Fernando Alcoforado*
James Rickards’ book The Deats of Money (Penguin Random House UK, 2014) clearly highlights the importance of financial warfare a country can adopt to destabilize an enemy country’s financial institutions and degrade its economic capacity. Rickards states that destroying an enemy country’s wealth through an attack on its market may be more effective than sinking enemy ships when it comes to weakening an opponent. Financial warfare is the future of war, according to Rickards.
The purpose of financial warfare is to degrade the enemy’s capabilities and subdue the enemy while seeking geopolitical advantage in specific areas. Making a portfolio profit has nothing to do with a geopolitical financial attack. If the attacker can lead a country into a state of near collapse and paralysis, a financial catastrophe while advancing on other fronts, then the financial war will be deemed successful even if the attacker incurs great costs. All wars are costly and many wars are destructive, and recovery takes years or decades.
Financial warfare has both offensive and defensive aspects, according to Rickards. Offensive aspects include malicious attacks on the enemy country’s financial markets designed to disrupt trade and destroy its wealth. Defensive aspects involve rapid detection of an enemy attack followed by rapid response such as closing markets or intercepting enemy message traffic. The offensive action may consist of interruption of the first attempt or retaliation for the second attempt. In theory, attack and defense converge, as second attempt retaliation can be destructive enough to prevent first attempt attacks, according to Rickards.
Rickards states that information warfare will control the form and future of war. This tendency will be highly critical to achieve victory in future wars. A highly secretive National Security Agency (NSA) unit called the Tailored Access Operations (TAO) Office has successfully penetrated the Chinese computer and telecommunication systems for nearly 15 years, generating some of the best and most reliable intelligence information on what is happening within the People’s Republic of China. TAO requires a special security clearance to gain access to drive workspaces within the NSA operations complex.
Financial aggressor countries can also use psychological, psychopathic operations to increase the effectiveness of the attack. This involves giving false news and the beginning of rumors. Stories, for example, that a Fed chairman who was kidnapped or that a prominent financier had a heart attack would be effective. Stories that a prime bank closed its doors or that a hedge fund manager committed suicide would suffice. Panic induction scenarios would be widespread.
According to Rickards, China and Iran have been targets of US action to implement the ongoing financial war in the world to achieve their strategic goals. Faced with the financial war waged by the United States, China has also been adopting a strategic response. The People’s Liberation Army of China made explicit this strategic response in a 1999 book titled Unrestricted War. Unrestricted warfare tactics include several ways to attack an enemy without using kinetic weapons such as missiles, bombs, or torpedoes. Such tactics include the use of weapons of mass destruction that disperse biological, chemical or radiological elements, cause casualties and terrorize the civilian population. Other examples of unrestricted warfare include cyber attacks that can bring down aircraft, open floodgates of dams, cause blackouts and shut down the Internet. Recently, financial attacks have been added to the list of articulated asymmetric threats.
The unrestricted Chinese war was triggered by the analysis of the 1997 Asian financial crisis that sparked the 1998 global financial panic. Much of the suffering in Asian countries was caused by Western bankers who suddenly took money from banks in emerging markets. This is compounded by bad economic advice from the IMF dominated by the great capitalist powers of the West. From an Asian point of view, the whole disaster seemed like a Western conspiracy to destabilize their economies. The instability was real enough to provoke riots and bloodshed from Indonesia to South Korea, according to Rickards.
The Chinese were less affected than other Asian nations by the 1997 and 1998 panic, but they studied the situation and began to see how banks, working in conjunction with the IMF, could undermine civil society and possibly force regime change. One of their responses to the crisis was to accumulate a massive dollar as a financial reserve so that they would not be vulnerable in a sudden “bank run” by Western lenders. The Chinese response was to develop a doctrine of financial warfare.
China has reserves more than US$ 3 trillion and every 10 percent devaluation of the dollar engendered by the Fed represents a US$ 300 billion real wealth transfer from China to the United States. It is not clear, according to Rickards, how long China will tolerate this attack on its wealth. If China could not defeat the United States in the air or at sea, it could strike through the capital markets. China has also developed actions aimed at increasing its gold stock and its possible use as a weapon to undermine the exchange value of the dollar. By doing so, China could protect its reserves against asset freeze or devaluation in the event of a financial war turning its paper wealth into gold – an option it is now aggressively pursuing. Each gold bullion that China buys reduces its financial vulnerability. China’s possible intentions can be inferred from the status of being the world’s largest gold buyer.
