After leaning on regulatory changes and fiscal measures in a largely ineffective effort to put a bottom under the market, China’s leaders now appear to be shrugging their shoulders and moving on. Beijing has declared that the “traditional real estate model” of “high debt, high leverage, high turnover” has “reached its end” and instead is seeking to create a “new model of real estate development,” based on what one foreign bank has called “planned property supply.” In the future, China’s Minister of Housing, Ni Hong, recently wrote, the industry will be characterized by “affordable housing,” improved services, and “basically stable prices.” This marks the virtual abandonment of an industry that once accounted for about one-quarter of China’s gross domestic product and roughly 15 percent of the nonfarm workforce.

China’s housing plans collide with reality

A key problem with the new property paradigm is that it largely ignores market forces that are still very much at play. Real estate has been the primary repository of life savings for hundreds of millions of Chinese households. Yet according to Macquarie Group, roughly 85 percent of the price gains that underpinned that wealth creation have evaporated since 2021, when the government clumsily imposed credit restrictions to rein in a bubble it had tolerated for years.

Many of China’s current economic problems can be traced, at least in part, to this collapse: weak retail spending, nonexistent consumer and business confidence, declining investment, and falling prices. Without at least a partial recovery in the real estate market, the Chinese government will be hard pressed to make meaningful progress on its much-trumpeted goal of boosting domestic demand. That problem was underscored in the growth numbers for the fourth quarter of 2025, released last week, that showed weak consumer demand continuing to drag on the economy.

Zombie companies threaten the banking system

There is still a great deal that could go wrong—starting with China’s financial system. Banks so far have withstood the fallout from the defaults of several of the country’s largest private-sector developers. Many of these collapses have been well-documented, as more than sixty developers have either defaulted on offshore debt or entered restructuring negotiations, some of which have played out in Hong Kong courts. But focusing on these high-profile cases obscures a deeper and more pervasive problem. Beyond the major firms headquartered in Shanghai, Shenzhen, and other megacities lies a vast ecosystem of lower-tier developers and construction companies in smaller urban centers that are unable to service their debts—a dynamic that poses mounting risks to banks and shadow lenders alike. Recent research shows that many state-backed developers are being kept afloat with government support, including favorable funding and privileged access to undeveloped land in the biggest cities.

Researchers at the Dallas Federal Reserve Bank recently estimated that in 2024, roughly 40 percent of bank loans to the real estate sector were to companies whose operating earnings could not cover their interest obligations—up from just 6 percent in 2018. Most of these loans are being rolled over rather than recognized as losses, effectively turning the borrowers into “zombie” companies. Across the broader economy, the Dallas Fed researchers estimate, the share of such zombie firms reached 16 percent in 2024, up from 5 percent in 2018.

The shadow network behind China’s property bubble

Many of the loans weighing on the banks are tied to the massive buildup of local government debt, which has forced the central government to pony up some $1.4 trillion in refinancing over the past year. “The intricate and [tight] interconnections between financial institutions, the real estate sector, and local and central governments create a fragile environment,” AXA Investment warned in a prescient 2024 report. “In such a context, even a minor disturbance could potentially trigger a chain reaction, destabilizing the entire banking system.”

Unlike offshore debt restructurings, the troubles of most zombie firms are rarely visible. That opacity, however, has begun to crack. Bloomberg reported last month on a crisis in Hangzhou involving a shadow lender that failed to make $2.8 billion in payments to investors in wealth-management products. The underlying assets that the lender was relying on to generate income were loans to real-estate developers, at least ten of which had defaulted on commercial paper obligations. A nationwide web of such arrangements fueled the expansion of China’s property bubble—and now poses a systemic threat as it unwinds.

China’s six largest commercial banks, all of them state-owned, are widely regarded as financially sound, even as their profit margins have been squeezed by government-mandated interest-rate cuts. Analysts, however, are increasingly concerned about the health of regional banks and thousands of smaller rural institutions. These lenders have extensive ties to local government financing vehicles (LGFVs), which were established across the country to generate revenue for provincial, city, and county authorities. Many LGFVs became deeply enmeshed in real estate, often buying property at local government land auctions as private demand dried up in the latter stages of the bubble. At a recent roundtable organized by S&P Global, the chief Asia-Pacific economist for Natixis, Alicia Garcia Herrero, warned that these state-owned enterprises, “unable to generate adequate cash flows,” would force banks “to keep lending to them.” That dynamic is not a recipe for recovery. Instead, it risks locking the system into prolonged stagnation.

Hiding the numbers, facing the fallout

To make matters worse, the Chinese government has resisted opening its books to provide a clearer picture of the financial system’s true condition. In its periodic assessment of China’s financial system, released last year, the International Monetary Fund (IMF) reported that its “systemic analysis of risk in small banks (many of which are considered the most vulnerable) is hampered by lack of publicly available data and access to supervisory data. In addition, the authorities did not share institution-specific exposures to LGFV and property developers—which present the most conjunctural risk.” In recent months, Beijing has increasingly restricted information on the state of the real estate market by blocking the release of once publicly available sales data. This decision came right after the statistics for October showed the largest decline in home sales in eighteen months. Since last month, censors have also begun scrubbing social-media posts deemed “doom-mongering” about the real estate market and housing policy.

Chinese officials insist—including in their response to the IMF findings—that banking risks are well under control. And in the long run it is conceivable that the bureaucracy will muddle through and eventually restore a measure of stability to the property sector. But even in that best-case scenario, the likely outcome is a prolonged drag on the financial system and the broader economy.

Recent government plans do, for the first time, broach the possibility of developer bankruptcies, but they largely sidestep how the authorities intend to confront the full scale of household and institutional property losses. The Dallas Fed study draws an explicit comparison to Japan’s real estate-driven debt crisis of the 1990s, warning that “when there are few constraints on rolling over bad loans, the inefficient allocation of capital can lead to decreased productivity.” Similarly, Harvard economist Kenneth Rogoff—co-author of the definitive book on financial crises—and IMF economist Yuanchen Yang see troubling parallels with past episodes of financial instability. “Like many other countries in the past,” they write, China “too is facing the difficult challenge of countering the profound growth and financial effects of a sustained real estate slowdown.”

Even if the shockwaves from China’s collapsed property bubble eventually recede, the task of rebuilding will be daunting. It requires not only replacing a major pillar of Chinese economic dynamism, but also the revitalization of homeowners’ deeply damaged sense of financial security.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.

The post China’s property slump deepens—and threatens more than the housing sector appeared first on Atlantic Council.

But that is just the beginning. As money is paid out to service this debt, it is diverted from social services and the stimulation of economic activity, which can lead to fewer jobs, lower tax revenue, and slower growth. In 2026, borrowing across the continent will continue to rise, and with it, the impact of debt crises on citizens’ lives. What, then, is the state of debt across Africa, and what can be done to address it? With the African Union as a core member, part of this answer may lie with the G20—and the other part, with homegrown strategies.

Understanding debt distress in Sub-Saharan Africa

The situation in the region is, in short, concerning. Currently, twenty-two low-income countries in Sub-Saharan Africa are in or at high risk of debt distress, as designated by the World Bank. This assessment is based on a variety of structural and economic factors and measures a country’s debt-carrying capacity and debt-burden indicators against country-specific thresholds.

But debt is not an abstract concept, and a country that struggles to service its debt faces consequences beyond the disdain of foreign creditors. When a country stops paying, its reputation in global financial markets takes a hit. Large debt obligations may discourage new investment and economic growth—a phenomenon known as debt overhang. In these instances, creditors lose confidence in the country’s ability to repay its debts in full, making it harder to obtain new, affordable financing.

At the same time, a reliance on borrowing leads to a reliance on rating agencies that view African nations as far more risky than local or regional credit agencies suggest. This can cause a country’s ratings to plummet during times of struggle, making it even more difficult for countries to access financing, even as they recover. In other words, heavier debt loads in African nations are associated with weaker sovereign credit ratings, which in turn raise borrowing costs, creating a cycle that makes it harder for countries to stimulate the growth needed to reduce debt in the long run. Today, African nations often face interest rates topping 10 percent, whereas many Group of Seven countries borrow at rates closer to 2 to 3 percent.

Why this debt matters

There are two compelling reasons why debt in Africa warrants particular attention from the global community. The first is that Africa’s debt is largely external. Yes, countries such as Japan and the United States maintain debt-to-GDP ratios much higher than those of Sudan, Guinea, and Malawi. But with debt denominated in foreign currencies, African governments are forced to spend far more on servicing their debt if exchange rates fluctuate and domestic currencies weaken. By contrast, a weaker US dollar can provide breathing room for countries, as their domestic currencies gain value against it.

The external nature of Africa’s debt also makes it difficult to restructure. China has come to the forefront as a creditor for African nations, but its selective participation in international debt relief efforts complicates coordinated efforts to restructure and diminishes the effectiveness of the Paris Club process. African nations have also seen a nearly 15 percent increase in debt held by private creditors from 2010 to 2021—a rate faster than any other developing region—which further complicates efforts to reach restructuring agreements by adding more, differing actors to coordination efforts.

The second reason for paying close attention is that many countries in debt distress are classified as low- or lower-middle income. This presents a significant challenge. Low-income countries are designated as such by the World Bank due to a gross national income below a certain threshold. Low income leads to a lowered ability to fund social services and infrastructure, which is particularly harmful for countries that are already fiscally constrained by high debt loads, limiting their ability to deliver services to their citizens. In fact, according to the United Nations Conference on Trade and Development, more than half of Sub-Saharan Africa’s population lived in countries that spent more on interest payments than on education and health in 2023.

The impact of the global community—and its limits

Let’s go back to Johannesburg for a moment. As a high-level convening body, the G20 mostly engages in agenda-setting through acknowledgments and rhetoric regarding debt conversations. During the last summit in late November 2025, host nation South Africa highlighted debt sustainability as one of its four core priorities—a focus reflected in the G20 Leaders’ Declaration. By elevating this notion to the global stage, the G20 moved debt higher up on the agenda.

Moreover, the G20 has considerable convening power. Through its G20-Africa High-Level Dialogue on Debt Sustainability, which was held two weeks before the G20 Summit itself, the G20 brought together finance ministers, central bank governors, and African Union officials to identify practical solutions to excessive debt burdens. Additionally, the Africa Expert Panel on Debt—composed of senior African economic and financial leaders—produced a report on a new debt refinancing initiative and a borrower’s club for debtor countries.

The G20 is also capable of taking action through concrete measures and critical commitments—though this has proved the exception rather than the rule. In May 2020, for instance, the G20 implemented the Debt Service Suspension Initiative (DSSI), which suspended $12.9 billion in debt-service payments for eligible countries to allow governments to focus resources on saving lives and adapting rapidly to the COVID-19 pandemic. Of the seventy-three low-income countries eligible for the pause, only forty-eight participated in the initiative before its expiration in December 2021—accounting for just a quarter of the debt the G20 initially pledged to suspend.

Following the DSSI, the G20 established the Common Framework for Debt Treatments, aimed at providing coordinated debt relief for countries facing unsustainable debt by bringing together official bilateral creditors and requiring comparable treatment from private creditors. The initiative coalesces creditors in a so-called “official creditor committee” before negotiations with private creditors, acknowledging the changing creditor landscape beyond the Paris Club. But so far, only four countries have made requests for debt relief under the framework. And criticism is loud regarding its slow pace, procedural complexity, insufficient debt relief, and its preference for debt reprofiling over outright reduction.

The Common Framework for Debt Treatments requires urgent reform to account for the mismatch between lengthy restructuring timelines and the urgent need for immediate financing, as well as China’s role in debt negotiations. To address debt sustainability over the long term, discussions must shift focus from debt levels alone to the structural features of domestic economies and the international financial system that transform manageable debt into distress.

At last year’s G20 Summit, broad acknowledgment of the mounting debt crisis marked a step in the right direction, but commitments on debt remained largely rhetorical. While much was said about the issue, actionable steps proved elusive. With limited enforcement mechanisms and a reliance on consensus, the G20 is only as strong as the collective commitment behind it, and the lack of reform to its own processes left many observers disappointed.

Debt relief requires growth and homegrown strategies

To address the debt crisis, the answer cannot just be to spend less money. After all, it is nearly impossible to reduce debt through austerity measures alone. The G20, led by the African Union, must prioritize growth in countries facing debt distress, and a first step toward this is economic diversification.

As shown in the graph below, many countries in debt distress already struggle to sustain economic growth due to high levels of commodity dependence. While commodity exports are not inherently bad for growth, reliance on energy, agricultural, or mining exports exposes economies to volatile international prices that are largely beyond national control. When prices surge, revenues increase. When they fall, however, growth slows—and in the worst cases, economies can tip into recession. This dynamic played out between 2013 and 2017, when falling commodity prices triggered slowdowns in sixty-four commodity-dependent countries. For countries already in debt distress, stimulating growth precisely as revenues decline poses a particularly acute challenge.

For a country such as the Republic of the Congo, for instance, where 94 percent of exports are commodities, debt repayment is complicated not only by exchange-rate volatility but also by exposure to commodity price shocks that undermine steady growth.

Efforts have also focused on addressing the economic extractivism that has plagued African nations by shifting toward domestic processing and reducing reliance on raw-material exports—particularly as debt-servicing costs rise faster than countries’ ability to acquire foreign currency. 

Against this backdrop, African leaders remain confronted with politically unpopular choices, including austerity measures and tax increases—decisions that risk deepening domestic grievances amid already difficult economic conditions. Yet continental and regional institutions have begun advancing strategies to foster growth, generate wealth, and build a financial architecture better suited to a rapidly developing continent.

African nations are not poor—and they are far from monolithic. Across the continent, countries continue to grapple with their own unique political, economic, and social dynamics; however, there exists immense human-capital, natural-resource, and infrastructure potential. As debt outpaces growth and shrinking fiscal space threatens progress, the solution to debt crises in African nations lies in global and regional cooperation. The G20 must support the African Union as it steps up to help countries manage and service their debt and must listen to homegrown strategies related to credit rating and growth promotion to secure a more stable and prosperous future.

Development needs remain urgent—and shortfalls in funding for health, education, and social services continue to impact citizens’ everyday lives. The global debt system must shift away from prioritizing wealthy lenders over the development and well-being of citizens. As African governments and regional institutions continue working to reduce heavy debt burdens and promote sustainable growth, the international community must listen to—and act on—the reforms and recommendations emerging from the continent, ensuring countries are not forced to choose between paying for the past and investing in a better future.

Juliet Lancey is a consultant and a former young global professional with the Atlantic Council GeoEconomics Center.

The post Africa enters 2026 facing a debt crisis. The answer lies in regional solutions. appeared first on Atlantic Council.

The S&P 500 dropped 2 percent, the dollar weakened, and Treasury yields rose to their highest level since September. While it’s rare for stocks and bonds to fall sharply on the same day, a similar pattern last emerged in April and was seen as one of the reasons why the Trump administration ultimately deferred its “Liberation Day” tariffs.

It was a stark contrast to last week, when we were scratching our heads as to why Wall Street barely reacted to escalating tensions involving Venezuela and Iran, or the Department of Justice’s investigation into Federal Reserve Chair Jerome Powell. There are plenty of reasons why this might be. For one, the capture of strongman Nicolás Maduro and protests in Iran, however dramatic politically, did not pose an immediate threat to global trade flows or major supply chains. Meanwhile, had Trump followed through on his tariff threats, it would likely have marked the end of the United States-European Union trade deal, which was only announced in July 2025 and has since become a partial model for other countries negotiating with the Trump administration.

Why markets have shrugged off most shocks

Over the past decade, markets have weathered a steady stream of geoeconomic shocks—Brexit, trade wars, sanctions, pandemics, and bank failures, to name only a few. And yet, nothing has truly shaken investor confidence. The chart below shows eight major shocks since 2016 and highlights in red the few that coincided with a market contraction of more than 20 percent, triggering a bear market in the United States.

The common thread among those truly market-shaking moments is that they posed a direct disruption to the global economy: supply chains seizing up, trade flows collapsing, or energy prices spiking. But once a credible signal of stabilization emerged—whether through vaccine rollouts or a temporary ninety-day tariff pause—Wall Street quickly went back to business. That is, in part, because markets have internalized a powerful lesson: look past the immediate headlines. Investors have learned that most shocks inflict far less lasting damage than initially feared. That belief has become a guiding heuristic.

This week, however, investors responded forcefully to the renewed risk of a trade war between the United States and the European Union. The transatlantic economic relationship is far denser than the ties between Washington and Caracas or Tehran, totaling roughly $1.5 trillion in goods and services trade in 2024. A sustained escalation would have struck at the core of global commerce. Had tensions continued to rise, there was a real risk that market reactions would have intensified. Instead, as Trump pulled back from his tariff threats on Wednesday, markets recovered swiftly.

The dangers of taking volatility for granted

The risk of the markets adopting a “nothing ever happens” mentality is that it lowers sensitivity to increased political volatility. There are plenty of reasonable explanations for why the Trump administration’s investigation of the Federal Reserve chair failed to move markets, while the prospect of economic conflict with the world’s largest trading bloc has. One reason may be that the issue of central bank independence in the United States has not yet crossed the threshold from concern to crisis, which investors seem to require for a reaction. But if the job of markets is to look ahead and price future risks, then Wall Street may be too complacent about the accumulating cost of shocks.

Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center.

Josh Lipsky is chair of international economics at the Atlantic Council and the senior director of the Council’s GeoEconomics Center. He previously served as an advisor at the International Monetary Fund.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org.

The post When will Wall Street’s tolerance for uncertainty run out? appeared first on Atlantic Council.

The market volatility highlights growing fragility in the financial system—a development shaped in large part by a buildup of leverage across financial institutions and market activities, as well as their increasing linkages to the banking sector. This situation demands careful monitoring and stronger risk-management measures by financial authorities and market participants to reduce vulnerabilities and mitigate potential shocks.

From retail traders to hedge funds, leverage is rising

Leverage starts with retail investors using margin debt—borrowing from their brokerage firms to buy securities, using their existing investments as collateral. The amount of margin debt in the United States reached a record $1.2 trillion by late December 2025. At the same time, investors have added another $250 billion in leveraged exchange-traded funds (ETFs). While still a relatively small share of total ETF assets under management (AUM)—estimated at $13.4 trillion at the end of 2025—leveraged ETFs account for around 12 percent of daily ETF trading volume.

Leveraged ETFs reset their exposure daily to maintain their target leverage. In volatile markets, this practice causes the fund’s value to erode over time—making leveraged ETFs a risky instrument for investors with holding periods longer than a single day. In essence, the high degree of leverage embedded in these retail investments can multiply both gains and losses. The problem is that the latter can trigger margin calls from brokerage firms, forcing fire sales of securities and further amplifying market turmoil. More importantly, hedge funds—with $12.5 trillion in AUM—have significantly increased their leverage across a range of trading strategies to the highest levels since comprehensive data collection began in 2013. Specifically, their mean gross leverage ratio—defined as total market exposure, including long and short positions and derivatives, relative to net asset value (NAV)—has climbed to eight times NAV, up from around five times in 2016 (see chart).

In particular, the volume of Treasury basis trades—long positions in cash Treasuries combined with short positions in futures to exploit small pricing discrepancies—has risen markedly. Hedge funds’ long US Treasury exposure has reached a new record of $2.4 trillion, equivalent to around 10 percent of all US Treasuries held by the private sector. In recent years, hedge funds have also used the interest-rate swap market to implement these basis trades, with current exposures estimated at $631 billion.

When interest rates and securities prices move contrary to expectations, hedge funds incur losses, prompting them to unwind positions and generating stress in those markets. This dynamic was evident in April 2025, when hedge funds unwound their basis trades following adverse market movements following Trump’s announcement of reciprocal tariffs.

Notably, hedge funds—largely based in the United States—have expanded their basis-trade strategies to the larger and more liquid government bond markets of the euro area, particularly Germany, France, and Italy. Hedge funds face the same challenges in their euro area basis trades, including a potential lack of euro funding and adverse price movements, both of which could trigger fire sales of underlying bonds and cause stress in affected markets. Moreover, hedge funds themselves have become potential transmission channels, spreading stress from the US Treasury market to other sovereign bond markets if losses force them to raise liquidity by selling assets elsewhere.

Private credit introduces new vulnerabilities

Leverage has also risen in the rapidly growing private credit market, with the debt-to-earnings ratio of some borrowers reportedly reaching a historic high. According to the New York Fed, the private credit market has expanded from $500 billion in 2020 to $1.3 trillion by late 2025. Some observers even expect it to reach $5 trillion by 2029.

The private credit market has increasingly relied on covenant-lite loans, a worrisome development reminiscent of the practices that were widespread prior to the global financial crisis. Taken together, these trends raise the risk that private credit could become a source of financial instability if overall conditions deteriorate.

Beyond direct borrowing, private credit funds also invest in leveraged instruments such as collateralized loan obligations (CLOs) to enhance returns. This essentially amounts to a less transparent—or “hidden”—form of leverage.  CLOs issue debt and equity tranches to investors and use the proceeds to purchase diversified portfolios of roughly two hundred loans or corporate bonds, structuring cash flows into tranches with varying risk-return profiles. The CLO market has grown to approximately $1.4 trillion, forming part of a broader $13.3 trillion structured credit-fixed income market, which also includes asset-backed and mortgage-backed securities.

Driven in part by their participation in the private credit market, life insurance companies have also increased leverage, with asset-to-equity ratios approaching the top quartile of their historical range—now nearly twelve times.

Nonbank–bank linkages heighten systemic risk

Commercial banks—while remaining profitable and well capitalized—have increasingly funded leveraged nonbank financial entities and activities. Bank lending to nonbank financial institutions—such as special purpose vehicles, CLOs, asset-backed securities, private equity funds, and business development companies—has grown at a robust pace, reaching $2.5 trillion.

In addition, banks themselves have originated $1.5 trillion in leveraged loans, reflecting an average annual growth rate of 12.2 percent since 1997. While such exposures account for roughly 14 percent of total bank assets, stress among these highly leveraged nonbank entities—or in the leveraged loan market—could generate losses and distress at individual institutions, if not across the entire banking system.

As a result, the Federal Reserve concluded in its November 2025 Financial Stability Report that “when taken together, the overall level of vulnerability due to financial sector leverage was notable.” This assessment underscores the importance of leverage as a key issue for regulators and risk managers when evaluating financial stability risks in 2026—and especially in responding to the current bout of market turbulence.

Elevated leverage increases the fragility of financial institutions and markets and amplifies the severity of potential market corrections. This reality calls on financial authorities to adopt measures commensurate with the risks identified in the November 2025 FSR—particularly steps aimed at reducing the vulnerability of the financial system. Meanwhile, private investors should exercise greater caution to limit exposure and mitigate the fallout from future market disruptions.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a senior fellow at the Policy Center for the New South, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

The post As markets turn volatile, leverage is back in the spotlight appeared first on Atlantic Council.

For years, the prevailing assumption among policymakers and market observers was that central bank digital currencies (CBDCs), especially China’s digital yuan (e-CNY), would struggle to gain traction. Slow adoption, limited use cases, and public skepticism were expected to constrain their impact. New data from China, however, tell a different story.

Five years after its first pilot, the e-CNY remains the world’s largest live central bank digital currency experiment. By the end of November 2025, it had processed more than 3.4 billion transactions worth roughly 16.7 trillion renminbi (about $2.3 trillion). That represents a more than 800 percent increase from 2023, according to new data released by the People’s Bank of China (PBOC) at the end of December.

But this wasn’t the only news out of Beijing around the turn of the year. On January 1, a new management and measurement framework for the e-CNY took effect. Officials framed the adoption of this framework as a shift from the pursuit of “digital cash” toward deeper integration with the regulated financial system. Combined with China’s continued investment in wholesale CBDC infrastructure, most notably Project mBridge, these changes signal a more mature phase for the digital yuan. The question is no longer whether China wants a CBDC but what economic role Beijing expects the e-CNY to play at home and abroad—and how the e-CNY fits into a financial landscape increasingly shaped by stablecoins, cryptocurrency, a rise in gold holdings, and geopolitical tension.

What the e-CNY is—and what China wants to do with it

The digital yuan is often mischaracterized as a state-run competitor to private payment platforms such as Alipay or WeChat Pay. In practice, it serves a different function. The e-CNY is sovereign digital money: legal tender issued by the central bank, distributed through commercial banks, and designed to operate both online and offline. After five years of piloting, the e-CNY has not displaced private payment platforms; instead, it has been integrated selectively into public-sector payments, into government disbursements, and in controlled commercial settings. In many ways, the objective is not superior convenience but the preservation of a public digital money option as cash usage declines and private platforms dominate daily payments.

Institutional changes have also reinforced this shift. In October last year, PBOC Governor Pan Gongsheng announced the establishment of an E-CNY Operations and Management Center in Beijing to oversee the digital yuan’s systems and domestic infrastructure, complementing the Shanghai-based International Operations Center, which officially launched in September 2025 and is focused on cross-border use cases. Both centers fall under the jurisdiction of the PBOC’s Digital Currency Research Institute and are expected to operate in tandem—one focused on domestic system development and the other on international applications—to form what Pan described as a “two-winged” architecture supporting the digital yuan’s growth. Staff working on the e-CNY project grew from around forty to approximately three hundred in 2022, reflecting Beijing’s commitment to building robust operational capacity.

The proliferation of coordinating bodies signals a shift in priorities toward governance, supervision, and scale, but also toward a much broader geopolitical ambition. In his landmark June 2025 speech at the Lujiazui Forum, Pan placed the e-CNY within China’s vision for a “multipolar international monetary system,” arguing that such a system “can prompt sovereign currency issuers to strengthen policy constraints, enhance the resilience of [the] international monetary system, and more effectively safeguard global economic and financial stability.” Without naming the dollar explicitly, Pan warned that in times of geopolitical tension, “the global dominant currency tends to be instrumentalized or weaponized.” The e-CNY plays a key role in China’s ambitions on these fronts, especially for the internationalization of the renminbi and as a strategic counterweight to dollar hegemony.

In short, all these initiatives and messages show that China is getting the e-CNY ready for prime time.

From domestic aims . . .

At home, Beijing’s priority is adoption. This has been pursued primarily through incentives and the gradual integration of the e-CNY into public-sector and platform-based payment ecosystems. The digital yuan has been used for tax rebates, subsidies, medical insurance payments, and other public disbursements.

These applications allow the government to send money directly to specific recipients, track how it is spent in real time, and set rules on where it can be used. The same e-CNY features that improve efficiency, however, allow the state to have more visibility into transactions, raising persistent concerns about privacy and financial autonomy.

The most consequential shift is the introduction of interest-bearing features to the e-CNY. This moves the e-CNY beyond a pure payment instrument and closer to a savings-adjacent asset. By making the digital yuan interest-bearing, the PBOC clearly aims to make the CBDC more attractive and increase domestic adoption.

The move could be a game-changer. Other central banks have explored similar concepts on paper (the European Central Bank has discussed tiered remuneration for a potential digital euro, and Israel’s central bank has highlighted the importance of holding limits on user balances and of interest-rate tools). But China is the first major economy to operationalize such features at scale. An interest-bearing CBDC directly affects household saving behavior, bank funding, and monetary transmission, placing the digital yuan closer to the core of macro-financial policy.

The e-CNY may also serve as Beijing’s answer to stablecoins. While cryptocurrency trading and mining remain banned in mainland China, dollar-denominated stablecoins have emerged as an important source of liquidity and a growing tool for cross-border payments. But from China’s perspective, these instruments represent private digital monies operating outside direct state visibility. In many ways, the PBOC response has been to absorb the appealing functions of stablecoins, such as speed, programmability, real-time settlement within a sovereign, and a tightly regulated framework. Making the e-CNY interest-bearing may be a central part of this approach. It allows the digital yuan to compete not by mimicking crypto markets but by offering deposit-like features within the formal financial system. This is an interesting contrast to the debate currently playing out in Washington over whether stablecoins can be yield-bearing.

. . . to international ambitions

In 2025, China pursued an expansive strategy internationally, making the digital yuan one of the most prominent cross-border CBDC experiments to date. At the retail level, China is now testing the e-CNY in cross-border use in border regions and tourism-oriented economies such as Hong Kong, Macau, Laos, Thailand, Cambodia, and Singapore. Chinese tourists pay local merchants using e-CNY wallets issued by Chinese banks, with transactions executed through QR code. The PBOC has also experimented with limited foreign-user access, including pilot programs allowing foreign visitors to open capped e-CNY wallets in China and top them up using foreign bank cards.

At the wholesale level, China continues to develop Project mBridge, a cross-border payments platform designed to enable direct settlement between central bank digital currencies. Originally incubated under the Bank for International Settlements Innovation Hub, the project brings together the PBOC, the Hong Kong Monetary Authority, the Bank of Thailand, the Central Bank of the United Arab Emirates, and the Central Bank of Saudi Arabia. Early pilots led by the Bank for International Settlements (BIS) in 2022 processed just 164 transactions totaling roughly $22 million. In October 2024, the BIS stepped back from direct involvement, transferring governance fully to participating central banks.

Since then, activity on the platform has accelerated sharply. Under the partner central banks’ leadership, mBridge has processed more than four thousand cross-border transactions with a cumulative value of approximately $55.49 billion—representing a roughly 2,500-fold increase in transaction value since 2022. The digital yuan accounts for approximately 95.3 percent of total settlement volume. In November last year, the United Arab Emirates Ministry of Finance and the Dubai Department of Finance executed the first government financial transaction using the wholesale digital dirham on the mBridge platform. The transaction tested operational readiness and direct integration between government payment systems, settling funds without intermediaries. The pilot marked the formal launch phase of the United Arab Emirates’ wholesale CBDC and demonstrated mBridge’s viability for real-world public-sector payments. Looking ahead, mBridge is increasingly oriented toward trade settlement, particularly in energy and commodity-linked transactions, where China already plays a central commercial role.

Taken together, these developments point to a gradual expansion of the yuan’s internationalization through digital infrastructure. Rather than seeking to displace the dollar outright, China is building parallel settlement rails that reduce reliance on dollar-based systems. Project mBridge is unlikely to challenge dollar dominance directly, but it may incrementally erode it across specific corridors, sectors, and use cases.

What to watch in 2026

The PBOC’s priorities for the e-CNY in 2026 are likely to include deeper integration with the banking system, expanded use in trade settlement, and more direct competition with stablecoins by offering returns comparable to demand deposits. At the same time, Beijing is strengthening the institutional and technical foundations of the e-CNY as part of its broader goal of “steadily developing the digital [yuan]” under the country’s fifteenth five-year plan.

The e-CNY raises many of the same policy questions confronting other CBDC pilots, from privacy and oversight to technology and infrastructure. China stands out not for redefining these debates but for the speed at which it executed the e-CNY: few jurisdictions have moved as quickly or as comprehensively from experimentation to deployment, and if the PBOC continues at this pace, it is possible to see a full-scale launch this or next year. Given its scale, sophistication, and integration into national strategy, the digital yuan is likely to remain a central feature of China’s economy and of the global future of money debate for years to come.

Alisha Chhangani is the associate director for future of money at the Atlantic Council’s GeoEconomics Center.

Further reading

Central Bank Digital Currency Tracker

Our flagship Central Bank Digital Currency (CBDC) Tracker takes you inside the rapid evolution of money all over the world. The interactive database now tracks over 135 countries— triple the number of countries we first identified as being active in CBDC development in 2020.

The post What to watch as China prepares its digital yuan for prime time appeared first on Atlantic Council.

Led by Kazakhstan and Uzbekistan, the five Central Asian states—which also include Kyrgyzstan, Tajikistan, and Turkmenistan—are eager to develop their wealth of critical minerals and rare earths. But without careful management, this push risks further straining already dwindling water reserves, particularly as temperatures in the region rise twice as fast as the global average.

Undoubtedly, new mining projects will initially add more pressure to Central Asia’s stressed water systems. However, with smart policies, states in the region can capture a net “water dividend”: By reinvesting mining revenues in water-saving infrastructure and technologies, they can ensure that the water conserved or newly secured ultimately exceeds the amount consumed by mining itself.

Resource wealth meets climate pressure

To avoid further exacerbating water shortages, the Central Asian states will need to navigate two public policy challenges. First, they must attract high-quality foreign investment in mining partnerships, ensuring firms from all countries can compete on a level playing field. Second, they must use mining revenues to modernize aging infrastructure, experiment with cutting-edge precipitation enhancement technologies, and fund a long-term strategy for regional water security cooperation.

Central Asia’s critical minerals and rare earths have drawn major commercial and geopolitical interest from the United States, China, Russia, and the European Union. Companies and governments alike view access to these resources—key to the production of complex electronics, renewable power sources, high-grade defense systems, and more—as essential to competing economically and militarily in the decades ahead. Kazakhstan and Uzbekistan, in particular, are rich in rare earths as well as critical minerals such as uranium, copper, and tungsten.

At the same time, the region appears to be careening toward a water crisis. Central Asia uses approximately 127 billion cubic meters of water per year. Of that, 100 billion cubic meters flow into the region’s highly inefficient agricultural sector, which loses half of this water supply before it even reaches the fields.

As many as twenty-two million of the roughly eighty million people living in Central Asia already lack secure access to safe water—and the region’s total population may increase to 110 million by 2050, intensifying demographic pressure on scarce water resources. Rising temperatures are rapidly melting the glaciers in Kyrgyzstan and Tajikistan that provide much of the fresh water for downstream countries such as Uzbekistan and Turkmenistan. Meanwhile, water levels in the Caspian Sea are projected to drop by up to 60 feet by 2100, exposing dry land roughly the size of Portugal.

Critical minerals could power the region’s growth

Mining operations are notoriously capital-intensive to launch and water-intensive to run, but the industry can still become a net revenue and resource boon to Central Asia. Western firms have begun investing in new critical mineral projects across the region. These firms have proven much more eager to do so when they are backed by their governments. In November, US-Australian firm Cove Capital agreed to a $1.1 billion deal with Kazakhstan’s state mining company to develop the Upper Kairakty and North Katpar tungsten deposits in central Kazakhstan—among the largest known tungsten deposits in the world. Cove Capital’s feasibility studies suggest the project could produce eighty billion dollars’ worth of the resource over the mine’s lifespan.

Crucially, the project is set to be backed by $900 million in financing from the US Export-Import Bank (EXIM), making it the most high-profile example to date of concrete Western government and private-sector engagement in Central Asian critical minerals development.

Water intensity varies widely across metals mining depending on ore grade, depth, dispersion, recycling rate, and management, but tungsten and other rare earth elements may be among the more water-efficient metals to extract. Almonty Industries’ Sangdong tungsten mine in South Korea—a much smaller operation in terms of annual output—uses roughly 500,000 cubic meters of fresh water per year, a drop in the proverbial bucket compared to Central Asia’s agricultural water consumption. Cove Capital believes ore grades at Upper Kairakty and North Katpar may exceed those at Sangdong, potentially further reducing water requirements for tungsten processing.

If early exploration proves accurate, Kazakhstan could hold the third-largest rare earth reserves globally. The Kazakh government has signaled that it aims not only to mine rare earths but also to move up the minerals value chain. Studies estimate that developing rare earth processing capacity alone could add up to 7.1 percent of gross domestic product (GDP), on top of revenues from raw mineral production. Such investments could ultimately make mining more valuable than Kazakhstan’s oil and gas sector, which currently accounts for about 16 percent of GDP, compared to roughly 12 percent (around thirty billion dollars) from mining today. This additional revenue would be especially valuable for a country whose real GDP growth is expected to slow beginning in 2026.

Uzbekistan has also signed agreements with the US government to partner on mining investments with significant potential, particularly in tungsten and other rare earths. While the country’s mineral wealth has not been surveyed as extensively as Kazakhstan’s, Tashkent is investing billions of dollars in exploration it believes could unlock as much as three trillion dollars in total economic value. Achieving this ambitious target will depend on maximizing transparency during exploration and reducing investor risk through continued rule-of-law reforms—turning memoranda of understanding into bankable projects.

Turning mining revenues into modern water infrastructure

Both Kazakhstan and Uzbekistan should therefore pass favorable subsoil and export-tax legislation to attract investment. Astana and Tashkent should also work with EXIM and the US Development Finance Corporation to support investments in processing capacity tied to projects involving US investors. Given China’s dominance in critical mineral and rare earth processing, the US government has a strategic interest in facilitating regional processing capabilities alongside US mining investments.

Kyrgyzstan and Tajikistan also possess economically viable mineral resources, but uncertain regulatory environments and Chinese dominance in their mining sectors make large-scale Western investment unlikely in the medium term. Among the five Central Asian states, Turkmenistan may stand to gain the most from a water dividend—and could leverage its substantial natural gas revenues to fund smarter water conservation practices.

Most importantly, governments must reinvest new revenue streams in technologies that directly mitigate water insecurity.

First, agricultural irrigation infrastructure across the region is largely outdated and inefficient and should be replaced by modern systems to reduce water loss to seepage and evaporation. Efficiently collecting mining revenues and procuring water-saving technologies will require greater governmental agility and technical capacity.

Second, Central Asian states should explore increasingly efficient cloud-seeding technologies, pioneered in the United States and the Gulf, as a means of increasing precipitation in agricultural zones—particularly in steppe and mountain valley regions. Early studies suggest that localized cloud-seeding programs can increase precipitation by up to 15 percent per year. While some have raised questions about cloud seeding’s environmental impact, communities and local governments that employ cloud seeding have empirically found negligible risks.

Third, a region-wide water security strategy, backed by interstate conservation and infrastructure projects, is essential for long-term stability. For decades, competition over water and strained neighborly relations created a vicious cycle of mistrust and tension in Central Asia. That dynamic can be gradually reversed through people-to-people engagement and shared infrastructure projects designed to conserve and distribute water more effectively in service of regional welfare and stability—rather than narrow domestic interests.

Modernizing irrigation infrastructure is expensive but can be made affordable by diverting a modest share of future mining revenues. Experts estimate that Kazakhstan will spend $515 million on irrigation upgrades between 2026 and 2030. The proposed Cove Capital tungsten mine alone could eventually generate around $125 million in annual tax revenue, assuming production and price targets are met over its fifty-year lifespan. Cloud seeding in the west of the United States has repeatedly proven more cost-effective than water metering and other indirect conservation measures, and costs could fall further as companies such as California-based Rainmaker deploy drones to seed clouds more precisely.

Central Asia should leverage its vast mineral wealth to secure a net water dividend and reduce risks to regional security and stability. Trusted partnerships, high-quality investment, good governance, private-sector dynamism, and creative diplomacy will all be crucial to addressing the region’s escalating climate and water challenges. By maximizing shared benefits from mineral development, Central Asian states can transform mining revenues into long-term water security.

Andrew D’Anieri is associate director of the Atlantic Council’s Eurasia Center. Find him on X at @andrew_danieri.

The post Rare earth mining could solve, not worsen, Central Asia’s water troubles appeared first on Atlantic Council.

Now in its twenty-second year and boasting a roughly one-billion-dollar budget, the Millennium Challenge Corporation (MCC) is meant to be a vital pillar of this approach. I served as the head of the MCC this year, as the second Trump administration acted quickly to refashion the agency as a conduit for strategic grants to select nations. In contrast to the predatory debt traps laid by US rivals and adversaries, the MCC seeks to cultivate resilient, market-driven partners attuned to US goals. 

The Trump administration’s transformation of the agency this year, which I helped implement, took shape in two ways. 

First, the administration shifted the MCC’s internal evaluation framework for projects, prioritizing the return on investment (ROI) for Americans, strategic alignment with partner countries, and the use of compacts (larger partnerships) and threshold programs (smaller ones) to bolster US influence.

Second, the MCC advanced supply-chain resilience and better positioned the United States for competition with China and other rivals and adversaries. The MCC leveraged investments in allied African nations to diversify US supply chains for strategic minerals and resources, addressing export restrictions imposed by US adversaries. 

These efforts abroad pay dividends at home. For small-business owners, the MCC’s tactical investments should allow their goods to enter erstwhile untapped markets. With tariff barriers dropped in the foreign market and compatible standards and processes adopted, the approach is far more holistic than trade alone; rather, it is the forging of deeply embedded partnerships.

MCC’s targeted investments will unlock billion-strong export markets for American companies. In these markets, MCC investments are helping deliver thousands of miles of highways and megawatts of power infrastructure, directly mobilizing industries from manufacturers and automakers to agribusinesses, utilities, and beyond. US firms will gain market entry, furnish expertise, and forge public-private alliances. By working with the MCC’s industry and governmental partners, US companies can ensure alignments and matches ahead of time.

Going forward, this paradigm would increase American prosperity while thwarting adversarial encroachments. Consider the MCC’s $147 million Kosovo Energy Storage Project, which is projected to deliver an ROI for American taxpayers of 6-12 percent and will blunt foes’ ambitions in the Western Balkans, where China’s Belt and Road Initiative has invested heavily.

Exports propel US growth by scaling production, thus diluting unit costs at home. Liquefied natural gas exporters exemplify this: Expanded European and Asian demand spreads fixed costs, curbing prices for US consumers. Exports buffer domestic downturns, as evidenced by 2024 agricultural shipments to China ($24.7 billion) and Mexico ($30.3 billion). Global competition spurs innovation, enriching homegrown technologies. Moreover, exports erode the $918.4 billion trade deficit, bolstering economic vigor and furnishing the leverage to project American influence worldwide. 

Economic diplomacy is also among the United States’ most potent weapons to push back against adversaries’ efforts to dominate sensitive areas such as the Arctic and the Pacific. The MCC will operate in the South Pacific, in part to try to address China’s $3.55 billion in infrastructure incursions across fifty hubs, including ports, airports, fisheries, and smart grids. Programs in Fiji, Tonga, and the Solomon Islands will seek to assert US influence within island chains sitting atop critical naval corridors. The United States is thus not merely reacting to its adversaries; it is reshaping the geopolitical chessboard itself. 

Securing critical minerals—including rare-earth elements (REEs) vital for semiconductors, defense, and electronics—forms another pillar of the MCC’s statecraft. China dominates 90 percent of global REE refining and 70 percent of production, with recent export restrictions limiting US access. It therefore made sense for the MCC to actively seek access to these minerals, with the goal of reducing dependence on hostile nations and strengthening US supply chains. Imagine American factories, once stalled by scarcity, humming with steady mineral inflows for technological and security imperatives. 

The MCC’s work is designed to de-risk ventures globally, curating its selections to optimize exports, job creation, wage gains, and manufacturing alongside US energy independence. MCC’s infrastructure and artificial intelligence pursuits are meant to kindle innovation in American firms and sharpen the United States’ competitive advantage in any global contest. 

US economic statecraft is of course about more than just the MCC. From the Committee on Foreign Investment in the United States closely scrutinizing deals to the Treasury Department issuing sanctions to the Department of Homeland Security’s Forced Labor Enforcement Task Force investigating the integrity of supply chains, the renewal of US economic statecraft depends on the ability to weave these threads into a coherent and vibrant assemblage.

In a perilous era, investing in kindred spirits and trusting genuine allies can advance multigenerational prosperity in the United States by securing resources, hardening defenses, and cementing leadership. As the MCC ignites demand for US products overseas and helps keep Americans safe here at home, policymakers might consider these important lessons. 

Sohan Dasgupta, PhD, is an attorney who previously led the Millennium Challenge Corporation. 

The post Why the Millennium Challenge Corporation is vital to the future of US competitiveness appeared first on Atlantic Council.

This episode illustrates the true power of critical minerals. They now sit at the center of economic policymaking worldwide, with advanced economies racing to secure reliable access to the metals that power the modern global economy.

It is no surprise that the global race to secure long-term access to these resources is accelerating. The list of critical minerals is extensive—the latest US Department of the Interior assessment identifies fifty-four such commodities. But four of them stand out for their strategic value: lithium, nickel, cobalt, and graphite. These minerals are foundational to the future energy economy, in part because they form the core inputs of lithium-ion technologies that power electric vehicles, drones, grid storage, and modern electronics. At the same time, key nodes of their supply chains are highly concentrated. Securing access to these minerals is essential for economic competitiveness, national security, and the global energy transition.

Serious players in the critical minerals landscape specialize in at least one of three key assets—and the assets that these countries lack can present strategic vulnerabilities. One asset is access to reserves or mineral supply, either through geographic fortune or effective dealmaking with nations that host these resources. A second is processing capacity. While raw materials matter, true strategic advantage comes from the ability to reduce dependence on others to make use of those raw materials. And a third is strong export capability, which depends on having either an abundant supply, advanced processing infrastructure, or, ideally, both.

For the United States, the picture is mixed when it comes to the first key asset. But it isn’t as bad as many assume. While the United States holds significant geological potential for various critical minerals, it has not benefited from the same geological fortune in several essential deposits. Even where resources exist, production is frequently uneconomical, permitting processes are highly restrictive, and robust environmental standards further constrain the ability to scale extraction and processing. What it does have, however, is a strong capacity for strategic dealmaking. Both the Biden and Trump administrations have been notably successful in securing deals with countries with reserves. The chart below illustrates just how effective these efforts have been.

US efforts to secure access to lithium, nickel, and cobalt supplies have been largely successful. Countries shown on the graph in green represent those with active critical minerals agreements with the United States. Notably, those agreements include the $8.5 billion deal with Australia, a country that holds substantial reserves of key resources. In addition, the United States benefits from its long-standing free trade agreement with Chile—a major lithium producer. Although the free trade agreement does not explicitly address critical minerals, it makes Chile eligible for US tax credits. This preferential status means that Chilean lithium can enter the US market without additional tariffs, effectively making Chilean exports more cost-competitive.

The United States continues to lag in securing formal access to graphite, with no completed agreements so far and only ongoing negotiations with Brazil and a few African countries, including Mozambique, Madagascar, and Tanzania. Graphite remains especially challenging because China controls roughly 90 percent of global output—including extraction, processing, and exports.

However, the absence of a deal on graphite or any other mineral does not mean the United States is inactive on the ground in countries that host important reserves. The United States uses its development agencies, such as the Development Finance Corporation, to support private-sector deals, especially in Africa.

Of course, there are the other two critical components of supply-chain power: processing capacity and exports. Using lithium as an example, the chart below shows that reserves are relatively well distributed across the globe. However, processing capacity is not. Refining is almost completely concentrated in just two countries: China, which controls about 65 percent, and Chile, which holds roughly 25 percent. Processing capacity also directly shapes export power. While countries such as Australia can export large volumes of raw materials, the real value in the supply chain comes from exporting processed products.

Looking again at the four examples of lithium, nickel, cobalt, and graphite, their combined global market value in 2024, based on my calculations, was roughly $100 billion, about the size of Luxembourg’s gross domestic product. For comparison, the global oil and gas market that same year was valued at around six trillion dollars. I estimate that by 2030, the market value of these four critical minerals is projected to nearly double to $186 billion. That figure isn’t slated to catch up to oil and gas soon, yet critical minerals are gaining rapidly in their strategic significance. As the transition to a modern, electrified economy accelerates, their importance will only continue to grow.

To address its vulnerabilities, the United States must now focus on building and securing access to adequate refining capacity. In their analysis, my Atlantic Council colleagues—Reed Blakemore, Alexis Harmon, and Peter Engelke—highlight US vulnerabilities and offer concrete policy recommendations, such as designing trade and partnership strategies to ensure access, stability, and resilience when a fully domestic supply chain is unattainable. Whatever path the current administration chooses, it is clear that expanding global processing capacity remains a crucial—and currently missing—step in strengthening supply-chain control and export competitiveness. Fortunately, when considering the capacity of the United States’ partners and allies, the overall picture is far more promising.

A strong example of cooperation between the United States and its partners is the recent US-Saudi agreement, which includes a deal to establish a critical minerals processing facility in the Gulf. The joint venture—bringing together mining group MP Materials, the US Department of Defense, and Saudi Arabia’s state-backed mining giant Ma’aden—will focus on rare-earth processing, a segment of the supply chain still largely dominated by China. Looking ahead, expect more of these public-private partnerships as the United States works to strengthen its critical minerals ecosystem.

Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org.

The post On critical minerals, the US needs more than just supply. It needs refining power. appeared first on Atlantic Council.

Qatar’s partnership with the United States on CFT has improved markedly in recent years, with achievements that both countries can tout. Qatar has been part of the Terrorist Financing Targeting Center—a counter-illicit finance organization made up of the United States and six Gulf countries—since the center’s inception, designating financiers and facilitators associated with a host of terrorist organizations. Qatari authorities also took coordinated action with the United States in 2021 against a Hezbollah financing network—no small feat for a country that shares the world’s largest gas field with Iran.

Yet that CFT track record remains spotty. Qatar has hosted Hamas officials, including Khaled Mashal, for over a decade and allegedly failed to stop the Taliban from profiting handsomely from World Cup construction projects. The country has faced criticism for years that it creates a permissive environment for terrorists to store, use, and move funds.

The strength of any country’s CFT regime depends on both technical capacity and willingness. Despite its small size, Qatar has improved its technical capacity in recent years to work alongside the United States and others to identify and disrupt illicit finance. In 2019, for instance, Qatar passed a necessary overhaul of its anti-money laundering and CFT framework, bringing the country’s regime in line with international standards. But Qatar’s fiercely independent foreign policy, which the United States has at times used to its advantage, puts its willingness to cooperate into question at times.

Qatar’s hedging isn’t purely opportunistic, however. It’s partly a survival tactic. Wedged between Saudi Arabia and Iran, with a population smaller than most US cities, Qatar must maintain relationships with actors across the ideological spectrum to preserve its independence and strategic autonomy.

The same positioning that makes Qatar an imperfect partner on CFT and sanctions also makes it uniquely valuable as a diplomatic intermediary and strategic ally. Qatar hosts Al Udeid Air Base, the largest US military installation in the Middle East and a critical hub for US operations across the region. The country is clearly important for US security interests despite its complex diplomatic balancing act. Qatar also has facilitated Taliban negotiations that led to the US withdrawal from Afghanistan, hosted preliminary talks between the United States and Iran, mediated prisoner exchanges involving American hostages, and provided crucial back-channel communication with groups and countries that Washington cannot or does not want to engage directly.

This reality forces US policymakers to confront an uncomfortable strategic question: Is more consistent CFT cooperation worth losing one of the United States’ few channels to adversaries such as Iran and nonstate actors? The answer is likely no, but not at any cost.

The challenge for Washington is how to structure its partnership to maximize Qatar’s diplomatic utility while minimizing the impact on the United States’ highest priority CFT and sanctions concerns. Qatar made its name on the world stage precisely by being a platform for sensitive mediations and back-channel conversations with the United States’ most difficult adversaries. If Washington wants to preserve this unique asset to help navigate the most intractable foreign policy challenges, it may need to accept the tradeoffs that come with Qatar’s carefully calibrated independence. Tolerating permissiveness on CFT in exchange for diplomatic utility may be a bargain the United States is willing to strike when it comes to Qatar.

But US policymakers should also use this moment to reevaluate whether the current balance is serving the country’s foreign policy interests—and more clearly define and communicate CFT redlines for the United States, particularly related to groups such as Hamas. That will require meaningful thought as to what those redlines should be, or the United States risks continued ambiguity that has allowed Hamas’s Doha-based leadership to enrich itself. The United States should not be shy in making its expectations clear, especially considering the precarious Gaza ceasefire in place. While Qatar has made progress addressing some illicit finance risks, more could be done to push Qatari authorities to institute tighter controls to prevent money from being siphoned off for Hamas activities, increase investigations—with US cooperation—into the sources of Hamas funding, and limit the group’s ability to operate freely in Doha without repercussions.

