The US Justice Department recently announced–with much bravado–that BNP Paribas, a major French bank, had agreed to pay a record penalty of $8.9 BILLION for transferring money on behalf of Sudan and other countries sanctioned by the United States.
The fine is more than triple the amount paid collectively by six other banks for similar infractions of US sanctions against countries and organizations on the State Department’s “bad boy” list.
The fine, however, does not come without costs–to the dollar, and should be positive for gold and silver.
French businessmen and politicians are now blasting the world’s use of dollars and calling for “weightier alternatives to the dollar,” noting that BNP violated no European regulations. The French finance minister is calling for a “rebalancing” of currencies used for international trade. Other critics of the fine are calling it “US judicial over-reach.”
Although the US treasuries market gives world banks, central banks and sovereign funds liquidity found nowhere else, that officials of our trading partners and traditional allies are calling for alternatives to the dollar may portend serious problems for the dollar.
It was France, then headed by Charles DeGaulle, that spearheaded the run on US gold in the late 1960s and led to Nixon closing the gold window August 15, 1971 when European countries threatened to grab all the gold in Ft. Knox in exchange for paper dollars.
Addtionally, other political maneuvers in recent years have diminished use of the dollar.
In early 2012, the US used its political clout to shut Iran out of the SWIFT system for worldwide money transfers. As a result, Iran agreed to take Chinese renminbi in payment for oil. Small damage to the dollar, but a huge gain for the Chinese renminbi.
Since that time, Russia and China have agreed to accept each other’s currencies in trade. Every transaction without the use of dollars damages the dollar if even ever so little.
The dollar will remain the world’s major currency for years; however, its decline has started. Gold and silver will benefit as alternatives to the dollar (and other paper currencies) are sought out. Not all the money moving out of dollars will go to the metals, but some will.