Financial Sanctions and the Global Payments Network

Financial sanctions are widely viewed as a powerful tool of economic statecraft, yet direct evidence on their effects remains limited. We study how sanctions affect access to global payment networks using data on correspondent banking relationships, which link banks across countries and currencies to enable cross-border transactions. We first show that the dollar and euro networks offer the broadest global connectivity, supported by a small number of key hubs in the U.S. and Europe. Sanctions that restrict access to these hubs are therefore potentially powerful. We then show how financial sanctions imposed during 2021-2025 – a period of rapid growth in sanctions – reduced targeted banks' access to major-currency networks by severing correspondent relationships. Sanctioned institutions often retained access but only through longer, indirect, and more fragile chains of intermediaries. Finally, in countries where sanctions expanded sharply, non-sanctioned banks also lost connectivity to Western networks, likely reflecting de-risking. These banks reoriented toward alternatives, particularly the Chinese yuan. Outside these heavily sanctioned economies, shifts away from the dollar and toward the yuan remain minimal on average.