Risk of self-harm

Cross-border bank whippings won't dent dollar, yet

America no longer overtly uses its currency as a trade weapon, but it is happy to deploy dollar diplomacy. While others may moan, the world's sole superpower can still freely exploit its currency's clout to enforce its political will.

The stiff punishment of BNP Paribas created some hostility. While the French bank admitted it had broken US law and agreed to pay $8.9 billion in fines, some Europeans privately expressed resentment about rules which in practice compel foreign institutions to enforce US government sanctions.

Non-American banks have been more public in decrying the new US Foreign Account Tax Compliance Act, which makes them external enforcement arms of the Internal Revenue Service. And Buenos Aires and some investors have complained of something like legal imperialism in American court decisions on Argentine debt settlement.

But it is one thing to complain, another to do something. And little can be done as long as the dollar's position remains secure. No international business of any size can thrive without the greenback. The US currency was on one side of 87 per cent of all foreign exchange trades in 2013. It accounts for three-fifths of international reserves. It is the most used currency for cross-border payments, according to international banking network SWIFT.

None of this will change overnight: the dollar is liquid, a good store of value and widely available, even to non-residents. Sheer inertia in the global trading system also works in its favour.

Still, if resentment spurs resistance, the dollar's rock-like position may be gradually eroded. In response to the BNP case, Michel Sapin, the French finance minister, suggested the euro could be used more in international trade. He may find companies willing to take him up on that idea. Leaders in some emerging economies may also be sympathetic.

China has already taken a few steps away from the dollar by promoting international use of the renminbi. Almost a fifth of China's trade is now settled in its currency, up from less than 1 percent in 2009. Granted, there is no immediate threat to the greenback's hegemony. But too many instances of dollar diplomacy could hasten the hunt for an alternative.