Weaponising Money

In the days of emperors, they had the habit of telling the mint to use less gold in coins, so everyone owed money by the empire got paid less than they expected, but the power of most empires meant creditors of the empire had no choice but to accept the coins.

 Going to the 19^th century, there were several major currencies, called reserve currencies since major banks had to keep them in reserve. The UK empire had about a quarter of the world as colonies, and each colony had their own currency, but when paying for international trade between two colonies or the colony and the UK, they had to pay in £ sterling, so the £ was a reserve currency. The French had a smaller empire, but, again, when French colonies had to pay for international trade between two French colonies or with France, they had to pay in ₣, so the ₣ was the #2 reserve currency. Those are the two best known of the old reserve currencies. There were more European empires, and some of their imperial currencies were also reserve currencies.

 Then came World War II that left the UK and France broke. The US and the USSR told them they had to liberate all their colonies, and they had already spent far too much on the war (plus France had been a German colony for 4 years) and the ₣ had collapsed. The UK £ had always been at least $5, and Churchill had tried to keep it there, but, right after the war, it had dropped to $4.80 (and kept dropping) and it took ₣1,000 to equal £1.

 But, before the war ended, a strange thing happened in 1944 at Bretton Woods. The US$ was declared the Key Currency. This was because the US$ and only the US$ was a major currency backed by 24K gold (the South African Rand was also backed by gold, and people were not so sensitive about Apartheid back then, but the Rand was too small a currency for the job). 1 US$ could be exchanged by anyone not an American citizen or permanent resident for about 889 mg of gold, the US had a huge amount of gold in Fort Knox, so there were lots of US$, enough to support world trade. So a US$ was the same as gold, and everyone agreed that the only real money was gold. For the first time in history, the world had a Key Currency, the standard currency for all international transactions. Sort of. Since, really, the US$ was the same as gold, it was just a very convenient form of gold to use for international transactions, and everyone agreed to use the US$, making the US$ the Key Currency. For historical reasons, the UK£ and the French₣ remained reserve currencies, as was the US$. Eventually, after they managed to recover economically, the GermanDM and the Japanese¥ became reserve currencies, and also the SwissCHF. But the US$ was the one and only Key Currency, something never seen before 1944.

 Then, in 1971, President Nixon announced that the US$ could no longer be exchanged for gold. A US$ was just a US$, a piece of paper worth whatever people thought it was worth. But, in the absence of any alternative, and with the huge growth in international trade after WWII, the US$ remained the Key Currency.

 If someone put US$ in a Swiss bank, their deposit was somewhat protected from scrutiny, and the depositor remained the owner of the currency unless a Swiss court ordered the depositor to pay for something like a fine that could be taken from the deposit, and the Swiss courts usually would not do that, which is why many people preferred Swiss banks.

 Next came SWIFT, The Society for Worldwide Interbank Financial Telecommunication (Swift), legally S.W.I.F.T. Many banks are on SWIFT, meaning all depositors have a SWIFT code, and money is easily transferred by computer or app or a visit to the bank from one SWIFT account to another. And since SWIFT was so easy to use, it became the standard for international transactions.

 But now that the world had a Key Currency and SWIFT for international transactions, the US suddenly realised what they could do.

The US can ban a country from using the US$ or SWIFT. Any tourist to a sanctioned country can only bring cash, since credit cards and traveller’s cheques don’t work and there is no way to make international payments. The first victims were Cuba and the DPRK, then Iran, then Venezuela. All their money in banks outside their own country was frozen. Switzerland, strictly neutral for 200 years, honours any US request to freeze US$ accounts in any Swiss bank.

 For more than 40 years, Iran has found all international trade and tourism very difficult. Venezuela didn’t have a problem until Chavez nationalised US oil property and spent the money on the Venezuelan people when, under US law, all that money belongs to US oiligarchs.

 With the G7 strongly supporting the US and holding most of the world’s money, US sanctions on nations cause massive problems, typically starvation and death from treatable injuries and illnesses.

 So, when the US put those sanctions on Russia, …

 The weaponised US$ proved to be a dud. The G7 honour the US sanctions. The G7 announced they would be leaving Russian energy at the end of their current contracts (after they get LNG terminals that can accept US LNG), and also that, when they paid in US$, all those US$ were frozen by the US, and none went to Russia.

 So Russia demanded payment in rubles ₽, which cannot be frozen by the US. And the Europeans who could not completely abandon Russian energy had to pay in ₽ or close their factories for lack of energy.

 Not only that, the GDP of the G7 is now less than the GDP of the BRICS at PPP, so Russia can sell all their oil and gas to India and the PRC and get paid in rupees ₹ and yuan 元.

 But there’s more. The US military said that oil can only be sold for US$, and when Saddam and Gaddafi said they’d accept payment in other currencies, the US military quickly got rid of both of them. Saudi never considered accepting payment in anything except the US$, since the US was their biggest customer, so the US and Saudi were locked in an economic embrace: the US had to have Saudi oil, and Saudi had to have US customers and protection.

 But that was then.

 Today, the US is a net exporter of oil, and Saudi’s biggest customer is the PRC, so now Saudi accepts the 元, and India is a big enough and important enough customer that Saudi accepts the ₹, and Saudi is desperate to join the BRICS.