Political Default. The Implications of Weaponizing Global Financial Infrastructure
In response to Russia’s unlawful invasion of Ukraine, the U.S. has led a broad-based global coalition to punish the aggressor with an “unprecedented” sanction regime. Those measures have targeted “the Russian government’s basic tools to manage its macroeconomy,” with a particular emphasis on its sovereign debt. That concerted focus, as this Article empirically demonstrates through analysis of bond and credit default swap data, ultimately resulted in Russia’s first foreign currency debt default in over a century — despite the nation’s ability and seeming willingness to pay.
Notwithstanding aptly-deserved “just deserts” considerations, a forced — or “political” — Russian sovereign debt default through the operation of sanctions raises unique policy and normative questions, while creating underappreciated risks for emerging markets at an extremely fragile time.This Article, part of a broader series regarding the Ukraine conflict, is the first to explore these critical developments, detailing the associated potential risks and externalities, as well as mitigating factors.