Americans have the authority via American courts to impose penalties on any agency that carries out global transactions.

I have to admit that I wouldn’t dare using this title if it wasn’t for the brilliant title of an Ertuğrul Özkök commentary. I am talking about the one titled “Who the Hell Are You to Tell Me Where I Can Have a Beer!”, which he wrote after prime minister Erdoğan’s ridiculous question, “Is it acceptable to have beer at university?” Recently, it was reported that the CFO of the British bank Standard Chartered also used a similar language. In response to rumors that an American financial prosecutor was to open an investigation against the Bank for its dealings with Iran in violation of the US embargo against the country, CFO Richard Meddings was claimed to say, "Who the hell are you to tell us that we’re not going to deal with the Iranians?”

Then, what happened?

That prosecutor opened an investigation into 60,000 transactions of the Bank with Iran, totaling $375 billion. Immediately after the news, the Bank’s shares started to fall. The Bank was protested that the number of questionable transactions was 300, which worth less than $14 million. In addition, Bank officials stated that Meddings had been quoted inaccurately. In the end, the Bank stepped back. So, why do we have to beware of American financial officers? Where is the world heading? Can you see how this relates to the Armenian Genocide Bill? Let me help you out.

First things first: why should we beware of American prosecutors? Or, more generally of whom should one beware? Of an authority that has the power to enforce any rule it imposes and to inflict a penalty otherwise. Americans have the authority to impose penalties on any agency that carries out global transactions, via American courts. How is this possible? The world’s official reserves total $10 quadrillion and more than 60% of this amount is in USD. What does this mean? Holding reserves in dollars basically means purchasing the most risk-free securities in dollar terms. In other words, purchasing government debt securities (GDSs) issued by the US Treasury. Many investors around the world keep the GDSs of the US in their portfolios and more GDSs are issued as borrowing grows. This way, American justice is globalized. This is the reality, if you like it or not.

How is American justice globalized? What happens if a non-American institution purchases American GDSs? The securities are kept by American custodian companies, in the accounts of foreign investors. Custodian companies operate as per American laws. So, if an American court seizes or freezes GDS accounts, a penalty or fine is imposed. Then, if an incident constituting a crime against American justice system occurs, any American prosecutor has the authority to take action. This is the first point.

And here is the second one: this factual state spreads the effective domain of the American justice system around the globe. In the past, we enjoyed positive outcomes. Until today, the boiler has given birth, as in the old Nasrettin Hodja story. Foreign companies continue their operations in China, the land where no law applies because China’s foreign exchange reserves generated by the trade surplus are kept safe, held hostage in US territories in the form of GDSs. That is how they safely engaged in business in China.

Is it possible to have a reserve currency other than the US dollar? I don’t think so. Any country supposed to replace America has to have first an equally strong legal system, second as large of a GDS stock, and last as strong a custodial system. Is this possible? At least not in the short run. I guess in this new world of ours, American justice will be even more dominant. We better get prepared.

I will touch on the third point briefly for now. The potential outcomes of an Armenian Genocide Bill that the US Congress might possibly pass should be assessed from this perspective. Yes, this is a political matter. But the threat it poses is as real as in the above example.

The US Congress, with the support of the Armenian and Jewish lobbies, has rejected a bill that would enable Turkish businesspeople to invest in American Indian reservations. Have you noticed?

This commentary was published in Radikal daily on 14.08.2012