AI Petrocurrency: The Imminent New Reserve Currency Mechanism
AGI as a strategic geopolitical export good.
In August 1971, President Nixon faced a crisis that threatened to unravel the global economic order. Foreign governments were demanding gold in exchange for their dollar reserves, and America's gold supplies were rapidly depleting. Nixon's solution was radical: he abandoned the gold standard entirely, leaving the dollar floating without backing. Most observers expected this to end American monetary dominance within a decade. Instead, Henry Kissinger orchestrated one of history's most brilliant strategic maneuvers. In 1973, he convinced Saudi Arabia to price oil exclusively in dollars in exchange for security guarantees and advanced weaponry. Since every country needed oil, every country needed dollars. The "petrodollar" system was born, creating structural global demand for American currency that persists five decades later.
This arrangement provided the United States with extraordinary economic advantages that compound annually. America can finance massive government deficits by printing dollars that other countries must hold to buy oil. Trade imbalances become less problematic when your currency is in constant global demand. Most importantly, the system creates leverage over other nations' monetary policies—countries must maintain dollar reserves and consider American interests when making economic decisions. The petrodollar transformed American currency from a national medium of exchange into global economic infrastructure that others depend on for basic functioning.
Today, artificial intelligence presents a similar opportunity to restructure global economic relationships through infrastructure dependency. While oil powers transportation and industry, AI could power decision-making, optimization, and automation across every sector of every economy. Like oil, powerful AI as a resource will likely disproportionately become controlled by a small number of national players. However, while OPEC was formed by relatively weak oil-producing nations seeking profit stability, AGI will likely be created and exported by the world's two dominant economies: the US and China. Like with oil, AGI may also be created by countries outside the two dominant producers, but AGI will become so central to economic growth and prosperity that most nations will likely run a perpetual trade deficit to import AGI. Consequently, a new "AI petrocurrency" strategy may be on the horizon in the game of global geopolitics and the fight to be the world's reserve currency.
The Petrodollar Precedent: How Infrastructure Creates Currency Dominance
The petrodollar system succeeded because it solved practical problems for both sides while creating lasting dependencies that proved difficult to escape. Saudi Arabia gained security guarantees and advanced military technology that protected the kingdom from regional threats. The United States gained guaranteed demand for dollars from every oil-importing country in the world. The arrangement wasn't imposed through force—it was accepted because it offered immediate benefits to all participants. Other oil producers eventually joined the system because doing so provided access to the same security umbrella and military technology that made Saudi Arabia regionally dominant.
The genius of the petrodollar lay in its self-reinforcing nature. Countries that held dollars to buy oil discovered that dollars were also useful for international trade, debt issuance, and financial reserves. Banks developed sophisticated dollar-denominated financial instruments. International contracts increasingly specified dollar settlement because of its liquidity and stability. Each additional use of dollars made the system more valuable for other participants, creating network effects that transformed a bilateral Saudi-American agreement into global economic infrastructure. Even countries that opposed American foreign policy found themselves structurally dependent on American currency for basic economic functions.
The switching costs became prohibitive over time. Countries that wanted to abandon the dollar system would need to restructure their foreign reserves, renegotiate international contracts, develop alternative payment systems, and convince trading partners to accept new arrangements. The cumulative cost of switching exceeded the benefits for most nations, even when political relationships with America deteriorated. Venezuela, Iran, and Russia have attempted to create dollar alternatives with limited success, demonstrating how difficult it becomes to escape infrastructure dependencies once they're established. The petrodollar system persists not because countries love American foreign policy, but because the economic costs of abandoning it are too high relative to the benefits.
The Tale of Two Races: AGI Invention vs. AGI Scaling
Right now, it appears that the US is by far the most likely to develop the first AGI system, with a probability between 60% and 90%. The US advantage can be summarized as a combination of (1) innovation-friendly government policies, (2) attractor of the world's top AI research talent in both academia and industry, (3) access to the world's largest pool of capital, and (4) access to the best hardware for AI training. China is likely the runner-up, because it leads the world in (1) accessible training data (with 4x the population of the United States and nearly universal adoption of a small number of mobile phone-based superapps), (2) energy production, and (3) centralized governmental willpower. There is also a small, non-zero chance that the first AGI will be invented in Japan, Europe, or other countries, but they are much less likely due to limited accessible data, whether from smaller populations or overly restrictive GDPR data oversight.
That being said, the nation to first invent AGI may not necessarily be the nation to scale AGI to a point of being able to export it as a strategic trade resource. It is abundantly clear that AGI, concretely a "cloud brain" that can make very good human-level decisions and perform human-level mental work, will be "oil-like" in both its impact and its demand. This means that it will be an important trade resource, with the potential to determine the next global reserve currency, be it the US Dollar, the Chinese Renminbi, or a cryptocurrency such as Bitcoin. This effectively means that there will be a separate race to state-of-the-art AGI at scale for export.