Rickards says the Chinese are ahead of the United States with their strategic financial war doctrine that emerged in 1999 in response to the 1997 Asian financial shock. In 2012, both China and the United States had engaged in efforts to develop strategic doctrines. and tactics of financial warfare. In implementing the financial war, China has been adopting more subtle forms of financial attack such as, for example, in January 2011, The New York Times reported that China had become a net seller of US Treasuries in 2010. The Times report found this sale strange because China was still accumulating huge dollar reserves of its trade surpluses and was still buying dollars to manipulate the value of its currency, the Yuan.
Another technique used by China to disguise its financial market intelligence operations was reported in 2007 by The New York Times, when it reported that China Investment Corporation (CIC), another sovereign wealth fund, had agreed to buy US$ 3 billion shares in Blackstone Group, the powerful and secretive private equity firm based in the United States. The United States is not the only potential target of the Chinese financial war. In September 2012 a senior Chinese official, writing in the Communist China Daily, suggested mounting an attack on the Japanese bond market in retaliation for the Japanese provocations involving island territories in the East China Sea. On March 10, 2013, China broke into the Reserve Bank of Australia in an effort to gather information about delicate G20 discussions.
China’s shares in the bond and private equity markets are part of its long-term effort to steal, infiltrate critical nodes and gain valuable corporate information in the process. These financial efforts are being carried out side by side with malicious cyberspace efforts and attacks on systems that control critical infrastructure launched by China’s notorious military intelligence unit. These combined efforts will be helpful to China in future confrontations with the United States.
China is not the only country fighting a US-sponsored financial war. Such a war is being waged today, too, between the United States and Iran, as the United States seeks to destabilize the Iranian regime and derail its nuclear program by denying it access to critical payment networks. In February 2012, the United States banned Iran from using US dollar-controlled payment systems controlled by the Federal Reserve and the US Treasury. Iran has been officially barred by the United States from participating in hard currency payments or receipts with the rest of the world.
According to Rickards, the US government made no secret of its objectives in the financial war with Iran. On June 6, 2013, US Treasury official David Cohen said that the purpose of US sanctions was to cause depreciation of the Iranian currency and render it unusable in international trade. The results were catastrophic for the Iranian economy. Iran is one of the top oil exporters that needs access to payment systems to receive dollars for oil it exports abroad. It is also a major importer of refined petroleum, food and consumer electronics products such as Apple computers and HP printers. Suddenly, Iran could not afford to pay for its imports and its currency collapsed.
Even before US sanctions against the country, Iran reacted by buying gold to prevent the United States or its allies from freezing their dollar balances. India is a major importer of Iranian oil, and both trading partners have taken steps to implement an oil for gold exchange. India would buy gold from global markets and trade with Iran for oil shipments. In turn, Iran could trade gold with Russia or China for food or manufactured goods. In the face of extreme financial sanctions, Iran was once again proving that gold is good money at all times and everywhere.
Turkey also quickly became one of Iran’s main sources of gold. Turkish gold exports to Iran in March 2013 were US$ 381 million, more than double the previous month. However, gold is not as easy to move as digital dollars, and gold trading has its own risks. Another source of gold for Iran is Afghanistan. In December 2012, The New York Times reported on a triangular trade between Afghanistan, Dubai and Iran. Iran also uses Chinese and Russian banks to act as cover operations for illegal payments. Iran organized large hard currency deposits with Chinese and Russian banks before US sanctions took effect. In late 2012, the United States warned Russia and China about assisting Iran and sanctions, but no punishment was imposed on the Russians or Chinese. The United States did not act harshly against Russia or China because it had more important agendas to proceed with both, including Syria and North Korea.
Iran has also demonstrated how financial warfare and cyber warfare could be combined into a hybrid asymmetric attack. In May 2013, Iranian hackers reportedly gained access to software systems used by energy companies to control oil and gas pipelines around the world. Manipulating with this software, Iran could wreak havoc not only on physical supply chains, but also on energy and derivative markets. Iran was not alone in bearing the brunt of US financial warfare capabilities. Sanctions against Syria caused the Syrian Pound to lose 66% of its value in the twelve months from July 2012 to July 2013. Inflation in Syria rose to an annual rate of 200% as a result. The Syrian government was forced to trade in the currencies of its three major Iranian, Russian and Chinese allies because the Syrian Pound had virtually ceased to function as a medium of exchange.
In late 2013, Iran’s financial damage led to an agreement between President Obama and Iranian President Hassan Rouhani that facilitated Iranian concessions in its uranium enrichment programs. Iran suffered from sanctions but did not collapse and was now with the United States at the negotiating table. In particular, sanctions for Iran’s gold purchases have been removed, allowing Iran to stock gold using dollar money from oil sales. President Obama has made it clear that while sanctions have been relaxed, they could be reinstated if Iran failed to deliver on its promises to reduce its nuclear programs. As is well known, Donald Trump disregards the agreement signed with Iran and imposes new sanctions.
