The Dollar Kill-Switch: Edward Fishman on How The U.S. Controls The Global Economy

Can a country wage war without ever firing a bullet? In this episode of Bankless, we uncover the surprising truth: America’s most powerful weapon isn’t its military - it’s the dollar. Joining us is Edward Fishman, a former State Department official and the author of Chokepoints: American Power in the Age of Economic Warfare. He explains how U. S. sanctions work, why they’re so effective, and what happens when countries try to escape them. From Iran and Russia to the rise of stablecoins and China’s digital yuan, we dive deep into the geopolitical power of financial infrastructure and crypto’s growing role in rewriting the rules. If you want to understand the silent machinery behind global power, and why crypto might be the next battleground - don’t miss this one. --- 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium --- BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🟠BINANCE | THE WORLDS #1 CRYPTO EXCHANGE https://bankless.cc/binance 🦎COINGECKO API | REAL-TIME CRYPTO PRICE & MARKET DATA https://bankless.cc/coingecko --- TIMESTAMPS 0:00 Intro 5:51 Sanctions 101 8:32 The History of Economic Warfare 17:03 When Sanctions Precede War 22:27 Life After Dollar Disconnection 31:28 Sanctioning Russia: Methods & Lessons 43:49 Measuring Sanctions’ Effectiveness 49:20 The Strategic Tradeoffs of Sanctions 57:28 The Rise of Dollar Dominance 1:04:05 Unseen Costs of Sanction Power 1:08:15 Shifting Global Economic Power 1:15:47 Risks to U. S. Economic Leadership 1:20:43 Stablecoins as U. S. Leverage 1:28:13 Crypto’s Role in Sanction Evasion ------ RESOURCES Edward Fishman https://x.com/edwardfishman Edward Fishman’s “Chokepoints” https://www.penguinrandomhouse.com/books/726149/chokepoints-by-edward-fishman/ --- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  I think that we are at the precipice of a major shift in terms of how cross-border payments work. China has by far the biggest and most advanced state-backed project to do this through both the ECNY as well as Enbridge, this platform that they built with other central banks. And so the question is, can the US retain its lead?

• 0:22Ryan Sean Adams?

  Welcome to Bankless, where today we explore the frontier of economic sanctions and internet money. An interesting combination. This is Ryan Sean Adams. I'm here to help you become more bankless. I've always wanted to do a deep dive in this somewhat nerdy topic. This is America's superpower of economic sanctions. And our guest today, Edward Fishman, provides a crash course on this. Make no mistake, this is very much a crypto topic, because the power of the US to sanction comes from the dominance of the dollar. This is a topic we often discuss on Bankless. And not only the dominance of the dollar, but the dominance of the US banking system. 90% of all transactions are settled in the dollar

• 1:05Ryan Sean Adams?

  today. But in the future, Edward thinks countries will have more than one option. They can either stay in the US system, they can move to the new Chinese digital currency, or, and this is the most interesting, they can set up shop in crypto, the internet money system. Few things we discuss: why sanctions are more powerful than tanks and missiles, the 2015 Iran sanctions, what it feels like to be cut off from the dollar, the 2022 Russia sanctions, how Ed found himself on Russia's sanction list, the effectiveness of sanctions, US dollar supremacy, stablecoins as America's best hope, and whether Ed thinks crypto is a tool to evade sanctions or a tool for economic freedom. Please enjoy this conversation with

• 1:49Ryan Sean Adams?

  Edward Fishman on America's financial superweapon.

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• 3:57Ryan Sean Adams?

  Bankless Station, very excited to introduce our next guest. Edward Fishman is a senior research scholar at Columbia University. And before that, he spent about a decade in government designing sanctions on Iran, Russia, Europe. He knows a thing or two about economic sanctions and our topic today, choke points. In fact, he wrote a book called Choke Points: American Power in the Age of Economic Warfare. Ed? Welcome to Begless.

• 4:21Speaker 00

  It's great to be here with you today, Ryan. Thanks for having me on the show.

• 4:24Ryan Sean Adams?

  Okay, so this is primarily a crypto podcast, but we cover all sorts of things related to the economy and monetary policy. And I think what we want to do, Eddie, if this is okay, is get a crash course from you on financial sanctions, what you call choke points. And maybe the way to start this is just to ask the question, how does America currently project its power through sanctions today?

• 4:51Speaker 00

  Sure. And I appreciate that question because I think really my main motivation in writing my book, Choke Points, is we hear about sanctions all the time. They're front page news almost every single day, and very few people could even answer what they are. Maybe to zoom out for a second, economic warfare itself is as old as history. From the beginning of recorded history, states have tried to advance their objectives internationally by applying economic pressure on other countries, on other states. Historically speaking, though, up until very recently, doing that in any meaningful way really required the use of military force. So for instance, as recently as the 1990s, the most prominent case of economic sanctions that happens in the 1990s

• 5:36Speaker 00

  is when the US and the United Nations imposed an embargo on Saddam Hussein's Iraq. This is right after Iraq invades Kuwait, the neighboring state, and annexes it in 1990. That's ultimately what precipitated the Gulf War. And the goal of the sanctions that were put in place, and the UN imposed a full embargo on Iraq within 48 hours of Saddam's invasion of 1990, was to stop Iraq from selling oil on international markets. And this embargo stayed in place all the way from 1990 to 2003, up until George W. Bush launched the even bigger second invasion of Iraq. And the way that that was implemented, the way that the US and its partners actually set about stopping Iraq from selling oil was through a multinational naval blockade. It was by having

• 6:20Speaker 00

  naval ships patrol the Persian Gulf 24/7 for that entire 13-year period. And whenever they saw a ship or tanker going in and out of Iraqi ports and they were Suspicious that this might be in contravention of the embargo. They would actually dispatch commandos via helicopter to land on the ship. And if they found oil on board to take samples and send it to laboratories for testing. So as recently as the 1990s, really hard hitting economic warfare required naval force. If you were, you know, a trading power, sometimes even sieges, right? You go back throughout history, you know, surrounding a city and stopping, you know, anything from coming in and out. But what happened in the wake of the 1990s, in the wake of what we now call hyper globalization?

• 7:02Speaker 00

  When you really globalize the international financial system, when countries like China and Russia and the rest of the former Soviet Union that had previously been outside of the dollar system come into the dollar based financial system, when they start using international supply chains, we see the creation of these choke points in the global economy, these parts of the global economy where one state has a dominant position and there are few, if any, substitutes. And this is key, the non-substitutability. The most important of those is the dollar, just given its incredibly central role in international finance. 90% of all foreign exchange transactions have the dollar on one side or the other, and there's $7 trillion worth of foreign exchange transactions changing hands every single day. So just the scale is almost, you know, beyond our comprehension.

• 7:46Speaker 00

  And the way that the US has come to weaponize, you know, these choke points, and we can talk about this through the course of the episode, most importantly of all is through that financial choke point. It is through now not necessarily putting a ship outside of Iran's ports. That's not how the US stopped Iran from selling oil. It was by going to banks in places like China and India and Turkey, all of which were importing Iranian oil and said, if you were processing payments for Iranian oil, you have to comply with our policy or we're going to cut you off on the dollar. Basically giving a binary choice and being able to weaponize that choke point of the dollar based system. What we have today is a system where the US government can impose really devastating economic harm on any other foreign country without deploying a single US soldier or sailor into harm's way.

• 8:31Ryan Sean Adams?

  That's fascinating. There's so many questions that that branch from this topic. And I guess what you're saying is the the concept of economic sanctions and the the tool of warfare of economic sanctions, that's not new. That's been with us throughout history. And but but the means to deploy that digitally rather than to use kind of the the nation state level monopoly on violence and actually deploy like troops and you like force, force the issue in meatspace. Or and now we could do it digitally rather than meatspace. And that part, that part is all new. I'm wondering if you could give us some some history here. So on Bagless, we're kind of like suckers for just some good stories throughout history. I know your book talks about a series like the the history of economic sanctions, you know, early days, Greek city states, that kind of thing.

• 9:16Ryan Sean Adams?

  How were these sanctions in the ancient world used? And are there stories throughout history that kind of like show us the power of these things?

• 9:24Speaker 00

  Yeah, so I mean, I think, you know, if you look at how the Iraq embargo worked that I just mentioned, right, naval patrols, right? That really is what economic warfare even looked like going back to ancient Greece. You know, the most prominent case of economic warfare in the ancient world is Athens on the precipice of what has became the Peloponnesian War, this 27 year struggle between Athens and Sparta, imposes an embargo on its neighboring city state of Megara, basically to try to send us a signal to Sparta about its economic power. And the way that Athens actually cut off Megara from from trade was through its naval dominance. It was at the time Athens had a naval empire, so they controlled all of the sort of naval

• 10:06Speaker 00

  city states around the ancient Aegean, and they had by far the biggest navy in the ancient Mediterranean. And so they were able basically to cripple Megara's economy with a naval embargo that looked very similar to the Iraq embargo of the 1990s. The way that we moved from that sort of old style of economic warfare, it really comes about by accident. And I think that's why, you know, choke points for some people say, you know, it's a it can be very exciting to see how the story unfolds because it wasn't necessarily brilliant people sitting behind a room being like, oh, well, we could do this incredible new strategy. It was like a series of discoveries. And the first really comes after George W. Bush is reelected. So just to reposition our listeners, what was happening at the end of 2004?

• 10:50Speaker 00

  This is right when George W. Bush wins his second term over John Kerry. You know, the wars in Iraq and Afghanistan are well underway. The Casas belly for the US invasion of Iraq, which had been that Saddam Hussein was building weapons of mass destruction and principally nuclear weapons by then had already been proven to be false, that Iraq did not have any meaningful weapons of mass destruction. And yet, at the same time that that discovery came to be confirmed in late 2004, Iran, which is right next to Iraq and much bigger and more powerful than Iraq, actually was building a significant industrial scale nuclear enrichment program. And so you had this really awkward situation for George W. Bush, which he had literally just invaded a foreign country and overthrew their ruler

• 11:35Speaker 00

  to try to get rid of a nuclear program that didn't exist. And yet, the neighboring country actually was developing legitimate nuclear program. And there was no appetite for yet another war in the Middle East. The US is already fighting two at the same time. And so there was a question like, what do we do about this? You know, how do we stop this really clear and present danger? And especially because Iran, if you think about it, was also supporting terrorist groups like Hamas and Hezbollah. And there's real concern that if Iran had fissile material, you know, nuclear material, they could give it to a terrorist group that could then launch an attack that was an order of magnitude worse than 9/11. And, you know, people, there's actually this great press conference I recall in my book, Choke Point, in December of 2004, after Bush is reelected,

• 12:16Speaker 00

  where a reporter asks him, you know, well, why don't we try to do sanctions on Iran? And he says, well, we've sanctioned ourselves out of influence with Iran. We don't have any influence over Iran anymore. And his logic was that the US had already imposed a domestic embargo on Iran. The US wasn't trading anything with Iran. You couldn't buy anything from Iran if you were an American individual or a company. You couldn't sell anything to Iran. And there was no appetite for this kind of naval embargo style, more aggressive sanctions that you would imply because that was seen as sort of like on the same spectrum as military force. That could have been, you know, ultimately a segue to A war with Iran that no one wanted. And so he kind of viewed sanctions as not important, not almost feckless.

