US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions

Tyler Durden's picture

In an unexpectedly strong diplomatic escalation, one day after China agreed to vote alongside the US (and Russia) during Monday's United National Security Council vote in passing the watered down North Korea sanctions, the US warned that if China were to violate or fail to comply with the newly imposed sanctions against Kim's regime, it could cut off Beijing’s access to both the US financial system as well as the "international dollar system."

Speaking at CNBC's Delivering Alpha conference on Tuesday, Steven Mnuchin said that China had agreed to "historic" North Korean sanctions during Monday's United Nations vote. "We worked very closely with the U.N.  I'm very pleased with the resolution that was just passed.  This is some of the strongest items.  We now have more tools in our toolbox, and we will continue to use them and put additional sanctions on North Korea until they stop this behavior."

In response, Andrew Ross Sorkin countered that "we haven't been able to move the needle on China, which seems to be the real mover on this, in terms of being able to apply the real pressure. What do you think the issue is?  What is the problem?"

The stunner was revealed in Mnuchin's answer: "I think we have absolutely moved the needle on China.  I think what they agreed to yesterday was historic.  I'd also say I put sanctions on a major Chinese bank.  That's the first time that's ever been done.  And if China doesn't follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system.  And that's quite meaningful."

And to underscore his point, the Treasury Secretary also said that "in North Korea, economic warfare works. I made it clear that the President was strongly considering and we sent a message that anybody that wanted to trade with North Korea, we would consider them not trading with us.  We can put on economic sanctions to stop people trading."

In other words, to force compliance with the North Korean sanctions, Mnuchin threatened Beijing with not only trade war, but also a lock out from the dollar system, i.e. SWIFT, something the US did back in 2014 and 2015 when it blocked off several Russian banks as relations between the US and Russia imploded.

Of course, whether the US would be willing to go so far as to use the nuclear option, and pull the dollar plug on its biggest trade partner, in the process immediately unleashing an economic depression domestically and globally is a different matter.  So far Washington has been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy. Washington runs a $350 billion annual trade deficit with Beijing, while the PBOC also holds over $1 trillion in US debt.

Ironically, the biggest hurdle to the implementation of the just passed sanctions may be the president himself.  “We think it’s just another very small step, not a big deal,” Trump told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak. "I don’t know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen,” said Trump who has vowed not to allow North Korea to develop a nuclear ballistic missile capable of hitting the United States.

Separately, at a hearing of the House Foreign Affairs Committee on Tuesday, Republican Chairman Ed Royce said the U.S. should target major Chinese banks, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime. Russia also came in for criticism. Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives “operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN.”

While China and Russia supported the latest UN sanctions, officials made clear they were troubled by Haley’s comments in the Security Council that the U.S. would act alone if Kim’s regime didn’t stop testing missiles and bombs. They emphasized the world body’s resolution also emphasized the importance of resolving the crisis through negotiations. “The Chinese side will never allow conflict or war on the peninsula,” Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.

In a soundbite late on Tuesday, Japan's Nikkei quoted prime minister Shinzo Abe who said that "in the end, [the North Korean] problems should be solved through diplomatic dialogue," adding that Japan will "work together with the international community to apply maximum pressure, so that North Korea commits to perfect, verifiable and irreversible denuclearization." For Japan to engage with the regime, he stressed it would have to be "on the condition that North Korea commits to" this complete denuclearization."

Which, of course, won't happen: “sanctions of any kind are useless and ineffective,” Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. “They’ll eat grass, but they won’t abandon their [nuclear] program unless they feel secure.

Predictably, North Korea's Foreign Ministry slammed the sanctions saying it “condemns in the strongest terms and categorically rejects” the United Nations adding more sanctions, North Korea’s state-run KCNA reported on Wednesday morning. Instead, North Korea warned it “will redouble efforts to increase its strength” as it seeks to establish “practical equilibrium” with U.S.

And so, not only is the entire geopolitical circle jerk back at square one, but the ball is again back in North Korea's court, while the decision on whether or not to launch another ICBM really depends on whether China will give it the quiet go ahead; a China which responds notoriously poorly to being threatened in the global financial arena, like for example when the US threatens to kick it out of the global dollar system...

