Any bank that granted even just “read-only” access to its payment services with as few controls as the U.S. Treasury would and should be harshly sanctioned by its supervisors. Who steps in to ensure the smooth functioning of the multi-trillion Treasury payment system? Do any of Mr. Musk’s operatives know what would happen if they pulled the wrong plug and disabled critical payments on U.S. debt or to American citizens such as those for Social Security? And, what if they don’t care if they disrupt payments if they believe this suits a political purpose?
When I wrote my memo last week hoping that these fears are alarmist, we didn’t know then what we know now about unlimited payment system access by a key DOGE warrior since named to head the Fiscal Service and the youth, inexperience, and dubious histories of the payment-system teams. Do any of them know that payment-system finality is an essential element of payment-system credibility and financial-system stability or do they view the payment system as a video game with a prize for the team member who finds the target that rings the loudest political bell? Do any of these Trump appointees know that making even a little mistake could be catastrophic in a system handling trillions of dollars in billions of transactions or are they looking for viral moments on encrypted social-media platforms so they become the envy of like-minded young men?
As FedFin noted last week, what Congress and the press took as a pledge for “read-only” access was at best porous. Treasury made no commitment not to do anything as it read. And, it turns out, Treasury even then had read enough to determine it could meet Mr. Musk’s demands cutting off funding for the U.S. Agency for International Development (USAID).
DOGE’s emissaries ultimately didn’t pull this plug because they didn’t have to – the White House eviscerated USAID. Still, payments were stopped and systemic risk increased.
Cutting off USAID is not the direct shock to the global financial system that would come if Treasury decided not to honor its bond obligations because President Trump or Mr. Musk decided they didn’t like a particular bondholder or amount of Treasury debt. But cutting off USAID still knocks the U.S. off the perch of “exorbitant privilege” it has long enjoyed to considerable national benefit and global-market stability.
USAID payments go to sovereign nations and foreign citizens long accustomed to believing that America’s word is its bond. There are many questions that can and should be asked about USAID, but these must be asked before payments are committed, not after a promise has been signed, sealed, and should be delivered. Everyone receiving federal commitments knows that a new Administration may change the nations and projects to which it commits itself, but no one ever contemplated that appropriated funds spent pursuant to contractual commitments for ongoing programs could be throttled by Treasury payment-system operatives or, with that on hold in the courts, Presidential edict.
Playing with the Treasury’s payment system to accomplish U.S. political objectives is dangerous enough, but Mr. Trump has also flirted with upsetting the global cross-border payment system and thus global commerce. He has threatened Brazil, India, and other unaligned nations already cuddling close to Russia and China that he might cut them off from SWIFT and thus from cross-border settlement for dollar-denominated transactions if he doesn’t like the looks of them.
Is this a real threat or just bluster? Many who thought Mr. Trump’s tariff threats were nothing more than campaign posturing have learned a very hard lesson about assuming nothing bad will happen because it couldn’t have happened before. Will unaligned nations and perhaps even a few of those who thought themselves closely aligned with the U.S. now look for other ways to settle transactions? Prudent risk management says they should.
Next time a nation wants to address a critical development need through agriculture or medical research or stop a humanitarian crisis or protect vital commodities markets, where will it turn? China is the nation best positioned to open its coffers still more widely to needy nations, many of which happen to be located in areas of vital geopolitical interest to the United States. Payment systems are the bedrock of orderly governance and trade. Disrupting them thus has profound, damaging consequences not just for financial-system integrity, but also for geopolitical tranquility.