Ukraine’s courage and resolve in the face of Russia’s brutal invasion of the country has aroused global sympathy and support. Meanwhile, the US and NATO have provided Ukraine with ample arms and technological support, helping the Ukrainians to prevent Russia from gaining a foothold. Europe has also welcomed an influx of Ukrainian refugees, while Washington recently said it would allow up to 100,000 Ukrainians displaced by the war to settle in the US.

The Russia-Ukraine war is not just a kinetic fight: It is also an economic war involving many countries, among them Taiwan. Economic warfare aims to damage the enemy’s economy through means such as embargoes, border blockades, and expropriation. The concept is not new. Before the Pearl Harbor attack in July 1941, the US imposed sanctions on Japanese property in the US, and implemented a complete oil embargo in response to the Japanese occupation of Indochina.

Later, as the international financial system grew, financial warfare also emerged. During the Suez Canal Crisis in 1956, after Israel, Britain and France jointly occupied part of Egypt, arousing widespread condemnation from the international community, the US Treasury Department sold the British pound. At the same time, the US joined other countries to veto Britain’s loan application to the International Monetary Fund. The pound’s foreign exchange reserve gap greatly increased, leading to a currency crisis, and forcing the British government to face up to the cost of the war. Eventually, the three countries were successfully forced into retreat.

Now, US allies have jointly launched a new round of economic sanctions against Russia in the face of its aggression. The effects of the first three rounds of sanctions, which included travel bans and freezing of assets in the US, was quite limited. This time, the sanctions targeted Russia’s main foreign exchange income. Germany abandoned the Nord Stream 2 natural gas pipeline, and the allies closed various civilian production industries and embargoed critical items. The number of participating countries has reached world war levels. Even Switzerland, which has been neutral for nearly two hundred years, adopted more severe sanctions than the EU. Taiwan is also not behind in its participation.

The most prominent part of the sanctions is the financial war, enabled by the internationalization of the financial system. The Russian central bank has seen a major portion of its overseas assets frozen, and some Russian banks have been kicked out of SWIFT, effectively restricting Russia’s ability to import foreign supplies. The ruble depreciated sharply, reducing the value of national assets and causing the aggressor to bear the war costs.

The Russian people are bound to suffer under this economic turmoil, but just like in military battle, the democracies themselves imposing the sanctions will also bear considerable costs in this financial war. If Russia collapses in debt, institutions and investors will inevitably lose money, and consumers will face inflation and higher living costs. For every 10,000 enemy injuries, we will cause 8,000 of our own.

The impact of this economic and financial war has only begun. Inflation in petroleum and other prices, Russian defaults, and shortages of raw materials will cause knock-on effects on the global economy. We look forward to helping the suffering Ukrainian people return to stability as soon as possible, but in the meantime, Ukraine has also taught Taiwan precious lessons, just like the previous revelations provided by Hong Kong. How prepared are we for an economic and financial war? What lessons should we take from this episode regarding foreign exchange, information security, and national economic confidence? Will we be ready if there is a “special military operation” on the other side of the Strait? These are the questions Taiwan must now answer.