Politicising the Monetary System Through Sanctions as a Four‑Period Game

Summary

This article develops a four‑period game‑theoretic model that formalises how sanctions politicise the international monetary system. It models sequential strategic interactions between a sanctioning actor and a sanctioned country, incorporates retaliation and monetary disruptions, and solves for subgame perfect Nash equilibria. Calibrated to trade, GDP and monetary‑disruption data and illustrated by Russia’s 2022 SWIFT exclusion, the paper shows how sanctions can persist, how alternative trading partners (eg BRICS) increase target resilience, and why outcomes vary from rapid de‑escalation to prolonged attrition.

Key Points

The model frames sanctions as a four‑period sequential game with explicit retaliation and monetary effects.
Main equilibrium identified: target provokes and persists while the sanctioner sustains sanctions, exemplified by Russia and Western responses.
Diversion to non‑Western trade partners and financial workarounds can blunt sanction effectiveness and prolong conflicts.
Multiple equilibria mean sanction outcomes are context dependent—ranging from mutual de‑escalation to long‑running attrition.
Calibration to real‑world data gives policymakers an empirically grounded tool to assess strategic trade‑offs in economic statecraft.

Context and relevance

The paper is timely given the rising use of financial measures as geopolitical tools, the fragmentation of payment systems and the growth of alternative trade blocs. It matters for economists, central banks and policy advisers trying to understand when sanctions will work, when they will entrench rivalry, and how monetary links shape geopolitical leverage.

Author style

Punchy: a tight, policy‑facing theoretical piece that marries game theory with empirical calibration. If you work on sanctions, monetary policy or international political economy this is highly pertinent — the technical detail is where the real policy levers and caveats live, so dig in if you advise or design sanctions.

Why should I read this?

Short answer: because it explains the mechanics behind why sanctions often become drawn‑out and why targets can survive them by switching partners. If you care about how money becomes a weapon (and how to defend against or deploy that weapon), this paper gives a clear, usable framework — saved you the time of reading multiple dense models.