Trump Helpless Against Alternative Payment System Designed To Circumvent Sanctions (#GotBitcoin?)
Europe Gears Up Trade Mechanism. Trump Helpless Against Alternative Payment System Designed To Circumvent Sanctions (#GotBitcoin?)
European officials confirmed at Friday’s meeting that a trade mechanism, known as Instex, was now operational and was starting to process its first few transactions. Seven European countries said they would join France, Britain and Germany in their work on Instex, which seeks to allow trade between European and Iranian companies without the need for direct financial flows.
Iranian officials say Europe needs to do more to encourage the country to stay within limits of 2015 pact.
Iran said it would proceed with its plans to stop complying with some limits in the 2015 nuclear accord, but left the door open to a pause in those steps after European countries made progress in opening a trade channel to cushion the blow of U.S. sanctions on Tehran.
Friday’s developments mean Europe might win valuable time for diplomatic efforts aimed to defuse heightened tensions between the U.S. and Iran over Tehran’s recent military actions and its nuclear work.
Abbas Araghchi, Iran’s deputy foreign minister and a key player in Iran’s nuclear negotiations, said he would report back to Tehran on the progress made by European governments in developing a mechanism to cushion the impact of tight U.S. sanctions on Iran. He didn’t rule out the possibility that Iran would pause more drastic steps to move away from the 2015 deal.
Officials from Britain, France and Germany met with Iranian, Russian and Chinese officials Friday in Vienna, with the aim of persuading Tehran not to exceed limits set in the 2015 nuclear accord, which set tight limits on Tehran’s nuclear work in exchange for the suspension of most international sanctions.
“I can say one step forward compared to the previous meetings…But it is still not enough and it is still not meeting Iran’s expectations,” Mr. Araghchi said. “I would certainly report back to Tehran the developments that took place in this meeting…and the final decision obviously would be by Tehran to take.”
Iran is expected to surpass in coming days a limit imposed in the nuclear deal on its stockpile of enriched uranium, a material that can be used to fuel a nuclear weapon. Iranian and European officials indicated after Friday’s meeting they still expected Tehran to exceed this cap.
However, Iranian officials had warned they could take additional bigger steps to move away from the accord from July 7, including enriching uranium to 20% purity—closer to weapons grade—and measures to renew work on its Arak plutonium reactor. Mr. Araghchi said that he doubted they would be paused but that it wasn’t his decision to make.
France, Britain and Germany set up Instex in January but it wasn’t operational until now. On Wednesday, The Wall Street Journal reported that the mechanism would be given a credit line—or advanced payments system—of a few million euros to help the system get going. Officials confirmed that Friday.
Until now, other European countries had been reluctant to get directly involved in Instex, in part because of U.S. pressure to avoid the scheme. However Sweden, Spain, the Netherlands, Finland, Belgium, Slovenia and Austria said in a joint statement they would back the scheme. The Dutch confirmed they will become shareholders. Others are expected to follow.
U.S. officials largely have been dismissive of the European trade mechanism. Some U.S. lawmakers have called for sanctions to be prepared either against Instex or against a mirror Iranian company that is supposed to net out Iranian exports and imports from Europe in a similar way.
Britain, France and Germany have a special trade channel up and running with Iran that aims to circumvent U.S. economic sanctions, the EU said in a statement.
“France, Germany and the United Kingdom informed participants that INSTEX had been made operational and available to all EU Member States and that the first transactions are being processed,” the EU said in a statement, referring to the channel’s formal name.
Iran has also established an entity to trade with Europe, while some more EU countries are joining INSTEX as shareholders, the statement said, following talks between the remaining signatories to the Iran nuclear deal – Russia, China, Britain, France and Germany – after the United States pulled out.
European Alternative To Swift Is The Instex System
For a long time, Ukraine’s current government has been following a strategy based on the good old Chinese approach: “If you wait by the river long enough, the bodies of your enemies will float by.” Chinese stratagems are applicable only to the Chinese. Sitting by the river might take thousands of years, and the Ukrainian Cabinet of Ministers has only five years.
Ukraine has no time to wait. Nevertheless, the general state strategy relies precisely on “passive assiduity.” Our officials guaranteed us that the Crimean bridge would not be built, the Russians would not host the World Championship, the Nord Stream – 2 would never be launched, and the sanctions would immediately kill Russian economy, and Russian Federation would collapse soon.
One of these expectations is the topic of disconnecting the Russian Federation from the SWIFT payments system.
