At the end of World War II, the United States accounted for more than half the world’s economic output and gold reserves.
The United Kingdom was effectively bankrupt, with the remnants of the sterling area bound together by capital and trade controls. Once the British pound became convertible in July 1947, owing to U.S. insistence, it succumbed to overwhelming selling pressure. The dollar, which was pegged to gold at $35 an ounce, was buoyed by America’s privileged position within the newly formed International Monetary Fund and quickly established itself as the bedrock of global trade and finance.
While the U.S. today accounts for only 25% of global output, the dollar remains involved in nearly 90% of all foreign-exchange transactions. Despite its central role in cross-border trade and borrowing, however, the greenback’s share of central-bank foreign-exchange reserves has fallen from 72% in 2000 to 59% today. Given recent harsh criticism of U.S. currency policy by officials in China, Russia, Brazil, Saudi Arabia and elsewhere, it may therefore appear that the dollar’s uncontested reign is coming to an end, with far-reaching global economic consequences.
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