Chokepoints E-Book

Edward Fishman

• Herausgeber: Elliott & Thompson
• Kategorie: Geisteswissenschaft
• Sprache: Englisch

Seitenzahl: 1064

Veröffentlichungsjahr: 2025

Beschreibung

'Chokepoints is a compelling and dramatic narrative about the new shape of geopolitics'Wall Street Journal 'A gripping, firsthand account. Unparalleled.' Chris Miller, author of Chip War Globalisation was once hailed as the great leveller, bringing prosperity to all. But the world has changed. As Russia, China and Iran have sought to upend the international order, America and its allies have mounted unprecedented economic retaliation. The global economy is now a weapon of war. Chokepoints is a thrilling behind-the-scenes account of one of the most pivotal geopolitical shifts of our time. Drawing on extensive research, personal experience and interviews with key players, Edward Fishman, a former top US State Department official, takes us deep into the back rooms of power around the world. Here we meet an eclectic group of innovators: the diplomats, lawyers and financial whizzes who've masterminded a fearsome new arsenal of economic weapons, exploiting Western dominance in global finance and technology, and harnessing the power of Wall Street, the City of London and Silicon Valley to confront a rising authoritarian axis. The sanctions against Russia might be the biggest coordinated act of economic warfare we've seen, but it won't be the last. Control over modern-day chokepoints – such as the US dollar, advanced microchip technology and critical energy supply chains – has become the key to geopolitical power in the twenty-first century. The result is an economic arms race among great powers and a fracturing global economy. Utterly gripping and brimming with rare insight, Chokepoints is indispensable reading to understand the forces that will shape our world for decades to come.

Leseprobe

More Praise for Chokepoints

“How can America sustain its economic and financial advantage in the face of fierce geopolitical competition? Chokepoints provides the playbook. Edward Fishman traces the historical evolution of economic warfare, taking readers behind the scenes of the U.S. campaigns to counter China’s economic aggression, Iran’s nuclear ambitions, and Russia’s revanchism. Along the way, Fishman uncovers valuable strategic lessons and makes compelling recommendations that leaders in government and business must implement urgently.”

—Lieutenant General H. R. McMaster, U.S. Army (Ret.), former White House National Security Advisor, author of Battlegrounds and At War with Ourselves

“This peerless contemporary history of American sanctions, grounded in personal experience and thorough research, will guide all who wish to address global problems through the responsible and effective use of economic power.”

—Timothy Snyder, author of On Freedom and Bloodlands

“This book should be required reading on both sides of the Atlantic as the West faces a geopolitical reckoning. Edward Fishman, a scholar-practitioner with deep insider knowledge from his time in government, provides a gripping account of the rise of a new form of economic warfare. Chokepoints is written with an eye to both the general and the specific, skillfully blending the Olympian big picture with wonderful vignettes of how the world economy works. Fishman argues convincingly that the West cannot have economic interdependence, economic security, and great power competition at the same time. We will have to make a choice quickly, before it is made for us.”

—Brendan Simms, author of Europe: The Struggle for Supremacy, from 1453 to the Present

“Sanctions are vital weapons in the war for global power and influence. Chokepoints is a master class in how sanctions work—and why, sometimes, they don’t. It is essential reading for anyone who wants to understand global competition today.”

—Hal Brands, author of The Eurasian Century, co-author of Danger Zone

“Chokepoints is a compelling exploration of how economic infrastructure increasingly shapes geopolitics—illuminating the history, inner workings, and future stakes of this important twenty-first-century phenomenon. An excellent read for anyone seeking to understand how power will be wielded in the years to come.”

—Patrick Collison, co-founder and CEO of Stripe

“In this timely and highly readable book, Edward Fishman demystifies es and humanizes one of today’s most complex and consequential subjects: America’s use of economic power as a tool of 21st-century warfare. Drawing on his firsthand experience at the State Department, Fishman takes readers into Washington’s back corridors of power, revealing how U.S. officials raced to create new economic weapons to counter a trio of formidable challenges: Russia’s imperial aggression, China’s drive for technological dominance, and Iran’s nuclear ambitions. An invaluable book for anyone who wants to understand the risks, trade-offs, and limitations of America’s weaponization of the world economy.”

—Fiona Hill, former Senior Director for Europe and Russia at the National Security Council and author of ere is Nothing for You Here

For Lepi

Contents

Cast of Characters

Glossary

Introduction Win Without Fighting

Part One Building the Chokepoints

1 The Old Way: A Brief History of Economic War from Pericles to Saddam

2 Invisible Infrastructure

3 Finance Unchained

4 The Deal in the Desert

5 Our Currency, Your Problem

6 “Guerrillas in Gray Suits”

7 An Economic Weapons Test

Part Two Iran and the Bomb

8 The Technocrat

9 Iran Stares Down a “Toothless Tiger”

10 Risky Business

11 Stuart Levey Goes to War

12 Extending a Hand

13 With Us or Against Us

14 Exodus

15 The Last Bastion

16 100– 0

17 Good Cop, Bad Cop

18 Landslide

19 The Freeze

20 “The World Has Avoided Another War”

21 Black Magic

Part Three Russia’s Imperial Land Grab

22 The Diplomat

23 The Fallen Bear Licks Its Wounds

24 Euromaidan

25 “Aim First, Then Shoot”

26 The Contact Group

27 The Scalpel

28 The Opening Salvo

29 MH17

30 Escalation

31 “Economy in Tatters”

32 Back from the Edge

33 From Russia with Bribes

34 “Dark Thought”

35 A Way Out via Golden Escalator

Part Four China’s Bid for Technological Mastery

36 The Interpreter

37 Irresponsible Stakeholder

38 The Awakening

39 Let a Hundred China Policies Bloom

40 The Clue: ZTE

41 The Validation: Fujian Jinhua

42 The First Shot at Huawei

43 A False Start

44 “Backdoors” and “Betrayal”

45 The Second Shot at Huawei

46 The Dominoes Fall

47 Iron Curtain

Part Five Russia’s Invasion of Ukraine

48 The Practitioner

49 The Best- Laid Plans

50 “America Is Back”

51 Standing Athwart History, Yelling Stop

52 Panic at the Pump

53 “An Invasion Is an Invasion”

54 The Scholz Jolt

55 Banks vs. Tanks

56 Pandora’s Box

57 Monetary Policy at the Point of a Gun

58 A Potemkin Currency

59 Supply and Demand

60 The Rubik’s Cube

61 “What Other Option Do We Have?”

