Over the last 80 years, the U.S. dollar has become the lingua franca of the global financial system. From Europe to Australia, central banks, companies, manufacturers, and tourists find common language by using the American currency. Today, an estimated $6.6 trillion in daily global transactions involve the dollar.
The centrality of the U.S. dollar to the global financial system has not only symbolized the growing influence of Washington abroad but has also raised the platform of the U.S. treasury secretary. A job that the first federal Congress outlined, in 1789, as a glorified bookkeeper, has since evolved into that of a financial diplomat—managing crises, negotiating trade policy, vetting foreign investment, restructuring debt, levying sanctions, and more.
In Paper Soldiers: How the Weaponization of the Dollar Changed the World Order, journalist Saleha Mohsin follows the dollar’s stewards, from Robert Rubin in 1995, to current Treasury Secretary Janet Yellen, as they transitioned the dollar from a domestic political obsession to a weapon used abroad. Assembled from hundreds of interviews, Mohsin, a Bloomberg News reporter, charts Washington’s dollar policy and poses an essential question: Has the power that the U.S. dollar affords its issuer done more harm than good?
The decision to crown the U.S. dollar as the world’s foremost reserve currency in 1944, following the Bretton Woods Agreement at the end of World War II, generated international demand for dollars. Strong demand meant that, once Richard Nixon removed the dollar’s peg to gold in 1971, the dollar strengthened relative to other currencies.
Paper Soldiers: How the Weaponization of the Dollar Changed the World Order, Saleha Mohsin, Portfolio, 304 pp., $30, March 2024.
This presented U.S. policymakers with a predicament: Though a strong dollar meant American consumers enjoyed cheap imports, it made U.S. exports more expensive, and therefore less attractive to foreign buyers, hurting American producers.
From the 1970s through the 1990s, the Treasury Department directed the Federal Reserve to buy or sell dollars to stabilize the currency, often with the assistance of trade partners who stood to benefit from a stable U.S. dollar. But as international trade flows increased, a convenient side effect of thwarting the dollar’s growth—the boost it provided to exports of U.S. manufactured goods—created political risk.
For example, in the 1990s, then-President Bill Clinton decided to buy Japanese yen and sell dollars, in the interest of ensuring global financial stability. However, the move also made Japanese imports more expensive—and potentially benefitted American manufacturers. With this uncertainty, the United States, so eager to label and stigmatize those countries deliberately manipulating their currencies for an unfair trade advantage, risked flouting its own free-trade philosophy.
That America’s trade partners might regard its exchange rate manipulations as commercial trickery was one of the reasons that Robert Rubin, who served as treasury secretary from 1995 to 1999, became the chief antagonist of currency intervention. In 1995, he committed the Clinton administration to quit meddling in currency markets, and thereby let the dollar grow as strong as it would. Thereafter, whenever a reporter asked Rubin, or any successive treasury secretary, about the dollar, the typical response was along the lines of, “A strong dollar is in the interest of the United States.”
Whether or not this so-called strong dollar policy always yielded a strong dollar (it didn’t) or was truly hands-off (it wasn’t), it was a necessary evolution for the country’s financial ecosystem. There was a growing sense that, regardless of what South Korea, Taiwan, or China did with their legal tender, currency manipulation was unbecoming for a great and growing power—if American democracy benefitted from free elections and independent courts, then currency markets should reflect this spirit too.
As the U.S. continued to feed the world’s demand for dollars, everyone—from corporations to central banks—seemed to become invested in a strong and stable dollar. But Washington’s policy had collateral damage, both at home and abroad.
As the dollar strengthened, American exports like steel and textiles became more expensive for foreign buyers. As a result, between 1998 and 2002, a period in which the dollar gained over 10 percent, America lost 2.6 million manufacturing jobs. Though the economics was more complicated than this, the politics was deceptively simple: By refusing to intervene in currency markets to save American jobs, Washington confirmed its preference for Wall Street and the international trade system over blue-collar workers and domestic affairs.
For the rest of the world, however, the strong dollar policy seemed to confirm the contrary: America had little regard for how its dollar policy affected other countries—from the growing issuance of dollar-denominated debt to the use of economic sanctions against its adversaries, such as Iran and Russia. As Washington promised not to intervene in the dollar’s value, it increasingly relied on the dollar to intervene in other countries—meaning that for all the domestic imbalances a strong dollar has caused, the power of the dollar may be felt most acutely outside of America.
