Four more mega-banks join the anti-dollar alliance

That was fast.

Yesterday I told you how a consortium of 15 Japanese banks had just signed up to implement new financial technology to clear and settle international financial transactions.

This is a huge step.

Right now, most international financial transactions must pass through the US banking systemโ€™s network of correspondent accounts.

This gives the US government an incredible amount of power… power they havenโ€™t been shy about using over the last several years.

2014 was one of the first major watershed moments when the Obama administration fined French bank BNP Paribas $9 billion for doing business with countries that the US doesnโ€™t like– namely Cuba and Iran.

It didnโ€™t matter that this French bank wasnโ€™t violating any French laws.

Nor did it matter that only months later the President of the United States inked a sweetheart nuclear deal with Iran and flew down to Cuba to attend a baseball game with his new BFFs.

BNP had to pay up. A French bank paid $9 billion because they violated US law.

And if they didnโ€™t pay, the US government threatened to kick them out of the US banking system.

$9 billion hurt. But being kicked out of the US banking system would have been totally crippling.

Big international banks in particular cannot function if they donโ€™t have access to the US banking system.

As long as the US dollar remains the worldโ€™s dominant reserve currency, major banks must able to clear and settle US dollar transactions if they expect to remain in business.

This means having access to the US banking systemโ€ฆ the gatekeeper of the US dollar.

But having watched BNP Paribas get blackmailed into paying an absurd $9 billion fine to the US government, the rest of the worldโ€™s mega-banks knew instantly that their heads could be next ones on the chopping block.

So they started working on contingency plans.

Blockchain technology provided an elegant solution.

Instead of passing funds through the US banking systemโ€™s costly and inefficient network of correspondent accounts, blockchain technology provides an easy way for banks to send payments directly to one another.

I cannot understate how important this technology is.

Blockchain may very well be what neutralizes the US governmentโ€™s domination of the global financial system.

And while thereโ€™s been a lot of momentum in this direction (hence yesterdayโ€™s letter to you), even Iโ€™m surprised at how fast itโ€™s moving.

Today, four of the worldโ€™s largest banks announced a brand new joint venture to create a new financial settlement protocol built on blockchain technology.

Deutsche Bank from Germany, UBS from Switzerland, Santander from Spain, and Bank of New York Mellon have joined together to launch what theyโ€™re naming the very un-sexy โ€œutility settlement coinโ€.

Like Ripple, Setl, Monetas, and several other competing technologies, Utility Settlement Coin has the potential to end the reliance on the US banking system for cross-border payments and financial transactions.

Banks will be able to send payments to one another directly without having to transit through the Wall Street financial toll plaza.

(Global consulting firm Oliver Wyman estimates that the cost of clearing and settling international financial transactions at up to $80 billion annually.)

This has enormous implications, especially for US banks.

The Federal Reserve, for example, has already warned that financial technology could pose stability risks to the US financial system.

And theyโ€™re right.

If foreign banks are able to transact directly with one another without having to go through the US banking system, then why would they need to park trillions of dollars in the United States?

They wouldnโ€™t.

Adoption of this technology could cause a gigantic vacuum of deposits out of the US banking system.

US banks would take a big hit. And the US government would have far fewer foreign buyers to sell its ever-expanding piles of debt.

Make no mistake, the adoption of this technology is a game-changing development with far-reaching implications. And itโ€™s happening very quickly.

If these mega-banks can hit their milestones, theyโ€™ll launch commercially in eighteen months.

Mark it on your calendar– that may be the end of peak US financial dominance.

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