62 The Service Providers’ Cartel

63 An Economic War of Attrition

64 A Partitioned Market

Part Six The World Economic Rupture

65 “Small Yard and High Fence”

66 The Scramble for Economic Security

67 Breaking the Chokepoints

68 Strategy and Sacrifice

Conclusion Impossible Trinity

Acknowledgments

A Note on Sources

Notes

List of Maps, Charts, and Illustrations

Index

Cast of Characters

DAVID COHEN: Lawyer who served as the Treasury Department’s second-ever undersecretary for terrorism and financial intelligence, succeeding Stuart Levey in 2011; oversaw efforts to ramp up pressure on Iran in 2012, including by targeting its central bank and oil revenues.

DAN FRIED: Veteran U.S. diplomat who served as the State Department’s first-ever coordinator for sanctions policy from 2013 to 2017; led diplomacy with Europe to impose joint U.S.-EU sanctions on Russia after its 2014 annexation of Crimea.

MARK KIRK: Republican senator from Illinois who advocated for aggressive sanctions against Iran; co-sponsored the Menendez-Kirk amendment in 2011, which levied sanctions on the Central Bank of Iran and established a scheme to reduce Iran’s oil sales.

SERGEI LAVROV: Russia’s longtime foreign minister, appointed by Vladimir Putin in 2004; negotiated with Secretary of State John Kerry following Russia’s 2014 seizure of Crimea and with Secretary of State Tony Blinken before Russia’s 2022 full- scale invasion of Ukraine.

STUART LEVEY: Lawyer who served as the Treasury Department’s first undersecretary for terrorism and financial intelligence, holding the post from 2004 to 2011; developed a strategy to isolate Iran from the international financial system and later served as chief legal officer of HSBC and CEO of the Diem Association.

JACK LEW: U.S. secretary of the treasury from 2013 to 2017; encouraged Treasury’s sanctions officials to work with the department’s international economists to develop penalties against Russia; gave a notable speech warning against the overuse of sanctions.

ROBERT LIGHTHIZER: Trade lawyer who served as the U.S. trade representative from 2017 to 2021; vocal critic of free trade and architect of the Trump administration’s tariffs on Chinese imports.

BOB MENENDEZ: Democratic senator from New Jersey who pushed the Obama administration to impose harsher sanctions on Iran; co-sponsored the Menendez-Kirk amendment in 2011, which levied sanctions on the Central Bank of Iran and established a scheme to reduce Iran’s oil sales.

STEVEN MNUCHIN: U.S. secretary of the treasury from 2017 to 2021 and former Goldman Sachs banker; advocate of free markets who was wary of an economic standoff with China and competed with Robert Lighthizer for control of Trump’s trade negotiations with Beijing.

ELVIRA NABIULLINA: Governor of the Central Bank of Russia since 2013 and longtime economic advisor to Vladimir Putin; coordinated Russia’s economic response to Western sanctions in both 2014 and 2022.

VICTORIA NULAND: Veteran U.S. diplomat who served as assistant secretary of state for European and Eurasian affairs from 2013 to 2017; played a central role in U.S. policy in response to Russia’s 2014 annexation of Crimea and invasion of the Donbas.

MATT POTTINGER: Former China-based reporter who served as senior director for Asia and later deputy national security advisor on the National Security Council during the Trump administration; key architect of a more assertive U.S. policy toward China.

WILBUR ROSS: Veteran private equity investor who served as U.S. secretary of commerce from 2017 to 2021; oversaw Commerce’s evolution into a command center for technological competition with China, particularly through the imposition of export controls.

BJOERN SEIBERT: Chief of staff and close advisor to European Commission President Ursula von der Leyen; coordinated EU sanctions policy in response to Russia’s 2022 full-scale invasion of Ukraine.

DALEEP SINGH: Former Goldman Sachs trader who served at the Treasury Department during Russia’s 2014 annexation of Crimea and later as deputy national security advisor for international economics in the Biden administration; key architect of sanctions against Russia in both 2014 and 2022.

JAKE SULLIVAN: U.S. national security advisor under President Joe Biden; coordinated U.S. policy in response to Russia’s 2022 full-scale invasion of Ukraine and declared “small yard and high fence” strategy to keep critical U.S. technology away from China.

ADAM SZUBIN: Director of the Treasury Department’s Office of Foreign Assets Control (OFAC) from 2006 to 2015 and later acting undersecretary for terrorism and financial intelligence; key architect of U.S. sanctions against Iran in the years leading up to the 2015 nuclear deal.

URSULA VON DER LEYEN: President of the European Commission since 2019; advocate of tough policy toward Russia, including sanctions and military assistance, following its full-scale invasion of Ukraine in 2022.

MENG WANZHOU: CFO of Huawei and daughter of company founder Ren Zhengfei; charged with violating U.S. sanctions and arrested by Canadian authorities in 2018.

VIKTOR YANUKOVYCH: President of Ukraine from 2010 until 2014, when he fled to Russia amid the Euromaidan protests; ally of Vladimir Putin and advocate of closer Ukrainian ties with Moscow.

JANET YELLEN: Veteran economist who served as chair of the U.S. Federal Reserve from 2014 to 2018 and later as secretary of the treasury in the Biden administration; played a central role in the 2022 sanctions on Russia, often as a voice of caution.

JAVAD ZARIF: Iran’s foreign minister under President Hassan Rouhani from 2013 to 2021; led negotiations toward the 2015 nuclear deal with Secretary of State John Kerry and other foreign ministers from the P5+1.

REN ZHENGFEI: Founder and CEO of Huawei, who built the company into the world’s leading manufacturer of telecommunications equipment; formerly an officer in China’s People’s Liberation Army.

Glossary

Blocking sanctions: The strongest form of sanctions deployed by the Treasury Department; the penalty includes both an asset freeze and a transaction ban, effectively cutting off targets from the U.S. financial system and access to the dollar.

CISADA: Comprehensive Iran Sanctions, Accountability, and Divestment Act, which was passed by Congress and signed by President Barack Obama in 2010; the law threatened foreign financial institutions with secondary sanctions if they continued transacting with most Iranian banks.

CHIPS: Clearing House Interbank Payments System, a U.S.-based payment system that is the world’s primary mechanism for settling large dollar transactions.

Correspondent bank: A domestic bank that serves as an intermediary for a foreign bank, enabling the foreign bank to access domestic financial services; U.S.-based correspondent banks are particularly important because they allow foreign banks to hold dollar deposits, conduct transactions in dollars, and facilitate cross-border payments on behalf of clients without the need for a physical presence in the United States.

Entity List: Public list managed by the U.S. Commerce Department that identifies foreign companies and individuals subject to American export controls; U.S. firms require a license before selling goods or technology to anyone on the Entity List.