Lesley Chavkin is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative and currently works at Ribbit Capital.

Related content

Econographics Jul 17, 2025

Charting a strategic path for Syria’s postwar reconstruction

By Kimberly Donovan, Jonathan Panikoff, Lize de Kruijf, Manal Fatima

As Syria emerges from over a decade of conflict, easing sanctions by the United States, the European Union (EU), and other European partners is an important step toward reintegrating Syria into the global economy. Yet, for a country that has been economically isolated for over fourteen years, lifting sanctions is only the beginning.

Economy & Business Financial Sanctions and Economic Coercion

Econographics May 23, 2025

Can the EU leverage economic pressure to broker a Gaza cease-fire?

By Lize de Kruijf

As diplomatic efforts falter, attention is turning to economic statecraft—the strategic use of trade and economic leverage to influence state behavior. The European Union (EU) and United States are Israel’s largest and second-largest trading partners, and any economic pressure they apply could have severe consequences for Israel’s economy.

Conflict Economy & Business

Econographics Jun 17, 2025

Anonymous shell companies pose a threat to US national security. Here is how to address it.

By Julie Brinn Siegel

On March 26, the Department of the Treasury scrapped critical federal rules that would have made most anonymous shell companies illegal. The rules would also have prevented them from being abused by drug cartels, human traffickers, foreign adversaries like Iran and China, terrorist groups, and other bad actors.

China Economy & Business

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post How the US can balance Qatar’s mediation role with the fight against terrorist financing appeared first on Atlantic Council.

Indeed, US stock indexes have taken a hit. Over the past two weeks, the S&P 500 fell 3 percent, while the tech-heavy Nasdaq dropped 4.4 percent—before rebounding on November 10 as the Senate moved to end the government shutdown. The decline has been attributed to a correction in stretched valuations of tech stocks, particularly the “Magnificent Seven”—including Apple and Nvidia. Many of these are trading at a price-to-earnings (P/E) ratio of well over thirty-five—substantially higher than the S&P 500’s P/E ratio of twenty-five, which is itself considered stretched.

Despite recent declines, however, the S&P 500 still shows a 15 percent year-to-date gain and the Nasdaq is up 20 percent. Against this background, many observers view the correction as healthy, helping to prevent even more extreme overvaluation that could trigger a major crash. In this context, it is arguably more important to monitor stress in the US dollar funding markets, which could pose risks to investors and investment strategies reliant on abundant dollar funding at relatively low interest rates.

Pressures in repo markets could spell trouble

In its effort to normalize monetary policy, the Fed has reduced its balance sheet over the past three years, cutting Treasury holdings through quantitative tightening to about $6.3 trillion as of October 2025. Meanwhile, the US Department of the Treasury has raised its cash position to nearly $1 trillion in Q4, pushing reserves of US banks at the Fed down to $2.8 trillion—the lowest level since 2020. These developments have contributed to mounting tightness in the repo markets, which reached a gross size of $11.9 trillion in 2024. This tightness, in turn, has pushed the Secured Overnight Financing Rate (SOFR)—a benchmark for borrowing against Treasury securities—well above the Interest on Reserves Balances (IOEB), currently at 3.9 percent. The IOEB is usually considered the ceiling for overnight rates. The SOFR-IOEB spread has recently been the widest since 2020, while use of the Fed’s Standing Repo Facility—which allows eligible institutions to borrow cash against Treasuries as collateral—has climbed to its highest level since its permanent introduction in July 2021.

As the repo market is a key source of US dollar funding for banks, money market funds, and hedge funds, these developments could spell trouble. Rising repo rates could undermine the cost-benefit calculus behind many of those institutions’ investment strategies.

For instance, hedge funds have increasingly relied on the repo market to fund basis trades—shorting Treasury futures while going long Treasury cash to take advantage of small price movements using significant leverage. Gross short Treasury positions have surged from $200 billion in 2022 to roughly $1.3 trillion today. Rising repo rates could trigger losses, forcing hedge funds to unwind trades and fire-sell US Treasuries used as collateral, putting downward pressure on Treasury prices and potentially having a destabilizing effect on financial markets and the broader economy. As highlighted by the International Monetary Fund, the growing interconnectedness between banks and non-bank financial institutions, such as hedge funds, amplifies contagion risk.

Stress in dollar funding markets also affects non-US banks, which held more than $15 trillion in dollar-denominated assets in 2022. More than 40 percent of non-US banks’ wholesale funding is dollar-denominated, typically short-term, and reliant on frequent rollovers. Without a stable retail dollar funding base, these banks depend on wholesale markets—including repo and currency swap markets—which are less stable.

European and Japanese banks, in particular, have become increasingly dependent on dollar funding, as they have increased their US dollar assets to offset weak domestic loan demand amid slow economic growth. As a result, the dollar funding of European banks has risen to 14.1 percent of total funding in 2024, up from 13.4 percent in the previous year, while Japanese banks’ account for 30 percent of their total liabilities.

Uncertainty around the Fed could fan the flames

Given their systemic importance, stress in the US dollar funding markets can transmit rapidly across borders. Historically, the Fed has stabilized dollar funding crises by injecting liquidity, including via currency swap lines with select foreign central banks. This strategy was employed during the 2008 global financial crisis, the COVID-19 pandemic in 2020, and the 2023 US regional bank crisis.

Financial market participants have thus come to expect the Fed to act as a last-resort stabilizer. However, under the current administration’s “America First” mindset—and amid US President Donald Trump’s pressure on the Fed to align with his policy agenda—a degree of uncertainty has grown about its response in a future global crisis.

In the end, the real risk to investors and the global financial system may not lie in recent stock market swings, but in the combination of tightening US dollar funding conditions and concerns about the reliability of the world’s most powerful central bank stepping in when it matters most.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center, a senior fellow at the Policy Center for the New South, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

The post Yes, tech stocks have taken a hit. But the real danger lies elsewhere. appeared first on Atlantic Council.

The chart below shows an estimate of how much ODA could be lost from the 2023 baseline, if Group of Seven (G7) countries go through with their promised funding cuts.

Major providers of ODA have announced cuts to aid spending for 2025 and beyond. 2024 marked the first time that the United States, the United Kingdom (UK), France, and Germany have all cut aid at the same time in nearly thirty years. As a result, the Organization for Economic Co-operation and Development estimates that ODA decreased by 9 percent in 2024 and could fall by as much as 17 percent in 2025.

Meanwhile, the current US administration has endorsed an approach to development investment that is more geopolitical and transactional. To achieve its strategic goals, the United States should seek to reform or empower domestic development finance institutions (DFIs), instead of abandoning the framework entirely. Washington has existing development agencies and expertise that have helped to deliver economic gains globally and would lend themselves to facilitating and implementing new investment. Specifically, blended finance is instrumental in fulfilling bilateral deals to secure critical supply chains or promote US industry abroad.

Funding cuts aren’t the only trend affecting development finance

Pulling back funding from traditional donors has been the main driver of recent declines in ODA. With growth slowing down and shrinking fiscal spaces, donor countries are reprioritizing their spending priorities. Across the board, there have been reductions in contributions to international organizations, lower levels of humanitarian aid, and reduced spending on hosting refugees in donor countries.

For example, the chart above captures the changes in a few key countries. The United States dismantled USAID in January, cutting billions of dollars of global aid overnight. France and Germany have also decreased aid budgets and placed a series of existing programs under review. In the UK, Prime Minister Keir Starmer intends to decrease the foreign aid budget from the current rate of 0.5 percent of gross national income to 0.3 percent by 2027, citing the need to increase defense spending.

In October, the Atlantic Council hosted the president of the European Investment Bank (EIB), Nadia Calvino, and she reiterated the EIB’s commitment to financing climate transition, furthering gender equality, and assisting with Europe’s defense build-up. While she shared the important continuities in the EIB’s mission, she also highlighted that the development finance landscape has been changing for years now.

Retrenchment from traditional donors is just one trend in the evolution of global development policy. The DFIs have been adapting to fewer large-scale infrastructure loans, increased involvement from the private sector, and the emergence of “middle-power” lenders—namely China. In recent years, traditional lenders have also prioritized geopolitical interests when making decisions about development finance. 

Geopolitical interests shouldn’t supersede effective development principles

Major ODA providers have increasingly started to look at development finance through the lens of strategic competition and move from aid to investment. The proliferation of China’s Belt and Road Initiative helped to spur political will in the United States and G7 allies for the Global Gateway Initiative and the Partnership for Global Infrastructure and Investment (PGII). BRICS countries have created their own new development finance institutions, such as the New Development Bank. At the Atlantic Council GeoEconomics Center, our experts wrote about a framework for positive economic statecraft in 2023 and have continued to work on how this could be operationalized to meld development goals with national security.

However, the current US administration has leaned away from the principles of effective development aid. Its “America First” policy reframes foreign assistance as more transactional, focusing on trade and bilateral investments and taking a step back from issues such as climate transition and poverty reduction. The US-Ukraine Reconstruction Investment Fund, commonly referred to as the US-Ukraine critical minerals deal, is reminiscent of the resource-for-infrastructure deals that China popularized in Africa, which received extreme criticism for their extractive nature. The $40 billion in support for Argentina marks an unprecedented, unilateral move by the United States. When the IMF provides bailouts, the programs include certain stipulations for improving economic stability. US support to Argentina seems to, instead, be contingent on President Javier Milei’s party staying in power. These US policies should prompt a reckoning from other actors about how geopolitics can or should fit into the development sphere.

Donor countries benefit from continuing effective development assistance. More stable economic environments globally facilitate sustainable investment deals in infrastructure and more. G7 initiatives, such as the Global Gateway or PGII, can’t compete with China in terms of lending volume, but they offer a value proposition of rigorous impact evaluation and development best practices to help countries avoid debt traps and maintain long-term financing. In the October editions of the World Economic Outlook and the Global Financial Stability Report, issues such as climate change or gender equality were barely mentioned, but these remain important considerations to achieve sustainable and equitable global development.

The United States should seek to meld strategic investment objectives with long-term development goals to achieve sustainable changes in the global economy. Blended finance represents an entry point for the administration to leverage existing agencies to achieve strategic goals.

Blended finance can be leveraged to deliver on strategic investment promises

Public-private partnerships—or blended finance—have become a popular area of interest for delivering critical public infrastructure. The World Bank estimates that the infrastructure funding gap is around $1.5 trillion annually, and the use of private capital is crucial to address this gap so that countries can optimize already scarce public funds.

Blended finance helps to crowd private capital into development projects by mitigating investment risk. This strategy is not without its pitfalls. But given the immense development financing need and shrinking ODA, blended finance is a critical tool for creating funding opportunities. DFIs can help coordinate investment instruments and mechanisms, such as risk guarantees, project insurance, syndicated loans, or equity instruments, which have proven especially useful in emerging technologies and when promoting first movers. In the past, the United States and G7 allies have successfully leveraged public-private partnerships to compete with Chinese lending and to further both strategic and development goals, such as with the Lobito Corridor.

If the current administration is serious about using foreign investment to benefit US industry and secure critical supply chains, it should reengage more with existing US development agencies, such as the US International Development Finance Corporation (DFC), the Millennium Challenge Corporation, and the US Export-Import Bank. Considering the immense coordination challenges of implementing strategic development projects, the administration would benefit from properly supporting these organizations to help realize investment in more challenging countries.

By empowering the DFC, for example, the United States could utilize existing capacity for private sector engagement to fulfill bilateral promises for new investments. DFC reauthorization has been included as an amendment in the National Defense Authorization Act for 2026, which was passed through the Senate last month. This reauthorization process should be seen an opportunity to reform the DFC so that it is equipped to actually implement deals, such as the US-Ukraine Reconstruction Investment Fund.

Given the United States’ massive budget deficit, the Trump administration’s approach to strategic development investment cannot succeed without the effective coordination of private capital to funnel money into sustainable projects. And infrastructure projects that align with national development agendas are more sustainable in the long run for host countries and investors.

The world is undergoing a period of great changes in the global economic order, and development finance is a part of this puzzle. As the current Trump administration seeks to reshape the global trading system, development institutions are also finding their footing in this era of competitive geoeconomics. In the process, it is important to remember that effective development agendas have helped to lift billions of people out of poverty. The United States shouldn’t forsake its track record of development assistance when existing tools can be leveraged for current strategic interests.

Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Without development finance, the United States can’t deliver on strategic investment appeared first on Atlantic Council.

However, Beijing holds dry powder it has not yet deployed. China supplies most critical drug ingredients to the United States and ranks as the nation’s second largest source of finished critical pharmaceuticals. Despite deep distrust, US dependence on Chinese pharmaceuticals is growing.

The Trump administration’s ongoing investigation into pharmaceutical supply chain risks could reduce this dependence. Yet the one-year trade truce may delay implementation. And tariffs alone will not work. A third of generic active pharmaceutical ingredients (APIs) come from sole suppliers—many of which are in China. Without competition, these monopolists will raise prices rather than relocate. Washington must use the next year to negotiate pharmaceutical sector trade deals, replicating its critical minerals approach.

China’s pharmaceutical monopoly

China is the United States’ largest foreign supplier of critical pharmaceutical inputs by volume (39.9 percent of imports in 2024) and second largest source by value (16.8 percent). China employs distortive policies to achieve dominance across APIs, key starting materials (KSMs), and auxiliary chemicals. In 2008, Beijing designated pharmaceuticals a “high-value-added industry” and established subsidies and export incentives. Lax environmental protections and the world’s largest chemical industry have also let Chinese manufacturers undercut global competitors.

China holds near-monopoly control over certain critical pharmaceutical ingredients. One in four imported drug inputs comes from product categories where China controls at least three-quarters of US imports. For one in ten critical inputs, China’s market share exceeds 99 percent. The API for sulfonamide-class antibiotics—used to treat type 2 diabetes, high blood pressure, and HIV/AIDS—exemplifies this dependence, with nearly all US imports originating from China.

Chinese firms are even more dominant in the upstream components for APIs. Forty-one percent of key starting materials—the chemical building blocks used for API synthesis—come from China. China controls critical KSMs for major drug categories, including antibiotics. China also holds near-monopolies on essential auxiliary chemicals, including reagents and solvents for API synthesis. These upstream concentrations create obscure risks. Focusing on API suppliers while ignoring KSM and auxiliaries is like tracking bullet manufacturers while ignoring gunpowder suppliers.

Finished pharmaceuticals tell a similar story. While Mexico is the United States’ largest supplier by volume, China remains a key source of generics and bandages. In 2024, the United States relied on China for 99 percent of imported prednisone, a powerful anti-inflammatory; 92 percent of penicillin and streptomycin antibiotics; and 94 percent of first aid kits.

The risk extends to research and development. Beijing is building a formidable drug discovery engine by designating pharmaceuticals a strategic industry, showering the sector with state support. The results show in drug development pipelines. China leads the world in clinical trial starts and, in 2024, large pharmaceutical companies sourced nearly a third of external drug candidates from China. While China’s portfolio remains overweighted toward “me-too” molecules—refined versions of existing drugs—Beijing is prioritizing original, first-in-class (FIC) drugs. In 2024, China accounted for 24 percent of the world’s FIC drug pipeline, trailing only the United States.  

Three risks from China’s drug dominance

Overreliance on Chinese imports and innovation threatens US public health resilience in three ways: coercion, disruption, and capability loss.

China could leverage control over US drug supply chains during a major geopolitical conflict, like a trade war. China’s 2020 Export-Control Law and 2021 Biosecurity Law grant broad authority to weaponize pharmaceutical exports. Blanket bans, like the rare earth controls, are unlikely. Even the rare earth restrictions include carveouts for medical use. Still, Beijing could threaten pharmaceutical leverage during trade disputes. More worryingly, China could target the US military. A 2023 Pentagon study found that 27 percent of military drug purchases depend on China. Though unlikely, Chinese pharmaceutical coercion is a “nuclear option.”

Even without deliberate coercion, concentrated Chinese production creates acute vulnerability to accidents and policy shocks. When Shanghai locked down during the COVID-19 pandemic, GE Healthcare’s plant—which supplied 80 percent of the world’s iodinated contrast media—went dark. Hospitals worldwide rationed diagnostic imaging for ten months until production recovered. When a single facility or region controls global supply, any disruption—from disease, natural disaster, or manufacturing failure—can cripple the system.

The third risk extends beyond supply chains to future drug development. As Chinese firms climb the value chain, dependence shifts from manufacturing capacity to innovation capabilities. Last year’s record $41.5 billion in China-to-West licensing, a 66 percent jump from 2023, exacerbates risks of competitive erosion. Drug deals originating in China siphon revenue from US domestic research. Western teams lose essential skills as Chinese partners control trials and scale up for advanced therapies like bispecifics, mRNA, and CAR-T cell therapy. The semiconductor industry offers a stark warning. The United States let chip fabrication move offshore, lost critical process expertise, and is now spending hundreds of billions to rebuild what it surrendered. The pharmaceutical industry cannot repeat this mistake. Sustaining domestic drug discovery ensures the United States maintains technical capabilities for long-term scientific leadership.

Two tools to break China’s grip

Washington needs both protectionist and promotional policies to secure US pharmaceutical supplies. Section 232 tariffs on imports could push some API production out of China. US import rules treat the API source as the drug’s country of origin—even if another country completes final manufacturing. An Indian-made drug using Chinese APIs pays the Chinese tariff rate. Tariffs could be especially potent as China expands domestic manufacturing, dissuading downstream producers in India, Mexico, and the European Union (EU) from integrating Chinese production.

However, tariffs can’t break a monopoly. A third of generic APIs come from sole suppliers, including many across China, which face no competitive pressure to relocate. For many generic drugs, returns on new production facilities are too low and uncertain to bypass China. Firms may instead pass costs on to consumers, cut quality, or discontinue production. Beijing also understands its leverage as the global pharmacy and is defending market share by flooding countries with below-cost exports to cripple alternative suppliers. 

These dynamics require promoting domestic and allied production through sectoral trade arrangements. Washington’s recent critical mineral deals provide the template. Joint strategic stockpiles, price-support mechanisms, and targeted financing to accelerate production could strengthen medical trade and supply chain resilience among the EU, India, Mexico, and the United States while reducing their collective dependence on Beijing. Unlike tariffs, which cannot stop intellectual property flows, a pharmaceutical trade arrangement could include incentives to support US and allied research ecosystems.

The United States’ pharmaceutical dependence on China is a critical vulnerability. Beijing controls 40 percent of imported drug ingredients and holds monopolies on essential medicines. A one-year trade truce gives the United States runway to break this dependence. Washington must use that time wisely.

Methodology

Calculating pharmaceutical supply chain market share requires discretion and results in variability across estimates. Similar analysis differs in the unit of measurement; conflicting definitions of finished doses, APIs, KSMs, and other inputs; blending of up and downstream products; and extrapolations or mischaracterizations of China’s role in Indian supply chains. For a detailed analysis of the implications of different analytical choices, see Marta E. Wosińska and Yihan Shi’s Brookings paper surveying different estimates of US drug supply chain exposure to China.

This piece relied on the US Department of Commerce’s list of critical goods and materials to define inputs and final goods. Commerce defined inputs to include APIs, KSMs, auxiliary chemicals, and other feedstock essential to pharmaceutical production. Final goods included drugs, vitamins and supplements, and medical supplies. Notably, the Commerce Department’s list of critical final pharmaceuticals excludes certain, finished pharmaceutical products. For all pharmaceuticals (defined as HS 30), China’s share of US imports in 2024 was 13 percent by volume and 4 percent by value.

Unless otherwise noted, calculations were based on the author’s analysis of the Commerce Department’s list and US trade data regarding volume of trade. Volume-based exposure better captures supply risk because Americans mostly use cheap generic options, not expensive branded drugs.

Niels Graham is a contributor at the Atlantic Council and former policy analyst at the US-China Economic and Security Review Commission. He previously served as an associate director at the Atlantic Council GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Pharmaceuticals are China’s next trade weapon appeared first on Atlantic Council.

But this is not what observers should focus on most this week. Instead, it’s worth closely watching for a hint of what is happening behind closed doors. There, conversations will focus on the few areas for which the two institutions still enjoy the support of their major shareholders—not the least because the IMF’s and World Bank’s considerable financial resources look ever more appealing to finance ministers who are running out of fiscal space at home.

The United States and the IMF

To begin with, most delegations will be keenly interested in Washington’s relationship with the Bretton Woods twins. US Treasury Secretary Scott Bessent signaled support for the institutions at the spring meetings this year, recently firmed up by the US intervention in the Argentine peso. But while policymakers may talk of partnership, the power asymmetry within the IMF remains evident.

There is a possible upside to greater US engagement—including improved cooperation on major lending cases and a push for the IMF to strengthen its surveillance arm, a core mandate much neglected in recent years. Similarly, the United States could collaborate with the two Bretton Woods institutions to ensure that countries meet their loan conditions, enabling timely repayment. The administration might even convince Congress to ratify the 2023 quota increase, shifting the fund’s finances to a more permanent capital base.

But there is also a risk. Already reeling from the dissolution of the US Agency for International Development, many delegates are bracing for US demands to cut climate and, perhaps, development programs at the IMF and World Bank, which could lead to substantial friction with emerging market and developing countries. Moreover, there are concerns that the United States could politicize both lenders’ loan operations, exposing all shareholders to the risks of misconstrued lending programs.

China’s position in the IMF

It will also be interesting to see how China’s position vis-à-vis the Bretton Woods institutions is evolving. The IMF has begun to take a firmer line on China by pointing at a significant exchange rate depreciation ahead of the annual meetings, and it has also published a paper on the hidden costs of China’s industrial policies. This introduces some overdue realism to the IMF’s analysis, but the question is how China will react if it senses a major shift in the previously benign analytical work of the institution.

Beijing is unlikely to complain about this openly, but its frustration with stalled governance reform—including a freeze on quota shares, limiting China’s voting power—will continue to simmer beneath the surface. It may feel vindicated by further building up its alternative lending framework (consisting of project loans and renminbi swap lines), and it may take a hard line on debtor countries with dollar or euro obligations. Both institutions will need to resort to skillful shareholder diplomacy while preserving their analytical integrity.

Lending to Argentina and Ukraine

IMF shareholders may also be concerned about recent developments in Argentina. The government is caught between a possible resurgence of inflation and weak growth prospects, as long as the ruling coalition lacks a strong congressional majority. In the case of political dysfunction, Argentina may eventually fail to service its growing multilateral and US debt burden, which could complicate the IMF’s position as a senior creditor if worse comes to worst.

Ukraine represents a different but equally complex test. Even as military support continues, the budgetary gap into next year is becoming more visible. Continuing the lending program will require additional financing assurances, a discussion that is linked to the legally fraught use of frozen Russian assets. Otherwise, the countries that formed the Group of Creditors to Ukraine in 2023 to facilitate the program may eventually be on the hook for additional contributions to help Ukraine repay the IMF.

Internal dynamics and reform

And then there is the question of internal reform. Both institutions face staff and budget pressures but are under renewed scrutiny to deliver measurable results in an era of rising skepticism toward multilateralism. The World Bank has already announced a reorganization of some functions across its different lending arms, and the IMF, whose staff has grown over the last five years, will likely come under pressure to unwind the recent buildup in non-core functions.

To sum up, expect few major announcements this week. There will be important closed-door meetings, however, that are likely to set the course for the Bretton Woods institutions for the next few years.

Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades of experience in crisis management and financial diplomacy.

The post Expect IMF-World Bank meeting debates over China, the US, Ukraine, and more—behind closed doors appeared first on Atlantic Council.

At these annual meetings, the IMF and the World Bank will face five important issues, which span both near-term economic prospects and more fundamental, longer-term challenges confronting the global economy.

1. Navigating growth—and inflation

Recent data show a rather resilient global economy, particularly in the United States. Despite concerns about rising tariffs and ongoing uncertainty, economic activity has held up since the second quarter of the year—so much so that 2025 gross domestic product (GDP) growth estimates have been recently revised upward, to 3.2 percent globally (according to the Organisation for Economic Co-operation and Development) and 2.5 percent for the United States (according to Goldman Sachs). Stock markets have also performed well, with the MSCI World Index posting a 14.3 percent return year-to-date, roughly matching the S&P 500’s 14.4 percent, though a price-to-earnings ratio of thirty (compared to a long-term average of nineteen) suggests the market valuation could be stretched. Global inflation has slowed noticeably, from 5.67 percent in 2024 to an estimated 4.29 percent this year. In the United States, the consumer price index growth rate fell from 3 percent in January to 2.3 percent in April, before rebounding to 2.9 percent in August.

But this resilience may not last. Evidence suggests that the good performance of the global economy and stock markets has been narrowly based, driven by a handful of high-tech corporations (the so-called Magnificent Seven) pouring money into artificial intelligence (AI) hardware, software, and data centers. In fact, according to JP Morgan Asset Management, AI-related capital expenditures have accounted for 1.1 percent of the 1.6 percent GDP growth in the first half of 2025. Such intensive investment could prove unsustainable, and a slowdown could ripple through the broader economy and stock markets. Meanwhile, US importers are likely beginning to pass more of the costs of tariffs onto retail customers, driving up consumer prices. If new tariffs keep coming, that would sustain the inflation process going forward.

It is up to the IMF to present a convincing analysis of the economy’s vulnerability to concentration risk (dependence on AI related activities) and the likely delayed effects of rising tariffs, which boost the likelihood of mild stagflation in the near future, especially in the United States; it is also up to the Fund to advise countries to adopt policies to mitigate this risk. This could be a challenge, especially when major economies can point to decent economic performance so far this year and may feel complacent.

2. Managing the “dual shock”

Many countries are currently grappling with a “dual shock”: rising US tariffs on one hand and China exporting its industrial overcapacity on the other. In response to declining shipments to the United States, China has redirected exports to third countries, which is set to boost its overall trade surplus to a record $1.2 trillion this year. Put simply, after helping to hollow out the US manufacturing base, Beijing is now starting to do the same to other economies—including Europe and emerging markets that rely on a manufacturing-for-export growth model. These countries are increasingly squeezed by US protectionism and Chinese mercantilism.

How will the IMF guide its members? Will it encourage a “back to basics” approach, based on mutually beneficial policies that reduce external and fiscal deficits, promote free and largely balanced trade, and create growth opportunities for developing countries? Or will it focus on designing second-best solutions—in response to the problems that its two largest member states are creating?

3. Doubling down or easing off on Argentina?

In a scene of déjà vu, the IMF is once again dealing with Argentina’s socioeconomic crisis—shortly after the institution approved its twenty-third assistance package to the struggling nation in April. The twenty-billion-dollar loan comes on top of the $43 billion that Argentina still owes, making the country the largest lending risk exposure of the IMF. President Javier Milei has managed to turn a 5 percent fiscal deficit in 2023 into a 0.3 percent surplus in 2024, and he has reduced annual inflation from nearly 300 percent in early 2024 to under 40 percent today. Argentina’s GDP growth is projected to reach 5.5 percent this year. Yet, Milei’s coalition just suffered a major defeat in an election in Buenos Aires ahead of the midterm polls in late October, shaking investor confidence and triggering a sudden run on the peso, which remains overvalued when adjusted for inflation.

It is not clear how the IMF will deal with the unfolding currency crisis. Will it change its conditionality on the Argentina program to make it more socially and politically sustainable? Or will it double down on the current program, especially given the United States’ promise of a twenty-billion-dollar currency swap line to support Argentina?

4. Dealing with the US administration’s agenda

In line with the Trump administration’s call to the IMF and World Bank to focus on their core missions, the institutions have toned down references to their activities regarding climate change, gender equality, inclusive growth, and sustainable development. It’s unclear, however, whether that will satisfy the United States—or whether Washington will push for even greater compliance with its agenda. 

A key question is how the World Bank will respond to US pressure to “graduate” middle-income countries from World Bank borrowing and end lending to China altogether. It also remains to be seen how Daniel Katz, recently approved by the IMF Executive Board to be first deputy managing director, will navigate his new role. Katz, who served as chief of staff to US Treasury Secretary Scott Bessent, has argued that the United States should work to limit China’s role at the IMF and the World Bank—a stance that closely mirrors the administration’s position.

5. Improving the sovereign debt restructuring process

Finally, the IMF and the World Bank have an opportunity to improve the sovereign debt restructuring process. Building on progress in the Global Sovereign Debt Roundtable, the IMF and World Bank should encourage parallel negotiations between debtor countries and their creditors—both official and private lenders—rather than sequential talks. Acting as an honest broker and providing necessary information to both negotiating groups, the IMF could help reduce delays and facilitate timely and fair restructuring agreements.

Participants and observers will closely follow this year’s annual meetings, including these five important issues. Doing so will help them better understand how the United States will continue to interact with other countries in the multilateral setting of the Bretton Woods institutions.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a senior fellow at the Policy Center for the New South, a former executive managing director at the Institute of International Finance, and a former deputy director at the International Monetary Fund.

The post From US tariffs to Argentina’s crisis: The five important issues at next week’s IMF-World Bank Annual Meetings appeared first on Atlantic Council.

But the economic reality is very different than the face China presents to the world, and the latest statistics describe a country mired in a slowdown. The numbers show that efforts to juice the economy late last year have failed to stimulate sustained recovery.

Consumption growth as measured by retail sales fell last month to the slowest pace this year, up only 3.4 percent from August 2024, and compared with a 6.8 percent increase in June of this year. This is despite efforts the government has made to boost consumer spending, including by providing subsidies for trade-in purchases of cars and appliances. As funding to the provinces for the subsidies has been exhausted, retail sales have lost momentum.

Factory and mining output also decelerated last month, posting the smallest gain since August 2024. Fixed-asset investment in the first eight months of the year dropped steeply to a gain of less than 1 percent. Some of the slowdown in production and investment may reflect Beijing’s efforts to strong-arm companies into reducing the price cuts and overproduction that are exacerbating the economy’s problems. Either way, Chinese demand is nowhere near enough in the best of times to meet the country’s high levels of factory production, and these goods are being exported.

There is no escaping the fact that China is struggling to address structural weaknesses that defy simple solutions. For example, in the real estate market, the decline of new home sales and prices for new and preexisting homes accelerated in August. With the real estate sector trapped in a four-year crisis of oversupply and developer bankruptcies, local governments facing a mountain of debt, and consumers tightening their belts as unemployment rises, the government’s reliance on industrial investment amid the downturn is coming home to roost. Beyond oversupply and price cutting, trade tensions with Washington, which have seen China’s exports to the United States fall at double-digit rates for the past five months, exacerbate the problems underlined by the most recent economic indicators.

While China claims “strong resilience” as growth supposedly hits this year’s target of about five percent, the headline numbers—whether accurate or not—don’t capture the state of the economy. Youth unemployment is high and job opportunities are disappearing, with over 80 million people trapped in the gig economy. Many Chinese are losing hope of a better life, especially for their children. The latest economic indicators will inevitably produce another round of speculation about new stimulus measures. But Beijing’s recipe of small interest rate cuts, targeted consumer subsidies, and regulatory changes to boost housing haven’t addressed the underlying problems so far. For the moment, its immediate spending priority appears to be to devote billions of dollars to reducing local government debts. In the meantime, when Xi gets on the phone with Trump, he no doubt will continue to claim that everything is hunky dory.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post China’s economy remains trapped in the doldrums appeared first on Atlantic Council.

Regardless of how the Supreme Court rules, the case will shape US economic policy for years to come—and its effects will reach far beyond tariffs. After all, IEEPA serves not only as the legal foundation for most sanctions but also underpins other recent tools of economic statecraft such as the outbound investment program, data security restrictions, and controls on information and communication technology.

A tough call for the Supreme Court

A threshold question for the Supreme Court will be how much deference to give the president in matters of foreign affairs and national security. The court’s conservative majority is typically reluctant to second-guess executive power in these spheres, particularly when Congress has delegated authority to the president under a sweeping law like IEEPA. In that sense, invalidating Trump’s tariffs—a cornerstone of his 2024 campaign—would represent an unusually high-profile rebuke of the administration.

At the same time, upholding these tariffs could be viewed as a dramatic expansion of presidential power, allowing future presidents to sidestep Congress on the pretense of a national emergency. Trump’s aggressive use of IEEPA has faced challenges before. For instance, several courts rejected the first Trump administration’s broad ban on the Chinese social media platforms WeChat and TikTok under IEEPA, rebuking the executive branch’s interpretations of the law. In fact, the Supreme Court—with its landmark decision in Loper Bright Enterprises v. Raimondo, which upended long-standing “Chevron deference” to agency interpretations of statutes—has signaled that the executive’s broad statutory interpretations may face serious limits. Even if the court upholds Trump’s tariffs, these cases create a roadmap for future plaintiffs to challenge policies justified under IEEPA.

The tariffs will remain in place—for now

Several factors should give the Trump administration reason for optimism, though. For one, the Federal Circuit’s decision was far from unanimous: Four judges dissented, arguing that IEEPA “embodies an eyes-open congressional grant of broad emergency authority.” Although they agreed with part of the lower court’s reasoning that a president’s determination of an “unusual and extraordinary threat” should not escape judicial scrutiny, they held that Congress drafted IEEPA broadly to empower decisive presidential action in foreign affairs—a view some Supreme Court justices might share.

Moreover, Congress—while able to seriously limit the president’s tariff powers, as proposed in the Trade Review Act of 2025—could also choose to expand them (a request Trump made in his 2019 State of the Union address). Specifically, it could expand presidential authority under IEEPA, as it did recently by extending the statute of limitations from five to ten years. Although Congress passed IEEPA to rein in presidential emergency powers, the executive’s authority under the law has steadily increased. Congress’s procedural checks on the president under IEEPA have become pro-forma exercises that attract little attention or debate.

And even in a scenario in which the Supreme Court finds that the administration’s broad interpretation of its authority under IEEPA is an overreach, it is far from game over for Trump. He would still have plenty of other legal avenues at his disposal to enact tariffs—including Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962—though procedural requirements may blunt their immediate impact.

National battles, international stakes

No matter the outcome of the tariff tussle, a larger truth persists: The tools of US economic power are only as effective as the legal and financial frameworks that support them. How the Supreme Court rules could shape not only Trump’s tariffs but also US influence in an increasingly competitive global economy. For a country that has relied on economic warfare for decades to fight some of its most important geopolitical battles, legal uncertainty poses a significant challenge. Success in this arena depends on primacy in international finance, technology, and trade. Especially at a time when US competitors are seeking to redraw the global trade map, effective economic statecraft—including sanctions, export controls, and investment restrictions—has never been more critical.

Fortunately, the United States still has plenty of economic juice left in the tank to succeed in a more transactional and weaponized global economy. That gives a new generation of US leaders the chance to make a case to the American people—who will pay the price for such measures— that more rules are needed for the future of economic warfare.

Stephanie Connor is a contributor with the Atlantic Council, a former senior official with the Office of Foreign Assets Control, and a current partner at Holland & Knight LLP.

Related content

Mar 12, 2025

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

New Atlanticist Aug 26, 2025

Trump’s economic agenda is set to collide with the Supreme Court

By Josh Lipsky

The court will likely have to weigh in on both the president’s use of emergency powers and his escalating war with the Federal Reserve.

Economy & Business Politics & Diplomacy

New Atlanticist Jun 16, 2025

Did Trump effectively nationalize US Steel with his ‘golden share’?

By Sarah Bauerle Danzman

The Atlantic Council’s Sarah Bauerle Danzman delves into the details of the recently finalized deal between Nippon Steel and US Steel.

Economy & Business Japan

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post The Supreme Court’s decision on Trump tariffs will have lasting impact on US economic statecraft appeared first on Atlantic Council.

Still, the Fed faces significant political pressure from the White House, in part reflecting the president’s frustration with an economy that’s weaker than the one he inherited in his first term. In 2017, inflation, unemployment, and interest rates were all lower than today’s projections for 2025. In fact, Trump’s first year in office brought lower inflation and unemployment than the first year of any US president since 1977.

Balancing “maximum employment” and price stability

For the Fed, Trump’s push for lower rates is particularly challenging, because—unlike most other central banks—it operates under a dual mandate. It has a legally binding obligation to achieve both price stability and maximum employment, understood as the highest level of employment the economy can sustain without incurring unwanted inflation. For the United States, that generally means 4 to 5 percent unemployment, with a target of 2 percent inflation.

This unique mandate could put the Fed in an even tougher spot in the coming months. Currently, the employment component of the mandate is allowing it to lower rates sooner than previously expected. At Jackson Hole last month, Federal Reserve Chair Jerome Powell hinted at a September rate cut, citing a “slowing in both the supply and demand for workers.” However, if unemployment and inflation continue to rise—which some economists warn may happen due to trade wars—the Fed will have to balance the job market, price stability, and mounting political pressure.

Labor market signals complicate the Fed’s decisions

Congress added the maximum-employment mandate to the Federal Reserve Act in 1977—a move prompted by the painful economic lessons of stagflation. A year later, President Jimmy Carter signed the Humphrey-Hawkins Act, which reinforced the goal of full employment.

At the beginning of September, the Bureau of Labor Statistics (BLS) released its first jobs report since the firing of its former commissioner, Erika McEntarfer. The White House had dismissed her over what it called unfavorable numbers, with Trump openly questioning the reliability of BLS data. The report showed that in August, nonfarm payrolls grew by only 22,000 jobs, far short of the 75,000 projected, underscoring the fragility of the job market. This shortfall has fueled expectations of a rate cut of at least 25 basis points at the Fed’s September 17 meeting. Meanwhile, Trump has kept the pressure on, calling for Powell to make a bigger cut—even though inflation rose to 2.9 percent in August.

While inflation and job loss loom, Trump wants it all

The US economy now faces the risk of both rising unemployment and higher inflation—precisely when the Fed must make some of its toughest monetary-policy calls.

Meanwhile, Trump wants it all. Frustrated by the latest inflation and employment data, he wants low inflation, low interest rates, and a booming job market. These conditions were briefly present during his first term, but most presidents have faced a Fed forced to make trade-offs. The slowing job market is going to prompt a rate cut this week, giving Trump his desired interest-rate outcome, but that will not change the underlying data. Bloomberg’s consensus projection sees US inflation remaining well above the 2 percent target until 2027, partly because of how tariffs will be passed through to consumer prices. If that trend continues, the Fed could raise rates again to keep inflation in check.

Navigating between political pressure and economic realities, the Fed faces a delicate balancing act. Despite the Trump administration’s attempts to oust Fed governors, the central bank’s dual mandate comes from Congress. In setting its policy, it must carefully weigh employment indicators and inflation expectations against broader macroeconomic conditions to safeguard economic stability. Politicizing economic data has the opposite effect: It undermines both the Fed’s ability to make sound decisions and the market’s trust in economic forecasts, and any erosion of central bank independence only exacerbates these challenges.

Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The Fed struggles to balance Trump’s demands with economic reality appeared first on Atlantic Council.

New entrants are reshaping the stablecoin ecosystem, which was long dominated by few issuers. Just last week, Wyoming launched its own stablecoin. Traditional financial firms are moving in, too. JPMorgan, for instance, recently launched JPMD, a token modeled on stablecoins, for institutional clients. E-commerce giants are experimenting as well: Walmart and Amazon are weighing launching their own stablecoins in an effort to broaden their use from purchases to savings and rewards. This echoes the development of the Starbucks app—which remains an impactful use-case for developing a closed loop payments platform and wallet. Financial players are choosing to partner with each other on new products, seeking to capture market share and work across different functions such as tokenized treasuries and money market funds. A stablecoin ecosystem is emerging as banks and fintech players see a more legally clarified scope for custody, reserve management, and the integration of stablecoins into existing business models.

Beijing shifts from skepticism to strategy

Enthusiasm for stablecoins extends far beyond the United States. In June, the Governor of the People’s Bank of China, Pan Gongsheng, clarified his central bank’s stance on stablecoins—noting that alongside central bank digital currencies (CBDCs), they could facilitate cross-border payments and shape the financial system’s future. This marks a notable shift given China’s previous crackdown on privately issued cryptoassets. Meanwhile, Hong Kong concluded a nearly two-year consultation process to pass stablecoin regulation in May 2025, which finally took effect this month. Reportedly, more than forty companies have already applied for issuer licenses, and the Hong Kong Monetary Authority is expected to approve a select few, with an initial focus on business-to-business applications.

Chinese e-commerce giants JD.com and AliBaba are also interested in launching stablecoins in Hong Kong, where JD.com participated in sandbox testing during the consultation process. To date, experiments have primarily included dollar-denominated stablecoins and stablecoins pegged to the Hong Kong dollar (HKD), which has been tied to the US dollar since 1983 through the Linked Exchange Rate System. At the same time, Chinese companies and state-owned enterprises are also exploring stablecoins backed by offshore yuan (CNH)—and China is simultaneously conducting the largest pilot of its own CBDC, the e-CNY, which currently has seven trillion yuan in circulation.

The rise of yuan-backed stablecoins

The rationale behind China’s pursuit of a yuan-backed stablecoin strategy is not immediately obvious. After all, the e-CNY already faces stiff competition from domestic digital wallets issued by Alipay and WeChat Pay, which together cover over 90 percent of the retail market. Outside of e-commerce driven opportunities—which will coexist with traditional payment methods—it is unclear how a stablecoin could profitably compete in China’s retail payments market. Moreover, if highly controlled actors such as state-owned enterprises and influential Chinese technology companies were to issue stablecoins, they would blur the line between a CBDC and a stablecoin. This would raise similar privacy and surveillance concerns as those associated with CBDCs.

One reason Beijing may pursue yuan-backed stablecoins lies in its concern regarding the use of dollar-denominated stablecoins. Like other countries, China has expressed concerns about dollar-denominated stablecoins, which are primarily used to provide liquidity for crypto-asset transactions, dollarize savings, and facilitate sending money abroad—the latter two driving capital flight. China’s legal restrictions have shielded it from extensive use of dollar-denominated stablecoins. Still, Beijing may see stablecoins backed by offshore yuan or the Hong Kong dollar (HKD) as a tool to curb capital flight or regional remittance payments.

A bid to counter dollar dominance?

There is, of course, an underlying consideration of competition with the United States—as with most of Beijing’s regulatory and technology policy decisions. One theory holds that yuan-denominated stablecoins could further internationalize the yuan, leading to a more multipolar currency system instead of a dollar-dominant one. However, several factors suggest otherwise:

For one, the primary use of stablecoins remains in crypto markets, where dollar-denominated tokens can provide liquidity and reduce transaction limitations. With the passage of GENIUS, there is increased confidence in the reserve-backing of dollar-denominated stablecoins, which help them maintain relative value stability. A yuan-denominated stablecoin would likely be less useful as a stable value marker due to lower confidence in yuan-denominated backing assets, and low trust in Chinese financial markets and regulators.

Moreover, while rhetoric from both the United States and China often conflates currency dominance with stablecoin issuance and adoption, interest in dollar- or yuan-denominated stablecoins reflects, but does not meaningfully replace, the international use of those currencies. In other words, the demand for dollars by foreigners drives the demand for dollar-backed stablecoins abroad, not the other way around. Therefore, even as increased stablecoin use can enhance the financialization of the currency abroad through a rise in treasury or bond holdings by foreign issuers of stablecoins, it will not meaningfully impact its traditional role in cross-border transactions.

China’s stablecoin play has its limits

From Beijing’s perspective, a successful offshore yuan-denominated stablecoin could replace some existing yuan-denominated transactions, increase the purchases of offshore or “dimsum” bonds, and even make them technologically more efficient. However, it is unlikely to compete with the demand for dollar-based networks, as reflected in the use of dollar-denominated stablecoins. 

Despite the growing private sector driven interest in China in yuan-backed stablecoins, their use case remains in domestic retail markets, especially in the e-commerce space. Hong Kong’s new licensing regime is also likely to bring some wholesale (business-to-business) applications to light. Lines between public and private issuers of stablecoins will continue to blur—opening up new operational and regulatory questions. However, the strategic relevance of a yuan-backed stablecoin in internationalizing the yuan is limited by the fact that dollar-backed assets ultimately provide more value for investors, both in the crypto-asset ecosystem and outside of it.

Ananya Kumar is the deputy director for future of money at the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Everybody wants a stablecoin, even China appeared first on Atlantic Council.

Around the world, central banks are facing political pressure as they confront the economic aftershocks of the pandemic and grapple with tight fiscal constraints and new sources of inflation. But this level of political pressure is rare, if not unprecedented, in the United States and is casting a shadow over the Fed’s major conference in Jackson Hole this week.

Political pressure mounts on the Fed

Since the beginning of his term, Trump has repeatedly attacked Federal Reserve Chair Jerome Powell for maintaining interest rates at their current level, as the president believes they should be reduced (although he has backed off that call recently). The Fed has held rates steady since December, largely in response to the inflationary effects of tariffs. Powell noted that the Fed went on hold when it “saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially.” At Jackson Hole, Powell said that changing economic factors “may warrant” interest rate cuts, but he did not signal when. 

Despite Powell’s refusal to resign from his position before it ends in May 2026—as Trump has demanded that he do—the president has already had the opportunity to influence the Federal Open Markets Committee, which sets interest rates. Following Adriana Kugler’s surprise resignation this month as one of the governors of the Federal Reserve Board, Trump appointed his chairman of the Council of Economic Advisers, Stephen Miran, to temporarily fill her seat. Cook’s term, however, does not expire until January 2038—unlike Kugler’s, which would have expired in January next year. If Trump were to successfully remove Cook, he would get another opportunity to install his own pick on the Fed’s seven-member board.

A global perspective on central bank autonomy

As the GeoEconomics Center predicted early this year, the debate over central bank independence has emerged as a defining theme of 2025. In response to post-pandemic inflation, central banks have tightened monetary policy—slowing growth, increasing unemployment, and straining public finances. These effects have triggered significant political backlash. 

But the institutional frameworks protecting central bank governors from political interference vary dramatically across major economies. The chart below compares which of the Group of Twenty’s (G20’s) elected leaders can unilaterally dismiss their central bank chiefs.

Most advanced economies—including Australia, Japan, the United Kingdom, and the eurozone—have established strong legal safeguards that require legislative approval for dismissals. By contrast, the United States finds itself in a more precarious position, alongside countries such as Canada and Turkey. Under US federal law, the president may only remove the Fed chair “for cause”—a provision widely interpreted to refer to misconduct, not policy disagreements. However, this protection has never been definitively tested. The closest precedent dates back to 1965, when President Lyndon B. Johnson asked the Justice Department whether he could dismiss then-Federal Reserve Chair William McChesney Martin amid monetary-policy clashes during a period of rising inflation and escalating costs associated with the Vietnam War.

The economic case for independence

There is strong historical evidence that central bank independence correlates with lower inflation. Apart from that, the Fed’s autonomy is crucial for maintaining global confidence in US institutions. That credibility supports the dollar’s role as the world’s reserve currency and anchors financial market stability.

Threats to that independence carry real consequences. In April, when Trump declared that Powell’s termination “cannot come fast enough,” the dollar fell sharply—prompting him to quickly walk back the statement.

Countries that have compromised central bank independence—from Turkey to Argentina—have experienced currency volatility, capital flight, and higher inflation. While the United States enjoys unique advantages with the dollar’s reserve status, these privileges are not guaranteed. There is a growing risk of fiscal dominance, when government fiscal pressures dictate or constrain a country’s monetary policy. High debt and rising borrowing costs could pressure central banks to keep interest rates below what inflation warrants to sustain government spending. Investors worry this would weaken the Fed’s ability to prioritize price stability, making inflation harder to control. If central bank monetary policies bend to the government’s fiscal needs, inflation could resurge, and long-term yields could climb even higher.

As Trump tests the limits of what he can do, the credibility of the Fed—and by extension, global financial stability—is increasingly at risk.

Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Trump’s challenges to the Fed’s independence loom over Jackson Hole Symposium appeared first on Atlantic Council.

Yet as China’s cities, counties, and provinces confront slower economic growth and fiscal belt-tightening, the leadership didn’t mention the “one ugliness” that is weighing on local governments—trillions of dollars of debt. That is because the Chinese government already has declared victory over local government debt and seems to be moving on. A three-year debt restructuring initiative launched last November refinances ten trillion yuan ($1.39 trillion) of “hidden debt,” or bonds issued by investment companies known as local government financing vehicles (LGFVs). But LGFV bonds are only one part of a much larger problem. Local governments throughout China are also on the hook for trillions of dollars of bank loans, unpaid bills, and other obligations that remain unaddressed.

Beijing’s restructuring program is a maneuver that bankers and regulators commonly label “extend and pretend.” The central government has chosen to put off its day of reckoning when it will have to assume the burden of local government debt, instead choosing to whistle past the graveyard. But that strategy could have serious implications for the Chinese economy. Resources at the local level are drying up even as grassroots officials are still expected to service their debts. Despite lower interest rates, there is less money to build infrastructure, provide social services, and invest in industries that create jobs. Not to mention making good on payrolls and accounts receivable. With China already facing a lingering real estate collapse, weak consumption, industrial overcapacity, and falling prices, the continuing debt crisis could produce hollowed-out financial sectors in many parts of the country.

The International Monetary Fund (IMF) pointed to another danger in a recent report assessing the health of China’s financial system. The report warned that the fifty-eight trillion yuan of LGFV debt on the books represented “a serious risk to financial stability.” The report estimated that “support needed to retire debt-servicing capacity where debt is perpetually rolled over (but not reduced) could require debt relief.” The IMF report focused on LGFV debt and did not include debt taken on directly by local governments.

Beijing was having none of the IMF recommendations. A statement from China’s executive director to the IMF, which was included in the report, insisted that the issue of hidden local government debt had been “properly resolved” by the 2024 restructuring. The statement also held that the implementation of “a strict accountability mechanism to prevent local governments from raising new hidden debt” meant that the IMF’s “relevant policy recommendations have already been implemented.”

The Chinese response did offer up a forty-four trillion yuan estimate of overall LGFV debt—three times the figure provided at the time of last year’s restructuring announcement, suggesting that the restructuring will need to be revisited in the future. But Beijing’s representative blithely explained that the Fund had double counted debts by relying on faulty numbers from a Chinese data company—Wind Information Co. (Most foreign analysts, it should be noted, have been barred by Beijing from accessing Wind’s statistics since May 2023.) For the Chinese government to disagree on such an important number in an IMF report that officials had cooperated for months to prepare suggests a late-stage political decision to fudge the numbers. The action is part and parcel of Beijing’s recent efforts to obscure inconvenient economic facts. For example, as youth unemployment soared in 2023, the government recalibrated its data set to reduce the jobless number.

Unsurprisingly, the government’s debt-restructuring numbers have been greeted with skepticism in other circles. The credit-rating agency Fitch Ratings estimated in April that the restructured LGFV debt was only 25 percent of the “hidden” portion of the debt load. Meanwhile, David Daokui Li, a leading Chinese economist, said in February that there were ten trillion yuan in payments “arrears” to contractors and civil servants at the end of 2024.

The size of the debt is only part of the problem. Most LGFVs were originally set up over the past decade to help local governments to take on debt, using land controlled by local authorities as collateral, and revenue from land sales to help service the bonds and loans But that source of revenue dried up with the collapse of China’s real estate bubble in 2021. In May, nationwide revenue from land sales, include tax receipts, fell to its lowest level since 2015, exacerbating the squeeze on financing.

However, the debt-restructuring program also mandated that thousands of LGFVs be turned into commercial entities that will now have to stand on their own two feet. While some of them already function as businesses, the end of the era of runaway real estate development also means the end of the road for many LGFVs. They will transition into unsustainable “zombie companies” that will continue to rely on new borrowing or government subsidies to service their debts.

