Apr 22, 2026 14:58 pm IST

Opinion | How A War Destroyed America's Strongest Financial Weapon, Built Over 50 Years

America's own Secretary of State has now publicly conceded that its most powerful financial weapon may be obsolete within five years.

Aditya Sinha Aditya Sinha Analyst

In 1977, Danish chess grandmaster Bent Larsen was asked whether he preferred to be lucky or good. "Both," he replied. Kenneth Rogoff, in his recent book, Our Dollar, Your Problem, deploys this anecdote to make a point about the American dollar that Americans rarely acknowledge - that the dollar's extraordinary post-war dominance was the product of skill and luck in roughly equal measure. Had Russia liberalised its economy in the mid-1960s, had Japan not been browbeaten into a destabilising currency appreciation in the mid-1980s, had China floated its exchange rate in the 2010s, the dollar would still be on top, but less so. Interest rates would have been higher. The exorbitant privilege would have been less exorbitant.

The title of Rogoff's book comes from a remark by Nixon's Treasury Secretary, John Connally, to his foreign counterparts in the early 1970s: "It's our dollar, but your problem." For obvious reasons, the statement was the epitome of American arrogance. It also described, precisely, how the system worked. America issues the currency. The rest of the world absorbs the consequences. 

In 1974, Henry Kissinger struck one of the most consequential financial deals in modern history. Saudi Arabia would price its oil in dollars and park the surpluses in US Treasuries. America would provide security guarantees. The rest of the Gulf Cooperation Council followed. As recently as 2023, JP Morgan Chase estimated that roughly 80% of global oil transactions were still settled in dollars.

The elegance of the petrodollar system lay in its circularity. Oil importers paid in dollars. Those dollars flowed to Riyadh and Abu Dhabi. From there, they flowed back into American government debt. This structural demand for Treasuries subsidised Washington's borrowing costs for fifty years and cemented the dollar as the world's reserve currency. It also handed Washington an extraordinary weapon: by controlling SWIFT, the messaging infrastructure connecting banks worldwide, the US could freeze a country out of the international economy almost overnight. This happened to Iran starting 2012, and........

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