"The dollar looks awfully like sterling after the First World War," said David Bloom, the bank's currency chief.
"The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards, it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case. Look at the UK - debt is racing up to 100pc of GDP," he said.
Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia's "mercantilist mindset" of recent decades is about to be broken by the spectre of an inflation spiral.
The policy headache was already becoming clear in the final phase of the global credit boom but the financial crisis temporarily masked the effect. The pressures will return with a vengeance as these countries roar back to life, leaving the US and other laggards of the old world far behind.
A monetary policy of near zero rates - further juiced by quantitative easing - is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.
What is occurring is an epochal loss in the relative wealth and economic power of the old G10 bloc of rich countries compared to rising regions of the world. The euro, yen, sterling, Swiss franc and other mature currencies will be relegated along with the dollar in this great process of rebalancing, but the Greenback will bear the brunt.
The Fed's super-loose policy is turning the dollar into the key funding currency for the next phase of the global "carry trade", taking over the role of Japan during its period of emergency stimulus.
Mr Bloom said regional currencies would emerge as the anchor for their smaller trading partners, with China, Brazil, or South Africa substituting the role of the US. Australia is already linking its fortunes to China through commodity ties.
![[Valid Atom 1.0]](/images/valid-atom.png?1222505720 "Validate my Atom 1.0 feed")
![[Valid RSS 2.0]](/images/valid-rss.png?1222505756 "Validate my RSS 2.0 feed")
And its not just after WW1. This paper monetary failure occurs again and again. The banks print too much, the economy turns into mad speculation, the bubble bursts and we slide down a snake to start again. It just goes on and on.
If we are to have a chance of mitigating the tendency to overprint, I think it will be based on a new approach. It was in 2006 that the Fed ceased publishing its paper money issue. That was when the volume was doubling every ten years and people were starting to ask questions.
I think a big part of the solution has to be absolute transparency. We forgo the profits of an international currency and instead publish all details in a frequent basis. Then all people everywhere are equally well informed.