Paper Soldiers

1. The Dollar's Weaponization Began with Civil War Greenbacks

Despite what he described as a “great aversion” to a government-issued IOU, he couldn’t avoid reality: “Immediate action is of great importance. The Treasury is nearly empty,” he said in a letter to Congress.

Chase's gamble. The U.S. dollar's journey to becoming a global power began during the Civil War when Treasury Secretary Salmon P. Chase, facing a depleted treasury, reluctantly introduced paper currency (greenbacks) not backed by gold or silver. This move, initially seen as a desperate measure, proved revolutionary.

Financing the Union. The greenbacks provided the Union Army with the financial resources needed to sustain its operations, effectively lubricating the market for government credit. The acceptance of these notes, backed by the "full faith and credit" of the U.S. government, surpassed that of Confederate currency, contributing to the Union's victory.

Foundation for dominance. Chase's actions, though born of necessity, laid the groundwork for the dollar's future dominance. By establishing a paper currency representing the nation's economic strength, he set the stage for the dollar to become a symbol of American power and influence on the world stage.

2. Bretton Woods Cemented the Dollar's Global Supremacy

It was essentially the coronation of the dollar as the world’s reserve asset, the go-to currency on which the entire financial system would be based.

Post-war order. The 1944 Bretton Woods Agreement established a new global economic order with the U.S. dollar at its center. Facing the aftermath of World War II, representatives from 44 nations gathered to create a system of international cooperation.

Dollar as anchor. The agreement fixed exchange rates to the dollar, which was in turn pegged to gold at $35 per ounce. This made the dollar the world's reserve currency, facilitating international trade and investment.

American dominance. The Bretton Woods system solidified American economic dominance, allowing the U.S. to shape the global financial landscape. The U.S. Treasury Department became a key player in maintaining this system, wielding significant influence over international finance and trade.

3. Market Forces Reigned After Bond Vigilantes Bullied Clinton

I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now, I would like to come back as the bond market. You can intimidate everybody.

Clinton's economic challenge. President Bill Clinton faced a hostile bond market early in his presidency. Investors, dubbed "bond vigilantes," feared his proposed tax cuts would increase the national debt and trigger inflation.

Market influence. The bond market's reaction forced Clinton to abandon his tax cut promises and focus on deficit reduction. This demonstrated the power of financial markets to influence government policy.

New economic doctrine. Clinton's economic team, led by Bob Rubin, embraced a new doctrine that prioritized fiscal discipline and a strong dollar. This approach aimed to appease investors and create a stable economic environment.

4. Rubin's Strong Dollar Mantra Overshadowed Globalization's Casualties

A strong dollar is very much in this nation’s economic interests.

Rubin's mantra. Treasury Secretary Robert Rubin codified the "strong dollar policy," a commitment to maintaining the dollar's value. This policy aimed to attract foreign investment, keep inflation low, and promote economic growth.

Globalization's winners and losers. While the strong dollar policy benefited investors and consumers, it hurt American manufacturers and exporters. A strong dollar made U.S. goods more expensive abroad, leading to job losses in the manufacturing sector.

Weirton Steel's demise. The story of Weirton Steel, a once-thriving American steel company, illustrates the negative consequences of the strong dollar policy. As foreign steel became cheaper, Weirton Steel struggled to compete, eventually leading to its bankruptcy and the loss of thousands of jobs.

5. 9/11 Transformed Treasury into a War Office

On that windy September day in the nation’s capital, the supremacy of the U.S. dollar that had emerged over the course of three massive conflicts—the American Civil War and both world wars—and the dogma that Bob Rubin had created allowed the president to make global finance a linchpin in foreign policy during one of the darkest hours of the country’s history.

Financial warfare. The 9/11 terrorist attacks prompted a significant shift in the U.S. Treasury Department's mission. It became a key player in the "war on terror," using its financial powers to disrupt terrorist networks.

Executive order. President George W. Bush issued an executive order giving Treasury the authority to freeze assets and block transactions with individuals and organizations linked to terrorism. This marked a new era of economic warfare.

Office of Terrorism and Financial Intelligence. The Treasury Department created the Office of Terrorism and Financial Intelligence (TFI), solidifying its role in national security. This new office allowed Treasury to track terrorist financing, impose sanctions, and work with international partners to combat illicit financial flows.

6. Weaponizing SWIFT Became a Crystal Ball of Terror

If you want to stop a bomb going off in Berlin, Brussels, or Boston, you need human intelligence, signals intelligence, and financial intelligence.

