Dollar Hegemony: How The DOLLAR RULES The World @markets @CNBC

It is my pleasure to welcome Sahayla Motion to the show and she is the author of a new book entitled Paper Soldiers how the Weaponization of the Dollar Changed the World Order. This is a fascinating topic. Of course, we've discussed this topic before, but I can't wait to hear what she has to say about it. And we can really see how this whole picture, Bretton woods forward, I believe she's going to talk about it that way and we'll see how that's going to play out in the future as well. So looking forward to welcome. How are you?

I'm so glad to be here, Jason.

It's good to have you. And you're coming to us from Washington, D.C. right?

I'm in the capital of our nation.

You're in the belly of the beast. Good stuff. Well, tell us about Paper Soldiers, if you would. And it is really amazing how valuable the dollar has been to the United States in terms of the way it can export its power, its policy, and just do so many things. Having that reserve currency status, the US.

Dollar gives the country unique power overseas and domestically. There are two definitions of a strong dollar. One is just its strength in foreign exchange rate value. You know, how many yens or sterling or euros you can buy overseas with the dollar at any given moment. And then the other strength is dollar hegemony, that the global financial system is underpinned by the dollar. It is deeply entrenched and everyone's lives at some point touch the US Dollar because it owns. And the book itself is a narrative that reveals the powers of the U.S. treasury Department, how it has an influence on Americans ability to pursue the American dream. It is a story of how the country went from this Hercules in a cradle in 1776 to this global superpower. And it's told through the lens of our currency and our currency policy. And I take readers in powerful rooms in Washington, in the halls of Congress, the Oval Office, inside the Treasury Department, to finance ministries and G7 and G20 meetings around the world. But I also take readers on a journey to places like Moraine, Ohio, and Weirton, West Virginia, where we've seen some of the negative effects and the downsides of having a strong dollar play out domestically and kind of unpack how that brought us to where we are today, which is a country that is looking at increasingly populist economic policies and also seeing some global uncertainty from foreign countries as they look at the US and seeing our global power being challenged. Therefore the dollar's power being challenged.

Is it fair to say this all started with Bretton woods just before the end of World War II, or, you know, maybe paint us a picture, if you would, of what was the world like before that?

Yeah. So I actually, Jason, I start the book in 1862 when Treasury Secretary Salmon P. Chase. The US was in the midst of the Civil War, and the Treasury Treasury Secretary saw that the government's coffers were empty. They needed money, the north needed money. And so he decided, okay, we need a paper currency which some lawmakers called, quote, immoral. Which is interesting to think about how people talk about CBDCs and cryptos today, that back then, paper currency.

Paper currency was immoral.

Yeah, New technology is always scary, but.

I mean, compared to gold. That was the comparison, Right, Exactly.

How dare we look at avoid precious metals and go for paper. Right. How is this going to. This is a joke. It was a country that was not even a century old. Everyone was kind of wondering, when is this country going to run out of steam? Is it really Hercules in a cradle or something else? And so that is kind of where the starting point that I choose things really get. Are revved up with Bretton woods, because as World War II was coming to a close, the US currency was, by design at the Bretton woods conference, deemed the world's reserve asset. And that's really when the story in earnest begins. And then I take you through the rest of the 1900s. There's the Plaza Accord, the Louvre Accord, when government officials worked hard to kind of control the currency market quite a bit in the dollar's value. And then I dig deep with Bob Rubin. And then the weaponization part really begins with 9 11. When George W. Bush, when he takes his very first act in the war on terror, which was not a military tank rolling in, it was economic sanctions and using the power of the dollar to track terrorist money flows. And then I kind of take.

I mean, we did sanctioning before 9 11. That wasn't the first. Why, why 9 11? Why do you pick that? Because certainly one could argue that we were weaponizing the dollar in this. In 1971, maybe we weaponized it the most. Right. When Nixon took us off the gold standard. You know, that was really when the dollar. I mean, that's an amazing con that we, we got away with that really. I don't know if you agree, but.

