Shadow Monetary Regimes and the Fragmentation of the Global Dollar System
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In this study, we investigate how cross-border dollar flows reconfigure in a context where domestic banking systems collapse and international economic integration continues to grow. The more conventional literature on international finance assumes that monetary authority only disappears after a currency collapse or an official dollarization. On the other hand, evidence from recent financial crises suggests that monetary coordination breaks down well before a national currency officially vanishes. Drawing on the case of Lebanon, this research informs our understanding of the ways economic actors adjust their financial practices when formalized banking infrastructures fail. Through an academic analysis of observable monetary behaviours and alternative financial mechanisms that have emerged within the Lebanese economy since the eruption of the financial crisis in 2019, the paper follows a conceptual and analytical research approach with naturalistic methods of interpretation. Evidence suggests that households, firms, and economic intermediaries increasingly turn to a range of alternative channels for accessing global dollar liquidity. These involve remittance networks, money transfer operators, informal foreign exchange markets, foreign bank accounts, and new digital payment technologies. This study not only reflects the evolution of cross-border dollar flows shaped by these conditions, but also identifies the formation of a systematic alternative financial intermediation system called the Shadow Cross-Border Dollar Infrastructure. Rather than serving as isolated informal activities, these mechanisms together compose the joints of a parallel financial network that enables cross- border transactions to persist despite the freezing of domestic banking institutions. The Lebanese case highlights the ways in which globalization can endure while sovereign financial systems face deep dislocation. Understanding these dynamics could help explain both recent developments in the international monetary system and its future trajectory, particularly in high-inflation, capital- controlled, or financially unstable economies.
Keywords
Cross-border payments, Dollarization, International Finance, Monetary fragmentation, Shadow financial infrastructure