Description

Research Topic Description, including Problem Statement:

There are many advantages for U.S. national security to have the U.S. dollar as the world reserve currency. Any international transaction settled in US dollars, gives the U.S. jurisdiction over financial crimes associated with those transactions, to include support to terrorism and weapons-of-mass destruction (WMD) proliferation. In addition, the U.S. is able to effectively level sanctions against or designate entities that violate international laws or treaties, or that have the potential to cause financial instability in global markets. The U.S. maintains international dominance in no small part due to its financial power and authorities. However, there are many threats to the U.S. dollar maintaining its status as the world reserve currency. Countries such as China and India have large growing economies that could compete with U.S. economic growth. Many cryptocurrency enthusiasts predict that either a global cryptocurrency or a national digital currency could undermine the U.S. dollar. If either of these scenarios or others come to pass, the U.S. would lose both its status in the world and its global authorities. The U.S. should prepare for scenarios that threaten to undermine the U.S. dollar as the world reserve currency and determine how those scenarios could be overcome, protecting our status in the global economy. The U.S. should prepare to identify potential “black swan” events that could revolutionize the financial playing field in ways we do not yet understand – presenting strategic surprise -- and understand root causes and driving factors that are particularly sensitive to certain global or technical events. Applying new statistical and artificial intelligence approaches to historical examples as well as possible future scenarios coupled with deep expertise in economics, finance, and emerging and evolving alternative banking mechanisms could provide useful new insights not available today and that would benefit the counterproliferation community.

Example Approaches:

This project should leverage all available information as well as recent breakthroughs in applied statistics, artificial intelligence, and deep learning to determine the most likely scenario(s) for how the U.S. dollar loses its status as the world reserve currency, why that scenario(s) is most likely, and in what timeframe this scenario(s) could unfold. It should also detail the impact of that status loss on the U.S., its economy, and national security. Further, the proposers should consider scenarios or events that would undermine this thinking and identify root causes and driving factors. Applying new approaches to considering risk and evaluating a range of future outcomes would be essential to developing a solid fundamental understanding of potential futures and enabling the Intelligence Community to develop strategies to anticipate developments, and identify and warn of emerging risks and vulnerabilities as early as possible.

Relevance to the Intelligence Community:

Maintaining the U.S. dollar as the world reserve currency is vital for the national security community. It enables the U.S. to impose and enforce sanctions on entities that violate treaties or international law – results are essential to counter-proliferation and counter-terrorism activities. Sanctions are imposed when countries or their citizens develop or expand weapons programs that are considered dangerous to the international community. Having U.S. dollar transactions settle through the U.S. gives law enforcement jurisdiction to investigate, charge, and convict criminals of financial crimes such as money laundering, fraud, and terrorist financing. Since the U.S. dollar holds value through time, it is the safest currency in which to conduct international business transactions. This gives the U.S. global economic dominance. If the U.S. dollar loses its status, these national security advantages disappear, leaving the U.S. vulnerable. This project could allow the national security community to prepare for and defeat scenarios that could prevent this economic crisis.

Key Words: Economy, Finance, Sanctions, Banking, Currency, Virtual Currency, U.S. Dollar, Risk Management, Statistics, Artificial Intelligence, Deep Learning