U.S. complacency regarding the dollar global reserve currency status could be the ultimate Achilles Heel for the United States in the years ahead. 

It falls upon the US to pioneer a strategy that will set the global standard for public health with the goal of preventing future pandemics and outbreaks.

When wielded effectively, U.S. sanctions have weakened targets like Iran and North Korea without impacting the global economy. But against authoritarian heavyweights like Russia and China, this may no longer be the case. America’s policy options are narrowing.

If left unchecked, Beijing’s aggressive use of its “rules” threatens to turn Western firms into the Communist Party’s enforcers.

If a symbolic denouncement is indeed the goal, Magnitsky sanctions are likely the right tool, as they would send a powerful message of solidarity with protesters to both the Hong Kong and mainland authorities. 

Should INSTEX itself be sanctioned, it would be a powerful signal to the rest of the world. In this scenario, critical dollar-denominated trade not currently facing sanctions, but at potential risk of being sanctioned in the future, could migrate to third party currencies, transferred through sanctions-resistant entities to an INSTEX-like body.

Michael Greenwald writes that with the recent change of leadership at the European Central Bank, the euro likely has a bright future ahead.

Washington should adjust its coercive economic strategy to reflect a broader use of tools beyond sanctions. Given the degree of political interference in China’s banking system via formal state ownership and the indirect influence of opaque party committees, penalties imposed against the country’s banks are unlikely to produce a meaningful change in behavior.

Like with the Soviet Union, America once again finds itself in a global competition with Beijing today, albeit with many more consequences for Washington’s financial statecraft.

America’s sanctions strategy is increasingly burdened by the involvement of systemically important financial institutions and sovereign investors in global financial statecraft. In the post-9/11 world, Washington’s strategy was highly effective in pursuing non-state actors like al-Qaeda or ISIS, as well as small, rogue nations like Iran. Yet in addressing larger sovereigns like the Kremlin, US strategy has struggled to maintain the same effectiveness given the cross-border financial connections linking these entities to Western markets. As an era of great power competition among Washington, Moscow, and Beijing sets in, these foes will crowd out smaller, non-state actors, thus demanding an adequate response from the Treasury.