Paul Gordon Collier

eric holder deparment of justice

Attorney General Eric Holder’s Justice Department is aggressively pursuing international banks that deal with ‘rogue’ nations. These aggressive persecutions are generally supported on a bipartisan basis, but they may have unintended consequences for the dollar. Banks around the world are finding that these prosecutions can seriously hurt their bottom line.

One such bank is France’s BNP Paribas.  The bank recently pleaded guilty to violating US sanctions against blacklisted countries.  by violating these sanctions the banks could be funding rogue regimes, like North Korea, or even terrorist groups. The penalty imposed on the bank is $9 billion, a tenth of the value of France’s largest bank.

A recent meeting between France’s Prime Minister Francois Hollande and President Obama did not meet with any success from France’s perspective.  The stiff sanction will stand and the French government are protesting this strongly.

Meanwhile, the Justice Department has made similar moves against German banks, targeting their largest bank, Deutsche  Bank.  The Germans have pre-emptively sent warning signs to the Obama administration that such moves will be met aggressively. There appears to be disagreement as to whether the banks have violated US sanctions and whether the prosecutions are “too aggressive” in a world in which everything is so tightly interconnected.

From the NY POST:
…..last week, France’s finance minister, Michel Sapin, cited the BNP fine as a reason for Europe to “realize the necessity of using a variety of currencies.” Drilling home the point, Sapin wondered why France should sell its Airbus jets in dollars instead of euros.

In short, this could amount to dumping the use of the dollar as a benchmark currency among German banks.

The Germans are essentially asking; why be so dependent on one currency?  So long as the dollar continues to be the world benchmark currency, the power of the U.S. to impose such terms to foreign banks is becoming increasingly accentuated, and this thanks in no small measure to the actions by the Holder-led Justice department.

A natural gas deal between Russia and China illustrates this move towards diverse world currencies.  The $400 bill deal will largely occur between Russian and Chinese currencies. More such deals are springing up every day.

While it may not be fair to attribute these prosecutions as the cause for this movement from the U.S. dollar to other world currencies, many analysts attribute the recent acceleration of such moves to the aggressive prosecutions by the Holder-led Justice Department.