• 12:57Speaker 00

  And when he said this, the official in his government, this guy named Stuart Levy, who actually winds up playing a really important role in the history of crypto too, that we could talk about. He's at the time, serving as the first under secretary of the treasury for terrorism and financial intelligence, so the official who oversees US sanctions. And he hears Bush say this, and he views it as like a personal challenge. He's like, the president has just said that I have no role to play in the topmost national security priority. Like, I really need to figure this out. And Stuart, he's a brilliant lawyer. He's a soft spoken guy, but he's got a chip on his shoulder. And so a few months later, he's actually in a hotel room, or sorry, he's at a hotel restaurant in Bahrain, you know, in the Gulf, in the Persian Gulf, flipping through

• 13:40Speaker 00

  the Financial Times, when he comes across an article about a Swiss bank that of its own volition has cut ties with Iran. Basically just decided, didn't want to do business with Iran anymore. And he kind of has this lightbulb moment at the time where he says, hold on, maybe it's okay if we can't persuade China and Russia and the UK and France, Germany to cut ties with Iran, the governments. Maybe it's okay if we don't send a naval blockade into the Persian Gulf. Maybe I can just go around to the financial centers of the world, meet with bankers in London and Frankfurt and Dubai and Hong Kong and Singapore, bring with me declassified intelligence, showing them how Iran was using their banks, often unwittingly, to funnel

• 14:23Speaker 00

  money into its nuclear program and to support terrorist proxies like Hamas and Hezbollah, and persuade nine out of 10 of them of their own volition to stop doing business with Iran. Because they didn't want, you know, a front page article saying that, you know, HSBC is involved in funding Iran's nuclear program. And so he kind of sets up, sets this new paradigm of government to business diplomacy, where he goes around and within a couple of years, pretty well isolates Iran from the international financial system, persuades most of the biggest banks in the world to quit Iran of their own volition.

• 14:56Ryan Sean Adams?

  So before Stuart Levy, we didn't do this. The US didn't do this. They didn't impose sanctions in kind of a, I don't know if I call it self-power type way, but it just, without any physical force, right? Using kind of networks of banks and softer sort of, I guess, you know, a digital touch to all of this. We didn't do this before Stuart Levy.

• 15:17Speaker 00

  That's right. Exactly. We thought of sanctions as basically just another, you know, sort of waystation on the way to actual military force, right? You needed the UN to authorize them, and then you send an embargo if you're serious. You send a naval blockade if you're serious.

• 15:32Ryan Sean Adams?

  And that's what's interesting is sometimes, in many cases, like these sanctions, the type of economic sanctions you were talking about previously that nations did to one another, was a precursor to war, wasn't it? I mean, was the entry point into war. It was almost verging on a declaration of war.

• 15:49Speaker 00

  Yes, 100%. I think this is the important thing, when you think about it like from a mental standpoint, is if you were prepared to go for hard-hitting economic warfare, which involved oftentimes the interdiction of cargo, right? Literally inspecting ships coming in and out of a port. Like, the way for a foreign government to stop that from happening is to physically fire on your ships, sink your ships, right? With torpedoes or missiles, right? I mean, like, this is, you know, you could go back to the naval blockades that occurred during World War I and World War II, where a lot of the sort of naval wars were all about, you know, making economic warfare possible on the part of the Allies, or to break blockades

• 16:28Speaker 00

  on behalf of Germany and its allies. So it was sort of seen as a waystation to war, something that precipitated war. The advent of this new style of economic warfare, where you're not using anything besides, effectively, the self-interest of the private sector. Banks deciding either that they don't want the reputational harm of being seen to be doing business with Iran, or for those who were stragglers, like I said, it's nine out of 10, not 10 out of 10, who care about their reputation. For that one out of 10, you can go and say, okay, well, if you keep doing business with Iran, you're cut off from the US dollar.

• 17:03Ryan Sean Adams?

  Yeah. Ray Dalio talks a little bit about Kind of the the trap, the Thucydides trap that nations often find themselves in. And he talks about kind of the precursor to hot wars are often economic sanction wars. And I recall him going through the scenario of Japan, 1930s and the US. And I don't recall the specific legislation, but the US, as I recall, basically blocked Japan off, sanctioned, economically sanctioned them, cut off their entire supply of oil in the Pacific Islands and that entire region. And this was, according to historians, like a key reason that Japan felt the need to surprise attack and launch like Pearl Harbor.

• 17:48Ryan Sean Adams?

  And his point being like, the economic sanction attack is just, is often a precursor to war. It's almost an act of war in itself, and it can get nations into hot war scenarios rather quickly.

• 18:00Speaker 00

  Yeah, that's 100% right. And funnily enough, about a month ago, Ray Dalio and I spoke at the same conference and backstage.

• 18:07Ryan Sean Adams?

  Oh, wow.

• 18:07Speaker 00

  We had this conversation and he was saying, you know, because I gave him a copy of Choke Points. He gave me a copy of his new book. And he was like, yeah, it's all about economic warfare. That's always, and we had this exact conversation. And it's true. I mean, the Pearl Harbor attacks of Japan on the United States were precipitated by an American, a very aggressive American embargo of Japan. And so I do think that, you know, we should not be using economic warfare willy nilly. And what I will say, though, at the same time, is that because of the way that we are prosecuting economic warfare today, where it is much more, it's economic warfare by paper, right? It's the main characters in my book are not generals and admirals.

• 18:49Speaker 00

  You know, their bankers, their lawyers, their government bureaucrats, right? That are actually prosecuting this economic warfare. It is a little bit less risky today, but we ought not underestimate the risks when we go ahead with these weapons.

• 19:03Ryan Sean Adams?

  So who makes these decisions, right? Where does this reside in the US government? Because to your point, it's not in the Pentagon. It's not in traditional military, yet these are economic attacks of a sort. So who's calling the shots for these? Who decides? It strikes me that this is definitely not an act of Congress. Does the president essentially sign off on all of these economic sanctions?

• 19:26Speaker 00

  Yeah, so economic warfare is interesting relative to military force in that the president does have tremendous power with respect to economical warfare. It's actually what's being tested right now in some of the court cases around Trump's tariffs. Because there's a 1977 law called the International Emergency Economic Powers Act, which allows the president to declare a national emergency and then effectively cut off any foreign individual or company from the US economy, whether the financial system or imports from the United States. So it gives the US president a lot of power. For instance, the Russia sanctions of 2022, where the US government did everything from embargo Russian oil to impose financial sanctions on the biggest banks in Russia.

• 20:11Speaker 00

  They froze the sovereign reserves of the Central Bank of Russia. All of that was done by President Biden with the stroke of a pen, just with executive authority. That was not Congress. But the thing that is interesting is that Congress also can impose sanctions. So Congress can pass laws that have the same force. They can basically tell the president, you must impose sanctions on this foreign company or foreign individual. And what that means is like there are two different actors. And one of the interesting parts of the story of Iran sanctions leading up to the nuclear deal in 2015, and those are probably the most impactful US sanctions in modern times. It starts during this Stewart Levy period, mostly through executive action, where it's really the Bush administration is passing executive orders.

• 20:56Speaker 00

  It's Levy who's honestly pioneering the policy out of the Treasury Department. But then as we get into the Obama administration, and Obama famously wants to reach out a hand to Iran and try to do diplomacy, Congress really loses confidence in Obama's strategy and starts passing really aggressive sanctions over the head of the Obama administration with oftentimes like 100 to 0 in the Senate. And so when you pass something with that kind of a majority, it's veto proof, right? The president If the president vetoes it, Congress can then just override its veto by passing passing the law with a two thirds majority. So, and look, I was involved in sanctions at the time, working at both Treasury and State. And the thing that was interesting, I actually had to implement some of these sanctions. So I was the guy who had to go

• 21:40Speaker 00

  to places like, you know, Singapore and Vietnam and Malaysia and talk to shipping companies and oil companies and tell them, you know, if you keep, you know, processing payments for Iranian oil, you're going to be cut off from the dollar. I was the person who was sent out to do those conversations. It actually was very helpful to me, you know, because it's an awkward conversation to say, I don't want to be in this room, but Congress just passed a bill unanimously. Like, I really don't want to be here. And that makes it much easier, right? Because it's like, you're not the bad guy. You're just the guy delivering the news. You're trying to help them. You're trying to help them avoid this catastrophic consequence of being cut off from the dollar. And so in some ways, even though we kind of hated it at the time, that Congress was, you know, breathing down our neck in the

• 22:21Speaker 00

  Obama administration, it winds up being absolutely critical to, you know, tightening the screws on Iran.

• 22:27Ryan Sean Adams?

  So that's the stick that the US has, being cut off from the dollar. I mean, that that sounds, that sounds terrible, I suppose. Could you get into the nuts and bolts of what that actually means? So what does that mean for a country that's on the receiving end of this, or a group of individuals? So Iran in 2015, cut off from the dollar. What ways were they cut off? What was the effect on, you know, their government, you know, the people in power? How did they feel it?

• 22:52Speaker 00

  Yeah, I'm really glad you asked this, because I think even within kind of the national security community, people, even people sitting around the table in the Situation Room may not fully understand or grasp.

• 23:02Ryan Sean Adams?

  Well, they've never been cut off from the dollar, right? They've always had access to it.

• 23:05Speaker 00

  Exactly. Right. And I now have a bit of a taste in this, because I was sanctioned by Russia in 2022. So not having access to the ruble, you know, it's, it's not quite the same, but I have, I have similar.

• 23:17Ryan Sean Adams?