FDPR: Foreign Direct Product Rule, a measure deployed by the Commerce Department to ban the sale of goods to specific end users if they were made using U.S. technology; it rose to prominence when it was deployed against Huawei in 2020.

Foreign exchange reserves: Assets held by a country’s central bank or monetary authority that consist of readily convertible currencies—such as the dollar, euro, pound, and yen—as well as gold; foreign exchange reserves are often used to support the value of a domestic currency, pay for imports, and service international debt obligations.

G7: The Group of Seven, a democratic bloc consisting of the United States, the European Union, Germany, France, Italy, the United Kingdom, Canada, and Japan (the EU participates in the G7 as a “non-enumerated member”); the group formerly included Russia and was known as the G8 until Russia’s 2014 annexation of Crimea.

IA: Office of International Affairs, a division within the Treasury Department that focuses on promoting U.S. economic growth and preventing global financial instability; IA became increasingly involved in U.S. sanctions policy after Russia’s 2014 annexation of Crimea.

IEEPA: International Emergency Economic Powers Act, which grants the U.S. president broad authority to declare a “national emergency” and wield extraordinary powers over the American economy; the law underpins all U.S. sanctions.

ILSA: Iran and Libya Sanctions Act, which Congress passed in 1996 to try to pressure foreign companies to stop investing in Iran’s energy sector; later renamed the Iran Sanctions Act (ISA), the law was the first major U.S. attempt to wield secondary sanctions.

JCPOA: Joint Comprehensive Plan of Action, also known as the Iran nuclear deal; a diplomatic agreement reached in 2015 between Iran and the P5+1 exchanging sanctions relief for constraints on Iran’s nuclear program.

Menendez- Kirk amendment: An amendment to the annual Defense Department spending bill that passed Congress in late 2011; it levied sanctions on the Central Bank of Iran and established a scheme to reduce Iran’s oil sales.

OFAC: Office of Foreign Assets Control, the agency within the Treasury Department in charge of sanctions policy and enforcement.

P5+1: Negotiating bloc consisting of the five permanent members of the UN Security Council (the United States, China, France, Russia, and the United Kingdom) plus Germany, which participated in talks with Iran over its nuclear program, culminating in the JCPOA in 2015.

Petrodollars: U.S. dollars earned by oil-exporting countries through the sale of oil; typically used to invest in U.S. government debt, corporate bonds, and stocks; pay for imports; and accumulate foreign exchange reserves.

SDN List: Specially Designated Nationals and Blocked Persons List; a public list managed by OFAC that identifies foreign companies and individuals that are subject to U.S. blocking sanctions.

Secondary sanctions: Economic penalties aimed not at the primary target of sanctions but rather at foreign banks, companies, or individuals that do business with the primary target; for instance, if an Iranian bank is a primary target of U.S. sanctions, penalties on a Chinese bank that does business with that Iranian bank would constitute “secondary sanctions.”

SWIFT: Society for Worldwide Interbank Financial Telecommunications, a Brusselsbased financial messaging service that is widely used among banks to send and receive information about transactions; SWIFT is used to share payment instructions, not to settle payments.

TFI: Office of Terrorism and Financial Intelligence, a division within the Treasury Department that focuses on sanctions and counterterrorist financing; TFI oversees OFAC and Treasury’s in-house intelligence agency.

U-turn transactions: Cross-border transactions between two non-U.S. financial institutions that use U.S.-based correspondent banks as an intermediary, either to complete a transaction in dollars or to use the dollar as a means of converting one foreign currency into another; often used as a chokepoint for U.S. financial sanctions.

INTRODUCTION

Win Without Fighting

There are places in the world that, owing to geography alone, appear repeatedly across the pages of history. The Bosphorus, the narrow waterway that cuts through the center of Istanbul and marks the boundary between Europe and Asia, is one such place. It is the passageway from the resource-rich Black Sea to the ports of the Mediterranean and the oceans beyond. It is a vital crossroads, a place where civilizations trade and jostle for power, where empires rise and fall.

In its golden age in the fifth century BC, Athens, the leading city-state of ancient Greece, depended on free navigation of the Bosphorus for access to food. Ships loaded grain from the fertile fields of Ukraine and dried fish from Crimea and sailed south through the Bosphorus toward Athens, protected on their journey by a string of imperial outposts and the fearsome Athenian navy. This fact was not lost on Athens’s biggest rival, Sparta. The twenty-seven-year Peloponnesian War came to an end when the Spartan navy destroyed the Athenian fleet at Aegospotami and seized control of the Bosphorus, severing Athens’s food supply and starving it into submission. The Bosphorus had been the Athenians’ lifeline, and the Bosphorus was where their empire met its demise.

Seven centuries later, on the banks of the same strait, the Roman emperor Constantine founded the city of Constantinople, known today as Istanbul. Constantinople grew into Europe’s largest and wealthiest metropolis, its skyline punctuated by the Hagia Sophia’s majestic dome. It served as the capital of the eastern branch of the Roman Empire for more than a thousand years until coming under Ottoman attack in the fifteenth century. After a protracted siege, Constantinople fell, extinguishing the last embers of the Roman Empire. From its new capital on the Bosphorus, the Ottoman Empire flourished for centuries to come. The Ottomans, like their predecessors, fought hard to fend off other great powers that coveted the strait, from the Crimean War to World War I.

That history has so often been made in this one spot is no accident. The Bosphorus is the epitome of a chokepoint: a gateway so critical to international trade that controlling it confers immense power—and blocking it can bring an enemy to its knees.

On December 5, 2022, with Russia’s brutal war against Ukraine raging a few hundred miles away, an ominous scene unfolded at the mouth of the Bosphorus. As far as the eye could see, a line of colossal oil tankers, some nearly a thousand feet long, formed a maritime traffic jam. Their transit through the strait was blocked. News of the standstill spread quickly. The Bosphorus is one of the busiest shipping lanes in the world today and an essential artery for the energy and food trade. Closing it for any prolonged period would unleash chaos on the global economy.

What was causing this gridlock?

It was not a hostile gunboat or battleship. Nor was it a shipping accident—an ever-present risk in the Bosphorus, whose sharp bends and fierce currents make it one of the world’s hardest waterways to navigate. Gumming up the works on that December day were new regulations, issued by the United States and its closest allies, which had gone into effect at 12:01 a.m. that morning.

