New Study Shows Targeted Sanctions Can Isolate Entire Financial Systems
Translated & summarized from Globes by baba
Prime Minister Benjamin Netanyahu suggested Israel should prepare for potential economic and banking sanctions, exploring alternatives like blockchain. This warning follows international pressure, with the UK considering sanctions on settlements and US Democrats advocating for more measures. Senior economic officials deem such a plan impractical. A new study indicates that even partial sanctions can severely isolate a financial system, impacting both targeted and non-targeted banks globally.
The story in 6 lines · by baba
- Prime Minister Netanyahu warned Israel must prepare for potential economic and banking sanctions.
- The UK is considering sanctions on Israeli entities involved with settlements near Jerusalem.
- Senior economic officials called Netanyahu's sanction preparedness plan an impractical improvisation.
- A new study shows targeted sanctions can drastically reduce foreign banking partnerships.
- Sanctions' impact extends to non-targeted banks, limiting access to major currencies.
- The number of sanctioned banks globally has increased by 70% in the last five years.
Prime Minister Benjamin Netanyahu has raised the possibility of Israel facing economic and banking sanctions, urging the country to prepare for such a scenario. He suggested exploring alternative economies and mentioned blockchain as one potential solution, stating he has requested a plan be developed.
These remarks come amid growing international pressure, with British Foreign Secretary Ed Miliband indicating the UK will consider deepening sanctions against Israeli entities involved with settlements in the E1 area near Jerusalem. France, the Netherlands, and Spain are expected to join this effort, while voices within the US Democratic Party are also calling for sanctions beyond the suspension of military aid.
However, senior economic officials have dismissed the feasibility of such a plan, calling it an "improvisation" and "a slip of the tongue" with no practical application. They argue that sanctions could have critical implications for the business sector, halting export and import deals, and that blockchain technology would not offer a solution due to its transparent transaction recording.
A new study from the Universities of Chicago and Northwestern reveals that even partial sanctions can significantly damage a financial system. Banks targeted by US sanctions saw their ability to work with foreign banks for clearing and money transfers drop from 89% to 20%, with dollar transfer capabilities falling to 11%. The research indicates that sanctions make payments slower, riskier, and more expensive.
The study also highlights that the impact extends to banks in countries not directly sanctioned. Banks in Belarus, Kyrgyzstan, Myanmar, and Russia have lost access to major currencies like the dollar, euro, and pound, not due to direct sanctions but because intermediary banks fear the risks associated with dealing with banks from sanctioned nations. This has led to a sharp decline in correspondent banking partnerships, with remaining transactions often conducted through banks in countries like Kazakhstan and China.
Despite a significant increase in sanctioned banks globally over the past five years, the study found that the dollar and euro remain dominant in developing countries, facilitating around 75% of interbank partnerships with fewer intermediaries. The research analyzed payment data from 17,000 financial institutions and sanction data from the US, EU, and UK between 2021 and August of the current year, identifying 346 sanctioned banks, a 70% increase, primarily Russian banks and their associates.
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