The US has long employed the power of its currency to dictate the foreign policies of other countries.

The European Union is seeking to bolster the role of its currency in the global economy as it tries to counter the dominance of the US dollar, which Washington uses to force everyone to abide with its sanctions regime. 

The US has long relied on the dollar’s hegemony over international commerce to enforce trade and investment restrictions against countries such as Iran. 

EU member states were against former US President Donald Trump’s withdrawal from the nuclear deal. It tried to convince European companies to continue doing business with Iran. But fear of being shut out of the US market has kept European firms away from dealing with the oil-rich Islamic Republic. 

A widespread circulation of the euro will increase “the EU’s resilience to the effects of the unlawful extra-territorial application of unilateral sanctions and other measures by third countries,” the European Commission, EU’s executive arm, said in a report this week. 

The euro is already the second most used currency in global payments with a share of around 38 percent, it said. 

“Strengthening the EU’s foreign policy toolbox goes hand in hand with the international role of the euro and a resilient financial sector, as it allows the EU to defend its interests internationally and stand up for its values, using all tools at its disposal.”

Major European firms including French oil giant Total and German insurer Allianz have cut back businesses in Iran after Trump re-imposed sanctions on Iran in May, 2018. 

Washington pulled out of a landmark 2015 agreement, formerly known as the Joint Comprehensive Plan of Action, to lift economic sanctions in return for Tehran's promise to limit its nuclear activities. 

At the time, the EU said the deal helped contain Iran's nuclear programme, something that the International Atomic Energy Agency verified a dozen times. 

Trump saw the deal as too generous for Iranians and wanted to renegotiate it. 

Even though the EU opposed the sanctions, the strength of the US financial system made it nearly impossible for businesses to ignore them. 

That's because international trade is denominated in dollars and the dollar transactions go through the US financial system for settlement, bringing them under the ambit of Washington's laws. 

Sanctions blocked Iran out of the global banking system. 

In the last few years, major banks including BNP Paribas, Standard Chartered and ING have paid billions of dollars in fines for breaching what are known as secondary US sanctions. 

The report stressed upon enhancing the role of the euro in the commodity markets especially when it comes to the option of choosing a currency to make payments. 

The euro is increasingly being adopted to settle payments for the natural gas trade in the region. “The share of natural gas contracts signed in euros increased from 38 percent in 2018 to 64 percent in 2020,” it said. 

The EU has plenty of financial power to promote its currency. The 27-member bloc has jointly raised 750 billion euros ($905 billion) in debt to fund economic recovery from the pandemic shock. 

Around a third of the funds will be spent on green energy projects. 

The EU needs substantial investments to meet its climate target. The report said this offers an opportunity for regional financial markets to play a role in raising funds. 

In 2019, almost half of all global green bond issuances, including those originating from outside the euro area, was denominated in euro, it said. 

“Together with the recovery plan, promoting sustainable finance is an opportunity to develop EU financial markets into a global ‘green finance’ hub, bolstering the euro as the default currency for the denomination of sustainable financial products.” 

Source: TRT World