Under the regulations, U.S. and European firms could no longer ship, insure, or finance cargoes of Russian oil sold for any price above $60 per barrel. The policy, known as the “price cap,” was intended to cut the Kremlin’s oil revenues and thereby undermine its war effort in Ukraine. The price cap packed a punch because trading oil without using Western services and institutions was next to impossible. A typical barrel of Russian oil was shipped aboard a European tanker whose insurance was British and whose cargo was paid for in U.S. dollars. The West had a near-monopoly on maritime insurance, in particular: its insurers covered more than 95 percent of all oil cargoes. Now, Western governments were exploiting this dominance to stem the flow of petrodollars to the Kremlin.

Turkey did not formally support the price cap, but the Turkish officials monitoring traffic through the Bosphorus were acutely aware of its implications: if a tanker was in violation of the policy, it would likely lose its insurance coverage, leaving the Turkish government vulnerable in the event of an oil spill or any other catastrophic accident. As a result, skittish Turkish officials were demanding extra proof that each tanker was fully insured before it could transit the strait, a requirement that led to the mounting congestion. A few paragraphs of regulatory jargon, published on the website of the U.S. Treasury Department in Washington, had ground traffic to a halt at a vital waterway more than five thousand miles away.

It was the latest in a series of moves by Western governments to squeeze the Russian economy in the wake of Vladimir Putin’s grisly invasion of Ukraine. Every economic penalty levied against Russia in this pressure campaign was like the price cap: simple regulations, issued at the stroke of a pen by little-known American and European bureaucrats. But their effects rippled far and wide. The measures reshaped trade and financial flows, rewiring the global economy. They restructured relationships between world powers, sketching the blueprints of a new international order.

The economic offensive against Russia is part of an extraordinary evolution in U.S. foreign policy. To address the most pressing global security challenges, the United States has come to rely on an arsenal of economic weapons, chief among them sanctions, over the use of military force. Economic weapons have existed for centuries, but in the past two decades, their sophistication and impact have grown by leaps and bounds. In a world economy interconnected by half a century of globalization and neoliberal reforms, the actions of U.S. officials can send shock waves across the globe at breathtaking speed.

This is economic warfare. It is how America fights its most important geopolitical battles today. From thwarting Iran’s pursuit of nuclear weapons to checking Russian imperialism and China’s bid for world mastery, the United States has reached into its economic arsenal to get the job done.

In the process, the world economy has become a battlefield. Its weapons take the form of sanctions, export controls, and investment restrictions. Its commanders are not generals and admirals but lawyers, diplomats, and economists. Its foot soldiers are not brave men and women who volunteer for military service but business executives who seek to maximize profits yet often find they have no option other than to obey Washington’s marching orders. And America’s strength in these battles stems not from its gargantuan defense budget but from its primacy in international finance and technology.

This is a new kind of war. But economic warfare itself is as old as history.

In 1958, Thomas Schelling, the Nobel Prize–winning economist and nuclear strategist, defined economic warfare as “economic means by which damage is imposed on other countries or the threat of damage used to bring pressure on them.” As Schelling pointed out, the distinction between economic and conventional war is how each is waged: Sanctioning an adversary’s bank is an act of economic war, whereas bombing that same bank is an act of conventional war. Both may aim to shut the bank down, but they seek to accomplish this goal in very different ways. Herein lies the main reason policymakers are so tempted by economic warfare: its tactics are inherently nonviolent. What makes today’s economic wars novel is the highly interdependent world economy, which amplifies their impact and makes their aftershocks hard to contain.

When asked which candidate he supported in America’s 2008 presidential election, Alan Greenspan, the recently retired chairman of the U.S. Federal Reserve, neatly summarized the prevailing economic wisdom of the time. “National security aside, it hardly makes any difference who will be the next president,” he said. “The world is governed by market forces.” The post– Cold War neoliberal order was built by and for multinational corporations. Their CEOs were the new titans of history. Officeholders in Washington, Beijing, or any other world capital were mere onlookers and occasional administrators.

Greenspan was not alone in this assessment. The “galloping new system of international finance,” the American financier Walter Wriston wrote in 1988, was “not built by politicians, economists, central bankers or finance ministers, nor did high-level international conferences produce a master plan.” On the contrary, it was built by “the men and women who interconnected the planet with telecommunications and computers” and the bankers who “immediately drove their trades over the new global electronic infrastructure.” Wriston was the most powerful banker of his time, leading Citibank from the late 1960s to the mid-1980s. He twice turned down offers to serve as the U.S. secretary of the treasury: as the top CEO on Wall Street, he knew public office would not confer any economic or political privilege he did not already enjoy.

In his 1992 manifesto The Twilight of Sovereignty, published a year after the collapse of the Soviet Union, Wriston predicted that national governments would grow obsolete as the twin forces of finance and information technology took command of the levers of history. Multinational corporations would stitch together global supply chains, further locking in the dominance of industry over politics. “As these alliances grow and strengthen over time,” Wriston argued, “it will become harder and harder for politicians to unscramble the emerging global economy and reassert their declining power to regulate national life.” Wriston was describing a process and system that we now call “globalization.”

The globalized economy was a seemingly autonomous machine, operating beyond the reach of traditional state institutions, but it was by no means decentralized. The system that neoliberal reformers such as Greenspan created was centered on the U.S. dollar, whose role in everything from buying oil to investing capital would continue growing long after America’s post– World War II dominance in trade began to decline. Meanwhile, CEOs such as Wriston built a centralized financial network that enabled banks and companies to move money around the world at the speed of light. Wriston’s motivation, like that of other executives who try to build infrastructure and set standards, was simple: to collect a kind of toll and reap outsize profits.

But in developing and connecting these systems, Greenspan, Wriston, and other globalizers like them created something else, too: chokepoints. And these chokepoints, it turned out, lent themselves to political exploitation.

Great powers once rose and survived by controlling geographic chokepoints like the Bosphorus. American power in the globalized economy relies on chokepoints of a different kind. Among them is the U.S. dollar, the default currency for international trade and finance. Other chokepoints include the main banks and networks that move money around the world and the intellectual property and technical know-how that underpin a vast array of essential technologies, notably the advanced computer chips at the core of the digital economy. The United States has used its hold over these chokepoints to pioneer a new, hard-hitting style of economic warfare. The result has been a stunning resurgence of state power in a world supposedly governed by market forces.

As a college student in the years after 9/11, I grappled with a contradiction. The United States was the most powerful country on earth, but it struggled to translate that power into solving global security problems. Few foreign policy disasters laid bare this paradox better than the U.S. wars in Afghanistan and Iraq, which cost America and its opponents untold blood and treasure with little to show for it. There had to be a better way.

