Certainly correct, but I think you’re underselling the historical exchange part of this. Dollars being everywhere causes the financial infrastructure to be built out in dollar terms.
Part of what enabled that huge capital flow you’re talking about is that it was the Americans who came in and gave [country’s] banks a counterparty to exchange dollars for oil.
A lot of that soft power is not just the ability of America to print dollars, but also the ability of America to control the financial infrastructure. To surveil, KYC, sanction, etc. that is a huge part of it.
The petrodollar is less mechanically important today but back in the day it was huge to have “everyone who needs oil” be the counterparty to a currency exchange. It is what injected all that liquidity, which set the whole thing off.
I think what people are realizing and considering now is with the computerization of everything, capital can flow more freely. That is what is dangerous (for the US) about today’s moment; our political leaders are taking it all for granted.
I do think history is also important, but again it boils down "where is a safe place to store my money?". That really controls everything else.
Now, in the past we had a gold standard, so you could literally move your money from one country to another. Now during both WW1 and especially the runup to WW2, the wealthy moved much of their money to the United States as a safe harbor, since we were the only advanced economy with deep liquid bond markets, rule of law, and foreign investment rights (sorry, Canada, but it's true).
This was the greatest wealth transfer in history. By 1940, the US held 80% of the world's global gold reserves. 80%! And this was in the era when international trade was settled in gold.
So it all happened in single decade between 1930 and 1940, and the US instantly became the world's global reserve leader, an extremely dominant position, merely because people were afraid of war and wanted a safe place to park their money.
After the devastation after WW2, the flood of European money into the US continued and more than offset the Marshall plan.
So already at the end of WW2, the majority of the world's liquid savings was tucked away in America.
Now, people like to tell stories of American soldiers spending dollars somehow making the dollar a reserve currency, and those are the types of things that seem plausible to people who don't monitor global capital flows, but that's honestly a ridiculous story. That was chump change.
Bottom line, there are no special technical reasons beyond "I want a safe place to store my money". That controls everything else.
There is an adage in the world of money markets: "It does not matter what currency you trade in, what matters is what currency you store the proceeds in".
And the moment that some other nation opens its doors to foreign capital inflow, establishes rule of law (which takes decades to develop a reputation for stability and not confiscating assets), is safe, stable, and secure, establishes financial transparency, and has deep, liquid capital markets -- then the world's wealthy will flood that nation with money also. But unlike declaring that "I will sell my oil for euros", doing the above takes decades of building trust and reputation. Gimmicks aren't going to do it when you are looking for a safe place to store your money.
Part of what enabled that huge capital flow you’re talking about is that it was the Americans who came in and gave [country’s] banks a counterparty to exchange dollars for oil.
A lot of that soft power is not just the ability of America to print dollars, but also the ability of America to control the financial infrastructure. To surveil, KYC, sanction, etc. that is a huge part of it.
The petrodollar is less mechanically important today but back in the day it was huge to have “everyone who needs oil” be the counterparty to a currency exchange. It is what injected all that liquidity, which set the whole thing off.
I think what people are realizing and considering now is with the computerization of everything, capital can flow more freely. That is what is dangerous (for the US) about today’s moment; our political leaders are taking it all for granted.