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https://qz.com/1893235/swift-transfer-system-leaves-china-vulnerable-to-us-sanctions/

According to the latest data (pdf) from Swift, more than 40% of global transactions on its platforms are denominated in dollars. Since the bulk of dollar transactions are cleared through American banks, the US can argue that those transactions pass through US soil, thereby giving the US legal jurisdiction over them. That means the US has outsize control over the machinery of international transactions—or, as the Economist put it, “America is uniquely well positioned to use financial warfare in the service of foreign policy.”

What mechanisms or international laws give the U.S. the power to extend its jurisdiction beyond its border as long as the criminals use SWIFT? Is this possible because other Western countries doesn't want to do anything against the U.S. or is there some kind of laws or mechanisms that justify the U.S. in doing so?

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No "mechanisms or international laws" are needed. This is because dollar transactions are cleared in the USA.

If Mr Xu in China wants to send money to Mr Oyelowo in Nigeria, and he wants to send it in US dollars (because RMB isn't widely accepted in Nigeria, and Niara (Nigerian currency) is not fully convertible or easily obtainable in China) he will need, at some level to deal with a bank in the USA, and the USA has jurisdiction over that bank, because it is in the USA. If the USA wants (for political reasons) to block that transfer it can.

Mr Xu could choose to use another currency, such as Euro, Yen or RMB, but there is a reason that Mr Oyelowo wants dollars. The cost of converting the currency to dollars is an extra cost that makes the transaction less attractive.

Some other Western countries would like for the Euro to become the dominant world currency and take the place of the Dollar. But as long as Mr Oyelowo wants to be paid in dollars, that gives the USA particular leverage over the world's money.

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Swift would rather not be banned from doing business in the US ...

  1. The US can pass laws to regulate how residents and US companies act within the borders of the United States.
  2. The US can pass laws to regulate how residents and US companies act outside the borders of the United States, and enforce those with punishments once the perpetrator is back. The US isn't alone in that. For instance, many countries would put their own citizens on trial for child abuse abroad even if the abuse wasn't, technically, a crime where it happened.
  3. The US can sanction people and companies for how they act, outside the United States, and ban US companies from dealing with them. Or sanction companies dealing with sanctioned companies. Again, this is possible for any country. The difference is that when companies face the prospect of not trading in the US or not trading with sanctioned entities, most will decide to retain their ties with US customers.

The Nord Stream 2 pipeline is an interesting example. The US and parts of the EU considered it a strategic mistake, Germany thought it was a good idea, the US tried sanctions, and Germany pushed back. Recently the US retracted sanctions against the German companies while still sanctioning the Russian ones. Arguably the new US administration realized that they overplayed their hand when they tried to influence German energy politics.

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