The Decoupling Dilemma: How US Sanctions Erode Global Economic Governance

Dongan Tan

International Organization, 2025, vol. 79, issue S1, S134-S147

Abstract: This essay argues that the United States’ expansive use of financial sanctions—leveraging dollar-clearing chokepoints and global networks—has paradoxically accelerated pressures toward the erosion of the liberal economic order. As sanctions proliferate, targets move from short-term evasion to building alternative infrastructures, such as China’s RMB settlement system (CIPS), BRICS financial mechanisms, central bank digital currencies (CBDCs), and barter-based trade, thereby fostering governance decoupling from US-led systems. Drawing on structural power and institutionalist insights, I show how sanctions catalyze parallel economic ecosystems that fragment the financial architecture and, over time, erode US leverage and dollar centrality—even as the dollar remains dominant. I emphasize heterogeneous switching costs, with near-term change concentrated in the “plumbing” (messaging, clearing, legal venue) rather than in core reserve functions, and sketch two possible futures-bifurcated rival blocs versus pluralistic coexistence—calling on scholars and policymakers to rethink coercive statecraft in light of sanctions’ long-term institutional legacies.

Date: 2025
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