IDEAS home Printed from https://ideas.repec.org/a/taf/rripxx/v28y2021i3p635-661.html
   My bibliography  Save this article

Financial sanctions and political risk in the international currency system

Author

Listed:
  • Daniel McDowell

Abstract

Scholarship on international currencies has traditionally emphasised how an issuing state’s foreign policy can enhance the attractiveness of its currency for cross-border use. Yet, foreign policy actions need not only boost a currency’s international appeal—they may also undermine it. This study introduces a general theory of how US foreign policy can influence governments’ policy orientations toward the dollar in positive or negative ways. Policies like financial sanctions generate ‘political risk’ that weaken the dollar’s attractiveness for international use. The study tests the claim that the United States’ use of financial sanctions incentivises targeted governments to implement de-dollarization policies. I employ a most-likely case study design, presenting evidence from three countries targeted by US sanctions: Russia, Venezuela and Turkey. In each instance, the evidence shows that financial sanctions created political risk concerns by generating expectations of future direct costs of dollar use. These expectations set off policy efforts by targeted governments to reduce their economies’ exposure to the currency. This study raises important questions about the long-term efficacy of an approach to foreign policy that relies on financial sanctions as a primary means of leverage over foreign adversaries as overuse may undermine the effectiveness of the tool itself.

Suggested Citation

  • Daniel McDowell, 2021. "Financial sanctions and political risk in the international currency system," Review of International Political Economy, Taylor & Francis Journals, vol. 28(3), pages 635-661, May.
  • Handle: RePEc:taf:rripxx:v:28:y:2021:i:3:p:635-661
    DOI: 10.1080/09692290.2020.1736126
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09692290.2020.1736126
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/09692290.2020.1736126?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luca Fantacci & Lucio Gobbi & Dario Luciani, 2022. "Bene pubblico globale o arma finanziaria? L'egemonia del dollaro alla prova delle sanzioni (Global public good or financial weapon? Dollar hegemony to the test of sanctions)," Moneta e Credito, Economia civile, vol. 75(298), pages 123-147.
    2. Paweł Kowalewski & Dominik Skopiec, 2023. "Wzrost znaczenia złota w rezerwach dewizowych banków centralnych gospodarek wschodzących," Bank i Kredyt, Narodowy Bank Polski, vol. 54(3), pages 259-284.
    3. Colin Weiss, 2022. "Geopolitics and the U.S. Dollar's Future as a Reserve Currency," International Finance Discussion Papers 1359, Board of Governors of the Federal Reserve System (U.S.).
    4. Qazi, Abroon, 2023. "Exploring Global Competitiveness Index 4.0 through the lens of country risk," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    5. Abroon Qazi & Mecit Can Emre Simsekler, 2022. "Prioritizing interdependent drivers of financial, economic, and political risks using a data-driven probabilistic approach," Risk Management, Palgrave Macmillan, vol. 24(2), pages 164-185, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:rripxx:v:28:y:2021:i:3:p:635-661. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rrip20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.