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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roddy6667's picture

When Putin came into power, he took back the Russian wealth that the Jewish oligarchs stole from the country with the help of drunken Boris Yeltsin. He jailed some and the others fled the country. Putin is a hero in Russia for this. It is also the reason the Jews in American politics and banking hate Russia. Putin got together with China and they made an alternative to SWIFT. Putin tamed the Jews and China doesn't have any. 

I'm making popcorn and getting ready to watch this.

wisehiney's picture

Just pretend for a moment that this happened.

It would be the very last second that even an ounce of gold or silver were to be found for sale.

Anywhere in the world.

At any price.

Omega_Man's picture

sure kick china out of the dollar, then they will demand gold from the bankrupt mericans.... love to see it! 

Yen Cross's picture

 As fucked up as China is.

   If I had access to another "reliable"  financial transfer system, outside of the $usd, I'd be investing 1/2 of what I have, in Chinese/yuan derived financial instruments.

  China needs to take the 'blue pill' and allow the yuan to strengthen. That will generate capital inflows. China needs to FLOAT the yuan, if they want to be taken seriously.

  PBOC can have all the gold in the world, but they're running a financial system based on the early-mid 70's western models.

 WE need another player on the block, and competition is a good thing.

  FUCK YOU- Ching Chongjunkster>  China needs to float the yuan PERIOD!

Jack's Raging Bile Duct's picture

While I am for the most part in agreement with you, China is caught in their mercantilism trap. Their only major strength is veritable slave labor and willingness to pillage their ecology. Even still, this only survives through massive debt creation. If their currency appreciates, it implodes every part of the system. For the same reasons, they will never be able to switch their production to domestic consumption like people seem to think.

roddy6667's picture

Your comment about "slave labor" just shows your ignorance about China. You know nothing about wha the workers make for pay and what it buys in China. I'll bet you have never been there, but you have a lot of strong beliefs. Where do you get this so-called "information" to have these opinions?

Jack's Raging Bile Duct's picture

I haven't been to China since...2001. So I'm sure it's much different. Did spend 6 years in Japan though--not that they are in any way the same.

The issue with China is that their economy is built on currency arbitrage. It's about about their governments willingness to grind their purchasing power into dust for the sake of market share. If that arbitrage meaningfully decreases, then the whole thing collapses. They won't be able to turn the consumption domestic, because they won't be able to afford their own employees. All of their industries will become uncompetitive, then be crushed by debt.

sinbad2's picture

If Americans couldn't buy the latest iPhone, suicide rates would skyrocket.

FoggyWorld's picture

If you believe that, prepare now.  Not many Americans are able to shell out $1,000 for a phone that now has animjolis that let cartoon animals talk and move to match your head movements.   Oh, and no thumb print needed but instead a forever photo of your face which will end up heaven only knows where.

And keep in mind this is a country where an awful lot of people can't toss together $500 in during an emergency.

 

 

Anteater's picture

Not just capture your face, but the naked child chained to the wall

of your ping-pong penthouse. Won't be any i-8 sales on Wall Street.

https://vultureofcritique.files.wordpress.com/2016/11/cppphilar_screensh...

el buitre's picture

I hear that Fort Knox has a whole 55 gallon drum filled with gold coins.

Vuke's picture

Do as we say or we take our Monopoly money away...LOL

Bank_sters's picture

You so solly soon, lound eye.

Reaper's picture

The end of the dollar as they knew it and the Chinese feel fine.  

arby63's picture

China is a shameful nation. They make the U.S. look like Scandinavia. Nothing that comes out of China is: 1.) Honest; 2.) Good for you; 3.) Quality.

 

Lost in translation's picture

What you see marked "Made in China" is the direct result of what American vendors have asked for and ordered. Poorly-made crap marked Made in China and sold in America is low end because that is what Home Depot, Target, Harbor Freight, J.Crew, et al have ALL specified and ordered.

