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Biden has shown that he will use the US financial system as a weapon of foreign policy

Biden has shown that he will use the US financial system as a weapon of foreign policy

Using American banks as a stick against Russia, Joe Biden has shown a willingness to arm the U.S. financial system against enemies, following a tactic that was neat in Obama’s years and dramatically increased under Donald Trump.

Biden’s decision this week ban The US financial institutions offered a first significant view of the president’s stance on sanctions as a punishment for buying cyber hacking campaigns and other crimes exempted from buying new sovereign Russian debt. It has renewed concerns about overuse.

“U.S. financial institutions are arming themselves,” the bank’s regulatory lawyer told the Financial Times, citing the use of sanctions as a tool for foreign policy. Experts this week argued that the U.S. government is “outsourcing” U.S. foreign policy to U.S. banks or expanding it as a “forward base” to establish a permanent armed presence beyond domestic soil beyond domestic terminology.

As Trump imposed thousands of sanctions, they became a tool for foreign policy in the campaign against Iran, Syria, Venezuela, North Korea and China – and pressure from both sides of Congress also forced sanctions on Russia. Officials at the Biden administration say they are developing a broader economic tool, working more closely with partners and discriminating more on the use of sanctions.

Two people familiar with the White House’s plan said sanctions against Russia’s debt were not initially raised as part of a package to address U.S. frustrations with Moscow, but pressure from senior government officials could not be seen to provide a stronger response. in a person’s words, as “completely toothless”. The two people said that Biden particularly encouraged a stronger response.

A National Security Council official said the administration wants to take the time it takes to develop an appropriate response and discussed the accuracy of concerns about appearing “toothless”.

A senior administration official told the Financial Times that the Biden group was examining the “effectiveness” of other punitive instruments, such as tariffs, investment restrictions and export controls, in addition to sanctions. It was also looking at positive impetus such as bilateral aid, multilateral aid and debt relief.

“In the White House we are some of those who have thought deeply about economic statecraft,” the official said.

At stake is Andrea Kendall-Taylor, who was appointed Russian director of the Way NSC before her resignation for personal reasons, the dominance of the U.S. dollar and the unassailing leader in the global financial system, as the New York-based international dollar clearing house is based.

Those targeted by the sanctions want to shield themselves from going to U.S. banks and non-dollar holdings, a trend that if done en masse could weaken the U.S. dollar as the first reserve currency.

“The risk is real, and I think the United States should be very aware and discriminatory in the use of sanctions when possible,” he said.

“We see that Russia and China are working together to reduce the centrality of the United States in the global economic system, and in the longer term this risks diluting the effectiveness of financial tightening instruments,” he said.

Last month, Russian Foreign Minister Sergei Lavrov on his visit to China renewed calls on Moscow and Beijing to reduce dependence on the U.S. dollar and Western payment systems.

China’s central bank has rolled out a digital currency pilot this year to study cross-border transactions. Burgeoning cryptocurrencies are other potential rivals.

A senior administration official said the Biden group had carefully calibrated its actions against Russia from a “principles-based approach”, advocating an effort to impose “precision”. directed avoiding costs and turning the dollar.

“We wanted the package to be responsible for limiting negative emissions to the U.S. and the global financial system,” the senior official said, adding that the dominance of the dollar is “very important to us”.

“It’s in our national interest, because of the cost advantage it provides, that allows us to absorb shocks… And gives us a tremendous geopolitical lever,” the official said.

Some of the Biden group who have been concerned about overuse of sanctions have become more comfortable with them, including Daleep Singh, the country’s deputy economic security adviser.

In 2014 he told Congress he was “cautious” in his actions against Russia’s debt as a U.S. Treasury official because of “unforeseen spillover effects,” but has since developed his opinion, arguing that Russia is better able to absorb success and reduce investor exposure. .

Peter Harrell, Director General of International Economics and Competitiveness at Biden NSC, he wrote The use of sanctions in 2018 had “exploded” over the past decade and become “a rare area of ​​agreement between the two parties in Washington”.

The Biden administration has yet to make two of its recommendations – to periodically publish a cost-benefit analysis of the U.S. sanctions program or to articulate explicit principles that guide U.S. presidents to guide the use of sanctions.

But looking for a multi-faceted approach – another of Harrell’s recommendations – marks a key distinction from Trump’s unilateralism in 2018, when the European Union extended a blockade statute to reduce the impact of Washington’s sanctions on Iran.

The Biden administration has taken specific sanctions against Myanmar and Russia, although the move against Russia’s debt this week has been unilateral. A senior official said the package had been “carefully released to increase the chances of collaborating with allies.”

“We often had to act first and then we were successful in bringing our partners and allies along with us over time, and we hope to have the same kind of goal unity here as well,” the official said.

For now, banking experts say the risks to the dollar’s ​​dominance remain far-fetched, and U.S. sanctions remain effective, at least not because non-U.S. banks continue to do so largely because of market bonds and penal risks. The Biden administration has also excluded the second-year debt market and U.S. individuals from this week’s measures and introduced a wind period.

Rachel Ziemba, an expert on restrictive economic policies, was among those who did not see recent actions as a “significant risk” to the dominance of the U.S. dollar. Adding to the pandemic blockade saw people take more comfort in the dollar’s ​​assets.

Continue @KatrinaManson

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