Ann Arbor (Informed Comment) – The Asian Exchange Union is not a famous international organization, but its meeting on Tuesday in Tehran may have started the ball rolling on a momentous change in global finance, since it dealt with the possibility of de-dollarization. According to the Iranian press, banking representatives from Iran, Nepal, Maldives, Pakistan, Bangladesh, Myanmar, Bhutan, Sri Lanka and India were joined by an observer from Russia’s Central Bank, its head, Elvira Nabiullina. Iran’s representative at the meeting led a charge for dumping the dollar.
The Asian Exchange Union was established in 1972 and was intended to decolonize the banking system and allow member states to trade with one another without going through the old imperial powers. It never has, however, amounted to much, though it may suddenly be a bigger deal if Iran’s plans are implemented.
In the end the representatives voted to explore the formation of a non-dollar basket of currencies, to bring into being a digital currency controlled by the central banks of member states, and setting up an international banking exchange to rival the US-dominated SWIFT. The US has kicked both Iran and Russia off of SWIFT and interdicted their use of dollars, which has hurt their trade and foreign exchange reserves.
The non-dollar basket of currencies to be used as an alternative to the US dollar as a reserve currency would initially consist of the Chinese yuan, the UAE dirham and the Russian ruble, according to the plan voted on.
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The United Arab Emirates’ central bank took part last year in a trial of a Central Bank Digital Currency (CBDC) using mBridge technology directed by the Bank for International Settlements and looking at the potential use of CBDC’s for “international transactions.” The study’s participants also comprised “the People’s Bank of China (PBoC), the Bank of Thailand, and the Hong Kong Monetary Authority with participants hailing the results of the study,” according to Coingeek.
The third resolution was to set up an alternative to the SWIFT bank exchange. According to Investopedia, “The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system powers most international money and security transfers. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions. ”
Mohsen Karimi, the International Vice President of Iran’s Central Bank, said at the Tehran summit, “The interbank messenger replacing SWIFT will be implemented within the next month among the members of the Asian Exchange Union.” He said that Iran has designed a new exchange that will message members of the Asian Exchange Union’s banks and allow currency transfers among them. He said this method will be cheaper than SWIFT.
For many reasons, the dollar is likely to remain the world’s reserve currency for some time, and the SWIFT banking exchange will remain central. Still, it may be possible for this rival basket of currencies to replace the dollar in Asia for some purposes, and a new banking exchange that allowed South Asian countries to deal with Iran and Russia in ways that the US cannot easily sanction would have its attractions. It is certainly the case that Washington’s over-use of financial sanctions is likely sooner or later to cause other countries to move away from the US-dominated banking exchange and from the dollar, which is a Trojan Horse for the Office of Foreign Asset Control of the US Department of the Treasury.