Why I’m concerned about the overuse of financial sanctions

As much as I’ve advocated the use of financial sanctions as a potentially effective tool against North Korea, and as much as financial sanctions against Russia appear to have played a significant role in crashing the ruble, it worries me that if we use this tool too much against the wrong targets, we risk blunting the power of our financial weapon.

I think North Korea is a good target for financial sanctions because it is (a) dependent on the financial system, (b) misusing the system in ways that raise traditional law enforcement and money laundering risks, (c) not an important trading partner to anyone, and (d) subject to theoretically strict financial safeguards under U.N. Security Council resolutions.

That is to say, this weapon is for the worst of the worst–rogue states with weak links to the financial system, where there is (or could be) broad international agreement that financial sanctions are an appropriate countermeasure. (In the case of Russia and the Ukraine, better training and weapons for the Ukrainians might have been a better response. Russia’s history of losing wars to smaller neighbors is older than the Winter War against Finland and more recent than Afghanistan).

In this post, Walter Russell Mead worries that financial sanctions might have been the wrong tool against Russia, and that it might cause more states to agree that they need an alternative reserve currency. It’s a concern I share. In the case of Russia, for the first time ever, we’ve blocked out a large, interconnected economy without basing that action on concerns about money laundering, terrorist financing, or proliferation.