Geopolitics of sanctions and de-dollarization – The Financial Express

The Financial Express
By Kartike Garg
The use of sanctions as a tool of coercion in international relations is not a new phenomenon. The League of Nations, formed after World War I, had provisions for joint sanctions against aggressors in case of war or invasion. Despite the failure of the League in preventing World War II, sanctions remained a key tool in international relations. In the post-Cold War era, the United States, as the lone superpower, has used sanctions to punish its adversaries and pressure other nations to advance its national interests. However, the US’s hold over the international economic system through the dollar as the world reserve currency is waning, as the trend towards de-dollarization gains momentum. China is spearheading efforts to promote the yuan as the new global currency, while India is seeking to internationalize its rupee for bilateral trade.
The Russia-Ukraine crisis:
The ongoing conflict between Russia and Ukraine presents a case study on the limitations of sanctions as a coercive tool. Despite being banned from the international payment system SWIFT and having its $640 billion reserve frozen by the US, Russia continues to bombard Ukraine with missiles. The recent summit between Russian President Vladimir Putin and Chinese President Xi Jinping, where the latter expressed full support for Putin, suggests that this war is likely to persist.
The US’s recently launched National Security Strategy (NSS) places great emphasis on “integrated deterrence,” which seeks to integrate non-military tools with military forces. However, critics argue that this approach raises questions about the US’s willingness to use military power in case of conflict, as it increasingly relies on non-military options to contain conflicts. The effectiveness of sanctions as a tool of coercion depends on a country’s dominance over the international economy. However, the relative power gap between the US and China is now narrower than it was in the 1990s, which makes it harder for the US to impose its will through sanctions.
According to Professor Rajesh Rajagopalan of JNU’s CIPOD, the effectiveness of sanctions is contingent upon a country’s dominance in the global economy. In a unipolar world, such as the one the US enjoyed post-Cold War, sanctions were a potent tool. However, the current international system is characterized by a more balanced power dynamic, with China challenging US sanctions by engaging in trade with countries under sanctions, such as Iran and Russia.
Moreover, China and other countries that are wary of the US’s economic power are actively seeking alternatives to the dollar as the reserve currency in the international market. The global financial crisis of 2007-08 exposed the cracks in the liberal international economic system, which China is exploiting. The Russia-Ukraine crisis is pushing China to finally consider replacing the dollar with the yuan.
Implications for India:
India’s efforts to decrease its dependence on the US dollar in order to bypass sanctions imposed on Russia have yielded some benefits in the form of oil trade. However, in the long run, the push for de-dollarization is unlikely to make the Indian rupee the reserve currency of the world. Instead, it will likely help the Chinese yuan to replace the dollar. While it is commendable for India to seek alternatives to the US dollar, it must also consider whose side it is on when it comes to supporting Chinese and Russian attempts to create an alternative global payment system where the yuan is the reserve currency. India’s alignment with the West, and the US in particular, has shifted in recent decades, and any attempt to undermine the US’s global position could ultimately prove detrimental to India’s interests.
In conclusion, the trend towards de-dollarization poses significant challenges to the US’s coercive power and the international economic system. As China continues to rise, the power dynamics are shifting, making it more difficult for the US to impose its will on other nations through sanctions. While India’s efforts to find alternatives to the US dollar are commendable, it must also consider the long-term implications of its actions, and carefully evaluate whose interests it is ultimately serving.
The author is post-graduate student of International Relations and Area Studies at School of International Studies, Jawaharlal Nehru University, New Delhi. 
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