1 · Petrol Dollar - Getting The Definition Right Before Rebutting It

If "petrol dollar" only means "oil is priced in dollars," there's nothing to argue about - oil could be invoiced in any currency, even VND. The story only matters as a three-step loop:

1. Pricing: Oil is sold in USD → every country that wants to import oil must first accumulate USD.
2. Reinvestment: Oil-exporting nations collect surplus USD → use it to buy U.S. government bonds → creating enormous demand for the Treasury.
3. Military coercion: To hold the loop together, the U.S. must use force against "defector" nations (Iraq, Libya, Iran) to keep them selling oil in USD.

This is the full version of the theory. All three steps must hold, or the story collapses. This piece will show that step 2 only ran for 8 years and step 3 was never the primary engine. What's left - a currency market that generates and sustains itself outside U.S. borders - is the part the petrodollar story never mentions.

2 · The Eurodollar (1957) - The Real Root The Petrol Dollar Story Skips

The USD was already the world's reserve currency before oil prices were commonly listed in dollars. Specifically, since 1957 - 16 years before the 1973 oil shock.

On February 28, 1957, a Soviet-owned bank based in London - Moscow Narodny Bank - moved $800,000 into accounts at Western banks in London instead of depositing it in New York. They did this for two very practical reasons: (1) fear that the U.S. would freeze the assets if Cold War tensions escalated; (2) London banks at the time paid interest freely, while the U.S. imposed a rule called Regulation Q - capping the interest rate banks could pay on domestic USD deposits. Research by Catherine Schenk shows that Midland Bank in London had actually been running a similar model since 1955 (Schenk, 1998).

From that small transaction, a market ballooned outside U.S. borders - known as the Eurodollar market ("Euro" here doesn't mean the EUR currency, just "dollars sitting in Europe"). The mechanism is simple: banks outside the U.S. lend dollars to each other. The Federal Reserve doesn't print a single additional bill, yet the USD balances on the books of banks in London, Tokyo, Frankfurt, Singapore, and Hong Kong grow exponentially - because every new loan itself creates a new USD balance (the same way commercial banks create VND through domestic credit).

Today the BIS measures:

Most importantly: none of these figures depend on oil. A bank in Singapore lending an Indonesian company $100 million to buy German machinery - that transaction involves not a single barrel of oil, yet it creates USD demand and USD debt. Millions of transactions like this happen every day through the SWIFT messaging system, and each one must eventually be "settled" in USD on some future date.

3 · The Petrol Dollar Loop Did Exist - But Only For 8 Years

To be fair: the petrol dollar loop did exist for a short period. In 1973, OPEC cut output and quadrupled the price of oil. The Gulf states suddenly had a massive USD surplus - with nowhere immediate to spend it. They used it to buy U.S. bonds.

For 8 years (1973–1981), Saudi Arabia was a major source of demand for U.S. Treasuries - large enough that Treasury Secretary William Simon had to sign a secret agreement committing Saudi Arabia to buy USTs outside of public auctions. This agreement stayed secret for 41 years (Bloomberg, 2016).

After 1981, three things changed at once, and the loop broke:

1. Saudi Arabia started running budget deficits. Oil prices fell from $40 (1980) to $10 (1986). Saudi Arabia flipped from surplus to deficit - no longer with spare USD to pour into Treasuries, but instead needing to issue its own bonds into international markets.
2. Oil money moved into equities, not USTs. Sovereign wealth funds were created to accumulate assets for future generations once oil ran out - and they favored equity, real estate, and infrastructure over bonds.
3. The Eurodollar swallowed the role. USD flows outside the U.S. grew exponentially - by the late 1980s, the Eurodollar market's size had already surpassed America's own M2.

Saudi Arabia today: persistent deficits, actively issuing debt

At the same time, the Gulf's sovereign wealth funds have ballooned into financial giants:

These funds don't "reinvest" in U.S. Treasuries. They buy Tesla equity, invest in SoftBank's Vision Fund, buy golf courses in England, bet on Newcastle United, and pour money into Lucid Motors. They are competitors to the Treasury - not a source of demand for it.

The evidence on the books: Saudi UST holdings are a small number

4 · The "Asia Dollar" - The Dollar-Demand Machine No One Has Named

If the petrol dollar loop is a story about oil, money, and nations, there's a much bigger loop, rarely told, running every single day: Asian factories - goods - dollars.

Asia manufactures the goods essential to the modern world - iPhones, cars, clothing, memory chips - and sells them in USD. Importers in the U.S., Europe, and the Middle East must accumulate USD before placing orders. Asian manufacturers collect USD, and most of it flows back into U.S. Treasuries via national foreign reserves. This loop is mechanically identical to the petrol dollar - just a different actor, and at a far larger scale.

