The US Department of Defense (DoD) Strategic Multilayer Assessment (SMA) program hosted a speaker session on September 23, 2020 as a part of its SMA INSS/PRISM Speaker Series, entitled “Geoeconomics and the Emerging World Order: The Power of the U.S. Dollar.” This brief was presented by the Honorable Jack Lew (Former United States Secretary of the Treasury, White House Chief of Staff, and Director of the Office of Management and Budget).
Secretary Lew began his discussion by elaborating on the U.S.’s role of possessing the world’s reserve currency. This position gives the US the capacity to aid its own fiscal and trade options in a way that strengthens both its economy and the country more generally, according to Sec. Lew. Using the US dollar as the world’s reserve currency also gives the U.S. an advantage in its ability to borrow, especially during a global crisis like COVID-19, as the depth in liquidity in the markets gives the U.S. an extra level of security. This ability, in turn, gives the U.S. the advantage of being able to meet its immediate needs during the pandemic—a guarantee that other states may not necessarily have the luxury of having. The U.S.’s current global financial role gives the US a sense of centrality in the world as well, which benefits its economy significantly.
Next, Sec. Lew discussed the U.S.’s use of a sanctions regime, which imposes a burden on a state’s economy in order to push that state into changing a policy that the U.S. objects. Sec. Lew stated that sanctions can be very effective when enacted with broad support from other like-minded countries and when implementation is relatively straightforward. Furthermore, the legislative branch needs to give the executive branch the tools to effectively utilize sanctions, according to Sec. Lew. Sometimes, regimes are willing to subject their people to hardship in order to maintain their power, making it very difficult to effectively utilize sanctions, as seen in the cases of Venezuela and North Korea.
Sec. Lew also discussed the overuse of sanctions and the implications that may follow. The U.S.’s increased use of sanctions since its 2016 election raises some warning signals in Sec. Lew’s viewpoint, as it portrays the US in a negative light. Countries do not want to be dependent on the US for their livelihood, according to Sec. Lew, especially when it is difficult for them to understand the logic behind or justification for certain sanctions imposed by the U.S. As a result, countries are diversifying their economies; however, Sec. Lew stated that a potential migration from the US dollar will not happen suddenly or soon. Moreover, it is not in the U.S.’s best interest to support or encourage other countries to continue to diversify their currency and build plumbing that enables less dependency on the dollar, according to Sec. Lew. He added that the US does not need to be immediately concerned with this diversification or competition, but it should be monitored and controlled for when increased diversification or competition may be of more concern in the future.
Jacob J. Lew was the Secretary of the Treasury in the Obama administration. He also served as Obama’s White House Chief of Staff, the Director of the Office of Management and Budget under the Obama and Clinton administrations, and the Deputy Secretary of State for Management and Resources in the Obama administration. As Special Assistant to President Clinton, he helped design Americorps. He has also worked as the executive vice president and chief operating officer at New York University and managing director and chief operating officer at two Citigroup business units.