Some key points from this discussion on the geostrategic and security dimensions of monetary policy, which Fed officials & US policy makers ignore at their peril:

Starting book quote "If the contemporary hegemon has an unknowing headquarters, it's the Eccles building in DC."


- No doubt security relationships promote use of the dollar, just as security relationships promoted use of Sterling in the 19th Cent.

- An incompetent, reckless, inadequately supervised banking system blew up the world and yet global capital moved INTO US debt.
- Custodian of global reserve currency (Fed) is ipso factor underpinning U.S. global hegemonic power, a powerful responsibility.

- Debt ceiling brinksmanship is playing w/ fire: "risks undermining US position in the world"
- UST volatility and political unreliability may undermine foreign reserve managers willingness to hold "so many dollars"

- Implications are not only to those in finance, but those "in the pentagon, in the state department, & the people who will be in those depts" 5-10 yrs out.
- "Sterling's struggle at beginning at 20th cent. accompanied and accelerated decline of British power and Fed shouldn't make the same mistakes"

- Agencies like the Fed have a narrow mandate, but their decisions have national security strategic consequences, often sidelined.
- Example: Delaying swap line to India (a key geostrategic partner) shows cross-wise implications of monetary decisions to US geopolitical interests

- China is shopping around their swap lines as part of growing competition to execute strategic financial diplomacy
- This China-competition dynamic might lead to increasing provision of dollar swap lines, as they are used to keep tipping powers in the US geoconomic orbit, a purpose for which they were not designed, and which may run contrary to monetary policy objectives
- "Anyone who takes this position [yuan's marginal internationalization] in office needs to re-think it every week, because they'll be a week, perhaps, where they think 'oh my goodness, yuan is achieving critical mass! we left it too late to keep these people using the dollar.'"
- Heart of Bretton Woods treaty was making dollar proximate reserve currency linked to gold

- Simon's trip to KSA is critical example of intersection of monetary and security policy, which showed how siloes between these areas breakdown in moments of acute geostrategic crisis.
- Lesson for present circumstances is similar: these intellectual and technocratic siloes (b/t economic, monetary, foreign, military, etc. policy) are hindering integrate strategic decision-making at a time when there's a "bigger game" afoot.
- Fed is de facto an "international organization" that doesn't sufficiently take into account global spillovers, and also lacks the democratic legitimacy from the global subjects of its decisions

- Newly powerful states don't rely on the US security umbrella and want own rules
- Global moral hazard problem of being global lender of last resort (via swap lines, FIMA repo) to keep states in the dollar sphere of influence

- Fed needs to have a sense of responsibility as steward of global dollar system, essentially a monetary commons/public good
- Fed Chairs have often been dismissive of international/security dimensions of their role, and this is a problem

- "All policy is security policy" which is an increasing trend: "Economic Security is National Security"
- Securitization of economic policy returning to cold war era of CoComs (Coordinating Committees) to control exports, technology, etc, which needs to be reactivated

- But this can sometimes slip into a form of domestic protectionism that has nothing to do with national security
- Quite a big risk of excess here: where national security logic imposed on economic policy turns US economic into "Fortress United States", which can be welfare-depleting

- Western CBDCs need to be guided by clear liberal principles in contrast to China's authoritarian model
- Western policymakers have been too dazzled by the techy aspects of CBDCs, without setting clear, high-level constraints on their development

- This sets boundaries to mid-level technocrats and limits risk of slippery slope that undermines our political economy
- International regimes reflect liberal values (from US, British, and French heritage)

- Shouldn't expect China to smoothly accept that regime, but need to respect it ourselves (why we value what we value) and defend it.

Recommended by
Recommendations from around the web and our community.

Great thread. Just ordered Paul Tucker's book "Global Discord" myself. Thanks for flagging it, @matthew_pines!