Comparing the flows: oil vs. Asian goods, 2024-2025

Vietnam: the shadow OPEC nation of USD demand

A figure rarely mentioned in global currency discussions: Vietnam's 2025 export turnover hit $475 billion - an official figure from the General Statistics Office (GSO). Placed next to OPEC: the oil export revenue of all 13 OPEC nations combined in 2023 was $680 billion. In other words, Vietnam alone generated a USD flow equal to 70% of the entire OPEC bloc.

How much of that $475B is actually USD? 74% of Asia-Pacific trade is invoiced in USD (Fed 2025); for Vietnam specifically, the real figure is even higher given the market structure:

• $153.18 billion (32%) of 2025 exports went to the U.S. - almost 100% USD (Vietnam Briefing / U.S. Census). This is by far the largest export market, well ahead of #2.
• $70.45B went to China, $28.94B to South Korea, with the EU, Japan, and ASEAN markets: textile, electronics, machinery, and footwear contracts mostly invoiced at world prices in USD (IMF Boz et al. 2020 - dominant currency invoicing in Southeast Asia).

Walmart, Apple, Samsung, Nike, and Foxconn place orders in USD; Vietnamese factories collect USD; Vietnamese banks must constantly swap USD-VND to maintain domestic liquidity.

Where does the USD flowing into Vietnam go?

When a container leaves the port of Hai Phong or Cat Lai, the USD flows into the exporting company's account. It then splits three ways - and a large portion flows back to the U.S.:

The loop closes: Vietnamese factories sell goods and collect USD → part of it pays for imported raw materials (from China, Korea - also priced in USD) → part of it is bought up by the State Bank → the State Bank reinvests it in U.S. bonds. Every iPhone assembled in Bac Giang and every Galaxy that leaves Bac Ninh is a link pumping USD out of the U.S. and then back into U.S. Treasuries. This is the same mechanism as the petrodollar, just at a much larger scale - and no geopolitical shock (BRICS, oil, gold) can change it in the short run.

5 · The Real Chain - $80 Trillion In "Hidden Debt" Via FX Swaps

Here the story turns into its hardest-to-grasp part, but also its most important one. Petrol dollar theory says: the world must buy USD because it needs oil. Reality: the world must buy USD because the world already owes USD. The two mechanisms feel similar, but the causal direction runs in opposite ways.

In 2022, the BIS published a shocking report: beyond the $13 trillion in USD debt transparently recorded on the balance sheets of banks and companies outside the U.S., there's an additional $80 trillion in "hidden" USD obligations, not on any balance sheet, mostly through currency swap (FX swap) and forward (FX forward) contracts (BIS QR 12/2022). The BIS uses the word "missing" because no accounting ledger records them in full. To grasp the scale: $80 trillion is close to the entire global GDP.

How does a Vietnamese bank "get" USD?

Imagine Vietcombank needs $100 million in USD to lend to a Vietnamese company. It can't walk into the Federal Reserve and borrow - the Fed doesn't lend to foreign banks. Here's what it does instead:

1. Vietcombank signs an FX swap contract with a major international bank (say, JPMorgan): "I'll send you roughly 2,500 billion VND right now - in exchange for $100 million USD. In 6 months, I'll give back the $100 million USD, and take back my 2,500 billion VND. I'll also pay you the interest-rate differential."
2. On the books, Vietcombank doesn't record this as a loan - technically it's two offsetting currency exchange transactions, not a debt. But economically, Vietcombank is indeed borrowing $100 million USD for 6 months.
3. Vietcombank uses that $100 million to lend on to a Vietnamese company - say, one importing machinery from Germany. After 6 months, Vietcombank swaps again to roll it over (as finance calls it) - because if the swap stopped at maturity, it would have to find $100 million in actual cash, which it doesn't have in the vault.

According to the BIS, roughly 80% of all global FX swap obligations mature in under 1 year (BIS). That means every 6-12 months, trillions of USD come due and need to be "rolled over" - and every rollover requires USD to be available at that exact moment. This creates a constant pull for USD, with nothing to do with oil.

USD still 88% of FX transactions, 58% of world reserves

Observation: the USD's share of reserves is declining (from 72% down to 58% over 25 years), but its share of FX trading and trade invoicing hasn't moved. What does this mean? Central banks are diversifying their reserves (buying more gold, EUR, CNY), but the private market still uses USD because of network effects - not because of oil. That's exhibit number two that the dollar's real support is the Eurodollar / FX swap system, not the petrodollar.

