Dollar's Vulnerability and the Implications for National Security

The United States enjoys a significant benefit from the dollar's status as the predominant international currency. These financial benefits translate into increased state power through autonomy and the ability to shape the rules of the international system. In exchange, the rest of the world benefits from having a relatively safe and liquid investment for its capital and reduced transaction costs for international trade. Because of the benefits to state power, ensuring that the dollar remains the leading international currency is a national security issue for the United States. Based on economic theory and an analysis of the last transition of leading international currencies between the sterling and the dollar, there are emerging vulnerabilities that threaten the dollar's status. Many are long-term issues that do not present an immediate threat to national security; however, increasing reliance on foreign sources to finance United States debt has created a potentially dangerous situation. Analysis of some of the major holders of United States Treasury Securities shows that the nations that are financing United States deficit spending face significant economic issues of their own. A crisis in those nations could result in a run on the dollar, which could temporarily paralyze the United States Government, and poses long term implications to national security as the nation loses its relatively inexpensive source of foreign finance.