Politicizing the Monetary System Through Sanctions as a Four‐Period Game

ABSTRACT This article advances the analysis of sanctions' politicization of monetary systems through a novel four‐period game‐theoretic model, capturing sequential strategic interactions between a sanctioned country and a sanctioning entity. While the international monetary system has long been politicized, sanctions amplify this dynamic by leveraging financial interdependencies for geopolitical ends. Solving for subgame perfect Nash equilibria, the article illuminates decision‐making dynamics, exemplified by Russia's 2022 SWIFT exclusion. The primary equilibrium, where Russia provokes and persists while the West sustains sanctions, reveals Russia's resilience via BRICS trade against Western trade‐offs. Multiple equilibria reveal the variable and context‐dependent nature of sanction outcomes, from mutual de‐escalation to prolonged attrition. By integrating a novel sequential structure with retaliation—calibrated to real‐world data on trade, GDP, and monetary disruptions—the model provides policymakers with a rigorous, empirically grounded framework to assess the strategic trade‐offs of economic statecraft, including the persistence of deterrence even in finite‐horizon settings.