To End Forever War, End the Dollar’s Global Dominance

In its laser focus on military restraint, the present debate about endless war overlooks the financial architecture of U.S. empire.

To keep Iraq amenable to a U.S. presence, the State Department turned to the United States’ “dollar power”—its vast control over the supply and distribution of the dollar, the global reserve currency—and threatened to cut off Iraq’s access to its Federal Reserve account, which would effectively paralyze the government’s ability to provide basic services. Faced with this threat, which according to one Baghdad official “would mean collapse for Iraq,” Iraqis have backed away from their call to banish U.S. troops. The American military looks set to remain in the country indefinitely.

The world’s money transfer system is China’s Achilles heel in its sanctions battle against the US

But China is actually far more vulnerable to US sanctions than it will let on, even if the sanctions are aimed at individuals and not banks. That’s because the primary system powering the world’s cross-border financial transactions between banks, Swift, is dominated by the US dollar.

Bretton Woods Revisited

Good history of the US Dollar system and its implications

The way the modern system works is that money has network effects, and the US is a large economy with an extraordinarily well-developed financial sector, so any asset is priced in dollars by default. Bilateral trade between non-dollar, non-Euro countries countries is usually done in dollars, so a 1% increase in the value of the dollar leads to a 0.6-0.8% change in trade between all other countries.

U.S. Warns Iraq It Risks Losing Access to Key Bank Account if Troops Told to Leave

The financial threat isn’t theoretical: The country’s financial system was squeezed in 2015 when the U.S. suspended access for several weeks to the central bank’s account at the New York Fed over concerns the cash was filtering through a loosely regulated market into Iranian banks and to the Islamic State extremist group.

“The U.S. Fed basically has a stranglehold on the entire [Iraqi] economy,” said Shwan Taha, chairman of Iraqi investment bank Rabee Securities.

To End Forever War, End the Dollar’s Global Dominance

To End Forever War, End the Dollar’s Global Dominance

In the short term, the U.S. can still deploy its dollar power to bully adversaries and allies alike. Few foreign leaders, for instance, agreed with Trump’s decision to withdraw from the nuclear deal with Tehran and impose fresh sanctions on Iran’s economy. Yet even sympathetic countries with strong currencies, like those in the European Union, have been forced to play along with Trump’s counterproductive policies for fear of losing access to U.S. dollars.

Freakonomics Podcast: Speak Softly and Carry Big Data

Do economic sanctions work? Are big democracies any good at spreading democracy? What is the root cause of terrorism? It turns out that data analysis can help answer all these questions — and make better foreign-policy decisions.

Interesting listen, particularly the first part on the efficacy of economic sanctions. Great to make connections between Global Politics and TOK as far as how we know what we know (whether a certain policy approach is effective).