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Can Economic Sanctions Be Replaced?

Sanctions don’t really work. So why does the United States keep using them?

Words: Clay R. Fuller
Pictures: Matt Seymour

The most frequently asked question about foreign policy I get is “do sanctions work?” My answer is always a very flat “no.” A follow up is typically some version of “then why do we do it so much?” That’s a good question, my friend.

Before answering, economic sanctions are a provision used to seize the assets of rogue regimes, often it’s money and done during the millisecond those wire transfers pass through computers in New York financial institutions. The United States uses sanctions more than any other country. With the extreme depth and liquidity of US markets, why not? If China’s markets were as open as ours we would see sanctions from the Communist Party just as often.

It is nearly impossible to measure “success” when the lofty goals of sanctions are vague, but it’s an easy talking point for politicians trying to win an election. The type of sanctions employed is still a work in progress. Efforts to transform the punishment from a sledgehammer to a scalpel (i.e. targeting individuals instead of an entire economy) are commendable. But sanctions still hurt average people more often than human rights abusers.

Some economists say there is evidence that sanctions work about ten percent of the time, but the anecdotal evidence is far more damning. North Korea, Russia, Iran, and Venezuela have been under sanctions for ages, resulting in little more than authoritarian retrenchment and economic suffering for their people while the sanctioned companies and government officials rarely feel a dent in what are often lavish lifestyles. Furthermore, sanctions harm US businesses by limiting their access to global markets and creating more work (and costs) to make sure they are in compliance. Worse, like squeezing a water balloon, sanctions tend to fuel greater international corruption, money laundering, and crime as regimes turn to non-traditional avenues of moving money. They outsource transactions to organized crime and are now creating their own “sovereign” cryptocurrencies (also called central bank digital currencies).

Then why does the United States continue to use economic sanctions to punish other countries? Can cryptocurrencies successfully circumvent them? And can the underlying technology of crypto — blockchain — be adopted to make US sanctions effective?


Sanctions are an easy way for representatives, senators, and presidents to claim a foreign policy victory during reelection season, even though little if anything is achieved they receive support from well-funded interest groups. Voters typically don’t care to understand the details of how sanctions work, unless they directly impact their local community, like, say, sanctioning a foreign company that manufactures all the equipment needed to run the farm that employs half of a city. Voters often tacitly support sanctions because they want to know that the candidate they are voting for did something, anything, about that bad thing in a foreign land they heard about.

There have been many victories, failures and fabulous looking seizures for the cameras, but zooming out to the larger picture, sanctions are feeding the authoritarian corruption nexus, reinforcing the strength and survival of authoritarian states all around the world.

Another problem is the anti-corruption community, which consists of organized and loose groups of people working to “expose” or “shine light” on whatever it is this left-leaning crowd views as politically “bad” at the moment. For example, the Global Magnitsky sanctions being adopted by free countries all around the world are a very well-intentioned effort to target corrupt officials — an approach that I have publicly supported. But if one studies the data, all this increased sanctioning activity over the past decade or so has only made corruption around the world worse, not better. Just take a look at Venezuela.


Over the past 15 years the United States levied sanctions on Venezuela for everything from terrorism to drug trafficking to election-rigging. Things really heated up in 2019 when opposition leader Juan Guaido was recognized as the legitimate president. For reference, Iran has been under some form of economic sanctions for my entire 42 years of life on this planet. Sanctions are a stale and primitive line of attack, and everyone knows it — especially those being sanctioned. This is why oppressive rulers love digital currencies, and now major governments are in a race to create their own.

Venezuela was the first, creating The Petro, a centralized cryptocurrency created for the explicit purpose of breaking what it calls the international financial blockade, which is mainly in the form of US sanctions. In fact, President Nicolás Maduro claims this is his “kryptonite” for use against “superman” — the United States. It hasn’t really worked out, but they’re figuring it out. Iran, Russia, China, and others are at the beginning stages of issuing their own sovereign digital currencies, presumably as a way to transact internationally, sans sanctions (and also to better surveil their populations). I mean, who needs New York and the US dollar if you can create a new currency out of thin air that will be cheaper, faster and overall more efficient to use?

Once again, the specific sanctions against Venezuela are not as important as the devastating problems of corruption, authoritarianism, and economic devastation there. There have been many victories, failures and fabulous looking seizures for the cameras, but zooming out to the larger picture, sanctions are feeding the authoritarian corruption nexus — the growing convergence of licit and illicit state and non-state actors that facilitate and lauder the profits of illegal activity, reinforcing the strength and survival of authoritarian states all around the world.


Authoritarianism and corruption are significantly correlated, no matter the variable or dataset. Let’s consider the example of sovereign digital currencies. Paper currencies are extremely difficult to track and cumbersome to move. For those afraid of digital currencies, think about this for a second: only about 3% of US dollars in circulation exist in physical form, the other 97% are just numbers on computers. Decentralized cryptocurrencies, such as Bitcoin, are traceable because of the blockchains they operate on, making it easier — not harder — to root out corruption in most cases. But it can take a lot of effort to figure out who owns a specific digital wallet, and that problem can be fixed through regulation, other blockchain-operated identity verification services being developed, or both. It is important to note that some cryptocurrencies are designed specifically for greater anonymity and are demanded in ransomware attacks, but still, the overwhelming majority of crime, corruption and drug selling is still done in good ole US cash — check out the research from Chainalysis here, but as a comparison they estimate that in 2020 criminals received $5 billion in crypto payments worldwide while the US Treasury estimates that $300 billion was laundered in 2018 in the United States alone. On the other hand, sovereign digital currencies, such as Maduro’s Petro or the digital yuan in China, are essentially the final stage in replacing central bank paper money with digital tokens. The central bank issuing it can see it being used, can instantaneously issue it, or even erase it in real time. When the United States issues one this will bring the importance of the rule of law and due process into laser-sharp focus, if it wasn’t already.

In Venezuela, using socialized goodies to buy votes is a long-standing practice mastered by former President Hugo Chavez. Since the paper Bolivar is worth more as wallpaper than a currency, Maduro is pushing for more and more Venezuelans to use his sovereign digital currency. It is highly likely that the regime will continue to reward areas that support Maduro with “free digital money” and oppress those that publicly oppose him by depriving them of income.

None of this is to say that cryptocurrencies are bad, quite the opposite. It was recently illegal to mine bitcoin in Venezuela. Now there are reports that Maduro’s government is mining it in bunkers to raise cash while sending his police to harass ordinary Venezuelans doing the same thing. China is currently cracking down on all industrial-scale bitcoin mining there. Why? Because dictatorships view decentralized cryptocurrency as a threat to their forever-rule. And it is a tool that can (and just might) topple dictatorships and end corruption as we know it. That’s why we should stop using economic sanctions so much and focus on creating a decentralized cryptocurrency that can be used all over the world. But that takes bravery, leadership, clean energy and focus…something that has been sorely lacking around the world for a while now.

Clay R. Fuller, Ph.D. was an inaugural Jeane Kirkpatrick Fellow at the American Enterprise Institute from 2017–2019. He is now a Research Affiliate at the Walker Institute at the University of South Carolina where he will be teaching a course on cyber intelligence while he is writing a book about how modern dictatorships survive and thrive.

Clay R. Fuller

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