The Federal Reserve (Fed) has quietly become the world’s de facto central bank. Acting as the global lender of last resort, it has backstopped the global economy through central bank swap lines—bilateral agreements with foreign central banks—that supplied more than half a trillion dollars during the Global Financial Crisis and COVID-19. Five of those agreements now function as standing, uncapped guarantees of dollar liquidity.
This Article explains how and why the Fed came to occupy this role. Conventional accounts treat swap lines as a functional response to the dollarized global economy, obscuring the contested institutional development of the Fed’s global authority. Drawing on extensive archival evidence, this Article instead demonstrates that the Fed’s authority emerged through a century-long, path-dependent process in which repeated financial crises shifted decision rights away from the political branches and international organizations and toward the central bank. This institutional account decouples the Fed’s institutional rise from the dollar’s structural rise. It shows how the Fed’s comparative institutional advantages—money creation, legal latitude, and transnational central-bank coordination—cumulatively entrenched the central-bank channel.
In this new light, the Fed’s global role is both a product and a driver of hegemonic succession—from sterling to dollar, and perhaps now toward renminbi. An original dataset shows that while the Fed remains the central node in a system of proliferating liquidity agreements that structure “weaponized interdependence,” rival networks—notably China’s—are emerging as nascent monetary circuits atop the global dollar order.
To read this Article, please click here: The Federal Reserve as the World’s Unofficial Central Bank