In 1974, U.S. Treasury Secretary William Simon and his deputy arrived in Jeddah, Saudi Arabia, on a secret mission to promote the dollar. OPEC had recently lifted the oil embargo it had imposed in retaliation for the United States providing aid to Israel during the Yom Kippur War, and the price of crude oil was normalizing. Simon was there to cut a deal: In exchange for U.S. military aid, Saudi Arabia would promise to invoice most of its oil exports in U.S. dollars and use its oil revenue to purchase U.S. debt.
Saudi Arabia agreed and the deal proved sticky—the two countries have maintained an economic alliance since, with the gulf country being one of the largest recipients of U.S. arms. Today, over two-thirds of the world’s oil exports are invoiced in dollars.
Given this long history of petrodollars, it has alarmed some observers that Saudi Arabia is increasingly willing to invoice oil exports in Chinese yuan instead of U.S. dollars. “As a businessperson,” the Saudi energy minister explained, “you will go where opportunity comes your way.” And China, after all, is a large customer of oil too. In January 2024, Saudi Arabia joined an expanded “BRICS” alliance, a group of primarily exporting countries that seeks, among other things, to replace the U.S. dollar with a common trade currency.\
The Saudi currency choice indicates the apparent decay in the institutions that underpin the power and credibility of the dollar—and its issuer. After all, the strong dollar has contributed to a ballooning trade deficit in a country plagued by a home-grown financial crisis, a stalled Congress prone to debt-ceiling brinksmanship, and a growing distrust in its own democratic institutions.
Add to this the use of sanctions as Washington’s go-to weapon of choice and a fervent industrial policy that prefers its own manufacturing to that of its traditional trade partners, and it is easy to see the predominance of the dollar as a double-edged sword. Although the dollar affords the U.S. unparalleled financial leverage, its strength still sows seeds of discontent at home, where the manufacturing sector has historically suffered under its might, and abroad, where other nations chafe under its financial yoke.
Even if the BRICS proposal and similar initiatives have failed to provide a credible alternative, some see the dollar’s decline across global foreign exchange reserves and trade invoicing as a symbol of weakness in the institutions that enabled the dollar’s primacy in the first place, and later supported its worldwide dominance. That is why, for all of Mohsin’s brightly rendered portraits of stolid treasury secretaries, ready to curb a wayward president’s worst impulses, the landscape she presents of “a dwindling superpower with erratic fiscal management” is much darker.
Saleha Mohsin’s book, full of colorful vignettes about the various treasury secretaries, humanizes the technocrats and energizes what can otherwise be, admittedly, a stale topic. Although Mohsin’s familiarity with the “rooms where it happens” burnishes her authority—the reader is given exact room numbers within Department of Treasury and Senate office buildings—her reporting misses the mark when it comes to elucidating why what happened inside them was important.
It is therefore hard to pinpoint the ideal reader of Paper Soldiers. Treasury-watchers will be familiar with the more memorable headlines and disappointed that the book does not delve deeper. On the other hand, readers new to the topic may struggle to grasp why the events described matter—for the economy, for the country, and, crucially, for their vote in November.
Donald Trump has discussed directly intervening in currency markets to weaken the dollar, seeking a short-term boon to manufacturing and a long-run reduction in the trade imbalance between the United States and the rest of the world. Keen to maintain the dollar’s dominance and wary of overusing sanctions, Trump has proposed levying tariffs on the goods of any country that shirks the dollar. Yet, when it comes to those institutions charged with maintaining the currency, he has sought to weaken them further, including sacrificing the Federal Reserve’s independence by granting the president influence over monetary policy decisions.
Although Vice President Kamala Harris has affirmed that she will not interfere with the U.S. central bank, the current administration has wielded extraordinary powers by moving to seize the reserves of its adversaries’ central banks, despite their protection under international law. In supporting Biden’s sanctions programs, she touted international alliances as key to their success. At the same time, she is campaigning on an economic plan that largely adopts and develops Biden’s stimulative economic blueprint, favoring and subsidizing domestic manufacturing, often at the expense of imports from America’s trade partners.
That such ideas may sound farcical to technocrats should not fool them into complacency. Each one speaks to the decay, real or imagined, of the institutions that underpin the dollar. With this in mind, Mohsin’s final assessment is a stark warning for whoever wins in November: The dollar has symbolized Washington’s outsized role in the global financial system, but its stubborn predominance should not be taken as a de facto endorsement of Washington’s policies. The wound that proves fatal—to the global role of the dollar and its issuer—will be self-inflicted.
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