“The acme of skill,” Sun Tzu wrote in The Art of War, is not “to win one hundred victories in one hundred battles,” but “to subdue the enemy without fighting.” I have devoted much of my career to exploring how economic power can advance this goal. I served on the teams at the U.S. State Department that designed and negotiated Western sanctions against Russia after its 2014 annexation of Crimea, and whose economic pressure campaign against Iran led to a landmark nuclear deal in 2015. I’ve advised the secretary of state, the chairman of the Joint Chiefs of Staff, and the top sanctions official at the Treasury Department. I’ve written widely about economic warfare, counseled companies on how to navigate the sanctions landscape, and taught a graduate-level course on the subject at Columbia University. Through these experiences, I’ve participated directly in some of the history recounted in these pages and worked closely with many of the main characters.

But this book does not rely on my own memories. It blends research, analysis, and extensive interviews with more than one hundred of the key players in the events described, highlighting inflection points, interpreting their significance, and pulling back the curtain on the places where economic wars are fought—places like the windowless warren of the White House Situation Room, the gilded diplomatic halls of Europe, the gleaming banking headquarters of Wall Street and the City of London, the sprawling compounds of the Kremlin and Zhongnanhai, and the Strait of Hormuz, where tankers carrying one-fifth of the world’s oil supply slip uneasily past Iranian warships. The narrative follows the protagonists in their moments of decision, as the fairest and most instructive way to assess choices made in the past is to do so without the benefit of hindsight. To that end, the book is structured chronologically.

Part One answers some of the most basic questions about economic warfare against the backdrop of globalization—Why does the world economy work this way? How did we get here?—with an emphasis on the people and events in the second half of the twentieth century and the early years of the twenty-first that created the system we have today.

Parts Two through Five detail four consequential episodes between 2006 and the present, a period I call the Age of Economic Warfare. These years saw the development of the most significant and novel economic weapons, which the United States first deployed against Iran (Part Two), then Russia (Part Three), then China (Part Four), before combining them in overwhelming fashion against Russia again in 2022 (Part Five). The book ends by exploring the fragmented world economy left in the wake of these events (Part Six).

Economic fragmentation was not part of the plan. Indeed, America deployed its new economic weapons with an unspoken assumption that it could use them at relatively low cost—that they would not, for instance, remake the global economy itself. This assumption came under increasing strain throughout the 2010s and shattered on the anvil of Putin’s 2022 war against Ukraine.

That war—and the massive economic penalties levied by the West in response—marks a hinge in history. In the years ahead, economic weapons will grow more pervasive and powerful. Economic warfare, now a baseline feature of our world, will permeate other areas of foreign policy, global economics, domestic politics, and business. The result will be a scramble for economic security that redraws the geopolitical map and ends globalization as we know it. Those who fear U.S. economic warfare and seek to insulate themselves from it will be pitted against those who harbor greater fear of China’s potential to wield economic weapons of its own. A third group—the “swing states”—will try to straddle both camps, giving its members significant influence but also exposing them to danger.

The United States must prepare for this future. America’s economic arsenal has demonstrated that it can inflict tremendous damage, but it has not proven that it can reliably advance U.S. strategic goals. Part of the reason for this mixed track record is that American economic warriors often shoot from the hip, forced to react to crises without much advance planning. While this ad hoc approach had few global repercussions when the targets were small and isolated adversaries such as Cuba and North Korea, today’s economic wars against China and Russia are a different matter. America’s current economic weapons are durable but not indestructible. If used recklessly, they could be broken forever or trigger unforeseen economic and political repercussions that come back to haunt us. It’s little wonder that some veterans of America’s economic wars have been urging caution: former Secretary of the Treasury Jack Lew, for one, has warned that the “overuse of sanctions could undermine our leadership position within the global economy.” Yet simply discarding these powerful tools would leave Washington at a grave disadvantage in a world of intensifying geopolitical competition. For the United States to prevail in future economic wars, it will need to pair its economic might with strategic wisdom.

In 405 BC, stopping traffic at the Bosphorus required a stunning Spartan naval victory and the destruction of the once-dominant Athenian fleet. In 2022, all it took was a regulation posted online by the U.S. government. That is a fearsome power, made all the more chilling by its seeming inscrutability. This book aims to demystify that power by explaining how it came to be, how it works, and what it means for the world. It is also a book about the choices America has made—for good and for ill—and how it can do better.

PART ONE

Building the Chokepoints

1

The Old Way: A Brief History of Economic War from Pericles to Saddam

Go back to any moment in history and you’ll find governments seeking to follow Sun Tzu’s advice: win without fighting.

Economic warfare has always offered one path to this goal. Depriving an adversary of money, resources, and other fruits of commerce can sap its will, compelling it to make concessions. Such tactics can also exhibit one’s own economic power for all to see and fear. Even if the enemy refuses to give in, economic warfare can degrade its industrial capacity and weaken its military, hindering its ability to fight should armed conflict break out.

One of the earliest documented economic wars unfolded in ancient Greece in 432 BC. As tensions boiled between Athens and Sparta, the Athenian leader Pericles issued a sweeping trade embargo on one of Sparta’s allies, the city-state of Megara. The Megarian Decree barred the Megarians from both the market of Athens and all ports of the Athenian Empire, which included most of the major coastal and island powers of the Aegean. The embargo hit hard. The playwright Aristophanes wrote that it left the Megarians “slowly starving” and caused them to plead for help from the Spartans.

Historians disagree about Pericles’s intentions, but the most persuasive account is that he used the embargo to try to deter a broader war. Megara had recently sided with Corinth in a battle against Corcyra, an Athenian ally, and Pericles wanted to impress on other Greek city-states, chief among them Sparta, the risks of opposing Athens and its vast naval power. By making an example of Megara, Pericles aimed to dissuade others from challenging Athens. As the English classicist Sir Alfred Zimmern put it, “Pericles determined to give a demonstration of what sea power really meant.”

The Megarian Decree showed both the strengths and weaknesses of economic warfare. Thanks to Athens’s naval dominance, compliance with the embargo was widespread, and it put immense economic pressure on the Megarians. But the measure ultimately failed to forestall war. In fact, it may have accelerated the descent into war by convincing the Spartans that peaceful coexistence with Athens was impossible. Pericles hoped to avoid war by threatening Athens’s adversaries with starvation. Instead, he convinced them that Athens was reckless and needed to fall. War came, and Athens fell.

The episode points to an enduring problem in economic warfare: the harm it inflicts does not always elicit the hoped-for policy changes, and its unintended consequences can sometimes precipitate the very outcome it aimed to prevent. Indeed, the failures of economic warfare are better known than its successes.