In a May report entitled “China’s LGFVs in transition: cutting debt may prove easier than making money,” S&P Global estimated that “former LGFVs” would have to increase their pre-tax earnings by some 40 percent a year over three years. Doing so will just enable them to reduce their debt leverage to the level of China’s existing state-owned enterprises—themselves hardly paragons of commercial success. While acknowledging that the government’s debt restructuring initiative has “substantially alleviated the immediate liquidity pressure” on many LGFVs, the report said, “that’s just one side of the equation.” By 2027, S&P said, when the restructuring is scheduled to conclude, LGFVs will no longer “benefit from expectations of implicit (government) repayment guarantees.” They will remain mired in a cycle of increasing indebtedness.

Beijing has been loath to take the debts off the books of local governments because of its own spending priorities and out of concern that such central government largesse will only encourage local authorities and investors to engage in risky behavior. But moral hazard works both ways: the central government’s conflicting demands on local governments over the years already opened the floodgates to unwise lending and investment under the assumption that such ventures would be backed by government guarantees. Witness the flood of investment that provinces and cities have undertaken in such cutting-edge industries as semiconductors, electric vehicles and wind power. For every commercial success, there is also an ocean of red ink that has added to the bad debts.

Solutions to debt crises without cost do not exist. But half measures only add to the final cost of resolution. So far, Beijing has chosen to pursue half measures—or perhaps it’s better to say quarter measures—and the costs continue to mount. The result of such delaying tactics will only be greater problems down the road for an economy that, for all its strengths, can ill afford the real-world impact of procrastination.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Beijing extends and pretends to deal with its mountain of local government debt appeared first on Atlantic Council.

Since China began its policy of mass internment in 2017, an estimated two million Uyghurs have been arbitrarily detained in state-run internment camps, where they are subject to political indoctrination, torture, organ harvesting, and forced repudiation of their religious and ethnic identities. According to the United Nations, these abuses may constitute crimes against humanity. Several governments, including the United States, have determined that China is actively committing genocide against the Uyghurs.

Despite international calls for China to cease its human rights abuses, the government is instead furthering its repression of the Uyghurs. For those who narrowly avoid detainment in internment camps, another stark fate awaits them: subjection to China’s state-sponsored forced labor programs.

Through sanctions and the adoption of anti-forced labor legislation, the United States has led the global effort to combat China’s forced labor practices. While these measures have moved the needle in the fight against forced labor, widespread tariffs and the absence of new punitive measures targeting forced labor may cause progress to stagnate. As tensions grow and global economic uncertainties unfold, the Trump administration must ensure that it does not lose sight of Uyghur human rights. The United States can help curtail China’s forced labor practices and uphold its precedent of promoting Uyghur human rights by doubling down on its enforcement of the Uyghur Forced Labor Prevention Act and imposing additional anti-forced labor measures.

Which industries are exposed to Uyghur forced labor?

Forced labor plays a central role in China’s campaign of repression. Two systems of forced labor exist in China, which primarily target the Uyghurs. The first system exploits detainees in China’s internment camps for labor. The second system—conducted under the pretense of “poverty alleviation”—involves transferring large numbers of Uyghurs from rural regions to factories and fields across China. In both instances, authorities use intimidation and abuse to coerce individuals to labor. Following their subjection to China’s labor programs, workers face abusive working conditions, inadequate pay (if any), rigid surveillance, political indoctrination, and mandatory Mandarin lessons—a systematic effort to erase Uyghur language and culture.

Crucially, industries and supply chains across the world risk exposure to Uyghur forced labor. The Uyghur Region is deeply integrated in the global economy, accounting for roughly 20 percent of the world’s cotton, 25 percent of the world’s tomatoes, 45 percent of the world’s solar-grade polysilicon, and 9 percent of the world’s aluminum. Given that a sizable portion of the world’s production takes place in the Uyghur Region, goods that are produced through Uyghur forced labor inevitably enter international supply chains and end up in stores and households across the world.

Though forced labor touches industries ranging from automotive to pharmaceuticals, it is especially pervasive in the apparel and agriculture industries. Under conditions that raise concerns of coercion, nearly half a million Uyghurs and other ethnic minorities are transferred each year to work in cotton fields. In China’s tomato fields, workers are subject to torture, with testimonies of beatings and electric shocks administered to those who fail to meet high daily quotas. Evidence of forced labor has also emerged in the seafood industry, where Uyghurs work in Chinese processing plants that supply seafood to the United States—seafood that ends up in federally-funded soup kitchens, school lunches provided by the National School Lunch Program, and even US canned fish donations to Ukraine.

Against this backdrop, the Forced Labor Enforcement Task Force identified several industries where forced labor is deeply entrenched as high-priority sectors for enforcement. This is an important designation. However, without sustained effort and vigorous screening, products made with forced labor will continue making their way into our homes and taint everything from the clothing we wear to the food we eat.

How has the United States responded to Uyghur forced labor?

Escalating human rights abuses against the Uyghurs and other ethnic minorities have prompted governments across the world to act. The United States, as one of the leading forces opposing China’s human rights abuses, has leveraged its robust economic statecraft toolkit to institute punitive measures on individuals and entities complicit in the persecution of Uyghurs. The United States has notably imposed 117 sanctions on entities and individuals, issued investment bans on eleven companies, and implemented numerous export and import controls.

To directly combat China’s forced labor practices, Congress passed the Uyghur Forced Labor Prevention Act (UFLPA), a landmark legislation that stands as the most powerful tool globally to address Uyghur forced labor. The UFLPA was signed into law in 2021 and prevents goods made with Uyghur forced labor from entering the United States by utilizing a rebuttable presumption that any goods produced in the Uyghur Region are done so under forced labor conditions. The enforcement of UFLPA calls for sanctions on individuals and entities complicit in forced labor, and it also expands the Department of Homeland Security’s UFLPA Entity List—an import blacklist of companies with ties to Uyghur forced labor. Last updated in January 2025, the UFLPA Entity List now includes 144 entities, a marked increase from the initial twenty entities in 2022.

The UFLPA is the first law globally that counters Uyghur forced labor tangibly, comprehensively, and with meaningful economic impact. Since UFLPA’s implementation in June 2022, the US Customs and Border Protection has seized a staggering $3.69 billion worth of goods for investigation and denied shipments totaling nearly $1 billion in value entry into US markets.

Ultimately, sanctions and forced labor laws like the UFLPA have prompted companies to comply with human rights standards. Mounting pressure and increased scrutiny from the United States and the international community have led major multinational companies to withdraw from the Uyghur Region over forced labor concerns, despite firm retaliation from Beijing. By implementing the UFLPA, the United States has also set a positive precedent with numerous countries, including Canada and European Union members, adopting their own policies targeting forced labor.

Where do we stand now?

The global response to US measures countering Uyghur forced labor is evidence that pressure works. Although substantive progress has been made in the effort to combat forced labor, the Trump administration’s tariff policies may hamper further progress. On the one hand, the administration’s elimination of the de minimis exemption could help minimize a key loophole in UFLPA enforcement. Under the exemption, Chinese imports valued under $800 were allowed to enter the United States while avoiding import duties and strict customs scrutiny, limiting CBP’s ability to enforce the UFLPA. This loophole has been exploited by Chinese companies complicit in forced labor, such as Shein and Temu, which have built their entire business models around the exemption.

While the closure of the de minimis loophole could prove fruitful, the administration’s global reciprocal tariffs pose other concerns. Steep tariffs imposed on major US trading partners could inadvertently incentivize companies to look for areas in their supply chains where they can cut back on costs. This is especially concerning if these companies overlook ethical labor considerations in search for alternatives in countries like China that are laden with abusive labor practices. Additionally, imposing widespread tariffs may lead to instances of tariff evasion and could cause issues for forced labor screenings due to the obfuscation of product origins. Compounding these concerns, additions to the UFLPA Entity List have stalled since the Biden administration’s last update in January.

With the focus of world affairs shifting to spotlight trade turbulence and growing diplomatic tensions, efforts to counter forced labor and advance human rights cannot afford to lose momentum. As companies and countries navigate global uncertainties, it is imperative that the Trump administration takes a hard stance against Uyghur forced labor and ensures unabated continuity in US enforcement of anti-forced labor measures. It can do so by introducing and ramping up additions to the UFLPA Entity List. The United States could also impede China’s forced labor practices by passing the reintroduced No Dollars to Uyghur Forced Labor Act in Congress, which seeks to prohibit US contracts with companies tied to forced labor in the Uyghur Region. To ensure these measures are implemented effectively, US agencies charged with leading Uyghur-focused initiatives must be staffed with specialists who possess a deep understanding of the state-sponsored forced labor and persecution that take place in China, and who have the expertise to help identify and address sanctions evasion.

Amid geopolitical uncertainties, Uyghur human rights must be safeguarded as an enduring priority. The United States needs to act swiftly, decisively, and meaningfully to ensure that they are.

Nazima Tursun is a former young global professional at the Atlantic Council’s Economic Statecraft Initiative.

Related content

New Atlanticist Jun 30, 2025

Less investment, less influence: Why the US risks losing ground in the Indo-Pacific

By Lize de Kruijf and Nazima Tursun

The US withdrawal of foreign aid to Indo-Pacific countries creates space for China to expand its influence in the region.

Defense Policy Economy & Business

New Atlanticist Nov 26, 2024

China’s atrocity crimes in Xinjiang are entering an even darker phase. The UN must act.

By Rayhan Asat

The suffering of the Uyghur people continues in Xinjiang, and the United Nations has a responsibility to act on its recommendations.

China Human Rights

EconoGraphics Nov 4, 2024

How data control is driving a new US-China economic divide 

By Jesse Sucher

China’s increased restrictions on corporate and financial data make it difficult for the United States and allies to enforce economic statecraft tools like sanctions and supply chain safeguards.

China Economy & Business

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Safeguarding Uyghur human rights: The US should leverage economic statecraft tools to end Uyghur forced labor appeared first on Atlantic Council.

Next week, these companies will be watching closely as European Commission President Ursula von der Leyen visits Beijing to mark the fiftieth anniversary of EU-China diplomatic and economic relations. While a golden jubilee is typically a cause for celebration, tensions between the two sides remain high. In April, China restricted exports of rare-earth materials—roughly 98 percent of the EU’s imports come from China—significantly affecting the bloc’s defense and automotive sectors. Then, at the Group of Seven (G7) Summit in June, von der Leyen accused Beijing of exhibiting a “pattern of dominance, dependency, and blackmail,” prompting a sharp rebuke from Chinese officials, one which criticized the wider G7 for having a “Cold-War mentality.” Later that month, the EU canceled the High-Level Economic and Trade Dialogue with China, citing a lack of progress on key trade disputes. This meeting would ordinarily set the stage for the upcoming leaders’ summit.

The summit, originally planned as a two-day event, has now been scaled down to a single day (July 24) in Beijing. On that day, it is expected that von der Leyen and European Council President António Costa will meet with President Xi Jinping, despite earlier assessments that the Chinese leader was unlikely to participate. The second day of the summit, during which the EU leaders were expected to participate in business discussions, has been canceled at Beijing’s request. 

The private sector dilemma

Analysis on these issues often focuses on Chinese exports and overlooks the demand side driven by the world’s second-largest economy. China is the EU’s third-largest export destination, with EU exports to China increasing more than sevenfold since the early 2000s. Today, 87 percent of EU exports to China are manufactured goods, including machinery, automobiles, chemicals, and electronics. 

The chart below highlights continental European companies with the highest exposure to the Chinese market, segmented by industry. Collectively, these companies generated nearly $160 billion in revenue from China in 2024, roughly the size of Kuwait’s economy. 

The industry with the most companies that are among the firms most exposed to China is machinery. These firms focus on areas spanning pumps and valves (VAT Group, Sulzer, Alfa Laval), elevators (Schindler), mining equipment (Atlas Copco), and transport systems (Knorr-Bremse). While not consumer-facing, these firms are deeply embedded in China’s industrial supply chains. Their reliance on long-term contracts and infrastructure demand makes them especially vulnerable to policy shifts or retaliation.  

Even more striking is the semiconductor sector, where companies such as ASML (36 percent), Infineon (34 percent), and BESI (34 percent) show some of the highest levels of revenue dependence on China. As providers of critical technologies, particularly in advanced chipmaking equipment, they are increasingly caught between China’s push for tech self-sufficiency and Western efforts to restrict sensitive exports. Any retaliation could ripple across global supply chains and hit Europe’s tech sector hard. 

By country, Switzerland—despite not being part of the EU—leads with ten companies among the top thirty most exposed, followed by Germany with nine. The Netherlands also shows significant exposure, largely due to ASML and its specialized lithography systems critical to semiconductor manufacturing. The Dutch firm’s vulnerability was highlighted this week when its chief executive officer, Christophe Fouquet, walked back his 2026 growth forecast, citing trade disputes and geopolitical tensions, causing shares to fall 11 percent. 

The EU’s private sector is under mounting pressure from sustained US tariffs, a flood of subsidized Chinese imports into Europe, and the growing threat of Chinese retaliation. Companies are already pushing back. Mercedes-Benz Chief Executive Officer Ola Källenius urged policymakers to find an “equitable solution” that creates a “level playing field in an open market” rather than a barrier. He warned that “what we need now is intelligent solutions, not confrontation.” Across industries, European firms are advocating for approaches that reduce the risk of further escalation. 

And Chinese retaliation is not hypothetical. After the EU imposed tariffs on Chinese electric vehicles, Beijing swiftly launched an antidumping investigation into EU pork products and banned European medical devices worth over €45 million. Additionally, in early July, China imposed antidumping duties of 27.7 to 34.9 percent on EU brandy for five years—though major French producers were exempted as part of a negotiated deal.

Amid these mounting tensions, von der Leyen faces a precarious position. The challenge for her is whether she can embrace calls for economic neutrality to preserve crucial business ties and market access—potentially drawing US criticism for appearing soft on China—or maintain her hardline stance and consequently watch European companies bear the cost of potential retaliation.

US President Donald Trump and his team understand these pressure points and are leveraging them in ongoing trade talks with the EU. They are watching closely to see whether the EU receives a warm embrace or a cold shoulder in Beijing. 

If von der Leyen opts for confrontation and relations continue to deteriorate, the world’s three major economic engines—the United States, EU, and China—could find themselves in economic conflict. At that point, markets may finally wake up to the true cost of the trade war—and European businesses will be caught squarely in the middle. 

Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

This post was updated on July 21, 2025 to reflect the latest reporting indicating that Xi will attend the EU-China meetings, but European Commission Vice-President Kaja Kallas is not confirmed.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Why European businesses are now stuck in the middle of an EU-China storm appeared first on Atlantic Council.

The World Bank estimates Syria’s economy at around $21 billion, representing an 83 percent decline since 2010, while the United Nations (UN) estimates that the cost of reconstruction will be more than $250 billion. The road ahead is long.

Recent developments are encouraging. Syria has reengaged with the World Bank and International Monetary Fund (IMF) and reconnected with the European banking system. However, fostering stability and reconstruction requires international actors—particularly the United States—to pursue a coherent, positive economic statecraft strategy to anchor recovery in the long term. Without coordinated engagement, targeted investment, and clear policy direction, Syria remains vulnerable to corruption, deepening poverty, and adversarial influence seeking to fill the vacuum left by the collapse of the Assad regime.

Lifting US sanctions on Syria

US President Donald Trump’s recent executive order, “Providing for the Revocation of Syria Sanctions,” marks the first official step in lifting US sanctions on Syria. The order terminated previous executive orders imposing sanctions on the country. In response, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) lifted 518 designations, including for major Syrian banks and companies critical to infrastructure and rebuilding.

However, the executive branch is limited in what it can do. The Caesar Act, which codifies sanctions into law, requires congressional approval to lift any designations under its framework. Although the Caesar Act sanctions are temporarily waived for 180 days, this exception is set to expire in November 2025. The executive order directed the secretary of state to assess the potential for fully suspending sanctions under the Caesar Act, but the congressional process for lifting these sanctions may be slow and politically complex.

Additionally, the secretary of state recently announced the removal of all Hay’at Tahrir al-Sham (HTS) terrorism designations, after the group was disbanded earlier this year. Nevertheless, HTS remains listed under the United Nations (UN) sanctions. While the United States has drafted a UN resolution to begin the process of lifting UN sanctions, this may prove to be a slow process. Any delisting would require unanimous consensus from the UN Security Council, which is unlikely. While UN sanctions remain in place, financial institutions will continue to struggle with compliance issues when engaging with Syria.

Finally, while the executive order permits relaxing export controls of certain goods, the US Department of Commerce is yet to review or lift export controls, further complicating efforts by the private sector to reenter the Syrian economy.

While these policy changes by the US government are crucial, they are also complex and, on their own, insufficient to enable Syria’s reconstruction and stabilization.

Steps in the right direction

Announcements by the United States, the EU, and other European countries regarding the sanctions relief for Syria have generated significant momentum to reintroduce Syria into the global economy.

For the first time since 2009, the IMF has conducted a mission to Damascus. Their recommendations highlight the urgent need for sound fiscal and monetary policy, institutional strengthening, banking reform, and enhanced anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks. These are foundational steps toward rebuilding confidence in Syria’s economic governance, which the Syrian authorities have expressed commitment to. The World Bank also recently approved a $146 million loan to restore Syria’s electricity infrastructure—a critical step for both economic productivity and civilian welfare.

Meanwhile, the EU’s easing of financial restrictions has enabled Syria to rejoin the SWIFT system, leading to its first electronic transfer in over a decade—signaling cautious reengagement from European financial actors.

With Trump’s executive order, US banks and the private sector are now positioned to reenter Syria too. However, reputational and political risks may temper initial enthusiasm, requiring the US government to lead the way.

Remaining challenges require positive economic statecraft

Even with fewer legal barriers, Syria is considered a complex and risky environment for many private sector actors. The country has been sanctioned in some form since 1979. After years of conflict and institutional erosion, a legacy of opaque regulatory frameworks, weak governance, and perceived instability remains.

Syria’s persistent presence on the Financial Action Task Force grey list underscores concerns about illicit financial activities and the country’s limited regulatory capacity. For the private sector, this listing signals elevated financial and operational risks, including increased regulatory burdens, reputational damage, limited financial access, and economic instability.

Further compounding this risk perception, the recent conflict escalation between Israel and Iran has heightened instability in the region and cast a shadow over Syrian investment opportunities. The United States’ military intervention in the conflict raises concerns about the coherence of US strategy in the Middle East. Meanwhile, escalating tension between Syria and Israel in recent days adds another layer of uncertainty threatening Syria’s prospects for peaceful and stable reconstruction.

While the easing of sanctions was intended to catalyze economic reintegration, the geopolitical landscape in the region may limit the speed and scale of private capital influx, unless it is underpinned by strategic support and risk mitigation. Given Syria’s historical strategic value, adversarial actors are also likely to try to maintain influence and investment there, making sustained constructive engagement by the United States and its allies essential.

A roadmap for US policy

To support Syria’s reconstruction and encourage responsible private sector engagement, the United States should pursue a more structured approach, beginning with the steps listed below.

1. Ensure legal clarity for the private sector. Providing the private sector with structured guidance to navigate the evolving legal landscape of the Caesar Act, designations related to terrorism, and export controls will help US banks and businesses navigate regulatory complexities, ensuring compliance and reducing risks perceptions.
2. Ensure legal and political clarity for the Syrian government. Ongoing communication with the Syrian government regarding the conditions and expectations tied to sanctions relief, as well as benchmarks for continued engagement, will facilitate smoother cooperation and reduce risk of backsliding.
3. Continue diplomatic efforts within the UN. Ongoing diplomacy with the UN Security Council members regarding the lifting of HTS designations is essential to prevent jurisdictional arbitrage, uneven sanctions compliance and enforcement, and increased risk for the financial and private sector.
4. Strengthen financial integrity. Providing technical assistance to enhance Syria’s AML/CFT compliance and to establish formal, regulated channels for investment and financial transfers would prevent the proliferation of informal systems prone to corruption, illicit finance, and state capture, and would reduce risks for financial institutions considering reentry.
5. Leverage US International Development Finance Corporation (DFC) reauthorization to manage risk related to investment in Syria. The United States should use DFC reauthorization to create a strategic framework for investment in Syria, coordinating with institutions like the World Bank’s Multilateral Investment Guarantee Agency to provide insurance mechanisms that protect private investors from political and economic instability, while promoting transparency and policy consistency.
6. Develop a task force with allies to support Syria’s reconstruction. Progress requires strategic alignment between the United States, EU, IMF, World Bank, and key regional actors, including the Gulf states. Considering the upcoming Annual Meetings of the IMF and the World Bank Group, the United States should seize the opportunity to develop a coordinating body to identify opportunities and solutions for Syria’s postwar reconstruction, ensuring reforms are sequenced, accountable, and achievable.
7. Support diaspora and Gulf investment with oversight. Syria’s diaspora and investors based in the Gulf offer strong potential for recovery capital—but only if engagement is channeled through secure, regulated platforms that promote transparency and prevent capture by entrenched interests.

Syria’s recovery and reintegration into the global economy is strategically necessary for regional stability. Past experiences in Sudan and Libya offer cautionary tales about the how removing economic leverage can backfire when there are no clear reform benchmarks or defined positive economic statecraft strategies. If left unstructured and unsupported, Syria’s fragile recovery risks becoming opaque, corrupt, and ultimately reversible.

For the United States, this moment presents a rare opportunity to lead through coordination, clarity, and targeted assistance. Syria’s economic future—and by extension, a measure of stability in the broader Middle East—may well depend on Washington’s willingness to expand its toolkit beyond punitive economic measures and embrace more positive economic statecraft tools.

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. She is a former senior Treasury official and National Security Council director.

Jonathan Panikoff is the director of the Atlantic Council’s Scowcroft Middle East Security Initiative and a former deputy national intelligence officer for the Near East at the US National Intelligence Council.

Lize de Kruijf is a program assistant at the Atlantic Council’s Economic Statecraft Initiative within the GeoEconomics Center. 

Manal Fatima is an assistant director at the Atlantic Council’s Scowcroft Middle East Security Initiative. 

Note: The insights and recommendations presented in this piece emerged from a private roundtable held in June, co-hosted by the Atlantic Council’s Economic Statecraft Initiative and the Scowcroft Middle East Security Initiative. We extend our sincere thanks to all participants for their valuable contributions and for helping shape the ideas reflected here.

Related content

New Atlanticist May 13, 2025

Experts react: Trump just announced the removal of all US sanctions on Syria. What’s next? 

By Atlantic Council experts

Our experts provide their insights on how the removal of US sanctions on Syria would affect the country and the wider region.

Civil Society Financial Sanctions and Economic Coercion

Econographics May 29, 2025

After partial relief, what’s next for Syria sanctions?

By Alex Zerden

Syria remains a high-risk jurisdiction due to years of conflict, endemic corruption, state institution collapse, narcotrafficking of captagon, insufficient anti-money laundering efforts, and inadequate financing of terrorism controls.

Economy & Business Financial Sanctions and Economic Coercion

New Atlanticist Jul 1, 2025

The US must enforce sanctions to prevent Iran from rebuilding its nuclear program

By Kimberly Donovan

To ensure that Tehran cannot get its hands on the financial resources it would need to rebuild its nuclear program, Iran sanctions enforcement should start with China.

Financial Sanctions and Economic Coercion Iran

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Charting a strategic path for Syria’s postwar reconstruction appeared first on Atlantic Council.

Since taking office, Trump and his erstwhile confidant, Elon Musk (while serving as head of the Department of Government Efficiency), have driven forward an unprecedented agenda aiming to cut government spending, with significant and far-reaching impacts in the health industry. As a result, the US government has introduced a level of volatility into its health sector unlike anything seen in decades. The US Department of Health and Human Services has cut more than ten thousand jobs (albeit only to rehire many shortly thereafter). Threats to funding for scientific research, including more than $12 billion slashed from existing grants and contracts, have sparked fears about the durability of clinical studies. In the aftermath, fears of brain drain have emerged. But unlike in recent decades, US researchers are the casualty, not beneficiary.

Instead, Europe looks to see if it can address structural obstacles that have hindered its health industry. With scientists and valuable expertise on the move, Europe should take this opportunity to overcome structural barriers that have limited innovation and research and development (R&D) in the European Union (EU) as a path toward improving European competitiveness in the life sciences.

Diagnosing the problem: Europe’s stagnating industry

Since 2010, Europe’s R&D expenditures gains have increasingly fallen relative to its peers and strategic competitors, including the United States and China. While the United States has seen a 5.5 percent rate of growth in expenditures and China’s spending has seen a whopping 20.7 percent rate of growth, Europe trails with only a 4.4 percent increase. As a result, Europe’s pharmaceutical industry has struggled to compete with the United States and China in developing new drugs.

A lack of spending on research hurts growth. Even without considering the broader societal benefits of a healthy domestic pharmaceutical sector, R&D alone added more than $225 billion to global GDP in 2022, which Europe received 29 percent of compared to the United States’ 55 percent. The value this industry can bring to a stagnating European economy is significant.

As Europe looks to repower its economy, the life science industry presents a golden opportunity if it can take advantage of this rapidly growing high-value sector.

Europe has plenty of concerns it needs to address in the life sciences industry, including over intellectual property rights or regulatory red tape in areas like pharmaceuticals. However, solving the R&D issue should be the priority to attract greater investment and drive innovation in Europe. That means Europe must attract the best and brightest minds available for such R&D efforts—which is where the Trump administration has done Europe a favor.

Injecting talent into Europe’s system

According to a recent poll of more than 1,200 US scientists, 75 percent would consider leaving the United States after recent events have introduced concerns about job safety and funding to the US life science ecosystem. The question for the EU will be how to win the race to attract departing scientists to Europe.

The European Commission has already begun to consider options to streamline visa applications for these experts, as well as programs to fund their research. The EU has already been working to improve its homegrown STEM talent in recent years but still faces long-term negative trends in this area. The Commission appears to have identified US scientists as a quick solution to invigorate its domestic talent pool.

While this path seems promising, the EU will need to overcome the challenge posed by diverse national policies to properly enact its plans. As of now, variations in visa policies are poised to lead to uneven implementation across the bloc, requiring greater coordination at the EU level to navigate challenges as they emerge.

In a vacuum, the Commission’s plan is nearly a match made in heaven—visas and funding will attract great experts who might revive Europe’s life science industry. However, Europe won’t be the only country fighting to boost its talent pool.

China will undoubtedly make a strong push to win over as many US scientists as possible to continue its attempts to dominate the life science sector. Since the turn of the century, China has emerged as one of the top leaders in pharmaceutical R&D. Meanwhile, Europe has dropped from neck-and-neck competition with the United States for domination in the pharmaceutical industry to a distant third in this race, weakening its ability to shape global health policy at a time when health security has become a matter of national security.

If Europe wants to make strides in its competitiveness agenda by leveraging the life sciences, it will need to outcompete and overcome China in areas like this to ensure that Europe does not lose further ground against its peers. China has already unlocked generous funding for researchers in similar situations in the past, meaning money alone might not be enough to win the race. However, by prioritizing solving issues that have decreased the attractiveness of Europe’s innovation landscape such as an overly complicated regulatory environment, Europe may remove barriers that might otherwise tip the balance of power in China’s favor.

The Trump Administration has opened the door for a major realignment of the global life science industry. Whether Europe or China will be the beneficiary of such a change remains to be seen.

Emma Nix is an assistant director with the Atlantic Council Europe Center.

The post Injecting new life into Europe’s life science industry to improve competitiveness appeared first on Atlantic Council.

The stablecoin race began in 2019 when Facebook proposed the stablecoin Libra (later re-named Diem). Central banks responded by developing central bank digital currencies (CBDCs) in order to remain relevant in the digital payment space. Private and public sector entities generally agree on the benefits of this transition; including increased efficiency and decreased costs for payments system, especially cross-border transactions. However, national policy preferences about digital payment mechanisms are diverging.

China and the EU are pursuing CBDCs issued on a unified ledger. China’s established government-issued CBDC (“e-CNY”) experiment has reached cumulative transactions of $7.3 trillion. However, the decision to formally adopt the e-CNY has yet to be made. China has not been shy about its intention to use the e-CNY as part of its geopolitical competition with the United States by expanding international use of the RMB. 

European Central Bank (ECB) President Christine Lagarde has also promoted the digital euro to expand the international role of the euro. The ECB has just approved a plan to settle distributed ledger technology transactions using central bank money. However, legislative initiatives to authorize issuing a digital euro have stalled, in part because it is perceived as competing with bank deposits.

The UK supports wholesale CBDCs, viewing a digital pound as a natural evolution to current digital cash transfers among enterprises rather than as a geopolitical initiative. Unlike the ECB and the People’s Bank of China, the Bank of England is building an external programmable ledger that will be managed by external private sector third parties.

The United States opposes CBDC issuance, instead prioritizing dollar-based stablecoins issued by private sector entities. The outstanding amount of stablecoins exceeds $200 billion, dominated by two US companies: Tether and Circle. The vast majority of their stablecoins are pegged to the US dollar, effectively enhancing the efficiency and reducing the costs of current global payments. Maintaining the peg has propelled these stablecoin companies to become significant holders of short-term US Treasury securities; they are now the third-largest purchasers of US Treasury bills in 2024 (of almost $40 billion) after JPMorgan and China. The concentration of liquidity in dollar-based stablecoins paired with their portability on the blockchain and strict regulatory requirements in other jurisdictions create considerable barriers to privately issuing stablecoins backed by currencies other than the US dollar.

The growing global use of dollar-based stablecoins is worrying major central banks. They fear that increased dollar-based stablecoin usage will unleash currency substitution effects and drive digital dollarization. The ECB, for example, asserts that a digital euro is “crucial for bolstering European sovereignty” in order to ensure the effective transmission of monetary policy, decrease reliance on US based card payment platforms, and maintain the legal tender nature of the euro. In other words, the ECB increasingly sees itself as competing with privately issued stablecoins backed by the US dollar.

The evolving US regulatory framework for crypto assets

President Trump pledged during the 2024 election to make the United States “the crypto capital of the world.” Congress and federal regulators have quickly embraced the concept. Strong bipartisan support in the Senate resulted in the GENIUS Act passing in the Senate week after bring introduced. Additional market structure legislation is expected in the Senate during the summer. These two Senate bills, along with the CBDC Anti-Surveillance State Act (banning Federal Reserve issuance of a digital dollar without Congressional approval), will be up for vote in the House of Representatives during the week of July 14.

By taking up the Senate-passed versions of the stablecoin and crypto market structure bills, the House of Representatives leadership is signaling an intention to pass the Senate versions without changes. The move effectively scuttles initial House efforts to extend full banking regulation to stablecoins. However, the Senate bill incorporated the House prohibition on nonbank stablecoin issuers from paying interest on stablecoin holdings. The framework likely to pass Congress thus carves out a competitive niche for banks, enabling them to protect their deposit base by issuing their own stablecoins or by offering tokenized bank deposits, which could pay interest to deposit holders.

Proponents assert that the a federal framework for stablecoins will expand market growth to $2 trillion by 2030 and secure “dollar dominance” over the global financial system. Since stablecoins must be backed by dollar-based liquid assets, growth in the sector can be expected to increase demand for US Treasury securities.

Geopolitical implications

The prospect of quickly expanding the dollar-based stablecoin market after the Senate passed the GENIUS Act raised alarm bells, particularly in China and Europe.

In China, state-sponsored media responded to the Senate vote by calling for issuance of yuan-based stablecoins “sooner rather than later.” Beijing’s template could be Hong Kong’s May 2025 Stablecoins Ordinance. The rule permits stablecoin issuance referencing the HK dollar and other major currencies while enhancing stablecoin oversight and consumer protection.

EU reactions to the Senate vote were mixed. ECB President Lagarde’s testimony to the European Parliament after the vote characterized stablecoins as creating “risks for monetary policy and financial stability,” in part because they could interfere with the transmission of monetary policy. A recent European Parliament research report acknowledges the ECB’s domestic and geopolitical concerns about dollar-backed stablecoins but identifies a number of issues regarding the digital euro, including personal privacy and competition concerns. The Bank for International Settlements also recently validated objections to dollar-backed stablecoins based on financial stability and monetary sovereignty concerns, while adding technical architectural objections to reliance on distributed ledgers. 

China and the EU are not alone. The Atlantic Council’s CBDC Tracker notes that as of July 2025, a record high number of governments (forty-nine) have launched formal CBDC pilots. Given heightened geopolitical tension, many of these countries might accelerate their CBDC projects and implement stablecoin oversight regulations in response to US stablecoin policy initiatives.

For example, leaks to the Financial Times indicate that the European Commission plans to recognize and regulate privately issued non-euro stablecoins, despite the de facto prohibition against such instruments in the Market in Crypto Asset Regulation (MiCAR).

However, CBDC initiatives face other hurdles besides competition with stablecoins—most notably, lackluster demand. European democracies have not yet secured legislative mandates to issue CBDCs. Tepid legislative support may reflect lacking public enthusiasm. However, CBDC test usage has increased in India and China.

Despite the increase in 2024, public acceptance of the e-CNY has been low. Demand remains strong for the e-CNY’s competition. Familiar mobile payment platforms (Alipay, WeChat Pay) constitute 90 percent of mobile payments (2.5 billion users), which in turn account for 73 percent of domestic payments. This dynamic may concern Europe, whose digital euro is expected to compete with US-based card payment companies.

In Jamaica, the IMF reports that the domestic CBDC only accounts for 0.1 percent of cash in circulation.  Its deployment was relatively modest, with payments limited to government fees, taxes, and traffic tickets. Recent public surveys in the UK and the EU indicate limited awareness of, and lukewarm public support for, the digital pound and the digital euro respectively.

Ultimately, rapid US stablecoin policy formulation will trigger predictable global reactions. Many central bankers, especially in China and Europe, have increasingly vocalized their opposition to extending the dollar’s global role into the digital arena through privately issued stablecoins. However, their capacity to use CBDCs to compete with dollar-based stablecoins requires faster action and stronger political support than what have been seen so far. The United States retains the advantage in this new arena of geopolitical competition—for now.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and senior fellow at the Policy Center for the New South; and a former senior official at the Institute of International Finance and International Monetary Fund.

Barbara C. Matthews is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center. She has had the honor to serve as the first US Treasury Attache to the EU in Brussels and as Senior Counsel to the House Financial Services Committee.  Currently, she is the Founder and CEO of BCMstrategy, Inc., a company that generates AI training data and signals regarding public policy.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The stablecoin race appeared first on Atlantic Council.

Stablecoins have established their value as a medium of exchange within the land of decentralized finance and cryptocurrency investing. Today’s total stablecoin market cap is about $255 billion (of this, 99 percent is in USD-denominated stablecoins). With all the new regulatory and industry activity in the space, market participants and industry leaders appear to be expecting large-scale stablecoin adoption for use in domestic and international payments. Yet, stablecoin usage is complicated for consumers, and large-scale adoption would entail macro-financial risks.

Nine challenges to widespread stablecoin adoption may be getting overlooked in all the excitement.

Frictions and risks for users

• Network transaction fees: When stablecoins are sent over a blockchain network, they are typically subject to variable network transaction fees (such as “gas” in Ethereum), just as other cryptocurrency transactions are. These fees compensate the decentralized network of validators who approve of transactions and maintain the security of the blockchain. In simple terms, sending a stablecoin, whether domestically or abroad, usually requires the user to pay a variable transaction fee. Do the future users of stablecoins intend to pay fees for every transaction?
  
  To be fair, centralized payment systems often require a service fee that is paid to the network operator, although this is generally born by banks (who may pass fees on to merchants) rather than by retail end-users in domestic contexts. There are also possibilities for users to side step blockchain transaction fees, such as by employing a “layer 2” network. This network is an add-on transaction layer that waits to settle a sender and receiver’s netted or batched transactions on the main blockchain to reduce fees and improve throughput. While it can be effective, it does add complexity and lower the security of the transaction, all else equal.
  
  Rather than sender transaction fees, some blockchains compensate validators by subsidizing from other sources or by paying a higher “block reward,” which is an automated generation of new cryptocurrency paid to the validator. Regardless, a secure, decentralized transaction validation process has economic costs. Stated more pointedly in a recent Bank for International Settlements report, “the more stringent the degree of consensus needed, the more wasteful the rents required.”
  
  
• Fragmentation of money and wallet acceptance: From a practical and technical perspective, stablecoins fragment the money in your wallet. A user cannot combine stablecoin balances into one sum or combine these balances with their other currency holdings, unless they convert them in an exchange. This may be fine if someone holds a few types of stablecoins, as people today may have a few bank and e-money accounts. Yet with numerous banks and other institutions considering issuing stablecoins, one must question whether people would really hold multiple stablecoins at once, and why.
  
  Moreover, stablecoins are issued on diverse blockchain platforms with formats that are not always compatible with all wallets. Sending money to an incompatible wallet that cannot accept the stablecoin can, from a technical perspective, lead to losing control of funds. Many closed-loop payment networks today—such as PayPal and many e-money providers like Venmo in the United States—only enable payments to users of that service. Yet, the user can’t make the mistake of sending such funds in the first place.
  
  
• Fraud risks: The immediate and irrevocable nature of stablecoin (and other cryptocurrency) payments raises the risk of fraud. There is little time to pre-screen transactions or to block or reverse them after a mistake has been made or illegal activity detected. These challenges have harmed fast payment system users owing to those systems’ immediate fund transfer. Fraud risks facing both fast payment systems and cryptocurrencies include account credential theft and takeover (“non-authorized” payment fraud), and impersonation, romance scams, and purchase or invoice scams (“authorized” payment fraud). Blockchain analysis company Chainalysis estimates $12.4 billion of fraud across cryptocurrency globally in 2024 and warns of a growing and increasingly professionalized fraud ecosystem.
  
  Fast payment systems are developing processes and best practices to address these risks, such as standardized fraud resolution policies, fraud reporting and information-sharing, dispute resolution and loss recovery rules, and technology for fraud monitoring and confirmation of recipients.  Will stablecoin networks develop similar systems? For instance, will US stablecoin customers who experience credential theft and send unauthorized payments have protections like Regulation E that protects users against this risk in payments today? The United States’ Consumer Financial Protection Bureau proposed expanding “Reg E” to stablecoins, but the agency has turned away from consumer protections toward novel digital currency under the Trump administration. Meanwhile the United States’ GENIUS Act does not appear to include meaningful fraud protection measures.
  
  
• Bank and exchange intermediation: To move from stablecoins to fiat money today (and vice versa), a user needs to open an account at a cryptocurrency exchange that connects to their bank. While feasible in most jurisdictions, doing so adds an extra step to using stablecoins. This is also a major reason why “banking the unbanked” with stablecoins is often a circular proposition; one needs a bank account to move out of stablecoins into fiat currency. Regulated cryptocurrency exchanges, like banks, also require identifying information as part of a regulatory know-your-customer process, which can pose inclusion challenges to those lacking government-issued documentation.
  
  If banks issue stablecoins in the future, they may sidestep the need to engage with a cryptocurrency exchange. But banks remain in the picture. They also may seek income by charging fees to users for converting their stablecoins to and from bank deposits. 
  
  
• Limits to cross-border remittance savings: Stablecoins are often described as a silver bullet for reducing international remittance costs. Yet, they still involve an irreducible foreign exchange conversion cost. Moving from USD deposits to a USD stablecoin does not involve a foreign exchange transaction, but moving from a USD stablecoin to, say, Turkish lira would. Coupled with the user-facing requirements mentioned above—bank and potentially cryptocurrency exchange accounts, identification documentation, network transaction fees, and the need to critically avoid mistakes or fraud when sending funds—stablecoins’ superiority as a cost and inclusion solution to cross-border remittances is far from self-evident.

Economic challenges and risks

• Bank deposit and liquidity challenges: When a customer acquires stablecoins at the cost of their bank deposits, that bank will see a drop in retail deposits, which are a sticky, inexpensive source of capital for banks to conduct their lending activities. Crowding out deposits could thus dampen lending activity. Still, depending on the jurisdiction, stablecoin issuers can be required to keep funds backing the value of their issued stablecoins at regulated depository institutions. In this case, lost retail deposits return to banks (although not necessarily the same ones). However, they constitute unsecured wholesale funding, which can be volatile and weaken a bank’s liquidity coverage ratio. A run on stablecoins implies rapid withdrawal of these funds, posing stability risks to banks. Additionally, as with other wholesale entities, a stablecoin issuer expecting illiquidity at a bank may attempt to rapidly withdraw its deposits, as Circle attempted with its $3 billion in deposits at Silicon Valley Bank in 2023.

• Business model risk: The core business model as it stands today of firms issuing stablecoins backed by reserves (Tether, Circle, and others) will face sustainability challenges in environments with lower interest rates. Today, the dominant source of revenue for stablecoin issuers is the yield they earn on their reserves, often in bank deposits or short-term treasury bills. Circle made 99 percent of its revenue from this source in 2024. Lower interest rates will compress this revenue. In some cases, major issuers appear to have misled the public about holding 100 percent cash equivalents, when they were actually holding short-term corporate debt with a higher yield.

• Overseas challenges of dollarization and sanctions evasion: Some enthusiasts are excited about the idea of perpetuating US dollar usage abroad with USD stablecoins. However, this overlooks serious risks to the foreign country. Unintended dollarization, or more generally, currency substitution, can harm the country by reducing the effectiveness of its monetary policy for managing business cycles. Namely, the local central bank would normally be able to manage the cost and value of its currency as one tool to provide relief in recession. This is less effective when households and firms hold less of this currency.
  
  The use of stablecoins today to circumvent sanctions should also be noted. Tether’s USD stablecoin, for instance, has reportedly enabled billions of dollars in sanctions evasion globally.
  
  Because of the risks of illegal activity, including the evasion of sanctions and other capital flow management measures, currency substitution, and other challenges, authorities abroad may take measures to limit stablecoin usage in foreign currency in their jurisdictions. In Europe, the MiCA stablecoin regulation enables authorities to restrict non-euro stablecoin usage in the region if it interferes with monetary sovereignty, monetary policy, or financial stability.  
  
  
• Deviation from par value (de-pegging): Today, a dollar is a dollar. With bank oversight and deposit insurance, we don’t question the issuer’s safety before receiving payment. Strong stablecoin regulation would ideally provide similar confidence. However, stablecoins are pegged to dollars—they aren’t dollars themselves, and this peg could break. Numerous stablecoins have temporarily lost their pegs in secondary market trading. Circle’s USDC briefly de-pegged in 2023 due to Silicon Valley Bank concerns, where it held deposits. In a more extreme example, TerraUSD, an algorithmically managed stablecoin, was the fourth-largest in the world with an $18 billion market cap before its collapse in 2022.
  
  This challenge recalls the free banking era when recipients questioned the currency issuer’s brand and strength—a practice we’ve since left behind. The question is whether the benefits of stablecoins outside of cryptocurrency investing—a case still in development—are worth this and other notable challenges.   

With more than $250 billion in market cap, stablecoins have proven useful for cryptocurrency investing. As the ecosystem evolves, their value for everyday payments remains to be seen. While there’s considerable excitement about this potential, the dialogue often overlooks significant frictions, risks, and inefficiencies involved with large-scale stablecoin adoption.

Ashley Lannquist is a contributor at the Atlantic Council and former Digital Finance Expert at the International Monetary Fund.

*Note: Circle is a partner of the Atlantic Council’s GeoEconomics Center. This article, which did not involve Circle, reflects the author’s views.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Stablecoins are trending, but what frictions and risks are getting overlooked? appeared first on Atlantic Council.

BRICS expresses its main grievances around governance within institutions such as the International Monetary Fund (IMF) and the World Bank. In both, BRICS argues that the voices of emerging markets are not prioritized. The group has openly criticized the dominant role of the US dollar in global trade, as well as policies related to climate change and gender, which BRICS considers to be unfair.

As an international forum, the group initially wasn’t taken very seriously. Back in 2010, BRICS accounted for only around 18 percent of the global economy, and its bargaining power relative to the G7 was negligible. Add to that the fact that BRICS struggled to formalize concrete proposals and was often seen as merely complaining about what it opposed, rather than engaging in constructive dialogue and providing a vision. That’s part of why the Group of Twenty (G20) agenda has more often reflected G7 priorities rather than those of BRICS.

BRICS didn’t emerge out of nowhere. Its concerns are rooted in longstanding issues with representation in the main governing bodies of the IMF and the World Bank. At the time of the first summit, BRICS countries held only about 10 percent of IMF quotas, a share that did not reflect the true size and growing influence of their economies. BRICS—particularly China—has long advocated for a comprehensive review of IMF quotas based on the established formula, arguing that their economies have continued to outpace those of many advanced nations. However, these efforts have been consistently blocked by the “West,” as their relative influence—particularly in the case of the European Union more than the United States—would shrink significantly. Fifteen years later, the situation looks much different. The rise of BRICS is undeniable, and its membership is expanding—new members include Egypt, Indonesia, the United Arab Emirates, and possibly Saudi Arabia—making it a platform for nearly all emerging markets. But even just measuring the original BRICS nations by their share of global gross domestic product (GDP), energy resources, and population shows that the group has nearly taken over the West.

A close look at the rare earth reserves held by the G7 and BRICS reveals a staggering difference. Rare earth elements are essential to the modern economy because they are critical components in high-tech products such as smartphones, electric vehicles, wind turbines, and military systems. As the world shifts toward clean energy and digital innovation, demand for rare earths continues to grow, making them a cornerstone of economic competitiveness and national security. BRICS countries control the supply.

In fact, the only country maintaining the G7’s marginal more influence across many economic metrics is the United States. But with US President Donald Trump walking out of the Canadian G7 summit after being frustrated with his colleagues and boycotting this year’s G20 summit due to political differences with South Africa, BRICS has an opportunity in front it. How big an opportunity? Look at the data above—if the United States weren’t in the G7, the group’s share of global GDP would drop from 54 percent to 27 percent. Its share of oil production would drop from 28 percent to 7 percent.

The BRICS countries have gradually matured into a more cohesive and strategic bloc, moving beyond broad rhetoric to articulate a clearer vision for global economic reform—and causing increasing headaches for Western leaders. Through repeated summits and technical dialogues, they have developed a shared understanding of their collective interests, shaped by common experiences of underrepresentation in Western-led institutions. So, what did they come up with?

First, BRICS is advancing de-dollarization and introducing the concept of a common BRICS payment system to facilitate trade within the bloc and with aligned countries. With 57 percent of global foreign reserves and 54 percent of export invoicing, the US dollar continues to dominate global trade and serves as the world’s primary reserve currency, as demonstrated by the Dollar Dominance Monitor developed by Alisha Chhangani, assistant director at the Atlantic Council’s GeoEconomics Center. Second, the group is developing an independent settlement infrastructure through initiatives such as BRICS Pay (a blockchain-based system), BRICS Clear (a settlement platform), and BRICS Bridge (an alternative to the western payment systems). Third, BRICS is promoting alternatives to the IMF and World Bank by strengthening its New Development Bank and the Contingent Reserve Arrangement, with a focus on expanding membership and increasing lending in local currencies.

Progressing from formulating proposals to implementing them is a long road—and that’s where BRICS continues to struggle. It doesn’t help that the US president is threatening an additional 10 percent tariff on every country aligning with the BRICS agenda. But never in the history of BRICS have its members enjoyed such economic heft. The group could use this momentum to assert greater influence at the G20 meetings in South Africa this November, especially considering the United States’ boycott.

This past weekend’s BRICS summit in Brazil could represent a pivotal moment for the group. BRICS could push its agenda forward and demonstrate real global leadership at the West’s expense. It seems that, yet again, they failed to deliver concrete progress—only reinforcing the perception that BRICS is more symbolic than effective. Most notably, Chinese President Xi Jinping’s decision to skip the summit—as expected—significantly undermined the bloc’s credibility. His absence, along with that of other leaders, continues to raise serious questions about the bloc’s commitment to the very international order it claims to champion—and to BRICS as its most prominent platform for shaping that order.

Bart Piasecki is an assistant director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Building BRICS appeared first on Atlantic Council.

Section 899 and Trump’s strategy

As passed by the House, Section 899 would empower the Department of the Treasury to publish a quarterly list of “discriminatory foreign countries,” which are jurisdictions that it deems to impose “unfair” taxes on US businesses, such as digital services taxes or the undertaxed profits rule in the Organisation for Economic Co-operation and Development’s Pillar Two minimum tax regime. Notably, the legislation leaves “discriminatory” loosely defined, giving the Treasury broad discretion. Investors from any listed country would face an extra 5 percent US withholding tax on income from US sources (dividends, interest, royalties, etc.), increasing by five points each year up to a maximum of twenty points above the statutory rate. In practical terms, a dividend taxed at 5 percent today could eventually be 25 percent, and income already taxed at statutory 30 percent could reach 50 percent, notwithstanding any rate caps otherwise agreed in existing treaties. Major economies like the United Kingdom, France, Australia, and India have enacted measures that might put them in Section 899’s crosshairs, although the Treasury would have broad, potentially policy-driven discretion to add or remove countries from the target list.

On June 16, the US Senate Finance Committee released its own draft of Section 899, which would cap the provision’s extra tax at fifteen points (not twenty) and delay its application until 2027 for calendar-year taxpayers. It also explicitly exempts portfolio interest from any Section 899 tax hike (meaning that interest on most US Treasury securities would not be subject to the add-on). These changes, likely prompted by intense lobbying from the financial industry since the House passage, would soften, though not eliminate, the potential disincentive for foreign investors to invest in many US assets. Notably, the Senate version substantively retains the House bill’s broad definition of discriminatory taxes and the Treasury’s wide latitude to list targeted countries, meaning the core structure and its potential leverage remain. The Senate is expected to mark up the bill later this summer, but reconciling the House and Senate version will likely stretch into the autumn budget negotiations.

If enacted in a form resembling the House version (or even the Senate Committee draft), Section 899 could give President Trump a potent new economic lever beyond tariffs. Using this lever would effectively extend his “America First” strategy from the realm of trade disputes to cross-border capital flows. It would allow potential taxation of such flows to be utilized to extract concessions from both traditional US allies and rivals. Supporters of the clause contend that brandishing the threat of higher US taxes on foreign investors will pressure other governments to repeal taxes and rules they believe unfairly target American companies. Critics, however, argue that turning access to US financial markets into a weapon is a high-risk gamble. They note that the sheer scale of the potential tax hike, the break with long-standing treaty obligations, and the Treasury’s sweeping latitude to single out countries all contribute to a potentially ominous message for foreign capital and investment.

Investor confidence, capital flows, and the dollar: Global market implications

Foreign investors collectively hold tens of trillions of dollars in US stocks, bonds, and other assets. This capital helps to finance the United States’ federal deficit and keeps borrowing costs in the United States relatively low. A central concern is that Section 899, if enacted, could cause investors to pull back some of this vital foreign capital. The mere prospect of Section 899 has already injected further political risk into assets long prized for predictability. While Section 899’s phased escalation is meant as a hardball negotiating tactic to compel foreign governments to comply before serious damage is done, simply passing such a measure sows a degree of uncertainty for investors. 

Long-term investors in particular might pause or reconsider investments in US assets if they perceive that their anticipated returns could be abruptly curbed by political decisions. Even a modest reduction in foreign investment could reverberate across US asset classes. Robust American bond yields and a weaker dollar may have recently provided short-term incentives for foreign buyers. However, America’s long-held reputation for financial outperformance and safety, which has attracted capital even (or particularly) in turbulent times, may erode over time. By signalling that US capital markets could become a geopolitical tool, Section 899 could chip away at a foundation of trust that has underpinned American financial strength.  

