[burntoutfire]

> trading in USD requires the transaction to route via the US

Is this correct? How's that enforced? Say, I have a company in Poland which sells some goods for a million dollars to another company in Poland. We both have USD accounts in Polish banks and the transfer is between these accounts. How does the money route via the US?

[PeterisP]

It's not enforced but it's a de facto practical requirement.

If Polbank (forgive me for the bastardized names) wants to give 1M USD to Bankpolska, they either need to ship cash (which can be done but is expensive or tricky) or have a specific bilateral agreement betwene them (which can be done and is done sometimes, but linking every bank with every other bank bilaterally does not scale), or need some interbank settlement system that will do that, but there's no such system in which they can participate. E.g. there's Fedwire but neither Polbank or Bankpolska can be direct members as far as I understand (they generally are not members; I'm not certain if it's caused by some strict limitation or just practicalities and costs.)

So the standard means is to use 'correspondent banks' e.g. USA banks that do that for them. Polbank might have an USD account with Chase or Citi, and Polbank can ask Chase (via a SWIFT message usually) "hey transfer $1m from our account to Bankpolska, it's cover for a customer deal #1234" - but this means that the transaction "goes through" USA.

Alternatively, multinational banks may have branches in both USA and Poland and so they can be direct participants and settle this directly, however, then it would involve a Fedwire transfer (in USA, subject to USA laws and limitations) between Polbank USA branch and Bankpolska USA branch.

That's standard practice for pretty much every currency. EUR settlement between two American banks usually (not always, there are various options) goes through EU, RUB settlement usually goes through Russia, etc.

If there's a sufficient need, Polish banks could establish an interbank settlement system through which they could transfer USD directly (e.g. similar to the one they have for transfering Polish zloty), but it's a hassle and has costs, so currently they have not done so because for them it's generally not a problem to route all USD payments through USA.

[twic]

There have occasionally been efforts to do large international USD transactions which don't touch the US, usually because one or both of the participants is under US sanction. There is enough USD infrastructure in London that it may be an alternative to New York, but everyone involved has to scrupulously avoid any interaction with any machinery under US jurisdiction, which is quite difficult.

I learned about this from reading the case brought in he UK by the US government to try to stop this happening. I didn't bookmark it, and of course can't find it now.

Not this, but an example of how it can go wrong:

> According to the settlement agreement, BACB actively solicited U.S. dollar business from Sudanese banks and processed the transactions by way of an internal book transfer process that involved a nostro account maintained at a foreign bank (Bank B) located in a country that imports Sudanese-origin oil. (A nostro account is an account a bank holds in a foreign currency in another bank.) Although these transactions were not processed to or through the U.S. financial system, the process to fund BACB’s U.S. dollar nostro account at the foreign bank did involve transactions processed by or through U.S financial institutions in apparent violation of the U.S. economic sanctions.

https://www.nafcu.org/compliance-blog/ofac-dings-london-bank...

[inshadows]

> If there's a sufficient need, Polish banks could establish an interbank settlement system through which they could transfer USD directly (e.g. similar to the one they have for transfering Polish zloty), but it's a hassle and has costs, so currently they have not done so because for them it's generally not a problem to route all USD payments through USA.

Doesn't it still need to be involved with USA? I mean, sure, they can use this settlement system to trade between each other independent of Fed, but ultimately the funds in the settlement system have to be stored as reserves in Fed, i.e. in some bank under US jurisdiction. So, after all, US still has control over this new settlement system, but now they can't freeze individual accounts in it, they can only freeze funds in reserve account(s) that this system consist of, potentially affecting many (innocent) parties. Am I right?

[raverbashing]

Thanks for the explanation this makes more sense

[dogma1138]

Euro dollars are constantly traded without going through the US.

CLS currencies and any currency which is fully convertible can be used in transactions without any involvement of the jurisdiction that minted the currency in the first place.

The USD has a huge settlement infrastructure that is completely independent of the US.

[inshadows]

Doesn't it still involve accounts in US banks though? Please see my direct reply PeterisP for explanation. I cannot see how could it work without Fed oversight as it would allow it to "print" dollars.

Also, could you please share more info? I'm very interested in financial settlement system, especially for USD and EUR, but sadly there's too little public resources.

[burntoutfire]

Thanks, a reply like this is why I come to Hacker News!

[oarsinsync]

The bank will either have a presence in the US itself, or it'll have a partner that does that it'll route the transaction through.

If you've done a USD transfer, it'll most likely be a SWIFT transfer, and you can ask your bank for the SWIFT routing log. You'll most likely see an NYC bank (or NYC branch of your bank) in the middle.

[HelloNurse]

SWIFT is a communication network, it replaces the letters and couriers ancient banks would have used to agree that payments have been ordered and funds have been moved. Payment don't "go through" any bank that hasn't been explicitly requested. The whole point of the SWIFT network is that it is global and it allows you to reach every branch of every bank.

There are of course banks whose SWIFT processing is handled by someone else, but they are usually service bureaus or central offices within a conglomerate, not partners in a specific country.

[raverbashing]

I'm not sure about this. I think you're conflating SWIFT transfers with USD transfers

USD is fully convertible https://www.kantox.com/en/glossary/fully-convertible-currenc...

I can "take dollars out of my pocket" and pay you without going through the US no problem

[imhoguy]

USD transfers even within same non-US based bank let's say same example in Poland is done with SWIFT, but unlikely it goes thru NYC bank as the cost is none and the transfer is instant. SWIFT is used only for addressing and accounting in such case.

[PeterisP]

Within the same bank it's just internal accounting. But when two different banks are involved, an USD transfer generally goes through USA.

[dogma1138]

No it doesn’t, https://en.m.wikipedia.org/wiki/Eurodollar.

Not to mention that since the USD is a CLS/FCC currency you can perform correspondent banking transactions with it without having any government involved in the process.

[cosmodisk]

It gets quite interesting when foreign currency is involved: https://en.m.wikipedia.org/wiki/Nostro_and_vostro_accounts