The Dollar Conveyor Commodity Settlement, Working Capital, and the Missing Constraint in US External Imbalance Analysis

In 2022, Bangladesh ran out of dollars. The consequence was not a financial panic in the conventional sense. Banks did not fail. The currency did not immediately collapse. What happened was more elemental: the country could not finance its LPG imports. Two thirds of Bangladesh's thirty LPG companies could not open letters of credit. Monthly LPG imports fell by thirty percent. Restaurants closed. Households could not cook. The operational chain that moves essential goods — payment, letter of credit, cargo insurance, freight clearance, hedging margin — had seized because the dollar liquidity that runs it had run out. Sri Lanka suffered the same failure weeks earlier, with the Prime Minister telling the nation on May 16, 2022 that the country had petrol stocks for a single day. Pakistan followed in 2023, when oil companies wrote to the finance ministry warning that banks were refusing to open letters of credit for fuel, while six thousand containers of food sat at Karachi port because the dollar guarantee that would allow them to discharge did not exist. In each case, the failure was not a portfolio decision. It was a plumbing failure. The dollar pipes ran dry.

This paper argues that Bangladesh, Sri Lanka, and Pakistan reveal a structural omission in the standard analysis of US external imbalances. The dominant framework, including the account offered by Bayoumi and Gagnon in their 2025 PIIE working paper, explains persistent US trade deficits through foreign demand for US financial assets: portfolio preference, reserve accumulation, safe-asset demand, and the institutional advantages of US markets. That explanation is correct as far as it goes. It does not go far enough. It omits the operational layer beneath the portfolio layer. It misses the dollar demand that does not arise from investment choice but from the requirement to keep essential goods moving.

This paper names that demand. Settlement-Driven Dollar Demand, or SDDD, is the stock and flow of dollar-denominated balances required to execute, finance, collateralize, insure, hedge, and buffer commodity and food trade. A significant share of what appears in the US balance of payments as foreign investment is not investment in the conventional sense. It is working capital. It is operating float. It is the monetary residue of a global commodity system that cannot function without the dollar conveyor.

The paper uses crude but defensible measurements drawn from IMF country reports, SWIFT trade finance data, BEA balance of payments statistics, and documented crisis episodes. The dollar holds eighty to eighty-five percent of global trade finance by value according to SWIFT data. The US current account deficit reached $1.13 trillion in 2024 according to the Bureau of Economic Analysis. Bangladesh's LC openings fell by forty-nine percent year on year at the crisis peak, directly causing food and fuel import failures that IMF Country Report No. 23/409 documents in detail. These numbers are rough. They are also real and checkable by any journalist with a browser.

The foundational claim is stated plainly. What looks like foreign lending to the United States is often logistics wearing financial clothes. And when the clothes come off, people cannot cook.

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Keywords: dollar shortage food import, letter of credit LPG crisis, foreign exchange reserve food security, IMF bailout commodity imports, Bangladesh dollar reserve collapse, Sri Lanka fuel shortage 2022, Pakistan food import crisis, trade finance commodity disruption, why dollar dominance persists, US trade deficit operating float.