A shift of foreign investment away from US assets could raise the cost of capital in the United States. Additionally, stock valuations, especially for firms with large international shareholder bases, might face downward pressure. Real assets could be hit too. Multinational companies weighing investments in the United States might rethink major projects if their profits could be skimmed by a special tax contingent on their nationality. The breadth of US financial markets, ranging from government bonds to riskier corporate ventures, could see a collective dampening of foreign demand over time.

More broadly, weaponizing America’s financial heft through a provision like Section 899 may help to accelerate a geopolitical realignment in global finance. The implications extend to currency dynamics, particularly the role of the US dollar. The dollar’s strength as the world’s reserve currency is underpinned by trust that the United States offers a secure and impartial home for capital. If Section 899 leads even a few major international investors to question that premise, the dollar could face additional headwinds. While the Senate Finance Committee’s exclusion of portfolio interest should help mitigate this particular concern by shielding most US government debt from the tax, less appetite for US securities would mean less demand for dollars to buy those assets—arriving at an inopportune moment as US budget deficits widen and reliance on foreign creditors grows. If foreign lenders become less willing to bankroll Washington’s spending, the dollar’s value may weaken further. Some policymakers might welcome a weaker dollar for its boost to exports, but any short-term trade gains could be offset by higher inflation and a diminished appeal as a safe haven.

The outcome of Section 899 will send an important signal. If it passes largely consistent with the House version, President Trump will have a powerful new stick to wield in international economic negotiations, reinforcing his broader message that the United States is willing to upend norms to defend its interests. Using this stick could mark a new era of assertive tax policy with potentially unpredictable consequences for the global investment climate. However, if Congress waters down or removes Section 899, it may reassure investors that the United States seeks to maintain its traditional role as a relatively stable anchor in the global financial system.

John Satory is a senior lawyer with over twenty years of experience in cross-border capital markets based in London and is a contributor to the Atlantic Council.

Data visualization by Ella Wiss Mencke and Jessie Yin.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post From trade wars to capital wars: Section 899 could rattle global capital markets appeared first on Atlantic Council.

After years of nearly aligned rate policies, the recent rate-cutting cycles of the United States and European Union (EU) central banks have recently not been in lockstep.

Following the most recent meeting, the current ECB reference rate stands at 2.15 percent. In her speech, ECB President Christine Lagarde explained the governors’ decision and suggested that the bank is nearing the end of its rate-cutting cycle.

In contrast, the US monetary authority has cut rates only three times since their peak of 5.5 percent in July 2023, bringing the benchmark rate down to 4.5 percent. Federal Reserve Chair Jerome Powell has defended the Fed’s cautious stance amid sharp criticism from President Trump, citing uncertainty with the administration’s tariff policy. With the now legally contested universal 10 percent tariff on nearly all US imports, the Fed is increasingly concerned about potential inflationary effects—leaving the Fed trailing behind its European counterpart in the rate-cutting cycle.

In the coming months, the Federal Reserve will have several opportunities to adjust or reinforce its hawkish monetary policy stance. But will it? Markets expect the Federal Open Market Committee to lower rates by fifty basis points by the end of the year, but judging by yesterday’s decision, we can anticipate continued vigilance. Setting tariffs aside, economic data from the Eurozone and the United States—particularly regarding central bank mandates such as price stability and sustainable employment—look strikingly similar. In both cases, inflation is gradually declining, and in the case of the ECB, it has already reached its 2 percent target. In April, US inflation stood at 2.1 percent, exceeding the Fed’s target by just 0.1 percentage point. Following the spike in unemployment after COVID-19—more pronounced in the United States due to differences in labor protection laws—employment remains historically strong in both regions, hovering around 6 percent in the EU and 4 percent in the United States. So, why is the ECB cutting rates while the Fed holds steady? If no cuts are made, Chair Powell will need to clearly communicate the Fed’s policy rationale.

It boils down to an uncertain economic outlook caused by recent shift in US trade policy. Amid a roller coaster of tariff announcements, it’s nearly impossible to assess their broader impact on the economy, inflation, and employment. Following Liberation Day and the dramatic reaction in the Treasury market, it seems that Trump’s tariff strategy does carry significant risk. Our Trump Tariff Tracker highlights how trade policy is being repurposed as a strategic lever. The most recent US–UK trade “deal” serves as a clear example of how tariffs are being used not just for protection, but as a starting point in broader negotiations—anchored by a proposed 10 percent baseline rate. Applying that framework to other agreements echoes Chairman Powell’s remark that “increases in tariffs this year are likely to push up prices and weigh on economic activity,” potentially delaying future monetary policy decisions.

But how long can the Fed afford to wait and see? According to the International Monetary Fund’s spring World Economic Outlook, US inflation in 2025 is projected to reach 3 percent. Moreover, the New York Fed conducts a survey measuring consumer inflation expectations, with the outlook for the next year currently at 3.2 percent—well above the Fed’s 2 percent target. Given elevated inflation expectations and lingering uncertainty—balanced against encouraging labor market and inflation data—the Fed will need to tread carefully. Cutting rates too soon could undermine recent progress in bringing inflation back to target and potentially necessitate future rate hikes. On the other hand, cutting rates too late could further weaken growth prospects and negatively impact employment.

Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

Related content

Econographics May 12, 2025

Multilateralism under pressure: Takeaways from the 2025 IMF Spring Meetings

By Bart Piasecki

The 2025 IMF Spring Meetings unfolded against a backdrop of mounting geopolitical tensions, economic fragmentation, and rising doubts about the future of multilateral cooperation. Here are the key insights.

International Financial Institutions Macroeconomics

Bretton Woods 2.0 Oct 21, 2024

Get an inside look at the IMF-World Bank meetings as finance leaders navigate a geopolitically fragmented world

By Atlantic Council experts

To gauge whether delegates can revive the world’s spirit of cooperation at the IMF-World Bank Annual Meetings, we sent our experts to the center of the action in Foggy Bottom.

China Economy & Business

Econographics Jul 18, 2024

The Bretton Woods institutions need revitalizing. Luckily, they are no strangers to reform.

By Amin Mohseni-Cheraghlou

The changing nature of the global economy is forcing these institutions to take a renewed look at their governance structure and mandates. This is not the first time they have had to do so.

Economy & Business Fiscal and Structural Reform

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Hawks vs. doves: The split between the Fed and the ECB appeared first on Atlantic Council.

By assenting to the continued abuse of corporate structures and short-circuiting the establishment of a database of the people who own and control real businesses operating in the United States—or “beneficial owners”—the Treasury has made the American financial system, and Americans, less safe. But that outcome wasn’t inevitable and is reversible.

The first Trump White House supported the CTA in a 2019 statement of administration policy, writing that the law “will help prevent malign actors from leveraging anonymity to exploit these entities for criminal gain… strengthening national security, supporting law enforcement, and clarifying regulatory requirements.” Other supporters included the US Chamber of Commerce, federal prosecutors, international human rights non-governmental organizations, financial institutions, police, sheriffs, faith-based groups, national security experts, and more than a hundred other organizations.

The persistent risk of anonymous shell corporations

Despite the passage of the CTA in 2020, anonymous shell companies remain a risk to the US financial system. Drug traffickers, terrorists, and nation state adversaries, including China, use our opaque corporate structure to harm Americans. In the CTA, Congress found that malign actors use US corporate law to facilitate “money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.”

High profile prosecutions demonstrate the roles that anonymous shells continue to play. For example, a Shanghai-based international drug trafficking organization used domestic Massachusetts shell companies as a US base for its operation to distribute fentanyl to customers across the country, resulting in multiple deaths before being shut down by the Department of Justice (DOJ) in 2018. Similarly, a February 2024 DOJ indictment revealed a scheme where a Chinese national used a US front company to launder Iranian oil into China, the proceeds of which funded Iran’s Islamic Revolutionary Guards Corps, a designated foreign terrorist organization in the United States.

The enduring danger that shady corporate structures present creates an imperative to act. It may also put Treasury Secretary Scott Bessent’s rollback strategy in legal peril, as long as the CTA is on the books. By statute, in order for a court to uphold the new rule, the rule must demonstrate that eliminating anonymous shell corporations: “(1) would not serve the public interest”; and “(2) would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.” The Treasury makes little attempt to achieve this impossible showing. Given this shaky legal foundation, the new rule is likely to end up in court.

Building a beneficial ownership system with less burden

If Secretary Bessent’s true objective is to ease the burden on small businesses and banks, a better way forward is to determine what went wrong in the first round of implementation and fix it, eliminating uncertainty, confusion, and unnecessary compliance burdens. Secretary Bessent has spoken fondly about how the new technology expertise at the Treasury can bring our “Blockbuster-style government in a Netflix world.” He should deploy it to ease the pain points of the first round of implementation.

For example, technology can significantly ease the compliance burden on companies who are required to report their beneficial ownership information. Reporting companies are the smallest of small businesses—by statute, only companies with fewer than 20 employees are required to report. These firms usually only interact with the federal government to file taxes. With time and resources, Treasury could collaborate with the Internal Revenue Service to allow small businesses to opt in to submitting their beneficial ownership information alongside their tax information.

Secretary Bessent could also rationalize the beneficial ownership and customer due diligence (CDD) systems, which already require financial institutions to collect beneficial ownership information from their customers. Initial implementation froze the status quo for banks and built an entirely separate—and barebones—beneficial ownership database at Treasury. There must be a better way where financial institutions and Treasury join forces to collect, maintain, validate, and deploy data jointly. They should share the costs so that the American people can enjoy the formidable national security and public safety benefits of securing our financial system against illicit actors. This could functionally reduce compliance burdens of banks without reducing the quality of information available to law enforcement.

As long as the CTA remains law, Treasury is obliged to accurately implement and enforce it. Perhaps more importantly as long as anonymous shell corporations endanger our national security and safety, the US government should mitigate the grave threat they present. Following the money remains one of the most potent tools we possess to solve crimes and protect our national security. We must not disarm.

Julie Brinn Siegel is a contributor at the Atlantic Council, former Deputy Chief of Staff at the US Department of the Treasury, and former Deputy Federal Chief Operating Officer.

Related content

Issue Brief Apr 28, 2025

Modernizing the tools of economic statecraft to meet the challenges of today

By Lesley Chavkin, Eitan Danon, Kimberly Donovan, Andrew Gallucci, and Caroline Hill

As the current administration revisits the functions and mechanics of government, near-term steps can be taken, under existing statutory authorities, to modernize how the United States uses its economic strength to combat national security threats and promote American interests.

Economy & Business Financial Crimes & Illicit Trade

Econographics Jan 31, 2025

Mexican cartels as foreign terrorist organizations: Impact on US businesses

By Samantha Sultoon

Should the Trump administration choose to use the FTO designation on major Mexican cartels, it may have impacts that have not been fully evaluated.

Americas Economy & Business

Econographics Jun 12, 2025

The objectives of transatlantic financial services regulation and the future of international cooperation

By Matthew L. Ekberg

Much has been written in recent weeks about heightened geopolitical tensions and the impact of policy changes concerning international trade on global markets. Less has been said about the growing shift in focus on both sides of the Atlantic—and across the English Channel—on the next stage of development for financial services regulation.

Economy & Business European Union

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Anonymous shell companies pose a threat to US national security. Here is how to address it. appeared first on Atlantic Council.

Factors will depend, however, on evolving political circumstances coupled with the effects of a continuing shift toward more fragmented policy making across borders. This issue has long been on the minds of government and industry alike, but it may become more complicated in the near to medium term. It is timely to examine these trends to better understand the direction of travel between the UK, European Union (EU), and United States, and how this will impact markets and economies globally.

First, in the UK, the government’s Financial Services Growth and Competitiveness Strategy will be published this July. It will focus on five priority growth opportunities—sustainable finance, asset management, fintech, insurance, and capital markets. The Prudential Regulation Authority and the Financial Conduct Authority will be at pains to continue emphasizing that the primary objectives of consumer protection and systemic stability will not be compromised through any changes. However, it will be important to reflect on how issues such as the Basel III Endgame implementation will be addressed in light of these priorities, considering the approach of other jurisdictions (especially the United States) to the future of this global prudential package.

Second, in the EU, the European Commission has similarly affirmed that it will increasingly focus on growing financial market activity and ensuring the bloc can adequately compete with other world actors in financial services. This will likely lead to further discussions on, inter alia, sustainability standards, financial risk rules, and closer market integration. Though there is consensus on the need to make the EU more competitive, concerns have already been raised, for example, by Frank Elderson, vice-chair of the European Central Bank supervisory board that increasing competitiveness should not be pretext for watering down regulation and potentially increasing instability.

Further complicating matters is the issue of how, or if, the bloc will respond to any escalation of punitory trade measures by the US administration. Though the pace of recent trade talks has accelerated, questions remain in the near term about the potential application of the EU Anti-Coercion Instrument if negotiations fail, and what that may mean for the imposition of restrictions on financial services activity from third countries.

Third, in the United States, a more complex picture is emerging. The economic implications of White House trade policy will have to be weighed against the general deregulatory bent of the administration, but a few themes have come to light. There is a clear indication that the US Treasury will play a greater role in financial services regulation. Treasury Secretary Scott Bessent is on record stating that lending policies should better match the risk of financial firms, and that bank regulation has not taken economic growth into account. Federal banking agency rulemaking will also likely shift. Federal Reserve (Fed) vice chair for supervision, Governor Michelle Bowman, has indicated that supervisory reform, the promotion of innovation, and a pragmatic approach to regulation will be prioritized. The objective of cost-benefit analysis being applied toward regulation will affect how the Fed addresses the outstanding issue of the Basel III Endgame implementation, alongside an expected review of the supplementary leverage ratio and its impact on the US Treasury market.

Lastly, how the United States approaches international regulatory initiatives is also expected to be gauged by how they align with updated US regulatory policy objectives and the America First approach of the administration. SEC Commissioner Hester Peirce recently questioned the agendas of the international standard setters in light of calls for increased domestic control over policy. Secretary Bessent has also raised the issue of US reliance on these bodies. Such interventions will be important to monitor considering the wider gap between national and international rhetoric on cooperation geopolitically.

This is certainly a non-exhaustive snapshot of trends across three major economies, but it raises the question of where the rest of the world stands. How will international cooperation on financial stability evolve with this more domestic-minded focus on growth and competitiveness? This question is coupled with potential disputes on international trade in goods spilling into reciprocal action against the services sector.

On the first point, cooperation will likely continue around topics of consistent mutual concern at the Basel Committee, the Financial Stability Board, the Committee on Payments and Market Infrastructures, and the International Organization of Securities Commissions. Areas of focus will include oversight of the non-bank financial institution sector, modernizing cross-border payments, and addressing issues for operational resilience and cyber security. In his April letter to the Group of Twenty finance ministers and central bank governors, outgoing Financial Stability Board Chair Klaas Knot emphasized the importance of vigilance and international cooperation to address emerging risks and ensure the continued resilience of the financial system. Bilateral and multilateral regulatory collaboration is also continuing in the crypto currency space. The United States and the UK, in particular, are working together to support the responsible growth of digital assets.

However, the prospect is significant for increased fragmentation in regulatory approaches to capital, liquidity, and financial risks related to climate, among other issues. Cross-border financial institutions will potentially have to navigate a much more complicated and disparate set of requirements, which ultimately may impact systemic safety and soundness.

On the second point, the Bank for International Settlements recently warned that geopolitical tensions between countries reduce cross-border bank lending between them. The specter of retaliatory responses in reaction to punitive trade policies seeping into the regulation of financial services can exacerbate this concern. This is particularly acute in the regulation and supervision of foreign banks. Trapping capital and liquidity can have a specific negative impact on the provision of domestic financial services products, hurting the very objectives of growth and competitiveness that appear the ubiquitous watchwords of national policymakers.

There is still a strong case to be made for an interconnected global financial services system where regulatory authorities collaborate on the best means to ensure stability and security across borders. Doing so is not mutually exclusive with objectives for increased domestic growth and competitiveness. It can, in the case of cross-border capital flows, contribute to achieving those goals. An important area of reflection for both the public and private sectors in the coming months is how cooperation can be activated to prioritize economic development while maintaining stability with consistent global standards.

Matthew L. Ekberg is a contributor at the Atlantic Council and former Senior Advisor and Head of the London Office for the Institute of International Finance (IIF).

Related content

Econographics Apr 30, 2025

US-EU sanctions divergence would spell trouble for multinational companies

By Jesse Sucher

The fracturing of traditional alliances carries significant consequences for companies facing multijurisdictional compliance obligations, meaning an already complex situation will become more chaotic.

Economy & Business Europe & Eurasia

New Atlanticist Apr 29, 2025

Nasdaq CEO Adena Friedman on how technology can be used to tackle financial crime

By John Cookson

Artificial intelligence and other new technologies are needed to address the problem of illicit funds in the global financial system, Nasdaq CEO Adena Friedman told the Atlantic Council on April 25.

Economy & Business Financial Crimes & Illicit Trade

EconoGraphics May 13, 2025

Basel III endgame: The specter of global regulatory fragmentation

By Hung Tran

Diverging timelines for Basel III implementation are fragmenting global financial regulation. As major economies delay or dilute reforms, coordinated oversight erodes—posing renewed risks to international financial stability.

Economy & Business Financial Regulation

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post The objectives of transatlantic financial services regulation and the future of international cooperation appeared first on Atlantic Council.

At the same time, the quality of government bonds issued by developed countries, mainly the United States, has been questioned. Developed countries face fiscal pressures reflecting demands for higher government spending on defense, infrastructure, and other needs, while their budget deficits and government debts are already at high levels.

The ensuing search for safe assets has come up against the fact that there are no obvious alternatives to US Treasuries. Efforts to deal with the problems of fiscal deterioration in major countries by diversifying safe asset portfolios could lead to market volatility, posing a risk to global financial stability.

US dominance in the global bond market

The global bond market is estimated to be about $140 trillion, dominated by the United States, which amounts to $55 trillion—or 39.3 percent of the total. The bulk of the US bond market is made up of US Treasury securities marketable to the public. These securities are worth $28.8 trillion, and amount to the biggest and most liquid bond market in the world. A total of $9 trillion, or 31.2 percent are held by foreigners and $4.2 trillion, or 14.6 percent, are held by the Federal Reserve. Together with intragovernment holding of US Treasuries totaling more than $7 trillion, US government debt has reached $36 trillion, or 124 percent of US gross domestic product (GDP)—doubling the debt-to-GDP ratio of 62 percent posted in 2007 prior to the global financial crisis.

Moreover, the US fiscal outlook has worsened. The administration’s budget package—named the One Big Beautiful Bill Act—has been approved by the House, and is currently under the Senate’s consideration. It makes the 2017 tax cuts permanent and, if enacted, would increase the $1.8 trillion budget deficit in 2024 by $2.4 trillion between 2026 and 2034. These estimates, provided by the Congressional Budget Office, would raise the amount of government debt in the process. The United States’ deteriorating budget deficit trajectory has prompted international investors to share concerns about the sustainability of US public finance, which could lead to upward pressure on yields to compensate for the higher perceived risk. This has been manifested by the fact that, since recent stock market turmoil following the announcement of reciprocal tariffs on April 2, 2025, yields on US Treasuries have risen by forty basis points. The US dollar also weakened by 4.2 percent. If international investors flock to US Treasuries as safe havens, Treasury yields would have risen and the US dollar would have become stronger.

No good alternatives to US Treasuries

The deterioration of the US fiscal outlook has put international investors, especially foreign central banks, in a quandary. There is no good alternative to US Treasuries as safe reserve assets. Other major countries have also been burdened with high budget deficits and public debt levels—albeit generally less acute than the United States. Those markets that have lower deficits are smaller and less liquid than the US Treasury market, making them less attractive as reserve assets.

The euro has been frequently mentioned as an aspirant to compete with the dollar—a point recently emphasized by Christine Lagarde, president of the European Central Bank (ECB). However, the public bond markets dominated by the euro are fragmented and collectively smaller than the US Treasury market. They are able to supplement but not replace US Treasuries.

The European Union (EU) has launched three programs to issue joint Eurobonds within its budgetary authority: SURE, a program to support employment during Covid-19, for up to €100 billion; NextGenerationEU, a stimulus package to grow Europe’s economy, for up to €712 billion; and the European Financial Stability Mechanism, which provides assistance to member states in financial distress, for up to €60 billion. To date, about €468 billion ($533 billion) worth of Eurobonds are outstanding—just big enough to be an attractive niche market segment.

The euro area (EA) member states have a combined government bond market of more than €10 trillion ($11.4 trillion), of which about 35 percent is held by the ECB and 22 percent is held by foreigners. Trading, especially by hedge funds, has concentrated on the German, French, Spanish, and Italian markets. However, the EA market is fragmented into national markets, each of which is shaped by different and often divergent domestic economic and fiscal circumstances.

The UK government (gilt) bond market is fairly substantial at £2.6 trillion ($3.5 trillion), with about 30 percent held by foreigners.

The Japanese Government Bond (JGB) market amounts to $7.8 trillion or 250 percent of Japan’s GDP. The Bank of Japan (BOJ) holds 52 percent of the JGB market due to its massive JGB purchases, though the BOJ has been scaling back its purchasing volume while Japan emerges from deflation. Along with prospects of substantial borrowing needs by the Japanese government, this has pushed up yields and stymied demand from foreign investors who already account for only 6.4 percent of the JGB market. Finally, the Chinese bond market—at $21.3 trillion—is the second biggest in the world after the US market. However, the bulk of the public bond segment of $14.4 trillion is in bonds issued through local government financing vehicles, which are fragmented and illiquid. Central government bonds only account for $3 trillion. Foreign investors take up only 7 percent of the Chinese government bond market. Overall, the lack of free convertibility of the renminbi and the closed capital account have rendered Chinese government bonds not completely suitable as safe assets for global central banks.

Some central banks have purchased substantial amounts of gold in recent years to hedge against economic uncertainty and geopolitical tension. This has helped push the price of gold up 42 percent over the past year to record highs around $3,300 per ounce. As a result, the average share of gold at market values in global centeral bank reserves has reached 15 percent. It’s unlikely that this share will continue to rise much further in future, given the limited supply of gold. The costs of holding it also include lack of interest earnings, storage and transportation costs, and the inconvenience in using gold as means of settling international transactions.

Conclusions

The deteriorating fiscal outlook of major countries, especially the United States, has made safe assets more difficult to find. Going forward, there will likely not be an effort to replace US Treasuries with other government bonds—there is simply no viable alternative. Instead, a trend toward diversification to better manage heightened sovereign and credit risks on what used to be thought of as risk-free assets is probable. More frequent portfolio restructuring and the substitution necessary for diversification measures would add to market uncertainty and volatility, at a time when both measures have already been elevated by the tariff war and geopolitical tension. This trend would increase risk to global financial stability.

In particular, the share of the US dollar and US assets, such as Treasury securities in global safe asset portfolios, will likely decline gradually over time as international investors move to diversify their portfolios. When looking at the composition of global central bank reserves, this development is consistent with the gradual decline of the dollar from 72 percent in 1999 to 57.8 percent in the fourth quarter of 2024. The trend was not in favor of any other major currency such as the euro, whose share has been stable around 19.8 percent in recent years, but to a variety of nontraditional reserve currencies. If the world’s central banks were to maintain a neutral allocation to US Treasury securities in their reserves portfolios, that would be 36 percent—the share of US Treasuries in the global government bond market totaling $80 trillion.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and senior fellow at the Policy Center for a New South; and former senior official at the Institute of International Finance and International Monetary Fund

Related content

EconoGraphics May 13, 2025

Basel III endgame: The specter of global regulatory fragmentation

By Hung Tran

Diverging timelines for Basel III implementation are fragmenting global financial regulation. As major economies delay or dilute reforms, coordinated oversight erodes—posing renewed risks to international financial stability.

Economy & Business Financial Regulation

Econographics May 23, 2023

There is no alternative to US Treasuries

By Josh Lipsky

In the wake of a US default, investors searching for safe assets may have no viable alternative to US Treasuries.

China Economy & Business

New Atlanticist May 27, 2025

What’s the Trump administration’s dollar strategy? It depends on who you ask.

By Alisha Chhangani

Within the White House, there appear to be competing and fractured views of the dollar’s role. This dissonance could result in harm to the currency’s long-term dominance.

Digital Currencies Dollar Dominance

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The search for safe assets appeared first on Atlantic Council.

The $4.6 billion initial public offering (IPO) by the battery manufacturer Contemporary Amperex Technology Co. (CATL) in late May was a clear riposte to a US Department of Defense decision to place the company on a watchlist for alleged links to the Chinese military. It also highlighted the fragility of business ties that once seemed to inextricably bind the world’s two largest economies.

The Chinese government is steering more and more of its companies away from New York for IPOs; the country’s second-largest car maker, Chery Automobile, is preparing to launch a $1.5 billion share issue in Hong Kong as well. About three-quarters of the largest twenty-five Chinese firms listed on Wall Street have set up parallel listings in Hong Kong in the past few years and already represent 60 percent of the value of shares listed there. The purpose of listing in Hong Kong is to create an escape valve if the United States follows through on its periodic threats to delist all Chinese stocks on Wall Street. The most recent such warning came from US Treasury Secretary Scott Bessent on April 9, when he declared that “everything is on the table” in response to a journalist’s question about the possibility of forced delistings. Chinese stocks in the United States have a total market capitalization of about $1.1 trillion, which, while no small change, is only a tiny portion of the roughly $52 trillion US markets.

American investors with accounts outside the United States can buy Chinese stocks in Hong Kong, and some fund managers have already shifted their holdings to the dual-listed shares there to protect against future disruptions. But many institutional investors whose governance rules do not allow for such foreign trading could not participate in the CATL IPO. The company specifically structured its share issue that way to avoid US regulatory oversight—a response to the Pentagon’s decision to blacklist the firm.

Hong Kong’s emergence as the market of choice for Chinese companies is no accident. Beijing has worked systematically to revive it as a regional financial center after many foreign investors and financial institutions retreated from the city in recent years, especially after the Chinese government’s began cracking down on mass political protests in 2019. The centerpiece of the financial market strategy is to establish Hong Kong as the largest venue for offshore transactions denominated in renminbi. Stocks are also part of the blueprint. While Chinese companies have been listing in Hong Kong for years, the stock market has gained prominence in China’s plans as US-China relations have worsened. A senior Chinese official said late last year that 80 percent of mainland businesses seeking an offshore listing are prioritizing Hong Kong, no doubt with a push from Beijing’s regulators.

The core issue for both Washington and Beijing is the national security implications of Chinese companies’ presence on Wall Street. Each US presidential administration over the past five years has sought to exclude companies regarded as part of China’s military-industrial complex from American financial markets. In 2020, the first Trump administration launched an effort to prohibit US investments in companies with ties to the Chinese government and military. This initiative resulted in the delisting of several large state-owned Chinese companies from US exchanges.

At the same time, Chinese regulators became increasingly concerned about US requirements for financial disclosure that they believed could reveal national secrets. That became a headline issue in the bilateral relationship after China refused, for many years, to allow US government auditors to inspect listed Chinese companies’ books. The US Congress eventually passed a law that mandated mass delisting if Beijing did not cooperate. A 2022 agreement that permitted American oversight defused the standoff, but the remaining Chinese state-owned firms  voluntarily delisted from Wall Street on that accord was finalized. Since 2021, China has stepped up its scrutiny of all Chinese companies seeking to list in the United States.

These issues have often been most visible when they involve publicly listed companies. However, US policymakers have also focused on restricting US venture capital and private equity investments in China, as well as Chinese investments in the United States. American venture capital and private equity investments in China in 2024 fell to $1.62 billion from a peak of $40.81 billion in 2018, and President Donald Trump issued a national security memorandum in February outlining plans to further restrict these capital flows.

There is a domestic political dimension to Beijing’s decision to expand its oversight of public listings: Control of China’s most important private sector companies, including the e-commerce giant Alibaba Group. Chinese leader Xi Jinping’s campaign to bring private conglomerates to heel has been closely tied to the regulation of foreign listings. The squeeze on corporate fundraising on Wall Street began in late 2020 when Beijing blocked a huge, planned IPO for Ant Group, the financial arm of Alibaba, after Alibaba Chairman Jack Ma criticized financial regulators. That action came as the first restrictions on US investments in Chinese companies were imposed.

From that point on, tightening controls over US listings appeared to occur in lockstep with deteriorating US-China ties. As the Biden administration broadened restrictions on Chinese companies by American investors in 2021, Beijing sought to delay a huge IPO by the Chinese ride-hailing giant Didi Chuxing. China then forced the company to delist after it defied the regulators and proceeded with the deal. Beijing followed that sanction with a raft of regulations mandating stricter oversight of all companies applying for foreign listings. Chinese IPOs in the United States have never recovered. According to the US-China Economic and Security Review Commission, forty-eight Chinese companies issued IPOs in the United States between January 2024 and early March 2025, raising a total of $2.1 billion. By contrast, thirty-two companies raised $12.1 billion in 2021.

Even before the CATL listing, IPOs in Hong Kong had risen sharply this year. The number of deals was up 25 percent in the first quarter, and the total value of those listings increased 287 percent to about $2.3 billion. The ten largest IPOs so far have been Chinese companies.

Listing in Hong Kong certainly has its drawbacks compared with Wall Street. It is a more volatile market with trading volumes far below the levels on US exchanges and lower valuations relative to earnings. A Hong Kong listing generally doesn’t command the prestige of the American exchanges; that can mean less favorable terms on other forms of financing than a US-listed company might be offered. Hong Kong’s listing regulations are also stricter than on Wall Street, and an estimated 170 small Chinese companies listed in the United States may not have the option to obtain dual listings there. However, Hong Kong offers access to a largely untapped pool of Chinese investors through an official program that enables mainlanders to buy and sell Hong Kong shares, including stocks like Alibaba that are not listed on Chinese exchanges. As of late February, investors based in China held about 12 percent of Hong Kong shares, compared with 5 percent at the end of 2020. Their trades accounted for about one-quarter of daily turnover, up from 16 percent a year ago.

Ultimately, while the lure of China’s army of retail investors might provide some consolation for companies that might lose access to the US markets, the Chinese government is the real beneficiary Beijing is prepared to exchange the financial advantages of a market it can’t control for the comfort of a city that responds to its every whim. Its actions over the past five years suggest a calculus that the political benefits of an international financial center with Chinese characteristics will outweigh the pain that decoupling inflicts on China’s private sector.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Hong Kong highlights China’s policy of decoupling from US financial markets appeared first on Atlantic Council.

The United States has opened meaningful space for reconstruction and private sector engagement. Efforts to do so include the Treasury’s Office of Foreign Assets Control (OFAC) issuing General License (GL) 25 (including frequently asked questions on May 28), a State Department Caesar Act waiver, and Financial Crimes Enforcement Network (FinCEN) USA PATRIOT Act Section 311 exceptive relief for the systemically important Commercial Bank of Syria. Along with other relief, the measures remove obstacles to reconnecting the sanctioned Central Bank of Syria and certain Syrian commercial financial institutions to the global financial system.

While a significant signal, these announcements do not mean a return to business as usual with Syria after forty-six years of punishing economic measures directed primarily against the former Assad regime. Syria remains a high-risk jurisdiction due to years of conflict, endemic corruption, state institution collapse, narcotrafficking of captagon, insufficient anti-money laundering efforts, and inadequate financing of terrorism controls. In February, the intergovernmental Financial Action Task Force affirmed Syria’s status on its “grey list” of jurisdictions under increased monitoring. These relief measures announced by the State Department and the Treasury are also either temporary in nature (the 180-day Caesar Act waiver) or subject to revocation at any time (GL25 and the FinCEN Section 311 exceptive relief). Additionally, other US legal and economic restrictions remain in place, including the following:

• Syria’s state sponsor of terrorism (SST) designation that, in part, removes some of Syria’s sovereign immunity in US courts;
• foreign terrorist organization (FTO) designations with attendant material support criminal liability enforced by the Department of Justice and civilly by US terrorism victims;
• United Nations sanctions, including on key members of the Syrian interim government; and
• export controls administered by the Department of Commerce.

As an immediate next step to build on this momentum, the Trump administration can take the following measures:

• Provide policy clarity on the outstanding restrictive economic measures and legal prohibitions related to the SST and FTO designations. The administration can publish a memorandum by the Department of Justice to articulate the administration’s prosecutorial policy involving alleged material support to FTOs operating in Syria. While novel, such guidance would provide greater legal clarity, especially for humanitarian organizations operating in Syria.
• Work with Congress to review the statutory sanctions in place against Syria to ensure that they reflect the fall of the Assad regime and current political developments.
• Work with allies and partners to calibrate the United Nations sanctions to current risks.
• Provide guidance, including frequently asked questions, for the Caesar Act waiver and the FinCEN Section 311 exceptive relief, as well as interagency policy guidance on the roadmap for further relief.
• Develop a policy for using and supporting partners with positive economic statecraft tools such as technical assistance to rehabilitate the financial sector, in addition to licensing, waiving, and removing restrictive economic measures.

The US government should be commended for acting swiftly to update sanctions and other authorities to better reflect the current realities on the ground. Significant work remains ahead to responsibly calibrate restrictive economic measures to achieve US foreign policy goals and support positive economic tools to allow the Syrian people to benefit from this dramatic change in US policy.

Alex Zerden is the founder of Capitol Peak Strategies, a risk advisory firm, an adjunct senior fellow at the Center for a New American Security, and a former Treasury Department financial attaché. You can follow him on X at @AlexZerden.

Related content

New Atlanticist May 13, 2025

Experts react: Trump just announced the removal of all US sanctions on Syria. What’s next? 

By Atlantic Council experts

Our experts provide their insights on how the removal of US sanctions on Syria would affect the country and the wider region.

Civil Society Financial Sanctions and Economic Coercion

Econographics Apr 17, 2025

Russia Sanctions Database

By Kimberly Donovan, Maia Nikoladze, Lize de Kruijf

The Atlantic Council’s Russia Sanctions Database tracks the level of coordination among Western allies in sanctioning Russian entities, individuals, vessels, and aircraft, and shows where gaps still remain.

Eastern Europe Economy & Business

Econographics Apr 30, 2025

US-EU sanctions divergence would spell trouble for multinational companies

By Jesse Sucher

The fracturing of traditional alliances carries significant consequences for companies facing multijurisdictional compliance obligations, meaning an already complex situation will become more chaotic.

Economy & Business Europe & Eurasia

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post After partial relief, what’s next for Syria sanctions? appeared first on Atlantic Council.

After the Trump administration’s sweeping “liberation day tariffs,” the British government thought that taking the lead on negotiating with the United States might be risky. It feared other countries might blame the United Kingdom for enabling the United States’ 10 percent tariff, which is now assumed to be an unavoidable baseline, even for countries that US President Donald Trump likes. But there’s a palpable sense of relief that, so far, no other country seems to have blamed the United Kingdom for doing the deal.

British officials told us they had known it would be difficult to secure a broader tariff exemption for the United Kingdom, concurring with the GeoEconomics Center’s view that the Trump administration remains more serious about tariffs than the markets have considered. The separate exemptions for the United Kingdom from Section 232 tariffs on autos and steel (within certain quotas) are seen as significant achievements. Concessions made by the United Kingdom on imports of beef and ethanol have encountered only limited political backlash, so far.

Despite UK officials’ subtle understanding of the US administration, our interlocutors were still surprised when we warned them that the reciprocal tariffs announced on “liberation day” could be reimposed on other markets if bilateral negotiations fail to meet the US president’s expectations. This realization made them feel even better about securing a deal, and they underscored the serious misunderstanding that exists even in allied governments about the administration’s true trade goals.

The deal’s four short paragraphs on economic security show that the UK government has picked up on US concerns regarding avoiding tariffs through transshipments. An agreement was reached to refrain from further conversations on transshipments and risky vendors, though officials were keen to remind us that the deal does not constrain London’s reset with China. One of the authors (Charles Lichfield) was able to make this point on Wednesday when he gave oral evidence to the International Relations and Defence Committee of the House of Lords in a session on the future of the United Kingdom’s relations with the United States.

The sequencing of the Labour government’s trade deals was designed with domestic politics in mind. It is no coincidence that the US deal, as well as the recent trade deal with India, came before the UK-European Union Summit and its announcement of a renewed agenda for cooperation. Labour can now credibly say that it is achieving the global trade deals that the Conservative Party promised—and failed to deliver—after Brexit.

There are political risks to every deal. UK Prime Minister Keir Starmer’s government has been criticized for allowing firms to bring Indian tech workers to the United Kingdom without complying with British labor laws. Still, prioritizing the US and India deals has apparently protected the government from the inevitable accusations of “Brexit betrayal.” The attempt to reset relations with the European Union is also broadly popular. Disproportionate attention is paid to the fishing industry, which represents 0.02 percent of the gross value added by the British economy. The British beef industry, which will now face more competition from the United States, received much less attention.

The Labour government’s achievements haven’t prevented a sharp decline in the polls, fueled by mediocre growth (barely 1 percent this year) and a fraught migration debate. Without any remarkable improvement in public finances, Chancellor of the Exchequer Rachel Reeves has been forced to switch her priorities from reining in spending (and blaming this on the previous Conservative government) to prioritizing growth.

Last week, the prime minister partially walked back one of Reeves’s flagship policies of “means testing,” which is an entitlement that aims to help pensioners pay their winter heating bills by proposing that the cut-off threshold would be raised to a currently undisclosed level. Doing so makes the government vulnerable to its own parliamentary caucus, which will demand more concessions on social spending to deliver a sense of economic uplift faster.

The Trump administration is placing demands on its oldest allies, which it isn’t on newer friends in the Gulf. In a speech at Chatham House, one of the authors (Josh Lipsky) highlighted that the economic security dimension of the US-UK deal is what could underpin the future of a Group of Seven alliance to counter China economically. But our counterparts in the United Kingdom raised two key concerns. First, they asked whether the United States still saw value in alliances to achieve economic goals, or if the US priority was to reset global trade irrespective of alliances. Second, they remarked that there is no guarantee that policies decided by this US administration would continue in the years to come.

The same questions were raised at Bank of England, where senior officials questioned the Trump administration’s policies on stablecoins and cryptocurrency. Their own assessment was that unleashing these assets globally without the right regulatory framework could potentially destabilize other countries’ financial systems.

Overall, the unifying theme was a desire for stability but a begrudging acceptance that, at least from the United States, none was coming in the near term. As it approaches its first year in office, the Labour government is navigating these choppy international waters with some success. Alongside the trade deals, it has also kept the Trump administration engaged in Ukraine. These achievements all serve domestic prosperity in the United Kingdom—but making sure voters feel they are benefiting from these will be very challenging.

Josh Lipsky is chair of international economics at the Atlantic Council and senior director of the Atlantic Council’s GeoEconomics Center.

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Dispatch from London: Engaging Trump without alienating the rest appeared first on Atlantic Council.

As diplomatic efforts falter, attention is turning to economic statecraft—the strategic use of trade and economic leverage to influence state behavior. The European Union (EU) and United States are Israel’s largest and second-largest trading partners, and any economic pressure they apply could have severe consequences for Israel’s economy. Already facing tariffs from the US, Israel may soon encounter additional pressure from the EU, which is considering its own economic measures.

In Europe, growing humanitarian concerns about the scale of destruction in Gaza have prompted calls to reevaluate the best strategy to manage the conflict. Notably, the humanitarian blockade and high-profile incidents, such as the deaths of fifteen aid workers during an Israeli special forces operation in Rafah—an event Israel attributed to “professional failures”—have intensified pressure for a more impactful response. There is a growing sentiment that new tools may be needed to influence the trajectory of the conflict.

Recently, Dutch Foreign Minister Casper Veldkamp called on the EU to investigate Israel’s compliance with Article 2 of the EU-Israel Association Agreement, which ties trade relations to respect for human rights and democratic principles. Veldkamp argued that, “The blockade violates international humanitarian law. You have the right to defend yourself, but the proportions now seem completely lost. We are drawing a line in the sand.”

Although Veldkamp faced domestic political backlash for his move, support across Europe appears to be growing. On May 20, the governments of the United Kingdom (UK), France, and Canada issued a joint statement urging Israel to halt its renewed offensive in Gaza. While reaffirming Israel’s right to defend itself, the statement described the current escalation as “wholly disproportionate.” In tandem, the UK suspended talks on expanding a free-trade agreement with Israel and announced additional sanctions on extremist Israeli settlers in the West Bank.

Crucially, the majority of EU foreign ministers backed the Dutch proposal to review the EU-Israel Association Agreement. Their choice signals a potential turning point: the first serious momentum behind reevaluating a trade framework that underpins diplomatic and economic ties. Should the EU find Israel in breach of Article 2, it could suspend parts of the agreement or enact targeted economic penalties.

The implications are substantial. The EU is Israel’s largest trading partner, accounting for 32 percent of Israel’s total trade in goods as of 2024, amounting to $48.25 billion. Services trade added another $29 billion, while bilateral foreign direct investment stands at over $134.8 billion. This underscores a deeply integrated economic relationship.

Despite the ongoing conflict, Israel has so far managed to maintain some level of macroeconomic stability. Debt levels are within sustainable bounds, credit worthiness remains intact, and the economy has continued to grow (albeit slowly). However, the economic toll of war is has been straining certain sectors disproportionately. The tech industry continues to grow, partially due to defense contracts, but construction has largely halted, agricultural sectors have lost critical labor, and tourism has plummeted. While gross domestic product growth has not entirely contracted, it slowed to around 1 percent in 2024. This was a significant drop from 6.5 percent in 2022, with the deceleration primarily driven by reduced exports. In response, the Israeli government has implemented budget adjustments that include cuts to domestic welfare programs—historically an area of generous spending—as it works to offset growing wartime expenditures.

Compounding these challenges, Prime Minister Netanyahu recently announced plans to eliminate Israel’s trade surplus with the United States—its second-largest trading partner—which amounted to $7.4 billion in 2024. While the move is framed as a gesture toward economic rebalancing and strengthening bilateral ties, it may carry domestic economic consequences. Efforts to narrow this surplus—especially in a climate of shifting global trade patterns and economic uncertainty—could dampen Israeli export growth and further expose the economy to external shocks.

The potential suspension or downgrading of EU-Israel trade ties would add significant pressure. Given the scale and interdependence of EU-Israel trade, such a move could affect Israel’s economic resilience and, by extension, its ability to sustain long-term military operations in Gaza.

While no approach guarantees a swift end to such a deeply entrenched conflict, economic statecraft presents a credible alternative to stalled diplomatic channels. Unlike traditional negotiations, which often falter due to uncompromising demands or ideological impasses, economic levers could alter the cost-benefit calculus of continued hostilities. A concerted and coordinated effort by major economic partners could incentivize compromise, creating a window for diplomacy to succeed.

The EU’s evolving posture may represent a strategic recalibration—one that leverages economic influence to encourage de-escalation while remaining anchored in international law and human rights norms. Whether this shift can yield tangible results remains to be seen, but it marks an important recognition: that intractable conflicts may require not just moral outrage or political pressure, but a strategic application of economic power.

Lize de Kruijf is a project assistant at the Atlantic Council’s Economic Statecraft Initiative.

Related content

EconoGraphics Feb 27, 2025

Could the EU ‘blocking statute’ protect the ICC from US sanctions?

By Lize de Kruijf

The new US sanctions targeting ICC personnel could severely disrupt the Court’s operations—particularly if Dutch banks suspend financial services to the ICC out of fear of violating US sanctions.

Economy & Business Europe & Eurasia

Econographics Mar 20, 2024

Global Sanctions Dashboard: How Hamas raises, uses, and moves money

By Kimberly Donovan, Maia Nikoladze, Ryan Murphy, and Alessandra Magazzino

How Hamas raises, uses, and moves money; How sanctions are used to counter Hamas and combat the financing of terrorism; Where governments align and diverge in their approaches to combat this activity.

European Union Financial Regulation

Econographics Apr 17, 2025

Russia Sanctions Database

By Kimberly Donovan, Maia Nikoladze, Lize de Kruijf

The Atlantic Council’s Russia Sanctions Database tracks the level of coordination among Western allies in sanctioning Russian entities, individuals, vessels, and aircraft, and shows where gaps still remain.

Eastern Europe Economy & Business

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Can the EU leverage economic pressure to broker a Gaza cease-fire? appeared first on Atlantic Council.

Bilateral trade deals struck with Washington will redefine the balance of geoeconomic power and elicit powerful reactions domestically and abroad. In addition to negotiations with major trade partners (European Union, Mexico, Canada, China, Japan), at least twelve large economies reportedly have begun active trade talks with the United States. The first set of early agreements with the United Kingdom and India are incomplete; and new details could be announced at any point. These are not merely bilateral negotiations. Every public move and every new deal will change the landscape for negotiation among the other parties. 

The timing for the tariff negotiations seems certain to trigger additional policy volatility throughout the summer as overlapping—but not aligned—deadlines approach in relation to both the trade talks and domestic fiscal policy negotiations. US deadlines for reaching reciprocal tariffs agreements with trading partners are set to expire one month before separate negotiations with China. All trade negotiations will occur amid parallel budget and debt ceiling negotiations in the United States, where a trio of additional domestic pressure points loom large this summer:

• Budget negotiations, including controversial spending cuts and initiatives to make permanent the tax cuts from President Trump’s first term in office
• Treasury borrowing needs and debt ceiling challenges
• Increasingly agitated opposition party roadblocks within Congress

Consequently, the next 120 days present a critical window for decision making that will generate ripple effects across the global economy. Choices made over this period will  challenge corporate executives, financial institutions, and policymakers to chart solid trajectories amid an increasingly random news cycle that can trigger headline-driven market rollercoaster rides. Uncertainty regarding trade and tariffs could extend into the autumn and the new fiscal year if trade partners cannot agree.  The prospect for revival of the draconian tariff hikes announced in early April 2025 increase the risks of potentially destabilizing outcomes. 

The fiscal policy issues involve hard deadlines. US Treasury Secretary Scott Bessent’s letter to the speaker of the house on May 9 indicates that the next fiscal cliff (when taxpayer revenue must be supplemented by bond market sales in order to keep the government open) will likely materialize in August 2025. Secretary Bessent has requested that Congress increase the debt ceiling before departing for its traditional August recess. In other words, the deadline for resolving (or at least making progress on) the trade war truce with China now coincides with the debt ceiling “X date,” as well as the traditional summer recess for Congress.

These issues are not new. From President Barack Obama onward, the summer budget season in the United States has consistently included debt ceiling brinksmanship, hard budget negotiations, and plenty of breathless headlines. Summer 2025 will be still more intense. Budget negotiations play out amid both a strikingly poisonous political climate and major tariff negotiations, the outcomes of which will materially impact economic growth rates globally. 

None of these inflection points align neatly with the quarterly reporting process that drives markets and corporate disclosures. Incomplete information within markets and corporates regarding daily policy decisions increases the risk of poor strategic decisions. Corporate executives understandably choose inaction pending final decisions. Inertia generates downstream slowdowns in economic activity, ratcheting up pressure on governments globally to deliver clarity. In such an environment, the risk of overreaction to a headline and a news story is high.

Those outside the policy process can, at least, anticipate new bouts of volatility and opportunity. Between June and September 2025, a number of scheduled events provide policymakers with potential offramps and opportunities to make deals, in addition to the steady stream of negotiating teams meeting with US government officials in Washington. These include:

• May 28-31, Department of Commerce rules due on the application of Section 232 tariffs regarding non-US content in auto parts
• June 3, South Korean election
• June 15-17, Group of Seven (G7) Summit in Canada
• June 19, Eurogroup Summit
• June 25-27, Penultimate Group of Twenty (G20) sherpa meeting
• June 27, EU Council Summit
• July 6-7, BRICS Summit in Brazil
• July 9, expiration of the current reciprocal tariff war ceasefire
• Mid-July, targeted date for debt ceiling extension by Congress
• July 29-31, G20 Trade and Investment Working Group meeting
• August 4, tentative Congress summer recess begins
• August 12, expiration of the reciprocal trade war with China ceasefire
• Mid-August, the latest estimate for the X date and the budget ceiling (the next fiscal cliff)
• August 21-23, Jackson Hole monetary policy conference
• September 30, end of the US fiscal year
• October 12, Department of Commerce Section 232 report due regarding critical minerals
• October 17, IMF and World Bank Annual Meetings (often with side meetings for the G20, the Financial Stability Board, the G7, and the BRICS)
• November 2, Department of Commerce Section 232 report due regarding timber and lumber
• 2026, USMCA partners must decide whether to extend or terminate the regional trade agreement

Several other events are expected, but at uncertain times. There might be changes to the United States-Mexico-Canada Agreement tariff structure, extensions to existing deadlines regarding tariff negotiations with the United States (particularly: July 9 and August 12), or a deterioration of truce terms. For example, the United States could revive at any time its doubling (to $200) of fees for de minimis packages shipped to the United States from China using the postal services.

News reports indicate that bilateral negotiations are underway between the United States and at least twelve significant global economies (in addition to ongoing negotiations with China, Canada, the European Union, the UK, and Mexico): Israel, Japan, Vietnam, Cambodia, Thailand, India, South Korea, Australia, Argentina, Switzerland, Malaysia, and Indonesia.

June and July will be a rolling feast of headlines and leaks. Each decision and headline will contribute to geoeconomic realignment, impact global growth rates, and shape the structure of cross-border economic engagement.

The current pause in the tariff war may be welcome, but the more intense negotiations still lie in the future. Never has it been more important to pay particular attention to every move of the policy cycle.

Barbara Matthews is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center. She is also founder and CEO of BCMstrategy, Inc., a company that generates AI training data and signals regarding public policy.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The next 120 days of predictably volatile trade policy appeared first on Atlantic Council.

That was made clear at this year’s International Monetary Fund and World Bank Spring Meetings, where financial leaders warned about job loss and increasing poverty rates across these countries. 

But there are changes African countries can make to better withstand the economic headwinds they are facing. One such opportunity they should immediately seize lies in strengthening their approaches to combating money laundering and terrorist financing. By addressing deficiencies in legal and regulatory frameworks and by adjusting for developments in financial technology, African countries can bolster financial inclusion and tap economic growth opportunities—while preventing the abuse of the global financial system by nefarious actors. 

Key deficiencies seen across Africa—in the form of weak legal and regulatory frameworks, limited institutional capacity to conduct financial supervisory or enforcement activities, and a high degree of informality of economic activities—make it difficult to combat money laundering, terrorist financing, and other illicit financial flows. The Financial Action Task Force (FATF), a global money laundering and terrorist financing watchdog, keeps track of jurisdictions that do not meet global standards to combat money laundering, publicly identifying jurisdictions with weak performance on a “black list” and “grey list.” The black list hosts only three countries (North Korea, Iran, and Myanmar), but on the grey list, fourteen of the twenty-five countries (just over half) are African. Grey listing can result in serious reputational and economic damage, with negative spillover effects on economic growth, borrowing costs, foreign investment flows, and financial inclusion efforts—a particularly concerning impact considering that in Sub-Saharan Africa, less than half the population has a bank account. Given these effects, African countries have worked to make significant improvements to their anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks. Over the past few years, several countries that were once placed on the grey list have been removed, including Zimbabwe, Botswana, Morocco, and Mauritius.

One piece of the regulatory puzzle involves cryptocurrencies. FATF Recommendation 15 for combating money laundering and terrorist financing directs countries to identify and assess “risks emerging from virtual asset activities.” FATF data from March indicates that of the forty-one Sub-Saharan African countries with publicly available data, only seven countries were rated “compliant” with Recommendation 15, indicating that the country successfully met the global standard. For African countries looking to become more compliant, there are positive examples on the continent to draw upon; for example, South Africa was recently upgraded to “largely compliant” with Recommendation 15 and is continuing to make progress towards full compliance. 

