Following Russia’s invasion of Ukraine on February 24, 2022, the United States and its allies announced a series of escalating financial sanctions over the next week, including bans on investment in, exports to, and imports from the separatist regions; followed quickly by sanctions targeting high-ranking Russian officials and their families, state-owned enterprises, and Russia’s financial sector, including its two largest commercial banks; and culminating on Feb. 26-27 with a severe and coordinated economic response that barred some Russian banks from SWIFT: the Society for Worldwide Interbank Financial Telecommunication is a global messaging network that enables secure and efficient international money and securities transfers. Founded in 1973 as a faster and more reliable alternative to the telex system, SWIFT connects more than 11,000 financial institutions worldwide. SWIFT assigns each institution a unique identification code, allowing for seamless and secure exchange of payment and transaction information. Beyond banking, SWIFT plays a key role in securities and trade transactions. (a secure, global financial messaging system), that placed sanctions on the Russian central bank, and that froze the assets of high-ranking Kremlin officials, including Vladimir Putin. The SWIFT move was extraordinary as it would extend economic pain to European allies.1
This is just one dramatic example of how financial sanctions are used to exert economic pressure, an increasingly popular tactic in recent decades. In 2000, for example, the US Treasury’s primary sanctions list contained fewer than 1,000 entries; today, it includes nearly 20,000 individuals, vessels, and entities, including a growing number of banks and other financial institutions. While sanctions are widely viewed as a tool of economic statecraft, there is limited systematic evidence on how such sanctions affect banks’ access to cross-border payments and to the global financial system.
To address this gap, the authors study how financial sanctions reshape banks’ access to the global payments network, focusing on the correspondent bank: serves as an intermediary financial institution, enabling domestic banks to execute cross-border transactions and access foreign financial markets without the need to establish physical branches abroad. Correspondent banks facilitate wire transfers, conduct business transactions, accept deposits, and process documentation on behalf of their partner banks, often in different countries. By acting as agents, correspondent banks expand the capabilities of domestic banks, allowing them to efficiently serve international clients and operate in global markets. ing relationships that allow financial institutions to make or receive payments in various currencies and countries. The authors quantify how sanctions affect both targeted and untargeted institutions and demonstrate how disruptions can propagate from individual banks to reshape patterns of currency use in the broader financial system. The authors employ data licensed by financial institutions that allow them to directly observe how banks are connected through correspondent relationships across currencies and countries, and to track how those relationships evolve.
The authors begin by documenting three features of these networks that underlie the power of financial sanctions, particularly those imposed by the United States and EU. First, the reach of the dollar and euro networks exceeds that of other networks. Of EMDE (emerging market and developing economy) banks that list correspondents, 90% have a dollar correspondent and 88% have a euro correspondent, substantially more than have correspondents in the pound (62%) or yuan (34%). Second, chains of dollar or euro correspondents can connect four-to-five times as many cross-border banking pairs as the yuan, and those connections involve fewer interbank hops on average—about three, versus close to four for the yuan. Third, network connectivity is supplied by a small number of key hubs. The top 10 banks account for 77% of the dollar network’s total PageRank: a measure of a node’s centrality within a network, which can be interpreted as the likelihood that a random walk taken across the network reaches that node. A bank has a higher PageRank value if other well-connected banks connect to it. PageRank values for all nodes in a given network sum to 100, giving them a percentage interpretation. values, a measure of network centrality, much larger than the corresponding shares for the euro (51%) and yuan (52%). When the ability to efficiently send or receive cross-border payments in key global currencies runs through a few central correspondents typically located in the sanctioning jurisdiction, the threat or act of removing access to those hubs is powerful.
How Financial Sanctions Work
The authors provide the following example of the long reach of financial sanctions:
BEFORE SANCTIONS
A Belarusian fertilizer producer exports to a customer in Azerbaijan and invoices for payment in US dollars. Suppose both parties’ banks (the “respondents”) maintain dollar correspondent relationships, and thus dollar accounts, with large US banks (their “correspondents”): Citibank for the Belarusian bank and JPMorgan Chase for the Azerbaijani bank. To route the payment, JPMorgan debits the dollar account of the Azerbaijani bank, and Citi credits the dollar account of the Belarusian bank, which then passes funds to the exporter.
Because Citi and JPMorgan both hold accounts at the US Federal Reserve, they settle with each other using central bank reserves. This chain has three hops: the two banks to their correspondents, and Citi to JPMorgan through the Fed. Transfers like this, via the correspondent banking network, form the backbone of global cross-border payments in all major currencies.
