Weaponization of finance

The term weaponization of finance refers to the foreign policy strategy of using incentives (access to capital markets) and penalties (varied types of sanctions) as tools of coercive diplomacy.

It is a reference to the new ways in which the United States uses its influence to affect global outcomes. Rather than rely on traditional elements like NATO and multi-lateral institutions such as the World Bank and the International Monetary Fund, Washington is now ‘weaponizing finance’ by limiting access to the US marketplace and US banks as an instrument of its foreign and security policy.

Rationale

Weaponization of finance is a potential alternative to the deployment of lethal force. The US sanctions program aimed at penalizing cyberhackers and cyberespionage, launched in April 2015, is an example. In discussions on the weaponization of finance, Ian Bremmer argues that, by excluding hostile governments and their senior officials from western financial markets, the United States and its allies “can pursue diplomacy with a streak of coercion.” He writes of the way in which the weaponization of finance evolved from previous foreign and security strategies. “George Washington carried a musket. Franklin Roosevelt sent in heavy bombers. But for President Barack Obama, who must reconcile a weary American public with the demands of an increasingly unstable world, the armament of choice has been a weaponised form of finance.” In this light, economic sanctions can be thought of as “trusty swords.” Since the year 2015, the United States of America has taken vast measures, that made them affect other nations, in terms of how weapons are financed. This was due to the way the United States of America has handled internal and external policies.

Economic sanctions

Economic Sanctions are the practice of withholding an economic advantage from another country for political purposes. Economic Sanctions primarily come in two forms, Trade and Financial. Trade sanctions can take the form of reducing or refusing exports to a country or refusing imports from the country. Financial Sanctions address monetary issues as opposed to trade. This can include blocking of government assets abroad as well as limiting access to financial markets. These approaches are often used in conjunction in order to increase the effectiveness of the Sanctions. The influence of a sanction is heavily dependent on the economic power of the country or countries imposing the sanction, this also leads to groups of nations such as the United Nations being capable of imposing more effective sanctions due to their combined influence on the world economy. They frequently act as a form of external pressure on a country, primarily being used in an attempt to coerce a country into either abandoning a controversial policy or to adopt one that is seen as beneficial to the country imposing the sanction. However much of the time the imposing of a sanction can unintentionally work against a positive outcome, weakening the economy of all countries involved through reduced trade and causing a reduction in the welfare of the involved populations, while also causing increasingly strained relations between the countries.

Effectiveness of sanctions

The effectiveness of Economic Sanctions has been determined in the past by several variables that may be used to predict the most likely outcome. These variables include the power of the countries involved, both militarily and economically, and the resolve or commitment of both the country imposing the sanction and the country the sanction is being imposed on. Powerful countries imposing economic sanctions with relatively low levels of commitment towards weaker countries have a strong tendency to fail due to the limited impact, while higher levels of commitment lead to a higher rate of success. When both countries are considered powerful there is a higher chance of an imposed sanction being effective regardless of the level of commitment. This is thought to be due to the fact that more powerful countries have a tendency to be heavily globalized and thus have significant assets that could potentially be seized if a sanction was imposed, as well as the fear that a sanction between powerful countries could disrupt the economy significantly. Weaker countries tend to not be heavily globalized, therefore the impact can be limited if the commitment is low.

Moral consequences of economic weaponization

The imposing of an embargo can lead to long lasting economic impacts on not only the population of the target country, but the global economy itself. After the OPEC Oil Embargo against countries supporting Israel in the Yom Kippur War, the prices of oil quadrupled, causing the price of food to increase as well. This had far more of an impact on developing countries, primarily in Sub-Saharan Africa. This led to both a humanitarian and economic crisis that continues decades after the OPEC Oil Embargo was lifted.

References

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