In 1806, the French emperor Napoleon imposed a wide-ranging trade embargo on Britain, hoping to force his biggest rival to accept France’s expanding European empire. Known as the Continental System, the policy prohibited British trade with all territories under Napoleon’s control, including Austria, Belgium, the Netherlands, Poland, Spain, and much of Germany and Italy.

The embargo was a total bust. Unlike Periclean Athens, Napoleonic France did not control the seas—Britain did, so compliance was shoddy. British goods continued to find their way into Europe, and the British economy did not suffer as much as Napoleon had anticipated. “To keep the English away from the Continent by blockade without possessing fleets is just as impossible as to forbid the birds to build their nests in our country,” concluded a contemporary report from Germany. The lands under French control bristled at the inconveniences of the embargo, as did other powers on the continent. After Tsar Alexander I stopped cooperating with the policy, Napoleon made the fateful decision to invade Russia, and the ensuing campaign so decimated his army that he was eventually forced into an ignominious retreat. The Continental System debacle illustrates another perennial challenge of economic warfare: for sanctions to be effective, they usually require the cooperation of other states—a difficult task, especially when those states are asked to make sacrifices.

Fast-forward a hundred years, and we find the world grasping for peaceful solutions to conflict. By 1919, the Great War had torn Europe apart, killing as many as 20 million people and unraveling European empires in quick succession. At the Paris Peace Conference that year, U.S. President Wood-row Wilson and other leaders conceived of a new organization called the League of Nations, whose purpose would be to preserve world peace. Under the auspices of the League, states would collectively commit to punish any would-be aggressor with devastating economic sanctions. If all member states unified behind such sanctions, they could, in Wilson’s words, unleash “something more tremendous than war.” Aggressors would back down without a shot being fired. “A nation that is boycotted is a nation that is in sight of surrender,” Wilson declared. “Apply this economic, peaceful, silent, deadly remedy and there will be no need for force.”

It did not take long for Wilson’s dream to be dashed. Congress voted down America’s entry into the League of Nations, meaning that an organization devoted in part to economic warfare would miss out on support from the world’s largest economy. When Japan invaded Manchuria in 1931, the League’s members could not agree on economic sanctions. Four years later, when Italian leader Benito Mussolini set out to conquer Ethiopia, the League cobbled together a halfhearted trade embargo that exempted key commodities such as oil, coal, and steel. The impact was negligible. Italy had stockpiled strategic materials before the invasion, and it continued to trade openly with both America and Germany, neither of which joined the embargo. Mussolini’s troops soon captured Ethiopia’s capital, Addis Ababa, and the League promptly lifted sanctions. Military force had succeeded, and what the League called the “economic weapon” had failed.

The ramifications went well beyond Ethiopia. Many scholars have pointed to the League’s powerlessness as one of the factors that emboldened Adolf Hitler to launch his own war of conquest a few years later. If Britain, France, and other League members lacked the resolve to punish Italian aggression, surely they would not stand in the way of a German blitzkrieg, either. Whether this is true or not, the episode did much to discredit economic warfare. It mattered little if, in theory, a total economic boycott could deter war. At the time, bringing such pressure to bear still required unity among fractious world powers, each with its own narrow interests. It would be more than another half century before the global financial system evolved to render that elusive unity unnecessary.

Pericles, Napoleon, and Woodrow Wilson: three leaders whose plans for economic warfare did not turn out as they hoped.

Before the turn of the twenty-first century, most economic wars faced the same pitfalls that doomed the Megarian Decree, the Continental System, and the League of Nations. Imposing serious economic pressure required formidable naval power, a broad international coalition, or both. The first requirement, naval force, blurred the line between economic war and conventional war, making economic weapons more of a prelude or supplement to military action than a replacement for it. The second requirement, international unity, was hard to galvanize in all but the rarest of circumstances, and harder still to maintain for a prolonged period. Together, these conditions limited the efficacy of economic weapons, especially during peacetime.

Even when underwritten by naval power and international support, economic wars often proved costly and challenging. The United Nations’ embargo against Iraq in the 1990s is a case in point. In August 1990, Iraqi dictator Saddam Hussein launched an invasion of Kuwait, Iraq’s small, oil-rich neighbor. Iraqi forces rapidly occupied Kuwait, and Saddam summarily annexed it, designating Kuwait the nineteenth province of Iraq. It was a shameless land grab—and it happened at a moment when, as in 1919, world leaders believed they were opening a new era of peace.

Nine months earlier, the Berlin Wall had fallen. The Soviet Union would survive another year, but the geopolitical stalemate between East and West was coming to an end. Mikhail Gorbachev condemned the Iraqi invasion of Kuwait as a “blatant violation” of international law and pledged his support for global efforts to punish Saddam. Within days of the attack, the UN Security Council unanimously adopted a resolution banning all trade with Iraq. The UN’s condition for lifting sanctions was the withdrawal of all Iraqi forces from Kuwait.

Because every UN member state was legally obligated to comply with the resolution and a U.S.-led naval blockade implemented the policy by force, the sanctions devastated Iraq’s economy. Trade with Iraq plummeted. The country’s oil sales, which accounted for 60 percent of its GDP and nearly all of its export earnings, were almost wiped out in a matter of months. For a moment, it seemed as if the post–Cold War United Nations could redeem Woodrow Wilson’s vision and check military aggression by economic pressure alone. Speaking before Congress in September 1990, President George H. W. Bush struck a tone of accomplishment. “We’re now in sight of a United Nations,” he said, “that performs as envisioned by its founders.” But he’d spoken too soon. Weeks dragged into months, and Saddam refused to reverse course. Eventually, the UN Security Council authorized military action to expel Iraqi troops from Kuwait.

The ensuing war wasn’t much of a fight. It took just 100 hours for U.S. and allied forces to rout the Iraqi military in February 1991. Once again, military force had succeeded where economic pressure had failed.

Even after Kuwait regained its independence, the UN kept its economic embargo against Iraq in place, now with the declared aim of stopping Saddam’s pursuit of a nuclear bomb and other weapons of mass destruction. Until inspectors could verify that Iraq had eliminated its nuclear, chemical, and biological weapons programs, the world would continue to ban trade with Iraq.

The embargo would last more than a decade, but it proved difficult to maintain. For one thing, enforcement required the continuous deployment of naval forces. Warships from more than twenty countries, commanded by U.S. naval officers, monitored maritime traffic in and out of Iraq’s ports. Whenever the sailors grew suspicious of a vessel, they dispatched a team via boat or helicopter to board and inspect it. Starting in 1995, their work was made more complicated by the UN’s decision to allow limited Iraqi oil exports to resume, a reprieve intended to mitigate the embargo’s severe impact on ordinary Iraqis. The Oil-for-Food program, as it was known, permitted Iraq to sell oil so long as it used the proceeds to buy food, medicine, and other humanitarian products. To ensure compliance with these terms, U.S. officials had to scrutinize every Iraqi oil shipment, verifying that the petroleum was accurately labeled and that the proceeds were used appropriately. This complex task involved poring over contracts and occasionally even sending out oil samples for laboratory testing.

