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On Wars, Sanctions and Sovereign Default

Working Paper 792 | Published April 26, 2022

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Authors

Javier Bianchi Senior Research Economist
On Wars, Sanctions and Sovereign Default

Abstract

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.