Investment banks typically group bonds, currencies, and commodities into one business segment: FICC (fixed-income, currencies, and commodities).  The three are inextricably linked in economic terms.

For much of the nineteenth century and through World War I, most international commerce was conducted in British pounds, known as the global "reserve currency."  For most of the civilized world, the pound was an accepted as payment for goods and services.  In 1844, the Bank of England implemented a gold standard, by which Her Majesty's government upon request would redeem pound-sterling for a fixed weight of gold.  Eventually, though, the sun set on the British Empire, and the pound went away.

Near the end of World War II, a delegation of forty-four nations met at the United Nations Monetary and Financial conference in Bretton Woods, New Hampshire to hash out a new system, which would be based on the U.S. dollar.  While not convertible into gold on the spot, nations would peg their currencies to the dollar, and the dollar was convertible into gold through a mechanism managed by the Federal Reserve.  The new gold exchange standard gave the United States control over worldwide gold markets.  The Fed kept a tight range on the price via its market operations, while most of the world's bullion moved in and out of New York.  In his 2014 book The Accidental Superpower, Peter Zeihan writes: "In the early years, the cost levied upon the Americans by the Bretton Woods system was easily managed.  Europe was in shambles and America was economically robust."

Eventually, Europe recovered, while social programs and military spending caught up with America.  Europeans lost faith and started drawing down gold reserves to the point where Richard Nixon was forced to unilaterally end the accord in 1971.  The Fed lost control over gold and hence the dollar.  Prices soared.  Another commodity was needed to restore confidence and tame inflation.

In 1973, secretary of state Henry Kissinger approached Saudi Arabia and convinced the Saudis (and their neighbors) to price crude oil in dollars.  Although the dollar would not be convertible into oil per se, the new arrangement stabilized prices and gave the impression that it was commodity-money.  Soon OPEC acquiesced, and by 1975, the dollar was backed by threats, not gold.

Being able to buy oil in its own currency gave the United States a sizeable advantage over other industrialized nations.  Developing nations never had the financial architecture or deep enough bond markets to absorb a currency buildup, so the New York Mercantile Exchange became the center of global oil trade.  Until now.

China recently rolled out an oil futures contract in Shanghai that is settled in yuan, the first major rival to NYMEX crude.  "The whole point about providing the facilities for Saudi Arabia, Iran and all the rest of it to take payment in yuan and use the futures market to do whatever hedging they want, as opposed to using the dollar, is effectively the end of the petrodollar," says British financial analyst Alasdair Macleod.

The Federal Reserve is a private bank that wields enormous power over the global economy with the currency it issues, or what some call "dollar hegemony."  The U.S. dollar is on one side of at least 85% of trades on foreign exchange markets.  It commands over 70% of international commerce, makes up 65% of worldwide central bank currency reserves, and accounts for 39% of sovereign debt.  Six in ten countries manage their currencies with some form of peg to the dollar.  The dollar is legal tender in Ecuador and is in circulation in at least thirty other countries.

The most heavily traded commodity in the world today is oil, which is still priced in dollars.  A 2016 study by Jeff Dejardins at Visual Capitalist found that at 94 million barrels per day, the total global crude oil market was $1.7 trillion.  Central bank vaults throughout the Middle East are like giant cash registers for the kings and princelings, with stacks of Federal Reserve notes earmarked for the oil trade.  The drug lords are not at all different.

"Drug money is all hundred dollar bills," quipped Jim Sinclair on a November 2017 podcast at JSMineset.  "Just take a look at El Chapo's treasure room.  He has a little gold in the corner...not much.  Silver in the other corner...but the piles of hundred dollar bills are amazing!  There'd better be no smoking in the treasure room!"

The petrodollar is the linchpin to the entire global dollar reserve currency complex.  It all goes back to the Fed.  If they lose the petrodollar, they lose everything.  Their legitimacy hinges on keeping those banknotes in the hands of powerful people, because it gives them power.  The last thing they need is for the oil sheikhs to start sending pallets of U.S. dollars back to New York.

Actually, the petrodollar machinery has been breaking for quite some time.  In 2008, the Iranian Oil Bourse in Kish began operations as a non-dollar platform, while a hydraulic fracturing boom in the United States was just getting started.  In conclusion, Peter Zeihan affirms that "in a post-Bretton Woods shale era, the Americans have no need for the security alliances or the trade or the energy flows, which means they have no need for the Saudis."  More precisely, in a post-petrodollar world, the Americans have no need for the Saudis.  The problem is that the Federal Reserve needs the Saudis.

Hong Kong and Shanghai Banking Corporation (HSBC) is a member of the Federal Reserve System, or a "primary dealer."  J.P. Morgan, Goldman Sachs, Deutsche Bank, and Citigroup are others.  These institutions have access to the Primary Dealer Credit Facility at the Federal Reserve Bank of New York.  Morgan Stanley was insolvent and out of business like Lehman Brothers at the height of the financial crisis in 2008 when it tapped $61 billion.  Primary dealers are extensions of the Fed.  

Dollar hegemony started with gold.  Then oil.  Would the Fed trade oil for narcotics?

It's not inconceivable.  In 2012, HSBC admitted to laundering money for the Sinaloa Cartel, led by Joaquín "El Chapo" Guzmán.  The British bank was fined $1.6 billion, a pittance compared to the $2.69 trillion in assets held at the time.  So the message was clear: don't get caught again.  It would be naïve to think other banks aren't doing the same.  For investment banks, a fine is a cost of doing business.

Statistics for illicit substances are hard to quantify, but Global Financial Integrity estimates show the market to be large as $650 billion.  In a commodity-based world, price is not important – it's volume.  Oil companies make money at $40 per barrel and $140 per barrel.  Street value of heroin fluctuates from region to region.  It's the medium of exchange that confers control.

Fiat currencies can all collapse at once, and the International Monetary Fund Special Drawing Right (SDR) could emerge as the new unit for global trade, perhaps backed by gold.  Central banks are leveraged to the hilt, while the IMF has the cleanest balance sheet in the world (and 2,800 tons of gold).  A gold-SDR used exclusively for international trade (including oil) would force the Fed to give up on the petrodollar and make do with the narco-dollar.