China is perfectly capable of manufacturing fine quality, durable consumer goods and does so on a large scale. BUT since that is NOT what American retailers WANT for their end-customer, it is not what you are going to GET.

Blame the money-grubbing US corporations. The Chinese didn't do this to you, your corporate Masters in New York and San Francisco, did.

roddy6667's picture

Americans are too uneducated, too unread, too dumbed down, too untraveled, and too distracted by TV, video games, movies, spectator sports and the like to understand what you just wrote. "Idiocracy" is a fact, not a movie.

SuperChicken1138's picture

not all of us chinamen. at least we don't eat our own dogs. unlike yourself. i understand though, eating your own fecal contaminated rice put the zap on your grape. oh man, flash back. your gonna hate me. true story. we used to have a few hundred chinese nationals in our jail. they had to eat jail food, hence no rice. i used to bring chinese take-out to work and eat it right in front of them. they used to pile up to the window and watch me. ohhh the good times. true story, swear to God.  

roddy6667's picture

You are an ignorant redneck working the American Gulag, the largest in the history of the human race. BTW, I am Caucasian and lived in America for 65 years. I know about both cultures. You don't know anything outside your trailer park.

FreeEarCandy's picture

Keep telling yourself that, while the hand that feeds you withdraws. Pride comes before the fall. This is going to be epic!

Yen Cross's picture

 I'm so tired of going to the hardware store and seeing the hand tools I use to grow my gardens--- "Made In China" or " Huecho En Mexico".

Xena fobe's picture

The only thing that shames them is lack of assets.  Toward that end, anything and everything is acceptable.

0valueleft's picture

You always here people grumbling as they walk out of Walmart, I'd pay twice as much for better quality. People love them some cheap china crap from wally world. I'm a proud member of the never once in a Walmart club. How bout you got the meats?

Rjh's picture

How do you know what people grumble as they're walking out of Wal-Mart if you've never been there? Idiot.

pizdowitz's picture

His controlling officer needs to be fired. Double-down is not applicable any longer. Times have changed.

joego1's picture

How is Apple going to get all of it's money back then?

FoggyWorld's picture

Most of it is in Ireland.

saldulilem's picture

Go ahead, make my day

MrSteve's picture

Never go to war with your banker.

FreeEarCandy's picture
Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. The debt owed to the American people should be paid. The U.S. government could dollar for dollar offset bond interest we owe China with interest, principal and penalties China owes us.
It's Time for China to Pay Its Debts to the United States | Fox News www.foxnews.com/opinion/.../its-time-for-china-to-pay-its-debts-to-unite...
FreeEarCandy's picture

 

From 1900 to 1940, the Chinese Government issued millions of dollars in sovereign debt, most notably, a large tranche of £25,000,000 issued at 5% in 1913 set to mature in 1960. This massive bond funded the modernization of China's infrastructure and was widely acquired at the time by governments, banks, and investors across the globe. However, in 1938 China defaulted on its "binding engagement upon the Government of the Republic of China and its Successors," leaving millions of global creditors unpaid. In accordance with the terms of the bond, successor government doctrine, and accounting standards, the United States can and should hold China accountable to its obligations. WHO HOLDS THE BONDS: The Chinese bonds in question are held throughout the world by treasuries, banks, companies, and over 20,000 private U.S. investors, many of which are active in seeking remuneration. Critically, the U.S. Treasury and Departments of Justice and State are understood to hold substantial portions of this Chinese sovereign debt. These holdings have not been fully cataloged nor has the U.S. Government moved to hold China accountable for its debt obligations. HOLDING CHINA ACCOUNTABLE: China is eager to be recognized by the international trade and financial community as a market economy. However, in order to be regarded as a responsible and reliable participant in international commerce and finance, China must acknowledge and rectify its multiple transgressions against the United States and WTO: http://americanbondholdersfoundation.com/
sinbad2's picture

Yeah well that Chinese Government lives in Taiwan, and is protected by the USA, so it's Americas fault, ha ha.

