America’s Obsession With Divisive Political Sanctions Is Rapidly Undermining the Dollar’s Position as the World’s Reserve Currency
Economists say among themselves, “Never hesitate to state the obvious.” Russian President Vladimir Putin has clearly taken that advice to heart by explaining to an American reporter that US sanctions are an act of self-harm.
By turning the dollar into a political instrument, he said, Washington is undermining its own currency. Far from an outsider opinion, this is a view long shared by quite a few Western experts and politicians as well.
The mechanism of that self-damaging American strategy is as complicated as American bureaucracy gets, spiked with acronyms and jargon. But its core is simple: After WWII, the dollar rose to become by far the most important global reserve currency, beating potential competitors such as the franc (and later the euro), the Japanese yen, and the British pound. With an estimated 60% of foreign exchange reserves worldwide still held in dollars, the US benefits in various ways.
One of them is its ability to deploy not only primary but secondary sanctions to impose its will far beyond its borders. Whereas primary sanctions target a given country, economic sector, company, or individuals by forbidding Americans (or those officially linked to US jurisdiction) to do business with the target, secondary sanctions go after everyone else who dares trade with the target, making the life of the latter more miserable again. Secondary sanctions, as an American critic has pointed out, are akin to siege warfare, where the aim is to isolate and suffocate an opponent.
Put differently, when decreeing primary sanctions, the US government interferes with economic relationships between Americans (or those tied otherwise to US jurisdiction) and others; when adding secondary sanctions, Washington coerces others by unilaterally expanding its jurisdiction far beyond its territory, even when their activities are perfectly legal as far as their own governments are concerned. Think of a playground bully, announcing he won’t play with Russia or Iran anymore, for instance, and then also threatening to beat up anyone else who continues to play with Russia or Iran.
And make no mistake: Although there is some confusion about them, secondary sanctions are not about sanctioning activities that have the specific purpose of breaking primary US sanctions – for example, by masking transactions. Instead, secondary sanctions, in the correct – and very real – sense of the term, are meant to punish those who are engaged in ordinary, principally legitimate business with the primary sanction target.
As counter-intuitive as it may sound, in terms of international law, this behavior is dubious, but not necessarily or unambiguously illegal, which makes it even harder to oppose it effectively.
In practice, secondary sanctions can only work becau
Article from LewRockwell