Sterling Subservient
How the special relationship became a sovereignty trap Britain can't afford to escape
Grüezi!
A Trump UK trip special this week…
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Rachel Reeves knew the script. When US Treasury Secretary Scott Bessent entered Downing Street on Tuesday morning, she would smile, shake hands, and celebrate British economic dynamism.
Announcements like Blackstone’s £100 billion commitment to UK investments over the next decade (from a $500 billion European programme announced in June) forms part of a choreographed display of transatlantic partnership during Trump’s state visit.
But Reeves, like every British finance minister before her since 2008, understands the unspoken truth: she was not negotiating as an equal. Every major economic decision her government might make – on sanctions, regulations, trade, even taxation – was constrained by a simple reality.
The City of London’s dependence on dollar access meant that Washington, not Westminster, held the ultimate veto over British policy.
1 Prisoners of Constraint
The mechanism is elegantly simple, brutally effective. When British banks process any international transaction – even those between third countries unconnected to America – they almost inevitably touch dollars. And touching dollars means submitting to US jurisdiction.
Consider the implications for British foreign policy. When Parliament debates sanctions on a foreign regime, the discussion is largely theatrical. If Washington opposes those sanctions, British banks won’t implement them regardless of UK law – the risk to their dollar access is existential. Conversely, when Washington demands sanctions that Britain opposes, its banks comply anyway.
The UK Blocking Regulation, designed to prevent British companies from complying with extraterritorial US sanctions, might as well not exist. No bank would choose UK law over dollar access. The government knows this, which is why the regulation has never been meaningfully enforced.
2 The HSBC Moment That Changed Everything
The moment of capitulation can be dated precisely: December 11, 2012. HSBC – a UK corporation headquartered in London – agreed to forfeit $1.26 billion and enter into a deferred prosecution agreement with the US Justice Department.
The bank had been caught laundering money for drug cartels. But the jurisdiction wasn’t British – it was American, claimed purely because dollars were involved.
From 2006 to 2009, HSBC Bank USA rated Mexico as “standard” risk, its lowest AML risk category. Consequently, it failed to monitor $670 billion in wire transfers and $9.4 billion in purchases of physical dollars from HSBC Mexico.
The British government watched, powerless, as American prosecutors held one of Britain’s largest banks hostage. The message was clear: UK law, UK regulators, UK sovereignty – none mattered when dollars were involved.
3 Brexit’s Bitter Revelation
The promise of Brexit was taking back control. The reality exposed how little control Britain ever had.
A 2024 report by Cambridge Econometrics, commissioned by City Hall, showed London’s economy has shrunk by more than £30 billion. The average Briton was nearly £2,000 worse off in 2023, while the average Londoner was nearly £3,400 worse off as a result of Brexit. The UK economy is £140 billion smaller than it would have been had it remained in the EU.
Brexit forced a choice, and that choice revealed where real power lay. Financial services exports to the EU fell 6.6% to £24.7 billion year-on-year, while exports to non-EU countries rose 4.1% to £57.7 billion. Cut off from European markets, the City had only one direction to turn: deeper into America’s embrace.
On January 4, 2021, in a single day, Amsterdam dethroned London as Europe’s share trading capital.
4 The Compliant State
Today, British financial institutions spend £38.4 billion annually – three-quarters of the UK’s defence budget – on compliance. That’s £4.4m every hour, primarily to meet American requirements.
Beyond the cost lies the transformation of British governance. When UK regulators write rules, they must consider what Washington will accept. When Parliament debates financial legislation, the real question isn’t what’s best for Britain, but what won’t trigger American retaliation.
The Financial Conduct Authority’s 2025 framework explicitly acknowledges this reality, requiring consideration of “deference arrangements” – bureaucratic language for foreign supervision. British regulators have become branch offices of their American counterparts.
No decision better illustrates the government’s powerlessness than HSBC’s 2025 restructuring. In January 2025, HSBC announced plans to wind down M&A and equities businesses in Europe, Britain, and the Americas.
The government watched as Britain’s flagship bank gave up competing in Western markets. The reason, though unstated, was clear: operating in dollar-denominated markets meant accepting US regulatory dominance. Better to retreat to Asia than remain under Washington’s thumb.
Could the government have intervened? Theoretically, yes. Practically, no. Forcing HSBC to maintain Western operations would have meant greater US oversight, larger compliance costs, and more legal vulnerability. The government chose to watch.
