Finance (formerly Financial Services): –
The United States’ (U.S.) finance industry is a mosaic of highly regulated entities that generate trillions in revenue. Those revenues ripple across the U.S. and the global economies and become the foundation for capital investments into infrastructure, education, social welfare, and national defense. The United States occupies a unique position in the world order due, in large measure, to its robust financial markets and the singular attributes of the U.S. dollar. U.S. financial strength enables the pursuit of domestic and global objectives by leveraging the four primary instruments of power – diplomatic, informational, military, and economic.
After World War II, deliberative planning conducted at the Bretton Woods Conference, established an international financial relations system that evolved to include the political, legal, social, and defense structures that we currently describe as the Western rules-based order. This order has maintained relative peace for more than seventy-five years and promoted prosperity.
Initially, U.S. hegemony was a significant justification for the longevity of this world order. Over time, the nuclear arsenal of the Soviet Union, the burgeoning manufacturing in communist China, and the chorus of dissatisfaction expressed by emerging nations created ideological fault lines in the foundation of the order and exposed the limits on U.S. power.
This Industry Study (IS Finance) examines U.S. power by performing an enterprise risk management analysis of the U.S. financial industry. The holistic analysis commences by examining the foundational precepts that inspired the Bretton Woods Conference and proceeds to summarize sources of U.S. financial strength by describing effective forms of corporate governance, the overarching regulatory framework, the U.S. dollar as the reserve currency, accessible capital markets, and the role of innovation. Constraints, such as cyber threats, money laundering, sanctions abuse, de-dollarization, market permeability, and underfunding defense technology, are explored. Some of the strengths (sanctions supported by the dollar as a reserve currency), if indiscriminately invoked in the context of financial statecraft, can have the unintended effect of engendering or exacerbating illicit finance resulting from sanctions avoidance and attendant money laundering compliance responsibilities. These are considerations for policy makers as the Unite States seeks to formulate a coherent financial statecraft response to China’s Belt and Road Initiative (BRI) (aspects referenced generally throughout and in Appendix A of this paper) in Eurasia in an era of fiscal constraint and new policy priorities and increasing multipolarity and complexity.
The authors contend that for the U.S. to maintain its financial primacy, a whole of government approach is required to implement the following five policy recommendations:
- Establish a regular interagency working group to assess and address national security risks related to the financial industry.
- Establish a multiagency, joint sanctions monitoring group,
- Establish a list of corporate principles correlated to national security concerns,
- Collaborate with financial institutions to pilot private-funded national security investments, and
- Tailor existing federal loan programs to preserve legacy fossil fuel investments essential for national security.
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