Why the US Dollar (USD) is such a big deal globally — and what might happen if the system behind it starts to break.
1. A Bit of History
In 1973, the US stopped backing its money with gold. Instead, it made a deal with Saudi Arabia and others: “Only sell oil in US dollars.”
What this meant:
Everyone who wanted oil had to first get US dollars. So, the whole world started using USD to trade.
Simple example:
2. How the System Worked
Imagine a global food market where everyone has to pay only in Pepsi cans. So now, people in every country need Pepsi just to buy food.
Other countries needed USD, so they sold goods to the US to earn it. The US bought a lot but also borrowed a lot (ran deficits). The USD those countries earned was then put into US stocks, bonds, and banks — helping the US grow even more.
Simple example:
The world keeps sending fruits to the US, gets paid in USD, and then uses that money to buy land and stores in the US.
3. The Offshore Dollar Market (“Eurodollar”)
A huge chunk of USD ($20–30 trillion) exists outside the US, especially in foreign banks. These dollars are not physical; they are digital money used in loans, trading, and more.
Simple example:
If 10 Counties all agree to use USA points system for lending each other money— this is like the eurodollar system.
4. What the “Dollar Milkshake” Means
The world runs on USD and needs more of it to function. If the US stops spending (buying things from others), then fewer dollars flow out. If countries start selling USD, there will be less USD in foreign systems. This creates a paradox: When the USD goes down, the world actually struggles more.
Simple example:
Everyone depends on rain from one big water tank. If it rains less (the US buys less), the whole village runs dry.
5. Why This Time Is Riskier Than Before
In the 1980s, countries had only been collecting USD for about 10 years. Now it’s been 50 years, and countries like China, Japan, and Germany hold trillions in USD assets. If these assets lose value or get stuck, these countries could take a serious hit.
Simple example:
You’ve saved money in a piggy bank for 50 years. Suddenly, the bank may crack — and your coins inside may be worthless or unreachable.
6. If It Keeps Going This Way…
Foreign countries and banks might lose money fast due to currency changes. They still need USD to repay loans, but offshore dollars might become scarce. This shortage could cause a massive USD spike — the “MOASS” (Mother of All Short Squeezes).
Simple example:
Everyone borrowed books from the same library. Suddenly, the library closes and the books vanish. Now people are scrambling to return books they don’t have.
7. What Could Trigger This Soon
Two big things might make it worse:
A tax on sending USD abroad, keeping more dollars stuck in the US. A new law that makes people in other countries move their savings into US government bonds.
Simple example:
The US builds a wall around its ATM. People outside now can’t withdraw or send money freely.
8. What Might the Fed Do?
The US Federal Reserve might help by giving USD to other countries through a system called swap lines. But this help is not guaranteed. Some signs say the US might stop doing this.
Simple example:
You sometimes lend your extra umbrellas to neighbors. But now you’re thinking of keeping them all for yourself — even if it starts raining hard outside.
9. What Happens After?
If this USD shock happens:
It could be the end of the US dollar as the global money king. The world might need to reset the system, just like it did after World War 2 (Bretton Woods). We might see a rise in gold-backed money.
Simple example:
If everyone used to trade in Pepsi cans and suddenly Pepsi stops working, they might switch to gold coins or digital tokens to keep the system running.
Final Thought
The US dollar is powerful, but the system around it is fragile and changing fast. If this continues, we could see a once-in-a-century reset of how money works around the world and Gold will be only precious metal that would protect us from such an event.
ArthaNiti 