Reality Check: Why Recursively Self-Improving AGI Won't Impact the AI Scaling Race Much
Popular narratives about AGI often assume that once achieved, artificial intelligence will rapidly improve itself in exponential cycles, creating unstoppable advantages for whichever country achieves the breakthrough first. This scenario imagines AGI designing better chips, building superior data centers, and optimizing manufacturing processes at superhuman speed, making early technological leadership permanent and insurmountable. However, this perspective underestimates practical constraints in semiconductor manufacturing, physical infrastructure development, and global deployment that operate on human timescales regardless of intelligence levels. Even superior intelligence cannot eliminate physical bottlenecks and manufacturing uncertainties that limit the speed of real-world implementation.
Semiconductor manufacturing represents the most significant constraint on rapid AGI self-improvement. TSMC production queues currently involve 18-24 month lead times for advanced chips, with manufacturing capacity allocated years in advance based on long-term contracts and capacity planning. Even if American AGI designs revolutionary chip architectures that would dramatically improve AI performance, those designs must compete for the same limited manufacturing slots that are already oversubscribed by existing demand from smartphones, data centers, and automotive electronics.
Beyond manufacturing constraints, the fundamental improvements AGI can achieve may be more limited than expected. One of the much-touted recent examples of AI leading to recursive self-improvement is an improved algorithm for matrix multiplication with asymptotically better time complexity. Although this is impressive, in practice the improvements in runtime for practical problems are marginal, because Strassen's algorithm is already very good, and likely near the theoretical limit. Likewise, the efficiency of a heat engine will always be capped by the Carnot efficiency; no amount of AGI or artificial superintelligence will be able to transcend physical limits.
It is possible that powerful AGI may be able to come up with much better approaches, much like how electricity displaced hydraulic power. These non-continuous jumps in efficiency could dramatically improve productivity, but generally require a significant number of years to build tooling and infrastructure, even if the intelligent beings that use them are omniscient and plan perfectly. The bottleneck for making nuclear weapons in the Manhattan Project was enriched radioisotopes, and no amount of additional geniuses like Oppenheimer or Teller would have dramatically sped up the timeline.
The Subsidized AGI As Strategic Export Good
Given the competitive nature of the US and China in the AGI development arena, the economic mechanism for AI-currency linkage would be simpler and more powerful than the petrodollar system. Only direct trade relationships between AGI exports and AGI importers would be needed, rather than complex producer coordination from a set of oligopolistic producers. Depending on each exporter country's internal economics and politics, the exported AGI good could be subsidized between 20% and 90% in order to influence and encourage AGI importer nations to adopt the preferred currency. From the point of view of the AGI importer, this could be either a difficult or an easy decision, depending on their realistic ambitions for their role on the world stage for the next 10 years. On one hand, affordable and scalable AGI could substantially accelerate internal infrastructure development, healthcare improvements, education programs, or military modernization, raising the importer nation's relative standing versus regional rivals. On the other hand, the adoption of the AGI exporting nation's currency and AGI systems creates a lock-in effect with significant switching cost, and de facto picks an allegiance for a minimum of two decades.
The switching costs for AGI importer countries could exceed those of the petrodollar system because AI integration affects decision-making processes and institutional knowledge rather than just financial transactions. A country that integrates imported AGI into its tax collection, healthcare management, transportation optimization, and financial regulation would face catastrophic disruption if that access were withdrawn. Government employees would lose operational capabilities, businesses would lose optimization tools, and citizens would lose services that they had come to depend on for daily life. These dependencies create leverage that exceeds traditional energy or financial relationships because they affect information processing and decision-making rather than just resource access. The economic benefits of subsidized AGI adoption could be immediate and visible, while the strategic costs of technological dependency remain abstract and long-term, making the adoption decision politically attractive even for leaders who understand the strategic trade-offs.
At this moment, both the US and China are facing mounting internal debt crises brought about by years of fiscally loose policy. The US has a $36 trillion national debt and even serving the interest payments on this debt is a major burden. China, in contrast, has more opaque local government debt caused by years of aggressively leveraged infrastructure and real estate development. These two nations that both urgently need methods for refinancing or restructuring their debt happen to also be the nations closest to inventing, scaling, and exporting AGI. Strategically, both nations must choose a strategy in the tradeoff between world influence/power projection and economic growth/stability. Every subsidized exported AGI is one less AGI that is available to improve the exporter nation's own economic health and AGI productivity.
As observers of global technology developments and international politics, we have limited influence over the outcome of this complex and multi-faceted strategic situation. As individuals looking to maximize our own economic well-being, we should be aware of this upcoming bifurcation in the trajectory of world. The global reserve currency may remain the US dollar or change to the Chinese renminbi or even something more avant-garde, but given the imminent advent of AGI and its strategic importance, it is likely that the current petrodollar system will be replaced by a new reserve currency tied deeply to the 21st century equivalent of oil.
By David Zhang and Claude 4.0 Sonnet
July 1, 2025
© 2025 David Yu Zhang. This article is licensed under Creative Commons CC-BY 4.0. Feel free to share and adapt with attribution.
Wow! Great writing, incredibly insightful and incredibly disturbing.