Speculation about the dollar’s hegemonic decline is premature. The global financial plumbing is relatively inflexible in the short term. It will not change quickly or inexpensively.

It took a century of New York banks’ financial activism and extensive global interbank innovation and collaboration to make the dollar a global hegemonic currency.

Dollarisation of the global economy was driven by mercantile ambitions from New York, not geo-strategic ambitions from Washington. New York banks expanded abroad with gold as the hegemonic asset for settlements, offering dollar finance only for trade. The dollar only became a hegemonic currency after the US revoked Bretton Woods dollar-for-gold convertibility in 1971.

It was New York banks that insisted on the need for a central bank and the plumbing for international settlements. The Federal Reserve was founded in 1913 against a backdrop of wider national suspicion and American isolationism, hence the 12 regional reserve banks and a strict domestic mandate. The McFadden Act in 1927 banned inter-state branching and mergers by American banks, forcing New York banks to look abroad for investment and expansion opportunities. Like the Fed, the Bank for International Settlements was conceived in New York to make settlements of gold and German war reparations more convenient. The first two presidents of the BIS were New York mercantile bankers. The Fed only joined the BIS as a member in 1994.

Source: 3quarksdaily