Analysis & Opinions - Barron's

Russia and China Are Hard Targets for U.S. Sanctions. That Could Be a Problem.

| Feb. 29, 2020

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. 

The U.S. began using sanctions as a serious deterrence tool after 9/11. The Patriot Act gave the executive branch tools to pressure foreign financial institutions that threatened the integrity of the U.S. banking system. In particular, Section 311 allows the U.S. Treasury to monitor and prohibit correspondent banking with financial entities that sponsor terrorism.

Correspondent banking allows a financial institution in one country to do business in the currency of another. Since the dollar is the world’s pre-eminent reserve currency, most nations need dollar-denominated corresponding banking rights to conduct the great bulk of international trade. Financial institutions that don’t have access to correspondent banking are blocked from transacting in the dollar. The thinking was that, if Washington could deny access to correspondent banking for certain bad actors, it could incentivize them to act with instead of against the U.S.

These sanctions have proved successful in the past. In 2011, the Obama Administration imposed 311 designations on the Central Bank of Iran, making it very difficult for Iran to sell its oil abroad, since most energy transactions are conducted in dollars. Isolating Iran from global markets was instrumental in forcing it to negotiate with the U.S. over its nuclear-weapons program.

For more information on this publication: Belfer Communications Office
For Academic Citation: Greenwald, Michael.“Russia and China Are Hard Targets for U.S. Sanctions. That Could Be a Problem..” Barron's, February 29, 2020.