CENTRAL BANK DIVERSIFICATION POST-SANCTIONS: EFFECTS ON INTERNATIONAL TRADE AND INVESTMENT

Abstract

The deployment of sanctions as a deterrence and compliance tool has surged in recent years, creating significant uncertainty and turbulence in the global economy. The weaponization of the Russian Central Bank's foreign reserves by Western powers is prompting a substantial shift in the international financial order. In response, central banks outside Western countries are diversifying their external reserves away from assets denominated in Western currencies. Firms' internationalization has increasingly intertwined with complex political processes, making political intervention in international business more unpredictable. Multinational enterprises (MNEs) have suffered considerable losses due to the sanctions imposed on Russia by the West and the subsequent countersanctions by Russia. Predicting political interventions and necessary adaptations remains challenging due to the volatile nature of international relations. To build resilience against the risks posed by unexpected sanctions, MNEs should implement strategies focused on risk management, flexibility, adaptability, information gathering, monitoring, and strategic investments. This paper examines the impact of recent sanctions on MNEs and proposes a framework for enhancing resilience in an unpredictable political landscape.