  Wow, we got to get into that story, too. But okay, but first, what does it feel like to get cut off from the dollar?

• 23:22Speaker 00

  Sure. So let's just talk about why the dollar is so important for a second. You know, oftentimes, it's kind of thrown around that the dollar is the world reserve currency, which is true. So central banks hold 60% roughly of their sovereign reserves, their foreign exchange reserves in dollars and dollar-based assets.

• 23:41Ryan Sean Adams?

  Treasuries primarily?

• 23:43Speaker 00

  Exactly. However,

• 23:46Speaker 00

  When people really say the dollar is the global reserve currency, it's usually what they're trying to say is the dollar is like the dominant currency across all use cases for currency. So, and the use cases, as probably your listeners know, it's not just being a store of value, it's also a medium of exchange and unit of account.

• 24:01Ryan Sean Adams?

  Yes.

• 24:02Speaker 00

  And when you look at medium of exchange, I mentioned earlier, you know, the dollar is involved in 90% of foreign exchange transactions. And so

• 24:12Ryan Sean Adams?

  That's a staggering number, 90% of all foreign exchange transactions. So, does that mean effectively 90% of all purchasing activity across the world happens in the dollar?

• 24:22Speaker 00

  Yeah, so look, there are some foreign exchange transactions that are happening because of, you know, for, you know, speculation and whatnot.

• 24:29Ryan Sean Adams?

  Sure.

• 24:29Speaker 00

  But I do think it is a, it is probably the most illustrative statistic of the importance of the dollar because it encapsulates everything. Because anytime two countries are trading with each other, there is going to be at least one, if not multiple, foreign exchange transactions that happen, right? Because, you know, a good example, let's say, you know, India is selling rice to Saudi Arabia, right? A Saudi bank isn't going to hold rupees, right? That's not, it doesn't make sense for a Saudi bank to hold every currency that they may encounter, right? They'll have Saudi reals because they've got customers in Saudi Arabia who deposit their reals in the bank, and then they also have dollars, right? And they have those dollars through correspondent banks, this correspondent bank network here in New York City, usually through a relationship with an American bank.

• 25:13Speaker 00

  And so the way that that transaction actually happened, sort of behind the hood, is that the reals would be converted into dollars, and the dollars would be converted into rupees to pay the Indian supplier for the rice, right? So that the Indian supplier could then, you know, go to the, you know, the rice farmers and pay them their salary in rupees, right? So, the dollar is going to basically be serving as a waystation in this, to make this transaction possible, even though there's no US company that's clearly involved in the transaction. And that's what makes US sanctions really so powerful, that you can interdict trade between countries that have nothing to do with the United States, just because they need access to the foreign exchange market to actually make that payment possible.

• 25:54Speaker 00

  This is also why stablecoin and crypto potentially could be a paradigm shift for how the system works. I'm sure we'll get into that later. But beyond just also being the default medium of exchange, the dollar is the default store of value. Beyond just central bank reserves, it's something like 70, 80% of equity market capitalization is in dollars. Ditto with debt markets. I mean, everything, basically, if you have money right now, most of the time, you want to invest it in dollar assets. We may be at sort of the end of that story now, or the very beginning of the end, but so far, that is how things have been. And then also, when you think about unit of account, which is just, how are you invoicing international trade? What is the currency that you're listing

• 26:36Speaker 00

  prices at? The dollar is by far the dominant unit of account. And most importantly, in key commodities markets like oil, where the global price of oil is quoted in dollars, oil contracts generally are in dollars. And if you just think about the scale of the oil market, just how massive it is, 100 million barrels of oil a day, I mean, it's this incredible scale of money changing hands every single day. And the fact that oil is priced in dollars is something I talk about in Choke Point, actually winds up becoming a sort of key linchpin of the entire dollar system when that deal was struck between the US and Saudi Arabia in the 1970s. So for Iran, getting cut off from the dollar, what does that feel like?

• 27:19Speaker 00

  Got it. Yeah. And I appreciate you re-centering me on the key question. So what does that mean? So for an Iranian company, it means that it's really challenging to do any business outside of Iran, because you are not able to basically make foreign exchange transactions. So how do you clear payment, even if you have a good that you want to sell to Europe or China or vice versa? How are you actually settling that payment? What is the medium of exchange, right? Iran, by the way, when it was cut off from the dollar, and still to this day, I mean, they use a lot of methods that we would consider absolutely insane, right? It's like barter, right? Where they're trading lentils in exchange for rice or something

• 28:03Speaker 00

  like that, you know, which is extremely hard and cumbersome to do. They use gold sometimes for certain transactions. The reason, though, it becomes even harder For Iran is that you have what's called secondary sanctions where let's say even if Iran can, you know, decide, you know what, we're going to just use the euro to trade with Europe, right? The US can say, well, if you transact with an Iranian company under sanctions, you will then be cut off in the dollar. You European bank, if you are processing payment with Iran, we're going to cut you off of the dollar. And then the European bank has to decide, well, do I care more about access to the dollar? Or do I care about facilitating this trade with Iran? And so to go back to the example of oil sanctions, right?

• 28:46Speaker 00

  I mentioned there the oil embargo on Iraq in the 1990s. You know, US naval sailors inspecting cargoes. The way that the Iran oil sanctions work, which were even more impactful, they cut Iran's oil sales by over 60%. What they did was it was going around to refineries in places like China, India, Turkey, and their banks importantly, and saying, if you do not reduce your purchases of oil from Iran every six months, basically if you don't gradually wind down your purchases from Iran, you will lose access to the dollar. And so in some ways, it's not even the sanctions that are directly on Iran that are the most impactful. It's being able to pressure Iran's trading partners. Finally, what does that all lead to, right?

• 29:27Speaker 00

  What it leads to is a country that is not only effectively severed from international trade, but it also generally means that you wind up having things like substantial inflation. And so the purchasing power of the population goes down. You see living standards go down. You wind up seeing your currency depreciate substantially because there's effectively very little demand for your goods because people don't want to trade with you. And so it does wind up having broad based economic effects on the entire country. And so one of I think the biggest myths about sanctions that you hear policymakers say is, oh, well, these sanctions are narrowly targeted at the leadership. They're affecting Ayatollah Khomeini or they're affecting Putin.

• 30:10Ryan Sean Adams?

  Right.

• 30:11Speaker 00

  I mean, it is very, very hard to like impoverish Putin, right? I don't think you could do that. We're powerful in the US, but we're not that powerful, right? But so what generally happens is the brunt of these sanctions is really felt by everyday people. And I think what that means, if you're a US government official who's prosecuting economic war. You have to have a damn good reason for doing this, right? There should, you shouldn't do this lightly, right? Because there are negative externalities. You're, you're making people's lives worse. You're generating, you know, and you know, people who don't like the United States, right? So you, you have to have a good reason. With Iran, I think we did have a quite a good reason, which was we were trying to get a peaceful resolution to Iran's nuclear program.

• 30:54Speaker 00

  We were trying to end Iran's nuclear program without risking a war. And I think the Obama administration ultimately succeeded with that. I think with Russia, you know, the goal was to initially deter Putin from invading Ukraine. That failed, but I think ultimately after that, it's about weakening Russia. It's about making Russia less able to deploy its military in ways that, you know, are bad for not only Ukrainians, but the entire international community. And I think those are warranted, but I think in some of these other more edge cases of should we be using sanctions or not, you should be default to not using them.

• 31:27Ryan Sean Adams?

  So use of economic sanctions on a country by the US is absolutely going to, you know, have big, large impacts on their economy in a negative way. So I'm sure this impacts GDP, this can increase inflation. You're saying that the citizens of the country, you know, like generally are the ones paying for this, but this does have a cost, like this does have a economic cost to the country that, you know, the US is, I guess I could use the word attacking in this way. Can we talk a bit more about the, the more recent sanctions on Russia? So there are other things like cutting them off from the payment network, of course. And maybe you could talk about a little bit about the tools that are employed here, you

• 32:11Ryan Sean Adams?

  know, kind of the sanctioned stack, as it were, because it was surprising, I think, to a lot of folks that the US had the ability to just freeze bank accounts of Russian oligarchs, effectively seize their assets, take their money. And a lot of US politicians were talking about this. So what were the effects in the, the US Russia sanctions on kind of Russian oligarchs? And mechanically, how did this even work?

• 32:37Speaker 00

  Sure, yeah. So I think it's helpful to go back to the circumstances of February 2022, when the big Russia sanctions went into effect right after the invasion, a big invasion of Ukraine.

• 32:51Speaker 00

  The Biden administration and the rest of America's allies in the G7 had fundamentally a problem, which was they needed to maximize the economic pain on Russia to try to accelerate, you know, a change of, you know, change of heart about his, his war in Ukraine. But they had to do so in a way that didn't have catastrophic consequences at home for us. In the US, the way that that manifested was we already had oil prices over a hundred dollars a barrel in 2022. Inflation was at a four decade high, it was over 7% at the time. And so the Biden administration was really nervous about targeting the key export from Russia, which is oil. And so in it, so in and of itself, it was a really hard problem to maximize pressure

• 33:35Speaker 00

  on a country like Russia without targeting their main export. So what the US and the rest of the G7 did was they focused on finance and technology. We imposed blocking sanctions on the biggest banks in Russia, spare bank and VTB, which fully cut them off from access to the dollar-based system. We also kicked a number of the big Russian banks out of SWIFT, which is this financial messaging service based in Belgium. The thing that's interesting about SWIFT that people talk about is you say, oh, this is a huge sanction that the US can deploy. Well, actually SWIFT is based in Belgium. It's a European Union entity. And so they, it was actually the EU that kicked Russian banks out of SWIFT. It wasn't the US.

• 34:18Speaker 00

  The US, of course, has quite a bit of leverage over Europe and so can pressure Europe to take that action. It can also deploy pressure directly on SWIFT, which it has done in the past. But in this case, it was actually the EU who kicked the Russian banks out of SWIFT. And then I think the most important sanction of them all was sanctions on the central bank of Russia. So between 2014, when Russia first invaded Ukraine and ax Crimea, and the US put sanctions on Russia, and 2022. The Central Bank of Russia and other economic technocrats in Moscow tried to sanction the true Russian economy, basically to try to harden themselves for what they thought was going to be a new economic attack. And the main way that they did this was through accumulating $630 billion worth of sovereign reserves.

