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Will Western Sanctions Change the Global Financial System?

Western countries' increased use of financial sanctions as a weapon of war has created a new incentive for China and other countries to explore ways to minimize the future impact of similar measures against them. The longer-term consequences for the global financial system could be far-reaching.

LONDON – Faced with the horrors of Russia’s invasion of Ukraine, and recognizing the limited military options open to them, Western governments understandably deployed their economic and financial arsenal. Such sanctions have been imposed on errant countries before, of course, with varying success, but not to anything like the same extent as against Russia now.

Notably, the United States and its allies seized much of the Russian central bank’s foreign-exchange reserves, and cut off some Russian banks’ access to the SWIFT financial messaging system for international transactions. The world has learned a new word – “deswifting” – and the financial system has been weaponized as never before.

It is too early to assess the impact of the sanctions against Russia; there is no sign yet of a decisive effect on President Vladimir Putin’s regime or its policies. But the longer-term damage to Russia’s economy will probably be considerable.