Yesterday the pound, today the dollar, tomorrow the yuan?

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Yesterday the pound, today the dollar, tomorrow the yuan?

On the 70th anniversary of the Bretton Woods system, the US should take a close look at the history of global finance. Washington can learn a lot about the looming relegation of the dollar, writes DW’s Frank Sieren.
Bretton Woods conference, 1944. (Photo: AP Photo/Abe Fox)
Washington, there’s little reason to celebrate. The greenback has seen better days. Yet the politicians who control the dollar seem to think that it will be dominant forever. History teaches us, however, that global currencies on average have a life span of 80 to 100 years. China is now on the verge of displacing the dollar with the yuan.
Seventy years ago, the US definitively replaced the British pound with the dollar as the global reserve currency. Having reached unparalleled power by the end of World War II, the Americans could determine where to hold the conference that would lay the ground work for a new global financial system – and it wasn’t in London.
Finance ministers and central bankers from 44 countries met in the US state of New Hampshire, where a friend of President Franklin D. Roosevelt had just been elected senator. At the time, the British underestimated the home-field advantage that the choice of New Hampshire gave the Americans. On its own soil, Washington could crank up the pressure.
After two world wars and a global financial crisis, the world was an economic and financial heap of ruins. Most countries had abandoned the so-called gold standard long ago, meaning that their currencies were no longer pegged to the price of the precious metal. The major powers had financed two wars by printing money and had taken on the risk of high inflation rates. And the British were up to their necks in debt to the Americans.
Keynes vs. White

Frank Sieren. (Photo: Frank Sieren)
DW columnist Frank Sieren
London sent John Maynard Keynes – Britain’s de facto finance minister behind the scenes – to the conference as its representative. Even at that time, Keynes was the most famous economist in the world. He had well thought out, intelligent arguments against the American position. But as is so often the case, power mattered more than who had the better argument.
It’s true that British resistance and Winston Churchill’s rallying cries had made a decisive contribution to the Allied victory against Nazi Germany. But that didn’t matter anymore. The Americans wanted to make sure that Britain was finished as a world power. And Keynes’ opponent was now powerful enough to make that happen – Harry Dexter White, the assistant secretary of the US Treasury Department.
In London, many politicians hoped that the pound and the British Empire would flourish after World War Two. But more than 50 percent of global production came from the US, whose economy hadn’t been bombed into the ground. The Americans had the most advanced army in the world and were the only power with the new super weapon: the atomic bomb.
The British had glamour and glory, but otherwise they suffered from a moribund economy and were burdened with a lot of debt to the Americans. That’s why Washington was able to implement its vision of the new financial order. A number of currencies were pegged to a fixed price in US dollars, and the dollar in turn was pegged to the gold standard. The British received such a bad exchange rate that their export economy was hardly competitive after the war. The Germans, for their part, received a very advantageous exchange rate……MORE HERE 

Source: www.dw.de