Their paper represents a fusion of both of their approaches, and makes for fascinating reading. They start by characterizing the post-war global system as broadly "homeostatic," meaning that it can maintain stability in the face of shocks. Homeostasis requires a feedback mechanism so that it can constantly adjust itself - think of your home thermostat, which needs a thermometer so it can figure out when to run your furnace/air conditioner and when to stop.
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Political scientists have identified many of these feedback systems. For example, KN Waltz describes how, when one "great power" starts to dominate the world, the weaker states in its orbit will switch their alliances to rival powers, in order to "balance" power between the big beasts. Smaller, poorer, and/or weaker countries that have looked to the US for trade and military alliances might switch to China if it looks like the US is getting too powerful.
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Not necessarily because China offers a better deal than the US, but because a decisive global victory by the US would give it the power to squeeze these countries, because they'd have nowhere else to go.
Waltz's work is especially relevant this month, with Canada inking a Chinese trade deal and Canadian Prime Minister Mark Carney publicly declaring a "rupture" with the US-dominated order:
https://www.programmablemutter.com/p/davos-is-a-rational-ritual
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When great powers ignore the feedback of these systems, the result is a collapse in global homeostasis, and radical shifts in the global order. Farrell and Davies argue that this is what's happening with the weaponization of the dollar, which has prompted many countries to take action that should have caused the US to back off, but which the US has ignored as it doubled down on the weaponized dollar:
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Even when the US has a "rational" case for weaponizing the dollar - for example, by forcing the world into a global financial surveillance project aimed at stemming finance for terrorism - it runs the risk of making things worse. If the US's anti-terror financial demands are so onerous that they provoke other countries into setting up multiple, independent, fragmented global financial schemes, then terrorists and their backers will have their pick of ways to move money around.
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Even where the US has had limited success with financial sanctions (by isolating North Korea, or by targeting specific individuals rather than countries), it has undermined those successes by peddling and formalizing cryptocurrencies that evade those sanctions. With Trump's crypto project, America gets the worst of both worlds: ineffective financial sanctions that nevertheless weaken the dollar's centrality to the world, and the power that confers upon America.
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The world relies on the dollar because it has to rely on *something*. There are hundreds of currencies in the world, and it's prohibitively expensive for exchange brokers to maintain deep reserves of all of those currencies so that any currency can be swapped for any other. Likewise, it is cumbersome and risky for transactions to rely on a chain of exchanges.
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If someone in Thailand can only buy oil from Norway by first trading Thai baht for Japanese yen, and then Australian dollars, and then euros, and *then* Norwegian kroner, they'll be bedeviled by shifting exchange rates, transaction fees, and, possibly, shady brokers who just take the money and run.
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After WWII, when the great powers and middle powers were hammering out the global financial system, economists like John Maynard Keynes proposed an international supercurrency that would only be used to facilitate exchanges, but he was outmaneuvered by America's chief negotiator, Harry Dexter White, who insisted that the US dollar will fill that role:
https://profstevekeen.substack.com/p/this-is-the-end-of-the-us-global
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So everyone uses the dollar, and because everyone uses the dollar, everyone *has* to use the dollar: the dollar enjoys "network effects," where the more parties there are who will accept it, the more valuable it becomes and the harder it is to find an alternative.
In my theory of enshittification, network effects are a powerful temptation to make a service worse.
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If you own a system with strong network effects, you can make it worse for all its users (and better for you) without risking your users' departure, because they are all holding each other hostage:
https://www.eff.org/deeplinks/2021/08/facebooks-secret-war-switching-costs
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Update, October 1, 2021: The original version of this essay incorrectly stated that Metcalfe's Law dictated that the number of connections in a network doubled with each new user; that has been corrected, below.When the FTC filed its amended antitrust complaint against Facebook in mid-August, we...
So it is with dollar weaponization. In order to use the dollar to settle transactions, parties must have access to systems that are directly under US government control (like a dollar account at the Federal Reserve), or are, practically speaking controlled by America (like the SWIFT system for moving money across borders).
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The fact that you *have* to use dollars, *and* you can't use dollars without the US government's say-so, means that the US can impose onerous terms on dollar users and not have to worry that they'll switch to another currency.
Farrell and Davies describe how, during the "high era" of globalization, US Treasury officials fought to insulate the dollar from control by the US security apparatus.
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Treasury officials understood that the dollar was a source of enormous US power and advantage, and they didn't want to risk all those benefits by beating up dollar users and tempting them to look elsewhere.
