Steil & Leitan, Financial Statecraft


  • Current era of financial globalization “where there’s a new financial crisis every leap year”


  • Defining a more nuanced and coherent foreign policy based on sound financial principles


  • Analysis of modern (20th century) financial crises

Central Proposition.

  • 141 – Economic judgments must be made in the context of clearly articulated political priorities, and political judgments must be informed by an understanding of the likely consequences of pursuing or withholding economic intervention.
  • Financial Statecraft; activity to influence capital flow, and influence others associated with finance (capital focuses) while economic statecraft is more trade/goods oriented (lower level?)

Other Major Propositions.

  • SEC access materiality on the basis of its relevance to investor financial interests. The SEC’s role is not to advise investors about what is good for them—let alone what might be good for the United States—or even to educate investors regarding ethical, religious, or foreign policy matters which may attach to doing business overseas.
  • Unilateral measures will lead to foreign companies diverting their investment away from the U.S.
  • We believe the time is ripe, economically and politically, for the global denationalization of money. … Fewer monies would lead to greatly increased trade, financial integration, productivity, and real incomes.
  • As critical as American military power may be … the soft power projected through … free economic exchange among people is eminently more effective and reliable over the long term. And there is no greater threat to this soft power than a sense … that such norms serve to enrich America at their expense.
  • Essential to infuse the foreign and security policy apparatus—State, Defense, and the NSC—with generalized expertise on the economics of currency crises

Hufbauer, Economic Sanctions Revisited

  • Sanctions; is a way of stimulate to behavior change. Mostly associated with negative sanctions and compellence (to change behavior).
  • Uses; Aid, access to markets, access to institutions, preferred trade partners, tariffs, reputation. Many of these are positive sanctions that assist the receiver.
  • Around 30% of sanctions work, but hard to determine which type works.
  • Sanctions can be used to send a message to the receiver, to the senders populations/pol internal gain.
  • Sanctions post 89’ less success; there might be more option to get out (no bipolar strait-jacket)
  • Sanctions back-fire, will it increase the support for a bad regime, terror if it turns the population against you?
  • Reason for sanction is to punish, deter or rehabilitate (or a combination of these)
  • Sanctions can have strong humanitarian cost for the receiver. The leadership might live like kings while the population starves. Smart sanctions can possibly tgt the right part of the leadership, rather than the population
  • Sections at work;
    • Seek modest pol chg (not threaten the gov) 50 % success
    • Regime chg, 30 % succes
    • Disrupting mil activity, 30 % succes
    • Diminish mil capacity, 30% success
  • Sender is generally 10 x bigger GDP than receiver
  • Finance hit harder than trade, since it is harder to substitute finance
  • Sanctions leak
  • Be aware that sanctions can be regarded as amorally
  • Smart sanctions can possibly tgt the right part of the leadership, rather than the population
  • General rules; Do expect too much, hard to get adversaries to comply, Slam the hammer/ no gradual tightening, use the right tool, do not worry that it also impact the sender.
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