The US dollar is a network. Similar to how DeFi layer 1s need to show “proof” of something to have the chain work, so does the USD. It’s a Proof of Violence (PoV) network.
PoV doesn’t need to show proof often, just once in resounding fashion can last quite a while. PoV allowed the US to set up the entire financial system as the rails for its hegemony. However violence alone isn’t enough to sustain this network, there’s value there too. I view USD PoV hegemony as a 2-part process: violence to establish, then value to maintain.
Violence from WW2, winning the most important war of modern times, allowed the US to establish geopolitical and financial control, and further it with soft power. Things like dollar diplomacy, the petrodollar, and sanctions, as well as “international” institutions like the World Bank and IMF (Bretton Woods institutions). Add to that tools like SWIFT and banking-rails control. These let the US exert influence without drawing blood.
But just because the USD started as a PoV (violence) network, doesn’t mean that’s what’s sustained it; the US-led financial system does provide real value to the world. Coercion does not work for a long time, and it’s inferior to aligned incentives and positive reinforcement. Carrots are what build the best human coordination, not sticks. The US established dollar hegemony with violence, but has maintained it with powerful economic network effects and property right laws. Give credit where it's due.
However the violence was integral to USD ascension. It can’t be overstated how much the US's World War 2 victory allowed it to basically remake the global order in a way that aligned with its economic interests and preferences. Through PoV, the US created a system built to advance its interests. And then allowed it to thrive by having a legitimately fantastic economy and the best rule of law and network effects the world had to offer. Use of USD as a ‘reserve currency’ (which isn’t an official designation, it just means people want to save in/hold your currency because it’s a Schelling Point for commerce) reflects this stability and affirms the global community mostly agrees with this.
So PoV (violence) is what established US financial dominance, and then another PoV, Proof of Value, is what maintained it. Violently won at first, then sustained and developed through a comparatively superior system. Two very different kinds of PoVs, both equally important.
Claims of the USD’s demise have been ongoing for decades. I’m not trying to make a call that now it’s finally happening, but I am going to suggest that the US PoV (value) network is going to be incrementally disrupted by the global, permissionless offerings of P2P financial networks that is DeFi.
US soft power is going to be increasingly undermined by crypto networks. Which is part of why America hates crypto, and it will always hate it so long as it’s king of the hill. Why wouldn’t it? It’s totally rational. Nothing about what DeFi is doing is accretive to the state from either an economic or power lens: it detracts from both of them. It undermines US financial control both domestically and abroad by design. If you were the US, you’d hate it too (I’m not, so I love it).
This loss of soft power will eventually bring about the need to refresh the initial PoV (violence). If you’re not providing enough value to keep people using your greatest export (USD), then you’re going to have to violently impose it on them like you did after WW2. And I’m not particularly bullish on the US military’s abilities to do this, simply because the motivation for war and the paradigm for it have evolved, and it’s shown to be inept about it.
Because the US is so overwhelming in traditional warfare, modern conflicts have evolved. They're now almost exclusively proxy wars (all the stuff the CIA does, Ukraine, Syria, etc.) or guerilla wars (Vietnam, Afghanistan, etc). This is known as 4th-gen warfare.
However, modern US war accomplishes little, wasting trillions and US lives in the process. Iraq, Vietnam, Afghanistan, Ukraine, Syria. What objectives have been won here? How much did it waste in this futility? These are not exceptions, ineptitude is a verifiable trend now.
Combat is now a hybrid of 4th and 5th-gen warfare: which is to say guerilla war and non-kinetic, manipulative psychological games. The US/NATO does not have a global monopoly on this kind of warfare, in fact they’ve shown to be pretty maladroit about it. And this is basically how wars are fought now.
I believe these military failures are in part because the US doesn’t fight wars for survival or major gain anymore, like it did in World Wars or battles for territory like the Mexican-American War. The wars it fights now are for maintenance/furtherance of soft power. In all the aforementioned wars like Vietnam, Afghanistan, Syria, etc. it’s fought against adversaries that are either fighting for their homeland, or something they passionately believe in. That’s a dominant motivation to the US’s soft power desires. If the US loses, it’s embarrassed but just goes home pretty unaffected; this materially impacts your willingness to engage.
Unless you’re able to use overwhelming military force, the dominant motivation wins. And I don’t think the US has it anymore.
I’m not predicting the demise of the US or the dollar. What I’m predicting is that when it eventually loses superiority from USD network effects and value proposition to DeFi, it’ll become the UK with a 2nd amendment. Still wealthy and a nice place to live. It just doesn’t get to abuse people anymore and get away with it. You have to play fair!
The PoV (value) that needs to be continually refreshed will be decremented as DeFi chips away. And the PoV (violence) that needs Fourth Turning-tier frequency to establish does not look like a force the US will be able to pull off when the time comes.