable to U.S. actions
than a private company or bank, to arrange exchanges of
Iranian oil for products from Europe and possibly Russia and
China as well. French oicials say the transactions might be
structured as barter to avoid involving banks. “We cannot
accept as Europeans that others, even our closest allies and
friends, determine who we can do business with,” Federica
Mogherini, the European Union’s foreign policy chief, said at
the Bloomberg Global Business Forum on Sept. 26.
The Europeans’ progress has been slow, so there won’t
be anything ready in time to alleviate the sanctions taking
efect in November, says Carsten Brzeski, a former European
Commission oicial who’s now chief economist of ING-DiBa,
the German branch of the Dutch banking company ING
Group. Indeed, U.S. national security adviser John Bolton
dismissed the European plan from the sidelines of the United
Nations General Assembly meeting in late September, call-
ing the European Union “strong on rhetoric and weak on
follow-through.” He needled, “So we will be watching the
development of this structure that doesn’t exist yet and has
no target date to be created.”
Still, Bolton may come to regret his dismissiveness. Even
if Europe’s workaround isn’t ready for prime time, it needs
to be viewed as part of the widespread dissatisfaction with
the dollar’s dominance. That dissatisfaction is only mount-
ing. In 2016, Jacob Lew, then-President Obama’s secretary