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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Grandad Grumps's picture

So, how does the US cut China off from SWIFT when SWIFT is run by the banks? The banks are independent an superior to the US. Just ask the Fed.

If I were China, I would think, gosh they will always believe they can control me with SWIFT. That is not good.

Or, maybe the article is just another bullshit lie as is so common with ZH these days.

PrivetHedge's picture

The bankers own and run the US.

That's how: this threat is from the top.

They want to kill the dollar, clean up on the crash/chaos and then introduce their new world currency.

bunkers's picture

Sanctions are an act of war and the MIC will kill us all.

Kina's picture

This is of course an extremely stupid threat if the US bothered to think past next week.

It accelerates de-dollarisation and accelerates nations moving to other non-Swift systems aka Russia-China.

So if the entire Chinese and Russian trade moved 100% off the USD....

Frankly the threat by the USA is that it will assasinate its future if you don't do what it wants.

 

Fake Trump's picture

Agreed absolutely. This will back fire on the US as it will speed up de-dollarization. When that happens the demise of the US dollar is inevitable. Trump and his team are idiots. They are resorting to talks and words to bully other nations. They can surely achieve their goal if the countries they are bullying are small and weak countries. To do it to  China is just plain stupid and idiotic. Don't forget China is the US largest creditor. Here it is like the debtor (US) is talking louder than the creditor (China). Wait till China send a team of debt collectors to DC. Trump should know the result as he too was a debt collector himself before he became wealthy. He said it in one of his books. 

Pasadena Phil's picture

No. The China/Russia plan to kneecap the dollar by replacing it with a basket of clams is already failing. Adding the Chinese clam to the SDR had zero impact on the dollar, it only cheapened the value of the clam.

This threat by the US is meant to tell China that the US not isn't worried about dedollarization but that it is willing to out the Chinese clam for what it is, a worthless currency backed only by a bankrupt economy.

You are getting sucked in by all of the Chinese, Russian and other glabalist propagandists that infest these threads. Don't sell the US short. We are still the only real economy left on this planet.

PrivetHedge's picture

There is nothing real about the US economy.

robertocarlos's picture

New Yuan backed by gold. New dollar backed by guns. Which would you rather have?

ChaoKrungThep's picture

Reminds me of "Blazing Saddles" when the new black sheriff threatens to kill himself, to scare the hell out of the white rednecks trying to kill him. They fall for it.

PrivetHedge's picture

It does indeed.

We know that Israel runs the US, and they are morons but could however work this out eventually.

Therefore it's deliberate, israel is deliberately sabotaging the american economy, perhaps in the world now they view the US as the biggest remaining empire to damage, even before Russia and Iran. I guess they hope to profit from the new currency to replace it and take america's place as head currency gangster.

totalcollapseincoming's picture

next step for the chinese, trade in the next months "worthless" US debt papers for oil/mineral rights with some broke ass african countries ... let's say 500 billion

if the dollar holds, dump another 500 billion

they get the needed ressources and state x has to deal with the made up papers

 

wisebastard's picture

WTF.....the USA has a nazi like sanction program. what are they going to do sanction the entire world......

wisebastard's picture

and i doubt the american people will ever wake up and see that they are the country imitating fascist behaviors. it does not matter if you the US thinks they are doing good. the nazis thought they were doing good to. its sad it really is. the american people really need to wise up to the crimes of their government.

RedBaron616's picture

Like the American people can do anything about it? Yeah, right. As if Washington ever cares what we think. The election process has been hijacked by going electronic and so no one really knows what the true vote count was. Like the Nazis, we have no real say in what goes on. We just pay the taxes.

Mike Masr's picture

http://www.zerohedge.com/news/2014-09-01/everyone-saying-russia-isolated...

The sanctioned countries unite and form an alternate economy.

look at the link above and see how isolated Russia is.

Greed is King's picture

In other words, American propaganda to take credit for what China and the other BRICS are already working towards doing and are almost ready to do, ditch the dollar. It would be very appropiate if China reacted by dumping its trillions of dollar reserves on the open market at one cent each. A world with a bankrupt destitute America would be a much more peaceful world.