• 35:01Speaker 00

  Basically, they thought if they have this giant stockpile of hard currency, even if their banks are cut off from the dollar and the euro, they ultimately can defend the ruble, make sure that it doesn't absolutely collapse, they can buy critical imports for a long enough time that the crisis will blow over and basically the West will eventually

• 35:19Ryan Sean Adams?

  And these sovereign reserves, like what were they denominated in? Were these like US treasuries and in bonds of other foreign currencies? Or this is like harder assets like gold or something like this?

• 35:28Speaker 00

  It's a really important question. So I mentioned earlier, 60% of sovereign reserves globally are dollars, right? Russia really was very, looked like a normal allocation up until 2018. And in April of 2018, under pressure from Congress, Donald Trump during his first presidency imposed unilateral sanctions on a Russian aluminum company called Rusal, which wound up really stoking chaos in aluminum markets. The company's stock was was cut in half and Trump ultimately pulled the sanctions back within like 24 hours. But the lesson that Putin and his team took from that was if the West one day goes on an economic offensive against Russia, it's only going to be the US acting alone.

• 36:12Speaker 00

  The Europeans aren't going to follow suit. And so what they did after this action in 2018 was they actually dumped a lot of their treasuries, over $100 billion worth of treasuries, and reallocated primarily to the euro. And so by the time the war starts in 2022, of those 630 billion of sovereign reserves, something like 250 billion are in the euro, which is kind of remarkable. You had another 50 billion, give or take, distributed between the dollar, yen, and pound, and then the rest of it was gold and RMB. And so Russia had this sort of untraditional reserve allocation where the biggest part of their reserves was euros, and after that

• 36:54Speaker 00

  was really sort of gold, RMB and dollars after that. They also, interestingly enough, beyond even their reserves, they started using the euro as their key medium of exchange. So between 2018 and 2022, Russia was clearing its cross-border payments in euros. Like when it was when China and Russia were doing trade, you know, if China was buying oil or gas from Russia, they were paying Russia in euros. And that bet ultimately proves catastrophic because, you know, one of the upsides, I think, of Joe Biden's penchant for multilateralism and working with allies was it wasn't just the US that imposed sanctions on the Central Bank of Russia, it was also Europe.

• 37:32Ryan Sean Adams?

  Oh, okay.

• 37:33Speaker 00

  To this day, we still, we have something like 250 billion dollars worth of Russian foreign exchange reserves sitting in European bank accounts. They're denominated in euros.

• 37:44Ryan Sean Adams?

  Just frozen, just Russia cannot access. So it's okay. So the central bank, the sanctions against Russia's central bank, you said, were the most impactful, maybe the most devastating. So basically, all of those foreign reserves that Russia had been hoarding, you know, some treasuries, but now mainly diversified into euro-backed bonds, they were in the stroke of a pen or kind of the, I don't know if it's stroke of the pen or something in some computer system, suddenly frozen one day? And so Russia has no, Russia's central bank has no access to any of those reserves?

• 38:20Speaker 00

  Yes. And to add insult to injury to the Russians. So these reserves, actually, a big part of them is kind of interesting. It's like 200 billion euros that are actually in one institution called Euroclear, which is a Belgian institution. And what has been happening now for the last, you know, since the end of 2024, so late in the Biden administration, is that the US and Europe have Been using the proceeds from those frozen assets, basically the interest that it's throwing off to finance aid for Ukraine.

• 38:55Ryan Sean Adams?

  Wow.

• 38:55Speaker 00

  And so a $50 billion loan that was basically given to Ukraine is being financed, being repaid through the interest proceeds from Russia's sovereign assets. And all of that money is being used to buy weapons for Ukraine, ultimately to fight and kill Russians.

• 39:10Ryan Sean Adams?

  So how painful is that for Russia when they get, you know, I don't know how, in terms of what percent of their central bank reserves, this was actually about half was frozen?

• 39:21Speaker 00

  Yeah.

• 39:21Ryan Sean Adams?

  Oh, my God. Okay. So what does this do to the local currency and basically their monetary policy?

• 39:27Speaker 00

  It crushes. I mean, if you go, I mean, this is the thing that's interesting, too, is now people say, oh, well, look, Russia's weathered the storm. I mean, go back to March of 2022. For a full month, the Russian stock market was was closed, completely shut down. You couldn't trade anything in Russia. The ruble collapsed to something like 135 rubles to the dollar, which was by far the lowest it's ever been.

• 39:50Speaker 00

  And you wind up having, I mean, effectively, what what happens in that scenario when you're, if your currency is is completely collapsing, normally what happens is a central bank will intervene in foreign exchange markets to try to prop up the value of the currency. So let's say Russia had access to its dollars and euros.

• 40:07Ryan Sean Adams?

  Sure.

• 40:07Speaker 00

  It would take dollars and euros, go on foreign exchange reserves and buy rubles. And what that would do is it would create demand for rubles.

• 40:13Ryan Sean Adams?

  Right.

• 40:13Speaker 00

  That then would kind of check some of the the demand on the other side of the transaction.

• 40:17Ryan Sean Adams?

  The purpose of having these reserve assets.

• 40:19Speaker 00

  Exactly. And because if you think about the other side of the transactions, all these individual Russians who are saying, I don't trust my currency. I want to have dollars. I want to have, you know, they're taking, they're taking their rubles and converting them into into dollars and euros and as well as foreign investors who are pulling money out of the country. And so that is why you have foreign reserves. They couldn't do that because all of them are frozen. What the Russian government did, though, actually was quite clever. And what they effectively exploiting one of the gaps in the Western sanctions is they told all of the state owned enterprises in Russia critically, like Rosneft and Gazprom. Rosneft is the state owned oil company. Gazprom is the state owned. gas company. Remember, I got over telling you that the US did not want to affect the sales of Russian fossil fuels because they're worried about spiking oil prices and worsening

• 41:04Speaker 00

  inflation in the United States. They forced the Rosneft's of the world to sell 80% of the dollars that they were accumulating for rubles. And so effectively, they they took the balance sheets of state-owned enterprises.

• 41:18Ryan Sean Adams?

  Wow.

• 41:18Speaker 00

  And leveraged them.

• 41:20Ryan Sean Adams?

  Okay.

• 41:20Speaker 00

  To intervene in foreign exchange markets on behalf of the Russian government. And this, by the way, in retrospect, was the key error, I think, that the sanctions made was they didn't realize that Russia could do this, and they didn't act quickly enough because theoretically, you could have said, okay.

• 41:33Ryan Sean Adams?

  Could have frozen those assets, too.

• 41:34Speaker 00

  Totally. You could have said, well, Rosneft is cut off from the dollar. And so it's got all state-owned enterprises in Russia cut off from the US financial system. But they didn't do that. It was just focused on the central bank as well as the big commercial banks like spare bank and VTB. And that winds up being, I think, a really important gap in the sanctions. And it's what allows Russia not to fully recover, but basically to avoid a catastrophic financial meltdown.

• 41:57Ryan Sean Adams?

  Right. And some bad weeks, days and weeks, I imagine for Russian oligarchs as well, who received similar treatment, right? Did the US effectively find their bank accounts, wherever they were located internationally, and freeze those assets as well?

• 42:09Speaker 00

  Yeah. So with the Russian oligarchs, I mean, I'm always, I'm always hesitant to be like, bad weeks, you know, because these guys, you know, maybe their.

• 42:15Ryan Sean Adams?

  They're doing okay.

• 42:15Speaker 00

  Yeah, yeah, you know, their net worth maybe went down from 10 billion to 2 billion. But, you know, they're not, they're not living on the street. Yeah, I mean, and look, I also want to want to be, you know, in some, in some way empathetic in that, you know, a lot of them did have to change their lifestyles. A lot of them were spending time in New York and London and, you know, own properties on the Mediterranean. And now, you know, they spend more time in Moscow and St. Petersburg and, you know, on the Black Sea and their dacha instead of, you know, instead of in the Mediterranean. But yes, but a lot of these Russian oligarchs, I mean, if you think about any state where you don't trust property rights, you don't trust that the government isn't just going to come and take your money, which is the reality in Russia, right? I mean,

• 42:55Speaker 00

  Way Putin really consolidates his power in the early 2000s was he gathers around the oligarchs and says, if you don't stay out of politics, I'm going to take your money. Right. And this one guy, Mikhail Kotirkovsky, who's the most powerful oligarch at the time, oil kingpin, he doesn't listen. And Putin not only expropriates his oil company, which then becomes part of the state owned oil company Rosneft, but actually throws him in prison. So, yes, in countries where you don't trust that the governments can respect your property rights, a lot of people offshore their wealth, right? They take, that's why Russian oligarchs have these giant properties in London and Miami and New York, and why they, many of them had giant bank accounts denominated in dollars

• 43:35Speaker 00

  and euros. A lot of them were frozen, their yachts in many cases were seized. And so, yes, the sanctions did affect their lifestyles to a certain extent, but most of them wind up going back to Russia and doing okay.

• 43:49Ryan Sean Adams?

  So, these sanctions of 2022 against Russia, are these sort of the largest sanctions that we've seen so far and kind of the biggest targets? I mean, I know there's been sanctions, you know, with Korea, we talked about Iran 2015, but Russia is, I don't know, order of magnitude, more sophisticated? And are the sanctions that level of more devastating and more aggressive versus other cases?

• 44:12Speaker 00

  Yeah, so the sanctions on Russia are not as comprehensive as the Iran sanctions. So I mentioned earlier, you know, with Iran, we're going around to buyers of Iranian oil and telling them if they don't listen to us, if they don't, I mean, and when I, maybe I'll just do one quick tangent, because I think it's quite remarkable. The most impactful sanctions on Iran are the ones that actually give the Obama administration the leverage to cut the nuclear deal, was eventually, we went around to banks in China, India, Turkey and said, you can pay Iran for their oil, but you can only pay into a central bank of Iran account domiciled in your home country, and you can only allow those proceeds to be used to finance bilateral trade. So, you know, if China was buying oil from Iran, they pay an Iranian account in China,

• 44:56Speaker 00

  and the money could only be used to buy, you know, refrigerators from China. It couldn't be, they couldn't, you know, bring it to Lebanon to finance Hezbollah, they couldn't buy nuclear equipment with it. And within two years of this policy going into effect, there are tens of billions of dollars of Iran's own money, sitting in these offshore accounts that Iran basically... Can only access for very limited purposes. And the way we got the nuclear deal is we told Iran, we will give you unfettered access to your own money in exchange for you getting rid of your nuclear program. And that was enough. That like, that was enough. Wow. So we did, the sanctions on Iran are much, much more comprehensive than the ones against Russia. Because the US had much more leverage over that scenario than Russia. Um, I think we could have been tougher, frankly, on Russia. I think it's, it's because Russia is so much bigger, as you said.

