Overuse of harsh sanctions like those deployed against Iran to limit its nuclear program risks driving business activity from the United States and a move away from the dollar as the world's reserve currency, US Treasury Secretary Jack Lew said on Wednesday.
Sanctions have emerged as a favoured policy tool of choice for the United States, which has used them against challenges as varied as drug trafficking, cyber attacks, militant financing, and Russian actions in Ukraine.
The economic measures enable the US government to blacklist people and organisations, banning US and sometimes even foreign citizens from dealing with them and effectively barring them from the international financial system.
For example, the United States was able to induce buyers of Iranian oil to sharply curtail their purchases, and international banks cut ties with Iran for fear of losing access to the US financial system. Iran reached a deal with the United States and other world powers last July that lifted the harshest measures in return for curbs on its nuclear program.
But "sanctions overreach" risks encouraging businesses to avoid the US financial system and could erode the power of the US dollar as the pre-eminent reserve currency, Lew said during a speech in Washington.
"The more we condition use of the dollar and our financial system on adherence to US foreign policy, the more the risk of migration to other currencies and other financial systems in the medium-term grows." Lew said.
In particular, so-called secondary sanctions should be wielded in the most "exceptional" circumstances, Lew said. Those measures bar even non-US citizens from dealing with sanctioned individuals or companies, and were the type of sanctions levied against Iran.
"They are viewed even by some of our closest allies as extra-territorial attempts to apply US foreign policy to the rest of the world." Lew said, adding that the Iran nuclear sanctions should not be viewed as a "starting point" for other sanctions programs.
Republicans in Congress and on the presidential campaign trail have criticised the removal of sanctions on Iran, and legislators have tried to restrict President Barack Obama's ability to lift sanctions under the nuclear deal.
But because Iran had "kept its end of the deal" Lew said, the United States should uphold the sanctions relief it has promised.
In recent weeks, Iranian leaders have complained that US policies have forced major banks and corporations to stay away from Iran despite the formal lifting of sanctions in January.