Joe A's picture

If they would do that, they would instantly lose any leverage they have over the US. It would plummet the dollar but the US and other Western countries would by these dollar reserves "penny on the dollar" with foreign currency reserves and/or gold. US would be debt free, dollar low so US exports will rise and Chinese exports would plummet. I am sure it is more complicated than that but dumping dollar reserves and US treasuries would be like playing your trump card at the wrong moment at a cards game.

Jack Oliver's picture

The Zio/US kicked Russia out of 'Swift' - but Ukraine still uses it and they are an economic FUCKING basket case !!

Shows just how powerless the Zio/US has become - unfortunately the world no longer needs or wants them - they have become a pain in the FUCKING ass !!

Russia has moved on - China will do the same - US is just itching for someone to BLAME the economic collapse on !

Russia is killing the US single handed - if it were a boxing match - people would demand that the referee stop the fight !!

The US is completely FUCKED and desperate !!! A beaten up shadow of their former selves !!

NuYawkFrankie's picture

Munchkin is such a fcking Zio-faggot!

Seriously - where the fck do they find these clowns?

It must be that being a congenitally deformed imbecile - to fit in - is a "must have" for a position in ZIO-Thug USSA!

Fake Trump's picture

American Dream is  wet. 

ChaoKrungThep's picture

Oh, only in their dreams, baby.

foxenburg's picture

Threats always go down well with people you hope to get on your side.

pparalegal's picture

And Traget, Home Depot, auto parts stores & WalMart? Too late for that ploy comrades.

RedBaron616's picture

Trump, shut up. Everyone knows you spout a lot of empty threats. You won't do ANYTHING to China. You are all talk and no action.

Not that I am surprised. I knew you weren't who you claimed to be and so wasn't fooled into voting for you.

Most voters are idiots and can't be bothered to look up what politicians have DONE rather than what they SAY. With the internet at their fingertips, they still can't be bothered. Our Republic is dead. Voters won't vote for anyone not affiliated with the two parties destroying this country. 

BlueHorseShoeLovesDT's picture

Most Americans are idiots, it is not restricted to just those who vote.

PrivetHedge's picture

Most Americans are idiots, it is not restricted to just those who rule.

ProsperD9's picture

Trump was not a politician previously and still isn't IMHO. You should mention the scoundrels before him starting with the affirmative action X-president Obama.

Last of the Middle Class's picture

quit with the threats already, it's as embarrassing as talk of the Fed tightening. You want to stop them their economic policies, cut their fucking legs out from under them. Kill off the EPA and a dozen other government surveillance groups and bring back manufacturing.

Kreditanstalt's picture

Incredible American hubris as their Empire implodes.

Omega_Man's picture

Mericans are a funny fucking lot... they create money from nothing,, it's worthless.. then they threaten other nation's the ability to trade in their fake shit money...it's hilarious... I want to know why China, or anyone else, even accepts this fake shite US money that the arsehole mericans make and then lavish themselves with the world's resources..... 

Some Mericans now actually believe their money is of some value... what fools. Get rid of US dollars now. 

BlueHorseShoeLovesDT's picture

Trump has always liked threatening his creditors.

BlueHorseShoeLovesDT's picture

China Threatens to Cut Off US Credit.

Now that would be a headline.

Kefeer's picture

Co-dependency for now, but as the US midde-class continues to be "gutted"; overtime this will change by necessity.  This is why I see Universal Basic Income within the next decade or two.

Kefeer's picture

How did that work out against Russia who did what exactly?  Oh that is right, they resisted regime change in Syria, which did what exactly?  There is no foreign policy; only a world dominance agenda that eventually backfires in ways not yet imagined.

Wahooo's picture

America is acting like a jewish carpetbagger. Lot of those fuckers died.

Boscovius's picture

I remember reading on these very pages some years ago that Russia and China had been working dilligently on an alternative to SWIFT.

Juliette's picture

SWIFT will swiftly be replaces by a Russian-Chinese alternative system ...

 

PrivetHedge's picture

I suspect that is the idea, helping to kill the dollar.