Recently, SWIFT issue has been widely discussed by the EU, which does not fully agree with the “hawkish” US policy against Iran and the Russian Federation.
The EU has applied the so-called blocking regulations as a preventive measure to formulate a policy independent of the United States against Iran. The extraterritorial sanctions of the United States are not applied to European companies. The EU regulation prohibits its companies to comply with the US sanctions requirements.
EU High Representative for Foreign Affairs and Security Policy Federica Mogherini announced the launch of a project to create an alternative system that could secure financial transactions with Iran, bypassing US sanctions radars. As conceived by the European functionaries, this system might become a global project. Theoretically, something similar can happen if the US sanctions against the Russian Federation are strengthened, if Europe does not want to join them. In this case, the alternative transaction program will include the Customs Union countries and, possibly, China.
Everything would be fine, and the EU’s blocking regulation could completely level the entire US sanctions package if not for one small detail. At the moment, SWIFT is an international interbank system of information transfer and making payments between banks and their customers. The bank must be a member of this system in order to use the money transfer services within the overall system. If a financial institution does not comply with the established regulations, including with regard to the control of customers’ operations, it may be restricted in conducting international settlement transactions or excluded from the list of participants, as it happened with Iranian banks.
The legal status of SWIFT is a cooperative society registered in Belgium under local law; it unites more than 9,000 banks from almost two hundred countries of the world. The annual turnover of transactions is 4-5 billion payment orders. Daily financial turnover is 6 trillion USD.
Today, financial transactions are monitored by the United States using the ECHELON Global Electronic Intelligence System technology, and structures such as the National Security Agency (NSA) in the United States are connected to it. That is why the bank customers believe that payments in euros go faster and are less monitored than similar transactions in dollars.
The introduction of US sanctions against SWIFT would result cutting off 34% of its payments (that is how much dollars transactions were made in 2018).
In fact, Ukraine is on the verge of a very painful failure of its foreign policy. Something similar has already happened with the projects to bypass Russian gas pipelines. We have lost our first passing move several years ago, although at first Ukraine managed to block the Black Sea South Stream through the transit of Russian gas to Bulgaria and to the European market. As it turned out, the Bulgarians supported us idly. After all, South Stream gradually transformed into TurkStream, silently taken by Kyiv. Then, Nord Stream 2, which can completely transfer our transit potential to zero profitability, was also missed by Ukraine.
Now Ukraine practically prefers not to notice launching of a European alternative to SWIFT – the INSTEX system. Ukrainian Foreign Minister likes to repeat that the dependence of Russian gas exports on the Ukrainian GTS does not allow Russians to intensify aggressive actions against Ukraine. In fact, a universal sanctions weapon that can be compared with a financial neutron bomb is not a pipe, but an interbank currency transfer system, on which not only the currency reserves of the Central Bank of the Russian Federation depend, but also the currency assets of the entire Russian business and population. And the creation of INSTEX (if this system works in full-format mode) would be a major anti-authorization tool, helping the Russian to eliminate the basic transaction risks from the United States.
The Beginning Of The End Of SWIFT: Russian Banks Join Chinese Alternative Global Payments System
With Russia actively dumping US dollars and buying gold at the fastest paced in decades, the writing is on the wall when it comes to what the Kremlin thinks of any possibility for a detente in the painfully strained US-Russian relations.
And with Russia now clearly seeking to end monetary ties with a dollar-denominated “west”, there is just one alternative – China. Which is why it will probably not come as a surprise that several Russian banks joined the China International Payments System (CIPS) also known as China’s “SWIFT”, to ease operations between the two countries, according to a senior official at the Central Bank of Russia (CBR).
“As for the cooperation on payment systems, a range of banks are already connected to CIPS, allowing to facilitate payments routing procedure,” Vladimir Shapovalov, who heads a division dealing with foreign regulators at the CBR’s international cooperation department, said earlier this week during the international Russian-Chinese forum.
Meanwhile, as RT writes, the regulator hopes that in turn, Chinese counterparts will pay more attention to Russia’s own SWIFT alternative, the SPFS (System for Transfer of Financial Messages), as “it can further boost bilateral trade”, the official added.
