Will sanctioning Russia fuel financial contagion?
“Beyond dampening output and causing already high inflation to spike further, these sanctions are heightening the risk of a financial crisis. Today’s increasingly complex global financial system amplifies this danger, because the magnitude of derivatives markets and the codependency of supply chains and payment chains make contagion more likely.”
USAGOLD note: We raised the prospect of unintended consequences to sanctions repeatedly here as well as the systemic risks. “The risks of globalization,” says Fofack, “may come to outweigh the benefits.” And we agree that derivatives greatly amplify the risk of a system wide breakdown.