Sunday, April 1, 2012

The Payments Network As Economic Weapon

By Jon Matonis
Forbes
Tuesday, March 27, 2012


"Extraordinary and unprecedented" is how SWIFT chief executive, Lázaro Campos, describes the March 17th move by Belgium-based SWIFT to discontinue service to 30 Iranian banks. The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a worldwide financial messaging network to facilitate the interbank transfer of funds. Now, it has become an economic weapon as well.
SWIFT Headquarters in La Hulpe, Belgium
Campos emphasized the monetary blockade is "a direct result of international and multilateral action to intensify financial sanctions against Iran" and that SWIFT was forced by recent European Union sanctions designed to isolate Iran financially for its failure to demonstrate to Western nations that it is not developing nuclear weapons.

SWIFT has never expelled an institution in its 39-year history and in 2010 it processed 2 million messages for 19 Iranian member banks and 25 financial institutions. This is a vastly significant change in tactics and the repercussions are still unknown. Governments have long used the financial system as a method of tracking and blocking payment flow for targeted individuals and companies, but now it has been escalated to the nation-state level via the modern telecommunications network.

Mark Dubowitz is a sanctions specialist in Washington D.C. who advised U.S. lawmakers on the recent SWIFT legislation. He said the decision could limit the ability of Iran’s banks "to move billions of dollars in financial transactions and put immense pressure on Iran’s leaders to reconsider their policies" and that it underscores "the growing political isolation of Iran as it becomes the first country to be expelled from what is the financial equivalent of the United Nations."

Highlighting and exposing the structural importance of centralized financial institutions that sit at the very top of the payments pyramid will hasten the trend to more decentralized and regional payment structures. Moreover, a single worldwide financial structure with near-absolute authority will begin to be seen as a vulnerability to many nations because they cannot always be expected to comply with U.S. and European Union directives. Now that the precedent has been set for evicting a country's financial institutions from the prevailing global payments network, all nations will be rightly suspicious of that powerful weapon.

Trader and gold advocate Jim Sinclair explains to King World News how the U.S. government uses the international payments system as a weapon of war:
"We go to war, challenging the other side to do the same because whatever you use as a weapon, the other side is going to tend to use as a weapon.  The weapon that’s being used is the interbank transfer system, the way money is sent from bank to bank. We’ve already seen that Iran has been basically shut out of the SWIFT system and the SWIFT system is what this is all about.  The SWIFT system doesn’t take any money for the money that goes through it.  The SWIFT system is like the old telephone company.  What it does is charge for the use of its communication.
Believe me the SWIFT system works for the West.  It’s located in Belgium and you would think the US had no power on it.  It’s never discussed as being a US arm, but it is a US weapon. You’ve got to see now you’ve got this visual in front of you of a battlefield.  You’ve got Wall Street firing by lighting off something that looks like a cruise missile, but it’s got SWIFT written on the side."
India is now told to cooperate or suffer the consequences implying tacitly that payment network sanctions are a real possibility. In a March 26th, 2012 audio interview, Sinclair goes on to forecast how the BRIC economies and other emerging trade areas around the world may soon look to establish their own SWIFT-type transfer systems so as not to get locked out of the international monetary system in the future. The backlash from this action will lead to the remonetization of gold around the world as barter and currency substitutes to the U.S. dollar gain in importance.

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