[A Sip of Books] How the Dollar Became the US's 'Financial Weapon'

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Since the COVID-19 pandemic, as the United States continues its high interest rate policy to curb inflation, the world is closely watching the interest rate announcements of the U.S. central bank, the Federal Reserve Board. The author explains that the world is under the influence of the U.S. economy, which wields the dollar as a 'financial weapon.' But when and how did the U.S. come to have such a significant impact on the global economy? The author delves into the history of the dollar currency to uncover the formation process and power of U.S. economic hegemony. The background of the global reserve currency shift from the British pound to the dollar, the impact of the American Revolutionary War through World War II, and the roles of figures such as Abraham Lincoln, who led U.S. financial reforms, J. P. Morgan, the 'savior of the financial system,' and Maurice, the 'funding source of the revolution,' are examined. Additionally, events that influenced changes in the world order, such as the Bretton Woods Agreement, the Marshall Plan, and the Dawes Plan, as well as the current power exercised by the dollar, are analyzed in detail.

On December 1, 2018, a Chinese woman in her 40s was arrested at Vancouver Airport in Canada. She was waiting to transfer from a flight originating in Hong Kong to one bound for Mexico. Her name was Meng Wanzhou (孟晩舟), the Chief Financial Officer (CFO) and Vice Chairwoman of Huawei, China's largest telecommunications equipment company. She was also the daughter of Chairman Ren Zhengfei (任正非) and a leading candidate to succeed him as chairperson. Meng held Canadian citizenship until 2009 and owned two homes in Vancouver. However, the United States requested Canada, with which it has an extradition treaty, to arrest her. (...) At that time, Huawei was a leading company in cutting-edge 5th generation (5G) mobile communication equipment. The U.S. restricted Huawei products from entering its market citing cybersecurity concerns and pressured allies such as the United Kingdom and Australia not to use Huawei equipment, showing a hostile stance toward Huawei. This was part of an effort to increase pressure on China. - From Chapter 1: The Omnipotent Currency, The Power of the Dollar

On February 25, 1862, Lincoln signed the Legal Tender Act passed by Congress. This law introduced fiat currency in the United States. Currency was created solely based on the power of the state, independent of metallic money. This was also the first nationwide currency in use since the closure of the Second Bank of the United States. The bills were called 'Greenbacks' because of their green backs and were sometimes referred to as 'Lincoln dollars.' However, from the start, Greenbacks traded at a 2% discount compared to gold. Their value continued to decline, and by the end of the year, the value of one dollar in Greenbacks was only about 75 cents compared to a one-dollar gold coin. Northern prices rose by 12% in 1862, partly due to the Greenbacks. Nevertheless, the Greenbacks had more positive effects. The Northern federal government used Greenbacks to pay soldiers' salaries and purchase military supplies. The government's credit improved, allowing it to borrow money at better interest rates. With available currency, banks also regained vitality. Greenbacks played an important role during a desperate time. - From Chapter 2: The U.S. Monetary System Blossomed Amid Colonial Oppression

After the war, European bankers' concern was not a global shortage of gold but that gold was concentrated in the United States. In 1923, the U.S. held about $4.5 billion in gold, far exceeding the amount needed to operate its national economy. About $400 million of this was in coin form circulating, while the rest was stored in the Federal Reserve and Treasury vaults. Compared to the U.S., Europe?especially the United Kingdom and Germany?suffered from chronic gold shortages. Before the war, the three major European powers operated on about $3 billion worth of gold, but the amount of gold left was only about half. As demand for gold continued, European central banks took various measures, including recalling circulating gold coins. By the mid-1920s, the only place where gold coins were readily available was the United States. At that time, the global gold standard system was like a poker game where one player held almost all the chips. Such a game could not continue for long. - From Chapter 8: World War I, the Great Depression, and the Rise of the Dollar

When the financial crisis spread to Korea, the U.S. Treasury Department went on high alert. From the U.S. perspective, Korea was a firewall that must not collapse. Korea had recently joined the OECD and ranked 11th in the global economy. If Korea collapsed, the entire global financial system could be at risk. Treasury Secretary Robert Rubin believed that only the U.S. had the leadership to handle such a large and important issue worldwide. When Japan refused Korea's urgent loan request, the IMF got involved. The U.S. Treasury immediately sent Lipton to Seoul to monitor the negotiation process. Initially, the IMF considered a bailout plan of about $30 billion for the Korean government, with major conditions including austerity measures and the closure of financial companies. However, the U.S. Treasury advocated providing a larger bailout package. Eventually, the bailout amount nearly doubled. In return, the U.S. imposed conditions. Using the IMF negotiations as a catalyst, the U.S. sought to resolve several issues that Korea had responded to very passively since the 1990 financial policy talks between the U.S. and Korea. - From Chapter 12: Korea’s Foreign Exchange Crisis Hit by Financial Globalization

The Power of the Dollar | Written by Kim Dong-gi | Haenam | 656 pages | 33,000 KRW

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