It was an arduous and costly operation, and not entirely effective. Smugglers developed ever-more clandestine methods to evade detection. Swashbuckling oil traders saw the embargo as a moneymaking opportunity; if they were caught violating it, they would chalk it up as a cost of doing business. Saddam demanded kickbacks from oil customers, which they often paid in secret. Saddam banked almost $2 billion from these side payments. The Central Intelligence Agency (CIA) estimated that he collected as much as $11 billion from oil smuggling. Iraq was under intense economic pressure, but oil was leaking from every seam, and enough money was flowing back in to keep Saddam on his feet.

Meanwhile, international support for the embargo withered. Iraq was mired in a humanitarian crisis, a consequence not only of the embargo but of the damage caused by the Gulf War and the pervasive corruption of Saddam’s regime. Hunger and infant mortality spiked as Saddam opted to sell oil via smugglers so that he could siphon off profits for himself instead of using them under the terms of the Oil-for-Food program. By the time George W. Bush entered the White House in 2001, the embargo was universally reviled, condemned as inhumane by some and ineffective by others. Its perceived failure contributed in no small part to Bush’s disastrous decision to invade Iraq in 2003.

The irony was that the embargo achieved its main objective: it crushed Saddam’s nuclear program. Despite the Iraqi government’s relative success in bypassing sanctions, it still lost hundreds of billions of dollars’ worth of oil proceeds along with access to important military equipment. The policy did not temper Saddam’s ambitions, but it undoubtedly hampered his ability to realize them. As Hans Blix, the UN’s chief weapons inspector in Iraq, put it, “The UN and the world had succeeded in disarming Iraq without knowing it.”

All told, the Iraq embargo was a messy, tragic lesson in modern economic warfare. On the one hand, it succeeded in kneecapping a dictator’s military and preventing the emergence of a new nuclear power in the Middle East. On the other hand, it caused undue harm to Iraqi civilians; its enforcement required a thirteen-year naval blockade, which cost at least $1 billion per year and kept American forces on a continuous war footing; and it eroded the international unity at the UN that had emerged when Saddam invaded Kuwait. Worst of all, even though it hollowed out Iraq’s nuclear program, it did not stop America’s 2003 invasion of Iraq. Instead of offering a viable alternative to war, the embargo merely served as a bridge from one war to another.

The fiasco soured the United States and other world powers on economic warfare. The costs were too high and the benefits too low. Changing this equation would require a fundamental shift in the global financial system, a shift that would free economic warriors from past constraints. As it turned out, this change was well underway in the 1990s, though it would still be some years before its implications became clear. To wage the next economic war, U.S. officials would not need a naval blockade, nor would they need to rely so heavily on the UN. They would need only to map the pipes of the world economy laid by central bankers like Alan Greenspan and CEOs like Walter Wriston, find the chokepoints, and squeeze.

2

Invisible Infrastructure

Adam Smith, the eighteenth-century Scottish economist and pioneering theorist of capitalism, famously described the free market as guided by an “invisible hand.” That unseen force—human self-interest—ensured a more efficient allocation of resources than any central planner could devise. Today’s global economy relies on another unseen force, one that is far less theoretical: the invisible infrastructure that enables cross-border finance, which in turn underlies everything from commodity sales and global supply chains to international trade and foreign investment. Just about every major transaction in the global economy relies on this infrastructure, no matter which countries or companies are involved. If you do any business outside your home country, you use this infrastructure, whether you’re aware of it or not.

At the heart of this infrastructure is a currency: the U.S. dollar. It has rightly become commonplace to think of the dollar as the global reserve currency and U.S. Treasuries as the safest asset for investors worldwide, attracting everyone from farmers in the Midwest to the Chinese Communist Party. The dollar is the world’s preeminent store of value. Central banks hold 60 percent of all foreign exchange reserves in dollars, three times the share of the second-place euro and more than twenty times that of the Chinese renminbi. America is also home to the world’s two largest stock markets, the New York Stock Exchange and the NASDAQ, both of which boast market capitalizations several times larger than those of their biggest foreign rivals. Valued at over $50 trillion, the U.S. bond market also dwarfs those of the rest of the world. And when firms anywhere turn to international capital markets for cash, they almost always borrow in dollars: 70 percent of foreign-currency debt is denominated in dollars.

Impressive as these stats are, they represent just the tip of the iceberg. The dollar is also the world’s default unit of account and medium of exchange, which means that access to it is a necessity for participation in the global economy. When two firms based in different countries trade with each other, the buyer must first convert its currency to that of the seller. Consider an Indian farmer exporting rice to Saudi Arabia. To pay for the rice, the Saudi importer must convert Saudi riyals to Indian rupees. But there is no way for a bank to convert these two currencies directly. Saudi banks do not hold rupees, and Indian banks do not accept riyals. The global economy is too complex and the number of currencies too diverse for a single bank to hold in reserve every kind of currency it might encounter. Banks typically hold significant stocks of only two currencies: the currency of their home country and the U.S. dollar. To purchase the Indian rice, the Saudi importer’s bank must first convert riyals to dollars and then use those dollars to buy rupees on the foreign exchange market. The dollar will have served as a way station even in a transaction that involved no American firms.

This explains why the U.S. dollar is involved in nearly 90 percent of foreign exchange transactions even though the United States accounts for less than 10 percent of global exports. Of the top ten most common currency pairings for foreign exchange trades, all but one include the dollar. Every day, traders swap U.S. dollars for Swiss francs more frequently than they swap the euro or the Chinese renminbi for any other currency besides the dollar.

In addition to the dollar itself, the invisible infrastructure undergirding the world economy includes banks and other middlemen that facilitate most cross-border transactions. Many of these institutions are American, and those that aren’t still follow U.S. law because they depend on the ability to operate in the United States to function.

Now consider an Indian refinery that imports oil from Saudi Arabia. To pay for this purchase, the Indian refinery needs to wire dollars to the Saudi oil company. (For reasons we’ll soon learn, oil, the world’s most traded commodity, is priced in dollars.) Because most banks do not retain accounts with one another, the wire transfer would have to go through correspondent accounts at a major bank in New York. That bank—say, Citibank or JPMorgan Chase—would debit the account of the Indian refinery’s bank and credit that of the Saudi oil company’s bank. To do this, the wire would be cleared through one of two U.S.-based payment systems—the Clearing House Interbank Payments System (CHIPS) or the Federal Reserve’s Fedwire system. If the Indian refinery, the Saudi oil company, or either of their banks were barred from these systems, the deal could not be completed.