• 45:40Speaker 00

  And in particular, they're such a large exporter of fossil fuels. So seven and a half million barrels of crude oil plus petroleum products each day. We were more cautious about going after Russia. We have the same power. We could do the same stuff against Russia for sure. We didn't because we were worried about the ramifications for the, you know, our own economy in the United States and the European economy. But yes, the Russia sanctions are the biggest in terms of when you take both the scale of the sanctions and the size of the target. But we have had more comprehensive sanctions on smaller targets like Iran. And we've also had less comprehensive sanctions on bigger targets like China, right? Where China being fully cut off from frontier semiconductors from the United States. I mean, China is another order of magnitude bigger than Russia.

• 46:25Speaker 00

  And we haven't yet gone after, gone after China with the kind of full scale financial hammer that we've used against, you know, the Iran's and Russia's of the world. So in the case of Russia, did it work, Eddie? Um, it's a, it's a, it's a harder question than it seems. Yes. Well, because I'll break it down into, into sort of two phases. The first phase really runs from 2021, the fall of 2021 till February of 2022. Because just to jog people's memories, you know, the US intelligence community determines in the fall of 2021, six months almost before the full scale invasion, that Russia is about to invade Ukraine, which is really almost historically unprecedented. To like, see a crisis coming from months away. You know, ordinarily, you know, a crisis happens

• 47:08Speaker 00

  and everyone in the White House finds out about it at the same time that everyone does on CNN. And you run to the Situation Room with your hair on fire saying, what do we do about it? With this, it was like, no, we had, you know, five, six months of advance warning. And so the initial goal of economic warfare vis a vis Russia was deterrence. It was to use the threat of, quote, "the most severe sanctions that have ever been imposed" to convince Putin that the costs of invasion would be too high and that he shouldn't do it, right? That clearly failed, right? Once Putin invades Ukraine, deterrence has failed. And so you move into a different phase of the sanctions, where the phase is what I would call attrition. What you're really trying to do is weaken Russia as much as possible.

• 47:49Speaker 00

  And when you think about if one side of your policy is strengthening Ukraine through military and economic assistance, as well as targeting assistance with their war of defense against Russia's invasion, the other side of the equation is weakening Russia, right? So you're trying to strengthen Ukraine and weaken Russia at the same time. In that respect, it's very challenging to say, yes, the sanctions have been impactful, or no, they haven't. What I can say with complete confidence is that we would be better off with the sanctions in place than without. Because if you didn't have any sanctions on Russia, Russia's economy would be humming along even more so than it is now. They would have probably overwhelmed more of Ukraine's territory

• 48:33Speaker 00

  and life would be just a lot easier for Russia. And I think this is one of the things that I came to realize during my time in government is no tool of statecraft, especially if you're trying to use a coercive tool, is like gonna work in exactly the way you want that often, right? I mean, even military force. The US is the most powerful military in the world. Trump has been gloating about the fact that we had B2s take off in Missouri and bomb Iran's nuclear facilities in like a 37-hour flight, which is an incredible technical achievement. But we're not even sure where Iran's high enriched uranium is right now. And you may have inadvertently accelerated their push for a nuclear weapon. So even military force doesn't always achieve the aims that you want it to.

• 49:17Speaker 00

  And I think the same is true of economic warfare.

• 49:20Ryan Sean Adams?

  Let's talk about the pros and cons of economic warfare then. So maybe the pros first, right? So it strikes me that for the US with this level of economic power, the ability to have deterrence and coercion and to cause some economic pain to an adversary without a tank, without a missile, without the sacrifice of any American lives, that's got to feel pretty high return on investment. So let's talk about like why economic sanctions are a good tool. And then we'll get into the other side of it, like why in many cases they're not.

• 50:00Speaker 00

  Yeah. So I'm glad you're asking this because you know, I've obviously, I wouldn't be an odd decision for me to spend so much of my career working on this if I didn't think that they had some utility. Look, I guess my own belief is that, you know, the world is a messy place. We oftentimes are dealing with problems in the United States that are really hard. And we really don't want to fight wars, particularly with other great powers, right? The prospect of a war with China or Russia is really almost hard to imagine, right? These are nuclear armed states. And anytime you're directly engaging them in warfare, you're risking the extinction of the human race.

• 50:42Ryan Sean Adams?

  Yeah.

• 50:43Speaker 00

  I mean, I'm like, I say that, you know, like in this friendly podcast conversation, but it's true, you know, and probably like our parents and grandparents generation, that was more like, oh yeah, of course, right? Because they were like, you know, ducking and covering in their classrooms during the Cold War.

• 50:56Ryan Sean Adams?

  Oppenheimer, yes.

• 50:56Speaker 00

  Yeah, right. But like, that is like, the world we live in, right? And so there's a question like, well, if you want to advance American interests internationally without using military force, what other options do you have? My own view is that the next best, the next most impactful thing we have is our economic power. And so I do think that sanctions and other weapons of economic warfare, like export controls, have an important role to play in advancing American interests around the world. Do I think that the US always uses these tools wisely? Of course not. And I think in some ways, we very, you know, we perhaps use them unwisely more often than we should. But I think that they have a very important role, particularly

• 51:41Speaker 00

  in, you know, trying to, trying to address really hard problems without risking war.

• 51:46Ryan Sean Adams?

  It seems like they're pretty fairly high return on investment as well. I mean, how much does it cost the US to impose these economic sanctions versus kind of its military might, the cost of that?

• 51:57Speaker 00

  In any individual case, and I think this is what also makes this question hard to answer, in any individual case, it almost feels costless, right? Where it's like, okay, well, we're cutting this Russian bank off from the US financial system. Okay, you know, like, it's just another one, you know? I think. The reason it's hard is when you zoom out, well, what is the cumulative impact? And this is actually something I'm focused on right now and sort of the next frontier of my own research is, you know, this age of economic warfare we're living in, in which sanctions, export controls, investment restrictions, tariffs have become the primary way that great powers compete. Because I'll also say, it's not just the US who's using these tools more and more. It's China, it's the EU, it's Japan, it's Russia. They're always deployed

• 52:39Speaker 00

  in response to a specific problem. It's, okay, we want to stop Iran from getting a nuclear weapon, or we want to weaken Russia's military, or we want to, you know, win the AI race against China. So we want to prevent them from getting Nvidia chips, right? But like, the cumulative effect is a full-scale restructuring of the global economy. It's undoing sort of the core tenets of globalization and hyper-globalization from the 1990s. And that is the cumulative impact. And so, I think there's a huge incentive for policymakers, particularly in Washington, to use sanctions to address every single problem, because it does feel kind of costless. But then, if you don't have a more disciplined strategic approach, you're like, okay, hold on a second. Have I just cut off half of the countries of the world from the dollar? Maybe I'm endangering the dollar's role as the global

• 53:24Speaker 00

  reserve currency, and that has a whole litany of other problems that we probably don't want to bring about.

• 53:29Ryan Sean Adams?

  I mean, this seemed to me part of the argument of your book, is that there is really no free lunch here. And then there is kind of a hidden cost that compounds in the background, and that cost might, might cost the US the entire empire, or dollar supremacy, or things that are, like, were very hard-won for the US. But before we get there, I actually want to ask the question of how the US even got to this place. So you mentioned earlier in the conversation, Eddie, that you're actually on a sanction list. You know, thank goodness, not sanctions from the US dollar, but from the ruble, the Russian ruble. And I got to imagine that doesn't affect your life in the slightest. Maybe it does. Yeah. Have you felt any effects from this?

• 54:13Speaker 00

  No. I mean, I have felt no effects. But I will say, though, and this may sound strange, because when this happened, a lot of people emailed me and texted me saying, "Congrats." You know, this is a bad surprise. I mean, my own view is like, look, I mean, I, you know, I spent a summer in college, living in Russia. Like, I love Russian literature. Like, I like to think that one day in the future, you know, Russia may be a, you know, not the worst of itself, right? It could be a more, a less imperialist country, you know? And so it made me a little bit sad and nostalgic, right? And, you know, the fact that I lived in Russia at a time before they, you know, had launched imperialist wars and it was just, in some ways, a marker of just an end of an era.

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• 57:28Ryan Sean Adams?

  So sad, mildly inconvenient, but certainly did not cause you much of any economic harm.

• 57:33Speaker 00

  Zero.

• 57:34Ryan Sean Adams?

  Okay, so zero. How, how does the US have the ability to do this? The leverage to do this? Where do we need to go back in history to understand how the US became? I guess, I mean, we consider often when we talk about the dollar at Bankless, it's sort of the US's chief export, really. It's, you know, maybe our most successful export is our capital markets, our, our dollar, our banking system, and we export it all over the world. And it seems like the entire world has adopted it into their economies as the, the global reserve currency. You know, how did, how did we get to that place? Was it an accident of history? Was this just like because that the US, you know, post Bretton Woods kind of dominated economics and monetary policy? Like where, how do we even end up in this state?

• 58:18Ryan Sean Adams?

  Because it seems like, I don't know. You tell me, has there ever been a time in history where a country, a nation-state, an empire had this much economic power?

• 58:28Speaker 00

  No. And, and to answer your initial question, which was, is, was this an accident? Or part of it was accidental. Because if you go back to Bretton Woods, right? So this conference in the summer of 1944. Where the allied countries, while World War II is still raging, set kind of the architecture for the new international economic order. The dollar is installed as the global reserve currency, but it's also pegged to the dollar at $35 an ounce. So the way the Bretton Woods system- An ounce of gold, right? Yeah, is the dollar is, the US is responsible for exchanging any dollar anyone gives it for gold for $35 per ounce of gold. And then every other currency in the world, whether it's the French franc or the British pound,

• 59:11Speaker 00

  is pegged to the dollar within a narrow band. I think they can move it 1% or so every year, but it's effectively pegged to the dollar. And so the dollar is officially made the global reserve currency by Bretton Woods, right? But it is effectively a fixed exchange rate system. So there's only so far that finance can go, right? I mean, and if you go and read sort of the writings of John Maynard Keynes, who's an important architect, like the belief of Keynes, as well as Harry Dexter White's US counterpart, was that fixed exchange rates were good because you wanted to actually prioritize the real economy, exports, manufacturing over finance. And capital controls were actually a core part of the system. You couldn't freely move capital across borders. There, in some ways, it was illegal.

