#sanctions

Karen Petrou: Why U.S. Soft Power is So Squishy

Arezou Rafikian2023-12-18T09:28:13-05:00December 18th, 2023|The Vault|

Late last week, Treasury issued a super-perky blog post asserting that U.S.-led sanctions will soon subdue Russia’s military might. However, judging by the data Treasury rallies, saying sanctions subdued Russia’s war-making capabilities is akin to a Yorkie’s confidence that it can tackle a Rottweiler. The terrier can indeed get in a few painful nips, but bring the big dog down? It could if sanctions worked. But, they don’t. The more Treasury persuades itself they do, the faster U.S. might dissipates thanks to resolute attacks and internal insouciance.

Why has U.S. soft power gone so squishy? Some problems are of the U.S.’s making, some not, but all pose a significant challenge as the world has again become a very dangerous place for a faltering super-power that not-unreasonably still thinks of itself as the bastion of democracy.

As I noted in a talk last week, one foundation of American might has long been the “Almighty dollar.” As a lot of data make clear, the dollar remains potent, but it’s no longer decisive. Nations come and go as reserve-currency issuers and the U.S. is going because, as I detail, it’s squandered the payment-system, financial-market efficacy, sovereign-obligation impregnability, and unquestioned rule-of-law pillars on which reserve-currency status rests. Enemies wielding currencies they seek to turn into global go-tos combined with the anonymity and evasion power of digital assets don’t help, but the U.S. seems to be doing its damnedest to speed the dollar’s demise not by express action, but rather by unfounded assumptions that, …

Karen Petrou: The Collapse of the Global Financial Order and What’s to Come

Arezou Rafikian2023-04-03T15:09:21-04:00March 14th, 2022|The Vault|

The Great Depression’s role sparking the Second World War led the victors to create the Bretton Woods agreement establishing stable reserve assets under-girding a world prosperous and peaceful enough to prevent another conflagration. After 2008, the world reinforced another set of global norms, setting cross-border financial standards over the next fifteen years by newly empowered transnational financial agencies. Now, what was left of Bretton Woods is in ashes and national geopolitical interests will again dictate critical financial requirements. Although it’s of course possible that Russia’s devastating invasion will end without still more cataclysmic carnage, it has done irreparable damage to the largely frictionless cross-border finance on which it and its oligarchs relied. China should take a lesson.

To be sure, this globalized and increasingly financialized construct was imperfect even for the hegemonic states and systemic financial companies in whose interests it worked the best. As Rana Foroohar pointed out last week, it was premised on the optimistic “end of history” reasoning that expected an interdependent world to be all-for one and one-for-all. Quite simply, if you must go through someone else’s space to get where you want to go, then you are more likely to abide by the rules applicable in that space to ensure you get there. Over time, this creates a macrofinancial system in which currencies, payments, assets, and risks moved with few speedbumps from one end of the earth to the other. Even where rules might slow all of this down, safe-haven states constructed high-price bypasses. This, …