The world economic system that the US has dominated since WWII, first through Bretton Woods I (US run gold exchange window for nations from 1944–1971) and then Bretton Woods II (a petrodollar system with US Treasury Bonds (USTs) as the world reserve from 1973–2022) is ripping at the seams. The cornerstones of the petrodollar system, stable USTs’ oil purchasing power over time and dollar-denominated energy trade, are in doubt.
USTs, the supposedly risk-free reserve asset held as the main foreign reserves of central banks to underpin international trade, are having their worst monthly performance in 42 years. Countries are terrified for their own foreign reserves after Russia’s were seized on February 26th of this year. Russia, Iran, and Venezuela no longer sell their oil in dollars. Even the Saudis are openly talking about no longer exclusively selling their energy in dollars(1). Just like in 1971, the US has defaulted on the dollar’s reserve asset. What replaces USTs as the basis for international trade may take years to determine.