Right now, most international financial transactions must pass
through the US banking system’s network of correspondent accounts.
This gives the US government an incredible amount of power… power they haven’t been shy about using over the last several years.
2014 was one of the first major watershed moments when the Obama
administration fined French bank BNP Paribas $9 billion for doing
business with countries that the US doesn’t like– namely Cuba and Iran.
It didn’t matter that this French bank wasn’t violating any French laws.
Nor did it matter that only months later the President of the United
States inked a sweetheart nuclear deal with Iran and flew down to Cuba
to attend a baseball game with his new BFFs.
BNP had to pay up. A French bank paid $9 billion because they violated US law.
And if they didn’t pay, the US government threatened to kick them out of the US banking system.
$9 billion hurt. But being kicked out of the US banking system would have been totally crippling.
Big international banks in particular cannot function if they don’t have access to the US banking system.
As long as the US dollar remains the world’s dominant reserve
currency, major banks must able to clear and settle US dollar
transactions if they expect to remain in business.
This means having access to the US banking system… the gatekeeper of the US dollar.
But having watched BNP Paribas get blackmailed into paying an absurd
$9 billion fine to the US government, the rest of the world’s mega-banks
knew instantly that their heads could be next ones on the chopping
So they started working on contingency plans.
Blockchain technology provided an elegant solution.
Instead of passing funds through the US banking system’s costly and
inefficient network of correspondent accounts, blockchain technology
provides an easy way for banks to send payments directly to one another.
Does anyone understand how important this technology is?
Blockchain may very well be what neutralizes the US government’s domination of the global financial system.
And while there’s been a lot of momentum in this direction (hence
yesterday’s letter to you), even I’m surprised at how fast it’s moving.
Today, four of the world’s largest banks announced a brand new joint
venture to create a new financial settlement protocol built on
Deutsche Bank from Germany, UBS from Switzerland, Santander from
Spain, and Bank of New York Mellon have joined together to launch what
they’re naming the very un-sexy “utility settlement coin”.
Like Ripple, Setl, Monetas, and several other competing technologies,
Utility Settlement Coin has the potential to end the reliance on the US
banking system for cross-border payments and financial transactions.
Banks will be able to send payments to one another directly without
having to transit through the Wall Street financial toll plaza.
(Global consulting firm Oliver Wyman estimates that the cost of
clearing and settling international financial transactions at up to $80
This has enormous implications, especially for US banks.
The Federal Reserve, for example, has already warned that financial
technology could pose stability risks to the US financial system.
And they’re right.
If foreign banks are able to transact directly with one another
without having to go through the US banking system, then why would they
need to park trillions of dollars in the United States?
Adoption of this technology could cause a gigantic vacuum of deposits out of the US banking system.
US banks would take a big hit. And the US government would have far
fewer foreign buyers to sell its ever-expanding piles of debt.
Make no mistake, the adoption of this technology is a game-changing
development with far-reaching implications. And it’s happening very
If these mega-banks can hit their milestones, they’ll launch commercially in eighteen months.
Mark it on your calendar– that may be the end of peak US financial dominance.