6 · So What Actually Makes The USD The World's Currency?

If it isn't oil, isn't the military, isn't a decree from Washington - then what is it? The answer isn't as neat as the petrodollar, but it's easier to verify. Four reasons, in order of importance:

To understand why the Chinese yuan can't replace the USD, hold those four factors up against the CNY:

• Capital markets: China tightly controls capital in and out. A large U.S. fund wanting to pull $10 billion in investment out of Shanghai could be refused or delayed indefinitely. No one wants to hold CNY they can't withdraw when they need to.
• Courts: Chinese courts aren't fully independent of the government. Foreign companies that win a lawsuit against a Chinese company often struggle to enforce the ruling on Chinese soil.
• Data: China's GDP, inflation, and local-government debt figures are all viewed with suspicion. When risk can't be priced accurately, investors demand a discount - meaning higher yields to compensate for data risk - and that makes the CNY less attractive.
• Network effects: Every oil, metals, custody, and international payment contract currently runs on USD. Switching to CNY means rewriting the entire system. The cost is simply too large for any single company to dare go first.

Crucially: none of these four factors require the military. The U.S. has a powerful military - but that's a sufficient condition to keep sea lanes safe, not a necessary condition for the USD to be the reserve currency. Proof: Singapore has no significant military, yet the SGD is widely used across the region - precisely because it has the first three factors (open capital, transparent courts, public data).

7 · Why Does The Petrol Dollar Story Keep Surviving?

A wrong macroeconomic story doesn't spread on its own - it has to satisfy some psychological need. The petrodollar satisfies three needs at once:

1. The need for a simple story. Eurodollars + FX swaps + network effects are hard to picture. "Oil = USD" is a five-word story.
2. The need for a "villain." Petrodollar theory ties the USD to bad behavior (the Iraq war, Libya). The storyteller has a clear character to blame - unlike the Eurodollar, which is an impersonal network.
3. The need to predict a collapse. Every few years, a new claim surfaces that "Saudi is about to ditch the petrodollar" - and each time it draws readers in by promising a dramatic event. That event has never happened, but the appetite to hear about it remains.

The June 2024 viral claim - "Saudi Arabia's petrodollar agreement with the U.S. has expired" - is a textbook example. What actually expired was the U.S.-Saudi Joint Commission on Economic Cooperation, an economic-consultation mechanism that never contained a currency clause. The story of its expiration spread from Chinese-language social media, got translated into English, Vietnamese, Hindi… into a "shocking headline" before being fact-checked by the Atlantic Council and Radio Free Asia (RFA). People are still repeating it as fact today.

8 · Why The World Can't "Ditch" The USD Overnight

After Russia's assets were weaponized in 2022, BRICS discussed a common currency, and China pushed CIPS to replace SWIFT - why, four years later, does the USD still account for 88% of FX trades, 58% of reserves, and ~50% of SWIFT payments? The answer doesn't lie in "military power" or "conspiracy," but in two technical self-braking mechanisms that even central banks trying to exit the USD must still obey.

Self-braking mechanism #1: every dollar of debt is an "order to buy USD back"

The world currently owes ~$93 trillion in USD debt ($13T on balance sheets + $80T via FX swaps - section 5). Every unit of that debt is a commitment to repay in USD in the future.

If China alone sells USD → the price dips temporarily. But if everyone sells at once → USD liquidity outside the U.S. evaporates → when debtors need to buy USD to repay, there isn't enough → and the USD price spikes. Finance calls this a short squeeze - selling in unison forces everyone to buy back together at a higher price.

This isn't theory. The DXY index (USD against a G10 basket) through the last three shocks tells the story clearly:

The lesson: crises make the USD stronger, not weaker. That's the "anti-fragile" nature of the Eurodollar - the more it's stress-tested, the tighter its grip on the world. Petrodollar theory can't explain this: if the USD were only strong because of oil, oil's price collapse in 2020 should have dragged the USD down with it - but the opposite happened.

Self-braking mechanism #2: central banks' reserve prisoner's dilemma

Most central banks in emerging economies still hold 50-65% of foreign reserves in USD (Vietnam, Indonesia, the Philippines, Thailand, Brazil, Mexico, India…). They want to diversify - but run into a classic problem:

If Vietnam sells $20 billion in USD for gold - fine. But if Indonesia, Thailand, and India all do the same at larger scale → the USD price plunges → Vietnam's remaining USD reserves (over 50% of its assets) lose value. The faster you sell, the faster you wreck your own balance sheet.

