The author, Saleha Mohsin, in her book titled “Paper Soldiers: How the Weaponization of Dollar has Changed the Global Order”, examines the policies of misusing the global reserve currency by none other than the protector of the global financial system, the United States. The author, who is also a Senior Washington Correspondent for Bloomberg, has discussed the historical side as well, how the U.S. administrations have been involved in influencing the Dollar price for political agendas both domestically and internationally.

The dollar helped the United States rise to rule the world and became its most powerful geopolitical weapon.

The book contains fourteen chapters and has three major themes: Rise of Dollar, Strong Dollar Mantra, & Weaponization of Dollar. In the first theme, the author explains how, in just 250 years, the dollar helped the United States rise to rule the world and becoming the country’s most powerful geopolitical weapon against other states (pg.34). The author further explains how the Bretton Woods system played the cruicial role in taking the dollar to become the global reserve currency and created interconnectedness among states to avoid wars and mutual harm.

The invasion of Normandy, France, by Allied forces in 1944 turned the course of World War II in favor of allied forces as it weakened the forces of Nazi Germany and allowed the allowed forces to advance into Northwest Europe. During the same year in 1944, the United States hosted economic officials from forty-four allied nations in a resort town called Bretton Woods in New Hampshire. More than 730 officials attended the conference with a clear goal: to create a blueprint for global economic cooperation, meaning the establishment of one strong global reserve currency.

The conference led to a decision to make the dollar a global reserve currency and also created an opportunity to establish two of the world’s institutions: the International Monetary Fund & World Bank.

In the second phase, the author covers the Department of the Treasury: the appointment of secretaries, their work, and how the previous governments, back in the 1970s and 1980s, adopted the policy of intervention in the autonomy of the Treasury Department to influence the dollar’s value in the market.

The author highlights that during the tenure of Nicholas F. Brady as the Secretary of the Department of the Treasury in 1989, he preferred a weak dollar as he felt that a strong dollar would cause immense problems for the economy. Countries like West Germany and Japan also preferred a weaker dollar because it made it easier for them to pay off their dollar-denominated debt (pg. 42).

Investors demanded a shift to free-floating exchange rates after market interventions backfired.

But in reality, they, along with many other countries, were amazed and stunned by the signs of autonomy in dollar pricing that currency traders displayed, and then later urged the Treasury to join hands with the Federal Reserve to buy dollars from open markets to boost the currency’s value.

Such activities backfired as investors became angry about controlling the dollar value and demanded that the government change its stance of intervening in market rates and provide a free-floating exchange system where markets decide the prices based on supply and demand factors.

The author further discusses that when Bill Clinton came into power in 1993, the greenback was an unshakable force in global finance and trade, as nearly half of the world conducted transactions in American dollars. Clinton won the election on the slogan “It’s the economy, stupid,” and he aimed to reduce the tax burden on the middle class. However, his plan was later rejected by the Bond Vigilantes (market gamblers), as Wall Street feared that such a policy would threaten the stability of U.S. debt (pg. 48). After facing various challenges, such as inflation, an increasing unemployment rate, and slow economic growth, pressure mounted on Clinton to reverse his previous promises and adopt new measures to address these challenges.

In 1995, when Robert Rubin was sworn in as the Secretary of the Treasury, the U.S. dollar was facing major problems, as the greenback continued to plunge, puzzling economists. Despite the Fed’s rate hikes, the value of the dollar kept dropping. Investors were concerned about the potential repeat of a currency crisis, which could lead to political instability and cause long-term damage to the British economy.

According to the author, it was Bob Rubin who realized that a strong dollar was in the country’s interest. With his expertise, he often hosted Treasury colleagues in his office at the West Wing for strategy sessions on how to induce calm in the currency markets and strengthen the dollar.

In previous administrations, the government typically took traditional steps to control the value of the dollar, simply by buying or selling in open markets. Rubin had realized that government intervention would only further erode investors’ confidence, so gradually, the intervention to control the value of the dollar decreased. Another main reason for not intervening was the lack of sufficient reserves to compete with the multi-trillion-dollar trades dominating the foreign exchange markets.

A strong dollar is in the country’s interest, but confidence can’t be restored by mere intervention.

In the last theme, the author discusses the use of weaponizing the dollar by US authorities to export its foreign policy, securing its borders and national interests, especially after 9/11. In the aftermath of 9/11, the US used economic sanctions for the first time to target those who funded such activities and began monitoring the movements of transactions to determine if the money was being used for terrorist activities.

The author stresses that, despite the dollar being crowned as the world’s reserve currency, it has faced several threats, and the arguably small yet significant setbacks are becoming permanent.

The setbacks can be categorized into two: Inside the US, the dollar survived the global financial crisis, which opened the doors of the Department of the Treasury to a crisis of credibility. Later, it faced an unclear president who favored a weak dollar for his political gains. Secondly, globalization and the prolonged high value of the U.S. currency allowed international competitors to take away market share from American-made products, causing distress in the US manufacturing sector.

The author stressed that, back in the twentieth century, the US was sanctioning only small groups, but now the overuse of this tool has led other countries to seek alternative currencies. In 2001, 71 percent of global reserves were in US dollars, which has decreased to 60 percent over the past two decades.

The weaponization of the dollar has led other countries to seek alternative currencies.

After the start of the Ukraine conflict, the imposition of these measures against Russia, a G7 nation, global commodity producer, and nuclear power, it became clear, even to casual observers, that a significant threshold had been crossed. The weaponization of the US dollar, which, despite years of systematic debasement, has remained the global reserve currency and fundamental unit of account in international commerce, marked the start of a new era.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.