By using American banks as an example against Russia, Joe Biden has shown his willingness to weaponize the US financial system against the enemy, continuing a tactic honed in the Obama year and thrived under Donald Trump.
Biden’s decision this week to ban American financial institutions that bought new Russian sovereign debt as punishment for an alleged cyber-attack campaign and other crimes provided the first insight into the president’s attitudes toward with sanctions. It has fueled new concerns about their overuse.
“America’s financial institutions are being weaponized,” a banking management attorney told the Financial Times, referring to the use of sanctions as a foreign policy tool. Experts this week argued that the US government was “outsourcing US foreign policy” to American banks or deploying them as “front-end” – the military term for establishing the present. long armed wear outside the home yard.
Trump’s imposition of thousands of sanctions has made them the leading foreign policy instrument of his campaign against Iran, Syria, Venezuela, North Korea and China – and bipartisan pressure from Congress as well. forcing Russia to punish. Biden administration officials say they are developing a broader economic toolkit, will work more closely with partners, and will more discriminate in the use of sanctions.
Two people familiar with the White House plan said sanctions on Russian debt were not initially seen as part of a package to address US disappointment with Moscow, but due to pressure from key officials. The top coat must give a stronger response that one does not see, in one’s parlance, “completely toothless”. Biden in particular prompted a stronger response, both people said.
A National Security Council official said the administration wanted to take the time needed to develop the appropriate response and countered the accuracy of concerns about the appearance of “toothless”.
A senior administration official told the Financial Times that the Biden group is looking at the “effectiveness” of other sanctions tools alongside sanctions, such as tariffs, investment restrictions and export controls. import. It is also looking at positive incentives such as bilateral assistance, multilateral assistance, and debt relief.
“There are some of us in the White House who have been thinking deeply about economic regulation,” the official said.
Andrea Kendall-Taylor, who was appointed Biden’s Russian NSC director before declining for personal reasons, said it was the dominance of the US dollar and its unjust leadership position in the system. New York-based global financial system as the international dollar clearing agency.
Those targeted for sanctions may seek to protect themselves by moving away from US banks and towards holding non-dollars, a trend that, if carried out on a continuous basis, could undermine. weak US dollar as a primary reserve currency.
“Risk is real, and I think that’s what the United States should take very seriously and discriminate against in its use of sanctions, when possible,” she said.
“We see Russia and China really working together to reduce the US’s centrality in the global economic system, and in the long run, that risk undermines efficiency,” she said. of our financial coercive instruments.
Last month, Russian Foreign Minister Sergei Lavrov re-called for Moscow and Beijing to reduce their dependence on the US dollar and Western payment systems during a visit to China.
The central bank of China this year expanded the piloting of digital currencies to explore cross-border transactions. Developing electronic money is another potential competitor.
The Biden group carefully calibrated its actions against Russia according to the “principles-based approach”, defending its efforts to impose “precision”, the senior administration official said. be targeted cost and avoid payback for dollar.
“We want this package to have a responsibility to limit the negative effects that spill over to the US and the global financial system,” the senior official said, adding that The dollar is “extremely important to us”.
“It is in our national interest for the advantage of the cost of funding it offers, which allows us to absorb shocks. . . and it gives us enormous geopolitical leverage, ”the official said.
Some of Biden’s team previously worried about the abuse of sanctions have become more comfortable with them, including deputy national security adviser on international economics Daleep Singh.
He told Congress in 2019 that he was “cautious” about actions against Russia’s debt as a Treasury official in 2014 due to “unpredictable spillover effects” but thereafter has developed its views, arguing that Russia has better absorption and that investor exposure rates have decreased. .
Peter Harrell, senior director of international economics and competitiveness at Biden’s NSC, Written in 2018, the use of sanctions has “exploded” over the past decade and has become “a rare field of bipartisan consensus in Washington”.
The Biden administration has yet to implement two of his recommendations – periodically publish a cost-benefit analysis of the U.S. sanctions program or let U.S. presidents highlight its guiding principles early on. take punitive measures.
But they are looking for a multilateral approach – another Harrell recommendation – that marks a major difference to Trump-era unilateralism in 2018 that has prompted the European Union to expand its restrictions on manufacturing restrictions. of Washington sanctions against Iran.
The Biden administration has implemented targeted joint sanctions against Myanmar and Russia, though the move against Russia’s debt this week was unilateral. The package “has been carefully calibrated to increase its chances of working with allies,” the senior official said.
“We often have to act first and then we have succeeded in bringing our partners and allies with us, and here again we hope to be,” the official said. have the same kind of unity of purpose ”.
For now, banking experts say the risks to the dollar’s primacy are still very far away and that US sanctions are still in effect, especially since non-US banks are largely tend to follow them due to market linkages and the risk of penalty. The Biden administration also excluded the secondary debt market and US individuals from this week’s measures and included a period of silence.
Rachel Ziemba, an expert on economic coercive policies, was among those who did not see the latest actions as “significant risks” to US dollar primacy, adding to the Pandemic discounts have made people more comfortable with dollar assets.
According to the @KatrinaManson