In February, Moscow unexpectedly recognized the validity of “passports” and other civil documents issued from the Russian-occupied regions of Luhansk and Donetsk in eastern Ukraine, an aggressive escalation of Russia’s ongoing slow-motion invasion of its neighbor.

In retaliation, the Ukrainian government imposed sanctions this past week on five Ukraine-based subsidiaries of Russian banks, banks that would now have been able to accept such documents as proof of identification for opening an account.

While this move against Russia is defensible from the Ukrainian side, as a means to protect its territorial sovereignty, there is also a valid argument to be made that these sanctions are the wrong approach.

Power of the state

In the past, Ukrainian governments have been far too willing to wield the power of the state against economic operators, to the detriment of Ukrainian consumers and the economy. What is needed is an effective economic, rather than political, solution to Russia’s continued influence in Ukraine.

Russia’s unilateral recognition of documents from the so-called “People’s Republics” of Donetsk and Luhansk is the Donbas took many by surprise, including Ukraine. While the Russian Foreign Ministry was careful to stress that it was not treating citizens of the regions as Russian subjects, the move makes such an eventuality more possible. The practical implications of the move, including the possibility that Russian banks based in Ukraine would flagrantly violate Ukrainian law, meant that Kyiv had to respond in some manner.

The avenue chosen, a broad panoply of banking sanctions, are in reality a familiar menu of selective capital controls used by various governments throughout history. The measures imposed by regulators in Kyiv include a prohibition on capital repatriation to Russia from Ukrainian banks, an outright ban on capital outflows, repayment of loans, and restrictions on interest payments or dividends.

Whether or not the Ukrainian government hoped to use this tactic to force Russian banks to withdraw from the Ukrainian market altogether, it appears that this outcome is likely; coinciding with the implementation of the sanctions, Kremlin spokesman Dmitry Peskov said on March 23 that Russian banks were in talks to leave Ukraine and unwind their positions.

Retreat from Ukraine

Russia’s banks leaving such a large and potentially lucrative market will undoubtedly affect both their own profitability and the availability of funds in Ukraine. Russian banks have already been adversely affected by the ongoing economic crisis in Russia, with an increase in bank profitability in 2016 almost entirely attributable to Sberbank. Retreating from Ukraine will mean the loss of an easy market for deposits.

Similarly, Ukraine’s own financial sector has been notoriously shaky, as evidenced by the nationalization of Privatbank at the end of 2016, and Russian banks at least helped to diversify the sector’s overall risk portfolio. With Sberbank the sixth-largest bank (in terms of assets) in Ukraine leaving, there is a danger of the country’s financial sector showing more signs of instability.

The most important question, however, is whether this policy from Ukraine was a sensible one. Should the government force out Russian banks? On the one hand, the policy is eminently defensible. Russia’s major banks are state-owned and often function as a vanguard of soft power for the Kremlin, allowing them to exercise influence without sending in the tanks. Moreover, with Russia ramping up its overt support for and involvement in the slow-motion invasion in the east by literally sending in the tanks, there is little reason why Ukrainians should support enterprises which directly or indirectly fund this aggression.

On the other hand, however, there is a cavalier disregard of the marketplace inherent in the overall policy, one which the Ukrainian government has relied on for far too long. Indeed, it appears the Ukrainian government is still willing to use the power of the state to interfere in commerce on a regular basis, a stance which has led to near-total collapse of the economy in 2014.

Dangerous precedent

So while sanctions at this point in time may be correct, they set a dangerous precedent; one cannot be for the unfettered use of government power to pick winners and losers and also expect such power to be always exercised for the common good (a tough lesson Democrats are now learning under President Donald J. Trump).

Throughout Ukraine’s history, as I detail in my recent book for Cambridge University Press, Ukraine’s leaders have been far too willing to insert themselves into all manner of voluntary economic transactions and reserve large powers for the state. It is possible that this move is just more of the same, albeit directed at Russia instead of other external enemies. But what happens when the Russian banks leave? Who will be the next target?

If the Ukrainian government were serious about shutting down Russian economic influence in the country, the solution is unfortunately longer-term in nature, allowing for competition to eventually lower the attractiveness of Russian banks in the first place.

This would entail Ukrainian banks and financial providers emerging who could offer better services at more competitive prices. On a more macro level, the Ukrainian government would need to protect property rights (including removing the execrable land sale moratorium), a move which will draw much more money into the formal banking sector.

And at the most micro level, that of the individual consumer, Ukrainians should be able to vote with their pocketbooks and move out of Sberbank and into other, stable providers such as Raiffeisen or Credit Agricole.

In short, a myriad of solutions exists for combatting Russian influence, the most powerful being the market. If Ukrainian authorities do not learn that lesson, they will be merely copying their erstwhile enemy’s tactics. And in that case, there is no way that the ends will justify the means.

Christopher A. Hartwell is the President of CASE – Center for Social and Economic Research in Warsaw and the author of Two Roads Diverge: the Transition Experience of Poland and Ukraine (Cambridge University Press, 2016).