Search Results
Report
Financial Sanctions, SWIFT, and the Architecture of the International Payments System
Financial sanctions, alongside economic sanctions, are components of the toolkit used by governments as part of international diplomacy. The use of sanctions, especially financial, has increased over the last seventy years. Financial sanctions have been particularly important whenever the goals of the sanctioning countries were related to democracy and human rights. Financial sanctions restrict entities—countries, businesses, or even individuals—from purchasing or selling financial assets, or from accessing custodial or other financial services. They can be imposed on a sanctioned ...
Working Paper
On Wars, Sanctions and Sovereign Default
This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country.
Journal Article
Financial Market Reactions to the Russian Invasion of Ukraine
This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war, and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to prewar values. Exposure to commodity trade and trade with Russia and Ukraine determined market perceptions of the riskiness of equity and foreign exchange assets. Credit default swap prices on sovereign debt and breakeven inflation rates indicate that ...
Working Paper
Financial market reactions to the Russian invasion of Ukraine
This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to pre-war values. Exposure to commodity trade and trade with Russia-Ukraine determined market perceptions of the riskiness of equity and foreign exchange assets. Credit default swap prices on sovereign debt and breakeven inflation rates indicate that ...
Speech
Reflections on the new compliance landscape
Remarks at ?The New Compliance Landscape: Increasing Roles ? Increasing Risks? Conference, New York City.
Working Paper
The Impact of the 2022 Oil Embargo and Price Cap on Russian Oil Prices
This paper documents the effect of the oil embargo and price cap on Russian oil exports in the wake of the Russian invasion of Ukraine in February 2022. We show that the embargo forced Russia to accept a $32/bbl discount on its Urals crude in March 2023 relative to January 2022, nearly half of which is directly attributable to the higher cost of shipping crude oil over longer distances, as Russia diverted much of its crude oil exports to India. Based on a calibrated model of global oil supply and demand, the remainder ($17/bbl) can be explained by increased Indian bargaining power. We also ...
Report
Securing Technological Leadership? The Cost of Export Controls on Firms
To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting specific cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. As a result, domestic suppliers experience a $130 billion decline in market capitalization, along with reductions in profitability, employment, and bank lending. We also show how Chinese firms strategically respond to export ...
Report
Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds
Firm-level geoeconomic risk can affect even broadly diversified mutual fund portfolios. We study U.S. export controls that restrict sales of cutting-edge technology to selected Chinese firms for national security reasons. The stock prices of affected domestic suppliers drop immediately after the policy introduction. Mutual funds holding these stocks experience increased volatility and lower returns. Fund managers respond by selling stocks of exporters to China, buying lottery-like stocks, and increasing portfolio concentration. While stock-picking and market-timing skills do not help, ...
Report
Regulating Decentralized Systems: Evidence from Sanctions on Tornado Cash
Blockchain-based systems are run by a decentralized network of participants and are designed to be censorship-resistant. We use sanctions imposed by the U.S. Department of Treasury on Tornado Cash (TC), a smart contract protocol, to study the impact and effectiveness of regulation in decentralized systems. We document an immediate and lasting impact on TC following the sanction announcement, measured by market reaction, transaction volume, and diversity of users. Still, net flows into TC contracts recover to and surpass pre-announcement levels for most pools, supporting viability of TC. ...
Discussion Paper
How Censorship Resistant Are Decentralized Systems?
Public permissionless blockchains are designed to be censorship resistant, meaning access to the blockchain is unhampered. In practice, different blockchain ecosystem actors (such as users, builders, or proposers) can influence the degree to which a blockchain is resistant to censorship. In a recent Staff Report, we examine how sanctions imposed by the Office of Foreign Assets Control (OFAC) on Tornado Cash, a set of noncustodial cryptocurrency smart contracts on Ethereum, affected Tornado Cash and the broader Ethereum network. In this post, we summarize findings regarding sanction ...