The sword that sharpens its enemy

The New York Times reports that a new Russia sanctions bill, while broadening financial penalties, has stirred serious concern that it may accelerate the very dollar alternatives it is meant to deter — and that the Trump administration has, at moments, sought to scale back sanctions precisely because adversaries are developing workarounds that threaten the dollar's reserve-currency status. I find myself seized by this story not because sanctions are inherently wrong, but because the architecture of international money is among the most consequential and least understood of all public goods, and history is merciless toward those who treat it as a simple instrument of power.

Let me acknowledge the rational case on the other side. A reserve currency confers what Valéry Giscard d'Estaing — long after my own time — allegedly called an "exorbitant privilege": the United States borrows in its own currency, runs persistent deficits without the correction that would discipline any other nation, and finances its strategic posture at lower cost than any rival could manage. If that privilege rests partly on the credibility of the dollar as the settlement currency of last resort, then threatening to exclude adversaries from dollar clearing is a formidable lever. I do not dismiss it.

But here is the trap. Every time that lever is pulled hard enough, it gives every nation watching — not only the named adversary — a reason to invest in the exit. The New York Times lead is explicit: adversaries are already developing workarounds. This is not inference on my part; it is what the report states. What is inference — and I mark it plainly as such — is the pace at which those workarounds might mature into a genuine multilateral alternative. I cannot know the engineering details of modern settlement systems, digital currencies, or the precise composition of central bank reserves in 2026. But the macroeconomic logic I can offer with confidence: a network good like a reserve currency loses value not when a single rival defeats it, but when enough participants quietly hedge against it. Hegemony erodes at the margin before it collapses at the centre.

I negotiated at Bretton Woods in 1944 with exactly this danger in mind. My proposal — the bancor, a supranational clearing unit — was rejected in favour of a dollar-anchored system, because the United States held the surplus and the leverage. I accepted the outcome; one does not let the perfect destroy the achievable. But the lesson I drew was that any monetary architecture built on a single national currency inherits the political temptations of that nation's foreign policy. When the currency-issuing state uses access to the system as a weapon, it conflates monetary architecture with coercive statecraft — and the two, mixed carelessly, corrode each other.

The present Congress and administration face a genuine dilemma: the sanctions regime is a real source of leverage against real adversaries, and abandoning it entirely would be read as weakness. I am not counselling that. What I am counselling is that the designers of any punitive settlement — economic or otherwise — are almost always too confident that the punishment will land cleanly and too little attentive to the systemic adaptations it sets in motion. I saw it at Versailles; the New York Times is describing a quieter version of the same error now. The buildable policy is not the abolition of sanctions but a deliberate, multilateral redesign of the conditions under which dollar exclusion is triggered — rule-bound, proportionate, and embedded in an international framework that gives non-adversarial states a reason to remain inside the tent rather than quietly build a door in the wall.