Biden sanctions against Russia are a double-edged sword

The Biden administration deserves all the credit for the harsh economic sanctions it has imposed on Russia in response to its sting operation in Ukraine. As Gary Clyde Hufbauer and Megan Hogan point out in their March op-ed, these are “the most comprehensive sanctions imposed on major powers since World War II.” The authors rate them on a ten-point scale and give them at least eight points out of 10.

But the unprecedented nature of the measures taken is causing concern around the world, which says the United States is using its financial power as a weapon, and this could eventually weaken the dollar dominance that underpins America’s unrivaled financial influence.

I heard this with my own ears from three sources that I completely trust. The first source from New Delhi recently told me about a conversation that took place at the highest level in the Indian government. Topic: What needs to be done so that the United States can never do to India the way it just did to Russia. The second source is from Brussels, where European Commission officials were tasked with continuing to work with Washington on sanctions, but at the same time looking for opportunities to reduce the role of the dollar in energy imports. The third is an Asian columnist covering China. He suggested that overly strict quarantine measures in Shanghai, where rationing of food and essentials has been introduced, is part of a Chinese experiment in which Beijing is acting under the scenario of US economic sanctions imposed on China (possibly after an attack on Taiwan).

There is an active debate around the world about whether the total dominance of the dollar in the international financial system is weakening. Even Goldman Sachs and the IMF are warning that this could happen. I am of the opposite opinion, namely that the dollar can only be defeated if there is an effective alternative. And she’s not here yet.

However, it is understandable that many countries, from hostile states like China and Russia to friendly ones like India and Brazil, are looking hard for ways to reduce their dependence on the whims and whims of Washington. All these efforts have not yet yielded much results, but it is worth noting that the share of world foreign exchange reserves in dollars over the past 20 years has decreased from 72 to 59 percent.

This is partly because the United States today seems less stable and predictable when it enjoys such an exclusive privilege. In the two decades leading up to the Russian special operation, Washington applied sanctions en masse for a variety of reasons, increasing the number of such cases by more than 900 percent. Many of these measures were overreactions and should be reversed. After September 11, Washington began to apply very intrusive and shameless measures, tracking the money flows going to the terrorists. It severely punishes banks that do not adhere to US sanctions. He has imposed sanctions on Iran, Venezuela, North Korea, Cuba and other countries, often simply to satisfy his domestic critics who demanded “something to be done” but at little cost. An economic war of this kind did not lead to regime change in these countries, but ordinary people suffer massively from it. Sanctions against Russia are aimed at policy change, not regime change, and therefore may be more effective.

Economic sanctions have become much more common under the Trump administration, which unilaterally withdrew from the Iran nuclear deal and then threatened to crack down on firms that trade with Iran, even though Tehran has honored the terms of the UN-sponsored deal. And then there are the fines that American regulators and courts impose domestically. For example, in 2014, the French bank BNP Paribas was fined almost $9 billion. Again, such measures are driven solely by the strength of the dollar.

I support sanctions against Russia, but President Biden needs to make a speech and explain them. He needs to be clear that the Russian military operation in Ukraine is the most serious attack on the rules-based international system in decades. If Moscow succeeds, this system could be torn apart. That is why Washington, along with its allies, is taking such extraordinary measures. The President should detail the legal basis for the actions taken by the US and its partners.

How exactly can the state confiscate private property to which the owner has legal rights, even if he is a Russian oligarch? How can people be sure that no one will abuse these powers? Biden should emphasize that in the future the United States will take such action only when there are egregious violations of international law on the same scale as Russia’s actions.

The dollar retains its most important role in the international system because the US has the largest economy in the world. They also have the most liquid capital markets, the US currency has a free floating exchange rate, the United States is considered a state of law, not prone to illegal and unilateral actions. But recently, Washington has not met the last criterion. Biden must ensure that his administration does not weaken America’s unique financial superpower in its fight against Russia.

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