Academic journal article Parameters

Waging Financial War

Academic journal article Parameters

Waging Financial War

Article excerpt

ABSTRACT: Has the emergence of global financial markets brought with it global financial warfare? This article discusses the canon of financial warfare and how one might wage it across both the strategic and tactical realms.


Imagine warfare waged in financial cyberspace: electronic, remote, fought in hypervelocity with millions of engagements per second, and with nations forced to construct redundant systems, sacrificing billions in economic efficiency for survival capacity. Financial warfare strikes can blockade vital industries; delink countries from the global marketplace; bankrupt sovereign economies in the space of a few days, and cause mass exoduses, starvation, riots, and regime change.

Financial warfare can support US policy objectives by attacking regime elites, collapsing trade, draining foreign currency reserves, decreasing economic production, spiking inflation, driving unemployment, increasing social and labor unrest and accelerating population migration. Financial warfare can assist the warfighter by halting an enemy's capability to produce and distribute war materials, fund training, operations, or proxies. Financial warfare can amplify and accelerate the damage inflicted by economic warfare. Financial warfare spoofing operations can assist intelligence collection by isolating and mapping crisis response patterns of individual adversaries, organizations, nations, and regime elites.

The aim of financial warfare is, quite literally, to disarm opponents by reducing their ability to finance production or distribution, complete transactions, or manage the consequences of a transaction failure. If precisely employed, financial warfare can reduce a targeted society's will and cohesion by forcing upon it, in stark terms, the daily necessity to choose between "guns" or "butter." This dilemma highlights and magnifies the real, immediate, and personal consequences of resource allocation. Deployed within an indigenous society's political framework, financial warfare can deepen the divide between rival constituencies, reducing societal cohesion and inciting civil unrest.

Financial warfare is not a new concept. While many individual policy actions had financial aspects, perhaps the first pure financial warfare campaign in United States history occurred in the Eisenhower administration. It was prompted by the Soviet invasion and suppression of the Hungary Revolution on 4 November 1956 and sparked by the seizure of the Suez canal by NATO allies, Britain and France, in Operation Musketeer on 5 November. (1) President Dwight Eisenhower determined he could not effectively oppose Soviet military intervention in Hungary, while allowing European military intervention in Egypt. (2) Diplomacy had not convinced the British or the French to withdraw. (3) The United States was hesitant to intervene with military force against NATO allies. As an alternative, Eisenhower employed financial warfare. With just three offensive strikes, the United States achieved its immediate policy aims of forcing Britain and then France to withdraw from the Suez Canal. The three financial warfare strikes were: (1) blocking the International Monetary Fund (IMF) from providing Britain with $561 million in standby credit; (2) blocking the US Export-Import Bank from extending $600 million in credit to Britain; and (3) threatening to dump America's holdings of pound-sterling bonds unless Great Britain withdrew from the Suez. (4) The credit blockade froze Britain's ability to borrow and forced it back onto its negative cash flow, effectively bankrupting it. The pound-sterling threat significantly raised the perceived risk of dealing in British currency. That threat, if executed, would have directly affected British ability to trade internationally.

By 1956, Britain was grossly overleveraged and dependent on further international borrowing to maintain its standard of living. The United States owned $3. …

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