SWIFT's role. The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global messaging network used by financial institutions, became a key tool in tracking terrorist financing. The U.S. Treasury gained access to SWIFT data, allowing it to identify and disrupt terrorist networks.

Terrorist Finance Tracking Program. The Terrorist Finance Tracking Program (TFTP) was created to analyze SWIFT data and identify financial patterns associated with terrorism. This program provided valuable leads that helped thwart terrorist attacks around the world.

Balancing security and privacy. The use of SWIFT data raised concerns about privacy and civil liberties. The U.S. government implemented safeguards to protect personal information and ensure that the program was used responsibly.

7. O'Neill's Bluntness and Snow's Cheerleading Undermined Treasury's Credibility

As long as he keeps the ‘U.S. desires a strong dollar’ mantra, he shouldn’t get into too much hot water with the markets.

O'Neill's market missteps. Paul O'Neill, Bush's first Treasury Secretary, struggled to gain the trust of financial markets. His blunt style and skepticism towards the strong dollar policy created uncertainty and volatility.

Snow's promotional role. John Snow, O'Neill's successor, was seen as a cheerleader for Bush's economic policies. While he maintained the strong dollar mantra, his lack of financial expertise and perceived lack of influence undermined his credibility.

Importance of market confidence. The experiences of O'Neill and Snow highlighted the importance of a Treasury Secretary's credibility and communication skills. A Treasury chief must be able to inspire confidence in financial markets and effectively articulate the administration's economic vision.

8. Paulson's Crisis Leadership Preserved Dollar Dominance

The American economy is powerful, productive, and prosperous, and I look forward to working with Hank Paulson to keep it that way.

Paulson's Wall Street background. Henry "Hank" Paulson, former CEO of Goldman Sachs, brought deep financial expertise to the Treasury Department. His Wall Street background gave him credibility with investors and helped him navigate the 2008 financial crisis.

Crisis management. Paulson played a key role in responding to the crisis, orchestrating bailouts of Bear Stearns, AIG, and other financial institutions. His actions, though controversial, were credited with preventing a complete collapse of the financial system.

Preserving dollar dominance. Despite the severity of the crisis, the U.S. dollar remained the world's reserve currency. Paulson's leadership helped maintain confidence in the U.S. economy and the dollar's stability.

9. China's Rise Challenged the Dollar's Unilateral Power

It’s time for a new dollar policy. [The United States] needs to stop this strong dollar rhetoric and replace it with a sound dollar policy.

China's economic growth. China's rapid economic growth and increasing global influence posed a challenge to the dollar's dominance. China's currency manipulation and trade practices were seen as unfair and detrimental to American workers.

Weirton's warning. The struggles of American manufacturing towns like Weirton, West Virginia, highlighted the negative consequences of globalization and China's rise. These communities called for a new dollar policy that would protect American jobs and industries.

Strategic Economic Dialogue. The U.S.-China Strategic Economic Dialogue, launched by Paulson, aimed to address trade imbalances and currency issues. However, these talks yielded limited results, and China continued to pursue its own economic interests.

10. Mnuchin Navigated Trump's Volatility, but Cracks Appeared

This is my only demand: please don’t criticize our currency.“

Trump's unorthodox approach. President Donald Trump challenged traditional economic norms, openly criticizing the Federal Reserve and expressing a desire for a weaker dollar. This created uncertainty and volatility in financial markets.

Mnuchin's balancing act. Treasury Secretary Steven Mnuchin attempted to navigate Trump's volatility while maintaining stability in the financial system. He often had to reassure markets that there was no change in U.S. dollar policy, even when Trump's actions suggested otherwise.

Weaponizing the dollar. The Trump administration ramped up the use of economic sanctions, targeting countries like Iran and Venezuela. While these sanctions aimed to achieve foreign policy objectives, they also raised concerns about the dollar's weaponization and the potential for unintended consequences.

11. Yellen Inherited a Weaponized Dollar in a Fractured World

The violence that occurred last night at the capitol in Washington, D.C., was completely unacceptable.

A world in turmoil. Janet Yellen took office as Treasury Secretary in a world facing numerous challenges, including a global pandemic, economic inequality, and rising geopolitical tensions. She inherited a dollar that had been heavily weaponized under the Trump administration.

Russia's invasion of Ukraine. Russia's invasion of Ukraine in 2022 presented Yellen with a major test. She played a key role in coordinating economic sanctions against Russia, aiming to cripple its economy and force Putin to end the war.

Balancing act. Yellen faced the difficult task of using the dollar as a weapon to achieve foreign policy goals while also protecting its status as the world's reserve currency. The future of the dollar and the global economic order depended on her ability to strike this balance.

Last updated: March 23, 2025