As RT adds, Russia has been actively demonstrating the SPFS network, which was created in 2014 in response US threats of disconnecting Russia from SWIFT, to foreign partners, including China after its export version was finished late last year. The first system transaction involving a non-bank enterprise, was made by Russian oil major Rosneft in December 2017. Some 500 participants, with major Russian financial institutions and companies, have already joined. And with Europe contemplating alternatives to SWIFT in order to keep funding the Iran regime in light of its exclusion from the dollar-based monetary system following Trump’s reimposition of Iranian sanctions, it would land a major blow to the US Dollar’s reserve status if Brussels announced that it, too, would be joining either the Chinese or Russian alternative to dollar hegemony, a process which based on reserve managers’ declining allocations to US dollars…
… is already taking place.
Japan Has FATF Green Light To Create ‘Swift Network’ For Crypto: Report
Japan is said to be leading the creation of an international cryptocurrency payments network similar to banking network SWIFT.
A report from Reuters on Thursday cites a source familiar with the effort as saying that the network is aimed to combat money laundering and was approved last month by the Financial Action Task Force (FATF).
A team from the international money laundering task force would monitor development of the project, which will be conducted alongside other nations, the source said.
The network is an initiative from Japan’s Ministry of Finance and the Financial Services Agency (FSA) watchdog. Reuters said both agencies would not comment when contacted.
Japan had been more closely scrutinizing crypto exchanges as the host of a June meeting by the G20 group of nations, and also launched a working group to discuss regulatory issues around Facebook’s Libra cryptocurrency prior to the G7 meeting last week.
The nation has suffered a number of notable hacks of crypto exchanges, including two of the world’s biggest and most shocking: Mt. Gox and Coincheck.
Largely as a result of the Gox breach, Japan has been one of thee most proactive countries when it comes to regulation of cryptos. In 2017, it created a licensing scheme for exchanges and amended its financial rules to allow bitcoin as a legal payment method.
Top U.S. Sanctions Chief Fed-up With Trump’s Micro-Management Departs
Sigal Mandelker is Treasury’s undersecretary for terrorism and financial intelligence.
The Trump administration’s top sanctions chief—responsible for wielding the financial firepower of the world’s most powerful economy as the White House’s primary foreign policy tool—is leaving for the private sector, top U.S. Treasury officials said.
Sigal Mandelker, Treasury’s undersecretary for terrorism and financial intelligence, signaled over the summer her desire to return to the private sector, the U.S. Treasury secretary told The Wall Street Journal.
Ms. Mandelker said that although she has no immediate plans, a return to the private sector would offer her a more normal pace of life allowing her to spend more time with her family.
BRICS Nations Discuss Shared Crypto To Break Away From USD And SWIFT
Brazil, Russia, India, China and South Africa, or the BRICS economic bloc, are engaging in discussions to issue cross-national digital money in order to reduce the dependence of their economies on the United States, as reported by Cointelegraph on Nov. 14. What will the new cryptocurrency look like, how does the BRICS group plan to use it and are there any existing projects underway that seek to achieve a similar goal of independence on such a high level?
BRICS And Its Problems
BRICS is the largest geopolitical block of countries, spanning three continents and wielding substantial economic power in global affairs. As of 2018, the five nations of the BRICS block had a combined nominal gross domestic product of $40 trillion, or about 23.2% of the gross world product.
However, such economic power does not come without competitive penchants from other nations that are vying for the markets that BRICS nations cater to. The greatest competition comes from the European Union and the U.S.
The political experience of recent years has shown that BRICS countries’ diplomacy has arguably failed in alleviating international sanctions, especially in politically sensitive markets such as the arms and the energy carriers markets. However, advances in technology are here to help out where politics cannot, as blockchain and digital assets have the potential to open entirely new horizons for finance.
The idea of a single cryptocurrency as a means of payments and value transmission is not a new one, but it is one that is being actively purported not only in countries like Venezuela with its Petro, but also among BRICS countries. The advantages of a single cryptocurrency as a universal means of settlements among BRICS nations would solve many of the problems they face on the global economic market.
A Means Of Circumventing U.S. Sanctions
The BRICS Business Council discussed creating a common cryptocurrency as a potential solution to these problems during the 11th BRICS summit that was held in Brazil on Nov. 13–14, according to reports that cite Kirill Dmitriev, a member of the council. Dmitriev, who is the director-general of the Russian Direct Investment Fund, went on to say that an efficient BRICS payment system could be used to stimulate settlements between the countries while reducing the use of the U.S. dollar for these purposes.
It was also reported that the new system may become an alternative to the international payment mechanism SWIFT to facilitate trade with countries under U.S. sanctions.
