Don't underestimate the power of the US dollar

Out of America: If its military and diplomatic clout is waning in parts of the world, there's one area where it's still in charge: money

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What better moment for considering US power than this fourth of July weekend, when the media is usually full of rosy-hued reflections on America's exceptionalism, the enduring values of its constitution and its role as shining city on a hill for less fortunate humanity. Much less so this year, however – and, measured by the most visible yardsticks of global power, you can see why.

Yes, the US remains far and away the greatest military power on earth. But as Madeleine Albright, later secretary of state, famously remarked to Colin Powell, then chairman of the joint chiefs of staff, during the agony of Bosnia in the 1990s: "What's the point of having this superb military you're always talking about if we can't use it?"

The "Powell doctrine" asserted that the US should use force only in defence of a vital national interest, in overwhelming fashion, when there were realistic objectives and a clear exit strategy – which pretty much sums up the so-called "Obama doctrine" of today, and explains why the US hasn't stepped into the Syrian civil war and, thus far at least, is avoiding any major re-entanglement in Iraq. And war-weary Americans want it that way.

What the public doesn't want, however, is for America to be ignored or snubbed by other countries emboldened precisely by the belief that the President is unwilling to project US power by military/diplomatic means. And that too is happening. Vladimir Putin meddles in Ukraine, uncaring of the American response. President Assad in Syria scoffs at Washington's strictures while Iraq, where America spent trillions, may well fall apart – to the profit of a jihadist group more fearsome than al-Qa'ida.

But urged by the US to form an inclusive, non-sectarian government, Baghdad's Shia Prime Minister Nouri al-Maliki thumbs his nose. Ditto in Egypt, which John Kerry, the Secretary of State, visited the other week to extol last month's "democratic" election of Abdel Fattah al-Sisi, promising the resumption of arms deliveries, and urging his hosts to uphold basic human freedoms, including freedom of the press. Cue for Sisi to throw three al-Jazeera journalists in jail, just hours after Kerry had left the country.

Then there's Israel/Palestine, where Kerry's naive effort to secure a quick peace deal collapsed in April, not least thanks to Israel's contemptuous refusal to heed US pleas to stop settlement expansion in the occupied territories. Obama, meanwhile, talks of a "pivot to Asia". But China's policies there grow ever more expansionist.

In short, US military and diplomatic clout has diminished – and the public has noticed. More than half think the country's best years are behind it, while according to the respected Quinnipiac University Poll last week, a third of Americans consider Obama the worst president in history, and think by a 45 to 38 per cent margin that the country would be better off had Mitt Romney won in 2012. Such polls are but snapshots, and presidents' reputations invariably improve after they leave office. Even so, who would have imagined that the stock of the wonderboy of 2008-09 would plummet to George W Bush-like levels, with more than two years of his term remaining?

But all is not lost. In one crucial but less noticed respect, America's imperial power is greater than ever. Just ask the giant French bank BNP-Paribas, which last week agreed to accept a $8.9bn fine, and plead guilty to two criminal charges for violating US sanctions against Cuba, Iran and Sudan.

Not that long ago, the conventional wisdom was that sanctions didn't work: pariah regimes in Rhodesia and South Africa were eventually toppled not by sanctions, but by guerrilla war in the first case and irresistible demographic reality in the second.

Or take Saddam Hussein in Iraq, brought down not by a decade of external economic pressure but by military invasion. Or most striking, Cuba, where the Castro regime has survived half a century of US embargo and seen off 10 US presidents, and counting. These days, though, US-led sanctions really hurt institutions such as BNP that violate them.

Now, BNP's alleged misbehaviour was pretty egregious, involving $190bn worth of transactions over 10 years. Even so, you might wonder why it didn't give the US authorities the financial equivalent of two fingers. After all, it's the world's fifth largest bank, headquartered not in Manhattan but Paris, capital of a country not unknown for tweaking the American tail. And while the US has the right to impose its own sanctions against regimes it doesn't like, surely that doesn't mean everyone else has to go along.

Unfortunately for BNP, in practical terms it did. The bank's defenders may claim the punishment is political, and that foreigners are being made scapegoats to placate a US public that hates Wall Street and all its works. In fact not so; last year America's biggest domestic bank, JPMorgan Chase, was hit with a record $13bn fine for dodgy sales of even dodgier mortgage securities, ahead of the 2008 financial crash.

BNP fell foul of a simpler truth. We may be moving into a multi-polar world in which the US counts for less – but in the global financial system its currency is still king, and under US law, all dollar-denominated transactions must be cleared in the US. BNP did so by using front banks and doctored documents. It was caught.

You may protest at excessive US claims of extraterritorial jurisdiction. You may argue, with some justification, that if the US similarly punished a bank from China or Russia, it would accelerate creation of an alternative currency system, reducing the clout of its sanctions. BNP got off relatively lightly: it could have lost its New York banking licence, little short of a death sentence. But its acceptance of a fine wiping out its profits for 2014 showed that, in one sense at least, the US still reigns supreme. Whether that's any consolation to Americans this Independence Day weekend is another matter.

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