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Stuck on Zero's picture

The petrodollar needs to be replaced with a "trade dollar." A trade dollar can buy goods outside of the US but it can't be used to buy anything inside the U.S.

HRH Feant2's picture

Damn Jim Willie is that you? Or Jim Rickards touting the SDR?

Secret Weapon's picture

Look at what they did to Greece.  That is what is in store for the good old US of A. They are going to clear the table, cash in their fiat chips and purchase real assets at bargain basement prices.  The US will be asset stripped and left for dead.  These people are psychopaths and cannot be reasoned with.

GooseShtepping Moron's picture

SDRs without dollars is like Hamlet without the Prince of Denmark. I don't know why Rickards thinks that will work. But as to larger point, viz. that sanctioning China would be the equivalent of the US shooting itself in both feet, I am entirely in agreement.

MsCreant's picture

Why is it "without?" I thought the dollar got radically revalued on or about January 18, 2018 when the blockchained SDR goes on-line.

But even if they do have to do it without us, I think they can. They can agree to cut us off. Part of the narrative here is that at the same time, the Trump admin comes under attack. They can set up "events" that can sink our ass, if the rest of them buy into the same definition of the situation. We have enough we are really doing wrong, a nice false flag against us can bring us into focus as the "bad guys."

If there is one thing we have learned from central bankers and the stock market, it is "who controls the story" that gets to prop up financial reality. And if you can get more people to buy your version of things, in the short to medium term fundamentals do not matter. 

jmack's picture

  I am pretty sure CIPS is not fully implemented yet, and what is implemented is piggy backed to the existing swift system.  I  am talking about a fully separate system with no relation to swift.


Ballin D's picture

China and Russia already started that when zero worked to push Russia off of swift. Really stupid move in the first place, ridiculous to double down on his mistake now.

MaxThrust's picture

"please, ban them from swift... then there will be a swift alternative."

And once there is an alternative most trade will eventually go through the new SWIFT because everyone knows the SWIFT and the BIS go hand in glove and report directly to the Rothchilds.

Justin Case's picture

Chinese yuan now top 5 major intl payment currency
Published time: 28 Jan, 2015 15:20

Golden Showers's picture

Right! Whatever you do don't close the fucking window! Not the window!

Kaiser Sousa's picture

the desperation of the dead empire...

it knows no shame and can not acknowledge its own stupidity...


PGR88's picture

Careful, that could be the beginning of the end of US Dollar reserve status....

GRDguy's picture

Right. It may turn out to not be a very "swift" idea.

(Sorry, couldn't resist.)

e_goldstein's picture

Quiet. You don't want to spoil the fun, do you?

Iskiab's picture

I wouldn't say that it would be the end of the US dollar reserve system, I would frame it that it will speed up the end of the US dollar system.

The only thing making the US dollar the dollar of choice is faith in it's stability, the more it's weaponized and the more the US flexes it's muscles on trade the faster people will look to other options, especially with increasing controls.

xtaxpayer's picture

Ahhh, the voice of intelligence.  Exactly!

Justin Case's picture

US dollar the dollar of choice is faith in it's stability

A bench mark currency stays the same while other currecies vary in proportion. take away the bench mark and how do they measure currency values? They could easily use gold or silver as the bench mark. Faith in fiat currency can change very rapidly.

SHsparx's picture

I see your swift and raise you one hundred gold-backed yuans.

Mustafa Kemal's picture

Thanks Shparxy, you made me laugh

HardAssets's picture


He's talkin' nothing and he knows it & the Chinese know it.

Horsecrap for the dumb U.S. audience.

China cleaned their clock (with Russia in the background).

AtATrESICI's picture

Good point. Wonder what percentage of the US population knows what SWIFT is?

Laughing.Man's picture

Maybe 0.01%.  Most probably think it's a new cleaning product.

MrSteve's picture

Remember Tom Swift? Bring me the broom, he said sweepingly. I have several hobbies he said craftily. There are lots of examples, he said specifically.

Global Douche's picture

It's a former meat processor and there's a trucking company with that name. 

pynky01's picture

It's how  the Brits got out of Dunkirk...with a ly on the end... 

HardAssets's picture

Theyll brag that 'they showed the Chinese what for' to the public.