• 59:54Speaker 00

  In other parts, there were high taxes on capital exchanges. And so it was, it was not economically, you know, useful really to do. The thing that's super interesting and where we get into accident is you go to 1971, August, where Richard Nixon goes in front of the American people and says, "We are no longer exchanging dollars for gold at $35 an ounce." So the US unilaterally terminates this system and says, "We are no longer part of it." And it's really because in the years leading up to that with the Vietnam War, the US is starting to run deficits. More and more countries, starting with France, are actually going and exchanging their dollars for gold. So there's a run basically on the, on, on the dollar and, and America's gold reserves. And so the US can't defend that price anymore.

• 1:00:37Speaker 00

  And within two years, there's also the Arab oil embargo, which is catastrophic for the US economy. It causes the start of this decade of stagflation. The thing that's so interesting is you go back and you read contemporary or contemporary accounts and everyone says it's over. American economic dominance, RIP, right? Like In the seventies, they were saying this. Yeah, in the early seventies, right? Because, you know, we had just ended, we basically abdicated our position at the center of the international financial system. And, you know, we're reeling from this, you know, inflation driven by an Arab oil embargo. And in the wake of that, with the US running these completely unsustainable deficits in 1974, Richard Nixon is floundering amid the Watergate scandal, he's completely distracted.

• 1:01:20Speaker 00

  He appoints this guy as Treasury Secretary named Bill Simon. He's a former bond trader. He's from New Jersey. I've got this great picture in my book, him testifying before Congress with a plume of smoke over his head. Like, these are people that you don't really see too much. You know, they're a relic of the past, but maybe for better, maybe for worse. And Simon comes up with this kind of this scheme that I think only a bond trader could have come up with, where he says, well, maybe what I need to do in order to allow us to keep running these deficits is I need to persuade the countries that are accumulating dollars to buy our debt, to buy treasuries. And so in July of 1974, he flies from Andrews Air Force Base in Washington, or outside of Washington, to Jeddah, you know, the Saudi

• 1:02:05Speaker 00

  coastal city, long flight, gets copiously drunk on the flight by drinking whiskey. Which is, he does, and he's watching these really gruesome horror films on the flight. And he's doing this because like, you know, he's like this macho American, he's like, oh, that, you know, it's illegal to drink in Saudi Arabia. And yet, despite his, you know, crazy behavior, he does strike a deal with the Saudis, where he persuades the Saudis both to continue pricing oil in dollars, and to take all of their excess oil profits and reinvest them in US government debt, in exchange for the ability to buy US debt outside of the normal auctions. They didn't have to participate in the auctions that are public that other, everyone sees. This could be done sort of in a, in a, under the radar

• 1:02:47Speaker 00

  way, and for preferential access to US military equipment. So there is a deal that links the dollar to oil. So initially, the dollar is linked to gold, basically. Then it kind of de facto becomes linked to oil. And with, by the way, the end of capital controls, with the end of fixed exchange rates, the dollar then can kind of fluctuate based on market demand, you actually see an explosion of the use of the dollar around the world. And also, the other interesting thing, another story I tell in choke points, we could go on forever, the euro-dollar market, which is this initially illicit offshore dollar lending market that originates in London.

• 1:03:20Ryan Sean Adams?

  Right.

• 1:03:21Speaker 00

  The US government basically endorses it. We start saying, okay, well, even though this was sort of developed by, you know, private banks, we don't, these are not the same as dollars that are backed by, you know, the full faith and credit of the United States, the Federal Reserve, like, we think this is good because it increases ultimately demand for US dollars and ultimately US treasuries. And so this is the beginning of a whole new system where instead of trade and the real economy being the main thing that America is solving for, it's the financial sector that's let loose. And then that gets kicked into high gear with the deregulation drives during the Carter administration, the Reagan administration, and the Clinton administration, where you get to a point where by the time the Cold War ends and China and Russia are about to enter the global economy, we live in this hyper-dollarized world.

• 1:04:05Ryan Sean Adams?

  It's striking that it is this combination of strategy and also accident of history, maybe, or like just serendipity, right? That the petrodollar, which you just described, basically the birth of the US petrodollar, was more successful, had higher product market fit than the gold-backed dollar of the previous era, and is just saturated into every nook and cranny of the financial world. Not to say that this hasn't cost the US. I mean, I think there's increasingly some chatter and some argument, you know, talk about the Triffin dilemma, that sort of thing, that this really fueled our trade deficits, hollowed out the manufacturing class of the US, and has really, like, made the US economy

• 1:04:48Ryan Sean Adams?

  thrive on financialization and, like, weakened our position globally. And maybe let's talk about, not quite that, but getting back to the costs of economic sanctions. So, moving back to Russia, and the way you described this, where, you know, suddenly, in a couple of days or weeks, 250 billion

• 1:05:09Ryan Sean Adams?

  Of their central bank reserve assets are just frozen. They have to be thinking to themselves, I can't believe we got ourselves into this. Like, what the hell? I'm sure there was much more that Putin said about this. And like, this can never happen again. And so let's talk about the cost of economic sanctions because it strikes me, Eddie, that what countries will just do is not let this happen again. They will start to route around, build around the US petrodollar, you know, infrastructure empire and create their own networks and their own monetary routes. Can you describe that story a little bit?

• 1:05:51Speaker 00

  Yes, and I think this is a very astute observation. And it's not just Russia, by the way, who's saying we'll never have this happen again. It's any country who worries that they may one day, one day come into the crosshairs of Western economic warfare, right? And so I think a big reason you've seen this massive run up in the price of gold since 2022 is because central banks in this sort of store of value bucket of uses of a currency are saying, well, we feel more comfortable accumulating gold than we do accumulating US treasuries. I'm sure, although I would defer to you as the expert on crypto, that the run up in the price of Bitcoin potentially has something to do with this as well, where

• 1:06:31Speaker 00

  you have bigger buyers in offshore jurisdictions who are saying, this is a hedge against, against the dollar. I think that in some ways, the thing I'm even more interested in though, is this medium of exchange element because I got over telling you how even when India and Saudi Arabia are trading with each other, this is cutting through a US bank account ultimately. And so there's a choke point that the US government can use to stop the transaction from happening. Since the Russia sanctions, a number of efforts to try to evade that choke point have been really accelerated. So one that predates it, but I think it was also motivated by American economic power was the ECNY or the digital renminbi. It's a Chinese central bank digital currency. You now have many central banks around the world.

• 1:07:16Speaker 00

  Actually, the US is an oddball that we don't have this. We're building these central bank digital currencies and China, in association with the central banks of Thailand, the UAE, Saudi Arabia, and the Bank of International Settlements, has actually built a platform called M-Bridge that allows different countries who are part of this platform to clear cross-border payments using their own central bank digital currencies. And that, and those types of transactions, do not have to touch, you know, a Citibank, correspondent account here in New York City, right? They have no nexus to the US financial system at all. And actually, at the end of 2024, the Bank of International Settlements dropped out of this project, M-Bridge, which has effectively left the People's Bank of China,

• 1:07:58Speaker 00

  the Chinese central bank, completely in charge. And they are now basically trying to expand that, bringing in other members. You've seen the BRICS talking about, you know, clearing cross-border payments as an incredibly high priority. So it wouldn't surprise me if M-Bridge winds up becoming the main vehicle for that.

• 1:08:15Ryan Sean Adams?

  Wow. Okay, so let's talk about that more because, so you were talking about the different use cases of money, right? We have store of value, we have medium exchange unit of account. So from a store of value perspective, yeah, I do think you're right. This has been part of the narrative of some of the US adversary central banks, and even non-US adversary central banks are saying, yeah, do we really want to hold, you know, this level of treasuries if they could be frozen? So they're slowly diversifying to other assets, maybe harder assets, particularly gold at this stage. What's interesting, though, is it seems like for the store of value use case, there's a little bit of mutually assured destruction there, which is like the central banks could also sell boatloads of treasuries on the open market

• 1:08:56Ryan Sean Adams?

  and do really nasty things to US bond prices and yield prices. So maybe that's kind of like happening in a slow way, but what's happening in a faster way are these alternative payment networks. And so when you're looking at the alternative payment networks, is the, kind of the Chinese alternative payment network and their central bank digital currency, is that the one that is vying for kind of alternative, primary alternative to the US? Or are there pockets, there fragmented pockets of? Different payment networks that are started springing to action like when the US, when Russia and China do some trade, like what do they use?

• 1:09:37Speaker 00

  In the sort of non-digital currency world, the non-blockchain world, China has also created something called SIPs or the cross-border interbank payment system, which is the sort of the Chinese equivalent of SWIFT or the, you know, the Belgian-based messaging service we talked about before, as well as CHIPS, which is the clearinghouse interbank payment system. It's the US-based system that actually clears dollar transactions. So China has created their alternative. Russia also has one called SPFS that they created. Both of these, by the way, initiatives, interestingly enough, were founded in around 2014. So after the initial Russian invasion of Ukraine and sanctions that were put in place. So they've been in, they've sort of been percolating for a while, but SIPs, the Chinese version has grown quite quickly.

• 1:10:21Speaker 00

  I mean, Russia has effectively yuanized its economy.

• 1:10:25Ryan Sean Adams?

  Really?

• 1:10:25Speaker 00

  Their, their, their main foreign exchange reserve right now asset is the Chinese renminbi. They settle most of their payments in, in RMB.

• 1:10:34Ryan Sean Adams?

  Really?

• 1:10:35Speaker 00

  Oh, yeah. And so, and, and look, that's put them at the mercy of China.

• 1:10:40Ryan Sean Adams?

  Yeah.

• 1:10:40Speaker 00

  Which I think eventually is going to be a very big problem, but it's been a survival sort of tactic for Russia. And China has been only too happy to oblige. I think strategically though, if you are going, going to fundamentally threaten the dollar's role as a medium of exchange, I don't think it's going to be done through, you know, China creating correspondent bank networks and using SIPs. And I think it's really going to be done through a paradigm shift through, okay, it is just better to clear cross-border payments using digital currencies. It's way faster, it's more trackable. I don't know if anyone, listeners to your podcast have tried to make an international wire transfer recently.

• 1:11:20Ryan Sean Adams?

