Dollar's New Lease on Life: AI-Powered Trade and Finance
The US dollar's dominance in international trade and finance is built on shifting foundations. The petrodollar, which linked oil sales to dollar settlement, has been declining since 2014 due to the shale revolution, reduced oil prices, and diversification of Gulf states' investments.
However, the rise of artificial intelligence (AI) may give the dollar a new lease on life as countries and companies increasingly need dollars to buy computing power, advanced chips, cloud capacity, and AI services. US companies such as Nvidia, AMD, Amazon, Microsoft, and Google dominate these areas.
The potential 'AI-dollar cycle' could see foreign businesses and governments obtaining dollars to buy chips, cloud capacity, and AI services from American technology companies, generating revenue for the US and attracting additional foreign capital into US equities and private markets. Dollar stablecoins could also strengthen this cycle by creating a demand for digital dollars.
However, this comparison with the petrodollar is imperfect. Oil is a homogeneous commodity, while AI services are diverse and rapidly changing. Open-weight models can be downloaded and operated without recurring payments to an American model provider. The AI dollar's strength also depends heavily on continuing confidence in the profitability of a relatively small number of American companies.
China could disrupt this system by developing alternative payment channels, such as its Cross-Border Interbank Payment System (CIPS), and reducing dependence on dollar-priced American AI services with Chinese-designed processors. However, China faces constraints, including limited access to advanced fabrication equipment and a non-convertible renminbi.