The Bank against the Economy?

Speculation about the hegemonic decline of the dollar is premature. The global financial structure remains rather rigid in the short term and will not change quickly.

It took a century of financial activism by U.S. banks and many global interbank innovations and collaborations to make the dollar a global hegemonic currency. New York banks have expanded overseas with gold as a hegemonic asset for settlements, offering dollar-only financing for trade. The dollar became a hegemonic currency only after the United States revoked the convertibility of the dollar with gold (from the Bretton Woods agreements) in 1971. The dollarization of the world economy was primarily motivated by New York's mercantile ambitions and not by Washington's geostrategic ambitions.It was the New York banks that insisted on the need for the creation of a central bank (cf. The secrets of the Federal Reserve which relies on the archives of the US Congress) and a global currency for international settlements. The Federal Reserve (Fed) was founded in 1913 against a backdrop of US isolationism with 12 regional reserve banks and a strict national mandate. The McFadden Act of 1927 prohibited branches and interstate mergers of U.S. banks, requiring New York banks to seek investment and expansion opportunities abroad.Like the Fed, the Bank for International Settlements (BIS) was established in New York (cf. its founding charter) to facilitate regulations on German gold and war reparations. The first two presidents of the BRI were investment bankers from New York. Chief Executive Officer Gates White McGarrah resigned as chairman-banker of the New York Federal Reserve to take up his new position. Interestingly, the Fed only joined the BIS as a member in 1994.

Surprisingly, many elements of the hegemonic order of the dollar are countering AMERICAN policies, much like today with the JP Morgan and Goldman Sachs money laundering scandal established in my previous article. The rise in offshore Eurodollar bank deposits (transactions involving US dollars held and used outside the US) was spurred by US sanctions against China in 1949 and Russia in 1956. Embargoes that forced these governments to hold dollar accounts in banks, respectively in Paris and London, to avoid expropriation or freezing of accounts in New York. Similarly, the Eurobond market began financing offshore bonds in dollars in Europe in 1963 to avoid heavy taxation at États-Unis.La regulation played an important role in the growth of dollarized capital markets. Global banks concentrated in London to take advantage of regulatory liberalization following the "big bang" deregulation of Uk markets in 1986. In 1990, more than 90% of cross-border share transactions were recorded in London.
In 1988, Basel I (a committee of central bankers under the BIS) imposed minimum capital requirements for banks, cementing global demand for US Treasuries as the most liquid countercyclical capital asset. The international harmonization of securities laws and regulations in the 90s also stimulated a broader expansion of global banking.

China and the internationalization of the yuan

Today, Chinese financial institutions and regulations are still too far removed from Western norms for the renminbi (or yuan, it's the same thing) to challenge the hegemony of the dollar. The renminbi is not floating or easily convertible into other currencies. Chinese markets are opening up to asset managers and foreign banks, but they cannot be certain that they will be treated fairly by Chinese regulators or courts. Derivatives markets also remain underdeveloped and illiquid on the spot compared to their Western alter egos.

The inclusion of the renminbi in the International Monetary Fund's Special Drawing Rights (SDR) basket from 2015 was supposed to herald rapid growth in the official reserves of the Chinese currency. At the end of April this year, official renminbi reserves were only $221 billion compared to total reserves of $11,732 billion, or less than 2%. Many Western countries feared that China's New Silk Roads initiative would lead to broader and deeper renminbi funding. In the end, countries receiving loans from China under the New Silk Roads in renminbi immediately exchanged their funds for dollars. Chinese banks are now financing the loans in dollars to develop the project, because that's simply what their customers want. The share of global payments in renminbi via the Swift payment system briefly exceeded 2% in 2018, but fell back to 1.4%. The figures simply show that there is no groundswell of a surge in the renminbi against the dollar. The dollar remains the main currency of settlements in the Asia region (excluding Japan) at about 80% (2000-2012). Some believe that the people's bank of China's digital currency could be a game changer. It could complement the existing financial structure, but it is unlikely to replace the basic systems supporting dollar hegemony. In the end, it is only one piece of a large building that has yet to be built. A digital renminbi, on the other hand, calls into question the duopoly of Chinese payment services that are Alipay (Ant Financial, a subsidiary of the giant Alibaba led by a former Goldman Sachs) and WeChatPay (Tencent). Alipay already accepts 18 global currencies, with the renminbi mainly used by non-Chinese traders selling in China. New Chinese initiatives are now targeting global supply chains, logistics and shipping, reflecting the mercantilism of New York banks' first overseas branches.

Dedollarization could increase in the event of Donald Trump's second term

If Trump wins the election and continues his attacks on globalism, especially in its financial aspect, the US could provide the justification that would divide international banking hegemony. divide the old dollar markets and their integration into the new digital renminbi/yuan markets. If such a scenario becomes structuring in the long term, the digital renminbi could begin to reach critical mass and begin a process of global monetary hegemony.

But as I said in a previous article with the Russian case, this is a long process with its jolts that can last a man's life. It should be noted that the US sanctions, recently used to target the Chinese commercial rivals of the American tech giants, are part of a geostrategic opposition against the emergence of Eurasian powers (China/Russia). The Atlanticist empire will also end up targeting the Western European allies who are already paying dearly for their strategic servility of the last 70 years vis-à-vis the United States. Trump has achieved a tour de force by pushing a logic of national security to the limit of credibility and in the eyes of all: it is the whole legend of "healthy", "peacemaker" and "undistorted" free trade that flies away. After so much effort, the financial oligarchy can do nothing but use all its financial and media power to vilify any desire to return to the conservative nation against cosmopolitan globalism.

It is not just an economic and financial war, it is an ideological, even religious, war for centralized world domination. A century ago, the pound lost its hegemony in the world monetary order because of the loss of its empire, debts, inflation and civil unrest in the country. The dollar could also lose its appeal if such trends strengthen in the United States.
But after the City and Wall Street, where would the next Eldorado of global finance be? Is Hong Kong, recently destabilized and taken over by the Chinese Communist Party, mature for this role?

Most cash claims and dollar-denominated assets are owned by non-Americans, as the dollar is a global currency. China's influence in the world can therefore grow with the dollars used for settlements, just as America's influence had increased with gold for settlements until 1971.

The dollar will only lose its hegemonic status if Chinese policies use and impose the renminbi on foreign banks and investors. Trump's policy of power and sanctions can reinforce this trend... which was already underway before him.