A Eurasian Central Clearing Bank Is The Next Logical Step For China, Eurasia And The Belt & Road

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Op/Ed by Chris Devonshire-Ellis

News has emerged this week that Iran, which holds the worlds second-largest reserves of natural gas, is partnering with Turkey to jointly establish a new trading bank, and to ditch the US dollar in bilateral trade. The number of countries, especially those along the Belt & Road routes that are looking to decouple from US trade is increasing, due to sanctions often placed on them by Washington and the control by the same of the global payments network system, which runs through US corresponding banks and the SWIFT banking network.

The Iranian Ambassador to Turkey, Mohammad Farazmand has stated that “Iran exports a large volume of gas to Turkey and we need a new mechanism to be created to ease financial transactions via our national currencies. We should also establish a new exchange mechanism to further use our own national currencies instead of the US dollar in international trade and are in the process of establishing a joint bank as well.”

Turkey’s exports to Iran amounted to some US$2.4 billion in 2018, with Iranian exports to Turkey topping US$6.9 billion the same year, with much of this figure consisting of energy supplies.

Last month, Ankara agreed to halt its imports of Iranian crude oil amid fears of US sanctions, but criticized Washington’s move to end the oil import waivers granted to Turkey and over half a dozen other countries. Prior to May last year, Turkey imported an average of 912,000 tonnes of oil from Turkey every month, with this figure accounting for nearly half of Ankara’s total oil imports. Amid US sanctions pressure, Ankara’s purchases of Iranian oil have declined precipitously to an average of 209,000 tonnes per month between November 2018 and April 2019, with imports drying up completely in May.

Yet the US, which imposed the sanctions, has done little to assist Turkey in obtaining alternative supplies other than those from the United States, which are considerably more expensive, incur far higher shipping costs and come with the uncertainty of immediately imposed US sanctions should Ankara and Washington face disagreements. For this reason, the Iranian supply chain is now seen as the more preferable and sustainable by Ankara, even in the face of US threats and sanctions.

Iran and Turkey are not the only examples of what has sometimes been called “US bullying” as concerns energy and trade. Beijing has just levied the same accusation, and so has the EU, concerned that committing to oil and gas supplies from Iran and Russia rather than the United States have been met with threats of sanctions or damage imposed on their currencies by manipulative use of the US dollar.

The decision illustrates the unhappiness of US diplomacy within the region, with both Iran and Turkey on the receiving end of recent Washington introduced sanctions and imposed financial stresses. But instead of bringing them into the United States orbit, both countries – and others – are viewing the implied US aggression as a symbol of unreliability. That is leading them to take completely opposing measures to those that Washington wants to see. This fracturing of US relations is taking a slow, but steady toll, as more countries are looking at ways to deleverage away from being dictated to by policies emanating from Washington. This concept of both de-dollarization and the re-introduction of conducting trade in bilateral currencies itself leads to some uncertainty, and especially the former as there is as yet no alternative system. The emergence of a Eurasian Central Clearing Bank is therefore a scenario to look out for, funded in equal parts by the major players, including China, Russia, Iran, India and Turkey, with others coming in on the fringes.

Such a bank would put into place the clearing processes required to monitor financial transactions – although who would be in charge of that is a moot point. If agreement can be reached to jointly share that information – then it would serve as a direct alternative to the Washington led system of imposing US intermediary banks upon current global transactions, and the imposition of US controlled global payment systems such as SWIFT – which Washington switches on and off depending upon the prevailing White House trade policy.

This would represent immediate relief to the Asian nations primarily engaged in trading with each other, such as Iran and Turkey, and others, such as Russia and China, who are already well on the way to implementing a huge Union pay network across their two nations.

It is also a logical next step for China to take. It has already established, with some degree of success, the Asian Infrastructure Investment Bank (AIIB ) has helped develop the BRICS development bank, and has become involved in numerous bilateral and regional investment funds designed to apply local knowledge to China’s overall Belt & Road plans. Having a Eurasian Central Clearing Bank to compete with or become an alternative to the US intermediary banks and global payment mechanisms such as SWIFT will be a major shake up in global trade. Could China pull it off? It depends largely upon its partners, and the cost. With the United States a US$20 trillion dollar economy, who can club together with both the cash and the need to provide an alternative? Below is a list of China friendly regions and countries with trillion dollar GDP’s:

Country/Region GDP Value (US$, trillions)
SCO 15.2*
China 14.6
ASEAN 3.1**
India 2.9
Brazil 1.96
EAEU 1.8***
Russia 1.6
Turkey 0.7
Iran 0.5
South Africa 0.4
*Includes China, India, Kazakhstan, Krygyzstan, Russia, Pakistan, Tajikistan & Uzbekistan,
**Includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand & Vietnam
*** Includes Armenia, Belarus, Kazakhstan, Kyrgyzstan & Russia
Then there are Asian nations affiliated strongly with the US but whom would also probably want to participate:
Japan 5.2
South Korea 1.6
Australia 1.5

 

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These figures indicate that there is still some room for growth before the concept of a Eurasian Central Clearing Bank could be seriously considered. However, the pot is already brewing. Malaysian Prime Minister Mahathir Mohamad, speaking at “The Future Of Asia” just held in Japan has called on East Asian nations to create a new international currency, which he offered to use in regional interstate trade, and to leave currency manipulation in the past. The existing currencies would be converted into a new one, based on each country’s economic performance. Mohamad also stated a new currency should be based on gold. Russia has suggested similar moves, and a basket of hard assets including oil and gas reserves could also be utilized to underpin such a system. The technologies to clear transactions already exist.

It is clearly in the interests of China, as well as other nation states under threat of, or already dealing with sanctions to establish an alternative network to the existing, United States managed one. It will take some time to organize and implement, however the development of a future Eurasian Central Clearing Bank is both logical and probably inevitable given the current global perception of United States interference and unreliability, the erosion of established trade ties and the misuse of global transactional systems by Washington for its own internal agenda.

 

About Us

Silk Road Briefing is published by Dezan Shira & Associates. Chris Devonshire-Ellis is the Practice Chairman. The firm both provides business intelligence as well as professional services to foreign companies and governments interested in China’s Belt & Road Initiative. To learn more about our services please contact silkroad@dezshira.com or visit us at www.dezshira.com

 

 

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