Following Russia’s annexation of Crimea in 2014, Western sanctions have failed to act as an effective deterrent against Russian aggression. Today, as Vladimir Putin’s troops continue to make significant advances in Ukraine, the West’s revived efforts are underscored by new measures implemented by the US and other allies against Russian oligarchs and banks, and the EU’s agreement on sanctions targeting parliamentarians.  Aside from triggering financial mayhem in Russia, the sanctions could result in something greater: an acceleration towards a bipolar global financial system based on both the dollar and the renminbi.
Although broader financial contagion arising from the Russia-Ukraine conflict cannot be ruled out, Western financial institutions are much less dependent on Russia than a decade ago.  The financial decoupling phenomenon between Russia and the West is hardly new, and aggressive sanctions aimed at further isolating the nation’s economy and financial systems will only quicken the decoupling process.
A less discussed impact of these sanctions is how they could increase Russia’s dependence on China. Although Chinese officials have no clear stance on Putin’s invasion of Ukraine, China sees Russia as a key piece to building a new Beijing-led world order.  Still, being Russia’s “strategic cushion” for military, political and economic support does not imply that China would deliberately violate Western sanctions for Russia, but it will likely allow Russian financial institutions greater access to Chinese markets and institutions.  Less than a week before Russia’s military campaign began, it announced a contract worth upwards of $20 billion to sell coal to China. Restrictions on imports of Russian wheat have been relaxed and a new 3-year gas deal with Gazprom, a Russian state-owned energy corporation, has been settled. All of these follow the Russia-China “friendship without limits” strategic partnership to support each other over endeavors in Ukraine and Taiwan with a promise to collaborate more against the West. 
China’s moves fall in line with its long-term ambition of achieving de-dollarization. Critics may argue that the open and liquid nature of US markets will ensure the dollar remains the world’s major reserve currency. However, the Chinese are looking beyond merely strengthening the use of the renminbi on a global scale. Instead, they see finance as a critical element in the new greater power competition with the US. Foreign capital, trade, and the Belt and Road Initiative are mere examples of how Beijing has been diversifying its foreign exchange reserves to reduce its dependence on the dollar. 
Aside from increasing the rate of decoupling, the financial reckoning imposed on Russia and the resulting economic fallout (lower demand, higher inflation) will damage US financial hegemony on two major fronts. First, restrictions on the flow of capital to deliberately push Russia into a recession may result in intensified efforts to make the country more self-sufficient in the production of goods.  The same applies to China – Beijing has been trying to strengthen trust and increase transparency in its own financial ecosystem, not only to attract foreign investment but to also encourage investments in which vast amounts of Chinese savings would be channeled into the domestic capital market.  Second, sanctions against Moscow could push the US and other allies into succumbing to pricing pressures favoring Chinese goods. 
Global trade and the financial markets are today’s new geopolitical battlegrounds. Although Putin’s decision to invade Ukraine has left Russia politically isolated and economically hobbled, it presents an opportunity for China to advance a new Beijing-led world order. As the only competitor capable of matching the US on economic, diplomatic, military, and technological planes, China could potentially play a disruptive role on the world stage.  Changing distributions of power across the globe will likely damage US interests and ultimately, American hegemony.
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