At the same time, African governments must also harness the power of digital finance to weather today’s economic headwinds. According to the International Monetary Fund, as of 2022, just 25 percent of countries in Sub-Saharan Africa formally regulated cryptocurrencies, and two-thirds had implemented restrictions, with six countries having outright banned cryptocurrencies. The impact of this approach leaves the investors and entrepreneurs who are interested in Africa’s digital assets sector inclined to hold back investments due to the excessive regulatory uncertainty and possible regulatory swings. Africa is one of the fastest-growing crypto markets in the world, and crypto assets are actively used across the continent. 

Recent reporting from Chainalysis suggests that the cryptocurrency value received by Sub-Saharan Africa was less than three percent of the global share between July 2023 and July 2024. While this is a small global share, there is significant variance in adoption rates across the continent’s fifty-four countries, with a number of countries still rating relatively high in global adoption: Nigeria ranked second worldwide, and Ethiopia, Kenya, and South Africa also ranked in the top thirty countries. From 2022 to 2023, bitcoin was legal tender in the Central African Republic, but finance experts raised concerns about the lack of electricity and infrastructure and the high risk of money laundering and terrorist financing. One thing is certain: digital assets—including cryptocurrencies—are changing the financial landscape of the region. 

That digital finance can transform Africa’s financial landscape should be viewed positively. Africa’s population is set to increase from 1.5 billion in 2024 to 2.5 billion in 2050. This is the moment for African governments to leverage the economic power of their demographics, but to do that, they will need to consider public policies that support greater financial inclusion. Of the eight countries that will account for more than half of the global population growth between now and 2050, five of them are in Africa; two of them are global leaders in crypto adoption rates.  

As populations age and enter the workforce, African governments should consider how best to promote technological innovation in their societies, including in financial technology. Cryptocurrency adoption in African countries can be used for small retail transactions, for sending or receiving remittances, as a hedge against inflation, for business payments, and, potentially, for solving sticky foreign exchange issues in places such as Central Africa, where such issues dramatically reduce foreign investments. Due to its decentralized nature, cryptocurrencies can help people bridge the gap in access to financial services and formal banking systems in many countries across the continent.  

On one hand, governments have tried to use digital assets to boost financial inclusion, tax revenue, and small retail transactions with limited success; and on the other, countries have banned, unbanned, regulated, and deregulated cryptocurrencies, leaving a patchwork of regulatory frameworks across the continent for consumers and business to navigate. With such jurisdictional regulatory arbitrage and limited enforcement mechanisms, nonstate actors, including terrorist groups in Africa, are able to take advantage of the technologies and services that can move money the fastest and cheapest—and in ways that are least likely to be detected or disrupted. That can lead these actors to cryptocurrency.   

While serving as head of delegation to both the Central and West African FATF-style regional bodies, I heard from African government officials repeatedly that there were no digital assets being used in their countries and that their AML/CFT regulatory regimes were sufficient. This is simply not the case. African countries should consider policies to encourage the adoption of emerging financial technologies, including cryptocurrencies and other digital assets, while still exercising great care to avoid creating conditions allowing for regulatory arbitrage between countries or monetary unions that can be exploited by bad actors seeking to launder money or finance terrorism. Beyond policy frameworks, African governments should empower their enforcement agencies with the appropriate resources to ensure that policies, laws, and regulatory frameworks protect the integrity of the global financial system.  

Benjamin Mossberg is the deputy director of the Atlantic Council’s Africa Center. 

Sign up to hear about upcoming Africa Center events

The Africa Center works to promote dynamic geopolitical partnerships with African states and to redirect US and European policy priorities toward strengthening security and bolstering economic growth and prosperity on the continent.

Learn more

The post African governments should rethink their approach to combating money laundering and terrorist financing appeared first on Atlantic Council.

The Basel III endgame was born out of the Basel III accord, which was created by a group of countries with strong financial sectors in response to the 2008 crisis and first implemented by US and other regulators in 2013. The accord provides a package of international financial regulatory standards for banks to stabilize them and mitigate the chance of another major financial disaster. The endgame includes the final set of recommendations to implement the Basel III accord, and was scheduled to be fully implemented by January 1, 2023.

However, the Basel III endgame has been disrupted by countries delaying implementation dates and tailoring recommendations to their own national interests. The trend over the last seventeen years toward national competitiveness gaining ground over coordinated regulations—most noticeable in the United States—could fragment the Basel III endgame and the global financial regulatory framework more broadly.

The Basel III endgame in the United States

On July 27, 2023, the US federal banking regulators—including the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve (Fed)—jointly proposed rules to implement the Basel III endgame. The Fed vice chair for banking regulation, Micheal Barr, also issued proposals applicable to banks with more than $100 billion of assets. By changing the calculation of risk-weighted assets, the proposed rules would raise the core equity tier 1 (CET1) capital for large and complex banks by 16 percent, and tier 1 capital by 6 percent. CET1 comprises of a bank’s common equity, retained earnings and other regulatory adjustments, representing the core and highest quality capital of a bank available to absorb losses.

According to the Fed, the average CET1 ratio of large US banks is currently around 13 percent. It already exceeds the minimum required ratio of 4.5 percent, in addition to stress capital buffer requirements and global systemically important banks (GSIBs) surcharges. —ranging from 13.63 percent for Citigroup, 15.68 percent for JPMorgan Chase, and 15.92 percent for Morgan Stanley.

The US banking industry, especially the large banks, objected to the rules proposed in 2023 that would have “gold plated” the Basel III agreed standards and raised the special GSIB surcharge by $250 billion. The fact that the scope of the supplementary liquidity ratio of 3 percent currently includes non- or low-risk assets such as US Treasury securities has drawn particular frustration. Their inclusion boosts the required capital level and makes it costly for banks to commit capital in their broker-dealer activities needed to support a smooth functioning of the US Treasury market. The new rules would also reduce banks’ reliance on their internal models to calculate risk-weighted assets. Opaque internal justifications by US agencies for these new rules, on top of the conduction of the annual bank stress test, have prompted sharp criticism from influential banks.

These objections have persuaded US financial regulators to consider revising the proposed rules, essentially  to half the average increase in required capital for large and complex banks. They may even remove US Treasuries from the calculation of the supplementary liquidity ratio, reduce the GSIB surcharge, and release more information about the regulators’ internal analyses—including for the stress test.

Motivated by the Trump administration’s approach to deregulation, Michael Barr has been replaced as vice chair for supervision by Michelle Bowman, who is more sympathetic to the banks’ views. Under such a supportive regulatory environment, large banks are arguing to fully implement the modified Basel III endgame now, so that the net impact will be capital neutral—meaning there would be no change in the capital requirements for major banks—rather than leaving it open risking a possible future Democratic administration favoring a stricter  regulatory framework. Travis Hill, the acting chair of the FDIC, has revealed his agenda of priorities, aiming to review all FDIC regulations, guidances and manuals, especially to streamline capital and liquidity rules in opposition to the Basel III Endgame—potentially opening more room for banks to seek further relaxation of Basel III standards.

European Banks Pushing for Similar Delay

Uncertainty in the United States has already encouraged European banks to push for delayed implementation of their own new rulebook, the Fundamental Review of the Trading Book (FRTB), to avoid being put at a competitive disadvantage.

The deferral has already been granted in the United Kingdom, where the Prudential Regulation Authority has postponed implementation of new regulations until January 1, 2027. The focus of most large banks in the European Union (EU) has turned to postponing the adoption of the new trading book rules by another year past the already extended target date of 2026—in the context of delays in the US and UK. The delay’s supporters hope to gain the time needed to make adjustments to the trading book regulation and render it capital neutral.

Currently, the aggregate CET1 ratio of EU banks is 15.73%; however the aggregate CET1 ratio of EU GSIBs is lower at 14.30%.

Pressure by large banks has encouraged the European Commission to launch a public consultation on the EU approach to implementing the FRTB, including raising the option of postponing the application date to January 1, 2027. Doing so is part of an effort to ensure a level playing field and keep EU banks competitive as compared to UK banks and US banks, which face unpredictable levels of regulation under the Trump administration.

Canada has implemented Basel III as well. However, its Office of the Superintendent of Financial Institutions has also indefinitely delayed increases to the Basel III capital floor, citing tariff-induced economic uncertainty and slow progress by other countries. Failure to implement the capital floor could seriously dilute Basel III if other countries follow suit.  By comparison, Japan and Switzerland have fully implemented Basel III standards in their domestic regulatory frameworks.

Divergent implementation timelines and an uneven regulatory landscape have raised concerns about global regulatory fragmentation. Widespread fragmentation of trade and investment flows driven by heightened geopolitical tension have undermined international trust and willingness to cooperate across national borders. With the combination of these factors, the overall trend toward global regulatory fragmentation will pose growing risks to international financial stability and should be closely monitored by the financial regulators of major countries.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South. Formerly, he served as a senior official at the International Institute of Finance and International Monetary Fund.

Related content

Econographics Feb 12, 2025

Central bank digital currencies versus stablecoins: Divergent EU and US perspectives

By Barbara C. Matthews, Hung Tran

All policymakers agree on one point: both CBDCs and stablecoins will significantly impact the global role of the US dollar.

Digital Currencies Digital Policy

Econographics Jan 28, 2025

The 2025 crypto policy landscape: Looming EU and US divergences?

By Hung Tran, Barbara C. Matthews

High level regulatory and policy alignment is possible. Divergences, heated rhetoric, and drama are inevitable.

Digital Currencies Economy & Business

Econographics Mar 5, 2025

Has the G20 become the G19?

By Hung Tran

The US has chosen to boycott the kick-off of South Africa’s G20 presidency. But a G20 without the United States or its constructive engagement will be much weaker.

Economy & Business Macroeconomics

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Basel III endgame: The specter of global regulatory fragmentation appeared first on Atlantic Council.

In her traditional Global Policy Agenda speech, the IMF managing director, Kristalina Georgieva, sought to temper market anxieties and reassure member countries. She struck a tone of cautious optimism and underscored the Fund’s institutional preparedness while candidly acknowledging a range of serious global risks. She outlined three interlocking priorities to frame the week’s deliberations: (1) resolving trade tensions and restoring confidence, (2) safeguarding economic and financial stability, and (3) reviving medium-term growth through structural reforms.

Acknowledging the gravity of the moment, Georgieva stated, “We’re not in Kansas anymore,” a metaphor underscoring the unfamiliar and turbulent terrain the global economy now faces. She advocated for a comprehensive and coordinated settlement among major economies aimed at rolling back trade barriers, reducing policy uncertainty, and restoring the openness of global trade flows. She warned that prolonged ambiguity was already suppressing investment and eroding consumer confidence.

In this context, the IMF reiterated its longstanding position that both tariff and non-tariff barriers must be lowered to preserve multilateralism. However, the challenge extends beyond immediate trade disputes. Structural imbalances—including China’s elevated savings and weak domestic consumption, the United States’ sustained fiscal deficits, and the European Union’s incomplete economic integration—are increasingly viewed as drivers of systemic strain. To correct these asymmetries, the IMF recommended: (1) stimulating domestic demand in China, (2) advancing infrastructure investment and market integration in Europe, and (3) embarking on credible fiscal consolidation in the United States. The IMF portrayed these national adjustments as preconditions for global macroeconomic rebalancing and long-term resilience.

The second thematic pillar—economic and financial stability—highlighted the narrowing margin for error after years of policy stimulus in response to the pandemic, inflationary shocks, and geopolitical disruptions. Georgieva’s appeal to “get your house in order” captured the moment’s urgency. She urged countries to reinforce their fiscal foundations by implementing credible and transparent medium-term frameworks.

While she broadly encouraged gradual deficit reduction, Georgieva gave particular attention to low-income and emerging economies, which are confronting acute debt vulnerabilities amid tightening global financial conditions. For these nations, the policy agenda emphasized enhanced domestic revenue mobilization, improved public financial management, and proactive engagement with debt restructuring mechanisms. On the monetary front, Georgieva advised central banks to remain guided by incoming data and preserve their operational independence, while continuing to focus on price stability. The meetings also addressed mounting concerns over the stability of the financial system, including the risks posed by non-bank financial intermediaries, and called for more robust regulatory oversight and international coordination.

Finally, the IMF’s managing director placed renewed emphasis on the structural transformation needed to revive medium-term growth. As Georgieva declared, “Now is the time for long needed but often delayed reforms.” With global potential growth trending downward, she plainly acknowledged the limitations of monetary and fiscal policy.

Instead, discussions centered on national reform agendas tailored to each country’s specific institutional context. These included measures to improve the business climate, enhance governance and the rule of law, modernize labor and product markets, and strengthen innovation ecosystems and digital capacity. For emerging and developing economies, the imperative to expand access to finance, invest in human capital, and build sustainable infrastructure was seen as crucial to catalyzing private sector participation. Climate resilience and inclusive growth were integrated into the broader reform discourse, reflecting the growing consensus that sustainability must be embedded in long-term economic strategy. The IMF committed to supporting member countries in these efforts through targeted instruments—such as the Resilience and Sustainability Trust—alongside bespoke policy advice and capacity development.

A pivotal intervention during the meetings came from US Secretary of the Treasury Scott Bessent, who addressed the Institute of International Finance with a call for the IMF to return to its original mandate. He criticized the Fund’s perceived “mission creep” into areas such as climate, gender, and inequality. He acknowledged these issues as important, but potentially distracting from the IMF’s core objectives of macroeconomic stability, balance of payments support, and monetary cooperation. Bessent reaffirmed US support for the Fund and the World Bank, while clarifying that continued engagement would hinge on institutional discipline, rigorous program conditionality, and a sharper focus on correcting global imbalances. His remarks signaled not just a recalibration of US expectations, but a broader ideological debate over the role of multilateral financial institutions in a fragmenting global order.

Georgieva’s response the following day was diplomatically calibrated. In an April 24 press briefing, she welcomed continued US engagement and described Bessent’s comments as constructive. “The United States is our largest shareholder… of course, we greatly value the voice of the United States,” she remarked, interpreting the speech as a reaffirmation of US commitment at a time when political rhetoric had raised fears of disengagement. She acknowledged the legitimacy of US concerns and noted that ongoing institutional reviews—including the Comprehensive Surveillance Review and the Review of Program Design and Conditionality—would serve as venues for deeper discussions. These mechanisms, she suggested, provide space to reexamine priorities, refine programs, and ensure alignment between the Fund and its major stakeholders.

But what do US concerns about the IMF’s direction truly entail, and how might they be addressed in the upcoming policy reviews? It is crucial to recognize that, despite holding over 16 percent of the Fund’s voting power, the United States cannot unilaterally block the IMF executive board’s approval of the regular Comprehensive Surveillance Review. This implies that the most consequential negotiations will, as is customary, occur informally and behind closed doors. We can anticipate that the US executive director’s office will try to shape a draft document that aligns with Washington’s preferences.

However, the United States is not the only influential voice at the table. Other member states—many of whom have divergent priorities, particularly on issues such as climate integration, social inclusion, and the future scope of macroeconomic surveillance—will also seek to assert their positions. The previous surveillance review in May 2021 introduced climate macro-criticality into Article IV consultations for the twenty largest greenhouse gas emitters. Whether the United States can successfully build a broad coalition to revise the surveillance framework in line with its renewed emphasis on “core” macroeconomic fundamentals remains to be seen.

Yet despite the Spring Meetings attendees’ efforts to project cohesion and forward momentum, the underlying global outlook remains clouded by persistent uncertainty. Geopolitical tensions, rising debt burdens, and diverging monetary policy trajectories continue to weigh on policy coordination platformed by the IMF.

As attention shifts toward the 2025 annual meetings this October, critical questions will come into sharper focus. Can the IMF meaningfully recalibrate its surveillance priorities? Will members find the political will to realign quotas and governance structures? How will the Fund balance its evolving role with the demands for institutional discipline? These meetings will not merely be another milestone in the global economic calendar—they may well constitute a stress test for the resilience of the postwar international system and its ability to adapt in an increasingly complex, multipolar world.

Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

The views and opinions expressed herein are those of the author and do not reflect or represent those of the US government or any organization with which the author is or has been affiliated.

Related content

Bretton Woods 2.0 Oct 21, 2024

Get an inside look at the IMF-World Bank meetings as finance leaders navigate a geopolitically fragmented world

By Atlantic Council experts

To gauge whether delegates can revive the world’s spirit of cooperation at the IMF-World Bank Annual Meetings, we sent our experts to the center of the action in Foggy Bottom.

China Economy & Business

Econographics Sep 27, 2024

The IMF-World Bank Annual Meetings in 2024: Five important issues to be addressed

By Hung Tran

Despite intense geopolitical contention that has stymied international cooperation, the October gathering could nevertheless lead to agreements to stabilize a volatile global economy.

Economy & Business International Financial Institutions

Econographics Jul 18, 2024

The Bretton Woods institutions need revitalizing. Luckily, they are no strangers to reform.

By Amin Mohseni-Cheraghlou

The changing nature of the global economy is forcing these institutions to take a renewed look at their governance structure and mandates. This is not the first time they have had to do so.

Economy & Business Fiscal and Structural Reform

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Multilateralism under pressure: Takeaways from the 2025 IMF Spring Meetings appeared first on Atlantic Council.

Twelve years after his own surprise election, how much did Pope Francis actually succeed in reshaping the church’s leadership? Here’s one way to look at it.

To understand the Church’s shifting priorities amid an evolving Catholic demography, we compared the economic profiles of the cardinal electors who selected Pope Francis in 2013 and Pope Leo’s 2025 conclave. This time, around 32 percent of Cardinals in the conclave came from countries in the bottom half of world gross domestic product (GDP) per capita, a notable rise from around 22 percent in 2013. Under Francis’s pontificate, the profile of the “median cardinal elector” shifted towards lower GDP per capita nations by 12 percentage points. Still, the majority of electors hail from middle to higher-income countries, partly reflecting the geographic concentration of the world’s 1.4 billion Catholics.

This shift among the cardinal electors mirrors the broader trend: the Catholic Church’s growth, and thus its future, is increasingly in emerging economies. In Africa and Asia, the Catholic population has expanded faster than their overall population growth, while North America experiences slower growth and Europe a reversal. Pope Leo XIV will have to continue adjusting to the Church’s new demographic reality.

Israel Rosales is a consultant with the Atlantic Council GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Pope Leo XIV’s electors represented Catholics’ changing economic distribution appeared first on Atlantic Council.

At the same time, threatening allied countries and fellow NATO members with tariffs or invasion upends any potential cooperative economic statecraft with these same states. It may seem like business as usual in certain corridors of the executive branch. The reality is that trade tensions and geopolitical shake-ups rattling traditional US alliances are weakening these tools and exacerbating business uncertainty at a time when the global economy may be least able to afford it.

As a force multiplier, partnerships are key to effective economic statecraft. To paraphrase Daleep Singh, former US deputy national security advisor for international economics, the force of economic statecraft is directly related to the size of the coalition implementing and enforcing the authorities. Multilateral sanctions and cooperative targeting amongst allies have been key pillars of US sanctions policy to date. They reinforce legitimacy by demonstrating agreement across governments and enable safe and legitimate markets to take shape, compounding confidence in the global flow of goods and services. Yet the actions of the current US administration—in many ways picking up where it left off—are straining US relations with stalwart friends like Canada and the European Union (EU). Ursula von der Leyen, the president of the European Commission, went so far as to say that “the West as we knew it no longer exists.”

The fracturing of traditional alliances carries significant consequences for companies facing multijurisdictional compliance obligations, meaning an already complex situation will become more chaotic. The United States used to expend significant diplomatic effort to convince its allies to harmonize sanctions and trade controls. This level of cooperation can no longer be taken for granted and may lead to more significant divergence, particularly regarding Russia. The Kremlin has already requested various forms of sanctions relief in exchange for a ceasefire in Ukraine. The United States has also quietly delisted some high-profile targets like Karina Rotenberg and Antal Rogan, with the secretary of state going so far as to publicize that Rogan’s “continued designation was inconsistent with US foreign policy interests.” Companies are taking notice, too. Raiffeisen Bank International, after years of concerns over its business in Russia, is reportedly slowing its efforts to exit Russia with the notion that “rapprochement between Washington and Moscow” may be in sight.

This complexity was foreshadowed in the wake of Russia’s February 2022 reinvasion of Ukraine and the 2018 US “maximum pressure” sanctions campaign against Iran. These events led to greater discord between US and allied sanctions and may contain clues for how the present situation could evolve. For example, when the first Trump administration withdrew from the Iranian nuclear deal, the EU expanded its “blocking statute.” The statute was intended to protect EU companies engaged in otherwise lawful business from the effects of extra-territorial application of US sanctions, but it ultimately produced a series of headaches and lawsuits for major multinational companies. Will the United States attempt the same, and try to shield US persons from EU and United Kingdom (UK) sanctions? Major multinational companies suddenly freed from the burdens of US sanctions may find themselves held back by EU or UK and risk drawing the ire of the US government if they err on the side of caution so as not to violate European laws.

The United States cannot expect to practice status quo ante economic statecraft while simultaneously trying to reshape the global order. US allies rightfully followed the lead of prior US administrations in establishing robust tools of economic statecraft, and these will not be “deleted” at the whims of the United States—if anything, present conditions suggest the EU may need to strengthen these tools. At the current rate, US actions are likely to produce a number of adverse consequences beyond diplomatic disunity and compliance nightmares. The United States may drive illicit finance into the US economy, for instance, if major US clearing banks are compelled to handle Russia-related transactions and the administration is already deemphasizing anti-corruption initiatives.

To be sure, US lawmakers may have leverage to prevent the Trump administration from providing wholesale sanctions relief. Some members are pushing for strong, new sanctions requirements tied to any Ukraine ceasefire deal. The negotiations between Presidents Trump and Putin and their teams are unpredictable, to say the least. However, it is becoming clear that no matter what the future holds, we may have already seen the zenith of transatlantic synchronization on sanctions and trade controls. The nadir is shaping up to be a mess.

Jesse Sucher is a nonresident senior fellow at the Atlantic Council’s Economic Statecraft Initiative.

The views and opinions expressed herein are those of the author and do not reflect or represent those of the US Government or any organization with which the author is or has been affiliated.

Related content

Testimony Feb 21, 2025

Kimberly Donovan testifies to the US-China Economic and Security Review Commission on the Axis of Autocracy

By Kimberly Donovan

On February 20, Economic Statecraft Initiative Director Kimberly Donovan testified to the US-China Economic and Security Review Commission at a hearing titled, “An Axis of Autocracy? China’s Relations with Russia, Iran, and North Korea.”

China Economy & Business

New Atlanticist Mar 26, 2025

There’s a right way to lift sanctions on Russia. Follow these Dos and Don’ts.

By Daniel Fried, Kimberly Donovan

A former US diplomat and a former US Treasury official offer eleven guiding principles for moving forward in negotiations on sanctions relief with Russia.

Conflict Economy & Business

Econographics Apr 17, 2025

Russia Sanctions Database

By Kimberly Donovan, Maia Nikoladze, Lize de Kruijf

The Atlantic Council’s Russia Sanctions Database tracks the level of coordination among Western allies in sanctioning Russian entities, individuals, vessels, and aircraft, and shows where gaps still remain.

Eastern Europe Economy & Business

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post US-EU sanctions divergence would spell trouble for multinational companies appeared first on Atlantic Council.

First, the significant effect that government-led instant payment systems can have on citizens and the financial market transforms financial inclusion and market structures. Second, decisions made during the early stages of the process, such as system pricing and ownership structure, shape the power dynamics between local and international players, as well as incumbent and new entrants. 

These lessons are shaping an emerging framework governments can use to evaluate their need for central bank-led immediate payment systems, their potential structure, organizational features, and trade-offs involved in implementing a similar approach. The framework is composed of a three-step approach, including prerequisite weighting (i.e., “do we need this system”), the preparations needed to hit the ground running, and the process of setting up new immediate payment systems.

Pix and UPI: Initial development to growing pains

But first, it’s important to understand how immediate payment systems have developed into what they are today. 

Over the last decade, India and Brazil launched their instant payment systems, UPI and Pix, on a national scale, reshaping their payment landscapes. With 350 million UPI users and 140 million Pix users, about 25 percent of India’s population and approximately 65 percent of Brazil’s population use the systems. One of every eleven adults in the world uses either Pix or UPI to send or receive immediate payments. 

Brazil’s immediate payments policy is a payments-first approach. The Brazilian Central Bank (BCB) owns Pix and pushes it to cooperate with domestic private market players, focusing mainly on immediate payments and adjacent products. The system was launched in 2020 after a two-year ideation and development period.

Pix is the most quickly adopted immediate payment system in the world. As of the second quarter in 2024, it had reached 15.4 billion quarterly transactions. Its growth was fueled by a high degree of cooperation with the local financial ecosystem, as well as the fact that institutions with over 500,000 transacting accounts were required to participate, creating a network effect.

India developed UPI as a part of its Digital Public Infrastructure (DPI) program and implemented it as a part of a broad tech stack. Its approach to both DPI and UPI has long been for the state to develop the basic infrastructure, including a digital identity pillar, data exchange pillar, and payments pillar, allowing private sector innovation on top of the existing system.

UPI was developed under the National Payments Corporation of India, which is independent of India’s central bank and owned by various private banks. It became India’s most popular digital payment method, processing over 75 percent of the nation’s retail digital payments.

However, UPI’s growth was initially slow. It only reached 10 million monthly transactions in 2017 and took about three years to reach 1 billion monthly transactions. The growth was later expedited due to India’s demonetization, which started in 2016, the COVID-19 transition away from cash, and internationally backed payment providers entering the market.

Both Pix and UPI have significantly increased financial inclusion, supported growth in the fintech sector, and become the payment standards in their respective countries. However, their impact has not been entirely positive. Their use has also increased fraud and reshaped the power balance between different players in their markets.  

Winners and losers: Market impacts in Brazil and India 

Both systems transformed their respective markets, benefitting some players and reducing the market power of others. 

The table below provides a snapshot of the market dynamics, highlighting each of the key players, their initial power and interest mapping (green for high, yellow for medium, and red for low) and the power shifts in the market caused by Pix. Power shifts are categorized into market share and decision-making power—red with a downward-facing arrow indicates a decrease, green with an upward-facing arrow signifies an increase, and yellow represents retained power or a mixed trend.

In Brazil, Pix has transformed the financial sector by benefiting new domestic players while challenging incumbents and credit card schemes. 

Brazilian neobanks and fintech startups have grown significantly by leveraging Pix’s cost model to attract new customers. They take advantage of the optional fee structure for its value offer, including no fees for consumers and bearing the mandatory fees for businesses. Eliminated transaction fees and immediate payments increased consumer trust. It made digital payments more accessible, particularly for the previously unbanked population. Small businesses and micro-entrepreneurs have also gained access to low-cost, instant transactions, fostering financial inclusion and reducing reliance on cash. This, in turn, drove an increase in such banks’ target addressable market (i.e., relevant customer base).

However, traditional banks and credit card networks have been disrupted. Before Pix, Brazilian banks charged significant fees for interbank transfers, but Pix’s free and instant model eroded this revenue stream. As a result of Pix’s launch, traditional banks’ revenue from payments decreased by 8 percent between 2020 and 2021.

Credit card companies are seriously threatened by Pix. In 2022, BCB’s governor predicted that Pix would make credit cards obsolete. However, transaction data tells a more complicated story. With Pix introducing new consumers into the market, banks are leveraging “maturing cohorts” of consumers to offer them credit cards. Before Pix, credit card payment volumes were at a 12.7 percent annual CAGR (compound annual growth rate) between 2018 and 2020. After the launch of Pix, CAGR almost tripled, reaching 31.7 percent between 2020 and 2022.

UPI’s rapid adoption in India similarly transformed the power balance in the market and benefitted payment technology providers. 

Large-scale third-party application providers (TPAPs), particularly Google Pay and PhonePe, dominate the UPI transaction space, accounting together for over 80 percent of UPI transactions. These players leveraged UPI’s no-cost model to gain significant user adoption. Consumers and merchants have also benefited from seamless, real-time payments without additional fees. 

However, traditional banks struggle with UPI’s zero-fee structure, as it increases transaction volumes and associated costs without direct revenue gains. Some banks have pushed for the introduction of transaction fees to compensate for operational costs. For that reason, in 2022 RBI introduced subsidies for small transactions to banks, which they can share with TPAPs. In 2024, these accounted for 10 percent of PhonePe’s annual revenue. Credit card companies have also faced increasing competition. However, similar to Brazil, credit card usage volume has actually increased following UPI’s scaling. From a declining CAGR of 7.3 percent between 2018 and 2020 in payment volume, after UPI scaled, credit card growth reached a 24.2 percent CAGR between 2020 and 2022.

Big tech vs. local tech: Divergent approaches

A key distinction between Pix and UPI is their approach to global technology firms (“big tech”) and multinationals generally.

BCB has actively blocked big tech from entering the market, emphasizing the need for domestic control over digital payments. This approach is part of a general policy to strengthen the domestic ecosystem over incorporating multinational players. In 2020, for example, BCB suspended WhatsApp’s Brazilian immediate payments offering launch. It cited regulatory concerns and the potential risk to financial stability, launching Pix later that year. This strategy has helped the local fintech ecosystem and brought domestic players, mainly neobanks, to the front of the stage. 

In contrast, India’s approach has allowed big techs and multinational players to participate in the UPI ecosystem and often relied on them for last mile delivery, and consumer onboarding, driving its scaleup. Google Pay and PhonePe, respectively backed by Alphabet and Walmart, quickly dominated.They could offer payments as a loss leader (i.e., sell at a loss to attract customers to other, profitable products) while benefiting from other products over time. 

While doing so accelerated lagging adoption rates, it has also led to concerns about data privacy and market concentration. 

The Indian government has since explored regulatory measures, such as imposing a 30 percent market share cap on individual TPAPs, though enforcement has been repeatedly delayed. Another claim voiced by government officials in the debate is that, given UPI’s universal nature, providers are interchangeable, thus eliminating anti-competitive claims.

This divergence in strategies and outcomes reflects the broader debate about whether emerging economies should embrace or limit big tech’s role in financial infrastructure.

Stages of implementation

Based on Brazil and India’s experiences, a three-stage framework emerges for countries considering immediate payment systems adoption.

The first stage of weighting prerequisites involves assessing the need for a state-led payments system based on three factors: the existence of alternatives (e.g., a strong credit card presence), expected change (primarily driven by the level of financial inclusion, development costs, and the size of the economy), and state capacity. As a result, countries with low banking penetration and high reliance on cash are more likely to benefit from such systems. 

The second stage involves getting ready to hit the ground running, focusing on implementation and scaling. Understanding the existing market conditions and the shifts anticipated from the introduction of the system is crucial. Additionally, selecting an appropriate governance model—whether a central bank-led approach like Pix, a consortium-led model like UPI, or a provider model—plays a vital role in determining long-term implications. Lastly, the fee structure will also influence both adoption and market entry and should be actively established at this stage. 

The final stage involves setting up a long-term process by establishing cooperation mechanisms and managing externalities. Policymakers must implement regulatory adjustments based on market responses to address issues such as monopolization and consumer protection against fraud. They should also explore engagement mechanisms for local players through forums and bilateral consultation schemes, focusing on gaining knowledge and legitimacy as well as efficiency considerations. 

While many regions worldwide consider the future of payments, this framework can serve as an initial point of assessment. There is no perfect “one size fits all” solution. However, states’ varied ability to execute and enforce participation, the size of their economies, and the preexisting market structures significantly influence decisions concerning the “what” and the “how” of launching immediate payment systems.

Pix and UPI offer several additional insights into how state-led payment systems can reshape economies. 

While Brazil focused on domestic financial players and regulatory control, India leveraged global technology firms for swift adoption. Consequently, Brazil fostered the expansion of its local fintech ecosystem, while India established an environment with significant multinational involvement. 

In both cases, incentives for private market players aligned to support the growth of credit card provision as a subsequent step after initially introducing consumers to the financial system through Pix and UPI. While there is room for discussion about the implications of this step, it is a definitively critical point to consider when launching such systems and weighing their outcomes.

Lastly, the key lesson from these models lies in the decisions made by policymakers to initiate transformative processes. Both models illustrate the potential of such systems to enhance financial inclusion, disrupt traditional banking, and reshape economies, thereby aiding in their advancement. These lessons from UPI and PIX can be narrowly applied to public sector entities looking to create state-led systems, however, it is important to consider that market structure transformation might not be the ideal solution for every economy, especially more advanced economies which have a larger share of private sector players. Ultimately within a jurisdiction, policymakers bear the ultimate responsibility of acting to launch immediate payment systems.

Polina Kempinsky is a second-year Master of Public Policy student at the Harvard Kennedy School. This paper is part of Polina’s PAE (Policy Analysis Exercise) for her program, which explores the instant payment systems of Brazil and India.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Fast payments in action: Emerging lessons from Brazil and India appeared first on Atlantic Council.

After Russia’s illegal full-scale invasion of Ukraine in February 2022, Western partners imposed unprecedented financial sanctions and export controls against Russia. These measures aim to achieve three objectives:

1. Significantly reduce Russia’s revenues from commodities exports;
2. Cripple Russia’s military capability and ability to pursue its war;
3. Impose significant pain on the Russian economy.

The Atlantic Council’s Russia Sanctions Database tracks the restrictive economic measures Western allies have placed on Russia and evaluates whether these measures are successful in achieving the stated objectives and bringing lasting peace to Ukraine. The Database is now static and was last updated in November 2024. You can access the final version here.

Sanctions have emerged as a central element of negotiations between the United States and Russia over the ceasefire in Ukraine. April 20 has been reported as a date by which US President Donald Trump intends to reach a ceasefire deal with Russia, although Russia is attempting to delay progress. However, excluding Ukraine and the EU from the negotiations could undermine Washington’s sanctions strategy—whether this involves lifting or intensifying them, both of which have been suggested by the Trump administration at different times. Considering the centrality of sanctions in the Ukraine negotiations, this edition of the Russia Sanctions Database:

1. Explains who controls which economic leverage over Russia
2. Assesses Russia’s negotiating power based on the performance of its economy
3. Analyzes the implications of lifting sanctions on Russia for US global dominance in energy and finance

What type of economic influence do Western powers exert on Russia and who controls it?

The United States maintains significant economic leverage over Russia as a result of sanctions and the traditional strength of the dollar in the global economy. However, the EU, as a historical trading partner with Russia, controls the levers causing Russia the most economic pain. The United States cannot deliver the economic relief Russia is seeking on its own and will need to work with its European partners on a negotiated settlement.

The United States maintains leverage over Russia’s oil revenues from China and India. The main economic leverage of the United States over Moscow is Washington’s ability to prevent Russian oil exports to China and India with secondary sanctions. Oil revenue is the lifeline of the Russian economy, and the rerouting of oil shipments from Europe to China and India as a result of the price cap and other restrictive measures kept the Russian economy afloat since 2022. This changed when the United States created the Russia secondary sanctions authority at the end of 2023 and expanded the definition of Russia’s military-industrial complex in 2024 to capture more entities and activity under secondary sanctions. Oil payments from China were suspended or delayed over Chinese banks’ concerns about secondary sanctions. On January 10 of this year, the Treasury Department designated two of Russia’s most significant oil producers and exporters—Gazprom Neft and Surgutneftegas—which resulted in Chinese and Indian refineries canceling their orders of Russian oil and looking for alternative suppliers in the Middle East. Further, on March 12, General License (GL) 8L, which allowed for energy transactions with sanctioned Russian entities pursuant to the price cap, expired. Companies that continue to transact with sanctioned Russian energy entities are exposing themselves to the threat of US sanctions. Thus, the main lever of the United States over Russia right now is its ability to influence China and India’s decisions to continue or discontinue importing Russian oil.

The EU is home to SWIFT. The EU and its member states control the outcome of one of Russia’s primary demands within the Black Sea ceasefire negotiations—reconnection to SWIFT. Certain Russian financial institutions were “de-SWIFTed” when the EU sanctioned them in 2022. Russia is demanding reconnection with SWIFT as a precondition for a ceasefire in the Black Sea. But if the United States unilaterally decides to lift its sanctions on Russia as part of the negotiated deal over the war in Ukraine, Russia will still be subject to European sanctions and restrictions. The EU has indicated its sanctions on Russia will remain in place until the “unconditional withdrawal” of Russian troops from Ukraine. In fact, Europe is considering additional sanctions on Russia according to a joint statement by the foreign ministers of Spain, Germany, France, Italy, Britain, and Poland. Because SWIFT is based in Belgium and must comply with EU law and sanctions, the EU is the primary arbiter of Russia’s reconnection to SWIFT.

The EU and its member states control Russia’s energy exports to Europe. The United States no longer imports Russian oil, and nor does the United Kingdom. Prior to Russia’s invasion of Ukraine in 2022, Russia was the largest source of EU imports of oil and gas. Russia rerouted its oil exports to China and India using a shadow fleet in response to the Group of Seven price cap and sanctions, which allowed the Russian economy to stay afloat. In the case of gas, Russia decided to stop the flows of pipeline gas to stymie European support for Ukraine, which did not work due to warm winters and US LNG. Russia ended up losing access to the lucrative and geographically proximate European market for both oil and gas exports. The price cap has also negatively affected Russia’s revenue from oil sales. The EU will decide if and when Russia regains access to the European energy market, and if the price cap and other restrictive economic measures the Europeans impose are lifted.

The EU and its member states control the majority of Russia’s blocked assets. Out of the estimated $280-300 billion worth of blocked Russian Central Bank and National Welfare Fund assets, at least $5 billion sits in the United States. Euroclear, a Belgium-based Financial Market Infrastructure service provider, holds approximately $210 billion, making the EU the most relevant decision-maker on the fate of the assets.

Western powers have more diffuse control over measures such as exports of sensitive technology, but the measures listed above are clear chokepoints. Ensuring that the United States and EU move together in sanctions removal or escalation against Russia will be critical in shaping effective outcomes that ensure stability and peace for Ukraine.

Assessing Russia’s negotiating position based on the performance of its economy

Putin is trying to prolong negotiations while pushing Washington to remove sanctions. Russia’s willingness to negotiate reflects the state of Russia’s economy and challenges in financing its costly war. In the weeks leading up to the thirty-day energy ceasefire—which has been in place since March 25 and intended to stop strikes on both parties’ energy infrastructure—Russia’s industry and trade ministry asked Russian companies to identify which sanctions Moscow should seek to have lifted during peace talks. Participants in the inquiry—many of whom work as major exporters, consultants, lawyers, economists, and advisors—identified sanctions on energy and payment systems to be the most painful and the first they would like to see come down. Gazprom, a Russian energy giant, has been hit the hardest by sanctions. For the first time since 1999, Gazprom recorded a net loss of $7 billion in 2023 and a net loss of $12.89 billion in 2024. Sanctions on Russian oil have squeezed its lucrative oil trade, with reports that Russian oil cargoes are stuck at sea as companies struggle to find buyers. In February 2025, Russia’s export volumes of seaborne crude oil fell by 9 percent on a month-over-month basis, while export revenues decreased by 13 percent.

Sanctions on Russia’s financial sector limited its ability to access international debt markets. To cover deficit spending, Russia has instead turned to domestic bond issuance as well as its National Welfare Fund (NWF), but three years into the war its liquid assets have shrunk by 60 percent. 2025 is predicted to be a difficult fiscal year for Russia and might be the last year it can rely on the NWF to cover its fiscal deficit. Russia’s corporate debt has surged by nearly 70 percent since 2022, with a large portion of this debt consisting of preferential loans that Russian banks made to its defense contractors. As Russia’s economy grows more precarious, sanctions relief for its financial sector could give the country some breathing room to fight the economic pressures created by sanctions. Relief could also mitigate inflation and economic overheating that prompted its central bank to increase interest rates to a high of 21 percent.

The combination of these factors explains why Russia demands that lifting sanctions be a precondition for any ceasefire deal. However, given Russia’s track record of violating ceasefire agreements, prematurely lifting sanctions could facilitate the recovery of the Russian economy while failing to achieve a meaningful ceasefire in Ukraine.

Implications of lifting sanctions on Russia for the US global dominance in energy and finance

Lifting sanctions on Russia will have implications not just for Ukraine, but also the United States’ global dominance in energy and finance. Policymakers will need to carefully consider options to lift sanctions against Russia.

Since 2022, the United States has played a crucial role in filling the energy gap left by Russia, particularly by becoming the world’s largest exporter of LNG. Over 80 percent of US LNG exports are now sent to Europe. Although 17 percent of Europe’s LNG imports still come from Russia, the EU has set a target to eliminate Russian oil and gas imports by 2027. A return to pre-war energy supplies is unlikely, even if sanctions are eventually eased. Consequently, the EU is increasingly turning to the United States for LNG to meet its energy needs, though continuing to do so is contingent on the United States’s ability to meet demand.

Under the Trump administration, the United States has worked to expand its LNG production by issuing additional project permits. However, some hesitation exists within the industry due to unpredictable capital costs and a poorer economic outlook, including the risk of rising material costs caused by the 25 to 50 percent tariffs on steel, which are vital for constructing LNG facilities. Moreover, the US natural gas market is heavily dependent on associated gas production from oil wells. Should sanctions on Russian energy be lifted, the potential increase in global oil supply could drive down oil prices, which might slow US oil drilling and reduce natural gas production.

Before the war, Russia had ambitious plans to increase its LNG exports to 100 million tons per year by 2030, up from just under 35 million tons in 2024. Despite the sanctions, Russia has reaffirmed its target to reach 100 million tons per year by 2035. Should sanctions be eased, Russia’s energy exports could experience a significant boost, especially if stalled projects like the Arctic LNG 2 and smaller LNG facilities such as Portovaya and Vysotsk resume. Together, these projects could add between 8.8 million and 16.4 million tons of LNG per year to global markets.

While the United States remains a dominant force in the LNG export market, Russia’s ambition to reclaim its position as a key global energy player means that it could once again emerge as a significant competitor to the United States. Sanctions relief, especially, could accelerate the development of Russia’s energy projects.

In addition to threatening ambitions for US global energy dominance, lifting sanctions on Russia could reduce US financial dominance, erode the power of US financial sanctions, and limit US visibility of transactions and potential sanctions evasion. Since 2014, when Russia was first sanctioned due to its invasion of Crimea, the Central Bank of the Russian Federation (CBR) has developed a Russian version of SWIFT called Sistema Peredachi Finansovykh Soobcheniy (SPFS). It also created the Mir National Payment System to avoid relying on American companies such as Mastercard, Visa, and American Express. The international reach of SPFS has expanded significantly since 2022, when ten major Russian banks were banned from SWIFT. As of 2024, SPFS included 160 foreign banks. Russian banks have also issued co-badged Mir and UnionPay cards, allowing Russians to take advantage of UnionPay’s substantial presence in 180 countries.

Russia is also the primary driver and advocate of the dedollarization agenda within BRICS. Moscow leverages BRICS as a platform to advocate adopting alternative currencies for trade and reserves, in direct conflict with the United States’ interest in maintaining dollar dominance. In fact, Trump has threatened to impose 100 percent tariffs on the BRICS members if they continue efforts to create a BRICS currency or “back any other currency to replace the mighty US dollar.”

Sanctions on SPFS and Mir payment systems thwart Russia’s ability to expand the reach of its alternative payment systems and to connect SPFS with China’s payment system, the Cross-Border Interbank Payment System. Mir has recently connected with Iran’s Shetab interbank network, which will allow for the use of respective bank cards in both jurisdictions. The CBR seeks to increase the number of countries using Mir from eleven to twenty-five by 2025 and has been in negotiations with several countries including China, Egypt, India, Indonesia, and Thailand. However, warnings and sanctions imposed by the United States in September 2022 caused many banks in Mir’s eleven operating countries to abandon the use of the payment system. Like Mir, sanctions have curtailed efforts to expand SPFS through deterrence and by limiting the domestic use of SPFS. In November 2024, the Office of Foreign Assets Control issued an alert warning that any foreign financial institutions and jurisdictions that join or already have joined SPFS may face sanctions pursuant to Executive Order 14024.

If US financial sanctions on Russia are lifted, Russia will almost certainly continue to expand the reach of its alternative payment systems and advocate for the adoption of alternative currencies. China and other BRICS members are likely to work with Russia on payment system integration if they are no longer facing the threat of secondary sanctions. Developing and integrating payment systems is a highly technical and complex process, and the use of non-Western currencies will also pose an additional challenge. However, Russia is likely to prioritize its work on financial payments if the United States lifts sanctions.

Conclusion

Western economic pressure on Russia has created the conditions that are bringing Putin to the negotiation table. As the US delegation continues to negotiate with Russian counterparts over a ceasefire deal and, ultimately, peace for Ukraine, it is crucial to remember that Russia is a US competitor in global energy dominance and has led the dedollarization agenda within BRICS. Sanctions relief for Russia carries consequences not only for Ukraine and Europe, but also for the United States’ goals to dominate in the global energy and financial sectors. It is equally important to have a clear understanding of the economic levers European allies control over Russia and ensure that the EU and Ukraine are actively involved in negotiations to shape effective outcomes.

Finally, the EU should uphold sanctions against Russia collectively, rather than shifting toward autonomous sanctions regimes. The EU needs to unanimously renew sanctions against Russia every six months. This year, the renewal of sectoral sanctions is due for January and July, while listings are due for renewal in March and September. Hungary disrupted the renewal process both in January and March, agreeing to it only after securing certain concessions from the EU. Recognizing that not being able to renew sanctions against Russia is now a possibility, EU officials and member states have started working on alternative solutions, including tariffing Russian imports and implementing autonomous sanctions. A fragmented EU sanctions approach would diminish the bloc’s collective economic leverage over Russia and risk exposing divisions within the bloc that Moscow could take advantage of.

Authors: Kimberly Donovan, Maia Nikoladze, Lize de Kruijf, and Nazima Tursun

Related content

New Atlanticist Mar 28, 2024

The axis of evasion: Behind China’s oil trade with Iran and Russia

By Kimberly Donovan, Maia Nikoladze

Beijing has developed a way to import Iranian and Russian oil while bypassing the Western financial system and shipping services.

China Economy & Business

Testimony Feb 21, 2025

Kimberly Donovan testifies to the US-China Economic and Security Review Commission on the Axis of Autocracy

By Kimberly Donovan

On February 20, Economic Statecraft Initiative Director Kimberly Donovan testified to the US-China Economic and Security Review Commission at a hearing titled, “An Axis of Autocracy? China’s Relations with Russia, Iran, and North Korea.”

China Economy & Business

New Atlanticist Mar 26, 2025

There’s a right way to lift sanctions on Russia. Follow these Dos and Don’ts.

By Daniel Fried, Kimberly Donovan

A former US diplomat and a former US Treasury official offer eleven guiding principles for moving forward in negotiations on sanctions relief with Russia.

Conflict Economy & Business

Join our list

Sign up for other events and analysis from the GeoEconomics Center.

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Russia Sanctions Database: April 2025 appeared first on Atlantic Council.

After Russia’s illegal full-scale invasion of Ukraine in February 2022, Western partners imposed unprecedented financial sanctions and export controls against Russia. These measures aim to achieve three objectives:

1. Significantly reduce Russia’s revenues from commodities exports;
2. Cripple Russia’s military capability and ability to pursue its war;
3. Impose significant pain on the Russian economy.

The Atlantic Council’s Russia Sanctions Database tracks the restrictive economic measures Western allies have placed on Russia and evaluates whether these measures are successful in achieving the stated objectives and bringing lasting peace to Ukraine. The Database is now static and was last updated in November 2024. You can access the final version here.

In October, the United States targeted two of Russia’s largest oil majors, Rosneft and Lukoil, along with their subsidiaries, with primary sanctions that carry secondary sanctions risks. While significant, this action represents the only sanctions the Trump administration has so far issued in 2025 against Russia in response to its ongoing war in Ukraine. Western partners, including the European Union (EU) and United Kingdom, have issued multiple sanctions packages to pressure Russia to end the war. At the same time, the United States has held multiple rounds of peace talks with Russian counterparts, none of which has produced clear results.

Acceptance of any cease-fire would force Russian President Vladimir Putin to lift the mobilization decree that has been in place from 2022, a move fraught with political, economic, and military costs for the Kremlin. It would also contradict the Kremlin’s pursuit of effective political control over Ukraine and its conviction that Kyiv can be compelled to capitulate by force. Therefore, Russia is stalling while seeking sanctions relief and territorial gains, and promising lucrative business opportunities. As negotiations continue, US policymakers and their Western allies should remain clear-eyed about Russia’s aims, as well as the true state of its wartime economy. Maintaining firm economic pressure now through sanctions and export control enforcement may force Moscow out of its stall tactics and compel Putin to agree to a peace deal to save Russia’s declining economy, ultimately achieving Group of Seven (G7) sanctions objectives.

• Objective 1: Significantly reduce Russia’s revenues from commodities exports
  • Russia scrambles to reroute oil exports as sanctions hit Lukoil and Rosneft
  • Russia uses cryptocurrencies for foreign trade
  • Russia remains dependent on the shadow fleet
• Objective 2: Reduce Russia’s ability to wage the war
  • Russia’s military industrial base is thriving
  • Russia is experiencing significant labor shortages
• Objective 3: Impose significant pain on the Russian economy
  • Russia’s economy is in decline
  • Russia turned to taxation and loans to fund its war economy
• Conclusion and policy recommendations

Objective 1: Significantly reduce Russia’s revenues from commodities exports

Russia scrambles to reroute oil exports as sanctions hit Lukoil and Rosneft

Russia’s commodity revenues have been hit hard this year by a combination of low global oil prices, a stronger ruble, Ukrainian drone strikes on Russia’s energy infrastructure, and sanctions by the United States, EU, and United Kingdom. From January to November, Russia’s oil and gas revenues totaled an estimated $102 billion—a 22 percent drop from 2024. US and UK sanctions on Lukoil and Rosneft added further pressure, pushing Russian oil prices downward and leaving millions of barrels stranded at sea with no buyers. At the same time, Lukoil has been forced to seek buyers for its foreign assets and equity holdings in other energy firms. Rosneft, which has reported a 70 percent decline in profits in the first nine months of 2025, has not announced any actions in response to sanctions.

China and India, which had continued to import the majority of Russian oil despite sanctions and the oil price cap, now face the risk of US secondary sanctions if they continue to import oil from Russia’s four oil majors—Rosneft, Lukoil, Gazprom Neft, and Surgutneftegas. (The latter two were designated by the Biden administration in January.) In response, Russia has rerouted oil exports through smaller Russian companies such as Tatneft, Rusexport, Morexport, and Alghaf Marine to circumvent sanctions and reduce their trading partners’ exposure to US secondary sanctions. Moscow is likely to continue using intermediaries and third-party trading entities, reshuffling ownership of these companies, and other sanctions evasion techniques to isolate sanctioned entities from potential buyers.

Russia’s quick reaction to sanctions by shifting oil exports to smaller companies indicates that the sanctions against oil majors were effective. Russia is scrambling to reroute oil exports and reduce its trading partners’ sanctions exposure risk because it relies on revenue from oil sales. Sanctioning the oil is proving to be an effective strategy and pressure point that the United States and its partners should continue to enforce and pursue. This approach forces Russia to remove major companies from the market, restructure ownership of its companies, and create multiple layers for sales, which is expensive and further reduces its oil revenues. Maintaining this strategy is crucial to sustain economic pressure on Russia.

