TEHRAN – Noting that sanctioning is a failed policy, a professor of applied economics at Johns Hopkins University says the United States is totally addicted to sanctions as a “weapon of economic war.”
“The United States is totally dependent on sanctions as a weapon of economic warfare. Right now the United States has 8,842 sanctions in place, ”Steve H. Hanke told The Tehran Times.
Hanke is one of the US economists who believes sanctions have a long history of failing to achieve their stated goals.
The Johns Hopkins University professor is famous for his idea of using gold as an anchor currency to contain the effects of sanctions, saying: “If Iran adopted a currency board and used gold as an anchor currency, Iran would make the rial as good as gold. “
Here is the text of Steve H. Hanke’s interview:
Q: Apparently the United States is increasingly dependent on sanctions as an economic weapon. This was the case during Trump’s presidency when he imposed severe sanctions on Iran as part of its policy of “maximum pressure” against the Islamic Republic. In addition, the United States uses sanctions against Russia and Turkey. Do you think the sanctions policy has been successful for Washington?
A: The United States is totally dependent on sanctions as a weapon of economic warfare. Currently, the United States has 8,842 sanctions in place. For my part, I oppose sanctions in principle and in practice. As a starting point and a matter of principle, free trade is, in my opinion, the right principle. States should not commit to imposing restrictions on trade, whether it is internal trade within a country or foreign trade. Thus, in principle, the sanctions are, in general, “bad”. From a practical standpoint, all academic research points to the fact that sanctions rarely achieve the desired objectives. Indeed, they generally involve, among other things, a rallying effect around the flag that only supports and entrench those who are targeted. In addition, they are used to generating vast networks of international, illegal, mafia and nasty activities. The penalties are clearly for the losers.
Q: What are the main options or tools for countries under sanction pressure? Do you think barter, in addition to close bilateral ties, instead of reliance on the global market, can help counter sanctions?
A: The main options and tools for sanctioned countries are to adopt sound monetary policies and policies that completely liberalize and deregulate their economies. All research shows that countries with healthy currencies and greater economic freedom grow at higher rates than countries with unstable currencies and highly regulated economies. The lesson for Iran is clear: It could mitigate the damage inflicted by external sanctions if it liberalized the economy and adopted sound monetary policies. Indeed, at present, economic freedom in Iran is almost nowhere to be found. In the Cato Institute’s 2020 Human Freedom Index, Iran ranks 158th out of 162 countries in terms of economic freedom. This appalling ranking has absolutely nothing to do with economic sanctions. The most serious damage to the Iranian economy is caused by the government, not by misguided US sanctions.
So how could Iran guarantee that the rial would be healthy? The best option for Iranian economic stability is a currency board. A currency board issues convertible notes and coins on demand in an anchor foreign currency at a fixed exchange rate. It is required to hold anchor currency reserves equal to 100% of its monetary commitments.
A currency board does not have discretionary monetary powers and cannot issue credit. It has an exchange rate policy but no monetary policy. Its only function is to exchange the national currency it issues for an anchor currency at a fixed rate. The currency of a currency board is a clone of its anchor currency.
A currency board does not require any preconditions and can be installed quickly. Public finances, state-owned enterprises, and commerce do not need to be reformed before a currency board can issue money. Currency boards exist in some 70 countries. None have failed. I know this because I have studied all these systems in detail and have been the architect of the newer ones in Estonia (1992), Lithuania (1994), Bulgaria (1997) and Bosnia and Herzegovina (1997).
If Iran adopted a currency board and used gold as its anchor currency, Iran would make the rial as good as gold.
Q: You criticize the use of Bitcoin as legal tender in El Salvador. But it can help countries avoid unilateral US sanctions. Could you update us on the pros and cons of using Bitcoin?
Bitcoin’s volatility prevents it from being a unit of account, a store of value, a medium of exchange and a deferred payment standard. Thus, Bitcoin is not a currency, only a highly speculative asset. Bitcoin is a loser’s game. I think its fundamental value is zero and I don’t see any benefit. If you want a “currency” that is not issued by a sovereign, the most proven alternative is gold. Indeed, gold has held its purchasing power for thousands of years.
Q: Many Americans are critical of the 25-year partnership between Iran and China. What alternatives can they suggest when the West, under unilateral American sanctions, has failed to have transactions with Iran? Is it fair to portray China as a malicious economic power, when Western countries, including the United States and its European allies, have immense trade and economic ties with China?
A: First, any ruler should be free to engage in any mutually agreed upon bilateral relationship he wishes. In the case of the 25-year Iran-China partnership, the stupidity of the sanctions is exposed. I think it can be argued that the unilateral sanctions against Iran have encouraged Iran to establish bilateral relations that might be frowned upon by the United States, the country that imposed the sanctions in the first place. As they say in economics, incentives matter. Indeed, the economy is all about incentives, and sanctions have encouraged and cemented the 25-year Iran-China partnership.
Q: Why is “socialism” often seen as pejorative in American politics? Are there ideological reasons behind such a perception that socialism is not only represented by the Soviet Union? We have successful social democracies in Northern Europe. This is also the case to some extent in Canada.
A: I don’t agree with your general premise that socialism is viewed in a pejorative sense in American politics today. Although many in America, including myself, have a negative view of socialism, it is promoted by the Biden administration. Furthermore, I do not agree with your assertion that there have been successful socialist democracies in Europe, and this is to some extent the case when we talk about Canada. Socialism is the opposite of economic freedom. If we measure economic freedom, you will find a wide range of countries that have great economic freedom such as Hong Kong, Singapore, New Zealand, Switzerland and Australia to those with virtually no economic freedom ( read: those who are very socialist) like Iran, Angola, Libya, Sudan and Venezuela. Indeed, as I showed in an article entitled “Economic Freedom, Prosperity, and Equality: A Survey”, published in the Cato Journal several years ago (1997), the relationship between economic freedom and growth is unambiguous. : Countries which possess a level of economic freedom and less socialism grow at a much faster rate and are more prosperous than those with more socialist tendencies. This is one of the reasons why the United States is constantly growing faster than Western Europe. Indeed, Western Europe has entered a period of stagnation, losing its market share in the global economy and recording almost zero productivity growth. Thanks to socialist welfare states, Western Europe found itself in a low growth trap.