  It's a constant complaint. This podcast is called Bankless Eddie. So yes.

• 1:11:24Speaker 00

  So, yeah, it may, it could take a week or more. There's a lot of middlemen involved. There are fees you have to pay for wires, right? I mean, there is a, a, a, setting aside any geopolitics, like technologically, cross-border digital payments are better.

• 1:11:39Speaker 00

  They're faster, right? They're faster, they're more direct, right? And so I think that we are at the precipice of a major shift in terms of how cross-border payments work. China has by far the biggest and most advanced state-backed project to do this through both the ECNY as well as Enbridge, this platform that they built with other central banks. And so the question is, can the US retain its lead? And the US, as listeners to your podcast will know, has made a big bet that it will actually be through the private market, it'll be through stable coins, not through a digital dollar or a US-backed central bank digital currency, that the US will be able to retain its lead. And we may be right, but it is a really interesting bet to make. When you

• 1:12:23Speaker 00

  look at all the other big central banks, PBOC, you know, the European Central Bank has a digital euro, they're all doing central, at least wholesale, central bank digital currencies. The US is going all in on stable coins. And in some ways, interestingly enough, it mirrors this period in the 1960s, I talk about this in my book, in 1970s, where the euro-dollar market kind of starts as this like quasi- illicit dollar market that exists offshore. And eventually, the US government's like, hey, this is really important. We actually should just co-opt this. And so I kind of see the same thing happening, at the very least with stablecoin right now, where the US government's like, look, we need to figure out a way to actually win this race for the future of payments. And the best way to do

• 1:13:05Speaker 00

  it is to take these various US-dollar pegged stablecoins and co-opt them and make them sort of their, you know, the instruments of our own influence.

• 1:13:14Ryan Sean Adams?

  Yeah, I like that, very much like that euro-dollar's comparison with stablecoins. In fact, a friend of the podcast, frequent guest, Nick Carter, you know, he's tried to rebrand these things to call, let's call them crypto dollars rather than stablecoins. Why don't we just do that? That's more fitting. And I think that's a good label for what they actually are. And so are you painting a picture, Eddie? I want to talk more about stablecoins and crypto digital assets and how they fit into the full story here. But are you painting a picture of maybe three networks, three types of networks emerging here? So we've got the traditionally US-dominated network, you know, CHIPS and SWIFT, and that's like got full Dominance, you know, the 90%, then we've got a payments network coming out of the Chinese central bank, so the PBOC.

• 1:13:57Ryan Sean Adams?

  And that's doing its thing. Maybe Russia is the first to, you know, yuanize their economy. Maybe they won't be the last. Maybe China continues to try to use its economic might to co-opt countries closer into that system. So that's maybe the second. And this third is maybe decentralized crypto networks as another viable successor to, and I don't know if I want to use the successor term, but to start eroding market share from the current dominant monetary system, which is Swift and Chips.

• 1:14:29Speaker 00

  Yes, I would, I think that's a fair outline of the current kind of players in the race. I don't think that's necessarily the, the only players that may enter the race. Cause I mentioned, sort of, we've talked about the Russia sanctions of 2022 as this big pivot point where China starts building its alternative infrastructure. I worry that Trump's Liberation Day tariffs from early April may have been sort of a similar, you know, fork in the road. Where now Europe may also become a player, right? Cause you're, you're seeing the year, the dollar, for instance, steadily depreciate decline against the Euro since April.

• 1:15:09Speaker 00

  And I think in some ways the Euro has like a fighting chance now, particularly if this digital Euro thing works. So I wouldn't say that they're anywhere close to where the other three projects are. But I wouldn't fully count them out because they are, they start from a pretty good spot where 20% of foreign exchange reserves right now are in Euros. And a lot of the reasons you may not like the European Union, which is like, it's slow, it's bureaucratic, may actually be effective when it comes to payments. Cause with payments, like you just don't want to think about it. You just, you don't want to be, to worry about arbitrary and capricious moves. So I do think the Euro may also be a, a fourth horse in the race, but we'll see how that develops.

• 1:15:46Ryan Sean Adams?

  Yeah, this is fascinating. It's just not just US adversaries, but it might even be US allies that are looking to alternative to Swift. You know, as a, maybe a bellwether of this, I saw this post from somebody I follow just generally. He's in traditional finance. He writes a lot about money. His name is JP Koning. I don't know if you've ever run across his blog.

• 1:16:06Speaker 00

  I think I've read a few things by him.

• 1:16:08Ryan Sean Adams?

  Yeah, so he wrote this in April. So he's Canadian, so he lives in Canada. And he wrote this blog post, Trump proofing Canada means ending our dependence on SWIFT. Okay, this is our neighbors to the north, you know, the peaceful Canadians. And the first line of this, it's time to stop staring at the headlights and respond to the fact that Canada is being eyes as a choice morsel by the much larger predator, our former ally, the United States of America. Basically, he goes on to make the case that we can't be as Canada if we want. Look, there's economic warfare going on, there's tariffs going on. We don't know what the shape of the US as allies are going to look like in the future. We're utterly dependent on SWIFT.

• 1:16:51Ryan Sean Adams?

  And one tool that Trump hasn't yet used in the tariff negotiations is like, heck, cut you off SWIFT, Canada. How would that feel? Right? Anyway, I mean, I don't know how widespread this is, but even allies are sort of looking at this and saying, should we be dependent on the US as a payment network at this point?

• 1:17:10Speaker 00

  So the difference between what Trump has done in the last few months on economic warfare and his predecessors, I think, is important to call out. Because in the one, on the one hand, like, it is a continuation in that every single president in the 21st century, from George W. Bush to Barack Obama to Trump's first term to Biden and now to Trump again, has actually imposed sanctions at twice the rate of their predecessor.

• 1:17:33Ryan Sean Adams?

  Oh, wow.

• 1:17:33Speaker 00

  So there is this structural secular trend where there's this more and more sanctions, tariffs, export controls. The thing that Trump has done differently is this weaponization of American economic power against everybody.

• 1:17:44Ryan Sean Adams?

  Yeah.

• 1:17:44Speaker 00

  And unilaterally, right? Critically, doing it all by ourselves. Because as we talked about earlier, you know, with the Russia sanctions of 2022, the US acted in unison with the issuers of the other big reserve currencies, the euro, the pound, the yen, to sanction Russia. And so as a result, it wasn't like the euro was seen as a viable hedge against the dollar. If anything, actually, the euro lost share against the dollar between 2022 and 2025 because they were seen as geopolitically equivalent, but the dollar is much more useful. But if the US is just weaponizing the dollar and American technology Against everybody else, there's going to be an incentive to hedge. And it's not just the RMB or Bitcoin or gold. It's also the euro that could be a viable alternative. And, you know, I mean, there's, there are people in Canada who want to join the EU.

• 1:18:29Speaker 00

  You know, they're talking about building oil and gas pipelines so that they can export their energy, you know, from coasts to places like Europe and Asia instead of selling everything to the United States. So I do worry that that is the novelty of Trump's approach, which is this unilateral use of economic warfare against so many other countries, adversaries and allies alike, which I do think could, you know, put more horses in this race for the future of global finance.

• 1:18:56Ryan Sean Adams?

  Is that just generally what you see in the future of you to kind of predict the future, Eddie? Is it, is it the balkanization of the financial system? I mean, 90% market share is pretty hard for any entity to maintain and kind of monopoly status. And it appears like that is fragmenting at the edges. But is that the future? We just balkanize the US loses, maybe not, it'll still be a reserve currency, but maybe one of several and not the only. Do we lose kind of that, that dominance that we've had in the past?

• 1:19:27Speaker 00

  Yes, that is definitely the direction of travel. If you were to sort of just look at all of the various factors and make the most rational forecast, it's that the dollar isn't going to be supplanted as the global dominant currency. It's just that other currencies, including these, these challengers like cryptocurrencies, are going to chip away at the dollar's share across all of the metrics, whether it's unit of account, medium of exchange or store of value. And so you will eventually get something like a multipolar monetary order. At the same time, we also got over talking about a few minutes ago, the fact that if you went back in the early seventies and we were doing this podcast then, we would say, oh, the US is toast.

• 1:20:03Ryan Sean Adams?

  Yeah, it's over.

• 1:20:04Speaker 00

  Yeah. So you never know, right? We may pull a rabbit out of the hat. And I think right now, probably like if I were to make the case that actually no, the dollar is going to be even more dominant 10 years from now. I think you have to make some sort of big bet on stablecoin, on the idea, on the, on the, on the idea that. You could, in a way, start seeing everyday consumers, businesses, et cetera, in the developing world, start using the dollar in their everyday transactions. And I know you had the head of Tether on your podcast recently making this case.

• 1:20:33Ryan Sean Adams?

  Yeah.

• 1:20:33Speaker 00

  And I think like, that is possible, right? I mean, in some ways, that would make the dollar even more ubiquitous, right? But a lot of things have to go right for us to get to that endpoint.

• 1:20:43Ryan Sean Adams?

  Well, let's talk about stable coins. I would love your perspective and somebody that has previously worked on, you know, economic sanctions, financial sanctions, that kind of thing, right? So, we have stable coins. Now, it seems like the Trump administration is full steam ahead. It looks like, let's say, the genius bill passes, you know, that's in the Senate. It's going to get kicked over to the House. It could pass in July, August. It still has sanctions as part of it. There's the full Bank Secrecy Act requirements, AML KYC. There's a bit more freedom of travel with respect to from one crypto wallet to another crypto wallet, which is somewhat interesting. It's something that I think privacy and crypto advocates have really hoped would happen, and it seems like that's the case.

• 1:21:27Ryan Sean Adams?

  But just generally, what's your, you know, like, your lens on stable coins? And you're thinking about that and maybe through the lens of economic sanctions as well?

• 1:21:38Speaker 00

  I do believe we are on the precipice of a big change in terms of how cross-border payments work. Because my own view is, you know, when there are new technologies that clearly improve the status quo, it's hard to restrain them indefinitely, right? And if you can clear a cross-border payment in seconds as opposed to two weeks, like, we should probably do the thing that allows that payment to happen in seconds, right?