FreeEarCandy's picture

Well that's nice. I can take your house and let you finish paying the debt? I like that idea. Also, does this mean Taiwan doesn't belong to China too? 

roddy6667's picture

"multiple transgressions against the United States and WTO"????

When will America atone for its multip[le transgressions against the world with all its wars of aggression???

 

Fuck off.

FreeEarCandy's picture

Stick to talking about economics my friend. War is a differant issue, and by the looks of it, the west has that in the bag as well-like it or not.

roddy6667's picture

You are clueless, and nobody's friend.

FreeEarCandy's picture

Oh yeah. When you can stop trying to talk about me and put some economic facts down, you won't sound so ridiculous when you tell people they are clueless. 

Anteater's picture

1913? Sounds remarkably like the Khazars were at work with

the Koumintang to 'ripen' the society to industrial labor, before

Deng's 'Great Leap Forward'. Kissinger was right at Nixon's

elbow, pushing that pen, then abandoning gold so the whole

world would be sold into fiat debt slavery. Ukraine and India

are just the latest Khazar Trail of Tears fiat debt 'break outs'.

Even if you nuked Israel now, the cockroaches are everywhere,

and at the highest levels, even dancing on the roof of Ft Knox.

"How terrible is the Truth, when there is no help in the Truth."

https://m.soundcloud.com/saintmacbook/parallel-universe-420

FreeEarCandy's picture

Not really taking one side over the other, but no one forced them to take to loan. Perhaps living within ones means is impossible if one envy's their neighbors goods or has a propensity towards greed. Its easy to take a loan. Harder to pay it back. 2 sides to every issue and usually neither is without guilt. One can easily have a soft spot for the underdog and shake the finger at the top dog, but each is guilty of the same play-survival. In this world the winner is always the one that can kill the other with a smile on their face and sleep well at night. 

China, if it could, would do the same to the USA. As nature would have it, only the strong survive, and unlike gravity, there is no law of morality as far as I can see. Kill or be killed. Eat or be eaten. I don't like it and you don't either, but that is just the way it is. Get busy living or get busy dying. Hope? Yeah, whatever helps mask the vanity.

https://soundcloud.com/user-381818354/sets/freeearcandy-2016-collection-1

Toshie's picture

Now let's see China's counter punch.

sinbad2's picture

When they feel like it.

"Appear weak when you are strong, and strong when you are weak" (Sun Tzu)

Laughing.Man's picture

Counter punch?  Mnuchin is responding to their actions.  It's called CIPS; forgot what the Russia alternative is called.

Pol Pot's picture

No iPhone 8 for Xmas......now that would tank the markets

Anteater's picture

i-P8 has an Intel wifi chip, downloads are painfully slow, and the

face recgnition lockout failed at the Big Rollout. Chinese are now

saying nyet, their Hauwei knockoffs are faster, and $250 in China.

As soon as someone develops a pipeline around the Big Four

US cell lockdowns, prices of cell phones will crater. It's really the 

only way forward, but that's why FCC will abandon net neutrality.

Big Four keeps their monopoly, and i-Stores keep their doors open.

You would not believe how fast and cheap cell/data is in SEAsia!

https://m.soundcloud.com/svnsetwaves/shywolve-latelymaybe

 

Jack's Raging Bile Duct's picture

This is bad news. TPTB know full well that beating Russia with this stick only increased diversification from petrodollar financial systems. Whatever discomfort is has created, it ultimately accomplished nothing. TPTB know this. If they are willing to try this with someone as economically important as China, then they might have well announced that they are ready to transition us to a post petrodollar world. Given the recent ascent of TPTB support of crypto...I think we have more evidence towards it being a trap.

IronForge's picture

By the threat from Secretary Munchkin (sp intended), the HEGEMONY_ SWIFT rear their Multiple Heads in a Cacophonous Roar.

FoggyWorld's picture

The question is just whose side is Mnuchin really on?

Pol Pot's picture

The tribes...always the tribes side.