The US dollar functions like a network, paralleling how DeFi layer 1s require a form of “proof” for their chains to operate. In the case of the USD, it’s a network based on Proof of Violence (PoV). The necessity for PoV to demonstrate its strength isn’t constant but occasional, with a single significant instance having lasting impact. This PoV enabled the US to shape the global financial system, establishing its dominance. But, maintaining this network relies on more than just violence; it also involves intrinsic value. The USD’s hegemony is a two-step process: establishment through violence, followed by maintenance through value.
The US’s victory in World War II was pivotal, granting it the power to control global geopolitics and finance, bolstered by soft power tactics like dollar diplomacy, the petrodollar system, sanctions, and influence through institutions like the World Bank and IMF. Tools like SWIFT and banking control further extended this influence without direct conflict.
However, the USD’s longevity isn’t solely attributed to its origins in violence. The US financial system provides tangible global value, recognizing that coercion is less effective than aligned incentives and positive reinforcement. The initial establishment of dollar hegemony through violence has been sustained by robust economic network effects and property rights laws.
The role of violence in the rise of the USD cannot be understated, especially how WWII victory allowed the US to restructure the global order to its economic advantage. By leveraging PoV, the US crafted a system that advanced its interests, subsequently supported by a strong economy, rule of law, and network effects. The USD’s status as a reserve currency, a position earned rather than officially designated, reflects global confidence in this stability.
Thus, the US’s financial dominance was established through PoV (violence) and maintained by another PoV, Proof of Value. A system that was initially won through force has been developed and preserved through a superior system. These two forms of PoV are distinct yet equally crucial.
While there have been ongoing speculations about the USD’s decline, it’s not a foregone conclusion. However, the US’s Proof of Value network faces gradual disruption from the global, permissionless nature of DeFi. Crypto networks are increasingly challenging US soft power, a threat perceived by the US as it seeks to maintain its dominant position. DeFi’s growth detracts from the US’s economic and power structures, inherently challenging its financial dominance.
This erosion of soft power might necessitate a reversion to the original PoV (violence) if the US cannot maintain its dominance through value. Modern warfare has evolved into proxy and guerilla wars, and the US’s record in these conflicts has been less than stellar, marked by inefficiency and failure.
Current US military strategies, a mix of guerilla warfare and psychological operations, face global competition. The US no longer fights wars for survival or significant gains, but rather to maintain soft power, often against adversaries with stronger motivations. This discrepancy in motivation limits the effectiveness of US military interventions.
In conclusion, while not predicting the end of the US or the dollar, there’s an anticipation of a shift in the US’s global role. As DeFi erodes the USD’s network effects and value proposition, the US might retain its wealth and quality of life but lose its capacity for unilateral action. The ongoing challenge from DeFi to the US’s dual PoV model—value and violence—suggests a future where the US must adapt to a more equitable global playing field.
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