But ultimately, Treasury lost. This, too, is in accord with my theory of enshittification: once an institution locks in its users, the factions that want to make things worse will start winning the argument.
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This is exactly what happened to Google, when, having locked in search users, the company fell under control of its enshittifying faction, who oversaw a program that made search *worse*, so that you'd have to search repeatedly (and look at multiple screens' worth of ads) to get the answers you sought:
https://pluralistic.net/2024/04/24/naming-names/#prabhakar-raghavan
Google's anti-enshittification faction argued that making search worse was a betrayal of the company's mission.
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The pro-enshittification faction pointed out that lock-in meant that Google could make more money by betraying its mission without losing users, and they won the day. It's a lot easier to live your principles if you suffer when you betray them, and it's a lot easier to hold an institution to its principles if betraying those principles results in immediate penalties.
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After 9/11, the US security apparatus demanded dollar weaponization: the Office of Foreign Asset Control bigfooted the international finance system, forcing them to spy on, report and block transactions the US disliked. The threat of being excluded from the dollar system was powerful: when one bank refused to stop doing business with North Korea, the US "designated" the bank as noncompliant, provoking a bank run. The rest of the world's banks fell into line.
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The fact that the US could punish banks for actions that harmed American interests, *even if the bank followed all the procedures required of it*, encouraged banks to adopt a "zero risk" policy, where they made up policies that went well beyond America's rules, conducting even more surveillance, blocking even more transactions, and reporting even more activities than was required of them.
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All of this made participating in the dollar system steadily more costly, as dollar users had to pay for expensive compliance measures or risk the failure of key transactions, or exclusion from the dollar altogether.
Late in Obama's second term, officials sounded the alarm about the dollar becoming increasingly unattractive for international finance, and counseled a relaxation of the post-9/11 ratchet of ever-tighter rules for dollar users.
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But Trump's officials were totally disinterested in the long-term health of the dollar system, and pursued an even more aggressive policy of dollar weaponization during Trump's first term.
During Trump I, major blocs such as the EU began to formally prepare dollar alternatives and to formulate an "anti-coercion instrument."
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The anti-coercion instrument is an agreement among EU states to retaliate together in the event that the US (or some other country) used the dollar (or some other currency) to interfere in internal EU matters:
https://en.wikipedia.org/wiki/Anti-Coercion_Instrument
(The anti-coercion instrument has never been used, but it was almost invoked last week over Trump's threat to steal Greenland):
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The Biden years seemed to signal a return to normalcy - the US might weaponize the dollar, but would at least *pretend* that they were playing fair. In Kelly's formulation, they'd actually *play* the rigged poker-game, rather than just taking everyone's chips and flipping over the table, the way Trump liked to do.
But Biden *also* seemingly couldn't help himself, and his administration pursued a much blunter program of dollar weaponization than pre-Trump presidents.
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In particular, Biden's sanctions on Putin, his aligned oligarchs, and the Russian state were far more aggressive than anything any president (including Trump I) had ever done with the dollar.
Farrell and Davies write that:
> Informal conversations with Biden officials suggest that they had noticed that, despite Trump’s actions, other countries had not moved away from the US dollar. Therefore, the Biden administration felt the US had greater leeway to use sanctions.
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In other words, the fact that enshittification produced no downside meant pro-enshittification factions kept winning the argument, and engaged in ever more severe forms of enshittification.
The EU wasn't alone in worrying about US financial coercion. While China maintains much of its own transaction processing infrastructure, it is still very exposed to the dollar system, prompting it to take measures for retaliation and alternatives if the US overstepped.
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Meanwhile, the increasing controls and costs of using the dollar drove many parties to cryptocurrencies. Some were criminals whom dollar weaponization was *supposed* to harass, but many were just innocent bystanders, dolphins caught in the tuna net (think of American relatives of Russians who wanted to send their families money for food, rent, or even a plane ticket out of Russia).
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Biden responded to the growing use of crypto to evade dollar rules with regulations to bring crypto under tighter control, for example, by classing crypto as a security and subjecting it to financial regulation. The Biden administration's rules for banks that offered crypto services and trading made handling crypto so expensive that most banks just gave up on it altogether.
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Crypto boosters used this response to campaign against Biden and for Trump, accusing Biden of "strangling" crypto and "debanking" its users. Trump won a second presidency, in part thanks to billions in dark money from crypto insiders (many of whom Trump went on to pardon for money-laundering convictions carrying heavy fines and long prison sentences).