Russia uses cryptocurrencies for foreign trade

Restricting Russia’s access to foreign currency and ability to conduct cross-border transactions has been a key component of efforts to limit its revenue from commodity exports. Cut off from the US dollar and other major currencies, Russia has increasingly conducted trade with China in renminbi and with India in rupees. More recently, Moscow eased restrictions on cryptocurrencies, allowing the use of Bitcoin and other digital assets for cross-border transactions, including for oil payments from India and China. Chinese and Indian buyers usually pay for oil in yuan or rupees, depositing the funds into an offshore account controlled by a middleman. The middleman converts the money into cryptocurrency and sends it to a Russian account, where it is exchanged for rubles. Crypto payments currently might be playing a limited role in Russia’s oil trade, but their strategic implications are substantial. By operating beyond Western oversight, they risk becoming a much larger sanctions evasion challenge if left unchecked by the United States and its partners.

Recognizing the growing role of digital assets in Russia’s economy, some senior Russian officials—including Maxim Oreshkin, deputy chief of staff to Putin—have argued that cryptocurrency mining should be treated as an export industry. Oreshkin has noted that Russia’s crypto-related financial flows are significant but largely absent from official economic statistics. He has proposed that these flows be incorporated into Russia’s balance of payments reporting, which would alter the way Russia’s economic performance is measured and legitimize cryptocurrency within the country’s financial infrastructure.

Beyond mainstream cryptocurrencies like Bitcoin, Russia has embraced A7A5, a ruble-backed stablecoin that has rapidly become central to its cross-border payments. By mid-2025, blockchain-analysis firms reported that A7A5 was moving close to one billion dollars per day, with cumulative transfers exceeding forty billion dollars. Shortly afterwards, the EU’s nineteenth sanctions package banned all transactions involving A7A5 and sanctioned the issuer and related exchanges. The United States and the United Kingdom have also sanctioned companies tied to the token.

Given A7A5’s rapid growth and its potential use in sanctions evasion, US and allied authorities will need to strengthen oversight of stablecoin infrastructure and work with issuers and exchanges to prevent sanctioned Russian actors from converting ruble-linked tokens into internationally usable digital assets and fiat currencies.

Russia remains dependent on the shadow fleet

The shadow fleet continues to play a central role in exporting Russian oil and liquefied natural gas (LNG). Currently, the global shadow fleet consists of 3,240 aging vessels, representing about 17 percent of global oil tankers, used by Russia as well as other heavily sanctioned countries to bypass sanctions and the G7 oil price cap. The shadow fleet uses deceptive shipping practices including shell companies, flag-hopping, ship-to-ship (STS) transfers, and automatic identification system (AIS) manipulation to transport seaborne energy commodities. Notably, 113 vessels flying a false flag transported €4.7 billion (approximately $5.4 billion) worth of Russian oil in the first three quarters of 2025. This year, those evasion practices have only become more entrenched. In October alone, Russia exported 44 percent of its oil through shadow fleet tankers.

Gaps in designations of tankers among the UK, EU, and US jurisdictions have undermined overall effectiveness of shadow fleet sanctions. Notably, enforcement leadership shifted toward Europe and Canada this year, which expanded vessel designations and advanced joint monitoring efforts, including a shadow fleet task force. The United States designated far fewer tankers this year, creating gaps between US, EU, and UK sanctions that Russia and other countries are exploiting. Meanwhile, China is beginning to assemble its own shadow fleet to import sanctioned Russian LNG. This new fleet is adopting the same tactics as Russia, obfuscating ship ownership, AIS-spoofing, and STS transfer practices. Coordinated action among allies is essential to close these enforcement gaps and prevent further exploitation of the international oil trade.

To further restrict Russia’s energy revenue, US policymakers should align and enforce shadow fleet sanctions with the EU and United Kingdom. Effective sanctions enforcement includes sharing information with the private sector on shadow fleet activity and implementing standards for flagging states to hold flag registries accountable when they work with sanctioned vessels. Additionally, the United States and its allies should collaborate to address China’s growing role in transporting and refining Russian-originated oil and LNG. These steps, as reflected in the SHADOW Fleet Sanctions Act of 2025 (S.2904), which was introduced this fall in the Senate, aim to close enforcement gaps enabling Russia’s shadow fleet revenue.

Objective 2: Reduce Russia’s ability to wage the war

Russia’s military industrial base is thriving

Western export controls on dual-use technologies have not prevented the growth of Russia’s defense sector. The country’s military-industrial base has continued to scale up, fueled largely by wartime domestic demand. In 2024, Russia’s two leading arms producers—Rostec and the United Shipbuilding Corporation—reported a combined 23 percent increase in arms revenues, reaching $31.2 billion, even as both firms remained under Western sanctions. That same year, Russia significantly expanded weapons production, manufacturing 1.3 million 152-millimeter artillery shells—more than four times its 2022 output—and approximately 700 Iskander short-range ballistic missiles.

Yet Russia still relies on key foreign inputs to keep its production lines running. Iskander missiles, for example, require significant quantities of sodium chlorate, a chemical Russia cannot yet produce at scale. Although Moscow is building new facilities, they will not come online until between 2026 and 2027. In the interim, China supplied 61 percent of Russia’s sodium chlorate imports while Uzbekistan provided 39 percent in 2024.

Russia’s rapid expansion of its drone arsenal is similarly thanks to foreign partners. Tehran has provided the cheap, long-range Shahed drone systems that have enabled Russia to dominate Ukrainian airspace. A $1.75 billion deal signed in 2023 gave Russia access to thousands of drones and substantial support for establishing domestic production lines—paid for in part with several tons of gold ingots. Russia now claims to have localized roughly 90 percent of its drone manufacturing and assembly. Output reportedly doubled from fifteen thousand long-range drones in 2024 to more than thirty thousand in 2025, alongside up to two million small tactical drones.

China remains a critical supplier of rare metals—including gallium, germanium, and antimony—essential for drone and missile production. However, this has come at a cost, with Beijing nearly doubling prices on sensitive exports to Russia’s defense sector since 2021. China has also deepened its investment role, recently acquiring a 5 percent stake in a leading Russian drone manufacturer, underscoring growing integration between the two countries’ defense industries.

Despite this progress, Russia’s weapons systems still rely on some Western components, such as advanced sensors and microcomputers for flight control systems. Ukraine recently reported that more than 100,000 foreign-made parts were recovered from 550 Russian drones and missiles that struck Ukrainian territory during a large-scale bombardment. These components continue to flow into Russia through extensive networks of intermediaries and shell companies, largely based in China, Turkey, and the United Arab Emirates—highlighting that Western export controls have fallen short of significantly constraining Russia’s ability to wage war.

Russia is experiencing significant labor shortages

Even as Russia scales up arms production, it faces acute labor shortages that threaten its ability to sustain the war. An aging and shrinking population has been further depleted by the loss of hundreds of thousands of young men on the front lines. Under pressure from the Kremlin, regional governments have built a quasi-commercial recruitment system in which freelance headhunters earn commissions for delivering new soldiers. This strategy has involved offering generous signing bonuses and payments for wounded soldiers and for the families of those killed in action. While these incentives have boosted recruitment, they still fail to generate sufficient volunteers, and these numbers are likely to continue to drop with recent reports suggesting that benefits are being significantly delayed and that signing bonuses are dropping rapidly as regional budgets come under increasing strain.

To fill the ranks, the Kremlin has relied heavily on mercenaries. Migrants and foreign students inside Russia have been coerced into military service under threat of visa cancellation. Moscow has also recruited fighters from adversarial actors such as the Houthi rebels and North Korea, and it has conducted deceptive global recruitment campaigns that lure men from a vast array of countries with promises of high-paying jobs or training programs—only for them to be handed over to Russian mercenary groups upon arrival. These foreign fighters, often deployed in risky offensive maneuvers to shield more highly trained Russian units, suffer especially heavy casualties. According to Ukraine, Russia has recruited at least eighteen thousand fighters from 128 countries.

To address labor gaps in the defense industry, Russia has also recruited foreign civilian workers through programs like “Alabuga Start.” Alabuga—a major industrial complex in Tatarstan—has become the central nerve of Russia’s mass drone production. The program targets young women, particularly from African countries, with offers of well-paid jobs in cafes or stores. In reality, recruits are forced to work under hazardous conditions, handling toxic materials without protective gear and living under constant surveillance. Working at Alabuga also means direct exposure to the war, as Ukraine drones frequently target these factories.

Russia’s growing dependence on foreign mercenaries and laborers has not gone unnoticed. Botswana’s Interpol branch has opened investigations into potential human-trafficking links to Alabuga Start. South African authorities have initiated legal action against individuals involved in facilitating deceptive recruitment. Nepal has banned its citizens from seeking employment in Russia. While many countries have urged Moscow to stop illegally recruiting their citizens, without coordinated international action these recruitment pipelines are unlikely to cease.

Objective 3: Impose significant pain on the Russian economy

Russia’s economy is in decline

Given the growing limitations and unreliability of official data from Moscow, it is difficult to assess the state of the Russian economy with certainty. However, when interpreting Russian data alongside independent sources and anecdotal evidence, a number of indicators arise suggesting that after nearly four years of war and isolation from the global financial system, it is becoming increasingly difficult for Russia to make ends meet.

Following the recent implementation of US sanctions on Russian oil majors, the International Monetary Fund downgraded Russia’s 2025 growth forecast from an already weak 0.9 percent to 0.6 percent, continuing a downward trend seen in 2024. Despite the decline in growth and high interest rates, inflation remains stubbornly high at 6.6 percent—well above target and widely believed to be understated. Nevertheless, the Russian Central Bank has lowered interest rates from 21 percent in May to 16.5 percent in October, likely in an effort to stimulate growth.

Russia’s budget plan estimated an increase of the deficit from 1.7 percent of gross domestic product (GDP) in 2024 to 2.6 percent in 2025 (approximately $72 billion, based on Russian GDP reporting), while the cost of debt servicing is predicted to rise to 8.8 percent of total budget expenses. In the past the National Welfare Fund played a major role in paying the bills, and while the Ministry of Finance reports the fund’s total value at 6.1 percent of GDP (approximately $169.5 billion), its liquid assets—the portion that can actually be used to finance the deficit—have dwindled to roughly 1.9 percent of GDP (about $51.6 billion).

The most significant source of revenue remains oil and gas sales, which—despite declines due to lower global prices, a stronger ruble, and Ukrainian strikes on refineries—still account for an estimated 30 percent of federal income. This contribution is expected to shrink substantially due to the newly imposed sanctions on Lukoil and Rosneft. It is important to note that this will likely result in a deepening deficit as the budget plan did not factor in the possibility of escalating sanctions or tougher enforcement.

Signs are already emerging that Moscow is struggling to cover its growing deficit in the wake of these new sanctions. Reports indicate that payments to wounded soldiers and families of those killed in action have been significantly delayed and reduced, while signing bonuses for new recruits—which once reached as high as fifty thousand dollars—have declined sharply. Nevertheless, these costs are likely to remain substantial, as the government relies on this quasi-commercial recruitment system to maintain troop levels at the front lines. These benefits have also played a key role in dampening any public dissent toward the war.

Russia turned to taxation and loans to fund its war economy

With other sources of revenue becoming depleted, Russia has turned to increasing taxation to raise revenue. In 2025, the Russian government increased the income tax (while deductions for low-income families were reduced), the value added tax from 20 percent to 22 percent (with lower thresholds for small and medium-sized enterprises to avoid the tax), the profit tax from 20 percent to 25 percent, the profit tax on oil transport to 40 percent, and mineral extraction taxes on iron, coal, and gold. To cushion households, Moscow announced a 20.7 percent increase in the minimum wage effective in 2026. However, this measure is likely to raise government spending and will not fully offset the heavier tax burden—particularly for urban households earning above minimum wage. At the same time, higher taxes and wage floors will further strain Russian industry, which has already been under significant pressure, with non-military sectors contracting 5.4 percent since January and furloughing workers to cut costs.

In addition to revenue, Russia has also relied on loans to fund its war economy. In December, Moscow issued $2.8 billion worth of yuan-denominated bonds, a move that reflects growing pressure to finance its fiscal deficit as military expenditures remain high and oil revenues fall. Although this issuance cannot offset Russia’s exclusion from Western financial markets, it marks a notable precedent that could open a new funding channel for more frequent use in the future. It also highlights a shift on China’s part, with Beijing having been hesitant only months earlier to allow Russian entities to issue yuan bonds due to concerns over secondary sanctions.

However, given the limited options for external financing throughout the war, much of the burden has fallen onto major Russian banks. These institutions have increasingly extended preferential, state-directed loans to companies involved in the war effort. These loans carry low interest rates far below the rate set by the Central Bank and are not recorded as federal expenditures, suggesting that the state of the economy is likely worse than the current deficit suggests. Since 2022, corporate debt has surged by 71 percent, reaching roughly $446 billion. This rapid expansion has become a key driver of inflation and limits the central bank’s ability to curb price growth through rate hikes. It also creates mounting systemic risk by burdening banks with a growing portfolio of high-risk, state-mandated loans.

Signs of stress have already started emerging. One of the clearest examples is Russian Railways—Russia’s largest commercial employer and a pivotal link in the country’s logistics and industrial and energy supply chains—which has accumulated roughly $51 billion in debt. The Kremlin has intervened to stabilize the company, with VTB, Russia’s second-largest bank, agreeing to restructure its debt. At the same time, the central bank is being pressed to extend a 2025 measure that allows banks to restructure corporate loans without a corresponding increase in their reserves. This effectively compels banks to absorb more risk in order to keep strategic enterprises afloat, underscoring both the fragility of Russia’s wartime credit system and the limits of its financial insulation.

Conclusion and policy recommendations

After three years of increasing economic pressure on Russia in response to its brutal war in Ukraine, sanctions are achieving the G7’s stated objectives. Russia’s economy is in decline, and sustaining economic pressure may create the conditions to compel Putin to end the war on terms favorable to Ukraine. To achieve this, the United States and its partners should consider the following policy recommendations:

• The US Treasury should continue pressure on Russia’s energy sector and sanction smaller Russian oil companies and foreign entities transacting with them, leveraging secondary sanctions authorities.
• The G7 should move forward with a proposed ban on maritime services for Russia.
• Western partners should leverage mechanisms such as the United Nations International Maritime Organization to develop new tools and expand interpretations of existing maritime law to confront Russia’s shadow fleet and the threat the fleet poses to maritime infrastructure.
• Congress should take a lead on the shadow fleet issue and adopt the Shadow Fleet Act.
• The US Treasury, in coordination with the EU and UK sanctions authorities, should work with stablecoin issuers and exchanges to ensure the ruble-backed stablecoin A7A5 is not exchangeable with dollar-backed stablecoins or other fiat currency-backed coins.
• The United States and its partners should map out how Russia, Iran, North Korea, and Venezuela are working together or sharing tactics and techniques to export sanctioned oil and import sanctioned goods, recognizing the similarities in how these countries operate. Mapping out these activities may help identify vulnerabilities within these networks and opportunities for disruption. Further, the United States and its partners should take a network approach to enforcing sanctions on Russia, Iran, North Korea, and Venezuela and leverage secondary sanctions in order to disrupt and deter sanctions evasion.
• The United States should align sanctions with Western partners to maximize effect and streamline enforcement and compliance.
• Western partners should consider providing legal assistance and investigative support to countries from which Russia is recruiting laborers to raise awareness of the issue, strengthen their law enforcement investigations into Russian recruitment networks, and where applicable, pursue legal action to hold perpetrators accountable. Further, the United States, United Kingdom, EU, and other like-minded partners should use their authorities to impose sanctions on individuals and entities involved in facilitating these recruitment efforts as they support Russia’s harmful foreign activities.
• The United States should continue to engage with China on export controls enforcement as it relates to Russia and seek committments from Beijing to ensure sensitive Western technologies such as H200 semiconductors are not sold or reexported to Russia.

Authors: Kimberly Donovan, Maia Nikoladze, Lize de Kruijf, and Mary Kate Adami

Past editions

Russia Sanctions Database

April 2025 edition

The Russia Sanctions Database tracks the level of coordination among Western allies in sanctioning Russian entities, individuals, vessels, and aircraft, and shows where gaps still remain. This edition analyzed what economic leverage different Western partners have against Russia.

Russia Sanctions Database

November 2024 edition

After Russia’s illegal full-scale invasion of Ukraine in February 2022, Western partners imposed unprecedented financial sanctions and export controls against Russia. This edition includes the last update of the database.

Russia Sanctions Database

May 2024 edition

The Atlantic Council’s Russia Sanctions Database tracks the restrictive economic measures Western allies have placed on Russia and evaluates whether these measures are successful in achieving the stated objectives.

Related content

Testimony Feb 21, 2025

Kimberly Donovan testifies to the US-China Economic and Security Review Commission on the Axis of Autocracy

By Kimberly Donovan

On February 20, Economic Statecraft Initiative Director Kimberly Donovan testified to the US-China Economic and Security Review Commission at a hearing titled, “An Axis of Autocracy? China’s Relations with Russia, Iran, and North Korea.”

China Economy & Business

New Atlanticist Nov 25, 2025

How Venezuela uses crypto to sell oil—and what the US should do about it

By Maia Nikoladze

As US sanctions on Venezuela have intensified, the Maduro regime has grown increasingly interested in leveraging digital assets to facilitate oil transactions.

China Digital Currencies

Econographics Apr 30, 2025

US-EU sanctions divergence would spell trouble for multinational companies

By Jesse Sucher

The fracturing of traditional alliances carries significant consequences for companies facing multijurisdictional compliance obligations, meaning an already complex situation will become more chaotic.

Economy & Business Europe & Eurasia

Join our list

Sign up for other events and analysis from the GeoEconomics Center.

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Russia Sanctions Database appeared first on Atlantic Council.

After Russia’s illegal full-scale invasion of Ukraine in February 2022, Western partners imposed unprecedented financial sanctions and export controls against Russia. These measures aim to achieve three objectives:

1. Significantly reduce Russia’s revenues from commodities exports;
2. Cripple Russia’s military capability and ability to pursue its war;
3. Impose significant pain on the Russian economy.

The Atlantic Council’s Russia Sanctions Database tracks the restrictive economic measures Western allies have placed on Russia and evaluates whether these measures are successful in achieving the stated objectives.

The Database also centralizes the financial designations of more than five thousand Russian entities and individuals sanctioned by the Group of Seven (G7) jurisdictions, Australia, and Switzerland. The Database is updated quarterly and can be queried to determine if an individual or entity is designated. Please refer to the appropriate designating jurisdiction’s websites and platforms for additional information and confirmation. The data provided in the Database is intended for informational purposes only.

How to use this database to reveal sanctions gaps: Click on the check mark () and cross mark () filters at the top of each column. Doing so will build a list of entities/individuals that are sanctioned by one country but not by another.

The seven jurisdictions covered in this database are the United States, the United Kingdom, the European Union, Switzerland, Canada, Australia, and Japan. Data in the database was last updated on November 8, 2024

Objective 1: Significantly reduce Russia’s revenues from commodities exports

Lengthening of global oil trade routes

Restrictive economic measures against Russia’s energy sector have caused major restructuring of the global oil market and lengthening of oil trade routes, but Russia is still generating revenue from oil exports to India and China. 

When the European Union (EU) banned seaborne Russian oil imports, the United States stepped in and became the largest supplier of crude oil to Europe. US crude oil exports to Europe increased by 23 percent in June 2024 year on year. However, as the United States became the top oil exporter to Europe, it lost half of its share of the Indian market. India opted for cheaper Russian oil as a result of the oil price cap and cut US crude oil imports by 47 percent in 2023. 

This reshuffling in the global energy market resulted in the lengthening of oil trade routes: The United States and the Middle East are shipping oil to Europe, while Russia is shipping oil to India and China, which in some cases re-export refined Russian oil to Europe. 

Longer oil trade routes created new loopholes in the Group of Seven (G7) sanctions regime. For example, since the G7 does not have import restrictions on refined Russian oil from third countries, Europe has been buying Russian oil products such as fuel from India, lengthening the supply chain even more. Between December 2022 and December 2023, the price cap coalition members imported about nine billion dollars worth of Russian-origin oil products from India and other third countries.

Additionally, longer, multiparty trade routes are also ultimately related to enforcement issues. In response to the oil price cap, Russia has built up a shadow fleet of tankers that can easily take advantage of these routes. At the same time, Russia has developed a multiparty blending market against which sanctions are proving more complicated to enforce. 

Russia seems to be repeating Iran’s sanctions evasion playbook, which has been to re-export blended and refined crude oil through third countries. It might be time for the G7 to take a more comprehensive step and replace the oil price cap with sanctions on Russian oil. The price cap leaves much room for maneuvering both for Russia and third countries to profit from re-exporting. Sanctioning Russian oil would significantly increase global oil prices and negatively impact the global economy. However, if India were to stop importing Russian oil, Russia would lose a significant market for its crude oil, perhaps even becoming fully dependent on China just like Iran, who has to sell oil at a much lower price than Russia.

The Treasury Department’s November 21 action designating Gazprombank demonstrates the Biden administration’s resolve to restrict Russia’s ability to generate revenue from commodity exports. Gazprombank was previously designated by the United Kingdom, Australia, New Zealand, and Canada.

Proposed G7 restrictions could irreversibly damage the global diamond industry  

The G7 has introduced phased prohibitions on the imports of Russian-origin non-industrial diamonds. They are likely to cause shock waves in the global diamond industry, but it is unclear whether they would weaken Moscow’s ability to finance the war on Ukraine. Russia’s diamond industry generates about $3.8 billion in revenue annually, a minuscule amount compared to the about $100 billion Russia received in oil and gas revenues last year. While not being a critical commodity exporter for Russia, the Russian state-owned diamond mining company Alrosa has the largest share of the global diamond market (31 percent) and produces 35 percent of the world’s rough diamonds. This asymmetry implies that diamond restrictions will not impact Russia’s war chest, but will negatively impact the $100 billion global diamond industry. 

Russia still continues to profit from diamond sales despite sanctions. For example, in 2023, Hong Kong imported $657.3 million worth of diamonds from Russia, a dramatic 1,700 percent increase from the previous year. However, countries at the low end of the supply chain, such as India, that refine and polish diamonds and other precious gems, will no longer be able to re-export polished Russian diamonds to the G7. This will especially impact India which will have to either export polished Russian diamonds to other markets or import rough diamonds from other countries. In either case, India’s diamond industry will suffer from major supply chain restructuring. 

The G7 countries are in the process of creating new requirements for tracing the origins of all diamonds before they enter G7 and EU countries. The “mandatory traceability program” will go into effect on March 1, 2025 and will likely increase compliance costs across the diamond industry. In particular, the EU will require all non-Russian diamonds to go through Antwerp, Belgium to verify their origins. Industry leaders have expressed concerns about bottlenecks and the advantage Antwerp would be getting over other sellers in case this mechanism is approved. 

The World Federation of Diamond Bourses has acknowledged the need to trace diamonds’ origins but raised concerns about the plan the G7 has suggested. The cost of compliance with sanctions, including the cost of shipping diamonds to Belgium while paying for freight insurance will likely increase the price of non-Russian diamonds, ultimately making Russian diamonds comparatively less expensive and therefore more attractive to consumers. 

The G7 governments should take into consideration concerns from the world’s diamond industry and African stakeholders, and create the space for diamond experts to present an alternative plan for traceability that meets the G7’s intent.

Objective 2: Cripple Russia’s military capability and ability to pursue its war

Can India manage to enjoy the benefits of trading with Russia without facing the consequences?

After the United States pressured the United Arab Emirates and Turkey to comply with critical technology export controls on Russia, India has emerged as a primary transshipment hub and the second largest supplier of restricted technology to Russia. As it turns out, Russian authorities began finding solutions to transact with Indian companies through clandestine channels shortly after Russia invaded Ukraine. 

When the G7 imposed sanctions on Russia, India increased imports of cheap Russian oil. India was paying Russia in rupees for a portion of these imports, resulting in Moscow accumulating a considerable amount of rupees it could not spend anywhere else, similar to the phenomenon with China that we discussed in our analysis of the “axis of evasion.” 

According to the Financial Times, by October 2022, Russia’s Industry and Trade Ministry made a secret plan that would kill two birds with one stone: Russia would buy sensitive electronic components from India with the 82 billion rupees (about one billion dollars) the Russian banks had accumulated from oil exports. The payments would take place in a “closed payment system between Russian and Indian companies, including by using digital financial assets”, and outside of Western oversight. It is difficult to determine if the plan worked because the Financial Times obtained the information about this plan from leaked Russian documents. However, given that India is now the second largest sensitive technology provider to Russia and Russian banks maintain branches in several Indian cities, it is safe to assume that it did. 

If everything follows the current trajectory, India will increase technology exports to Russia to address the massive trade imbalance with Moscow. Specifically, in the fiscal year ending in March 2024, New Delhi imported $65.7 billion worth of crude oil from Russia and exported only $4.26 billion worth of goods. To restore the trade balance, India exported items such as microchips, circuits, and machine tools worth more than $60 million both in April and May, and $95 million in July. Thus, it is now in India’s interest to export more electronics to Russia so it can correct the trade imbalance before the end of the fiscal year. 

The United States is aware of India’s increasing role in supplying Russia’s military-industrial complex with critical technology. The Treasury Department included nineteen Indian entities in its latest tranche of designations of Russia’s military procurement networks. At the same time, the State Department sanctioned more than 120 additional entities and individuals supporting Russia’s military-industrial complex, and the Commerce Department imposed export controls on forty foreign entities to prevent them from obtaining US technologies. One of the designated companies is Shreya Life Sciences, an Indian drugmaker that, according to the Treasury Department’s sanctions designation, has exported restricted high-end servers optimized for artificial intelligence to Russia. Indian authorities’ cooperation with the United States and G7 allies will be significant in ensuring Indian companies such as Shreya Life Sciences stop undermining the sanctions and export controls regime against Russia. 

As a starting point, the United States and its G7 allies should increase engagement with Indian authorities and encourage India’s Financial Intelligence Unit to share information through Egmont Group channels that may shed light on the closed payment channel that Indian companies supposedly used to transact with Russian companies, and whether this channel is still operational. Western allies should strongly encourage India to consider the exposure risk Indian financial institutions have with Russian banks that have been sanctioned or removed from the SWIFT messaging system and have branches in India, such as Sberbank, VTB Bank, and Promsvyazbank, as Indian financial institutions transacting with these Russian banks are subject to US secondary sanctions. 

Indian banks should consider their exposure to and risk of connecting with Sistema Peredachi Finansovykh Soobscheniy or “System for Transfer of Financial Messages” (SPFS). The Treasury recently warned foreign financial institutions that SPFS is considered part of Russia’s financial services sector. As a result, banks that join Russia’s financial messaging system may be targeted with sanctions.

Finally, the G7 partners should take into account India’s high dependence on imported energy. India imports 88 percent of its oil and is working toward increasing the role of renewables in the energy mix. Engaging with Indian authorities on finding alternative energy resources and suppliers would be a recommended next step for the G7 allies. This would also help India address the payment challenges it has experiencing with Russian authorities, who have been demanding that Indian companies pay Russian companies in renminbi instead of rupees.

Objective 3: Impose significant pain on the Russian economy

G7 countries issued unprecedented coordinated sanctions on Russia following Russia’s invasion of Ukraine in 2022. Western sanctions have significantly impacted Russia’s ability to fight its war and have made it more difficult for Russia to operate. There are indications that Russia’s economy is struggling. For example, the Central Bank of Russia recently increased the interest rate to 21 percent. Russia’s National Welfare Fund is declining as well as its export revenues as a result of sanctions. However, after nearly three years of war and sanctions, Western partners have not fully achieved their objectives. 

As the war continues on, the effects of restrictive economic measures are waning as Russia has created workarounds and mechanisms to transact and trade with its partners outside the reach of Western sanctions. Russia has adapted and evolved into a wartime economy. Measures such as export controls are making it more difficult for Russia to import battlefield technology and materials. However, Russia is finding solutions such as partnering with Iran and North Korea to obtain missiles, unmanned aerial vehicles, and other military equipment. 

Further, Russia is not the only country affected by Western sanctions. Russia’s neighboring countries are struggling to comply with sanctions as they have historically relied on economic ties and trade with Russia and have few opportunities to develop alternatives. Meanwhile, entire industries, including oil and precious gems, have had to develop and implement new ways of doing business and adjust to sanctions compliance. Technology companies also continue to have trouble complying with export controls. Their sensitive Western technology and dual-use goods continue to end up on the battlefield in Ukraine.

Going forward, Western partners must continue economic pressure on Russia in concert with military assistance to Ukraine. Sanctioning Russian oil will be critical in imposing pain on the Russian economy since oil and gas revenues filled one-third of Russia’s budget in 2023. However, if the United States and its G7 allies continue to leverage economic measures to change the course of wars and behaviors of states, they will need to have clearly outlined objectives and measures of assessment before pulling the trigger on sanctions. Developing a comprehensive understanding of the industries such measures will target will be critical for managing expectations of what sanctions can achieve, and what ramifications they will have for the global economy. 

Above all, the United States and G7 allies need to recognize that the use of economic tools comes at a cost, such as oil price increases and supply chain reshuffling. Economic tools avoid the damage of human deaths, but they require economic and financial sacrifice. It is now up to the G7 allies to decide what is a bigger priority: Oil prices or international security. 

Authors: Kimberly Donovan and Maia Nikoladze

Contributions from: Mikael Pir-Budagyan

Related content

New Atlanticist Mar 28, 2024

The axis of evasion: Behind China’s oil trade with Iran and Russia

By Kimberly Donovan, Maia Nikoladze

Beijing has developed a way to import Iranian and Russian oil while bypassing the Western financial system and shipping services.

China Economy & Business

Testimony Feb 21, 2025

Kimberly Donovan testifies to the US-China Economic and Security Review Commission on the Axis of Autocracy

By Kimberly Donovan

On February 20, Economic Statecraft Initiative Director Kimberly Donovan testified to the US-China Economic and Security Review Commission at a hearing titled, “An Axis of Autocracy? China’s Relations with Russia, Iran, and North Korea.”

China Economy & Business

New Atlanticist Mar 26, 2025

There’s a right way to lift sanctions on Russia. Follow these Dos and Don’ts.

By Daniel Fried, Kimberly Donovan

A former US diplomat and a former US Treasury official offer eleven guiding principles for moving forward in negotiations on sanctions relief with Russia.

Conflict Economy & Business

Join our list

Sign up for other events and analysis from the GeoEconomics Center.

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Russia Sanctions Database: November 2024 appeared first on Atlantic Council.

Background to CFIUS reviews of foreign investment

CFIUS reviews strengthen US efforts to maintain national security by ensuring governmental review and national control of essential industries. Established to limit foreign control of US critical infrastructure and emerging technologies, CFIUS has grown to encompass major parts of the US economy.

CFIUS allows the US government to review investments into a wide range of sectors by foreign actors, state-owned companies, or private businesses with majority foreign ownership. These include traditional infrastructure and raw material production such as electricity and steel, as well as sectors essential to the modern economy such as semiconductors and artificial intelligence (AI).

In an attempt to further strengthen US government oversight and limit Chinese investment in US critical infrastructure, the Trump administration has issued the National Security Presidential Memorandum (NSPM). The NSPM relies heavily on updating and expanding CFIUS to include more sectors, strengthen CFIUS reviews, limit mitigation measures, and reshape exemptions.

However, the NSPM does nothing to fix the underlying issues which plague CFIUS and place limitations on cross-border investments into the United States from allies. 

Application of trusted partner exemptions matters

The largest complications surrounding CFIUS center on review of investments from fellow Western democracies and clearance process timelines. The NSPM offers the solution of a white list to expedite and clear investment from like-minded countries more easily, but the list poses more questions than solutions.

CFIUS currently includes specific exemptions, including surrounding investments by those with citizenship from trusted national security allies. The proposed white list would include additional trusted countries with appropriate approaches to China. This would be paired with a “fast-track” process for investments which fit these requirements.

However, in practice, existing exemptions have done little to provide certainty or clearance for investors. Nippon Steel’s proposed investment in US Steel illustrates the difficulty for investments which should be clear cut. This investment is from a critical security partner and longtime Asian ally, yet it continues to face numerous hurdles.  Despite offering a clear alternative to Chinese investment in a critical industry and providing numerous investment opportunities between longtime security partners, political support for the deal is limited. The CFIUS process may have cleared the investment based on the facts, but President Biden blocked completion of the deal through an executive order and President Trump’s support of the deal remains fickle at best.

Expanding reach without clear definitions will hinder investment

CFIUS as it stands offers comprehensive definitions for the sectors it covers. This is problematic for technology investments, when daily advancements are made in both hardware and software. From the development and incorporation of AI into daily life to the exploration of quantum computing solutions, CFIUS oversight touches nearly every part of the digital economy.

Instead of working to define these terms and provide clarity, the NSPM looks to expand CFIUS coverage into even more sectors. The proposed expansion for CFIUS oversight would include greenfields, agriculture, and other sectors outside of technology and infrastructure.

Once again, how these sectors and investments will be defined remains unknown. If the current CFIUS regime is anything to go by, these definitions will be expansive and vague. Investors will face increased uncertainty as they work to assess if any of their potential investments are captured by CFIUS screening.

Voluntary filing regime leaves investments in limbo long after completion

Though mandatory for certain industries and sectors, of which the NSPM proposes wide expansions, most investments fall under the voluntary CFIUS regime.

The voluntary filing process allows a firm to notify CFIUS of their proposed investment and gain approval prior to completion. Businesses can decide to voluntarily file through the regime, inviting CFIUS to review the potential investment and provide their approval. By drawing attention to the potential deal, firms open the investment to the in-depth scrutiny of a CFIUS review. Though time consuming and costly, approval through this system can provide certainty for the investment alongside symbolizing a firm’s commitment to US regulatory oversight.

If a firm decides against making voluntary filing, this does not guarantee a lack of CFIUS oversight. Though the filings are truly voluntary, CFIUS’s increased reach and powers can present a looming threat to investments.

CFIUS has the authority to review any investment, regardless of status. Any potential risk to national security as determined by CFIUS is worthy of review. This includes long-established investment arrangements which are past the point of completion. As industries transform and national security priorities shift, there is every chance that a previously completed deal could come under CFIUS review. When this happens, businesses face the complications of a CFIUS review, as well as the very real possibility of having to unwind their investments long after a deal is done.

This threat is more pronounced than ever as retroactive CFIUS reviews are triggered and approved by executive branch officials. With an administration that is taking an increasingly critical eye and politicized stance to foreign investment in the United States, the risk of a delayed CFIUS review drastically increases.

Presumption of denial is already the norm 

Some investment advisors say the proposed changes will create a “presumption of denial” for investments caught by CFIUS. Yet this is exactly how the current regime works in practice for international investment in critical sectors.

It is unclear which investments trigger a CFIUS review. The process itself is treated as a black box, and even if you are approved there is a possibility for political pressures to reverse any decision. Many firms now view CFIUS reviews as fickle as a magic eightball. Paired with the new outbound investment screening regime, the United States is creating more hurdles than incentives for global investors.

One potential increase in investor confidence could come in the form of clarification on second passports. Confusion about second passports especially hinders investment from British citizens. Though United Kingdom (UK) citizens are provided an exemption for CFIUS review, this exemption no longer applies if they are a dual passport holder. Post-Brexit, there is an uptick in second passport possession by British citizens looking to retain easy access to working and living in the European Union (EU). Obtaining a second passport comes at the cost of losing this CFIUS-based exemption. This is especially true for British citizens who hold Irish passports, writing off Northern Irish residents and investment in one fell swoop. By clarifying and reshaping potential citizenship exemptions, investors can begin to adjust their view of CFIUS.

Geopolitical landscape for investment screening is increasingly complex

CFIUS is not the only game in town when it comes to foreign investment screening. Countries across the globe have increasingly expanded their own regulatory landscapes to include similar structures.

In the UK, the National Security and Investment Act (NSIA) was passed in 2021. It came into force in January 2022 and has resulted in numerous investment reviews since. The reviews have focused mostly on what CFIUS labels emerging technology and operated as support for other domestic policy goals, including arguing for strengthening domestic industrial production.

When creating the NSIA, the UK government openly utilized CFIUS Foreign Investment Risk Review Modernization Act (FIRRMA) as a starting point for shaping the legislation. Yet they took care to learn from business insight when dealing with CFIUS. This resulted in a regime that permits investment screening and final governmental reviews for critical sectors while also providing businesses with clear timelines and definitions, direct communication from government during the process, and annual reports published by the government on NSIA reviews. These improvements could easily be incorporated into the US CIFUS regime, but are not captured by the NSPM changes. 

Following on from the United States and the UK, the EU is exploring and developing its own regime to standardize reviews across the bloc. If successful, doing so will lead to three of the world’s largest services economies implementing foreign investment screening.

In Canada, the Investment Canada Act was amended in 2024 to strengthen Canada’s approach to foreign investment screening. Changes included CFIUS-style requirements such as pre-closing filing requirements, including investment by foreign state-owned enterprises, and a wider catchment of investments. Reviews are judged both on “net benefit” to Canada and national security measures. This sweeping regime goes further than CFIUS and can be utilized by the Canadian government to review nearly any external investment into the country.

The creation and expansion of these regimes unfortunately only complicates investment flows between trusted allies. When each country is investigating and screening investments, capital flows become slower, more uncertain, and inherently limited.

To increase investment, the US must prioritize international collaboration and offer clarity on CFIUS

How can the United States truly work alongside allies to support US industry, innovation, and leadership if it is denying their investment?  Stifling cross-border investment between allies only limits access to capital, stymies innovation and growth, and weakens national security. The United States should be working alongside Western democracies to strengthen global markets and build upon each other’s strengths.

If the administration is looking to drive investment in the sectors of the future, from quantum computing to AI, investors need certainty and clarity. This should be combined with wide access to capital to offer the investment needed to make advancements.

CFIUS reform needs to be structured to drive investment, not complicate it. This means providing more insight into the process, clear evidence guidance for firms from application to completion, structured definitions of sectors covered, and defined timelines. Learning from the application of investment screening in other countries and openly engaging with businesses and investors to understand their concerns is an easy starting point.

Alex Mills is an international trade expert specializing in financial services, maritime law, and ESG. They have nearly a decade of experience across the private and public sector, including in UK and US government.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Investment screening reform may stifle international investment in US appeared first on Atlantic Council.

For starters, the plan stems from a 2024 proposal by Senator Cynthia Lummis and largely functions as a centralized repository for assets that have already been seized by the federal government—for example, as part of criminal proceedings. That might be “budget neutral,” as the order says, but it is not a reserve in the traditional sense of a gold reserve used by central banks to redeem depositors or pay international debts. As a prominent Bitcoin thinker succinctly put it, “[t]here is no ‘strategic’ value in a crypto reserve.”

The executive order directs the government to simply hold (or later on, perhaps buy and hold) assets like bitcoins. Although the order vaguely criticizes the government’s “premature sales” in the past, “HODL’ing” (as the expression goes) may or may not be fiscally prudent, depending on whether or when to sell the assets. Separately, there are serious questions about if it is prudent for the government to essentially invest in select digital assets, as opposed to generating revenue in other ways. At the very least, the Secretary of the Treasury should develop concrete criteria and an authorization process for periodically selling or buying digital assets, to add transparency and provide an orderly means of decreasing volatility exposure. Senator Lummis’s original proposal, for example, contained some selling thresholds.

Second, the White House crypto czar David Sachs estimated that the federal government’s reserves comprised 200,000 bitcoin worth a staggering $17.5 billion at recent prices. If those numbers are still accurate, that would equal more than the total amount of gold held at almost all Federal Reserve Banks. That cannot be right as a matter of monetary policy. Even putting aside the polarizing debates about the long-term value of bitcoin (or lack thereof), the size of the new strategic reserve seems disproportionate given the risks and functions of the assets involved. Consistent with a transparent sales process, the Treasury should rightsize any digital asset reserve and use the remaining proceeds for other government programs.

Third, the cybersecurity challenges of having a centralized digital asset pool are not trivial, as the Atlantic Council highlighted in a prior report. Yet the executive order says nothing about how to start securing this new stockpile. Sacks tweeted that the pool would be akin to a “digital Fort Knox.” But Fort Knox has legendary security, is operated by 1,700 specialized employees, and adjoins a military base with 26,000 trained personnel. It is unclear what office, if any, at the Treasury could manage such a gargantuan security task for a digital asset reserve. The endeavor would be particularly difficult after the Department of Government Efficiency—or DOGE—unceremoniously disbanded teams of engineers like those in the 18F division, who were renowned for their private sector expertise. By contrast, Senator Lummis’s 2024 proposal highlighted security measures for “state-of-the-art physical and digital security” through inter-agency cooperation.

Perhaps most importantly, the ultimate risk of the executive order is that it embodies a form of crypto boosterism. Namely, it appears to tout an industry that President Trump came to embrace during the later phases of his political campaign, famously including the launch of his own meme coin just days before inauguration. To be fair, the White House revised the president’s earlier announcement that the reserve would include proactive purchases of select “altcoins,” which industry insiders worried “could be a vehicle for corruption and self-dealing.” That was a prudent move. But to many on Wall Street and main street, the order may still seem more like political maneuvering than sober monetary policy.

In a parallel universe, there could have been a thoughtful way for the Federal Reserve and Treasury to gradually study the possibility of holding digital assets on the balance sheet. They could have scrutinized the economic implications and prepared for security contingencies that might have included a bipartisan compromise around stablecoin legislation to specifically promote the strength of the dollar. But in today’s world, this executive order looks more slapdash than strategic. That may have been intended to bolster digital asset markets, but it has fallen flat on most fronts.

JP Schnapper-Casteras is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and the founder and managing partner at Schnapper-Casteras, PLLC.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post What is strategic about the new digital assets reserve? appeared first on Atlantic Council.

Today, Washington is once again chattering about the possibility of a currency deal. This time, the venue may move south for what Trump’s incoming chairman of the Council of Economic Advisers, Stephen Miran, described as a “Mar-a-Lago Accord.” In a September report, Miran declared the overvaluation of the US dollar responsible for the “roots of economic discontent.”

Several in Trump’s inner circle have expressed an interest in devaluing the dollar to address the US trade deficit. Weak-dollar advocates believe that the strong dollar creates international trade imbalances, handicapping US manufacturers. A weaker dollar would make US exports more competitive.

But there’s a key difference between the countries that would gather in Palm Beach today and the group that met in New York in the 1980s—the countries that comprise the US trade deficit.

How will this different constellation impact any potential negotiation? It makes a deal much more complicated.

Miran and others want to use tariffs to get countries to the negotiation table. If these countries are worried enough about the cost of tariffs, Miran thinks they will be willing to make major changes to their currencies that they’d never otherwise consider. But Miran doesn’t stop there. He knows tariffs alone aren’t enough of a stick, so he thinks it is time to put the US security umbrella up for debate.

Miran argues that the security zone should be financed by the beneficiaries, and this can be leveraged to both depreciate the dollar and to mitigate the inflation effect of tariffs. Countries in the security zone should “fund it by buying Treasuries,” especially century bonds, and “unless you swap your bills for bonds, tariffs will keep you out.” US Treasury Secretary Scott Bessent has also discussed the idea that countries can enjoy shared defense as long as there are shared currency goals, while tariffs can be used for negotiation of terms. This administration seems at least open to the idea of linking the US security umbrella with the restructuring of the global trade system to benefit the United States.

The problem, of course, is that the countries the United States has the highest trade deficits with are no longer allies dependent upon this security umbrella. In 1985, the United States provided the security guarantee for France, Germany, Japan, and the United Kingdom. These signatories of the Plaza Accord hosted nearly a fourth of all overseas US military bases in the 1980s. Neither China, nor Mexico, nor Vietnam rely on the US military in 2025.

Without the incentive of shared security, are tariffs enough to push non-allies towards a currency agreement? It doesn’t seem to be for China. A major reason for resistance is that Beijing sees Japan’s experience after the Plaza Accord as a cautionary tale.

The “Japanification” of China?

The Plaza Accord forever altered the trajectory of Japan’s economy. The appreciation of the Japanese yen contributed to bursting Tokyo’s asset bubble and the lost decades of economic stagnation. At least, that is the lingering impression of the 1985 currency agreement in China.

There are certain similarities between Japan’s economic slowdown in the 1990s and the one that China is currently experiencing, such as deflation, low consumer demand, and capital flight. In January, China’s thirty-year government bond fell below that of Japan’s for the first time, and over the weekend, China’s inflation dropped below zero again. China is willing to go to lengths to avoid a “Japanification” of its own economy, including refusing to appreciate the renminbi against the dollar, even if it means weathering a protracted trade war.

China has previously raised concerns about the US dollar’s role as the dominant reserve currency and wouldn’t necessarily complain if the dollar’s preferential position in foreign reserves and global finance weakened. But with persistently sluggish consumer demand, China is still counting on the export sector to help drive economic growth in 2025. Beijing won’t want to risk any changes to the renminbi that would decrease the competitiveness of its exports in the midst of a trade war.

The idea of a Mar-a-Lago Accord is going to appeal to Trump. After all, he was the man who bought the Plaza Hotel in 1988, right after the famous agreement. But getting there is going to require more than just tariffs and a threat to remove security guarantees. China is going to have to see what’s in it for them. And that, so far, remains a mystery.

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Jessie Yin is an assistant director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Meeting in Mar-a-Lago: Is a new currency deal plausible? appeared first on Atlantic Council.

“We will take a people-centered approach and place a stronger economic policy focus on improving living standards and boosting consumer spending,” declared Premier Li Qiang in his work report to the gathering.

A close look at the spending plans unveiled at the NPC suggests far less than full bore support for consumers and businesses that are trying to keep their heads above water after several years of desultory demand and falling prices. The plans are unlikely to restore the household wealth destroyed by China’s real estate crash or provide jobs to millions of unemployed college graduates.

The announced government outlays won’t exactly light a fire under an $18 trillion economy.  There will be $41 billion for an enhanced trade-in program for consumers and businesses. That initiative was introduced last year and lifted sales of cars, household appliances, and business equipment. The additional subsidies will cover new smartphones and home renovations. In addition, seniors will receive an additional twenty renminbi ($2.76) a month in old-age benefits—the same increase they received last year—and two subsidies for healthcare will rise by a combined thirty-five renminbi. This, in a society where high hospital costs can ruin a family’s finances.

Certainly, the overall spending plan is expansionary, with plenty of infrastructure investment. The budget deficit has been raised to four percent of gross domestic product from three percent in 2024, and one estimate that includes off-budget spending and borrowing shows the deficit totaling 9.9 percent of gross domestic product. Beijing insists that this will keep China’s economic growth at “about five percent” this year—the same level it claimed last year. However, many economists take that achievement with a grain of salt. Rhodium Group colleagues estimate that last year’s growth was actually between 2.4 and 2.8 percent.

The 2025 budget again includes vast sums for high-tech industries. About 11.9 trillion renminbi of “special funds” is earmarked to “support the high-quality development of key manufacturing sectors,” an increase of 14.5 percent from 2024, according to the budget report to the NPC—although the time frame for those expenditures is not specified. There will be expanded credit for exporters hit by US tariffs, and a 7.2 percent increase in spending on China’s military—a number that the US government says significantly understates the real level of military expenditures. In addition, the government announced  several trillion renminbi of special purpose bonds to continue restructuring local governments’ vast debt burden over the next three years. There is also 500 billion renminbi dedicated to state-owned banks to shore up capital reserves depleted by the country’s property crisis. On top of that, the central bank has announced that it is prepared to continue cutting interest rates and bank reserve requirements at the “appropriate time,” and the Ministry of Finance  has said it has the ability to increase spending as needed. Both of those statements have been made regularly since last September.

A lot of the planned spending—for example, the local government bailout—will be unproductive since it will go to restructure debts. Admittedly, the rising fiscal tide inevitably will lift some boats, especially businesses with ties to Xi’s high-tech dream for China. But most Chinese citizens earn their livings outside of these industries, and their immediate prospects remain far more uncertain. One-third of white-collar workers told a recent poll that their wages fell last year.

Indeed, the daily problems facing China’s citizenry have become severe enough that the government was forced to acknowledge them before the NPC—no small admission for a communist party whose propagandists normally offer a steady diet of hubris. The premier’s reference to “weak public expectations” in his work report, and the decision to spotlight the importance of consumption, were a bow to public opinion in a country where the public normally has no way of expressing itself.

However, Xi clearly remains deeply committed to his core economic policies—a point underlined on the eve of the NPC with the publication of a speech he delivered in December. While also acknowledging “consumption shortcomings,” he made clear that the highest priority must remain “more world-class enterprises and leading technologies.” The speech also insisted that the government’s response to China’s economic problems had already “boosted the property market, stock market, market expectations, and social confidence,” suggesting that China’s paramount leader is skeptical about opening the taps too much for those struggling to make ends meet. Xi is well known for his criticism of policies that encourage “welfarism.”

Xi’s laser focus on technology can only be heightened by rising US-China tensions. President Donald Trump’s imposition of twenty percent tariffs on Chinese exports, continued restrictions on semiconductor sales to China, and a recent presidential memorandum outlining policies that would further restrict investment flows between the two countries all point to greater pressure on Beijing to pursue economic and technological self-sufficiency. As the Wall Street Journal’s Lingling Wei and Alex Leary reported last week, Xi is privately concerned that Trump’s policies could isolate China. So, while stronger domestic demand would make the Chinese economy more resilient, the signals from the NPC suggest that the many unfunded social safety net programs outlined at the NPC likely will remain that way.

In the meantime, Beijing may be betting that public sentiment already has started to return to optimism—just somewhat later than the shift in “social confidence” that Xi claimed was underway back in December. Last month’s unveiling of the DeepSeek artificial intelligence program shook global markets and caused Chinese technology stocks to go on a bull run.

How much this shot in the arm for China’s artificial intelligence (AI) development ends up affecting the whole economy remains to be seen. Some investment banks are raising their forecasts for the country’s “potential growth,” at least in the short term. But the government certainly made every effort to talk up AI at the NPC.

All that helped fuel the premier’s optimism when he declared that the “giant ship of China’s economy will continue to cleave the waves and sail steadily toward the future.” But for now, China’s consumers appear to be stuck in steerage.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post China’s economic plans prioritize consumption—but only on paper appeared first on Atlantic Council.

As a forum specifically created to address shared economic challenges, the G20 is critical for accelerating progress on issues of women’s economic empowerment and security. The group’s efforts are especially relevant since compounding crises in recent years have exposed existing economic inequalities. Research shows that working women experienced worse effects from the COVID-19 recession—unlike previous economic downturns that predominantly affected men. In September 2021, women were 2.4 times more likely than men to report losing paid work in order to care for others. Pursuing gender-inclusive policies is critical for achieving collective prosperity and sustainable development.

The United States is set to take over the G20 presidency in 2026. If the United States puts gender empowerment high on the agenda, it can help deliver growth both at home and around the world. Despite recent efforts in the G20, there is still a lot of work to be done to address inequalities and promote progress for women.

Here are five charts that demonstrate these persisting economic gaps:

The Women Peace and Security (WPS) Index measures progress on gender equality on thirteen indicators across three dimensions—inclusion, justice, and security. These indicators include maternal mortality rate, intimate partner violence, employment, and financial inclusion. While most G20 countries have made progress since the start of the index in 2017, the story looks different when we take a closer snapshot.

