U.S. Treasury Warns Sanctions ‘Overreach’ Will Lower Dollar’s Status
A top U.S. official warned that overuse of economic sanctions risks hurting the U.S. economy and driving other nations away from relying on the dollar as the world's reserve currency.
While the Obama administration has used sanctions liberally to punish Iran, Russia, North Korea, and a variety of terrorist and drug trafficking organizations, U.S. Treasury Secretary Jack Lew told the Carnegie Endowment for International Peace on March 30 that there are limits to their effectiveness.
"Sanctions should not be used lightly," he said, but rather should be used "strategically" and "judiciously."
"We must be conscious of the risk that overuse of sanctions could undermine our leadership position within the global economy, and the effectiveness of our sanctions themselves."
What Lew called "sanctions overreach" only encourages businesses to avoid the United States and its financial system, eventually eroding the reach of the U.S. dollar and its power and status as the preeminent reserve currency.
"If foreign jurisdictions and companies feel that we will deploy sanctions without sufficient justification or for inappropriate reasons -- secondary sanctions in particular -- we should not be surprised if they look for ways to avoid doing business in the United States or in U.S. dollars," Lew said.
"The more we condition use of the dollar and our financial system on adherence to U.S. foreign policy, the more the risk of migration to other currencies and other financial systems in the medium-term grows," he said.
"Our central role [in the world economy] must not be taken for granted," he warned. "The risk that sanctions overreach will ultimately drive business activity from the U.S. financial system could become more acute if alternatives to the United States as a center of financial activity, and to the U.S. dollar as the world's preeminent reserve currency, assume a larger role in the global financial system."
Lew said that particularly heavy secondary sanctions like those imposed on Iran for years because of its nuclear activities should only be used in "exceptional" circumstances because they bar even non-U.S. citizens from dealing with targeted individuals or companies.
"Our sanctions against Iran's nuclear program are the most powerful example of how a broad-based effort, coupled with serious diplomacy, can succeed," he said. But "they are viewed even by some of our closest allies as extraterritorial attempts to apply U.S. foreign policy to the rest of the world."
The Iran nuclear sanctions were lifted in January after years of negotiation between Tehran and world powers on an accord to limit Iran's nuclear activities in exchange for sanctions relief.
U.S. Republican leaders and presidential candidates have criticized the removal of nuclear sanctions on Iran, and legislators have tried to restrict President Barack Obama's ability to lift the sanctions.
But because Iran has "kept its end of the deal," Lew said, the United States should deliver the promised sanctions relief.
In recent weeks, Iranian leaders have complained that continuing U.S. restrictions on doing business with Tehran have forced major banks and corporations to stay away from Iran even since the nuclear-related sanctions were lifted.
On Russia, Lew stressed that the U.S. sanctions imposed on individual Russians and businesses because of Russia's aggression in Ukraine are only selective and are not aimed at sinking the entire Russian economy.
"They're targeted at the centers of power, where the decisions are being made," Lew said in an interview with U.S. public television host Charlie Rose that aired March 30.
Russian lawmaker Konstantin Kosachev, the chairman of the Russian Federation Council's International Affairs Committee, reacted to Lew's speech, saying it suggested the United States has gotten "overworked" over sanctions.
"It looks like we should be grateful for such selectivity as they could have unleashed all their power on us," he said. But he questioned why the Yalta film studio and Sberbank's nonstate pension fund were sanctioned.
If they were deemed by the United States to be "centers of power where decisions are made," he said, that would come as an "absolute revelation" to the Russian people.
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