by Tom Luongo, Tom Luongo:
Jim Sinclair, ages ago, told us that the moment the Obama administration threatened the Swiss with SWIFT expulsion over opening up its vaunted banking privacy rules was the equivalent of a nuclear first strike.
Previous to this threat SWIFT was as unknown to most people as the most arcane aspects of particle physics. It was the means by which money magically moved around the world. Without it modern finance and trade couldn’t exist and politicization of it was anathema because of that.
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SWIFT is just code. It’s just a communications protocol. Code is easy to write. It can be copied, altered, secured and rewritten on the fly. It is not, in any way, a moat around any business.
I know what you bitcoin bears are thinking. Bitcoin is code that has been replicated, forked, copied, rewritten, etc. Yes, it can be. But it wouldn’t be bitcoin. And the ‘coins’ granted by the network are protected by something that can’t be replicated, math.
SWIFT transactions, in the same way, are secure because of encryption, just like bitcoin. But it is a centralized system supposedly independent, but Obama’s threatening the Swiss ended the illusion of who really controls it.
As an aside, if SWIFT were smart they would tokenize their system and grant governance rights to its users to provide a secondary market in securing use of their services.
What both SWIFT and bitcoin have in common is mindshare and, in SWIFT’s case, marketshare. Bitcoin is beset on all sides by up and comers trying to grab mind and market share from it — Litecoin, Ethereum classic, Monero, Decred, DASH, etc. They all compete for a place in the ecosystem.
SWIFT, being privately held in the same way that the central banks are privately held, is subject to the same competitive effects, but unlike bitcoin, and has a tremendous market share advantage over all other competitors.
In fact, until a few years ago, SWIFT had no competition. And, one could argue, and in fact Sinclair did at the time, SWIFT needs no competition. This is why SWIFT expulsion was such a big deal for anyone threatened with it. The idea that anyone would ever use it as a weapon to enforce domestic policy and as a tool of diplomacy and hybrid war was unthinkable because it would begin a financial arms race no one should want to pursue.
But with its monopoly and this inertia dominating, the Swiss were left flat-footed when this happened.
The fact that the Obama administration politicized SWIFT when it did ended an era of international finance. The world financial system ended any illusions it had over who was in charge and who dictated what terms.
The problem with that is once you go there, there’s no going back, which was Sinclair’s point over a decade ago.
Threatening Switzerland with SWIFT expulsion wasn’t a sign of strength, however, it was a sign of weakness. Only weak people bully their friends into submission. It showed that the U.S. had no leverage over than the Swiss other than SWIFT, a clear sign of desperation.
And that’s what the U.S. did when it pushed the big red ‘history eraser’ button.
The Swiss knuckled under. Its vaunted banking privacy is now a part of history.
Iran, however, in 2012, facing a similar threat from Obama, didn’t knuckle under and forced Obama to make good on his threat. Once you uncork the nuclear weapon you can’t threaten with lesser weapons, they have no sway. This is a lesson Donald Trump would learn the hard way since 2018.
The example made of Iran and the sweeping sanctions Obama put on Russia for daring to stop the taking of Ukraine by NATO finally prompted both Russia and China into real action to create alternatives to SWIFT. It is, after all, like Sinclair said, just code.
Three years later Iran used real nuclear weapons to force Obama back to the negotiating table and reinstate its position in the global financial system by acceding to the JCPOA. This agreement was pushed by the EU and Russia and rejected by the U.S. political establishment. Obama could only agree to it through executive order. It was never ratified by Congress, which is how Donald Trump pulled the U.S. out of the JCPOA in May 2018.
And it’s clear today the pivot away from pressuring Iran to isolating Russia is the plan for The Davos Crowd.