Economics Dictionary of ArgumentsHome
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| Financial sanctions: Financial sanctions are restrictive measures that limit a target's access to the global financial system. They involve actions like freezing assets, prohibiting financial transactions, and restricting access to international payment networks (e.g., SWIFT). These measures aim to pressure governments, entities, or individuals to change their behavior by disrupting their financial flows. See also Sanctions, Sanctions policies, Sanctions theory, Sanctions effectivenss, Payment systems._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Oleg Itskhoki on Financial Sanctions - Dictionary of Arguments
Itskhoki I 10 Financial Sanctions/Itskhoki/Ribakova: Financial sanctions operate by limiting the ability of countries to borrow to finance trade deficits, reducing the ability for risk sharing and intertemporal consumption smoothing. Countries that do not rely on international financing of trade flows and export commodities, which can be elastically relocated to different markets, are particularly immune to the effects of sanctions provided many third countries are not part of the sanctioning coalition. Payment Systems: Nonetheless, payment system sanctions may result in significant barriers and disrupt trade flows with third countries. In conventional macrotrade analysis, payment system sanctions have no effect provided the country has access to elastic spot currency markets. However, this is not the case in the new generation of models with limited elasticity of substitution in the currency market. Empirical evidence suggests that sanctions that restrict payment system have a substantial bite in practice, and hence highlight the need to work with such frameworks. Finally, we discuss the important policy issue of the optimal sanctions mix. >Sanctions, >Sanctions consequences, >Sanctions debate, >Payment systems, >Sanctions effectiveness, >Sanctions evasion, >Sanctions history, >Sanctions policies, >Sanctions theory, >Trade sanctions. Itskhoki I 18 The aim of financial sanctions is to curb the ability of intertemporal trade - whether borrowing internationally, or using accumulated foreign assets to pay for current imports, or using current export proceeds to buy future imports. [We] relied on the idea that all exported revenues can be used to buy imports to achieve balanced trade, while financial sanctions disrupt this logic. Sanctioning accumulated financial assets is politically easiest, as it avoids the mutual economic costs of trade sanctions discussed above, but this may carry reputational consequences in the asset markets. Financial sanctions are most effective when a sanctioned country relies on international financing to procure imported inputs. In this case, sanctions can trigger or amplify a sudden stop in financial flows, which in turn creates a disruption in procuring imports and possibly cause a full-scale bank run. This is the case in which international sanctions can have the largest impact by disrupting the functioning of the entire financial system beyond the direct international trade consequences. However, if the country is neither an active net borrower in international markets, nor has a large accumulation of gross foreign asset positions, financial sanctions may have only limited effects that can be mitigated with financial repression of capital outflows. Russia: In case of Russia, which had a sizeable net foreign asset position and little gross foreign debt, financial sanctions were mostly targeting foreign assets. This turned out to be insufficient to trigger a persistent financial crisis, in part because of the large concurrent trade surplus that provided strong currency inflow into the economy and appreciated the ruble. This current account surplus was sufficient to stabilize the financial system even without continued use of financial repression and austerity in expenditures. While the welfare costs from frozen assets and disrupted imports were real, there was no financial strain associated with a typical balance-of-payment crisis. Indeed, this was an unusual situation of temporary abundance of foreign exchange liquidity driven by effective import sanctions under soaring export revenues from high commodity prices._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Itskhoki I Oleg Itskhoki Elina Ribakova The Economics of Sanctions: From Theory Into Practice. Brookings Papers on Economic Activity, Fall 2024. The Brookings Institution 2024 |
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