Monday has seen a curious coincidence that I have seen nobody else comment on regarding the status of the JCPOA Iran nuclear deal. On the one hand Iran has apparently now officially violated the agreement in terms of the amount of low level enriched uranium it has, going over the allowed limit, although it remains very far from obtaining in nuclear weapons. On the other the EU, more specifically and especially France and Germany, have gotten their alternative payment mechanism, Instex, operational. This has been set up to allow European companies to deal with Iran without using dollars or the US-controlled SWIFT clearing system.
However, it is only initially going to deal with non-sensitive items like food and pharmaceuticals, not other goods, at least not now. The Iranians have made it clear that for them to keep to the JCPOA the Europeans need to more fully offset the US sanctions. That is not happening, not at least now, although the possibility is there.
So, this may be too late, but maybe Iran will not get too far above the limits. Maybe there is still a chance to more seriously offset Trump’s illegal sanctions.
Could Instex be a step towards toppling the dollar as the world’s reserve currency? Asking for a friend.
Sure why not? Libra has a good chance of doing something similar also.
Well, let us hope that the EU goes far enough to stop this madness. It certainly will not be stopped by the US until at least 2021.
If European countries want to spend less than 2% of their GDP on their own defense then so be it. If European countries want to invite the Ukraine into the European Union then so be it. If European countries want us to sanction Russia for taking Crimea from Ukraine and then purchase Russian natural gas thru a new Baltic Sea gas pipeline then so be it. If European countries want to accept the JCPOA then so be it. If Europe wants their own payment system so they can trade with Iran, then so be it.
But there will come a time in the not too distant future when the United States will decide that our interests no longer match the interests of European countries. The repercussions of that decision will come slowly but surely.
The “Treaty on the Non-Proliferation of Nuclear Weapons (NPT)” is in the process of being shredded. This has not been happening because of any single premeditated act. It is happening because of western nations’ “political correctness” or international gamesmanship or just sheer foolishness.
The North Koreans are currently undergoing a food shortage. And as sure as the sunrise tomorrow morning, the western world will send food aid. Food which the North Koreans could purchase on the international market except they save their money for nuclear weapons systems. North Korea regularly threatens it neighbors. The threats are generally ignored because of their past history of bellicose commentary. That forbearance is going to have to change.
Iran will get nuclear weapons while European countries trade with them. Iran’s leadership regularly makes threats against its neighbors. Again that has been easy to ignore, but that will have to change once they get nuclear weapons.
What these two countries have in common is that they are isolated, paranoid, dictatorships. Just the sort of countries which should be denied the right to develop or possess nuclear weapons.
How can we expect that North Korea’s and Iran’s neighbors will deny themselves nuclear weapons?
The path to hell is paved with good intentions.
Iran will have nukes because of the US and the US wants an excuse to stir the pot in the Middle East again. The EU is intent on preventing such and also not be held captive economically by halfwit despot. The latter of the first sentence is a dangerous ploy globally and the EU becoming a monetary reserve system globally threatens the economic stability of the US dependent upon the world using the $dollar as the global currency.
So you fervently believe the EURO is a more stable and secure currency than the US dollar? That any and all countries would ALWAYS accept it as payment for goods or services?
I don’t believe that and I don’t think that is even remotely possible.
Most of the countries using the EURO are countries where their own currencies collapsed at a time in the not too distant past. Angela Merkel’s inspired waves of undocumented immigrants into Europe has shaken the European Union itself. She has effectively lost the influence and position that she once had. The European Union would like to coerce some of its members into accepting their share of those undocumented immigrants. But there is continued resistance to that idea. Not all member countries have followed the European Union’s rules concerning the management of their country’s debt levels. (Greece and Italy stand out.) The EU is not exactly a model of stability.
And the ruble and the yuan are even worse candidates than the EURO.
The US dollar is a reserve currency because other countries want to be paid in and hold a stable currency.
The countries in the Middle East are doomed because of religious differences and historic slights of whatever magnitude. They want what their neighbors will not yield. There is no cure for that except for war which would leave them worse off then they were before. Introducing nuclear weapons into that mess would be a disaster for everyone.
If you are willing to see the “Treaty on the Non-Proliferation of Nuclear Weapons (NPT)” completely shredded, then the European Union’s approach is better.
Jim – Current ten year government bond yields:
These results are possible because there is wide spread belief that the Euro is here to stay. What may or may not have happened 20 years ago is no longer relevant,
For those who believe USA reserve currency status is exclusively a blessing. From Ben Bernanke:
I note that you have very carefully avoided the question of the Euro’s likelihood of replacing the US dollar as the reserve currency.
Jim – USD global reserves = 6,6T, VS Euro share of reserves = 2.2T.
(IMF data as of 12/18)
So USA$ share of global reserves is 3X Euro. I expect that gap to narrow over the next decade or so.
Will the dollar ever be fully replaced? I don’t think so. But I’m certain the USD share of global reserves will decline.