"The dollar is always going to be the reserve currency. Anyway, for a long time." — Jerome Powell
When the price of crude oil suddenly quadrupled in 1973, altering the geopolitical and economic landscape overnight, the government of Saudi Arabia found itself wholly unprepared for the staggering wall of petrodollars that suddenly started flooding into its vaults. Strictly speaking, the money never actually made it "into" the Kingdom at all. Global buyers of Saudi oil sent their massive payments directly to designated accounts held at Citibank and JPMorgan in New York. There, the money sat largely idle because Saudi finance officials barely knew how to move it, let alone how to invest it on such an unprecedented global scale.
With billions of dollars piling up rapidly in non-interest-bearing accounts, the Saudi Arabian Monetary Agency (SAMA) reluctantly turned to an American banker named David Mulford, asking him to step in and manage the windfall for them. Mulford and a small, intrepid team of financial operatives packed their bags and moved to the underdeveloped port town of Jeddah on the Red Sea. They scrambled to secure accommodations in houses that had been newly built in a barren part of the desert that lacked even paved roads. To reach their destination, drivers simply had to navigate their vehicles directly across the shifting sand.
The living conditions matched the stark isolation. The newly constructed houses lacked telephones, televisions, regular mail delivery, and even basic trash removal. Left with few alternatives, the bankers simply discarded their trash out in the open desert sand, where it served as a food source for local Bedouins’ goats. The makeshift office they commuted to six days a week offered an even harsher environment. They were assigned a single, austere room in a decrepit building, furnished with little more than a handful of basic chairs and wooden desks, completely devoid of computers or modern telephones.
The sanitary and communication challenges were stark. Across the hall from their working space, a simple toilet was installed in a long, deep room featuring an open drain running behind it. According to Mulford’s personal account in his autobiography, this single facility was utilized by their entire section of the building and was flushed only once a day, precisely at three in the afternoon. Meanwhile, complex investment deals had to be negotiated, agreed upon, and processed using the building’s single telex machine—a hybrid piece of equipment functioning as part typewriter and part telegraph. Because that single machine was constantly in use, executing even a single transaction required dozens of telex transmissions and could stretch across weeks to complete.
And yet, as Mulford vividly recalls of those frantic early days, the team was under immense pressure. They had to invest incoming funds at the staggering rate of approximately $500 million per day simply to keep from falling behind the relentless tide of capital.
Mulford’s firsthand account of his nine years at the helm of SAMA provides a vital historical correction, effectively debunking the persistent conspiracy theory that the Saudis invested their oil windfalls into US Treasurys purely as a geopolitical quid pro quo in exchange for an American military security guarantee. Instead, the historical record shows that the Saudis invested in US Treasurys because, quite simply, they had to. At the time, no other market anywhere in the world possessed the sheer capacity required to absorb the astronomical $20 billion a month that the Saudis needed to deploy. Furthermore, no alternative market offered the same combination of absolute safety and ease of execution—factors of paramount importance when executing multi-million-dollar transactions via telex machines in the desert.
SAMA actually initially tasked Mulford with an explicit mandate to move 30% of their massive investment funds completely out of the US market in an effort to diversify. Yet, he found himself severely constrained by the practical limitations of global finance at the time. In most foreign markets outside the United States during that era, executing a currency trade of just $5 million to $10 million was large enough to drastically move the entire market. Consequently, there were severe, inescapable practical limitations on the amount of currency diversification that SAMA could possibly achieve without destabilizing the very assets they sought to buy.
This historical reality challenges the enduring notion that global dollar dominance can be artificially engineered either through political coercion or clever central bank policy. The Saudis chose US Treasurys not because of what Washington promised or demanded, but because of the fundamental structural characteristics of what America actually was as an economic superpower. Even during the tumultuous economic landscape of the 1970s—an era plagued concurrently by severe recession, persistent inflation, and a US president who resigned in utter disgrace—American financial markets retained the unmatched depth, defined as vast quantities of high-quality assets; liquidity, meaning the seamless and easy tradability of those assets; and safety, anchored in the reliable rule of law. These attributes combined to make the United States the absolute best option available for the world’s largest and most cash-rich investor.
Decades later, the structural supremacy of American markets has only evolved, extending well beyond government debt into the private sector. Today, the United States houses the world’s most dominant and innovative companies. Non-US investors currently own roughly $19 trillion worth of US equities, a figure that represents more than double the amount of US Treasurys held by foreign entities. Furthermore, the nation maintains a central bank that has historically managed to retain its hard-earned inflation-fighting credentials, even in the face of intense political pressure to finance increasingly massive federal fiscal deficits.
The current leader of that central bank, Federal Reserve Chairman Jerome Powell, fundamentally attributes the enduring global dominance of the US dollar to the strength of American democratic institutions and the rule of law. That institutional foundation remains the central pillar to the currency’s unmatched global appeal. Powell has publicly noted that he expects the dollar to remain the preeminent global reserve currency for the foreseeable future, as long as those foundational institutional pillars remain securely in place.
Naturally, there is no absolute guarantee that these institutional safeguards will endure forever, and a growing chorus of prominent economists openly doubts whether the dollar’s reign will persist for much longer. Renowned economist Ken Rogoff, for instance, has warned that the dollar is beginning to fray at the edges. He points to mounting anxieties among foreign investors regarding a perceived breakdown of domestic institutions, increasingly unpredictable policymaking that runs the risk of unfairly disadvantaging foreign capital, and emerging political threats directed at the hard-fought independence of the central bank. All of these compounding factors are gradually culminating in a measurable loss of global confidence in the stability and security of investing capital within the United States.
If this erosion of institutional trust continues, efforts to artificially manufacture demand for the dollar—such as government or private initiatives aimed at promoting digital stablecoins—are unlikely to provide any meaningful rescue. In reality, stablecoins are currently in high demand across global markets precisely because the underlying US dollar is in high demand. That symbiotic macroeconomic dynamic is a foundational monetary reality that is fundamentally unlikely to ever work in reverse. If the United States ultimately chooses to squander or surrender the structural advantages that have underpinned its currency for generations, no amount of manufactured demand or policy-driven engineering will be able to save the dollar from its eventual decline.
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