The 27th lecture of the "Adventus Amicorum" salon series was held on June 6, 2024 by Peking University's Institute of Area Studies (PKUIAS), during which Ntina Tzouvala, associate professor of International Law at Australian National University, shared her thoughts on the topic, "Sanctions, Dollar Hegemony, and the Unraveling of Third World Sovereignty." The lecture was moderated by Zhang Yongle, deputy director of PKUIAS. Other participants included Zan Tao, deputy director of PKUIAS; Chen Yifeng, associate professor, and Zhang Kangle, assistant professor, both at Peking University's School of Law; Zhu Xiaoqi, lecturer at the School of International Studies, Renmin University of China; Cao Wenjiao, lecturer at the Department of International Law, China Foreign Affairs University; and Chen Xiaohang, postdoctoral student at the School of Law, PKU.
The seminar mainly focused on three related topics: the nature of the international law system, the contradiction between sovereign equality and US dollar hegemony, and the dismantling of sovereignty in the Third World. Tzouvala pointed out that it is a long-standing practice for certain currencies to be widely used outside the jurisdiction of their issuance. However, in the context of financial capitalism, the US dollar has two particularities: it is not pegged to specific commodities such as gold and silver as it was in the 19th century. Moreover, the US dollar performs all the functions of currency (store of value, unit of account, and means of settlement and payment) outside the US and plays an important role in international trade.
In the long run, the dollar hegemony has brought huge economic benefits to the US, including huge trade deficits and inflation externalization that has brought serious chain reactions to the global South. It is worth noting that the dollar has also brought geopolitical benefits to the US. Over the past decade, the US has increasingly used sanctions to strike its geopolitical enemies.
As traditional sanctions—trade embargoes—have attracted increasing criticism due to the humanitarian crises they can engender, the US has gradually turned to financial sanctions. From the perspective of financial infrastructure, in addition to communication systems, financial sanctions often operate through agency accounts and clearing systems. Take, for example, the combination of conventional sanctions and extraterritorial sanctions imposed by the US on Iran since 2010. The US forced China and the EU to stop transactions with Iran, which should have been legal according to relevant UN security resolutions. In terms of investment, due to the role of the US dollar, many private companies take a zero-risk approach to transactions with Iraq. They will stop and restrict large transactions in advance to avoid severe penalties under US law or face the risk of losing agency accounts.
Central banks are key to the operation of sanctions. From a traditional perspective, central bank assets are protected by state immunity in international law, which limits the jurisdiction of domestic courts over foreign sovereigns in the process of adjudication and enforcement. However, with the increasing radicalization of US legislation, state practice, and scholarship, there has been a proliferation of departures from established rules of international law and the freezing of large sums of money through administrative means.
Tzouvala used the disposal of Afghan assets by the US as an example to explore its relevant foreign-related legal practices. The US legislature passed an amendment to relevant US legislation, clarifying that so-called “sponsors of terrorism” were not protected by state immunity. Against the backdrop of the Taliban’s return after the US withdrawal and the escalating humanitarian crisis in Afghanistan, President Joe Biden ordered half of the assets of the Bank of Afghanistan to be transferred to a “Fund for the Afghan People,” which was registered in Switzerland and managed by a board of directors. The US and Switzerland each have a member on the board, and each member has a veto over how the assets are managed. This means that the US has given itself a veto to decide how to manage these funds, which belong to the Afghan people.
The foreign affairs legal scholar Ingrid Brunk Wuerth has suggested that the US action does not involve state immunity because the US government does not recognize the Taliban as the national government of Afghanistan. Ntina Tzouvala criticized this argument and pointed out that the “Fund for the Afghan People” jointly established by the US and Switzerland had neither democratic legitimacy nor did either country have “effective control” over the territory. Apart from the US’s own will, the establishment of the “Fund for the Afghan People” had no recognized basis in international law, but was a manifestation of the US’s dismantling of the sovereignty and functions of the governments of third world countries.
Finally, Ntina Tzouvala identified two possible paths to challenge the hegemony of the US dollar: switching to other currencies or reusing the concept of the international unit of account. Overall, the global South should use national sovereignty to counter the excessive legal privileges that the dollar grants to the US.
In the discussion, Zhang Yongle thanked Tzouvala for her presentation and then raised the question of whether capitalism could transcend a hegemonic currency and turn to a democratic currency. Zan Tao spoke about the impact of US dollar hegemony and sanctions on the Turkish economy. Chen Yifeng reviewed the three topics raised by the speaker in the seminar and proposed a path to break the blockade of dollar hegemony that China is facing. Zhang Kangle pointed out the dynamic relationship between the dollar’s dominant position and the dynamic relationship between the dominance of the US dollar and the law, emphasizing the important role of financial infrastructure in maintaining the hegemony of the US dollar. Zhu Xiaoqi discussed the recent exchange rate changes between the US dollar and the Japanese yen, and the role of the US dollar rule in maintaining the world balance for the US. Based on the context of the case of the Fund for the Afghan People, Cao Wenjiao argued that it reflected the common practice of Western powers in the history of colonialism to internationalize national or regional issues. Chen Xiaohang talked about the relationship between the lack of state responsibility and the historical background of war. Ntina Tzouvala responded positively to each of these discussions and spoke about her recent concerns concerning the impact of dollar hegemony in other cases. She also answered a series of questions from the audience members.
