I was pleased to contribute to a recent Al Bayan article examining a question that sits at the centre of finance and geopolitics: have US correspondent banks become more than technical intermediaries and, in effect, channels of overseas policy influence? My contribution focused on the structural nature of the issue.
Dollar dominance relates not only to currency preference but to the embedded underlying financial infrastructure itself. Most cross-border dollar transactions, even between non-US parties, ultimately pass through US clearing systems and correspondent banks. As a result, US regulatory and compliance expectations have, over time, evolved into de facto global standards, shaping behaviour well beyond America’s borders.
The article rightly presents a debate where credible arguments exist on both sides. Correspondent banking has delivered decades of liquidity, efficiency and financial stability. Enhanced AML, KYC and compliance frameworks have strengthened governance and resilience across many banking systems, including those in the Arab world.
At the same time, this same structure can be seen as carrying real economic and sovereign costs. Reliance on dollar clearing exposes institutions and jurisdictions to external regulatory decisions, raises fixed compliance burdens and can materially constrain strategic and operational flexibility even in the absence of formal sanctions.
Emerging alternatives such as regional clearing systems, local-currency settlement and central bank digital currencies offer meaningful avenues for diversification. Yet, at least for now, they remain complements rather than substitutes.
The real solution is not abrupt replacement but intelligent diversification or, in other words, reducing concentration risk while remaining fully integrated into a system that, for all its flaws, continues to underpin global trade and finance.
#banking #correspondentbanking #geopolitics #dollar #payments #financialinfrastructure