<p>You should check the German wikipage on <a href="https://de.wikipedia.org/wiki/Instex" rel="nofollow noreferrer">Instex</a> (use a translator to read them). Here is the short translation on the purpose of Instex. </p>

<blockquote>
  <p>Instex was initiated in January 2019 as a special purpose vehicle
  designed to facilitate the settlement of transactions in Iran without
  penalties imposed on private banks by the use of US currency. The
  special purpose vehicle is intended to enable European companies to do
  business with Iran, despite strict US sanctions. As an exchange, it
  clears claims of European and Iranian companies. This allows Iran to
  export oil or other products. Money does not flow through banks to
  Iran, but to European companies selling goods to Iran.</p>
</blockquote>

CC BY-SA 4.0
2019-09-10T15:46:22.557Z
2019-09-10T15:46:22.557Z
mootmoot
<p>You have most of the explanation here - the only missing piece is that as the de facto reserve currency of the world, almost all global trade is conducted in US dollars.  Typically what happens is that a buyer will convert local currency to \$USD, the \$USD will be exchanged in the transaction, and then the seller will convert that \$USD to their local currency.</p>

<p>There are two points in that chain where the United States can intervene - when the buyer converts to \$USD, and when the seller converts back to local currency.  The US' ability to impose credible sanctions rests on its ability to exert this influence, and historically it has had it by way of the \$USD being the reserve currency for the world.</p>

<p>In principle, nothing has ever stopped other nations from circumventing this mechanism.  What has made $USD desirable as a reserve currency has been the relative political and financial stability of the US economy, which allows the \$USD to act as a store of value.  The relative part is important - in a global exchange economy mediated by fiat currencies, there really are no non-currency safe-havens.  Every boat on the ocean rocks in a storm, but some rock less than others.  It is better to weather a bit of sea-sickness than to jump to a boat that may capsize.  US-imposed sanctions reflect a belief that nations would rather capitulate to US demands than skip over to the next boat.  For much of the globalization era this has been true for most nations.</p>

<p>However, there has been cause to question this relative stability in recent decades (especially since 2009) and so it's very telling that we are seeing these agreements.  They indicate that to some nations, whatever benefits have historically flowed from transacting in $USD are viewed as no longer being present.  Whether this is good or bad is open to interpretation - after all, it should be expected as other large economies "catch up" to the US in terms of economic activity, stability of institutions, etc.</p>

CC BY-SA 4.0
2020-02-07T19:34:43.477Z
2020-02-07T19:34:43.477Z
heh
<p>Recently we saw that the EU and Iran devised an instrument called <a href="https://en.wikipedia.org/wiki/Instrument_in_Support_of_Trade_Exchanges" rel="nofollow noreferrer">INSTEX</a> to avoid dealing in U.S. dollars and, hence, avoid U.S. sanctions. Similar thing is being planned between India and Russia (regarding the S-400 deal) to avoid U.S. sanctions under CAATSA.</p>
<p>I don't understand how changing the currency under the deal circumvents the problem. Isn't the whole problem the deal itself rather than the currency? The U.S. can still impose sanctions if it gets to know that a deal has happened. Then, how does this INSTEX work?</p>
<p>Sorry if I posted it on the wrong platform. I don't know where to go for such international, political and economics' questions.</p>

CC BY-SA 4.0
2019-10-10T21:42:41.997Z
One way to look at it is, there is the *intent* of sanctions, and the *mechanism* of sanctions.  Short of engaging in direct hostilities, there are very few mechanisms to enforce sanctions.  The banking system is one such mechanism - INSTEX circumvents that.  Your question seems to wonder more about the intent, and without running to Google I would suspect that the US is not terribly happy about INSTEX. :)
heh
CC BY-SA 4.0
2019-10-12T01:58:35.883Z
Oh yes ! That makes sense.
Ankur Singh
<international-trade><international-economics><sanctions>
Alternatives to avoid sanctions
Ankur Singh
# Alternatives to avoid sanctions

(Asked by: username_0 on 2019-09-10)

Recently we saw that the EU and Iran devised an instrument called [INSTEX](https://en.wikipedia.org/wiki/Instrument_in_Support_of_Trade_Exchanges) to avoid dealing in U.S. dollars and, hence, avoid U.S. sanctions. Similar thing is being planned between India and Russia (regarding the S-400 deal) to avoid U.S. sanctions under CAATSA.

I don't understand how changing the currency under the deal circumvents the problem. Isn't the whole problem the deal itself rather than the currency? The U.S. can still impose sanctions if it gets to know that a deal has happened. Then, how does this INSTEX work?

Sorry if I posted it on the wrong platform. I don't know where to go for such international, political and economics' questions.

**Tags:** international-trade, international-economics, sanctions

> **Comments:**
> **username_1**: One way to look at it is, there is the *intent* of sanctions, and the *mechanism* of sanctions.  Short of engaging in direct hostilities, there are very few mechanisms to enforce sanctions.  The banking system is one such mechanism - INSTEX circumvents that.  Your question seems to wonder more about the intent, and without running to Google I would suspect that the US is not terribly happy about INSTEX. :)  
> **username_0**: Oh yes ! That makes sense.  

---

## 2 answers

### Answer by username_1 on 2020-02-07. Score: 4 | Accepted answer

You have most of the explanation here - the only missing piece is that as the de facto reserve currency of the world, almost all global trade is conducted in US dollars. Typically what happens is that a buyer will convert local currency to \$USD, the \$USD will be exchanged in the transaction, and then the seller will convert that \$USD to their local currency.

There are two points in that chain where the United States can intervene - when the buyer converts to \$USD, and when the seller converts back to local currency. The US' ability to impose credible sanctions rests on its ability to exert this influence, and historically it has had it by way of the \$USD being the reserve currency for the world.

In principle, nothing has ever stopped other nations from circumventing this mechanism. What has made $USD desirable as a reserve currency has been the relative political and financial stability of the US economy, which allows the \$USD to act as a store of value. The relative part is important - in a global exchange economy mediated by fiat currencies, there really are no non-currency safe-havens. Every boat on the ocean rocks in a storm, but some rock less than others. It is better to weather a bit of sea-sickness than to jump to a boat that may capsize. US-imposed sanctions reflect a belief that nations would rather capitulate to US demands than skip over to the next boat. For much of the globalization era this has been true for most nations.

However, there has been cause to question this relative stability in recent decades (especially since 2009) and so it's very telling that we are seeing these agreements. They indicate that to some nations, whatever benefits have historically flowed from transacting in $USD are viewed as no longer being present. Whether this is good or bad is open to interpretation - after all, it should be expected as other large economies "catch up" to the US in terms of economic activity, stability of institutions, etc.


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### Answer by username_2 on 2019-09-10. Score: 0

You should check the German wikipage on [Instex](https://de.wikipedia.org/wiki/Instex) (use a translator to read them). Here is the short translation on the purpose of Instex.

> Instex was initiated in January 2019 as a special purpose vehicle
> designed to facilitate the settlement of transactions in Iran without
> penalties imposed on private banks by the use of US currency. The
> special purpose vehicle is intended to enable European companies to do
> business with Iran, despite strict US sanctions. As an exchange, it
> clears claims of European and Iranian companies. This allows Iran to
> export oil or other products. Money does not flow through banks to
> Iran, but to European companies selling goods to Iran.


---

