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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ludwigvmises's picture

The US can't threaten anything. China called our bluff and we're now sitting ducks in this drama. Lil' Kim has nuclear weapons and we will just have to live with that. You know, like Pakistan and Israel have the bomb and we're fine.

ludwigvmises's picture

And you know one day China will just say "Ok fine you pull us from the Dollar system, and then we are going to float the Reminbi." And *THEN* the US will really go down the drain as the Dollar will become toilet paper.

zeroboris's picture

They can't or daren't cut off Russia from SWIFT for two years or maybe three. Meanwhile Russia has implemented a domestic system to replace SWIFT and a payment system to replace VISA and MasterCard just in case.

east of eden's picture

Yes. And both China and Russia have also instituted the most powerfully impervious payment system in the world. Payment in GOLD, if you like. 

To Hell In A Handbasket's picture

I've been clamouring for the last 20 years, for somebody to start an alternative to SWIFT.  Just start with a list of disgruntled countries the Uncle Scam has molested, as well as destroy. The list will be long. Come on China, just go ahead a put into action a parallel SWIFT type system and you have at least 60 countries joining.

The countries remaining loyal to SWIFT, would only be out of FEAR and COERCION, via the usual threats to crash their country etc. Fuck the USSA, for it and the UK has abused the international monetary system/SWIFT/ economic sanctions for as long as I can remember.

It's time our endless abuses to end and we wither on the vine. The dollar is dead and our current economic and monetary system is dead. Come on China, show some balls. Fuck the moneychangers, the destroyers of America and Europe.

Maestro Maestro's picture

The Chinese love sucking American cock. They're akin to feisty whores who take their work seriously. The Chinese are also IMF members just like the US and Russia thus forbidden to use gold as money, hence beholden to fiat money and SWIFT:
http://www.24hgold.com/english/news-gold-silver-why-does-the-imf-prohibi...

https://m.facebook.com/thefreethoughtprojectcom/photos/a.142797198742306...

opport.knocks's picture

So did Ron Paul get an answer to his question? Or was ii purely rhetorical?

Maestro Maestro's picture

Stupid comment.

Goldman Sachs owns both Pauls and the Chinese as well.

tuetenueggel's picture

There´s no one left in world to forbid anything to Russia ot China.

At least rediculous USA.

Maestro Maestro's picture

China and Russia are members of Team America.

east of eden's picture

Wow. Finally. We are ready to hold the line.

Shooting from a crouching position gives you a better chance of not getting hit by incoming.

sudzee's picture

Sounds impressive at 6 trillion a day. SWIFT payment system is over 90% fiat to fiat not TRADE. C/B's and member banks manipulating currencies, thus rates to the benefit of themselves. Money is supposed to be the result of payment for work or production. Trading fiat for fiat gains has nothing to do with world GDP or to the benefit of the world population. 

freedommusic's picture

De-Dollarization Accelerates: China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold
  http://www.zerohedge.com/news/2017-09-02/de-dollarization-accelerates-china-readies-yuan-priced-crude-oil-benchmark-backed-go

  The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan...

OH YEA?

Well if you are going to stop using the dollar, then we are going to - Er - cut you off from - Er - using the dollar! 

TAKE THAT!!

opport.knocks's picture

The neo-con nobs in the USA proposed the same thing as part of their futile protest over the re-unification of Crimea with Russia. SWIFT responded by appointing Russia to the Board of Directors.

https://www.rbth.com/news/2015/03/11/russia_gets_seat_in_swift_board_of_...

Assuming the US can convince SWIFT to do this, it will only acellerate the end of the USD as world reserve currency, as many here have pointed out.  Perhaps that is the real objective here?

It would have been better if the US elites had not weaponized the currency as a tool against the rest of the world. When that worm finally turns it will be the rest of the country that suffers and not the elites.

robertocarlos's picture

Mnuchin has lost his fucking mind.

vollderlerby's picture

You're giving him way too much credit.  The dude was a Goldman MD, his father was a Goldman MD.  THis is multi-generational entitled elitism we're dealing with here.  I didn't vote for a Goldman MD to run Treasury.  Don't think anyone here would have voted for a Goldman MD to run Treasury. Fucking betrayal. It sucks what Trump did with his cabinet.  Really fucking sucks.

EcoJoker's picture

You do not get upvotes for posting the blatantly obvious.

Rich Monk's picture

When the American Empire does collapse I surely hope that the criminals, neo-con zionists, dual-citizenship, zionist Jews are rounded up for their expediant trip to the here after.

Anunnaki's picture

It was always leading up to Russia and China being kicked out of SWIFT. Keep accepting the dollar supremacy you pussies Putin and Xi. You deserve this for your accomodation. No sympathy.

TeaClipper's picture

US government threatens to shoot itself in the head if China wont give the ball back. China and Russia are and have been preparing for life without swift for a long time, that sabre just aint rattling anymore. Gold silver and cryptos are the future, US dollar, stocks and bonds, errr no thanks.

EcoJoker's picture

China needs SWIFT about as much as they need democracy.

wafm's picture

another clueless yank it woud appear... threatening China with SWIFT, I mean you really have to be daft... 

The Gladiator's picture

Never gonna happen. Walmart lobbyists have invaded the whitehouse. NK is sabre rattling with sabres. US is sabre rattling with paper currency. Never bring a dollar to a bomb fight.

King of Ruperts Land's picture

This is one path to American Isolationism. To make America Great Again will require the destruction of the $USD and a return to sound money. Perhaps WW III could be used as way to cripple and kill the MIC. The MIC has become so perverted it may not be able to cope with the requirements of an actual real war.

Real war is also a time that traitors can be taken out back and shot.

Village-idiot's picture

The American military is so loaded down with women and pouffs that it would be like getting into a fight with one hand tied behind your back.

But, I suppose that was all part of the plan.

Idiotic, incompetent officers above the rank of captain must be gotten rid of.

CoCosAB's picture

Please... Fuck OFF!

 

And who IS GOING TO BUY USofT DEBT?

Matt0515's picture

And after China sells off the US$1.2 trillion USofT Debt and sells the US dollars to buy gold. silver and oil, how Walmart gonna pay for imports from China ? In yuan if China is not allowed to accept US dollars?

When that happens Walmart stores will have empty shelves like those in Houston during Hurricane Harvey and in Florida during Hurrincane Irma.

It's time for Mnuchin to put his money where his mouth is.

Archie1954's picture

I'm not sure thereis enough native intelligence in Washington to understand how the US is shooting itself in the foot everytime it sanctions another nation. America's control of the World's financial trading systems relies on the goodwill of the rest of the World and the trust it as in American business acumen. Each time a threat is made to any nation, such trust declines. No nation is unaware of the power the US has to destroy its economy, with such crude financial and economic moves. Sooner or later, the straw that broke the camel's back will be added by Washington, at the wrong time and to the wrong party. Then all H will break loose. The US dollar will no longer be the reserve currency and the US will have to start budgetting, just like every other country and live within its means and the Swift system will just be one of a number of such systems which will prevent American attacks on other nation's economies and financial transactions.