AFTER SANCTIONS
If the Belarusian bank were sanctioned by the United States, Citi would likely sever the relationship. The Belarusian bank would then need to receive dollar payments through longer chains of intermediaries outside the United States, if those connections were available. Each additional hop adds administrative processing and compliance checks, ties up pre-funded capital, and, without the Fed as settlement agent, involves counterparty credit risk and lacks settlement finality. Alternatively, the Belarusian exporter could invoice in a currency such as the yuan or ruble, with payment cleared by non-US correspondents, or switch to a different local bank still able to transact cheaply in dollars. Each of these substitutions, where feasible, carries costs.
What would happen if several other banks within the country were also sanctioned? One possibility is that demand for payment services shifts to unsanctioned institutions, which expand their ability to pay in dollars—in which case even broad sanctions might have little aggregate effect. Alternatively, concerns about secondary or future sanctions may lead correspondents to pull back from all of the country’s banks, including those that are not sanctioned, a dynamic often known as “de-risking.” The authors find strong evidence of this second dynamic.
In line with the recent increase in overall sanctions, restrictions on financial institutions increased sharply between 2021 and 2025, with the United States, European Union, and United Kingdom often designating the same banks. Most of this increase reflects sanctions on Russian banks, but several other countries—including Belarus, Kyrgyzstan, and Myanmar—were also targeted. Importantly, even in these heavily sanctioned economies, not all banks are designated, leaving a mix of sanctioned and unsanctioned institutions in the same country, allowing the authors to see how each group’s connectivity to the global payment system changes. They find the following:
- Sanctions substantially reduce targeted banks’ access to the global payments network, though the targets often retain partial and indirect access. Sanctioned banks lose not only direct correspondents in currency-issuing countries, which offer payment routes through central bank accounts, but also indirect correspondents that route payments through third countries.
- For example, banks sanctioned by the United States lose dollar clearing with US banks as well as with European and Asian banks. These contractions appear across major currencies: among banks reporting at least one correspondent, the share with dollar correspondents falls from 87% before designation to 28% after, with similar declines for euro (85% to 22%) and pound (53% to 9%) correspondents. Perhaps more surprising, sanctioned banks also lose correspondents in the yuan and, to a lesser degree, in the ruble.
- Further, sanctions degrade the quality of whatever access to the payments network remains. Before designation, eventually sanctioned banks typically hold dollar correspondents whose PageRank values sum to about 12%, capturing one-eighth of dollar-network connectivity; after designation, that share falls to about 3%, driven by the severing of relationships with the large US banks that serve as key hubs for dollar clearing.
- The loss of these central correspondents also lengthens payment chains. Among sanctioned banks that retain dollar access, the number of interbank hops needed to reach banks in their top-5 trading partners typically rises by about a third.
These patterns suggest that, rather than eliminating connectivity altogether, sanctions likely make payments costlier, slower, and riskier.
- Second, in the countries where sanctions expanded sharply—Belarus, Kyrgyzstan, Myanmar, and Russia—sanctions also degraded the ability of non-sanctioned banks to make cross-border payments, likely reflecting
de-risking: the withdrawal by correspondent banks from relationships with clients perceived as risky—including non-sanctioned banks in heavily sanctioned countries—often out of concern about secondary sanctions, future sanctions, or the costs of compliance
by correspondents. Rather than expanding their dollar, euro, or pound connectivity to substitute for sanctioned peers, non-sanctioned banks saw their own connectivity to those currencies decline, especially via direct correspondents.
- In response, these non-sanctioned banks reoriented toward alternatives, particularly the yuan—a shift that holds even after accounting for changes in their trade with China. In 2021, the dollar or euro offered the shortest cross-border payment paths from banks in Belarus to more than 80% of financial institutions in other countries, with the yuan almost never offering the shortest route. By 2025, the dollar and euro accounted for less than half of those shortest paths, while the yuan accounted for about 20 percent—more than the dollar alone. All four of the heavily sanctioned economies experienced surges in the share of cross-border connections that is shortest via the yuan and declines in the share that is shortest using the dollar or euro.
- Third, importantly, this reorientation is not part of a global decline in the dollar’s role: outside the heavily sanctioned economies, the yuan’s shortest-route share rose by only about 1 percentage point, and the dollar’s and euro’s shares remained highly stable between 2021 and 2025.
Bottom line: This work describes the benefits and costs carried by financial sanctions, with lessons for policymakers. While sanctions clearly degrade targeted institutions’ access to the global payments network, they also catalyze a search for alternatives among the unsanctioned institutions that remain, shifting the currency and geographic composition of a country’s overall financial infrastructure. Still, the results suggest that the US dollar is highly resilient as a medium of international payment: access to dollar clearing persists even under significant sanctions through indirect correspondent networks and shows no sign of waning across the broader set of EMDEs. And because direct access to the core dollar clearing system is tightly controlled by US-based financial institutions, the United States retains substantial influence over the terms of that access.
1 DiPippo, Gerard and Matthew Reynolds (March 2, 2022), “Sanctions in Response to Russia’s Invasion of Ukraine,” Center for Strategic and International Studies (CSIS).