The 2012–13 US-Iranian financial war illustrates how nations that have failed to resist the United States can face the financial battlefield. The United States wanted to get Iran out of the dollar payment system and it succeeded. A non-dollar alternative payment system is now taking shape in Asia and gold has proven to be an effective financial weapon. This is contributing to Iran’s allies talking openly about building new non-dollar based banking and payment systems.
The financial war launched by the United States can cause its enemies to take action that will do damage to the fragile international financial system. The financial collapse in 2008 was not an act of financial war, but it demonstrated to the United States the complexity and vulnerability of the global financial system. Approximately US$ 60 trillion of wealth was destroyed at the peak of the crisis in October 2007.
Cyber-attacks on US infrastructure, including banks and other financial institutions, are growing and can take many forms. On Christmas Eve 2011, a computer file containing personally identifiable information of a senior US government official was hacked, and the information has been downloaded. The information was then used in an effort to deplete your personal bank account. On April 23, 2013, an Associated Press-maintained Twitter account was hacked and used to spread a false message that the White House had been the target of a terrorist attack and that President Obama was injured. Iran has claimed credit for the attack.
The success of hackers and market reaction has shown that markets can be manipulated by various means. These events point to the most dangerous type of financial attack that combines cyber-attacks and financial warfare in the ultimate force multiplier scenario. Capital markets today are anything but fail-safe. In fact, they are increasingly prone to failure. Everything that is realized in James Rickards’s The Deats of Money shows that humanity faces increasing risks of political, economic and social instability posed by cyber, financial wars, and sophisticated weaponry that produce destruction.
In the book Como inventar o futuro para mudar o mundo (How to invent the future to change the world) (Curitiba: Editora CRV, 2019), Fernando Alcoforado states that “the current situation of the planet is dramatic. Humanity is overwhelmed by the great world powers at the service of the monopolistic groups that rule their economies and do everything in their own interests, disrespecting laws, cultures, traditions and religions. Open or surreptitious invasions of peripheral countries with unconvincing arguments are part of the daily life of the great powers in their relentless pursuit of world power even if they have to disregard domestic laws and international treaties”.
How to build a new scenario of peace and cooperation between nations and peoples around the world? According to Fernando Alcoforado, this is an ancient challenge and thought by many philosophers such as Immanuel Kant when addressing this theme in his work The Perpetual Peace (Pocket Plus, 1979). Kant’s main goal was to eliminate the war that he had always viewed as impeding humanity’s efforts toward a dignified future for human beings. How to achieve this goal? Kant (1979) proposes in Perpetual Peace the foundations and principles necessary for a free federation of legally established states which would not take the form of a world state, which would, in his view, result in unlimited absolutism.
Kant (1979) was opposed to a world government because he argued that there should be no sovereign power above national states that could interfere with their internal affairs. Kant opposed the world government because he thought he would also be an absolutist who was the dominant regime in Europe at the time. Kant’s thesis of constituting a free federation of legally established states that was adopted after World War I in 1920 with the formation of the League of Nations and after World War II in 1945 with the formation of the UN, both unable to build and secure world peace.
Faced with the impossibility of an imperial state, powers in balance, a hegemonic power and a federation of national states as Kant proposes, to secure world peace, the time has come for humanity to equip itself as urgently as possible with the necessary instruments to take control of their destiny and put in place a democratic government of the world. This is the only means of survival of the human species. Because there is no other way to build a world in which every human being today and tomorrow has the same rights and duties, and in which the interests of the planet, all life forms and future generations would be finally taken into account, in which all sources of growth would be utilized in an ecologically and socially sustainable manner. A world government would aim to defend the general interests of the planet, ensure that each national state respects the sovereignty of each country in the world, and seeks to prevent the spread of global systemic risks.
* Fernando Alcoforado, 79, awarded the medal of Engineering Merit of the CONFEA / CREA System, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is author of the books Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social Development- The Case of the State of Bahia (VDM Verlag Dr. Müller Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI (Editora CRV, Curitiba, 2015), As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o Mundo (Editora CRV, Curitiba, 2016), A Invenção de um novo Brasil (Editora CRV, Curitiba, 2017), Esquerda x Direita e a sua convergência (Associação Baiana de Imprensa, Salvador, 2018, em co-autoria) and Como inventar o futuro para mudar o mundo (Editora CRV, Curitiba, 2019).
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