Military hegemony equals dollar hegemony
As many commentators have mentioned (most prominently for me Kevin Phillips), economic hegemony and military hegemony go hand and hand. So I think the US dollar’s standing is at this point also being propped up by the perceived superiority of the US military apparatus. There’s simply no other military on the planet that rivals it, even though it’s in rough shape after several years of two wars. The UK and Israeli militaries are as advanced technologically as the US’ but considerably smaller obviously and with less gloabl reach.
(As an aside here for those who might bring it up: US military hegemony is not necessarily comprimised by its failure in Iraq because what’s occurring there is a guerrilla conflict or irregular conflict, if you will. Since the dawn of martial theory those students honest with themselves have known that guerrilla conflicts cannot be won simply with overwhelming conventional force. So the fact that it’s happening in 2008 to the preeminent military force is neither surprising nor a case for reevaluation of the strength of the US military.)
I think if there were another superpower with a viable currency ready to step in and fill the void, flight from the US dollar would have already happened but there is no one to do so. Most industrialized countries with "modern" economies have no real military clout to speak of or none at all: Australia, Korea, Japan, Brazil, Germany, etc. The combination of military and economic power is indeed rare. Russia is a candidate, but their economy’s a joke and their domestic infrastructure is hurting. And while they’ve done a lot military agitation, exercises with Venezuela, Georgia smackdown, etc., their military infrastructure is horribly outdated and in a general state of disrepair. And with oil prices falling there goes a great revenue stream, well, at least temporarily. Perhaps China, India? We’ll have to see.
But for now, and in the short term, the destruction of the dollar will probably be the result of trauma (global economic collapse, major war, etc) and not of decay.