How the New York banking licence became the fulcrum of US economic power
The United States has wielded financial sanctions as a primary instrument of foreign policy since the late 1990s. The mechanism is less mysterious than it sounds: almost every significant cross-border payment, regardless of the currencies involved, passes through the dollarised banking system at some point in its journey. A British pound payment destined for an Indian rupee account may convert through a dollar transaction before settling locally. That routing is not incidental. It reflects the structural reality that banks operating in global finance require access to US banking infrastructure, and specifically to New York State clearing and settlement.
The New York State banking licence is, in the words of Professor Alexander Evans OBE, Professor in Practice in Public Policy at the London School of Economics, "something kind of eccentric" that underpins an enormous extraterritorial reach. Lose access to New York clearing, or be cut off from entities that hold that licence, and the consequences extend far beyond American borders. As Professor Evans put it in conversation with Felix Nikolas Prehn, economist and former investment banker, for The Prehn Institute: if you are sanctioned by the United States, "you ain't going to be buying a car in Europe anytime soon, and you may find your ability to go on holiday in the Maldives or pay for school fees in Singapore disrupted."
That reach is the point. Secondary sanctions extend the effect further still, deterring third-party companies from doing business with sanctioned entities for fear of losing their own access to the New York system. The architecture has proved effective. It is also, Professor Evans argues, beginning to generate the conditions for its own erosion.
The incentive to build around the system
Heavy and repeated use of sanctions since the late 1990s, accelerated sharply by the package imposed on Russia following the reinvasion of Ukraine, has given governments and companies a clear incentive to develop payment options that do not depend on dollar clearing. Professor Evans is careful to distinguish this from de-dollarisation in the conventional sense. The dollar is not losing its position as the world's primary currency. What is changing, he argues, is the degree to which countries and companies are seeking optionality: parallel infrastructure that reduces their exposure to US coercive power without requiring them to abandon the dollar ecosystem entirely.
The signal Professor Evans finds most telling is not in currency markets but in gold. Close US allies, including the Dutch government, have been repatriating gold reserves away from London. This is not the behaviour of adversaries hedging against American power; it is the behaviour of partners adjusting their risk exposure. The repatriation figures are not quantified in the source beyond the Dutch example, but the direction of travel is the point Professor Evans emphasises.
Digital currencies and alternative payment systems are also part of the picture, though Professor Evans treats them as an emerging rather than a settled factor. The question is whether a sanctioned party can credibly say: I will use a payment system not exposed to US sanctions. The more viable that alternative becomes, the less coercive the original lever.
What a hollowed-out lever would mean for Western statecraft
Professor Evans frames the central tension clearly: sanctions have short-term yields. They do place pressure on target states, and they have been effective tools against terrorist finance and organised crime. But by pulling the trigger repeatedly, the United States may be reducing the strength of that lever within a five-year horizon. The New York banking licence has fuelled the extraterritorial reach of US economic power precisely because there was no credible alternative. Building credible alternatives takes time, capital and political will. The current environment is supplying all three.
For Western economic statecraft, the implications are significant. If the coercive reach of dollar clearing diminishes, the toolkit available to the United States and its allies for applying financial pressure narrows. Professor Evans suggests the larger near-term impact is likely to fall on business-to-business payments architecture and the companies that enable it, rather than on retail payment networks such as Visa or Mastercard. He also notes potential consequences for the foreign exchange dominance of New York and London, a theme he explored in a paper published earlier this year, though that paper is not cited with a full title or date in the source and cannot be independently verified here.
Professor Evans is explicit about the limits of his analysis. He describes himself as a recovering diplomat turned academic, not an economist or financial markets expert, and not a professional investment adviser. His framework is geopolitical and policy-oriented. No quantitative data on the scale of payment de-dollarisation is provided in the source, and gold repatriation figures beyond the Dutch example are not given.
The structural argument beneath the headlines
What makes Professor Evans's argument worth examining is that it does not depend on a dramatic rupture. There is no prediction of dollar collapse, no claim that Swift will be displaced imminently. The argument is structural: the plumbing is changing. Countries and companies are adding options. Each additional option reduces the exclusivity of the New York licence as a point of leverage. The process is gradual, and it may accelerate sharply if a geopolitical crisis provides a catalyst, or it may proceed through incremental market concentration shifts. Either way, the direction is consistent.
For anyone with investments linked to the infrastructure of Western financial markets, or for policymakers assessing the durability of sanctions as a tool, the question Professor Evans poses is worth sitting with: by using the lever so frequently now, does the West reduce its strength precisely when it may be needed most?
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The Prehn Institute is an independent research institution. It publishes research on the financial markets and provides instruction.