Sandmann's picture
“There were threats that we can be disconnected from SWIFT. We have finished working on our own payment system, and if something happens, all operations in SWIFT format will work inside the country. We have created an alternative.”

The alternative system, known by its abbreviation SPFS, is analogous to SWIFT for financial transactions taking place in Russia and has been in the works for years, with 330 Russian banks connected over a year ago. This number will likely increase now that it has been successfully developed and implemented. Nabiullina also added during the meeting that 90 percent of ATMs in Russia are now compatible with Mir, a Russian version of the Visa and Mastercard payment systems that is used domestically. However, the SPFS is still far from perfect, not operating from 9 pm to 5 am Moscow time and with a transfer cost of 5 cents per transaction. 

The SWIFT is an industry-owned limited liability cooperative society set up under Belgian law – not US Law. It is controlled by its member banks (including central banks) and other financial institutions. SWIFT’s business is to supply secure messaging services contributing to greater automation of financial transaction processes and to provide a forum for financial institutions to address issues of common concern in the area of financial communication services.

SWIFT was founded in 1973 by 239 banks from 15 countries. Since then, there has been a steady increase in the number of financial institutions and countries connected to SWIFT. By the end of 2002, more than 7,400 financial institutions from 198 countries were connected. There are three categories of SWIFT users: members (shareholders), sub-members (ie subsidiaries controlled by members) and participants. Members can benefit from all the services offered by SWIFT, whereas participants only have restricted access to a range of services that relates to their business.

SWIFT participants include securities brokers and dealers, investment management institutions, fund administrators, money brokers and various other institutions, mainly from within the securities business. By the end of 2002, SWIFT provided services to 2,203 members, 3,079 sub-members and 2,183 participants. The average daily value of payment messages on SWIFT is estimated to be above €6 trillion. National Bank of Belgium (NBB), which is the central bank of the country in which SWIFT’s headquarters are located, acts as lead overseer of SWIFT, supported by the G10 central banks. The NBB is responsible for the day-to-day oversight relationship with SWIFT – not the Federal Reserve.

Visa International operates through SWIFT and it is a private association owned by 21,000 financial institutions worldwide. It consists of six regional divisions: Asia-Pacific; Canada; Central & Eastern Europe, Middle East & Africa (CEMEA); European Union; Latin America & Caribbean; and United States. Membership is limited to deposit-taking financial institutions and to bank-owned organizations operating in the bank card sector, such as Carte Bleue in France and Servizi Interbancari in Italy. The Visa International Base II system clears transactions and facilitates settlement. Visa International supports approximately 180 transaction currencies, thus enabling the processing of international transactions – NOT exclusively dollars! Members can choose to receive their transaction reports in any of these currencies.

Twenty-six currencies can be used in the net settlement between Visa International and the participating members, the choice of currency being decided by each member involved in the settlement. The necessary foreign exchange operations are executed with two banks, one located in London (Barclays) and one in New York (Citibank).

 

The attempt by China to set up CIPS to compete with the SWIFT System is political and not purely economic. This idea that Japan and China will not participate in SWIFT is absolutely absurd. That would mean even credit cards would not be valid in the West.

http://www.armstrongeconomics.com/international-news/china/china-cips-v-...

east of eden's picture

That may be so, but watch the stampede to the exits when the current 'rentiers' realize they are being cut out.

east of eden's picture

When you have defeated your enemy using their own chosen weapons, and still they refuse to yield. What do you do?

Anunnaki's picture

Be paitent and allow them to annihilate themselves

iconic's picture

A threat, or invitation? Never Forget! when you see terms like "dollar system", that means the counterfeit joo buck system of the federal res system. The jew is the global bully. America is its hapless puppet. The politicians are the sold out sycophants that make it all happen, the federal mercenary forces pull the trigger, and we pay for it.

O-M-YAHWEH gOd with the "O" expressly written, there I go again! Another bigoted, hateful anti-'semitic' post!

east of eden's picture

Telling the truth is never hateful, bigoted or anti anything.

peterk's picture

US Propoganda  to save face is all it is.

US is now a spent force

China is the worlds new superpower