Symposium on International Investment Law & Contemporary Crises: Central Banks as Players in International Investment Treaty Disputes

[Kiran Nasir Gore is an international disputes lawyer and academic whose +15 years of practice span commercial and investor‑State arbitration, public international law, and complex cross‑border litigation. She serves as counsel, arbitrator, and advisor to States, corporations, and international organizations]

Amid geopolitical tensions, price fluctuations, and economic instability, States frequently employ monetary policies to regulate banking and financial matters and to insulate their local economies and global standing from international risks. However, the role of central banks in this effort to achieve localized economic stability is often overlooked. This post highlights the role of the central bank in a State’s regulatory efforts. It considers whether and how actions and decisions taken by a central bank may give rise to claims by foreign investors under international investment treaties. Throughout, this post draws upon the empirical research, examples, and trends highlighted in BIICL’s recent Report on International Investment Law Protections in Global Banking and Finance (“BIICL Report”).

The Role of Central Banks in Monetary Policy and Regulation

In most States, the central bank is the public institution that manages the country’s monetary policy and oversees its financial system to ensure stability. It is responsible for controlling the money supply, setting interest rates, issuing currency, and acting as a lender of last resort to financial institutions. Examples include the Federal Reserve in the United States and the Bank of England in the United Kingdom.

On the international plane, the central bank engages in international policy by managing the country’s foreign exchange reserves, executing currency operations, and collaborating with other central banks on monetary and financial stability issues. These activities include setting exchange rate policies, providing liquidity in foreign currency, and participating in international forums like the Bank for International Settlements (BIS).

The BIICL Report includes several notable examples of cases in which central bank action later was key to foreign investor claims under an international investment treaty. For example, in Bank Melli Iran and Bank Saderat Iran v. Bahrain, PCA Case No. 2017-25, the Central Bank of Bahrain placed a bank into administration and subsequently closed it, based on its alleged failure to comply with the sanctions regime against Iran. Shareholders of the bank brought a claim before an arbitral tribunal constituted under the Bahrain-Iran bilateral investment treaty. In its 2021 Award, the arbitral tribunal deemed the State’s actions to be politically motivated and ordered it to compensate the bank’s owner.

A central bank’s currency control-related decisions may also give rise to claims. The BIICL Report highlights a unique example in which Croatia faced a series of claims arising from a currency control-related decision of a different State. In that scenario, Croatia’s 2015 Conversion Law required banks to convert all mortgages held in foreign currency (primarily Swiss francs) to euros at borrowers’ request. The measures were taken in response to the Swiss central bank’s decision in 2015 to abandon exchange rate controls. 

As such, the central bank is a key player—it is often the public institution that serves as the functional decision-maker, implementer, and regulator of that State’s monetary policy. Those policies may have implications beyond that particular country’s borders and, in some instances, give rise to investment treaty claims.

Regulatory Powers and Shaping an International Investment Treaty Claim

In general, under international investment treaties, arbitration proceedings can be commenced by qualified foreign “investors” with qualified “investments” in the host State for damages caused by State action that violates the substantive policy-based promises made in the treaty. 

The first hurdle is establishing the arbitral tribunal’s jurisdiction and the admissibility of the claim. First, it is necessary to determine whether the potential claimant is a qualified “investor.” Next, it is necessary to determine whether a qualified “investment” exists. Under the Salini test, the most widely accepted legal test in investment arbitration jurisprudence, an “investment” involves a contribution of assets over time, with some element of risk, and actively contributes to the State’s economy. Potential claimants must frame their claims in accordance with the protections offered by the applicable treaty. Chart 14 of the BIICL Report shows that, of the 81 cases reviewed in that study in which a decision on jurisdiction was issued, the investor prevailed in 54 cases (67%). 

The substantive claims in an investment treaty claim depend primarily on the key facts and the substantive protections offered to foreign investors by the State in the applicable treaty. Examples of relevant protections may include “free transfer” provisions, “fair and equitable treatment”/ “minimum standard of treatment” provisions, and “full protection and security” provisions. Investment treaty claims that implicate decisions or actions by central banks may include changes to the architecture of the country’s monetary policies, which may be implemented as a response to global market trends or fluctuations; or emergency interventions, which may be implemented to stabilize individual institutions or the local financial sector more generally. Annex C to the BIICL Report provides an overview of examples of key types of measures challenged in investment treaty arbitrations in the banking and financial sector. Further, Annex D summarizes and highlights the key findings of arbitral tribunals regarding police powers of States whose emergency measures have been challenged. Although not explicitly named as such, many of the profiled examples implicate decisions or actions taken by the State through its central bank with respect to currency policies or financial market regulation.

The most prominent example of a country’s central bank’s decisions and actions arose in a series of cases stemming from Argentina’s 2001 financial crisis. The crisis began when the Central Bank of Argentina lacked sufficient dollars to cover all bank deposits, leading to deposit freezes and a collapse of confidence that, in turn, triggered international investment treaty claims against Argentina. The crisis was exacerbated by the government’s inability to maintain its currency board, leading to a default on public debt, the abandonment of the fixed exchange rate, and capital flight. Dozens of investment treaty arbitrations were filed as a result. Indeed, Table 3 of the BIICL Report identifies Argentina as the most common Respondent State in banking and financial investment treaty arbitrations. Many arbitral tribunals ruled in favor of the aggrieved foreign investors. For example, in AES v. Argentina, the arbitral tribunal rejected Argentina’s defenses of “state of necessity” and found that the country had breached its international obligations and that Argentina had contributed to the crisis through its policies, despite having alternatives to the measures it implemented.

It is anticipated that other similar banking and financial sector claims may come to fruition in the future. More recently, the decisions and actions of Banque du Liban (Lebanon’s Central Bank) have been considered as the basis for potential investment treaty claims. Many will recall the underlying circumstances: in 2019 and 2020, mass protests erupted across Lebanon. The public outcry focused on the policies and practices of Banque du Liban; Association of Banks in Lebanon (ABL), a membership-based consortium of Lebanese commercial banks; and local Lebanese commercial banks. For years, these entities had worked together to artificially buoy the country’s now-crumbling economic conditions. In response, Lebanese commercial banks swiftly imposed a variety of restrictions on their customers’ access to funds, including limits on withdrawal amounts, fund transfers, and foreign currency transactions. Although no publicly known investment treaty claims have yet been filed against Lebanon, whether the banking controls were de facto controls or actual controls at the behest of Banque du Liban would likely be a determinative consideration in any future claims. 

These examples highlight the range of scenarios and central bank action that may be raised in investment treaty arbitrations. They also highlight the pervasive nature of central bank policies and regulations. Although a central bank’s monetary policies and regulatory functions are intended to insulate the localized economy, they can have far-reaching effects.

Concluding Remarks

This post has demonstrated that the critical functions and activities overseen by the world’s central banks, and how they impact foreign investors, are often at play in investment treaty arbitrations. The BIICL Report supports this analysis by providing a centralized repository of data relevant to the banking and financial sector, including the types of State activities that have given rise to treaty claims and their outcomes. Into the future, this type of study is likely to become increasingly useful, and its expansion and updating would certainly be welcome, especially as central banks move into the digital era. Next-generation financial and markets regulation is expected to include a broader range of financial instruments and activities. The Latest Annual Economic Report, issued by BIS in June 2025, explains that the latest (and future) responsibilities envisioned to be under the aegis of central banks include the promulgation of government-backed digital currencies, oversight of decentralized digital currencies, and the development of new digital policies and platforms. Each of these anticipated areas of policy-making and regulation may dovetail with foreign investors’ interests and could very well become the subject of future investment treaty claims.