19/09/2023
“The war is continuation of policy by other means,” – Von Clausewitz
On the third day of the Ukraine war, western governments declared against Russia, the most far-reaching and punishing set of financial and economic sanctions ever levelled at an adversary, especially directed against the Russian Central Bank. This, ‘Thermo-financial’ strategy conceptualized by Yellen, ex-chair of the US Federal Reserve, and Draghi, a former head of the European Central Bank, veterans of the 2008-09 financial crisis to the euro crisis, was directed against a large part of Moscow’s $643bn of foreign currency reserves with intention to significantly damage the Russian economy. This was effectively declaring financial war on Russia. “This is full shock and awe, It’s about as aggressive an unplugging of the Russian financial and commercial system as you can imagine,” says Juan Zarate, a former senior White House official who helped devise the financial sanctions America has developed over the past 20 years.
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. This is the first time application of ‘The strategy of weaponisation of the US dollar and other Western currencies’, to punish their adversaries. The strategic approach to conflict has been sharpened and tested at tactical and operational levels against countries like Pakistan, Iran, Iraq etc. for more than three decades. Financial sanctions are increasingly becoming the national security policy of choice.
The weaponisation of finance has profound implications for the future of international politics and economics. Economic power, a decisive element of international power, in sync with state monetary policy is the bedrock of refinement of military capacities (no security per, in the case of Pakistan?). Globalisation growth and reciprocal interdependencies were long considered as a barrier to wars. However, the value chain vulnerabilities have increased the susceptibility of many countries’ economic intimidation. The tendency, which has been used as a tactical weapon against weak countries since the late sixties, is now used against powerful countries as well. Technological (artificial intelligence, cloud computing, quantum internet, 5G) asymmetries have fueled the economic imbalance.
Foreign direct investment increasingly becomes a tool of political strategy and inter-state conflicts are far less a question of military action. Events like Russia’s violent takeover of Crimea, the invasion of Ukraine or the war in Syria are now the exception and not the rule. By contrast, we are seeing a sharp increase in countries’ deployment of economic and financial instruments to strengthen their power base, including outside their territory.
US dollar ostensibly derives financial sanctions with America’s deepest capital markets, and US Treasury bonds act as a backstop to the global financial system. As a result, it is very hard for financial institutions, central banks and even many companies to operate without the US dollar and the American financial system. Taking into account the effect of the euro, sterling, the yen and the Swiss franc, and the impact of such sanctions is even more chilling. Economic sanctions are a new kind of economic statecraft with the power to inflict damage to military might.
9/11 ensued a new Global financial warfare subtly with the aim to “starve the terrorists of funding” as the Patriot Act gave sweeping powers to the Treasury Department to sever any financial institution involved in money laundering.
dailytimes.com.pk/1133392/has-pa…
“The war is continuation of policy by other means,” – Von Clausewitz On the third day of the Ukraine war, western governments declared against Russia, the most far-reaching and punishing set of financial and economic sanctions ever levelled at an adversary, especially directed against the Russ...