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At the outset of the second Trump presidency, Trump relied on tariffs, rather than dollar weaponization, to push the world around. As Farrell and Davies write, Trump gave speeches where he recognized the danger of squeezing dollar users too hard:
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> The problem with ... sanctions ... [is that] ultimately it kills your dollar and it kills everything the dollar represents. ... So I use sanctions very powerfully against countries that deserve it, and then I take them off. Because, look, you’re losing Iran. You’re losing Russia. China is out there trying to get their currency to be the dominant currency as you know better than anybody. ... So I want to use sanctions as little as possible.
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Trump thinks that using sanctions is fine, provided that then he "take[s] them off." This has resulted in the trademark Trump chaos of announced and rescinded and reimposed sanctions - against Chinese refineries, a Yemeni bank, the International Criminal Court, and the nation of Colombia.
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It's possible that this is less onerous than permanent (or at least, long-term) sanctions, but not by much. If no one can be sure that they'll be able to use the dollar tomorrow - even if they might be able to use it again the day after - there's far more pressure to find dollar alternatives.
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Meanwhile, Farrell and Davies observe that:
> [Trump is] more willing to impose sanctions on allies, since they are less able to defect from the dollar than neutrals and rivals, and less likely to act against crypto even though it facilitates sanctions evasion.
In other words, Trump's reserving his most destructive punishments for his friends, because his enemies are more likely to flee to China if he uses his most devastating attacks on them.
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This is a very interesting observation, especially in light of Canada's announcement that it is leaving the American sphere of influence to become a neutral party with many alliances, including with China. If Farrell and Davies are right, this might mean that Canada will be *less* likely to face sanctions in the future than it risked when it was formally allied with the USA.
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Meanwhile, Trump's indiscriminate use of tariffs is steadily worsening the American domestic situation, driving up prices:
https://fortune.com/2026/01/21/amazon-price-hikes-tariffs-2026-andy-jassy-davos/
Farrell and Davies predict that this will drive Trump to switch from using tariffs to using sanctions (after all, Trump's executive function has always been terrible, and it's only declined as his white matter disease has progressed).
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The EU is getting ready for this by finalizing the "Digital Euro." If Trump responds to this with more sanctions, it will only hasten the world's switch away from the dollar.
The authors call this a "positive feedback loop" (despite the word "positive," that's not a good thing - a positive feedback loop causes a system to keep on speeding up until it is shaken to pieces). The EU has good reasons to escape the dollar.
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The US has good reasons to fight the EU's escape. Everything the US does to punish the EU for trying to escape the dollar will make the EU want to escape the dollar even more.
The post-American era is being born around us, but when it comes to US "platforms" like the dollar (or even the transoceanic fiber links that all make landfall and interchange in the US), the expense and lock-in have left the world without any obvious and ready alternatives:
https://pluralistic.net/2025/11/26/difficult-multipolarism/#eurostack
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But there's one post-American platform that's right there for the taking: a global collaboration to develop open, auditable, trustworthy alternatives to US tech, from administrative tools like Office365 to the firmware in tractors, cars, and medical equipment:
https://pluralistic.net/2026/01/01/39c3/#the-new-coalition
It's a project that the EU is actively pursuing:
https://finance.yahoo.com/news/big-bazooka-europe-could-hit-100000361.html
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But I don't think they've yet grasped how crucial the project of getting off US tech is - not just because it's *urgent*, but because it's also *tractable*. While replacing the dollar is hamstrung by network effects, building a global software commons *benefits* from network effects. It starts strong, and gets better every time someone else joins it.
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What's more: I suspect that a world that is already bound together with a common tech stack would have a much easier time coordinating resistance to dollar weaponization.
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@pluralistic Brazil avoided a big wave of sanctions due to its neutral nature and the fact we already adopted a bunch of open source software.
There is also PIX being very popular and independent of american payment processors. We rely heavily on USD, but at least we managed so far to create a buffer both in perception and practical political acts that undermines any actions against us. Weak, but good enough.
Also, for some reason, Trump likes Lula a lot.
@pluralistic The fact that EU accelerated the signing of the Mercosur trade deal and made us an alternative to US products and services shows the weakening of the USD.
We have the resources, but we lack the tech and methods to safely extract them. The fact that the EU would rather bet on uncertain futures shows the world how bad america have become as an ally and partner.
Cory Doctorow
Fernando