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On Wars, Sanctions and Sovereign Default

Working Paper 792 | Published April 26, 2022

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Javier Bianchi Monetary Advisor
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.