Yet, there was no oil embargo- China rejected that. Kim played his role, supposedly getting all hot & bothered, but likely laughing his ass off.

And they'll probably find creative ways to get around any restrictions anyway. Or does a nation that got nuke & missile technology, can't get basic supplies ? Yeah, right

Volkodav's picture

       sure they do...just can't realize she can't sing..

       stevie just wanted it over...

Sokhmate's picture

It's how you pull to avoid pregnancy.

media_man's picture

But who will put up the cash for those $2M shitbox houses in LA?

cherry picker's picture


$20 trillion in debt.  China selling treasuries.

USA losing reserve currency satus

this is worse than Irma

Blankone's picture

How can this be of any importance. According to the articles on ZH and the commentators - China is already independent of SWIFT. So, is that not the case? (No, China is not independent of SWIFT)

We were also lead to believe Russia was independent of SWIFT - but they are not.

And all countries were shown years ago that SWIFT was weaponized. Any who get caught unprepared should kick themselves for not being more prepared.

If China IS independent of SWIFT then this shot by Trumps administration required China to immediately remove itself from SWIFT and cease using the dollar as the in-between currency for their international trade. But they cannot. Same for Russia.

TRM's picture

Or as Russia and China you have an alternative but why not let the rest of the world see first hand just how arrogant and lawless the USA is? All those supposedly independent institutions like IMF, World Bank and SWIFT just do whatever the USA tells them to? All the other countries are now thinking "Maybe we should setup an alternate route to get paid" and we know who has that.

Blankone's picture

Tell us, who has that alternate route set up?

Neither Russia nor China have an alternative system to trade with the world. Last I heard they did not even have a system between Russia and China and Iran which allowed each of the countries to trade in their currencies. (I believe they had to use gold for part of the trade.)

That SWIFT was weaponized has been evident to the world for many years. Such as when Iran was barred and when Russia was almost barred (or was it just a threat?).

And yet, STILL no alternative is in place.

Laughing.Man's picture

Both China and Russia already have an alternative to SWIFT.

ilovetexas's picture

US taxpayers have heard too much this kind of BS from politicians. If China violates the sanction, I bet this guy will come on TV to say something like "you know, technically, they didn't." Can US send a supervisor to monitor the tonnages of goods China ships to North Korea? I don't think so. Plus, put China off SWIFT? You mean US infants don't wear diapers any more? Total BS!

marcel tjoeng's picture


US governments are complete scum, what  .. ?



s2man's picture

I'll just make this my default post:


Duc888's picture



China has CIPS a replacement for SWIFT.


nice try though............

HRH Feant2's picture

Thanks. I knew someone would post this.

CIPS: Chinese Interbank Payment System.

It was created as an alternative to SWIFT.

Checkmate yet?

GodHelpAmerica's picture

Glad I bought more gold and silver today...

Global Douche's picture

Many already know the fact that China & Russia have developed a means around SWIFT. I'm also willing to bet it is way more secure than SWIFT for that matter. PLEASE, pretty fucking PLEASE piss off your main creditor! This alone may bring gold price where it should have been decades. ago 

Drop out's picture

We should threaten them that we will cut them out of sharing our technology - oh, too late...

Chipped ham's picture

Down goes gold! Down goes gold!

(In my best Howard Cosell voice)

sinbad2's picture

Interesting how the US controls SWIFT, a Belgian organization, but I guess Europe is Americas plaything.

shimmy's picture

Cool, do it and maybe China can dump their holdings of U.S debt and see how that works out for 'murica. It'd also be sweet to see the rest of the world get frustrated and dump the U.S dollar so it loses reserve currency status and the country that ends up getting entirely fucked by this is 'murica.

It's time for all these clowns in the U.S government to grasp they lost their bully status of the world and the rest of the world just doesn't give a fuck what that banana republic says. All the hysteria and libtard idiocy going on there sure isn't helping maintain global respect and the world sees 'murica for what it has become: a complete joke.  

SHADEWELL's picture

China has already been massively dumping trez

Why do you thin munchkin said this? Setting up the "transfer" to the new "system"

Woo woah woah. Get ready get ready here I comes get ready here it comes