lediplomate.media – printed on 26/03/2026
By Giuseppe Gagliano, President of the Centro Studi Strategici Carlo De Cristoforis (Como, Italy)
From the end of gold to the empire of the dollar
In 1971, Richard Nixon ended the convertibility of the dollar into gold. This choice, known in history as the “Nixon shock,” was not simply a technical adjustment of monetary policy. It marked the breakaway from the Bretton Woods system and ushered in the era of fiat currency, where money no longer relied on material wealth but on trust, the power of the state issuing it, and the political architecture supporting it. For Washington, the immediate and formidable problem was how to maintain the dominance of the dollar if it was no longer backed by gold.
The response did not come from central banks or economic theories, but from geopolitics. In 1974, the United States struck a decisive deal with Saudi Arabia. Riyadh agreed to price its oil almost exclusively in dollars and recycle its financial surpluses into US Treasury bonds. In return, Washington guaranteed military protection, arms supplies, diplomatic support, and strategic coverage. In just a few years, this model expanded to most major producers, giving rise to the petrodollar system, a true backbone of contemporary globalization.
A monetary mechanism serving American hegemony
The strength of the system lies in its apparent simplicity and its enormous effects. As long as oil, the central commodity of the global economy, is priced in dollars, any state wishing to import energy must first obtain American currency. This creates a structural, permanent, almost automatic demand for dollars on a global scale. Regardless of the challenges in the US economy or its foreign policy engendering trust or hostility: the world needs dollars to run its factories, transportation, armies, and companies.
This extraordinary advantage of the United States lies here. This monetary privilege enables them to issue debt in quantities no other country could sustain without calamity. The dollars created by the Federal Reserve do not just remain in the domestic economy; they are absorbed by foreign central banks, energy markets, sovereign wealth funds, and global trade circuits. In other words, a crucial part of American power’s cost is outsourced. The rest of the world indirectly finances Washington’s budget deficits, supports its bond market, and contributes to the perpetuation of its military superiority.
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Oil as an instrument of imperial sovereignty
Oil is not just an energy resource. Through the dollar, it has become a lever of systemic domination. The petrodollar has enabled the US to transform its national currency into an imperial currency. Through it, Washington has been able to combine chronic deficit, high consumption, global military projection, and financial centrality. Few empires in history have had such an effective mechanism: having their power financed by the very actors dependent on the order they impose.
This mechanism has also brought about an international hierarchy. Countries able to access the dollar market benefit from integration into the system; those seeking to break free face higher transaction costs, lower liquidity, increased financial vulnerabilities, and often political pressure or sanctions. The dollar is not just a currency for exchange; it is an economic weapon.
The stress test of the monetary order
Today, this system is under growing tension. The de facto closure of the Strait of Hormuz by Iran following American and Israeli strikes shows how inextricably linked the energy question remains to the monetary issue. If a strategic actor can disrupt a corridor through which a vital part of global oil flows while also encouraging settlements in yuan instead of dollars, the entire system’s architecture is put to the test.
Saudi Arabia has already started accepting settlements in yuan in some cases. Russia and China are developing bilateral exchanges in their own currencies to bypass Western sanctions. Brazil and Argentina are exploring alternative solutions as well. Yet, despite these cracks, the petrodollar system does not collapse. The fundamental reason is that monetary dominance is not solely based on political decisions but on network effects.
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Why the dollar persists
The global financial system functions as an infrastructure of accumulated dependencies. Decades of contracts, insurances, derivatives, hedging mechanisms, benchmark prices, and foreign exchange reserves have been built around the dollar. Exiting this system does not just mean changing the unit of account; it requires renegotiating entire chains of legal obligations, recalibrating financial instruments, reconstructing sufficiently liquid markets, and simultaneously convincing a critical mass of actors to shift to another currency.
This is precisely what the yuan lacks. Beijing can promote its internationalization, increase bilateral agreements, and push for de-dollarization, but the Chinese currency does not yet possess the depth, transparency, convertibility, and systemic trust that characterize the dollar. One can criticize America, challenge its hegemony, seek to reduce its centrality; but when it comes to moving massive capital volumes within hours without causing panic, the dollar remains unrivaled.
A slow erosion, not a collapse
The petrodollar is weakening but not collapsing. What emerges is not a sudden fall but a gradual erosion. The international order dominated by the US is starting to be challenged on its margins by revisionist powers, sanctioned states, and regional coalitions seeking greater autonomy. However, contesting the dollar is not enough. It is necessary to offer an alternative architecture capable of absorbing global flows without causing chaos.
Here lies the strategic knot of the problem. The petrodollar is not just a legacy of the Cold War or a product of the American-Saudi pact. It has become the backbone of the international finance. Replacing it would require rebuilding the global monetary order almost from its foundations. Yet, for now, no one has found a way to solve this equation without bringing down the entire system.
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