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

While this sounds like a step that needed to be taken, and it is, it’s too little too late. China (and Russia) have created an alternative to SWIFT. Thus, cutting China off only means it will switch to its own and abandon the U.S. Dollar system — with Russia likely to join. In effect, it will end up hurting the United States more than the intended target(s).

Over the last decade China and Russia have feverishly worked around America’s global influence. Russia and China no longer need GPS, as they have their own indigenous satellite navigation systems — Europe, too. You’ll only do their militaries a favor if you cut that off. Control over the internet has been ceded by America, so there’s also no method or means of punishment there. The IMF has been undermined by the AIIB, so it’s also hard to do anything there as well.

America’s choices are limited and not as effective as they used to be. The joke may be on the U.S. should push come to shove. The alternatives set up only mean America will likely isolate itself should it choose punitive measures.

 

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.”

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“This Is Probably Just The Beginning” – Chinese Banks Are In Big Trouble

 

With the crackdown on financial system leverage underway, Chinese banks (and securities firms) are in big trouble. As we noted previously, China’s bond curve is inverted, yields are surging, and Chinese regulatory decisions shutting down various shadow-banking pipelines has crushed securities firms’ stocks. However, as Bloomberg points out, as China’s deleveraging efforts cut into banks’ profit margins, rising base funding costs and interbank credit risk concerns have pushed banks’ cost of borrowing beyond the rate they charge customers for loans for the first time in history. Continue reading

Iran And China To Build Oil Terminal In Persian Gulf

News outlets in China and Iran have been reporting that the two nations have agreed to a joint venture in the Persian Gulf. The project is an oil terminal that will be constructed on Qeshm Island in the southern part of the Gulf. Continue reading

Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.” Continue reading