Through its aggressive use of economic sanctions, America is misusing its clout as the predominant financial power
American former general spoke at a gathering of senior global financiers. Used to thinking about strategy and hard power, he warned that America is dealing poorly with its most complex array of threats since the cold war—from Iran and Russia to the novel coronavirus.
In the 1970s America also gained sway over the plumbing system that underpins global payments. American banks, then barred from operating outside state borders, teamed up to develop interbank messaging systems and nationwidenetworks. Lenders also clubbed together to form credit-card “schemes”—associations setting the rules and systems through which members settle payments in plastic. Those worlds merged when two major card networks bought the two largestfirms to expand overseas.
America’s pull within the system remains huge. When disasters strike, the dollar surges. It is still the world’s safest store of value and its chief means of exchange. That makes the institution that mints it the metronome of global markets. In 2008 America’s Federal Reserve avoided a general cash crunch worldwide by offering “swap lines” to rich-world central banks, allowing them to borrow dollars against their own currencies.
In the short run the opaque nature of the whole system maximises the impact of sanctions. But it also creates a strong incentive for others to seek workarounds, and technology is increasingly providing the tools needed to build them.Such advances result from the second driver of the new trends: the “pull” factor of attempts to meet the needs in emerging economies. Tech firms have sights on the world’s 2.3bn people with little access to financial services.
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