Dmitriev also noted that in recent years, the share of U.S. dollars payments made between the BRICS countries has significantly decreased. In Russia, for example, over the past five years, the share of USD in foreign trade transactions fell from 92% to 50%, while those made in the Russian ruble rose from 3% to 14%.
At the same time, the potential for reducing the U.S. dollar’s dominance is still great, according to macroeconomic analyst Oleg Dushin, who told Russian media outlet BFM that such could be the case if Russia and India changed the currency they use to make payments between each other.
Dushin also said that Russia and China have already stopped using U.S. dollars in half of their mutual settlements and that there is currently a general trend of driving the dollar out of the international payments system. This, according to the expert, will help BRICS countries weaken the influence of the dollar in the global monetary system and reduce the risk of payments being frozen by Washington.
Denis Smirnov, a blockchain consultant from Russia, noted to BFM the convenience and reduction of transaction costs as some of the advantages of creating a single cryptocurrency system for the BRICS countries, calling it an alternative to bonds.
Commenting on the possibility of BRICS countries using a single cryptocurrency, Vladimir Rozhankovsky, an expert at the International Financial Center, told BFM:
“If it is possible to reduce currency risks, then it is better to carry out trading payments directly, and not through the purchase of dollars — this is obvious. The vast majority of more or less large global economies are now working on this issue.”
Peg To Gold, Not The U.S. Dollar
While it is still unknown what the BRICS cryptocurrency will look like exactly, experts are discussing what it could potentially be tied to. Commenting on the possible options that the international cryptocurrency may be tied, Elina Sidorenko, the head of the Russian State Duma’s working group on cryptocurrency issues, said that there are several options on the table.
For example, it could be tied to the value of another cryptocurrency, she told Russian media outlet Dp, “but in this case, it’s impossible to avoid either the continuation of the U.S. dollar’s monopoly,” or it can be pegged to the price of a raw material or a good, but then the risk of market manipulation becomes a threat. She concluded:
“The thirasd option is a link to gold, and taking into account the latest Basel Accords, such a decision seems very convincing and timely.”
Olinga Taeed, a council member and expert advisor at the China E-Commerce Blockchain Committee, told Cointelegraph that the Chinese have been researching the possibility of issuing a gold-backed token due to the country’s access to natural mineral reserves in Africa through China’s Belt and Road Initiative. He went on to add:
“More recently frictionless international trade has come to the fore with DLT looked upon as a possible solution for Brexit for example, replacing the usual 5-10 year gestation period. So the thinking is well rehearsed but what is new here is the willingness to enact it and for evidence of this there is absolute clarity. Trump has made transparent the long established use of the financial instrument of the dollar to pressurise Iran, Russia, China, etc for non-financial gain.”
Russia Seeks An Alternative To Swift
Russia has been the target of sanctions since 2014. As a result of multiple economic restrictions, Russian authorities have been considering the possibility of creating alternatives to SWIFT.
One of them — the System for Transfer of Financial Messages, or SFPS — is reportedly being used in 18% of money transfers in the country, and foreign financial organizations began to join SPFS in 2018. However, in April, Russian Finance Minister Anton Siluanov noted that SPFS is not a full-fledged replacement for SWIFT and that it is unlikely to become one in the near future.
Now, the Russian government is considering another alternative: a national cryptocurrency secured by gold. Elvira Nabiullina, head of the Central Bank of Russia, said that such a currency could be used to carry out settlements with other countries for trade transactions. However, Nabiullina is also of the opinion that it is more important to develop international settlements facilitated by national currencies rather than crypto.
The sanctions had blocked at least 20% of Russia’s defense transactions in 2018 due their tether to the U.S. dollar. Though Russian authorities are gradually moving toward settlements in national currencies with BRICS states, the idea of a unified cryptocurrency is being openly discussed as an effective, transparent, untraceable and stable instrument for circumventing U.S. sanctions and decreasing dependence on the U.S. dollar.
BRICS states would be able to disregard any exchange rate differences in settlements in a single cryptocurrency, and Russia would gain solid support for its national currency — the ruble — which suffered a twofold drop in value.
China Considering A National Crypto To Bypass U.S. Sanctions
China is the leading nation of the BRICS bloc in terms of GDP and the most open nation when it comes to discussions about blockchain implementation. China is intent on accelerating the development of its own central bank-backed digital currency and is working toward the integration of blockchain technologies into other important financial mainstays of the country, such as Alibaba, Tencent and various banking institutions.