The U.S. government is the gatekeeper at each point along this invisible infrastructure. With a simple executive order, the president can deny a foreign firm access to any or every part of it. (Typically, the president delegates this power to officials at the Treasury and State Departments, many of whom will be introduced in the pages that follow.) If banks ignore these decrees or attempt clever schemes to circumvent them, they risk harsh punishments by the Justice Department and other U.S. law enforcement agencies. In the past fifteen years, the United States has hit multiple banks, including ones headquartered abroad, with huge penalties for violating U.S. sanctions. The French bank BNP Paribas was fined nearly $9 billion in 2014; the UK-based HSBC almost $2 billion in 2012—penalties too steep to be written off as merely a cost of doing business. In both cases, the Justice Department also installed independent monitors at the banks to supervise compliance reforms for years thereafter. And even though both banks were headquartered outside the United States, they had little choice but to pay up and comply with the U.S. government’s orders: the alternative—permanently losing access to the dollar and the rest of the invisible infrastructure—would be far worse.

The result is that global banks—whether based in New York, London, Frankfurt, Hong Kong, or elsewhere—have become reliable infantrymen on the front line of U.S. sanctions enforcement. In recent years, Washington has started conscripting firms outside the financial sector, too. U.S. authorities have smacked the Chinese telecom giant ZTE with more than $2 billion in fines for violating U.S. law by reselling American technology to Iran, and it has made clear that it will aggressively enforce U.S. sanctions regulations even when the only touchpoint with America is a server in a computer network. This expansion of power will undoubtedly continue in the years ahead as businesses in every industry rewire their operations to placate the world’s sanctions police.

These developments have immense ramifications. They have radically reduced the cost of deploying economic weapons while simultaneously super-charging their impact. The United States no longer needs to commit to an expensive and risky naval blockade to make sanctions bite, nor does it need political unity at the UN. At the stroke of a pen, the U.S. president can impose economic penalties far more severe than the blockades and embargoes of old.

Critically, the invisible infrastructure allows America to wield economic weapons even against fellow great powers. Unless it’s ready to fight a nuclear-armed adversary, the United States would recoil at imposing a blockade of Chinese or Russian ports, which those countries would view as an act of war. UN-backed sanctions against China or Russia are impossible since Beijing and Moscow possess veto power as permanent members of the UN Security Council. But over the past decade, America has targeted both China and Russia by weaponizing its control over the global economy, leaving the rest of the world scrambling to adapt.

How did the United States come by these economic superpowers? The answer lies in the transformation of the world economy that began in the 1970s and accelerated in the 1990s after the end of the Cold War. It is the story of globalization—first of finance, then of supply chains. And paradoxically, it begins with a fateful decision at a moment when the U.S. economy seemed at risk of inexorable decline.

3

Finance Unchained

On a warm morning in early August 1971, a French warship slipped out of the mists of the Atlantic Ocean and into the waters of New York Harbor. In its hold was something potentially more menacing than ammunition: empty space. The French government had sent the warship to pack up a literal pile of gold from the vaults of the Federal Reserve Bank of New York and haul it back to France. A few days later, Britain asked the United States to backstop all British holdings at the New York Fed by transferring $3 billion in gold from Fort Knox to New York. France and Britain had both lost confidence in the strength of the dollar, so they were racing to convert their dollars into gold before America’s hoard of the shiny metal ran out.

U.S. President Richard Nixon retreated to Camp David with his economic team to devise a response. This would prove to be a crucial moment in the economic history of the twentieth century. Complying with the French and British demands could trigger the mother of all bank runs, draining America’s gold reserves and making it impossible for the United States to fulfill its obligations at the center of the world financial system. The alternative would be no less dramatic: denying the requests, ending the convertibility of dollars into gold at a fixed rate, and allowing the U.S. currency to float, its value set by the whims of the market. The former option risked chaotic upheaval in the global economy. The latter might stave off chaos, but it would be an admission that the United States had relinquished the driver’s seat. Both options were bad, but Nixon had to choose. At stake was nothing less than the rules of the global economy, which had stood strong since the end of World War II.

To grasp why the prospect of delinking the dollar from gold was so momentous, it’s necessary to understand how the two came to be linked in the first place. In 1944, with World War II still raging, officials from Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, to discuss how economic dysfunction contributed to the war’s outbreak—and how better rules might prevent the same thing from happening again. The Allies agreed that after World War I, structural flaws in the international economy had sown discord among nations. The unraveling of the gold standard amid the Great Depression ushered in an ever-shifting patchwork of exchange rates, which enabled governments to engage in competitive currency devaluations, throw up tariffs, and pursue other beggar-thy-neighbor policies. All the while, speculators rapidly moved money from one country to another, spreading financial panic. The result was poverty, political strife, and, finally, war. With a more rigorous, rules-based economic system in place, perhaps World War II could have been avoided.

From these insights arose what would become known as the Bretton Woods system, the rules of the road for the post–World War II economy. At the heart of Bretton Woods were fixed exchange rates: the dollar was pegged to gold at $35 an ounce, and all other currencies were pegged to the dollar. These exchange rates were adjustable only within a narrow band; anything beyond a 1 percent move required consultations with the newly created International Monetary Fund (IMF). Bretton Woods also included restrictions on the movement of money across borders, walling off a key route through which financial instability had spread during the Great Depression. The dollar was now at the center of the world economy. But by fixing exchange rates and limiting cross-border capital flows, the Allies created a heavily constrained international financial system—which is exactly what John Maynard Keynes, the renowned British economist and a principal architect of Bretton Woods, thought was necessary.

Keynes believed that barriers to cross-border capital movements were particularly important for maintaining postwar stability. Without such barriers, capital would flow swiftly to wherever interest rates were highest, reducing governments’ control over their domestic economic policies. This was problematic because governments needed to be free to set their own interest rates, pursue social spending, and build national welfare states to recover from the devastation of war. Each country therefore had to be able to stop foreign currency from arriving at its shores by imposing capital controls, ranging from hefty taxes on foreign investments to outright bans on currency conversions. “Not merely as a feature of the transition, but as a permanent arrangement, the plan accords to every member government the explicit right to control all capital movements,” Keynes explained. As Henry Morgenthau, Franklin D. Roosevelt’s treasury secretary, put it in closing remarks at the Bretton Woods conference, the goal was to “drive the usurious moneylenders from the temple of international finance.”