From 2021 to 2023, almost all G20 countries experienced significant backsliding, according to the WPS Index. This regression was primarily driven by the uneven recovery from the COVID-19 pandemic, which triggered global economic recessions and was further compounded by conflicts in Europe and the Middle East. These crises exposed and exacerbated existing economic inequalities, with women often bearing the brunt of the negative impact. According to research from 2022, the COVID-19 pandemic set gender parity back by a generation, with weak recovery making it even more difficult. 

Notably, this decline was not limited to emerging economies. Advanced economies such as the United States, Canada, and European G20 members also recorded substantial downgrades in gender equality indicators. In these advanced economies, women faced increased unpaid domestic burdens, higher rates of unemployment, and diminished access to childcare services. Even countries with robust social safety nets and gender equality frameworks proved vulnerable to systemic shocks. This all underscores that the G20’s collective commitment to gender equality requires stronger, crisis-resistant policy instruments specifically designed to protect women’s economic security.

In 2018, the IMF noted that no advanced or middle-income economy achieved less than 7 percent in the gender labor force participation gap. Six years later, only France and Canada have managed to reduce that rate to below 7 percent within the G20.

The gap in labor force participation can reflect social and cultural norms, but it can also represent the structural barriers that women face in the labor market, including access to quality education or equitable hiring practices. Gender inclusion in the labor force is important because when a country has a more diverse pool of talent and fully taps into its available human capital, it generates better economic results for everyone, including increased GDP growth, reduced income inequality, and improved overall economic productivity.

Yet within formal employment, wage disparities between women and men have remained a persistent driver of inequality. In the United States, women earn only eighty-four cents for every dollar earned by a man, and globally, the gender pay gap is still approximately 20 percent. In fact, the United States ranks among the bottom five G20 countries when it comes to gender-based wage inequality.

On average around the world, women reinvest more of their income in their families, influenced by the care burden that many women shoulder for children or the elderly. Pay inequality directly impacts these families’ financial stability, housing options, educational opportunities, and quality of life. Progress to narrow this gap has been frustratingly slow. While equal pay has been widely endorsed in principle, implementing it effectively has proven challenging.

For the G20 specifically, addressing wage inequality represents both an economic imperative and a moral obligation. Studies consistently show that reducing gender wage gaps boosts GDP, increases tax revenue, and enhances business performance through greater diversity.

Only 12.3 percent of finance ministers and central bank governors across over 185 countries are women. This is more than 10 percent lower than the average proportion of women represented in cabinet members globally. This disparity is driven by a few factors, such as male dominance in the study of economics, barriers that prevent women from being promoted, and social perceptions of women’s abilities.

The G20 fares a little better than this global percentage with three female central bank governors and five female finance ministers. However, overall economic empowerment and security for women will be tougher to achieve when gender parity and inclusivity are still lacking in global economic leadership. The G20 should be the forum where the world’s major economies can convene and commit to achieving gender-balanced economic results.

The path forward

Addressing these gender gaps would have positive economic impacts globally. Women’s participation in the formal labor force increases economic diversification and drives income equality. Moody Analytics estimated that closing the gender gap could boost the global economy by seven trillion dollars. While there’s no silver bullet solution that would be able to fix these disparities overnight, there are a series of policies that could help, such as improving educational opportunities or equitable hiring practices.

There is a risk that women’s economic empowerment will not be a key focus for the G20. Leading the group next year, the United States has an opportunity to guide the global conversation by showing how investing in women creates resilient economies that benefit everyone.

Alisha Chhangani is an assistant director with the Atlantic Council GeoEconomics Center.

Jessie Yin is an assistant director with the Atlantic Council GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Charting the path for women’s economic security in the G20 appeared first on Atlantic Council.

As the United States abandons international treaties and organizations, including the 2015 Paris Agreement, the World Health Organization (WHO), and the United Nations (UN) Human Rights Council, its apparent disdain for the G20 has raised concerns about the role of the United States in the group. These anxieties are especially salient with the United States scheduled to assume the G20’s presidency next year.

A G20 without the United States or its constructive engagement and leadership will be much weaker. It will struggle to sustain broad representation and multilateral cooperation, as well as effective policy coordination and resource mobilization to address pressing global challenges. Even if the rest of the member countries try to carry on, they will struggle to do so on their own.

Tension between the United States and the G20

The current Trump administration has proved to be more ideological than the purely transactional first Trump presidency. During his first term in office, President Trump used the G20 to complain about unfair trade practices by other countries vis-a-vis the United States. He promoted reciprocal dealing under threats of tariffs to rectify persistent US trade deficits as well as implementing policies of tax cuts and deregulation.

In his second term, the Trump administration has actively pushed its anti-DEI (diversity, equality, and inclusion) and anti-climate change agenda, both domestically and internationally. Furthermore, the Trump administration has suspended all its foreign aid pending review, while drastically downsizing the US Agency for International Development’s budget, operations, and staffing. In addition, other major Western countries such as the United Kingdom (UK) have also reprioritized their budgets away from international aid in favor of increased defense spending. The UK alone decided to cut its aid budget from 0.5 percent of its gross national income (GNI) to 0.3 percent by 2027. These actions have left many developing and low-income countries facing sharp funding shortfalls in their development and climate efforts, triggering a health care financing crisis in many of them.

Moreover, according to Project 2025, which the administration has faithfully implemented so far, the United States would consider withdrawing from most international organizations. Republican Senator Mike Lee has already introduced a bill to withdraw from United Nations entirely, and Project 2025 also suggests withdrawing from the International Monetary Fund and the World Bank. Each of these institutions is commonly considered as being under US influence and carrying out activities primarily consistent with US interests. The Project’s authors, instead, believe that these organizations have done more harm than good to the world and the United States.

Guided by this belief, Secretary of State Marco Rubio boycotted the G20 foreign ministerial meeting. He criticized host country South Africa for “doing bad things” by using the G20 to promote DEI and climate activities, adding that his “job is to advance America’s national interests, not to waste taxpayer money or coddle anti-Americanism.” If the United States is serious about promoting its agenda of opposing “solidarity, equality, and sustainability” and resisting mobilizing climate finance to help developing countries—among the core objectives of the G20—it would undermine the effectiveness and relevance of the group. If the United States were to withdraw from the G20, that would seriously dent the group’s aspiration to be the premier international forum for policy coordination in the interests of the global economy. If the remaining countries were to carry on despite the United States’ withdrawal, the relative influences in the G19 would change significantly. Global south countries, driven by China and the BRICS, would gain influence at the expense of the West minus the US.

The G20 without the United States?

Generally speaking, whether the United States remains in the G20 but working at cross-purposes or withdraws from it entirely, the group would struggle to fulfill its objectives. First, without the active engagement and leadership of the world’s largest economy, it would be difficult to coordinate policy actions. The group would lack the coverage and influence to deal with global crises—as it did, for example, in the 2008 global financial crisis when the G20 played a key role in forging an internationally coordinated policy response.

Second, without contributions from the United States, G20 efforts to mobilize financing to help developing and low-income countries in their development and climate endeavors would also be significantly limited. Cuts in foreign aid budgets by the United States (the largest foreign aid contributor in terms of volume at $65 billion in 2023) and UK (the fifth largest contributor at $19 billion) are significant. Those cuts will further reduce the already insufficient Official Development Aid (ODA) from developed countries—currently at 0.37 percent of their GNI compared to the UN target of 0.7 percent. 

Furthermore, the current focus on raising defense spending, along with large budget deficits and public debt in many Western countries, means that calls to increase capital for multinational development banks such as the World Bank would likely be disappointed. Developing countries will likely face growing shortages of financial assistance for development and climate efforts—which is especially worrisome given lackluster investment from the private sector in those regions. It’s important to keep in mind that the multiplier effect of public investment in developing countries to catalyze private sector investment is very low—generally less than one time, and not a multiple as many political and MDB leaders have hoped. Most importantly, US policy actions would undermine the sense of mutual trust among G20 countries, essential for any multilateral cooperation. Other countries in the group, effectively the G19, will most likely try to carry on. However, on top of the two drawbacks mentioned above, it is difficult to see how they can sustain or rebuild mutual trust in a deeply polarized world. In short, how they could continue to work together despite the United States current posturing would be an important test case of the realignment of international relationships as the post-war world order crumbles.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center, a senior fellow at the Policy Center for the New South, and a former senior official at the International Institute of Finance and the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Has the G20 become the G19? appeared first on Atlantic Council.

As the host country, the Netherlands is responsible for ensuring the operational independence of the Court. Under the “Headquarters Agreement” between the ICC and the Netherlands, the country must cooperate with the ICC and ensure its business continuity. However, the new US sanctions targeting ICC personnel could severely disrupt the Court’s operations—particularly if Dutch banks suspend financial services to the ICC out of fear of violating US sanctions.

In response, the Dutch government has engaged in discussions with Dutch banks to explore under what conditions they would continue processing transactions for the ICC under these new sanctions. Reports indicate that the banks are seeking substantial guarantees to maintain their business with the Court.

One proposed solution is invoking the European Union (EU)’s “blocking statute”, which prevents EU-based businesses from complying with US sanctions that have extraterritorial reach. This statute allows EU companies to resist US laws that conflict with European legal protections and provide a framework for seeking compensation if harmed by US sanctions. The blocking statute was notably used in 2018 when the EU sought to bypass US sanctions on Iran following the US withdrawal from the Iran Nuclear Deal. However, applying this legislation to protect the ICC would be an unprecedented use of this tool and likely come with unique challenges.

Nevertheless, various parties have expressed an ardent desire for the EU to invoke the blocking statute. The President of the ICC, Judge Tomoko Akane, has stressed that the EU blocking statute is one of the Court’s most essential tools for surviving any sanctions, urging, “to preserve the Court you must act now.” Dutch Justice Minister, David van Weel, also noted that “the Netherlands is too small” to protect banks on its own and that this issue needs to be addressed at a European level. In response, the Dutch Cabinet, following direction from Parliament, has agreed to advocate for the statute’s activation at the European level.

Given the EU’s longstanding support for the ICC, it is reasonable to assume that the EU will seek to protect the ICC in some form. There are a few less “nuclear” alternatives it may encourage first. Dutch banks could minimize their exposure to the ICC by restricting their services to a minimum—only holding cash and processing basic transactions for the ICC—or ICC servicing could be consolidated with one smaller bank. However, if the situation escalates, the EU may be forced to invoke the blocking statute, particularly if the US Senate revisits the previously blocked “Illegitimate Court Counter Act.” This bill sought to expand sanctions on the ICC to include not just those who “directly engaged in” unfavorable investigations but also those who “otherwise aided” the Court. While this bill was narrowly blocked due to concerns over its potential negative impact on American businesses, Democratic Minority Leader Senator Chuck Schumer indicated that a revised bipartisan version could be “very possible”.

It is therefore worth exploring what the blocking statute scenario would look like, because while it offers a strong legal defense, it may not be a panacea. Even if invoked, it could prove difficult to fully block all US sanctions, particularly when third-party countries and multinational companies with operations in both the US and the EU are involved.

The Netherlands, with its robust financial sector, faces a unique challenge, as several Dutch banks —such as ING, Rabobank, and ABN AMRO—are deeply integrated into the US financial system. While the blocking statute would shield Dutch banks operating within the EU from US sanctions, those with operations in the US remain subject to US law. This creates a dual compliance challenge: Dutch banks must balance their operations in the EU (protected by the statute) with their US operations (still subject to US sanctions).

Whichever way they turn, these banks will face unpleasant consequences. Complying with US sanctions could undermine the ICC’s financial operations, potentially halting essential payments to the Court. Additionally, compliance with US sanctions could expose these banks to long-term reputational risks, as they may be seen as aligning with US policy against the ICC, an institution widely supported by the international community. On the other hand, refusing to comply could lead to penalties or the loss of access to the US financial system. Dutch banks will need to navigate this conflict carefully, weighing the risks of becoming entangled in a geopolitical standoff.

As this situation unfolds, much remains uncertain. However, one thing is clear: US sanctions on the ICC have the potential to create significant diplomatic and economic tensions within the longstanding US-EU alliance, with the Netherlands caught in the middle. How the EU, the Netherlands, and Dutch banks respond will likely shape the future of the ICC and may have lasting implications for international diplomacy and the future of international law.

Lize de Kruijf is a project assistant with the Atlantic Council’s Economic Statecraft Initiative.

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Could the EU ‘blocking statute’ protect the ICC from US sanctions? appeared first on Atlantic Council.

But the campaign to tame the market’s animal spirits—call it financial market regulation with Leninist characteristics—has so far fallen short. That’s largely because of investors’ disappointment with Xi Jinping’s efforts to revive an economy beset by weak growth and deflation. And like markets around the world, Chinese equities face the growing uncertainty of US-China trade tensions.

The end result is essentially two stocks markets. Shares listed in the mainland hovered on the brink of a bear market in January after a rally sparked by the government’s supposed turn last year to economic stimulus ran out of steam. Shares of Chinese companies listed in Hong Kong and New York also suffered. However, technology stocks in Hong Kong have soared after the Chinese startup DeepSeek shook the world with its entry into the artificial intelligence competition.

Such volatility is par for the course for a country with some two hundred million retail investors—many of whom have suffered heavy losses in recent years. That’s exactly what Beijing doesn’t want. With the economy still struggling, all eyes will be on next month’s meeting of China’s National People’s Congress, which rubberstamps the government’s budget plans. If the spending taps are finally opened, the stock market could rally. But it will take much more than optimistic pronouncements to restore confidence after months of undelivered promises.

This uncertainty does not sit well with the foreign institutional investors that Beijing has courted for years. Those who pursue strategies built on long-term investments had largely abandoned the Shanghai and Shenzhen markets by late 2023, putting their money in places like Tokyo and Mumbai. Some investors with a higher tolerance for risk—especially hedge funds—stuck it out. However, once last year’s rally ran its course, many of those fund managers took profits—although some bulls continue to place heavy bets on Chinese shares. Net capital outflows from China hit a record $182 billion in 2024, with foreigners joined by Chinese investors who have been shifting money to Hong Kong and elsewhere. A Bank of America survey of 182 institutional fund managers published in late January showed that only 10 percent were optimistic about the outlook for China’s economic growth compared with 61 percent in October. However, the latest tech stock rally appears to have made some fund managers more bullish.

An added incentive to shift investments out of China has come from the currency market, where Beijing allowed the renminbi to depreciate during the autumn, further undercutting the value of foreign investments.

All of this has given Chinese officialdom greater incentive to pursue a tightly regulated, less volatile stock market—one in which the likes of insurance companies, pension funds, and other government-run behemoths hold sway over individual investors. The order of the day will be to encourage long-term investments in large companies by offering bigger dividends, share buybacks, and—ideally—steady profit growth. A recent article by Wu Qing, the chairman of the China Securities Regulatory Commission (CSRC), outlined the government’s mandate to develop  institutional investment as a response to “the problems of unstable funds and short-term investment behavior.” Or as one market analyst told Chinese media, “More long money, longer long money, and better returns.”

Share buybacks have been part of the government’s blueprint to boost the stock market from the beginning of its effort to stimulate the economy. In September, the Peoples Bank of China established a 500 billion yuan ($68.6 billion) swap facility and an 300 billion yuan relending facility to encourage institutional investors and listed companies to buy—and buy back—shares. Chinese media reported that there were over $40 billion of buybacks in 2024, with more than three hundred companies taking advantage of the easier money to finance the transactions.

In essence, the push to strengthen institutional investment expands the roster of what’s known as China’s “national team”—the large, state-controlled funds that Beijing has used over the years to intervene in the stock market. The government will now have more muscle to move the market in its desired direction. As to foreign funds, senior government officials have emphasized in meetings with Wall Street executives since President Trump’s reelection that the welcome mat remains in place. However, the flow of money out of China has continued this year as trade tensions build, and Beijing is clearly giving greater emphasis to domestic fund managers.

A directive issued in late January by the Chinese Communist Party’s Central Financial Work Commission and five government bodies provided the regulatory framework for state-owned insurance companies, the national social security fund, and other government entities to step up. The guidelines call for them to increase their presence in the market by buying shares, participating in share placements as “strategic investors,” and, where relevant, launching buybacks. The state entities will be directly assessed on their efforts to boost medium- to long-term investment. According to the People’s Daily, the market value of A-shares (stocks listed on the Shanghai and Shenzhen markets) held by public funds will be expected to increase 10 percent a year for the next three years, and insurers will invest 30 percent of their new premiums in stocks. Fund performance will be assessed over a time frame of “more than three years.” That presumably relieves the pressure for short-term returns that most private fund managers face, but such a public discussion of performance standards suggests that that they ultimately will be held to inflexible guideposts.

Apparently unwilling to leave any bureaucratic stone unturned, the CSRC also released an “action plan” in late January to promote investments in products related to the stock index. These products include dividend-rich stocks that are components of the Chinese market indexes and exchange-traded funds (ETFs) that buy those shares and related derivatives. The index ETFs are popular speculative targets for retail investors, partly because of their returns and partly because they have been among the primary destinations for national team market interventions in recent months. The action plan contains dozens of measures intended to increase the flow of money into those products. The plan also seeks to attract foreign funds to the ETFs, presumably because foreign fund managers who pursued a passive, index-focused strategy over the past year significantly outperformed managers who actively picked stocks. Many of the foreign index investments track the Morgan Stanley Capital Index for China shares, which, along with A-shares, also includes companies listed in Hong Kong and New York.

All these initiatives emphasize the carrots of the campaign to promote appropriate institutional behavior. But there are also sticks. The recent Wu Qing article called for a crackdown on various “malicious illegal activities” and called for supervisors to “catch early, catch small…but also hit big, hit evil.” The CSRC chairman may simply be reminding the market of the government’s recent detention of investment bankers and financial regulators as part of a widespread crackdown on corruption, but there could be a more sweeping threat.

The boundaries of Chinese government regulation and enforcement are never clearly defined. Witness some of the actions taken to rein in trading during a year of extreme volatility. Last February, the CSRC, as well as the Shanghai and Shenzhen exchanges, began scrutinizing the activities of computer-driven quant funds and requiring new funds to report their strategies before beginning trading. In August, the authorities ended the release of daily data on foreign fund flows into the mainland markets because some local investors were tailoring their trading to foreigners’ activities. That data is now only available on a quarterly basis. And early this year, as share prices fell sharply, the exchanges “asked” big mutual funds to sell less than they bought. Given the government’s response to this volatility, institutional investors certainly have reason to be concerned about future opaque actions.

Perhaps it is possible to mandate stability in a market known for its gyrations. Indeed, some foreign strategists now recommend buying Chinese shares based on the expectation of high dividends, share buybacks and stronger corporate earnings in the coming year. But intrusive market regulation can come at the cost of lost dynamism and damaged confidence. Witness what Beijing’s heavy hand has done to the country’s once high-flying online conglomerates over the past four years. Ultimately, a healthy stock market reflects a healthy economy. Institutional and individual investors have been skeptical about Beijing’s ability to return the economy to an even keel, and they could remain skittish until there is an effective economic stimulus—without the disruptions of US-China tensions. Whatever the short-term ups and downs, it will take more than reams of rules and action plans to change China’s market psychology.

Jeremy Mark is a senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal. Follow him on Twitter: @JedMark888.

Data visualizations created by Jessie Yin, assistant director at the GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Beijing fails to reassure skeptical investors and responds with more regulation appeared first on Atlantic Council.

Few were surprised, therefore, when President Trump began his second term with an executive order that prioritizes stablecoins as the preferred mechanism for safeguarding both the global role of the US dollar and financial stability. The executive order also stated that CBDCs create financial stability threats. In contrast, the monetary policy minutes from the December 2024 European Central Bank rate-setting meeting took the opposite position and proposed that crypto assets could create financial stability threats for the eurozone.

The 2025 reserve currency policy landscape: Four key issues to watch

Legislation: Despite their policy differences, European Union (EU) and US policymakers all face the same hurdle. CBDCs can not be issued without legislation.  Lawmakers in Brussels, London, and Washington are each declining to move forward quickly.  The European Parliament to date has declined to schedule a vote on the digital euro package submitted by the European Commission—despite urging by the ECB.  Nor has the UK Parliament moved forward with a digital pound initiative. 

The Republican-led Congress and the White House oppose CBDCs, ensuring that no CBDC legislation will move forward in the United States in the foreseeable future.  The Federal Reserve agrees. Chairman Jerome Powell yesterday testified to Congress  that he will not propose or pursue a digital dollar during the balance of his tenure at the central bank.  Chairman Powell’s term expires in spring 2026.  All relevant policymakers in the United States (the White House, Congressional leaders, regulatory agencies, the central bank) are now united in their opposition to a domestic CBDC. Their focus now turns towards articulating a legislative and regulatory framework supporting stablecoins.

House Financial Services Committee Chairman Hill’s 2025 interview with CNBC confirms that leading US lawmakers believe expanded stablecoin adoption would help “extend the reserve currency status” of the US dollar globally. In addition, Federal Reserve Governor Christopher Waller now publicly supports stablecoins “because they are likely to propagate the dollar’s status as a reserve currency, though they need a clear set of rules and regulations.” Senate Banking Committee Chairman Tim Scott weighed in during January, pledging to craft a stablecoin “regulatory framework that…will promote consumer choice, education, and protection and ensure compliance with any appropriate Bank Secrecy Act requirements.” It remains to be seen if dollar-backed stablecoins could strengthen the dollar’s role in the global payment system.

The structure of legislation will materially impact growth trajectories for stablecoin markets domestically and internationally, with implications for US sovereign bond markets. For example, a regulatory framework could require stablecoin issuers to hold US Treasury securities to back their stablecoins, thus guaranteeing liquidity and demand for US dollar-denominated sovereign paper. Additional proposals to create a crypto asset reserve at the federal level could provide additional liquidity support to crypto markets. 

Geopolitics: President Trump campaigned on promises to safeguard the global role of the dollar. His promises included wielding tariffs as a mechanism to discipline foreign countries that undermine the global role of the dollar, presumably in addition to aggressive sanctions enforcement. The Trump administration is not alone in raising red flags regarding certain CBDC use cases. Growing concern exists internationally that non-US dollar CBDC networks could be used to evade Western sanctions. Against this backdrop, in October 2024, the Bank for International Settlements withdrew from the wholesale CBDC mBridge project, whose members include central banks from China, Hong Kong, Thailand, the United Arab Emirates, and Saudi Arabia. The BIS General Manager reiterated the policy that “…the BIS does not operate with any countries, nor can its products be used by any countries that are subject to sanctions…we need to be observant of sanctions and whatever products we put together should not be a conduit to violate sanctions.” In addition, Russia has called for a multipolar global financial system with a separate non-dollar clearing and settlement system.

Distributed free markets: Stablecoins currently occupy a tiny fraction of financial market activity. Crypto itself remains minor relative to US capital markets. Globally, the estimated stablecoin market size is $227 billion in market capitalization, as compared to $6.22 trillion for US capital markets and $3.39 trillion for global cryptocurrency markets. If current double-digit growth rates for stablecoins continue, they could constitute a considerable proportion of overall crypto market capitalization, if not capital markets themselves. More importantly, the vast majority of stablecoins are pegged to the US dollar.

Rapid adoption rates paired with speedy transaction volumes and velocity in stablecoin markets mean that today’s stablecoin and CBDC decisions may amplify ongoing shifts in reserve currency markets. Dramatic shifts in reserve currency status historically have been rare events. The more likely scenario for threats to dollar dominance involve a range of alternative currencies nibbling at the dollar’s role at the margins. While the US dollar is comfortably in the lead, accounting for 49.2 percent of international payment messaging through SWIFT, its share of global FX reserves has fallen from 71 percent in 2001 to 54.8 percent at present. Decreased demand for dollars has increased demand for non-traditional currencies, gold, and several pairs of local currencies, rather than traditional reserve currencies.

In this context, choices made by individual users can materially impact global reserve currency status. The broad adoption of US dollar-backed stablecoins could even reverse the de-dollarization trend.  Decisions made by policymakers during 2025 will thus materially impact how the stablecoin and dollar markets evolve. 

European crypto rules: EU officials promote the digital euro as a mechanism for delivering strategic and economic autonomy relative to the US dollar. At the retail level, they compete with local payments processes currently dominated by US credit card companies. Globally, they facilitate increased usage of the euro as an international transaction currency. Secondary use cases include using blockchain technology to create “ tokenized” (euro-denominated) deposits that would cement the role of commercial banks within the payment system. European policymakers have also begun experimenting with tokenized securities. Slovenia became the first eurozone sovereign country to issue a tokenized euro area sovereign bond. In December, the Bank of France became the first eurozone central bank to complete transactions in the secondary market for both sovereign fixed income and equity using an unnamed digital currency on a blockchain.

However, if a critical mass of individuals in a country holds wealth in a foreign currency stablecoin, the competitive landscape, if not the survival of other reserve currencies, requires that they provide a digital alternative. The scenario also creates incentives for other jurisdictions to make it difficult to achieve  interoperability with non-euro stablecoins, while creating economic hurdles for local users to choose US dollar-backed stablecoins—essentially preserving their economic and monetary sovereignty.

Some see the newly issued EU crypto regulatory framework—the Markets in Crypto Assets (MiCA); and specifically the 1:1 ratio of required liquid reserves for stablecoins —as a strategic tool to raise barriers to non-EU issuers of US dollar-denominated stablecoins. MiCA extends bank-like regulatory requirements to crypto asset issuers and intermediaries. We discussed that framework and its relationship to the US crypto asset policy landscape in our January 28, 2025 Econographics essay. The framework potentially provides European regulators with the time and tools to play defense by regulating local stablecoin markets to permit either a digital euro or euro-denominated stablecoins to gain market traction. Market data will provide the metric for policy effectiveness.

Barbara Matthews is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center. She is also Founder and CEO of BCMstrategy, inc., a company that generates AI training data and signals regarding public policy.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South; a former senior official at the Institute of International Finance and International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Central bank digital currencies versus stablecoins: Divergent EU and US perspectives appeared first on Atlantic Council.

One critical challenge for the United States in the energy security space is the sourcing of enriched uranium that fuels nuclear reactors across the country, vital for the energy transition away from fossil fuels. The United States has consistently depended on Russia for enrichment services. At the same time, the US enrichment capacity, once thriving, has dwindled, giving way to foreign imports. Nearly seventy-three percent of enriched uranium in 2023 originated abroad. Such reliance on a handful of foreign sources, and especially adversarial countries, introduces severe supply vulnerabilities. With the global demand for enriched uranium expected to rise, the United States should regain its status as a large uranium enricher capable of satisfying its domestic demand.

Russia has a consistent track record of weaponizing energy dependence to coerce other countries. Approximately twenty-seven percent of the enriched uranium used in the United States comes from Russia, which is responsible for around forty-four percent of global enrichment capacity. Although the Biden administration banned Russian uranium imports by signing the H.R.1042, Prohibiting Russian Uranium Imports Act into law, effective August 2024, the Act permits US firms to procure nuclear fuel from Russia’s state-run nuclear energy firm, Rosatom, under a waiver program until alternative suppliers are secured. These waivers, however, can only be granted until 2028 and are designed to give US energy providers sufficient time to adjust to the new conditions.

In response, in November 2024, Moscow announced “tit-for-tat” restrictions on uranium exports to the United States. According to the new rules, exemptions might be made under one-off licenses issued by the Russian Federal Service for Technical and Export Control. While it is unclear whether such licenses will be granted, this move yet again showcases the risks of relying on external fuel sources.

The pursuit of indigenous enrichment capacity is not motivated by market dynamics or elevated prices. The current price of enrichment services (measured in separative work units) is significantly lower than at any point between 2006 and 2019. Instead, the drive stems from vulnerabilities associated with overreliance on a handful of suppliers. Such concentration of supply may become vulnerable to disruptions caused by malign actors or market shocks.

Building resilient enriched uranium supply chains is a critical policy to prevent future weaponization and disruptions by malign actors. It requires more than simply halting imports from Russia. The United States should pursue a strategic policy to meet its own nuclear fuel needs while helping establish resilient and transparent supply chains to other nations. The Sapporo 5—a coalition of like-minded countries comprising Canada, Japan, France, the United Kingdom, and the United States—has pledged to collaborate on securing a reliable nuclear fuel supply chain. Achieving this objective will require a sustained increase in allied financing across all stages of the fuel cycle, including uranium enrichment.

A growing bipartisan consensus in the United States supports strengthening domestic uranium enrichment programs, even if allies and partners temporarily fill the gaps. Until recently, the United States lacked domestically owned uranium enrichment facilities. To address this, around $3.4 billion has been mobilized to jumpstart domestic enrichment efforts. These funds will benefit domestic enrichers and support firms at other fuel cycle stages, including mining.

The goal of building domestic uranium enrichment capacity to safeguard from disruptions should remain a priority. Despite the optimistic outlook, the jury is still out on whether these efforts are sustained in the long run. Such investments cannot have immediate results and require a strategic vision. Additionally, the nuclear fuel cycle, by design, is hard to sustain competitively without close public-private collaboration. Public-private partnerships and long-term demand signals to service providers are essential to building a resilient enriched uranium supply chain.

Mikael Pir-Budagyan was a Young Global Professional with the Economic Statecraft Initiative of the Atlantic Council’s GeoEconomics Center.

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Securing energy independence: The US path to resilient enriched uranium supply chain appeared first on Atlantic Council.

Should the Trump administration choose to use the FTO designation on major Mexican cartels, it may have impacts that have not been fully evaluated. For example, US companies operating in Mexico will need to determine whether their operations may provide “material support or resources” to the cartels—a broadly defined criterion that substantially expands the scope of penalties for violations. Similarly, insurance companies providing services to those US businesses with a presence in Mexico may reconsider their premiums—and whether they wish to further provide services at all. Mexican asylees could assert they are fleeing terrorism if they feel threatened by the cartels. Absent clear guidance from the Trump administration, financial institutions may also be put in a bind as they seek to evaluate whether financial activity involving Mexico may run afoul of the material support clause. The breadth of what may be encompassed under material support, from lodging, to guns, to “expert advice or assistance” renders compliance challenging, particularly as there’s no blacklist or other mechanism against which US companies may screen to evaluate if their funds or services involve cartel members. As such, the reverberations from an FTO designation of major Mexican cartels may be broader than intended.

While the notion of using the FTO authority to designate cartels has been explored previously—by both the executive and legislative branches—prior considerations have not resulted in action pursuant to the FTO authority due to the anticipated knock-on impacts. Instead, for example, the Biden administration issued EO 14059, “Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade,” which has been used to impose sanctions on over four hundred individuals and entities involved in the global illicit drug trade. Relying on this sanctions authority and other financial, health, and enforcement tools may have contributed to the decrease in fentanyl and other opioid-related overdoses and deaths.

Countering the international drug trade is a goal with which the Trump and Biden administrations seemingly align, though their methods of pursuing this objective clearly differ. Given the scope of the problem and the impact illicit drugs have on American communities, creative approaches are certainly warranted. However, new strategies—and their broader impacts—should be thoroughly evaluated prior to deployment.

Samantha Sultoon is a nonresident senior fellow with the Atlantic Council’s Economic Statecraft Initiative.

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Mexican cartels as foreign terrorist organizations: Impact on US businesses appeared first on Atlantic Council.

The slow growth scenario is based on the assessment that the tariffs Trump is threatening would push inflation up from the annual 3 percent in December 2024. If that happened, the Federal Reserve would be cautious about any additional easing moves. Moreover, tariffs in Trump’s first Presidency have been shown to weaken growth as well. Promised tax cuts, including next year’s extension of the 2017 Tax Cuts and Job Act, would also keep the federal budget deficit high. The deficit is currently at 6 percent of gross domestic product (GDP), which is remarkably high for an economy near full employment, with an unemployment rate of only 4.1 percent. As a result, US national debt held by the public would continue to increase from the 100 percent of GDP it has already reached. All these factors have contributed to rising bond yields. For example, ten-year Treasury yields have risen by about one hundred basis points, up to 4.5 percent since their lows around 3.5 percent in September. Moreover, deportation of undocumented immigrants could reduce the growth of the labor force—88 percent of which has been due to net increases in immigrant workers in recent years. This would weaken GDP growth. Implicit in this scenario is that labor productivity, which has grown by 2.3 percent per year from 2023 to 2024, would revert back towards its 2010 to 2022 average rate of 1.5 percent.

By contrast, the strong growth scenario is built upon President Trump’s intention to significantly deregulate the economy. He also is keen to promote investment in artificial intelligence (AI) and crypto assets, to encourage the exploration and drilling of oil and gas, and to cut corporate taxes. These steps are expected to release the “animal spirits” fueling investment spending, corporate profit, and economic growth. Labor productivity would continue to increase, reverting to the long-term (1950 to 2009) average rate of 2.5 percent, making a higher trend growth rate of up to 3 percent a reasonable estimate. Belief in this possibility has helped keep equity markets resilient, with the S&P 500 index up by more than 3 percent in the past three months, despite rising bond yields.

One way to assess which of these two scenarios is more likely is to investigate the main drivers of the recent rise in bond yields. According to J.P. Morgan, the increase in ten-year US Treasury yields of around one hundred basis points can be explained by growth expectations and uncertainty, while monetary expectations have played a much smaller role.

J.P. Morgan’s interpretation of rising bond yields seems to be consistent with other market developments. For example, ten-year yields on Treasury Inflation Protected Securities, which reflect real yields, have increased by sixty-eight basis points since late October 2024, reaching 2.23 percent today. The term premium on ten-year Treasuries, compensating holders of long-term bonds for uncertainty—including uncertainty of the path of short-term interest rates over the lifetime of the bonds—has risen significantly over the past year to 1.24 percent. However, the spread between ten-year Treasury yields and interest rate swaps has remained stable, between eighty to eight-five basis points since July 2024. This spread indicates a current lack of investor concerns about budget deficits and substantial supply of new Treasuries. Moreover, inflation expectations as measured by the Federal Reserve Bank of New York’s Survey of Consumer Expectations are stable at 3 percent at the one-year horizon. They are mixed in the longer term, increasing from 2.6 percent to 3 percent at the three-year horizon and declining from 2.9 percent to 2.7 percent at the five-year horizon.

All told, market developments behind the rise in ten-year Treasury yields seem to indicate that the strong growth scenario is more likely—but then market sentiment can change on a dime! How sustainable is this prospect from today’s perspectives?

An indication is found in the 2026 growth forecasts—which tend to show a slowdown from the 2025 estimates. For example, the US Congressional Budget Office (CBO) expected 2.3 percent in 2025 and 1.9 percent in 2026. The Organization for Economic Co-operation and Development estimated 2.8 percent this year and 2.4 percent next year. Overall, the range of 2026 forecasts has narrowed down to 1.9 percent to 2.4 percent. This seems to reflect minimal expectations for further improvement in labor productivity growth. In fact, a reversal toward a lower average once observed in the decade before the Covid-19 pandemic is possible instead.

In a nutshell, while near-term growth prospects can be supported by releasing the “animal spirits,” it may not be sustainable longer term. One obvious problem is the unsustainability of the US fiscal trajectory. The CBO has estimated a federal budget deficit around 6 percent of GDP as far as the eye can see, boosting the national debt in public hands up from 100 percent of GDP to 118 percent in 2035—surpassing its previous high of 106 percent in 1946. The only factor that could help sustain this debt trajectory is enduring improvement in labor productivity. While uncertain at present, increased labor productivity is not implausible given the surge in technological advances, especially in AI.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South; a former senior official at the Institute of International Finance and International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post US economic outlook 2025: It’s the productivity, stupid! appeared first on Atlantic Council.

DeepSeek represents China’s efforts to build up domestic scientific and technological capabilities and to innovate beyond that. Its advanced stage further exacerbates anxieties that China can outpace the United States in cutting edge technologies and surprised many analysts who believed China was far behind the United States on AI. The export controls on advanced semiconductor chips to China were meant to slow down China’s ability to indigenize the production of advanced technologies, and DeepSeek raises the question of whether this is enough. The US-China tech competition lies at the intersection of markets and national security, and understanding how DeepSeek emerged from China’s high-tech innovation landscape can better equip US policymakers to confront China’s ambitions for global technology leadership.

Homegrown: China’s innovation ecosystem

In the past decade, the Chinese Communist Party (CCP) has implemented a series of action plans and policies to foster domestic capabilities, reduce dependency on foreign technology, and promote Chinese technology abroad through investment and the setting of international standards. In 2023, President Xi Jinping summarized the culmination of these economic policies in a call for “new quality productive forces.” In 2024, the Chinese Ministry of Industry and Information Technology issued a list in of “future industries” to be targeted. These slogans speak to the mission shift from building up domestic capacity and resilience to accelerating innovation.

Since the implementation of the industrial action plan “Made in China 2025” in 2015, China has been steadily ramping up its expenditure in research and development (R&D). From 2016 to 2024, R&D expenditure expanded by 126 percent. According to statistics released last week by the National Bureau of Statistics, China’s R&D expenditure in 2024 reached $496 billion. However, China still lags other countries in terms of R&D intensity—the amount of R&D expenditure as a percentage of gross domestic product (GDP).

Compared to other countries in this chart, R&D expenditure in China remains largely state-led. Rhodium Group estimated that around 60 percent of R&D spending in China in 2020 came from government grants, government off-budget financing, or R&D tax incentives. For reference, in the United States, the federal government only funded 18 percent of R&D in 2022. It’s a common perception that China’s style of government-led and regulated innovation ecosystem is incapable of competing with a technology industry led by the private sector. However, companies like DeepSeek, Huawei, or BYD appear to be challenging this idea.

China has often been accused of directly copying US technology, but DeepSeek may be exempt from this trend. While DeepSeek was trained on NVIDIA H800 chips, the app might be running inference on new Chinese Ascend 910C chips made by Huawei. Additionally, DeepSeek primarily employs researchers and developers from top Chinese universities. This is a change from historical patterns in China’s R&D industry, which depended upon Chinese scientists who received education and training abroad, mostly in the United States. DeepSeek also differs from Huawei and BYD in that it has not received extensive, direct benefits from the government. Instead, it seems to have benefited from the overall cultivation of an innovation ecosystem and a national support system for advanced technologies.

China’s science and technology developments are largely state-funded, which reflects how high-tech innovation is at the core of China’s national security, economic security, and long-term global ambitions. DeepSeek was able to capitalize on the increased flow of funding for AI developers, the efforts over the years to build up Chinese university STEM programs, and the speed of commercialization of new technologies.

While some AI leaders have doubted the veracity of the funding or the number of NVIDIA chips used, DeepSeek has generated shockwaves in the stock market that point to larger contentions in US-China tech competition. Chinese firms are already competing with the United States in other technologies. In 2015, the government named electric vehicles, 5G, and AI as targeted technologies for development, hoping that Chinese firms would be able to leapfrog to the front of these fields. Now, in 2025, whether it’s EVs or 5G, competition with China is the reality.

The United States, China, and global tech competition

Some AI watchers have referred to DeepSeek as a “Sputnik” moment, although it’s too early to tell if DeepSeek is a genuine gamechanger in the AI industry or if China can emerge as a real innovation leader. As far as chatbot apps, DeepSeek seems able to keep up with OpenAI’s ChatGPT at a fraction of the cost. But DeepSeek’s low budget could hamper its ability to scale up or pursue the type of highly advanced AI software that US start-ups are working on. Perhaps more importantly, such as when the Soviet Union sent a satellite into space before NASA, the US reaction reflects larger concerns surrounding China’s role in the global order and its growing influence.

Unlike the race for space, the race for cyberspace is going to play out in the markets, and it’s important for US policymakers to better contextualize China’s innovation ecosystem within the CCP’s ambitions and strategy for global tech leadership. The CCP strives for Chinese firms to be at the forefront of the technological innovations that will drive future productivity—green technology, 5G, AI. And Chinese firms are already promoting their technologies through the Belt and Road Initiative and investments in markets that are often overlooked by private Western investors.

While the United States and the European Union have placed trade barriers and protections against Chinese EVs and telecommunications companies, DeepSeek may have proved that it isn’t enough to simply reduce China’s access to materials or markets. It is uncertain to what extent DeepSeek is going to be able to maintain this primacy within the AI industry, which is evolving rapidly. However, it should cause the United States to pay closer attention to how China’s science and technology policies are generating results, which a decade ago would have seemed unachievable. DeepSeek indicates that China’s science and technology policies may be working better than we have given them credit for. For US policymakers, it should be a wakeup call that there has to be a better understanding of the changes in China’s innovation environment and how this fuels their national strategies.

Jessie Yin is an assistant director with the Atlantic Council GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Is DeepSeek a proof of concept? appeared first on Atlantic Council.

Consistent EU policy posture

When the European Union’s (EU) digital currency regulation (MiCAR) went into effect on December 30, 2024, the EU’s regulatory pillars for crypto asset oversight were completed. Together with the Transfer of Funds Regulation and the Digital Operational Resilience Act, MiCAR extends bank-like rules to stablecoins and cryptocurrencies. The policy addresses financial stability and consumer protection risks arising from cryptocurrencies, most of which are mined outside of the EU. Indeed, the European Central Bank’s (ECB) December 2024 monetary policy minutes indicated that US crypto markets create elevated financial stability risks in the EU. ECB policymakers consistently prefer Central Bank Digital Currencies (CBDC), in the form of a digital euro, over cryptocurrencies to safeguard strategic autonomy and monetary sovereignty for EU businesses and individuals. 

MiCAR applies to the issuance, marketing, and trading of crypto assets and related services. Companies seeking to engage in these activities must comply with bank-like regulatory requirements, including having adequate internal risk management and minimum capital requirements. The regulation applies to three types of coin (e-money) issuers, two of which are stablecoins. All e-money issuers must be licensed as an electronic money institution or a credit institution (i.e. a bank) under the Second Electronic Money Directive. The nascent EU crypto industry supported the new framework because it provides legal certainty.

Conflicting US policy posture

The digital currency policy path from 2021 to 2024 in the United States has not been linear. Dramatic market growth, partisan bickering, and significant fraud-based losses could trigger financial stability issues in the mainstream financial sector and concerns about illicit activity in the crypto sector in the United States. These trends saw the United States careen from supporting both crypto and CBDC in 2022, to a controversial regulation-by-enforcement policy stance in 2023 that the courts consistently invalidated, to multiple bills in Congress during 2024. Bipartisan legislation covering stablecoins passed the House of Representatives in 2024, only to languish in the Senate.

The new Trump administration has spoken decisively. A new executive order states a clear policy directly in conflict with the EU stance. The United States now charts a pro-blockchain, anti-CBDC  policy trajectory on the grounds that CBDCs “threaten the stability of the financial system individual privacy, and the sovereignty of the United States.” It also asserts that “lawful and legitimate” stablecoins support the “sovereignty of the United States dollar.” Digital finance policy formation has been elevated to the White House level through the president’s Working Group on Digital Asset Markets. The policy shift will be bolstered by parallel pro-crypto policy initiatives in Congress and among financial regulators since the November 2024 election: 

• Senate Banking Committee: 2025 legislative priorities include crypto and stablecoin legislation to ensure “compliance with any appropriate Bank Secrecy Act requirements.” 
• House Financial Services Committee: Chairman Travis Hill’s first public statement promised to “create a regulatory framework for digital assets that will protect investors and consumers while keeping innovation in America.”
• Both the House and the Senate have announced investigations and hearings into the “Choke Point 2.0” regulatory policy initiatives that constrained crypto sector access to traditional financial sector liquidity.
• Commodity Futures Trading Commission (CFTC): In November 2024, the CFTC accelerated the ability to use assets besides cash as collateral by increasing reliance on distributed ledger technology.
• Securities and Exchange Commission (SEC): Acting SEC Chairman Mark T. Uyeda formed a new task force to accelerate work on a crypto regulatory framework. The task force will be led by Commissioner Hester Peirce, who has been a leader at the SEC regarding distributed finance and crypto issues.
  

Potential tension and opportunities for alignment

Before the 2024 presidential election, many viewed the legal certainty provided by MiCAR as creating competitive advantages for nascent EU crypto asset markets. Some promoted MiCAR for crypto assets, encouraging US, UK, and other jurisdictions to converge with the EU standard.

The Trump administration’s newly issued executive order makes clear that MiCAR will not provide a template for US policymakers. Both the crypto industry and traditional banking executives support the initiative to create the first blockchain-native policy framework. attending the World Economic Forum in Switzerland underscored that legal clarity will accelerate crypto use within the traditional banking system.

Transatlantic regulatory alignment is not impossible. In particular, US initiatives that expand the regulatory perimeter to cover cryptocurrencies and require compliance with the Bank Secrecy Act could trigger transatlantic alignment merely because no such comparable financial regulatory requirements exist in the United States today. EU alignment with the new US policy is also possible. Indeed, the European Parliament has observed that the EU Commission’s digital euro CBDC initiative is now a long-term aspiration rather than a near-term priority. Differences between the EU Commission and the European Securities Markets Authority (ESMA) regarding next steps for MiCAR also suggest that more market-friendly regulation could emerge. These kinds of alignment should not be confused with transatlantic regulatory harmonization or convergence, which has been an elusive target for decades in the financial services sector.

1. Market dynamics: US crypto issuers and intermediaries currently dominate EU markets. The 2025 European Banking Authority’s and ESMA’s joint report on recent developments in crypto-assets indicates that USD-based stablecoins constitute 90 percent of market capitalization and over 70 percent of trading volume in Europe. The volume of crypto transactions in Europe, instead, has remained at 8 percent since 2022 even as digital payment volumes increase. Policy clarity could propel US crypto firms to a more dominant position globally, to the detriment of nascent crypto asset markets in Europe. EU businesses may pressure policymakers to seek harmonization with the United States as a consequence.
   
2. Market access: Many MiCAR components run counter to how crypto markets operate. For example, the distributed nature of connected computers defies traditional regulatory requirements for a local physical subsidiary. MiCAR’s local subsidiary requirements could be vulnerable to trade policy challenges as non-tariff barriers, particularly in the context of a new US government that favors using trade policy to achieve non-trade policy goals. In addition, blockchain-based counterparty anonymity does not align neatly with either MiCAR or the US Bank Secrecy Act.
   
3. Financial stability: The rapid twin insolvencies in 2023 at Silicon Valley Bank and Silvergate created liquidity pressures both for stablecoins and the traditional banking system. Addressing financial stability risks often involves official sector liquidity support in addition to precautionary regulatory oversight. Initial press reports indicate that the United States may create a strategic bitcoin reserve. TheBITCOIN Act of 2024 (S.4912) introduced by Senator Cynthia Lummis proposed a strategic bitcoin reserve to serve the same role as gold reserves. The legislation was silent on whether, or how, the reserves could be used to provide liquidity support to markets under stress. Any such reserve could create controversy and pressure for comparable strategic reserves globally.
   

The EU’s preferred crypto policy framework extends the perimeter of banking regulation designed to constrain financial stability risks arising from non-local entities while promoting a regional CBDC.  No details have yet emerged from the US regarding specific regulatory policy choices. However, US policymakers have articulated a clear set of priorities which are dramatically different from the EU. US policymakers seek to support private sector blockchain-based intermediation while declaring instead that CBDC initiatives create financial stability risks.  High level policy alignment is possible. Divergences, heated rhetoric, and drama are inevitable.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South; a former senior official at the Institute of International Finance and International Monetary Fund.

Barbara Matthews is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center. She is also Founder and CEO of BCMstrategy, inc., a company that generates AI training data and signals regarding public policy.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The 2025 crypto policy landscape: Looming EU and US divergences? appeared first on Atlantic Council.

With legislators favorable to the industry—including Representative French Hill as the chair of the House Financial Services Committee (watch his Atlantic Council event on stablecoins here), Senator Cynthia Lummis as the newly formed chair of the Senate Banking Committee’s subcommittee on digital assets, SEC chair pick Paul Atkins, and advisors like Elon Musk and commerce secretary nominee Howard Lutnick—confidence is growing that crypto-forward agenda is on its way. But what does success on the regulatory front actually look like? What does it mean for the rest of the world? We dive into the dozen bills under consideration in Congress and zoom in on the three big themes for crypto regulation in 2025.

The SEC vs CFTC: Finally, a truce?

One of the major disagreements between the industry and legislators has been whether the SEC or the Commodity Futures Trading Commission (CFTC) is the right regulator for crypto. As is often debated in Washington, is crypto a security or a commodity? Under the former SEC chair, Gary Gensler, the agency regularly fined crypto companies when it found them in breach of securities laws. This led to some legislators and industry favoring the CFTC as the regulator. Several bills under consideration, including the Financial Innovation and Technology for the 21st Century Act, the Digital Asset Market Structure and Investor Protection Act, the Responsible Financial Innovation Act, and the BRIDGE Digital Assets Act, address the jurisdiction of SEC and the CFTC regarding crypto.

One of the Trump campaign’s biggest promises to the industry is an end to this era of regulation by enforcement. Paul Atkins, Trump’s pick to replace Gary Gensler as SEC chair, is seen as friendly to the crypto industry. His appointment follows a wave of legal decisions over the past two years that have ruled in favor of the companies against the SEC. Atkins’ job, once he’s sworn in, will be two-fold: He will need to clarify the SEC’s jurisdiction over the crypto market and then actually enforce regulations on crypto-assets—their issuance, use, and role in the US economy. Congress will augment these efforts, and you can expect several bills rebalancing the SEC and CFTC’s jurisdiction and enforcement powers. See below for the full breakdown.

Stablecoins, ahoy! 

Stablecoins have now passed $190 billion in global circulation. They can provide much needed liquidity for the crypto market and act as conduits between crypto and non-crypto-assets. Stablecoins increasingly aim to address humanitarian aid and cross-border payments such as remittances, including in Ukraine.

While 98 percent of stablecoins are pegged to the dollar, over 80 percent of stablecoin transactions happen abroad. This makes these “digital dollars” subject to regulatory frameworks set in Europe, Asia, and Africa. Europe’s stablecoin framework, known as Markets in Crypto-Assets, came into full effect in January 2025. Implementing the framework should result in some introspection across the Atlantic over the pending stablecoin legislation in Congress. The Clarity for Payment Stablecoins Act and the Lummis-Gillibrand Payment Stablecoins Act are the two bills under consideration. The Clarity Act has been under consideration by the House Financial Services Committee for the last year, coming close to bipartisan consensus a few times. It has evolved into a discussion draft proposed by Senator Bill Hagerty. The Lummis-Gillibrand Act was introduced to the Senate in May 2024. 

The bottom line, as our cryptocurrency regulatory tracker shows, is that regulations in the United States play a key role in the future of crypto around the world. While other countries have been developing their own regulatory frameworks, the United States has lagged behind—that may finally change in the months to come. 

A trailblazing national bitcoin reserve  

With the appointment of Lummis as the chair of the digital assets subcommittee at the Senate Banking Committee, it’s likely that talks of a bitcoin reserve will continue on the Hill. The logic behind the bill is to purchase bitcoin to be able to pay back the national debt. There are some open questions about the Lummis bitcoin reserve proposal—including the convoluted funding model, which revalues gold certificates from their 1993 price to their current value. 

There are also proposals for a US Central Bank Digital Currency (CBDC). The Trump administration and Republican lawmakers have made it clear that a retail CBDC, or the digital dollar, is not going to happen in the United States. This puts the United States at odds with its peers like Europe, which is rolling out a pilot of the digital euro in 2025, and the United Kingdom, which set up a CBDC lab just last week. The executive order directs all agencies to stop any ongoing work on a CBDC.

The breakdown of all the major pieces of legislation currently being considered is below.

Ananya Kumar is the deputy director, future of money at the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post What is next for crypto regulation in the US? appeared first on Atlantic Council.

