US Sanctions Regimes Causing Countries to Discuss Trading Outside US Dollar, Trade Experts Say

More countries will try to operate separately from the U.S. financial system in an attempt to trade without fear of penalties from the U.S.’s wide-ranging sanctions regimes, sanctions experts said. Although some countries have struggled to operate outside the U.S. dollar -- such as Venezuela and Cuba -- better positioned countries may find success in the future, the experts said.

“It hasn’t yet happened despite the fact that we've made such extensive use of financial sanctions for 15 years,” said Suzanne Maloney, a senior fellow at the Brookings Institution and former senior adviser to the State Department, speaking during a Jan. 27 Brookings panel. “But that’s not to say it won't happen.”

Several attempts have been made at operating outside U.S. sanctions jurisdiction, including Instex, the European payment system designed to allow Europe to trade with Iran despite U.S. sanctions (see 1912020025). Cuba has also tried to operate separately from the U.S. economy, but that has caused them to be “desperate for capital,” said Ted Piccone, a nonresident senior fellow at Brookings and former senior foreign policy adviser in the Clinton administration. In addition, Venezuela attempted to use a virtual currency to avoid the U.S. dollar, but the Trump administration responded by banning the currency (see 1803190037). A top Treasury Department official said more countries are turning to digital currencies to evade U.S. sanctions (see 1905150027).

“It’s clear that the Treasury Department is aware of this and is concerned,” Piccone said. “But at least for the short term, the dollar is still king.”

Even so, the burden of complying with U.S. sanctions has increasingly forced foreign companies and countries to discuss potential options to avoid the U.S. dollar, said James Goldgeier, a senior visiting fellow at the Brookings’ Center on the United States and Europe. “As the U.S. is going around forcing everyone to comply with sanctions ... states are at least talking now about what they can do to get around this problem,” he said. Goldgeier added that although countries are considering navigating around the U.S. dollar, they are not close to succeeding. “It may be some time until they can get around to doing it,” he said.

Maloney said countries need a certain set of circumstances to force them to separate from the U.S. financial system, including a particularly strong set of sanctions against an important business partner and an incentive too good to pass up. While Iran and Venezuela have not yet provided those incentives, Maloney suggested other countries may. “I’m surprised we don't see more of it today,” she said. “I think that underscores how difficult it is to find a workaround unless there's a really powerful incentive.”