• 1:22:02Speaker 00

  So, my own view in terms of stable coins is, it seems like, unless there's a big political shift in the US, we are really putting all the eggs in the stablecoin basket. We're not doing even a wholesale central bank digital currency. And even if there's a new president in 2029 who does do a, you know, authorizes the Fed to do a digital dollar, like, it might be too late at that point, right? Given how fast some of these, you know, alternatives coming out of China are developing. So my own view is if I were, you know, to wave a magic wand, I would say we need to figure out a way to ensure that a well-regulated stablecoin ecosystem develops, one that is

• 1:22:41Speaker 00

  not used for corrupt practices, is not used for illicit practices, where American consumers are protected, where it's not, you know, just, you know, they're not going to lose their money, you know, because of some sort of scam or something like that. And critically, that there are these AML KYC requirements, so that they're not being used as a way to skirt sanctions. My own view is that's possible, right? You could build a stablecoin ecosystem where the US has zero, less power than they do today to impose sanctions. And that would be good, right? Because I think ultimately, you get the benefits without having the costs with, you know, the dollar being used for, you know, to, you know, fund Iran's nuclear

• 1:23:22Speaker 00

  program or finance, you know, Putin's imperialism, right? So that would be sort of my macro take. And, you know, I hope the genius bill is a step in that direction.

• 1:23:35Ryan Sean Adams?

  Have you read the text? Like, what do you think about it?

• 1:23:37Speaker 00

  I'm not steeped in it. I'm not steeped in it. It's something I need to do probably a little bit more of. But, but, you know, I think it's better than the status quo, for sure. And the idea that you could actually start going in this direction. I think the idea that you're going to have one piece of legislation that, you know, builds the, you know, is the perfect regulatory framework is not going to happen, right? You're going to need, you know, the willingness to iterate over time to see how things are working, to have different regulations that are put in place, to have new laws put in place. But I think it's a step in the right direction. You need a well-regulated ecosystem if this is going to be viable over the long term.

• 1:24:12Ryan Sean Adams?

  Yeah, I mean, we had Senator Bill Hagerty on a couple of weeks ago. He's one of the bill's co-authors. And he kind of like, you walk through it, obviously, he's a, you know, proponent of it, since he is one of the authors. And it does have some of the protections you're talking about. It's like, you know, full reserves, you know, audited, they're all backed by dollar-backed instruments, you know, treasuries and the like. And so is an improvement. From some of the other so-called stable coins that we've had in crypto that were like endogenous collateral and you may have heard of Terra Luna. There's a stable coin that collapsed in 2022 and some of those things. So I think some of that regulation is happening. Let me ask you a question, you know, from the desk of somebody who's sort of been inside of the

• 1:24:55Ryan Sean Adams?

  belly of the beast and the US government. So in all of the cases of economic sanctions, you've talked about, we've seen those economic sanctions being imposed on foreign adversaries, not US citizens, right? And there's an interesting kind of, I guess, civil liberties take and like worry that I have personally about these same powers being deployed domestically. And they are incredible powers. We just illustrated like you're going through the, what would it feel like to be cut off from the US dollar? One thing, if you're in a, like a foreign country, what would it feel like to be cut off from the US dollar if you're a US citizen living in like New York City? What do you, what do you do? Right? And there are totalitarian

• 1:25:40Ryan Sean Adams?

  states like, you know, China, for instance, that do seem to have that power tying into social credit systems and the like. And that level of capability deployed domestically in the US is just some, you know, a path that we don't want to go down. So what's your concern about that? I know there are some laws that protect against it, but there are, I mean, like, I'm not sure that we have good kind of privacy and protections in place or to the extent that we need. I'm not sure Patriot Act, Bank Secrecy Act even, like, I'm not sure that that is protecting citizens to the extent that it could be.

• 1:26:21Speaker 00

  It's pretty rare for the Treasury Department to impose sanctions on US citizens. Almost always in the cases where it is, it's a, you know, dual national, you know, where, you know, there are a Russian who's gained American citizenship or something. And even in those cases, oftentimes they don't, they refrain from doing it just because, you know, Americans have due process rights. And it's, it's quite a step, I think, for an executive branch agency just to freeze your bank accounts and cut you off from the dollar. Yeah, that is terrifying, right?

• 1:26:49Ryan Sean Adams?

  Right.

• 1:26:49Speaker 00

  So I'm with you. I think that, you know, it's scary. And I do think that in some ways, we've seen the Trump administration be willing to weaponize parts of state control over economic organs to advance its own agenda against American citizens, right? And there are accusations that this also happened during previous administrations. I know through crypto companies not being able to get bank accounts. I don't have any insider perspective on that. But I think that that's absolutely terrifying and that these tools should never be used against US citizens. I think that even when we use them against foreign citizens, we really do need to have some level of empathy because, you know, they're not friendly tools to use, right?

• 1:27:34Speaker 00

  Like, you should really only be using these tools when there's a vital US national security interest at stake. We shouldn't be using them willy-nilly. I think in my ideal world, we would be, we would have probably five sanctions programs instead of 30. But in the cases where we actually do think that we really need to use economic warfare, like Russia trying to conquer a sovereign country, or Iran trying to build a nuclear program that threatens, you know, the existence of Israel and potentially could have a nuclear terrorist attack on US soil, like, then we should go much harder, right? Like, I would have fewer sanctions programs, but the times when we do use them, when it's like a serious, vital national security interest at stake, we should go very big.

• 1:28:13Ryan Sean Adams?

  What's, I'm interested in this as we maybe start to close this out, Eddie. And, you know, if your opinion is different than than the bankless opinion, that's maybe even more interesting about this. But so we've talked about stable coins, which have AML KYC sort of attached and they're like more regulated, much more regulated cousins to crypto native assets. So something like a Bitcoin or something like an Ether, right? Something that really US economic sanctions have much less power over because they're decentralized network. Now, maybe you're kind of shaking your head because you're like, well, we haven't really tried. And I mean, to some extent, that's true. I mean, there's the ability to kind of free stable coins, but I wonder, are there any

• 1:28:55Ryan Sean Adams?

  cases where the US has actually gone out and tried to like seize someone's Bitcoin in a foreign, in a foreign country? And what would that would even look like? Could they even do it?

• 1:29:05Speaker 00

  Yeah, so I'm skeptical. There is this take in the crypto community, which is, oh, this is going to end American sanctions power. Like, to me, that is just not the case. And interestingly enough, if you look at the biggest fine for sanctions violations that the US government has meted out in recent years, it was against Binance, right? It was a $4 billion fine against effectively a crypto company, which the CEO actually went to jail, right? So I mean, like, the US government has quite a bit of power even over crypto companies. The other thing, too, is when you think about the concept of choke points, and this gets into the broader concept of my book and takes our conversation full circle, like, there are areas of the global economy where one country has a dominant position. There are few, if any, substitutes, right? The dollar is this really important

• 1:29:49Speaker 00

  choke point. It's the most important today. It's why we've talked about it. There are other ones, right? The US has used semiconductors as a choke point against China. China has used its dominance of rare earth minerals and batteries as a choke point for economic warfare against the United States. Well, think about Bitcoin, right? Who's running all of the cloud computing network and the servers that all of these?

• 1:30:11Ryan Sean Adams?

  Bitcoin miners being a choke point, basically, is what you're saying?

• 1:30:14Speaker 00

  Yeah, I mean, you know, there are probably other infrastructural layers in the economy that the US government could use if it really wanted to come down hard on crypto companies. I don't see why that should be the case, but I also don't think that, you know, we have not yet seen industrial-scale sanctions evasion using cryptocurrency. And I think there's a reason for that.

• 1:30:34Ryan Sean Adams?

  Are you glad we live in a world where there's at least that option or that kind of release valve, like, a way to sort of route around some of these choke points? And maybe the case is to get around totalitarian regimes?

• 1:30:49Speaker 00

  Yeah, no, for sure. And I do think that, you know, there is this scenario where, especially dollar-backed stablecoins, right, could be used as an alternative to, you know, domestic currencies that really you can't trust, right? Or domestic regimes where you may have your assets confiscated. So I do think there is a role, there is a civil liberties role, for various cryptocurrencies to play. At the same time, I do think that it is important. Important for the US to retain the power, when I say the US, the US government, to retain the power to use economic warfare against foreign countries. And again, I wish we lived in a world where this wasn't necessary. But if we're going to accept that geopolitical competition is a fact of life, and unfortunately, it's intensifying, it's much worse than it

• 1:31:32Speaker 00

  was when I was a kid, the 90s, when we sort of basically didn't have geopolitical competition for a short period of time, like you need some tools of leverage. And if you don't have viable economic tools, I worry that we'll wind up fighting more military wars. So basically, the alternative to sanctions oftentimes isn't peace or doing nothing, it's dropping bombs. And I think the clearest demonstration of that is in 2018, when Donald Trump pulled out of the Iran nuclear deal, he made a bet that maximum pressure sanctions on Iran, that crushing their economy, even more so than Obama did, would get him an even better nuclear deal. And ultimately, that bet failed. And the result was airstrikes against Iran, first

• 1:32:14Speaker 00

  by Israel, then by the United States, which does potentially threaten to bring us into yet another war in the Middle East. And so I do worry that if we don't have these tools, we will wind up fighting more wars, and it'll be more risk to the US ultimately.

• 1:32:27Ryan Sean Adams?

  So is that the message of your book? We want these tools, but we need to use them sparingly in order for them to remain effective?

• 1:32:33Speaker 00

  Exactly. We need to use sanctions more intelligently. And I think maybe my biggest takeaway is, you know, the way that we plan and execute military force is incredibly serious, right? We train and recruit professional troops, many of whom spend decades of their life in the US military. We game plan out wars, we do tabletop exercises, military exercises. So by the time the Chairman of the Joint Chiefs of Staff is advising the President in the Situation Room about what to do, like, there is really good basis for these decisions, even though sometimes you make the wrong call. With sanctions and economic warfare, oftentimes, it's a whimsical, poorly thought through decision. And so I think we need, honestly, like, the biggest goal of my book, Choke Points, is to demystify economic

• 1:33:17Speaker 00

  warfare, so more people can feel like they understand this topic, so that they could weigh in, improve our policy outcomes, and ultimately, get us to a better place.

• 1:33:26Ryan Sean Adams?

  Well, I think that's exactly what you did today. And I was hoping for a crash course in sanctions. And I think that's exactly what we got. So Eddie Fishman, thank you so much for joining us on Bankless. The book is called Choke Points: American Power in the Age of Economic Warfare. I highly recommend it. And I'll end with this. Of course, you guys know none of this has been financial advice. It's not even economic sanctions advice. Okay, crypto is risky, so is the monetary system of the world. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot, and thanks, Eddie.