Right. I mean, agree or disagree doesn't I kind of set that aside. But that moment when Nixon went off the gold standard had more to do with domestic policy. You know, inflation was kind of running rampant. The US didn't have enough dollars to continue the peg to gold. And so that was almost, you could say it's a technical thing. Like it's just not sustainable for us anymore. And yes, it happened in secret. There's no good way to give that kind of message to the world. The reason I start with 911 in terms of weaponization is that yes, the US did impose economic sanctions the first round. I think we're on Great Britain in the 1800s. So we've had, yeah, the sanctions unit, treasury, the Office of Foreign Assets Control or ofac has existed for more than a century, I think. But until 911 it was a very blunt and almost underdeveloped instrument without great big returns. And actually the unit at treasury was considered an orphan of Treasury. No one paid attention to it. It didn't have an undersecretary that was following it. Treasury secretaries didn't attention to it.

Interesting.

9 11, you know, the leaders realize that if we can get to how terrorists are financing their attacks using the dollar, interrupting the system and using the dollar for corrupt means, then we can choke that off and thwart future attacks. And that's what happened. And since 9 11, the US has seen the use of economic sanctions increase by almost a thousand percent. Since 9 11, treasury has established a separate terrorism and financial intelligence unit to really amplify economic sanctions work. And since 911 that tool has become incredibly sophisticated. The space between words and war. So diplomacy and war, that gap is what economic sanctions are. And there is so much to be done there by the US We've seen it with Venezuela, Iran, North Korea and now Russia.

Certainly Russia. Yeah. You know, it just begs the question, doesn't it? Will that backfire or has it already backfired? I mean, the Russia sanctions have been so enormous and so widespread, Biden just issued another batch of them recently. It's making a lot of Americans look at second citizenship options and you know, they look at the way they've attacked the oligarchs and so forth. And I'm not really making a like a moral judgment on it, but whenever someone else has a target, you always have to realize you might be next, right? It may be just. Or not, it doesn't matter. The fact that they're using this weapon is something that concerns people. Has it backfired at all or will it backfire, do you think?

The case I make in the book is that it's too soon to say, but something has shifted for sure. I start the book and I end the book on February 26, 2022 at 5:13pm at the exact moment that those economic sanctions were announced. Now, one thing to remember is that they were U. S led sanctions. So 30 countries came together with the US and imposed the harshest sanctions that the world has seen on a G20 country. At the same time, they're incredibly porous. You know, they, you talk about De Swifting, cutting banks off from Swift. There are like 200 banks in Russia that use Swift. Like 10 of them were cut off. So you have all these other options also different things. Like in the last year alone, Russia has imported $1 billion worth of microchips, advanced microchips from US and European companies without violating sanctions. So the whole plan is very porous. But the expectations were so high. You had President Biden a couple of weeks after those sanctions came down in March of 2022 saying the R is now rubble. Right. Once he said that, he set the benchmark of how we are supposed to judge these sanctions. And Russia's economy is still going. It's converting to a war economy. Sure, they've had some economic pains, they've had to make some changes, but they transformed and they are still on track for expansion this year.

Yeah, that has amazed me because when the invasion happened, I thought Russia was just going to be ruined. I mean, those sanctions were so severe, so harsh, so widespread that I thought they would just, just be ruined. And I thought that was a big, you know, what is that cryptocurrency that is really for the banking system. I thought that was going to be the big benefactor of it. Xrp, I think it's called. I'm not into that deeply. But if they were going to be de Swifted, I thought that would, you know, be a big play and that would, that would be kind of one of the next big things. I don't think that really happened or played out. But it's, it's surprising how Russia has been pretty resilient in the face of all of this. Has, isn't it?

Absolutely. I think a lot of the US and those aligned with the US didn't quite realize how China and India would really help Russia transform into a war economy and remain afloat. The sanctions have proved porous. There's a lot of questions about enforcement of those economic sanctions and who has the power to make the next calls. You know, right now there's this big debate going on about being able to confiscate the frozen or immobilized Russian assets. Well, it's actually Europe calling the shots on that because most of the money is parked in euros right now. It's also triggered a debate across the brics nations, Brazil, Russia, India, China, South Africa about should we de dollariz is come together, get some of the Gulf states or oil producing nations to come together and de dollarize and that is. It's more talk than action right now. But action starts with talk. On the other hand, a couple of data points to point to that reveal.