This is a prisoner's dilemma in game-theory terms: every central bank wants to reduce USD holdings gradually, but hopes others move slower. The Nash equilibrium: everyone reduces gradually - no one dares move abruptly. The USD loses its absolute reserve status through slow erosion over decades, not an overnight collapse.

The only precedent: the pound sterling took 50 years

Has any reserve currency ever actually collapsed? Yes - but not as fast as most people think. The British pound (GBP) was the world's reserve currency from roughly 1815 to the mid-20th century. Its dethroning began with World War I (1914), when Britain had to borrow massively from the U.S., and didn't truly end until the 1960s. Nearly 50 years, total.

After World War II, Britain owed its colonies about £3.5 billion ("sterling balances"). It didn't dare erase the debt - fearing a collapse in confidence - so it froze the accounts and let inflation erode their real value over two decades. Bretton Woods in 1944 formally established the USD's role, yet the "Sterling Area" persisted all the way until 1972. Even history's most famous "collapse example" was a slow erosion, not a sudden break.

The paradox: the more "irresponsible" America gets, the tighter the chain

This is the most counterintuitive part. Every time the U.S. runs a large deficit:

1. USD flows outward (through imports or U.S. government bonds).
2. The USD supply outside the U.S. rises → USD borrowing rates fall → non-U.S. companies borrow more USD (Eurodollars, FX swaps).
3. Global USD debt rises → structural demand for USD rises → everyone needs USD even more to repay it.
4. The U.S. gets even more comfortable running deficits - because there are buyers for its bonds.

This is the self-reinforcing loop that French Finance Minister Valéry Giscard d'Estaing called "exorbitant privilege" in the 1960s: the more fiscally "irresponsible" America becomes, the tighter the world is bound to its currency. Petrodollar theory ignores this entirely - the real chain is the structure of global debt.

Where does Vietnam stand in this chain?

The off-balance-sheet USD debt of Vietnamese banks (via FX swaps with JPMorgan, HSBC, Standard Chartered, Citi…) isn't publicly disclosed, but BIS/IMF estimates put it at tens of billions of dollars. Every one of those swaps is a commitment to buy USD in the future. On top of that: 70-80% of the State Bank's reserves (~$80-100 billion) sit in USD and U.S. Treasuries; Vietnamese companies borrow USD directly in international markets (Eurodollar bonds, syndicated loans) maturing between 2026 and 2030. All of it is a structural financial constraint - not a political choice.

Vietnam can reduce its USD weighting gradually through gold and other currencies. But "escaping" the USD quickly isn't feasible - not because of pressure from Washington, but because the debt structure and FX swaps of Vietnam's own banks and companies force them to keep needing USD for the next 5-10 years.

9 · Conclusion - Four Short Answers

Did the petrol dollar ever really exist? Yes - from roughly 1973 to 1981. Eight years. After that, the Gulf states shifted from being "buyers of U.S. bonds" to "competing bond issuers" and "sovereign fund owners of equity." Saudi UST holdings now sit at $148.8B - not even cracking the top 10 U.S. creditors.

So who's holding the USD on its throne? The Eurodollar system (1957→) at the structural level, and Asian trade flows at the cash-flow level. $13.7T in on-balance-sheet USD credit outside the U.S. + $80T in off-balance-sheet FX swap obligations + $1,500B/year in surplus from Asian factories. Together, these three forces dwarf oil's cash flow many times over.

Where does Vietnam stand in this story? A nation generating a USD flow equal to 70% of the entire OPEC bloc, yet almost never appearing in discussions of world currency. $475B in 2025 export turnover, 77% through the FDI sector, almost 100% invoiced in USD. If the theory that "whoever sells essential goods in USD holds up the dollar's crown" has any merit, then Samsung phones assembled in Bac Ninh and iPhones assembled in Bac Giang are holding up that crown - alongside millions of garment, footwear, and seafood workers. Ironic, but true.

When does the USD actually collapse? When (1) U.S. capital markets lose their depth, (2) U.S. courts lose their credibility for enforcing international contracts, (3) a non-USD financial network grows large enough for banks outside the U.S. to switch over. All three are decade-long processes - not events. Petrodollar-flavored shocks (Saudi switching to yuan, Iran-Iraq using EUR) generate hot headlines but not collapse - because oil was never the load-bearing pillar. The Eurodollar is the pillar.

The broader lesson: when an economic story is too neat to explain a phenomenon this large, that story is usually the public's way of "domesticating" a complicated reality into an easy, dramatic tale. The petrodollar is one of them. The Eurodollar - with no villain, no dramatic collapse event, just $93 trillion in quiet transactions every year - is what's actually running the world.