Research Design

Chapin Lee

Research Question:

How is/has/can finance and financial markets be used as a tool for strategic
state crafting in the United States and the world? Furthermore, How has the
evolution of global finance affected both the strategic goals of nation-states
(USA); and the means to which other nation-states and non-state actors can both
achieve political objectives and the ability to obtain power and legitimacy
through coercive and/or simply strategic market based financial activities
focused on ?

Other Questions that need to be addressed:

What is Statecrafting? What is Financial Warfare? Is there a difference between

financial warfare and economic warfare?

Topic Significance:

Scholars have researched the role of finance in security related issues heavily
periodically throughout history. Political Scientists and Economists research
security and use of finance in statecraft because it is a critical component for a
government to utilize successfully. Financial security refers to the flow of global
capital and the markets for capital and commodities, which accommodates those
flows. Through the strategic use of these financial flows national currencies
can be destroyed, inflation can be transmitted, reserves can be depleted, and
financial institutions can be destabilized. Furthermore, enemy governments,
terrorist organizations and other shadow government networks can utilize
finance in a number of ways that threatens the security of the international
community.
For example, nations outside of the Democratic West have begun to adapt to
the international monetary system; Authoritarian Capitalist nations have now begun
to utilize capital mobility and market liberalization through the creation of
Sovereign Wealth Funds (SWFs) earning them a much higher rate of return than
simply issuing risk free rate government bonds. Also, by using SWFs, authoritarian
nations in SE Asia and the Middle East have accumulated massive amounts of capital
giving them some of the largest shares of market power in the institutional investing
sector. The ability to use this accumulating power can give nations in new parts of
the world a strategic advantage over democratic nations in the west. If these
nations and NSA inside these countries grow financially stronger they could disrupt
the International Monetary System that The United States governs and functions as
the world’s financial leader for nearly forty years.

Strategically The United States is at a point in time where financial security is

of extreme importance to the national government. Beginning after World War II
and taking off during the collapse of the Breton Woods System the Unite States has
been positioned as the world’s financial leader giving them a strong strategic
advantage over other nations. Financial markets have become increasingly
liberalized over the past 30 years. As a result of market liberalization the volume
and size of global financial activities has also skyrocketed. Financial activities taken
on by any type of actor (Nation-state, terrorist organizations, multinational
corporations) have the ability to threaten and/or inflict harmful damage to other
actors. Financial crises are naturally occurring flaws that are created by capitalist
market failures; however strategic manipulation of free markets could also be used
to cause markets to fail, which could ultimately threaten international security. Due
to the massive threatening and disruptive capacity of weaponized finance it is
prudent to understand how exactly finance can be utilized for national political
goals, and what can be done to protect the interests of nation-states. Nations have
realized the potentially devastating risk their governments are exposed to in the
open market and strategic actions have been taken.

Research Methodology:

I will research this topic by reading the vast amount of published scholarly
journal articles, declassified military and government documents, and released
research done by third party think tank and consultancy firms. By starting and
focusing on the evolution of the monetary system I will be able to put in context the
current system. Then I will research how financial strategy is implemented and
thought of by the scholarly world today and in the past.

Tentative Outline:

A) Introduction

a) What is financial statecraft? And, why is it beginning to play an

increasingly large role in the geopolitical security spectrum?

b) Types of Financial Warfare and Strategic financial agendas

B) The Evolution of the current Internationals Monetary System

a) World War Two and Breton Woods

b) The collapse of Breton Woods

i) The “unholy” Trinity

c) The liberalization of financial activities

i) Capital Mobility and Market openness

ii) The power of capital mobility to absorb power and threaten state
sovereignty
 b) Description of current economic system

i) The Spread of Capitalism to the East

ii) China, SE Asian Nations

1) Chinese switch to capitalism

2) SE Asian financial network

iii) Market failures

1) Currency crises (SE Asian Financial Crisis)

2) The Financial Crisis of 2007

D) Threats to international security

a) Sovereign Wealth Funds

i) The rise of authoritarian led governments

b) China’s “Unrestricted Warfare”

c) Terrorist Organizations and other Non-State Actors

d) Informational and Copyright theft

E) Strategic Defensive Financial Strategies (Need to focus future research on this

topic)

a) United States financial strategy

i) Protection of the current International Monetary

b) Other financial strategies

c) Hybrid Warfare

i) Expeditionary Economics

F) Conclusion

a) Recap

b) What the future of the international financial system may be

c) Concluding points

Preliminary Bibliography:

 Daniel W. Drezner, “Will Currency Follow the Flag?” International Secuirty

(Fall 2009), International Relations
 James G. Rickards, “Economic Security and National Security,” Strategic Studies
Quarterly
 Daniel W. Drezner, “Bad Debts: Assessing China’s Financial Influence in Great
PowerPolitics,” International Security 34, no. 2 (2009): 7–45 http://
www.mitpressjour nals.org/doi/
 Niall Ferguson, The Ascent of Money (New York: Penguin Press, 2008)
 Sanjaya Baru, “Geopolitical Implications of the Current Global Financial Crisis,”
Strategic Analysis 33, no. 2 (2009): 163–68, http:/ /www.informaworld .com
 Pingfan Hong, “China’s Economic Prospects and Sino–US Economic Relations,”
China &World Economy 14, no. 2 (2006): 45–55, http://dx.doi.org/

 John B. Taylor, Global Financial Warriors, The Untold Story of International

Finance in the Post-9/11 World (New York: W.W. Norton & Company, 2007), pp.
1-28. Dr. Taylor served as Treasury Under Secretary for International Affairs,
2001-2005.
 Paul Bracken, Financial Warfare, Orbis, Volume 51, Issue 4, 2007, Pages 685-696,
ISSN 0030-4387, DOI: 10.1016/j.orbis.2007.08.010.
(http://www.sciencedirect.com/science/article/B6W5V-4PHSFS3-
6/2/fc02afb8004fcc7dfc8902e89579fb05)
 The US Treasury Department's Office of Foreign Assets Control
 Major John A. Van Messel, Unrestricted Warfare: A Chinese doctrine for future
warfare?

 Nan, Li “Unrestricted Warfare and Chinese Military Strategy.” The Strait Times,
24 October 2004. http://www.ntu.edu.sg/idss/Perspective/research
 Fikelstein, David M., “Evolving Operational Concepts of the Chinese People’s
Liberation Army: A Preliminary Exploration.” Alexandria, Va: Center for Naval
Analysis, December, 2001
 Lutz J, Lutz B. 2006b. Terrorism and economic warfare. Global Economy Journal
6(2) (online). DOI: 10.2202/1524-5861.111

  Modern Capitalism: The Changing Balance of Public and Private Power,

 Akemann, Michael and Fabio Kanczuk. 2005. “Sovereign Default and the
SustainabilityRisk Premium Efect.”Journal of Development Economics 76(1): 53-
69.

 Governing finance: East Asia's adoption of international standards By Andrew

Walter
 Politico. The Penetgan Preps for economic warfare. Edward James, April 9 2009
 Seeking Alpha. ‘Global Credit Warfare’: China Preparing for a treasury bond sell
off?, Rolf Norfolk, Feb. 27, 2011