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The Dollar and the United States' Exorbitant Power to Sanction

  • Joshua P. Zoffer (a1)
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With the Trump administration's reimposition of financial sanctions on Iran, the power of the weaponized dollar is yet again making headlines—and putting distance between the United States and its allies. The dollar's special status as the world's key currency affords the United States an unrivaled sanctioning power. Because access to dollars is a near-necessity for multinational businesses and financial institutions, the United States can unilaterally impose costly sanctions by denying such access to a target—whether a state, company, or individual. This capability is one form of the “exorbitant privilege” afforded to the United States by the dollar's international role. This essay considers why the dollar's status affords the United States this sanctioning power and how the United States exercises it. I first summarize the nature of the dollar's role. Next, I explain the means by which the United States has weaponized that role, especially through financial sanctions. I conclude by offering some potential limitations on that power and exploring the ways in which other countries might seek to erode it.

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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Footnotes
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Special thanks go to Oona Hathaway and David Cohen for their insightful comments and guidance on earlier drafts. This piece would not have been possible without Robert Kindman.

Footnotes
References
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1 See Hillary Hurd, U.S. Reimposes the Second Round of Iran Sanctions, Lawfare (Nov. 9, 2018).

2 See generally Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (2011).

3 Benjamin J. Cohen, Currency Power 17 (2015).

4 International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (Jan. 8, 2019).

7 See Gita Gopinath & Jeremy C. Stein, Banking, Trade, and the Making of a Dominant Currency 2 (Mar. 28, 2018).

8 See John Williamson, The Dollar and US Power, in The Power of Currencies and Currencies of Power 75, 76 (Alan Wheatley ed., 2013); Gita Gopinath, The International Price System 9–11 (Jackson Hole Symposium Proceedings, 2015).

9 See Gopinath & Stein, supra note 7, at 5.

10 See Tom C.W. Lin, Financial Weapons of War, 100 Minn. L. Rev. 1377, 1404 (2016).

11 William Mauldin, U.S. Treasury's Top Terrorism Cop: How Financial Tools Fight Foes, Wall St. J. (June 2, 2014).

12 See Committee on Payments and Market Infrastructures, Correspondent Banking, Bank for Int'l Settlements 9 (July 2016).

13 See Oona A. Hathaway & Scott Shapiro, Outcasting: Enforcement in Domestic and International Law, 121 Yale L.J. 252, 258–60 (2011).

14 See Suzanne Katzenstein, Dollar Unilateralism: The New Frontline of National Security, 90 Ind. L.J. 293 (2015).

17 See Barry E. Carter & Ryan M. Farha, Overview and Operation of U.S. Financial Sanctions, Including the Example of Iran, 44 Geo. J. Int'l L. 903, 910 (2013).

18 Imposition of Special Measure Against Banco Delta Asia SARL, 70 Fed. Reg. 55,217 (proposed Sept. 20, 2005) (codified at 31 C.F.R. pt. 103).

20 See Zarate, supra note 16, at 241.

21 Special Measures Against Banco Delta Asia, 31 C.F.R. § 103.193 (2007).

22 Proposal of Special Measure Against ABLV Bank, AS as a Financial Institution of Primary Money Laundering Concern, 83 Fed. Reg. 6986 (proposed Feb. 16, 2018) (to be codified at 31 C.F.R. pt. 1010).

23 Patricia Kowsmann, ECB Pulls Plug on Latvia's Failing ABLV Bank, Wall St. J. (Feb. 24, 2018).

25 See Zarate, supra note 16, at 10.

26 See Orde F. Kittrie, New Sanctions for a New Century: Treasury's Innovative Use of Financial Sanctions, 30 U. Pa. J. Int'l L. 789, 817 (2009).

27 See Katzenstein, supra note 14, at 314; Kittrie, supra note 26, at 793.

28 See Katzenstein, supra note 14, at 327.

29 See Zarate, supra note 16, at 114–15.

31 See Gabriel Wildau, China Launch of Renminbi Payments System Reflects Swift Spying Concerns, Fin. Times (Oct. 8, 2015).

32 See Elizabeth Rosenberg & Zachary K. Goldman, Opinion, How China Benefits from Global Sanctions, Wall St. J. (Nov. 26, 2015).

33 Heiko Maas, Opinion, Making Plans for a New World Order, Handelsblatt Today (Aug. 22, 2018).

34 Benoît Cœuré, The Euro's Global Role in a Changing World: A Monetary Policy Perspective, Eur. Cent. Bank (Feb. 15, 2019).

35 See Mark Landler, Bolton Expands on His Boss's Views, Except on North Korea, N.Y. Times (Sept. 10, 2018).

Special thanks go to Oona Hathaway and David Cohen for their insightful comments and guidance on earlier drafts. This piece would not have been possible without Robert Kindman.

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