BOOK REVIEW
BY JAMES P . PROUT
Paper Soldiers By Saleha Mohsin Portfolio / Penguin , 2024 282 pages , with notes and index
There are a lot of important dates in US financial history : August 4 , 1790 ( Hamilton ’ s debt assumption ); March 10 , 1862 ( first US greenback ); December 23 , 1913 ( creation of the Fed ); October 29 , 1929 ( that one ’ s easy ). At the time , it ’ s likely most people did not grasp the full impact of the events of the day . Maybe Hamilton did , but in most cases , we don ’ t know they ’ re important until long after .
Author Saleha Mohsin , relying on her experiences and contacts as a Bloomberg News reporter covering the US Treasury , wants you to mark down a more current date : February 26 , 2022 . According to her , that is when the primacy of the US dollar as the world ’ s reserve currency may have started to erode . Her book , Paper Soldiers , reviews events of the last 30 years or so that have shaken confidence in the dollar . She argues that , drip-by-drip , actions by US politicians and officials have worn down belief in the dollar as a stable , safe and , most importantly , neutral unit of exchange upon which global market participants and governments can rely . She ’ s interviewed a wide range of US officials , and the book adds a different perspective to the issue . It ’ s a fast , well-written read .
Trillions of financial and physical assets — most importantly corporate and sovereign bonds — are denominated in dollars . They are sold in dollars , valued in dollars and payable in dollars . No surprise : this creates an almost insatiable demand for the dollar .
This all happened over the 80 years since the 1944 Bretton Woods agreement , when the dollar supplanted the British pound as the world ’ s most desirable currency . Being the world ’ s reserve currency is undeniably a good thing . It allows a lot of flexibility . And when you have to finance US government debt on an hourly , daily and yearly basis , it is an advantage . But it carries costs and takes discipline to maintain the confidence of global players .
After some desultory backgrounding , Mohsin ’ s story really starts in the 1990s , with President Bill Clinton and his second Treasury Secretary Robert Rubin . Rubin was a calm , hard-to-read Treasury head who understood that loose talk about where the dollar or any currency “ should be ” was not helpful . Finally , he arrived at a policy formulation expressed in simple terms . “ A strong dollar is in our national interest ” became his mantra , repeated and repeated until the markets and foreign governments got the message . President Clinton presided over a powerfully growing economy and did something rare : he balanced the US budget .
What Clinton and Rubin perhaps didn ’ t see , writes Mohsin , is that a strong dollar , NAFTA and a more market-friendly Chinese leadership would create fundamental dislocations in the US business environment . US manufactured goods became very expensive to buy , and it was cheaper and faster to shift production to China and elsewhere than to invest in the United States . Accusations grew that China was purposely weakening its own currency to speed this process . The idea caught on that the United States should do more to use its currency hegemony to help itself .
Mohsin shifts the narrative as the world wakes up to the terrorist attacks on September 11 . 2001 . The reader is taken on a brief but useful tour of the “ plumbing ” of the global financial system . Enemies need money — the US Treasury , Department of Defense and Homeland Security understood this — and began to monitor dollar flows at SWIFT , a little-known international agency at the nexus of international payment and currency flows . It was another weapon that promised to enhance US security and impede terrorist activities .
As the 2010s progressed , using the financial system to impose sanctions looked more and more attractive as a policy : a cheap and painless way to punish enemies . It generates great headlines and looks like modern warfare . Presidents Barack Obama and Donald Trump embraced sanctions . Libya , Iran and Russian oligarchs were all targeted with this arrow in the US quiver . Treasury officials , however , were more judicious , warning that indiscriminate use could bring the dollar ’ s status into disrepute .
Paper Soldiers reads like a newspaper piece , which I think is a good thing . I learned more than I needed to about Paul O ’ Neill and John Snow , two forgettable Treasury Secretaries . Clearly , Mohsin is a Paulson- Geithner fan . Many are . I wish there was an acknowledgement and exposition that for all our currency power , North Korea , Syria , Iran and Russia , although weakened , are still around . And are threatening .
February 26 , 2022 was just two days after Russia launched its failed takeover of Ukraine . The United States began to move forward on the process of closing down Russian access to its own financial assets located outside Russia . US power to control the global financial system was never more evident . Governments opposed to US policy began to agitate for a new reserve currency that was free from US control .
So , is the dollar ready to take its place with the British pound ? Is the world ready to move to a world denominated in yuan or rubles — or bitcoin ? I doubt it . Mohsin doesn ’ t draw any hard conclusions . But the sunset might have already started .
James P . Prout is former SEC lawyer with more than 30 years of capital market experience . He has been reviewing books for Financial History since 2009 . He is now a consultant to some of the world ’ s biggest public companies .
44 FINANCIAL HISTORY | Fall 2024 | www . MoAF . org