Standard Chartered reveals how US power extends beyond regulation to pure political pressure. From June 2009 to May 2014, the bank processed 9,335 transactions totalling $438 million to or through the United States. These transactions, between non-US parties in non-US locations, became US crimes simply because dollars were involved.
The bank paid $639 million in sanctions settlements in 2019. Yet the targeting continues. US politicians demand new investigations. Britain watches helplessly as its banks face perpetual jeopardy.
5 The Federal Reserve’s Leash
The ultimate control mechanism is the Federal Reserve’s swap lines. Britain’s central bank and four others maintain standing dollar liquidity arrangements.
These sound technical, even boring. They’re anything but. These swap lines keep the British financial system functioning during crises. Without them, British banks can’t access emergency dollars. Without that access, the City would collapse within days during serious financial stress.
The Bank of England knows this. The Treasury knows this. When Washington speaks, London listens – not from courtesy, but necessity.
When Britain considers sanctions, the real decision-maker isn’t Parliament or the Foreign Office – it’s the US Treasury.
The theoretical sovereignty to set an independent foreign policy becomes meaningless when the mechanisms of economic warfare are controlled from Washington.
Iran provides the clearest example. Britain, as part of the Iran nuclear deal, wanted to maintain financial channels. British policy supported this. British law allowed it. But British banks wouldn’t comply. The risk of US retaliation was too great. UK foreign policy was effectively vetoed by American regulatory power.
6 The Democratic Deficit
Beyond the £140 billion economic damage, Brexit revealed that the sovereignty it promised was always an illusion.
Proponents sold Brexit as liberation from Brussels. What it delivered was the recognition that the EU had never been the real constraint on British sovereignty. Washington was. And unlike EU membership, there’s no Article 50 for dollar dependence.
This creates a fundamental problem for British democracy. Voters elect governments that cannot deliver promises if they conflict with American financial requirements. Parliamentary sovereignty becomes a fiction when Parliament’s decisions can be nullified by foreign regulatory power.
The Conservatives promised “Global Britain” freed from EU constraints. Labour promises to “make Brexit work.” Both are selling sovereignty they cannot deliver. The City’s integration into dollar-based finance means the ultimate vote is cast in Washington, not Westminster.
Trump’s state visit has brought over £1.25 billion in private sector commitments from US firms – PayPal, Bank of America, Citibank, and S&P Global. Each announcement deepens the structural dependencies that constrain British sovereignty.
BlackRock expects to allocate over £7 billion to the UK market next year, and is investing £500 million in enterprise data centres. These aren’t partnerships between equals. They’re vassalage, presented as prosperity.
Rachel Reeves knows this. At the podium, celebrating investments and praising the special relationship, she knows every billion in American investment is another chain limiting her government’s freedom. Every new US bank presence in London is another channel for Washington’s influence.
7 The Permanent Trap
There’s no escape. The government could theoretically reduce the City’s importance to the British economy, accepting massive economic damage to regain sovereignty.
The alternative – developing sterling as a reserve currency alternative – is fantasy. The dollar comprised 58 per cent of disclosed global foreign reserves in 2024, dwarfing the euro at 20 per cent and yen at 6 per cent. Sterling’s 5 per cent share makes it a bit player, not a challenger.
British governments are trapped. Maintaining the City’s prosperity requires accepting American financial dominance, surrendering meaningful sovereignty over economic policy. Every government since 2008 has understood this. Every future government will face the same constraint.
As Trump’s motorcade winds through London, as business deals make for boasts and toasts, the fundamental reality remains unchanged. The British government can make any law it wishes – as long as it doesn’t threaten the City’s dollar access.
It can pursue any foreign policy – that doesn’t conflict with American sanctions. It can regulate its financial sector – within parameters acceptable to Washington.
This isn’t conspiracy or hyperbole. It’s the structural reality of a nation whose financial sector depends on a currency controlled by a foreign power.
The special relationship endures, as subservience.
Westminster can debate, Parliament can legislate, ministers can announce grand strategies. But when the City needs dollars – and it always needs dollars – Washington holds the veto. That’s the sovereignty trap from which there is no escape, only accommodation.
This week’s celebrations in Downing Street are another ceremony of that accommodation, performed with practised smiles.
Thanks for reading!
Best
Adrian