Such hasty development could in part be the result of a heated debates about Facebook’s Libra coin. Chinese analysts fear that the development of a global digital currency by a company, which is regarded to have strong affiliations with the U.S., would threaten the existence of national currencies and weaken their exchange rates. Such a stablecoin backed by the U.S. dollar may increase the power of its penetration into the global economy and thus solidify the political positions of Washington.
Chinese authorities are interested not only in the development of a unified cryptocurrency for settlements with BRICS countries but also in the launch of a national cryptocurrency that would serve as a shield against the economic adversary across the Pacific.
Brazil Has A Positive Stance On Using Stablecoins
Brazil is demonstrating the highest rate of Bitcoin (BTC) trade in Latin America. Such broad penetration of digital assets in Brazil makes it both fertile ground for the development of a national cryptocurrency and firm ground to support for a unified BRICS cryptocurrency for settlements with member states.
Given the country’s positive stance toward blockchain, Brazilian authorities seem to be open to discussions with stablecoin issuers. One recent example is that of the Mile Unity Foundation, whose representatives met with members of Brazil’s Ministry of Industry, Foreign Trade and Services to discuss the use of the XDR stablecoin for international transfers of funds.
Given that Brazil had an export/import balance of $219 billion to $140 billion in 2017 alone, the potential for using a single cryptocurrency with BRICS member states for increasing such figures is immense.
Although Brazil does not suffer from sanctions, its main trade partners in technology, such as Russia, are subject to them. Using the U.S. dollar for mutual settlements between countries leaves little room to maneuver.
India Is Fighting With Poverty And Corruption
The Indian authorities are reportedly discussing the introduction of a national digital currency. There may be significant reasons for such a move, not the least of which being the alleviation of the poverty that many of the country’s 1.3 billion are languishing in.
The Reserve Bank of India is pushing for such a digital currency backed and regulated by the central bank as legal tender. The RBI hopes that blockchain can alleviate the issue with corruption, which is rampant in India, and significantly reduce the dependence of millions of Indians working abroad on financial intermediaries in cross-border transfers.
The Indian authorities are also proponents of a national digital currency for reducing the population’s reliance on other digital currencies. Given India’s stance within BRICS as a major buyer of Russian arms and as one of the most important energy trade partners, having mutual settlements in a unified digital currency would open up entirely new prospects for trading.
South Africa Is Making Money Transfers Accessible For Citizens
The possibility of issuing a national digital currency has even been discussed by the South African Reserve Bank, which could allow for its citizens to freely transact without the need for banks.
Given the staggering number of unbanked individuals (estimated to be around 11 million people) and those without any form of official IDs in the country, the availability of a national digital currency would help millions of citizens gain access to financial services and boost economic development. South Africa is just as bound to the U.S. dollar as all the other BRICS members in its settlements with China and Russia, meaning that is also feels the impact of the sanctions regime.
According to experts, the idea of creating a digital currency for BRICS may turn out to be highly viable, given the transition of the world from a monopolar political model to a multipolar one and the backdrop of a shift in the economy from traditional financial institutions to trading platforms.
And the main beneficiary so far could be China, which is interested in expanding its sales markets amid a trade war with the U.S. Smirnov told BFM that he believes that over time, such systems will become more widespread:
“For example, for the past two or more years a consortium of several European banks has been testing its own mutual settlement solution that works outside the SWIFT system and allows for interbank settlements.”
The individual national currencies of the BRICS countries have been dropping against the U.S. dollar over the past 10–20 years, but it is unclear whether a unified BRICS payment system would reverse this trend. However, it is possible that the U.S. dollar could be weakened if the share of settlements in dollars significantly decreases around the world.
Among other possible risks that may be associated with the idea of issuing a gold-pegged international digital currency, head of research at investment company Nord Capital Vladimir Rojankovsky noted the deregulation of the market and the possibility of manipulation. He told Russian media outlet Regnum, “Such an implementation of this project does not imply the involvement of any distinguished party, which is a living oversight body.”
Speaking about the further development of the BRICS initiative, Teemo Puutio, an expert in compliance and an adjunct instructor at New York University School of Professional Services, told Cointelegraph:
“Whether the BRICS backed currency would ultimately succeed in gaining traction would largely depend whether it actually facilitates trade instead of adding another layer of technological complexity for the end user. […] BRICS are not alone in this however and it remains unclear whether the dominant digital currency of the future will be public such as the e-Euro or digital yuan or private, like Libra.”
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