We calculate that China’s property and local government-driven slowdown was far more severe in 2024 than reflected in official data, as has been the case in previous years as well. Official data is not consistent with China’s growth and its impact on the global economy. Macroeconomic data shows good news of growth consistently hitting targets: if that were the case, Beijing’s increasingly aggressive policy actions aimed at propping up the economy would not be necessary. 

Rhodium Group estimates that China’s GDP grew between 2.4 percent and 2.8 percent in 2024, well below NBS figures. Looking ahead, after three years of drag from the property crisis, China’s economy should see some cyclical improvement in 2025. This is partly because property has fallen far enough. Just as importantly, Beijing is finally acknowledging the urgent need to stimulate domestic consumption. Policy actions pledged so far are likely to boost growth to the 3 to 4 percent range in 2025, perhaps even as high as 4.5 percent—but only if everything goes Beijing’s way.

While Beijing’s claim that it made its targets in 2024 is simple, the real performance is more complex. Here is a cheat sheet for looking at the actual 2024 economic performance, and the outlook for 2025, using an expenditure-side GDP framework. 

2024 in review

Investment growth was probably flat at best. It most likely declined again in 2024, driven by the slowdown in local government investment, particularly in infrastructure. The property sector continued to decline, with new starts down by 23 percent through November and completions down by 26 percent. Private sector fixed asset investment fell even in official data.

Household consumption likely contributed somewhere between 1.3 and 1.6 percentage points to 2024 growth. According to NBS household survey data, real per capita household expenditure expanded by over 5 percent. But this is hard to square with other indicators, which show retail sales growth at half the 2023 rate, consumer confidence at rock bottom, consumer price inflation near zero, and declining e-commerce sales.

Government consumption growth was probably weakly positive. Monthly government expenditure data show meager overall spending growth of around 1 percent, dragged down by local government fund expenditure, which contracted for the fourth consecutive year. The stimulus package announced in November focuses on refinancing local government debt at lower interest rates, which is necessary from a debt sustainability perspective but will have a limited impact on government consumption.

Lastly, net exports are on track for their third-largest contribution to China’s growth this century. Exports rose 6.7 percent in value terms year-to-date through November, and falling export prices—partly a symptom of China’s industrial overcapacity—mean that real exports have been even stronger. Imports have been weak due to subdued domestic demand.

The outlook for 2025

Investment is likely to return to positive growth in 2025. Construction activity will stabilize, with new housing starts now below Rhodium estimates of long-term equilibrium demand. Local government infrastructure investment should improve as well, given more aggressive fiscal deficit spending. Private investment will likely remain weak, however, given the overall constraints on credit growth and continued deflationary pressures in producer prices.

Boosting household consumption was the top message at the December 2024 Central Economic Work Conference. However, policy support is mostly focused on expanding trade-in subsidy programs for consumer durables, which have had an unclear impact on aggregate consumption. Meanwhile, the profound negative wealth effects from the real estate crisis and fragile labor market conditions continue to depress consumer confidence.

Government consumption should contribute more to growth in 2025. The government has promised a stronger fiscal impulse, reportedly including an expanded fiscal deficit target and larger special treasury bond issuance. Still, China’s fiscal system will remain constrained by weak revenue growth. 

China’s net exports outlook is deeply uncertain, pending the scope and timing of potential US tariffs. China’s possible responses include a combination of its own tariffs, currency depreciation, and targeted export restrictions. If global markets remain open to China, growth in China’s record-high trade surplus is likely to be small but positive.

Overall, the picture for 2025 is one of near-term improvement, but this should not be mistaken for a long-term recovery. Overinvestment in manufacturing remains a serious challenge—one that will make China’s trading relationships more fraught in 2025. Rebalancing toward a consumption-led economy will require much deeper economic liberalization.   

Daniel H. Rosen is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and a founding partner of Rhodium Group where he leads the firm’s work on China, India and Asia.

Jeremy Smith is a Research Analyst with Rhodium Group’s China practice, focusing on China’s evolving growth dynamics and economic engagement with the world.

Data visualizations created by Jessie Yin

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post China’s economic performance: New numbers, same overstatement appeared first on Atlantic Council.

During his first term, President Trump issued an executive order that prohibited “U.S. persons” from engaging in certain transactions with publicly traded securities issued by “Communist Chinese Military Companies.” The executive order and companion legislation in the 2021 National Defense Authorization Act empowered the Department of the Treasury’s Office of Foreign Assets Control (OFAC) to publish and maintain a list of restricted PRC military companies. President Biden then issued his own executive order in 2021, which amended Trump’s and expanded the scope of the list to cover Chinese surveillance companies. This list—now called the Non-SDN Chinese Military-Industrial Complex Companies (NS-CMIC) List—is a powerful sanctions tool that enables OFAC to designate any PRC company that supports military-civil fusion or surveillance technology. Despite this wide authority and bipartisan congressional pressure, however, the Biden administration never updated the initial list after its publication in 2021. The incoming Trump administration should broaden the definition of covered entities and prioritize increasing the number of PRC companies on a non-SDN (Specially Designated Nationals) prohibited investment list.

The first designations on an updated list could be publicly traded PRC companies already designated on other US government blacklists, such as the Bureau of Industry and Security Entity List, Military End-User List, Uyghur Forced Labor Prevention Act Entity List, the Federal Communications Commission’s Covered List, and the Department of Defense’s 1260H list. Expanding the existing NS-CMIC List to include other blacklisted PRC companies would require updated definitions through an amended executive order or legislation. If enacted, this policy would enable the US government to close an economic security policy gap. This gap currently allows Americans to invest in blacklisted PRC military companies and human rights abusers despite the same PRC companies being subject to trade restrictions. The expansion of authorities for a revised NS-CMIC List could also include a 50 percent rule or control definition that would immediately expand the scope of the list to include majority-owned subsidiaries of named entities. The NS-CMIC List currently does not include prohibitions on subsidiaries. This is a straightforward policy already used by OFAC for other sanctions programs. A 50 percent rule for the NS-CMIC List would have an immediate chilling effect on the PRC’s military-industrial complex. Finally, the administration and Congress should expand authorities to allow Treasury to issue outbound restrictions on PRC companies that manufacture fentanyl precursors and support the Chinese Communist Party’s (CCP) ongoing genocide and human rights abuses in Xinjiang. 

While expanding the NS-CMIC List is an important first step, an effective outbound screening mechanism cannot rely exclusively on listing individual PRC entities. As history has repeatedly shown, the US government’s highly bureaucratic entity listing processes are structurally misaligned with the agile evasion strategies employed by targeted foreign entities. The incoming National Security Council and Department of Government Efficiency should examine ways to streamline the disparate policy processes used to create and maintain blacklists—a policy issue that industry has long championed. In the meantime, though, the new administration’s outbound policy must expand beyond lists to include tightly defined sectoral restrictions on the most high-risk technologies and sectors that jeopardize America’s security. These include hypersonics, quantum, advanced computing, artificial intelligence, semiconductors, and other critical defense articles and dual-use technologies on the US Munitions List and the Commerce Control List. PRC companies regularly evade US economic security restrictions. This type of sectoral approach will give the administration wider authority to crack down on CCP efforts to use US technology and capital to build a military that directly threatens the lives of American armed service members. 

The Trump administration’s outbound mechanism should also close the loopholes in the Biden executive order by including broader prohibitions on publicly trading securities issued by high-risk PRC entities. American investors and funds purchase billions of dollars of PRC securities each year, including securities issued by PRC military companies and other large PRC companies that use slave labor and help the CCP perpetuate genocide. The new outbound regime should expand the covered activities section of the Biden executive order to include prohibitions on all critical technologies subject to sectoral restrictions and securities issued by PRC companies that use and/or benefit from Uyghur forced labor.

The overall success of the Trump administration’s outbound investment screening regime depends on effective enforcement. To detect evasion and prevent American capital from directly funding our adversaries, the White House should direct the Intelligence Community (IC) and the Office of the Director of National Intelligence (ODNI) to prioritize economic security issues. A practical first step would be to expand the ODNI’s Office of Economic Security and Emerging Technology (OESET). Reallocating or adding resources for intelligence collection and analysis to support the enforcement of economic security regulations—including outbound and export controls—is needed. However, resource allocation alone is insufficient. A comprehensive review of authorities for OSINT and financial data is also necessary to ensure that the Central Intelligence Agency, National Security Agency, Federal Bureau of Investigation, and other non-IC agencies can effectively monitor global capital and investment flows associated with high-risk PRC companies. This review must also ensure the IC does not overclassify financial intelligence, a key ODNI policy issue that could undermine efforts to engage with allies on the threats posed by PRC capital flows.

To safeguard American economic and national security, the Trump administration should implement a targeted outbound investment screening regime to counter the PRC’s military-civil fusion system, slave labor, and fentanyl trade. By expanding the NS-CMIC List, introducing sectoral restrictions on critical technologies, and implementing prohibitions on publicly traded PRC securities, the Trump administration can close key loopholes exploited by PRC companies and the CCP. Enhanced Treasury enforcement and intelligence capabilities will ensure resilient measures against evasion tactics. A targeted and well-enforced outbound investment screening regime will allow the United States to increase its economic sovereignty and more adequately defend against Beijing’s increasingly complex financial and supply chain warfare.

Kit Conklin is a nonresident senior fellow at the Atlantic Council’s GeoTech Center.

Related content

Testimony May 23, 2024

Sarah Bauerle Danzman provides written testimony before the US-China Economic and Security Review Commission on outbound investment from the United States to China

By Sarah Bauerle Danzman

GeoEconomics Center Senior Fellow Sarah Bauerle Danzman testifies on the scale of US outbound investment flows to China and recommendations on how the United States should regulate certain types of investment going forward.

China Economy & Business

Econographics Nov 8, 2022

What US outbound investment screening means for Transatlantic relations

By Elmar Hellendoorn

Whether the EU follows through with new outbound investment controls and what those might look like will also depend on the evolution of American national security policy and transatlantic diplomacy.

China Economy & Business

Issue Brief Sep 14, 2022

Sand in the silicon: Designing an outbound investment controls mechanism

By Sarah Bauerle Danzman and Emily Kilcrease

The stakes for rethinking the investment relationship between the United States and China are high. An outbound investment mechanism must be narrowly targeted, clearly defined, non-duplicative of existing tools, scoped proportionately to administrative capacity, and paired with meaningful multilateral engagement with allies and partners. 

China Economy & Business

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post A policy blueprint for the Trump administration’s outbound investment screening regime appeared first on Atlantic Council.

That pattern started to reemerge last week after the Chinese leadership’s annual conclave on economic policy. Xi declared in his keynote speech during the December 11-12 conference that “the economy is stable and making progress . . . and the main economic and social development goals and tasks are about to be successfully completed.” The conference communiqué announced that the most important policy task in 2025 will be to “vigorously boost consumption” through “moderately loose monetary policy” and “more active fiscal policy.”

The reception was decidedly mixed. Echoing many other observers, investment bank Morgan Stanley called the government announcement the “most aggressive stimulus tone in a decade,” but also said that “implementation remains uncertain.” In the absence of concrete details accompanying the announcement, China’s stock markets immediately tanked. In a country that lacks other outlets for public opinion, it was a clear vote of no confidence.

This lack of confidence should come as no surprise. Amid economic problems that include weak household consumption and anemic business investment, a property market collapse, high youth unemployment and deflation, the Chinese government is not facing up to a root cause of the downturn. It has spent five years stifling the country’s once-dynamic private sector. Policies that favor state-owned enterprises and give center stage to state planning have come at the expense of a market economy hit by tight regulation and Chinese Communist Party interference. “Building entrepreneurial confidence depends primarily on the reform direction, not on the strength of monetary policy stimulus,” said Zhang Weiying, a leading Chinese professor of economics, in an August speech. “However, recent practices suggest that focusing solely on [monetary and fiscal] solutions cannot fundamentally resolve China’s economic challenges.”

There is also an important international dimension to the policy choices Xi faces. China is the largest driver of global demand, and many countries need China to sustain a high level of import demand. But imports have been falling as the economy struggles, and Beijing has relied on export growth to keep China’s manufacturers alive. As a result, trade tensions are rising as a flood of Chinese goods hits both advanced and emerging market economies. And with President-elect Donald Trump threatening new US tariffs against China, the Chinese government will need to look to domestic drivers of growth.

The government certainly can do more to boost demand. The stimulus measures taken since September have focused on increasing credit, supporting local-government purchases of China’s vast store of unfinished or unsold homes, and restructuring the massive debt of local governments. In addition, Beijing is spending heavily on developing advanced technologies and building infrastructure, but the benefits of those expenditures—especially for more roads and railways—appear to be more limited than in the past. Most importantly, corporate and household borrowing has failed to gain momentum despite the easy credit—a sign of the depressed confidence that has undercut consumption and investment. Weak November retail sales and home sales figures show that, as far as consumers are concerned, it’s not nearly enough.

The true scale of the economic downturn has recently received attention in China through widely circulated comments by private sector economists. Earlier this month, Gao Shanwen, chief economist at SDIC Securities, was quoted as saying that post-pandemic China is “full of vibrant old people, lifeless young people, and despairing middle-aged people,” and he suggested that as many as forty-seven million people are unable to find formal work in China’s cities. Gao also estimated that the country’s economic growth over the past three years may have been overstated by 10 percentage points.

Meanwhile, Fu Peng, an economist with Northeast Securities, highlighted the plight of the country’s poor, saying on December 4: “Whenever the economy contracts, it’s those at the bottom who suffer the most at first. However, that barely has any impact on the macroeconomic data.” Not long ago, such critiques would have been just a small part of a wide-ranging policy debate that used to take place in China. But now, in the country’s current climate of strict control over all policy discussions, both economists’ remarks were removed from the Chinese internet after a few days and their social media accounts were restricted.

Public criticism of government economic policies has not been limited to private sector economists. “In recent years, the lack of effective demand in China can . . . be attributed to the government failing to return income to the public while itself also not actively spending,” said Xu Gao, chief economist at the state-owned Bank of China International in a September speech.

The Chinese government’s economic policy communiqué last week does speak of a “greater focus on benefiting people’s livelihood.” But it only cited a program introduced at an earlier stage of the stimulus effort to subsidize trade-ins of cars and household appliances. There was no new reference to income subsidies or other initiatives to directly assist China’s unemployed and underemployed, especially those in the construction and real estate industries who have lost work and millions of recent university graduates who are unable to find jobs. There also has been no talk of using the government’s central bank digital currency to make direct payments to consumers.

Since China’s middle class can buy only so many refrigerators and electric vehicles—even with government subsidies—the big question is whether Beijing is prepared to consider a wider effort to support consumers. However, Xi previously has expressed skepticism about “welfarism,” and he has spoken positively of his own experience during China’s Cultural Revolution of having to “eat bitterness.” So, public assistance may prove a bridge too far for a party that rose to power nearly eighty years ago claiming to represent China’s less fortunate citizens.

Perhaps it will take another shock to the system—for example, a sharp drop in exports—to jolt China’s rulers out of their current failing approach.

Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Wall Street Journal Asia. Follow him on X: @JedMark888.

The post Once again, China pushes for economic stimulus, hoping for a different result appeared first on Atlantic Council.

Underwhelming COP29

Participants at COP29 managed to reach an agreement on international carbon market standards, a key step to establishing such a market under the United Nations (UN), as envisioned in Article 6.4 of the 2015 Paris Agreement. However, COP29 became stuck on the key objective of the meeting: producing a new collective quantified goal (NCQG) as a new climate finance target for the next ten to fifteen years. This is meant to replace the current $100 billion annual figure—a pledge of financial aid to developing countries made by developed countries in 2009, but viewed as totally inadequate.

The most important issue to be settled is the quantum of the NCQG. Participating countries have disparate expectations, which are unlikely to be bridged. Developing countries have coalesced around the target of $1.3 trillion a year of international climate finance aid, based on a report by the High Level Expert Group on Climate Finance. Developed countries spearheaded by the European Union (EU) have reportedly toyed with a range of $200-300 billion, but are reportedly leaning toward $200 billion and a 2035 deadline.

The issue of the contributor base has also been important. Developing countries want to stick to the Paris Agreement, which calls for developed countries to provide climate finance to developing countries. Developed countries want to widen the contributor base to include rapidly growing emerging market countries. These countries, such as China and the Gulf countries, are able to contribute and should do so because of their high levels of emissions. Many developing countries, in particular China, have strongly objected to these demands. As part of the debate, China announced that it has voluntarily provided 177 billion yuan ($24 billion) in project financing to help other developing countries deal with climate change since 2016. This statement highlights China’s preferences for a bilateral approach. China is using climate finance as a tool to further its geopolitical agenda, instead of contributing funds to multilateral efforts. If other countries decide to follow a similar bilateral approach, they could strike another blow against the unraveling multilateral world order.

A day after the COP29 officially ended, an agreement on NCQG was reached, calling for developed countries to provide $300 billion a year by 2035 to help developing countries in their climate efforts. No one is happy with the agreement. Developing countries have criticized it as  too little. Developed countries have tried to lower expectations about official aid, emphasizing that the funding would have to come from a wide variety of sources, including the private sector. In any event, the agreements concluded at the COP29 will be overshadowed by the fact that Trump would most likely pull the United States out of the 2015 Paris Agreement for a second time—and could even withdraw from the 1992 UN Treaty that provides the framework for the COP process. This time around, Argentina could follow suit and quit the Paris Agreement. President Milei already recalled his negotiators midway through the COP29 meetings. Without the US and possibly Argentina, the rest of the world would have to struggle to come up with meaningful nationally determined commitments to achieve net zero emissions and to mobilize climate finance to help developing countries. This outlook does not augur well for the COP30 to be hosted by Brazil in 2025.

A divided G20 Summit

The G20 Summit in Rio de Janeiro has been described by media reports as chaotic and divided. Nevertheless, it managed to produce a Leaders’ Declaration, even though the debate about wording was cut short by Brazil’s President Lula—leaving a bitter taste among Western leaders. The Declaration contains watered-down language on practically all agenda items. A major result is the Global Alliance Against Hunger and Poverty, Lula’s signature project, which gathered support and was launched.

However, the facade of cooperation has been rocked by Argentina’s statement that while Milei did not want to prevent other leaders from signing the declaration, he strongly criticized key elements of the agenda. His targets included anything to do with the UN 2030 Sustainable Development Goals and strengthening the role of governments in fighting global hunger (which according to Milei should be promoted by removing the involvement of governments). At the same time, Milei stressed that he would prioritize economic development over environmental protection, having dissolved Argentina’s Environment Ministry after taking office. These arguments are in line with Trump’s views. They will likely be advanced more forcefully in future G20 meetings, undermining the chance of agreements for joint actions and weakening the G20 itself.

Prospects for international cooperation: more turbulence

President Trump will likely reverse or ignore many of Biden’s environmental and climate change initiatives. However, as several red states have seen job creation thanks to IRA programs, he may continue some programs on a case-by-case basis. Overall, Trump’s approach would weaken environmental protection home and disengage from international climate efforts.

In the vacuum created by the United States and Argentina, China has already stepped in to champion international climate efforts under the Paris Agreement and open trade, as Xi Jinping claimed in his speech at the Rio G20 Summit. China has appealed to the EU to “collaborate effectively on the COP29 agenda…(to) establish a strong foundation for re-aligning their broad green and economic initiatives and improve their bilateral relationship.” China’s approach may appeal to the EU when it’s confronted with Trump’s denial of climate change and his protectionist unilateralism. However, if the EU were to cooperate with China on climate and trade issues, it would find itself at greater odds with a Trump administration already unhappy with the EU for free riding the US security umbrella while posting a trade surplus with the United States. The EU would be in a very difficult position, as it still very much depends on Washington for security, especially against a revanchist Russia emboldened by its successes in Ukraine.

The rest of the world can find ways to deal with climate change without the US federal government, as it did during Trump’s first presidential term—including working with US states and cities still keen to promote a green agenda. But the whole exercise would be inefficient and more difficult, especially when mobilizing climate finance.

As summarized by Bloomberg, the Rio G20 Summit has shown “how quickly the guardrails are coming off the international rule-based order…(as) the looming return of Trump hung over the proceedings like the proverbial sword of Damocles.” Expect more of the same, at future summits—starting with the 2025 G20 under the presidency of South Africa.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Divided COP29 and G20 Summits: A taste of things to come appeared first on Atlantic Council.

There is concern globally about what a second Trump administration will mean for Russia-related sanctions, particularly if they’ll be quickly lifted as part of a deal to end the crisis in Ukraine. Sanctions against Russia to date have been a true multilateral effort, with dozens of nations subscribing to the program and heavy coordination among Group of Seven (G7) partners and European Union teams. While President-elect Trump has not made any specific statements about the use of sanctions on Russia, he may yet act to change them. Considering that possibility, it is important to note that the president is not the sole decider.

Any next steps in an expansion or potential reduction of sanctions against Russia will largely be directed by whoever is appointed in key roles on the National Security Council and at the Treasury and State Department, as well as the US Congress. In an extraordinary bipartisan effort in 2017, during Trump’s first administration, the Countering America’s Adversaries Through Sanctions Act (CAATSA) was enacted in part to limit the president’s ability to unilaterally lift sanctions on countries such as Russia. CAATSA requires the president to submit a report to appropriate congressional committees and leadership prior to lifting Russia sanctions. This however doesn’t extend to Biden-era sanctions after the second invasion of Ukraine in 2022. While G7 partners’ concerns about the potential for the United States to lift its sanctions targeting Russia are valid, there are several procedural hoops the next administration would need to jump through to do it in order to fully lift all existing sanctions.

If the next administration decides to expand sanctions on Russia, there is one tool that was employed in a limited form in Trump’s first administration that could be considered: secondary sanctions. Secondary sanctions force countries to choose between doing business with those imposing sanctions or those that are the subject of sanctions. President Obama’s administration leveraged secondary sanctions to bring Iran to the negotiating table to form the Joint Comprehensive Plan of Action (JCPOA) in 2015, a deal that Trump ultimately abandoned in 2018. Secondary sanctions related to Russia were imposed by President Biden in December 2023 and have slowly begun to be implemented. It’s conceivable that this instrument of foreign policy could be used as another stick in a Trump 2.0 strategy to compel unaligned countries, including current US allies, to align with American objectives regarding Russia or other national security priorities, such as China. 

However, relations with China are not as tense as they were when Trump left office nearly four years ago. The Biden administration sought a reset of US-China relations after tensions reached a peak during the spy balloon incident in 2023, and has largely followed the path of export control and sanctions policy that started during the Trump administration. It notably eased, but did not pull down the Trump-era tariffs targeting China’s unfair trade practices. The Economic Working Group was formed between the United States and China in October 2023 to serve as an ongoing channel to discuss bilateral economic policy matters including climate change, capital requirements, and fentanyl trafficking. While there continues to be a tit for tat on trade and export control matters, it is on a less prominent scale than the first Trump administration. 

Given President-elect Trump’s rhetoric on the campaign trail about the importance of building relationships with your adversaries, it is still an open question of whether he will resume his tactics of trade and tariff threats against China once in office. The landscape with China has changed since Trump left the White House, including through China imposing the Anti-Foreign Sanctions Law in 2021. The law forbids compliance with foreign sanctions in China, complicating the ability of any US business to fully comply with both Chinese and US regulations. It is conceivable that, between the Anti-Foreign Sanctions Law requirements and export control bans China has put in place for rare earth minerals and precious metals, Trump 2.0 takes a more diplomatic approach toward China lest he more broadly disrupt global supply chains.

Daniel Tannebaum is a non-resident senior fellow with the Economic Statecraft Initiative at the Atlantic Council and partner in Oliver Wyman’s Finance & Risk Practice, where he leads the firm’s Global Anti-Financial Crime Practice.

Related content

New Atlanticist Nov 21, 2024

Five questions (and expert answers) about major new US sanctions on Russia’s Gazprombank

By Atlantic Council experts

To decipher these moves, we turned to some of our top sanctions experts to reveal what’s behind the decision and what to expect next.

Financial Sanctions and Economic Coercion Russia

Econographics Apr 17, 2025

Russia Sanctions Database

By Kimberly Donovan, Maia Nikoladze, Lize de Kruijf

The Atlantic Council’s Russia Sanctions Database tracks the level of coordination among Western allies in sanctioning Russian entities, individuals, vessels, and aircraft, and shows where gaps still remain.

Eastern Europe Economy & Business

New Atlanticist Mar 28, 2024

The axis of evasion: Behind China’s oil trade with Iran and Russia

By Kimberly Donovan, Maia Nikoladze

Beijing has developed a way to import Iranian and Russian oil while bypassing the Western financial system and shipping services.

China Economy & Business

Economic Statecraft Initiative

Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

Learn More

The post Sanctions expectations in a second Trump administration appeared first on Atlantic Council.

The United States has diversified its imports away from China for low value-added goods such as bedding, mattresses, and furniture. But diversification is proving far harder for higher value-added goods. 

To understand why the incoming Trump administration is going to face a dilemma on how to execute its new tariffs, see our analysis on the top goods the United States is importing from China:

Smartphones, computers, lithium-ion batteries, toys, and video game consoles together made up 27 percent of US goods imports from China in 2023. US reliance on China for these goods has hardly budged since 2017. In fact, China’s share in US battery imports has actually increased in that time. 

And even if there was more diversification, it wouldn’t solve the problem of US import reliance on China. Diversifying imports away from China doesn’t necessarily translate to lower exposure to Chinese industries. Vietnam, for example, has been among the largest benefactors of US attempts to diversify its imports. Vietnam’s share of US imports has risen steadily across several sectors where China’s share has decreased.

In response to the 2018 trade war, Chinese manufacturers moved factories to Vietnam, where they added some value to products before exporting to the United States. A strong correlation between Vietnam’s exports to the United States and Vietnam’s imports from China suggests these factories remain deeply dependent on Chinese intermediate goods and supply chains. 

Analysts have also raised concerns that some Chinese goods are first shipped to China, designated as Vietnamese-origin exports to avoid US tariffs—despite no value being added in the country—and then exported to the United States. The US Department of Commerce concluded this was the case for solar panels in 2023 before imposing new tariffs on companies engaged in that trade. 

At the same time, Chinese exporters are not as dependent on the US market for these goods. The global market for electronics produced in China is somewhat diversified:

Across-the-board tariffs that would include these goods may impact US consumers more in the short term through price increases than Chinese producers – especially if China extends support to its own companies.

There is a reason why the United States has not put tariffs on these goods already. In 2018, the Trump administration prioritized tariffs on intermediate goods to avoid direct impact on consumers. President Trump himself said in 2019 that tariffs on electronics were going to be delayed for the holiday season: “We’re doing this for the Christmas season, in case any of these tariffs would have an impact on US consumers.” The tariffs were never implemented.

What’s changed between now and 2019? Inflation is more of a concern than it was then. In fact, it is one of the reasons Trump was elected. While these five goods are insignificant within the US Consumer Price Index since consumers do not purchase phones or laptops regularly, the goods have very high public salience. The media will understandably focus on price changes on iPhones, for example. This makes it even more difficult to implement any significant new tariffs on these products. 

That doesn’t mean there won’t be new tariffs on China—the question is which products will be the target. Think about electric vehicles (EV). President Biden put 100 percent tariffs on Chinese EVs. President Trump could add another 30 percent penalty—but only two percent of all US EV imports are from China. So while such a tariff may generate headlines, it would not translate into a meaningful shift in the trade relationship.

The bottom line is that while the incoming Trump administration is serious about tariffs, actually enacting them is going to be much more complicated given the current dynamics in the global economy. 

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Mrugank Bhusari is assistant director at the Atlantic Council GeoEconomics Center focusing on trade and the international role of the dollar.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

The post The United States has trade leverage with China, but not as much as Washington thinks appeared first on Atlantic Council.

For the past several years, observers have noticed that much of China’s official economic data have gradually become less reliable. Chinese authorities have also restricted key sources of data on inward investment and foreign stock holdings. Last year, China’s biggest corporate and financial data providers and academic databases started limiting access to offshore users, and several US consulting firms were raided by Chinese authorities. Even judicial verdicts are harder to find. In a perhaps related trend, Chinese state-owned firms have increased their presence in the Chinese economy even as the number of private enterprises has grown.

This trend comes against the backdrop of the rising use of economic statecraft by the United States and its allies. No matter how many resources the US government puts behind its new authorities, the reality is that tools like sanctions and supply-chain integrity laws depend heavily on how well they are implemented by private sector actors, such as financial institutions and multinational corporations. The Department of the Treasury’s Outbound Investment Security Program, whose implementing regulations are expected to become effective in the coming months, is a perfect example. This program’s regulations impose a knowledge standard requiring US persons to undertake a “reasonable and diligent inquiry” for the very same kind of information about entities in China that is increasingly unavailable. Similar challenges await in the rapidly growing number of new programs overseen by the Office of Information and Communications Technology at the Department of Commerce. Absent the ability to verify information coming out of China, businesses may decide to abandon deals altogether. 

Moreover, the United States may be exacerbating decoupling by its responses to diminishing transparency in the Chinese economy and actions by the Chinese Communist Party that blur the line between private and state-owned firms. The US Securities and Exchange Commission has asked prospective Chinese registrants to define their exposure to the Chinese government, and the Nasdaq has increased its scrutiny of Chinese companies. US lawmakers are clamoring for more laws to force Chinese companies to disclose more information and have expressed interest in preventing “hard-to-evaluate” Chinese stocks from being included in index mutual funds. Moves like these would almost certainly drive the world’s two largest economies further apart. 

What is driving this situation from the other side of the Pacific? China understandably doesn’t want routine business information used against it. “The steady contortion of official statistics seems designed to obscure news that might embarrass the government,” according to the Economist. China learned a similar lesson in 2017, when the United States and the United Nations sought to pressure China over its coal imports from North Korea, which subsidized the North Korean regime. Once it became clear that the United Nations Security Council cited these trade records to advocate for a coal ban, China at least temporarily stopped reporting the official data. But it would be solipsistic of the West to assume that corporate governance of private firms in China is all about strategic competition. Many of the same actions that the West may interpret as attempts to obstruct corporate transparency might have far more to do with domestic legitimation and other internal dynamics. 

The West’s economic statecraft and its reliance on detailed corporate and trade data is running into an unfortunate reality that trustworthy business data is becoming less available, leaving the global business community in a lose-lose situation. De-risking may lead to a de facto decoupling, which would only drag down global economic productivity. Chinese companies also have been very willing to litigate in US courts in response to economic restrictions, occasionally exposing shoddy evidentiary claims that suffered in part from a lack of quality data. Companies are being forced to choose between the deals they want to execute and the chance that host country governments will penalize them for information they could neither have known nor reasonably obtained.

Jesse Sucher is a contributor to the Atlantic Council’s Economic Statecraft Initiative within the GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post How data control is driving a new US-China economic divide  appeared first on Atlantic Council.

It is a mistake for the West to dismiss the power of symbolism and narratives in the geopolitical competition for global influence. The BRICS summit has also produced noteworthy results that the international community should be aware of.

First, Vladimir Putin chaired a successful summit involving thirty-six countries, most of which were represented by heads of state. In doing so, the Russian president showed that he has not been isolated in the international arena by the West following his invasion of Ukraine. Instead, he has deepened relationships with Global South countries through BRICS and other initiatives such as riding the anti-colonial wave to make headways in western Africa. Equally importantly, President Xi Jinping and Prime Minister Narendra Modi met on the sidelines of the summit. They did so mere days after announcing a pact to resolve their border conflicts, which have been a major irritant in their bilateral relationship. Their meeting helped raise the stature of the BRICS summit as a venue where important political discourse can take place.

Last but not least, with many countries reportedly wanting to join, BRICS has invited 13 thirteen nations to be partner countries-they will continue discussions with a view to formal membership. The list of partner countries—confirmed by several senior officials, but not officially specified in the Kazan Declaration—includes Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Vietnam, Uganda, and Uzbekistan. It is unclear which of these countries will eventually decide to become formal members. Saudi Arabia, for example, was invited to join last year but has not yet decided, though its officials have attended BRICS meetings since then. The inclusion of priority countries for the West, such as Turkey (a NATO member) and four important ASEAN countries, should concern policymakers. Many developing countries have found BRICS a useful forum for a variety of reasons, including diversifying international relationships and expanding trade opportunities.

The Kazan Declaration, released at the end of the summit, covers a wide range of issues. The Declaration avoids any direct mention of the United States, hostile or otherwise. Some Western analysts had raised that doing so could make moderate members like India and Brazil uncomfortable, especially given the anti-Western tilt of the group’s expanded membership. The Declaration focuses on promoting multipolarity and a more representative and fairer international system. These goals remain the common denominator attracting many countries to BRICS.

The Declaration supports initiatives and groups developed to coordinate and promote the views of BRICS members and countries in the Global South in international fora, including the United Nations (UN) and the Group of Twenty. These groupings cover issues from sustainable development to climate finance, and call for settling the conflicts in Gaza and Ukraine.

In particular, BRICS will intensify ongoing efforts to promote settlements of cross-border trade and investment transactions in local currencies by establishing BRICS Clear as an independent cross-border settlement and depository infrastructure. Doing so would help facilitate the use of local currencies. It will also launch the BRICS Interbank Cooperation Mechanism to promote innovative financial practices, including financing in local currencies. Many developing countries are interested in using local currencies more frequently given their limited access to US dollar funding.

The group’s decision to form an informal consultative framework on World Trade Organization (WTO) issues to engage more actively in the debates about reforming the WTO is also noteworthy. This section of the Declaration includes opposition to the use of unilateral economic sanctions and discriminatory carbon border adjustment mechanisms. Taking advantage of the fact that BRICS members constitute the largest producers of natural resources in the world, the group also pledges to jointly promote its interests throughout the value chains of mineral production against the backdrop of increased demand for critical minerals for the energy transition. The geopolitics of the energy transition could open an opportunity for mineral-rich developing countries to coordinate their mineral policies and join the superpowers in their search for reliable supply chains of critical minerals.

Overall, BRICS has attracted interest from many developing countries—now boasting nine members and thirteen partner countries. The collective share of its members’ population and gross domestic product has surpassed that of the Group of Seven (G7). However, expansion comes at a cost. Building consensus among more diverse members is increasingly complex, and expansion plans could remain a point of contention within the group. For example, Venezuela had reportedly been kept out of the list of partner countries due to Brazil’s objection.

Despite this challenge, key members of BRICS have successfully developed common positions among Global South countries in international fora in recent years. Their joint effort to demand a loss and damages fund at COP28 in Dubai in 2023 is one example. Additionally, BRICS members have collaborated with Global South countries to work for the adoption of the UN mandate in August 2024 to negotiate a UN tax convention, which covers taxation of multinational corporations and wealthy individuals. BRICS countries also consistently promote governance reform of the Bretton Woods Institutions. The more BRICS can develop and articulate common views among Global South countries, the more it can be regarded as the counterpart of the G7 (representing developed countries) at international fora and in the public domain.

Importantly, BRICS’ flagship project—promoting the use of local currencies to settle cross-border trade and investment transactions—is gradually gathering momentum. China, for example, has increased the share of the renminbi when settling its cross-border transactions from 48 percent (surpassing the US dollar) in mid-2023 to more than 50 percent in mid-2024.

In short, BRICS—or BRICS-plus as some observers and officials have referred to the expanded group—is here to stay. Other countries, including Western ones, need to figure out how to deal with it.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The underestimated implications of the BRICS Summit in Russia appeared first on Atlantic Council.

Financial partnerships between Chinese money laundering organizations (CMLO) and Mexican cartels have made it more challenging for US law enforcement agencies to track the movements of drug money. Financial sanctions have so far proven an effective tool in reducing the growth in crypto-denominated fentanyl sales and should be used more frequently by the US government to tactically disrupt the trade of fentanyl and other illicit drugs.

How the illicit fentanyl supply chain works

Key actors in the fentanyl supply chain include Mexican cartels and CMLOs. Small pharmaceutical firms based in China send mail shipments to Mexico, where transnational criminal organizations (TCOs), such as the Sinaloa Cartel, La Linea, and the Jalisco New Generation Cartel manufacture large amounts of low-purity fentanyl and package it as genuine medication. The drug is then smuggled into the United States and sold to Americans.

Fentanyl smuggling by Mexican TCOs is facilitated by CMLOs offering low commissions, faster and less traceable transactions, and near-complete anonymity for actors involved. CMLOs use a trade-based money laundering scheme and underground or informal banking systems to circumvent law enforcement. CMLOs also rely on WeChat, a Chinese messaging and payment app. This complicates matters for US law enforcement agencies because officials cannot access financial transaction data without the help of Chinese authorities, who tend to cooperate in prosecuting international money laundering cases with significant delays.

Use of cryptocurrencies in fentanyl trade

Cryptocurrency’s inherent anonymity and lack of regulatory oversight are further exploited by practices like chain hopping and the use of markets on the dark web, which together allow criminal networks to avoid detection. CMLOs and Mexican drug cartels leverage these vulnerabilities—as well as the intricate nature of cryptocurrency transactions—to source chemicals for fentanyl production. In 2023, Chinese precursor manufacturers reportedly received $26 million in cryptocurrency payments for these chemicals, a soaring 600 percent increase from 2022, indicating its growing role in the financial network. However, cryptocurrency transactions likely still comprise a significantly smaller percentage of illicit finance compared to traditional money laundering methods.

According to TRM Labs, 97 percent of the more than 120 Chinese precursor manufacturers studied, which spanned twenty-six cities and sixteen provinces in China, offered cryptocurrency as a payment option. Geographic estimates by Chainalysis identified East and Central Asia, North America, and Europe as the regional sources heavily contributing to the crypto sent to these entities.

The dominant blockchains for fentanyl-related transactions include Bitcoin (60 percent), Tron (30 percent), and Ethereum (6 percent). Notably, cryptocurrency payments to Chinese precursor manufacturers on Ethereum alone surged by 2,000 percent from 2022 to 2023, while Bitcoin and Tron transactions grew by 600 percent and 500 percent, respectively. At least twenty of these precursor manufacturers were found to have direct links to markets on the dark web, collectively receiving $1.3 million in cryptocurrency from illicit drug marketplaces. Beyond supplying fentanyl precursors, some of these manufacturers facilitate the distribution of other drugs such as MDMA (ecstasy), further enabled by cryptocurrency transactions. 

How financial sanctions can disrupt the fentanyl trade

TRM Labs—a blockchain intelligence company—reported in 2023 that financial sanctions and US law enforcement actions drove the crypto-denominated fentanyl sales growth rate down to about 60 percent. This is a marked decrease from the average growth rate of 150 percent between 2019 and 2022. Sanctions targeting fentanyl networks have steadily increased since 2018 and, in October 2023, the Department of the Treasury designated a Chinese network responsible for manufacturing fentanyl precursors. In total, Treasury’s Office of Foreign Assets Control has sanctioned over 350 foreign entities and individuals for involvement in drug trafficking. Moreover, Congress is also drawing increasing attention to sanctions and recently signed into law the bipartisan FEND Off Fentanyl Act aiming to expand sanctions targeting fentanyl traffickers in Mexico and precursor chemical manufacturers in China. 

Using financial sanctions to successfully disrupt the illicit fentanyl trade will require three elements: (1) interagency coordination between the Treasury, the Department of Justice, law enforcement agencies and others; (2) international collaboration, especially with Mexican and Chinese authorities, including through the US-PRC Counternarcotics Working Group; and (3) vigilant identification and reporting by financial institutions of suspicious behaviors flagged by Treasury’s Financial Crimes Enforcement Network. Behaviors could include customers making low-value dollar payments or using virtual currencies, and companies conducting transactions involving precursor chemicals with no legitimate ties to the pharmaceutical sector. 

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.

Maia Nikoladze is the associate director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

Mikael Pir-Budagyan is a young global professional at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center.

Grace Kim is a young global professional at the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Financial sanctions can disrupt fentanyl flows to the United States appeared first on Atlantic Council.

Uncertainty continues to loom over Iran as Israeli officials pledge to retaliate against Tehran’s ballistic missile attack on Israel earlier this month. However, while most analysis focuses on Iran’s geopolitical objectives in the region, there has been less discussion about the severe economic constraints facing the regime. These challenges will be at the center of Iran’s priorities during its first BRICS summit. 

Iran’s economy is underperforming—and of its fellow BRICS members, it has one of the weakest economies. The chart below shows the difference in gross domestic product (GDP) growth rates amongst BRICS countries from 2023 to 2024, with Iran’s rate declining the most. The country’s  economy is expected to continue to struggle, with growth rates remaining around 2 percent and inflation hovering around 34 percent. According to local media reports, bread prices have surged by 200 percent within the last year, while other basic necessities, such as water and housing, have also seen steep price hikes.

Sanctions are a part of the story. Since initial US economic sanctions, Iran’s GDP growth has consistently remained below its 2011 high. IMF forecasts suggest that the country’s GDP will continue to lag behind that peak through 2029. But there is more to the situation than just sanctions. Iran’s gas and energy plants are rusted and outdated, operating at only 70 percent capacity. The country’s inability to modernize is a direct result of western firms pulling out of the country over the past decade. Iran’s lack of energy has already sparked significant public outrage, as frequent blackouts disrupt daily life, halt industrial operations, and force the government to partially shut down offices during periods of peak demand. This is on top of ongoing concerns of corruption and mismanagement. 

While these issues have created serious domestic challenges, the energy crisis has also taken a significant toll on Iran’s exports, particularly steel production (one of Iran’s largest non-oil exports), which declined by 50 percent last month. Ironically, despite facing persistent energy shortages and a 17,000 megawatt power deficit, Iran is also exporting electricity. Domestic energy prices are so tightly controlled that even the state-owned energy company, Tavanir, is forced to sell electricity abroad at higher rates to stay afloat. Without this export revenue, Iran would face even deeper economic losses and worsen its debt. 

The story doesn’t look much better on the international side. Trade between Iran and its largest trading partners—China, the United Arab Emirates, Iraq, Russia, India, and Turkey—declined in 2023. Iran saw a 26 percent drop in trade with India, a 17 percent decline with Russia, and a staggering 33 percent falloff with Turkey. To make matters worse, China, the main customer of Iranian oil, significantly reduced its purchases this year. Since sanctions were reimposed on Iran in 2018, independent Chinese refiners, or “teapots,” have been key buyers of Iranian crude, taking advantage of discounts from sanctioned countries such as Iran, Russia, and Venezuela. Many of these oil transactions were conducted in Chinese currency and payment systems, allowing Iran to circumvent sanctions. Last year, oil exports to China accounted for about 5 percent of Iran’s total economic output. However, China’s weakening economy and declining domestic demand for oil are now creating ripple effects for Tehran’s sales. Chinese refiners also report that Iranian sellers are attempting to raise prices by offering smaller discounts as tensions escalate in the Middle East.

Iran will likely use the BRICS summit as an opportunity to pursue more trade and financial partnerships with its allies, as a part of the country’s “Look to the East” policy. Pezeshkian’s goal will be to attract domestic investment and secure technology transfers to address Iran’s energy shortages and boost production in key sectors like steel. Iran’s central bank governor, Mohammad-Reza Farzin, has already announced plans to seek membership in the BRICS-led New Development Bank. With this membership, Iran hopes to advance its development goals independently of the World Bank and other Western financial institutions—an agenda that, according to Farzin, will be a key focus at the summit.

While conflict in the Middle East continues to dominate headlines, Iran’s economic and energy crises also poses a significant threat to the regime’s long-term stability. Even as the country’s leadership navigates international isolation, internal corruption and mismanagement, and rising domestic frustration, resolving these internal economic challenges will be just as crucial. The reality is that Pezeshkian will show up to the BRICS leaders meeting and look for support across the BRICS not only in the military domain, but also for his country’s economy.

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Alisha Chhangani is an assistant director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit  appeared first on Atlantic Council.

This emergence of bilateral swap lines and regional financing arrangements to supplement IMF lending was a crisis response, not a political one. However, in the emerging era of global fragmentation, the world can expect these newer insurance mechanisms to increasingly be used as political footballs. To be clear, a broader set of insurance providers could support a more robust system if they are underpinned by greater international cooperation. Yet this year’s Annual Meetings, held October 21 through October 26, will likely highlight just how difficult the current political constraints to such international coordination are.

Not your mother’s safety net

Collectively, these insurance mechanisms for countries facing crises are referred to as the global financial safety net (GFSN). The GFSN—which comprises international reserves, bilateral swap lines, regional financing arrangements, and IMF resources—provides liquidity to countries who struggle to meet their balance of payments needs and supports a robust global economy. In the years leading up to the GFC, the IMF was the largest component of the safety net. It made up anywhere between 76 to 95 percent of the GFSN’s total resources, excluding reserves. Following the crisis, the IMF’s share of resources has waned to 28 percent. Bilateral swap lines and regional financing arrangements have become the largest elements, collectively making up between 72 to 74 percent of total resources.

Unlike IMF programs, bilateral and regional arrangements are often extended with domestic political motivations in mind. For example, the People’s Bank of China swap lines are extended with the intent to support the internationalization of the renminbi and to strengthen Chinese diplomatic ties. Federal Reserve swap lines are extended to countries that pose spillover risks to US financial stability. India’s $760 million of support to the Maldives is the latest example of such politically motivated lending.

Rising geopolitical tensions threaten to expose vulnerabilities in this evolved, and increasingly complex, safety net. The IMF’s diminished role as lender of last resort could result in a less equitable system where geopolitically relevant countries receive outsized bilateral support—as was the case when Egypt narrowly avoided a crisis situation earlier this year. Developing countries who do not fit this description may be required to default on their obligations and rely on the IMF’s less timely support, which would have real developmental impacts. All in all, the shifting composition of the safety net could lead lending arrangements astray from their core purpose, which is to support global financial stability, and place domestic politics in the driver’s seat.

Ensuring robust support in an era of fragmentation

Expanding the safety net to include diverse financial insurance mechanisms is not, in its own right, a bad outcome. Introducing new support lines can provide more effective and tailored funding for countries facing different types of crises. Federal Reserve swap lines, for example, are effective insurance for countries who face acute dollar shortages but don’t exhibit structural imbalances that would be better addressed through an IMF program. A diversified GFSN can also provide support when IMF resources are constrained—as is currently the case with the Poverty Reduction and Growth Trust, the IMF’s main vehicle for providing concessional lending to low-income countries.

Yet international cooperation is essential to ensure that all components of the GFSN are working towards the same goal. The proliferation of bilateral and regional arrangements introduces differing incentives which reflect local, rather than global interests. Consensus is needed at the global level to align incentives across GFSN components. Agreement could, and should, be achieved through an explicit discussion of the costs and benefits of different relief measures.

Conclusions

The IMF/World Bank Annual Meetings present an opportunity for finance ministers and central bank governors to engage with one another and assess whether the Bretton Woods institutions are adequately performing their core duties. Geopolitical dynamics will inevitably influence many of these discussions, whether over the merits or flaws of industrial policy or in relation to IMF policies such as the quota formula. The IMF has a role to play in breaking through this impasse. A first step toward facilitating more productive debate would be for the IMF to acknowledge that it is too polite, as recently emphasized by US Treasury Assistant Secretary for International Finance Brent Nieman. While Assistant Secretary Nieman’s remarks were made in the context of the IMF choosing not to recognize political dynamics in country lending and surveillance operations, the IMF would also do well to acknowledge rising geopolitical influences and how they could impact the GFSN.

Revisiting the effectiveness of the GFSN is needed now more than ever, as ballooning external debt stocks in low- and middle-income countries inhibit their ability to achieve climate and development goals. A frank discussion about political influences in crisis support would mark a meaningful step towards greater cooperation and begin a process of reimagining the role of the IMF in the evolved GFSN.

Patrick Ryan is a Bretton Woods 2.0 Fellow at the Atlantic Council GeoEconomics Center.

Amulya Natchukuri is a Next Gen Fellow at the Atlantic Council GeoEconomics Center and an undergraduate student at Rutgers University studying math and economics.

The views expressed in this article are the authors’ and do not reflect that of any employer.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The rising influence of geopolitics in economic crisis support appeared first on Atlantic Council.

Japan’s experience during its lost decades proves a useful example. In response to the country’s economic crisis, only significant fiscal support managed to sustain Japan’s economy when it was burdened with a balance sheet recession triggered by a collapsing property sector, plummeting stock markets, increased savings rates, and decreased consumption. This is a lesson China should pay attention to.

Monetary easing policies

The recent monetary easing package impacts all key aspects of monetary policymaking in China. The list of announced measures is as follows:

1. Cut the benchmark seven-day reverse repo rate—considered the most important PBOC policy rate to manage liquidity conditions and influence other lending rates—from 1.7 percent to 1.5 percent. Reducing the rate by twenty basis points, instead of by the usual ten basis points, is a significant change.
2. Reduce the existing mortgage rates by fifty basis points, on average, and lower interest payments by homeowners by 150 billion yuan ($21.4 billion). This measure, it should be noted, is of limited helpfulness because the net transfer to the household sector will be offset by planned reductions in bank deposit rates.
3. Lower banks’ required reserves ratios by fifty basis points to achieve 6.6 percent on average for the banking sector. This step will allow commercial banks to reduce the amount of cash they must keep at the PBOC, which earns a low rate of return.
4. Reduce the down payment ratio on second home purchases from 35 percent to 15 percent—similar to the move for first home purchases announced in May.
5. Enhance support for a 300 billion yuan ($42.5 billion) fund set up in May to lend to local governments money to buy unsold homes and convert them to publicly subsidized housing units. Support can include increasing the share of such loans from 60 percent to 100 percent of the price of each unsold home.
6. Establish a 500 billion yuan ($70.5 billion) structural monetary policy facility to provide liquidity to securities firms, asset management, and insurance companies when purchasing stocks by a swap line pledging their assets for high quality assets.
7. Establish a 300 billion yuan ($42.5 billion) facility with an interest rate of 1.75 percent to encourage banks to support listed companies’ share buybacks.

The announcement of these measures has helped improve market sentiment, especially by raising expectations of additional fiscal measures to come. Chinese equity markets and the exchange value of the Chinese yuan have risen since the policies were made public, with positive spillover effects on international financial markets. Chinese equities have risen by more than 20 percent since the announcements—technically entering a bull market. However, while helpful at this moment, these measures will not be enough to maintain improvements to China’s lackluster economic growth going forward.

The need for forceful fiscal interventions

China’s household sector has experienced a balance sheet slowdown milder than Japan’s balance sheet recession, but with similar underlying dynamics. The slowdown has been triggered by the property slump and sustained falls in stock markets, which destroyed a sizable portion of China’s household wealth and undermined consumer confidence. Specifically, the prices of existing homes in China’s large cities are down nearly 30 percent from 2021 levels according to the Japanese investment bank Nomura. Chinese stocks have lost six trillion dollars in value in the past three years—or more than 45 percent as compared to 2021 levels. Even factoring in the 20 percent rebound triggered by the recent policy announcements, Chinese equities are still more than 30 percent lower than in 2021. In response, Chinese households are visibly curbing personal spending. According to the PBOC’s Urban Depositors Survey Report, 61.5 percent of respondents wanted to increase their bank deposits in the second quarter of 2024, a big jump relative to 2021. Chinese households’ bank deposits rose to $40.9 trillion (or more than twice the country’s GDP) in July 2024, increasing by more than $2 trillion from the previous July.

Consequently, Chinese household consumption growth has slowed since 2021. It is only expected to grow by 3 to 4 percent in real terms per year in the next five to ten years (compared to the 10 percent growth rate prior to 2018)—contributing around an underwhelming 1.5 percentage points to annual real gross domestic product (GDP) growth. The trend could curtail overall GDP growth to 3 percent per year, after accounting for expected headwinds of strong growth in investment and net exports.