Clearing, Settlement and Correspondent Banking

How did the US Dollar become the dominant currency internationally? What keeps other currencies, fiat or crypto, from displacing the dollar's role? Does the aggressive use of sanctions by the US Government put the dollar's role at risk?

Paul Blustein is with the Center for Strategic and International Studies, as well as an author and journalist. He has written several books including his latest work King Dollar: The Past and Future of the World's Dominant Currency and previous works, Off Balance: The Travails of Institutions That Govern the Global Financial System, And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina, and Laid Low: Inside the Crisis That Overwhelmed Europe and the IMF.

Greg and Paul discuss the reasons behind the US dollar's dominance in global finance, its historical roots stemming from the Bretton Woods Agreement, and the challenges posed by international crises and economic policies. Paul also discusses the role and limitations of the IMF, the geopolitical implications of using the dollar as a financial weapon, and the potential impact of emerging currencies and digital threats. The episode concludes with insights into the phenomena of dollarization and how various economic strategies, including those of China and Russia, intersect with the enduring power of the US dollar.

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Episode Quotes:

How the U.S. discovered the power of financial sanctions

21:00: No longer was it just going to be the drug lords and, you know, in Colombia and places like that, it was now the government was gonna crack down on terrorists. And so the Treasury, OFAC, the Office of Foreign Assets Control, began doing some of that. And they realized that by cutting off banks abroad from access to the dollar system, that correspondent banking system we were just talking about, that, you know, things could really go boom. They could pose a death sentence on banks. And as they began to realize the power of that, they then applied it in the case of North Korea in 2005. And they were absolutely astonished to discover that this really worked. You could really have a big effect on North Korea's financial system by cutting off banks. It was—they went after a bank in Macau that had been—and then they were off to the races. They could use this similar kind of weaponry on Iran and other adversaries

Responsible vs irresponsible use of dollar power

25:29: You have this power with a dollar; if we use it responsibly, it can be a very good power. And if we use it irresponsibly, it's a bad power. And that's the way I like to look at it.

How U.S.–China sanction scenarios are actually gamed out

51:59: Some of the hawks in, you know, you don't hear so much from these guys anymore, but the hawks in Congress have tried to game some of these out. You know, I go into this in one of the chapters of the book about how they, you know, they had a red team and a blue team, and they thought, well, we can, you know, we just have done this—imposed drastic sanctions on Russia. So if there's an invasion of Taiwan, here's what we do. And they, I think, have discovered that if you have a really knowledgeable red team playing the Chinese Communist Party, they can come up with a lot, a lot of things that, it preserves Taiwanese democracy but doesn't have us at each other's throats.

Show Links:

Recommended Resources:

• United States Dollar
• Euro
• Renminbi
• Reserve Currency
• Network Effect
• Bretton Woods System
• John Maynard Keynes
• Harry Dexter White
• Herbert Stein
• Federal Reserve
• International Monetary Fund (IMF)
• SWIFT
• Euroclear
• Fiat Money
• Xi Jinping
• Shadow Fleet

Guest Profile:

• PaulBlustein.com
• Professional Profile for CSIS
• LinkedIn Profile
• Social Profile on X

Guest Work:

• Amazon Author Page
• King Dollar: The Past and Future of the World's Dominant Currency
• Off Balance: The Travails of Institutions That Govern the Global Financial System
• And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina
• The Chastening: Inside The Crisis That Rocked The Global Financial System And Humbled The IMF
• Misadventures of the Most Favored Nations: Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trade System
• Laid Low: Inside the Crisis That Overwhelmed Europe and the IMF
• Schism: China, America, and the Fracturing of the Global Trading System

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