WHEN did Britain cease to be the world’s pre-eminent power? Some date its dotage to the end of the first world war; others to the second. By the time of Britain’s humiliation during the Suez crisis in 1956, America’s hegemony was clear to all. Yet perhaps the most significant indicator of decline went relatively unnoticed by contemporaries: the dollar’s usurpation of sterling as the world’s main reserve currency.
Fears that a similar fate awaits America and the dollar, at the hands of China and the yuan, have burgeoned over the past decade. They have been fuelled by China’s growing economic weight—last year it became the world’s biggest economy in terms of purchasing power—and by the efforts of its government to promote the use of the yuan in international transactions. That has prompted economic historians to re-examine sterling’s downfall, in search of clues about how the impending tussle between the dollar and the yuan might unfold. The research yields lessons in three broad areas—how a currency attains reserve status, whether a two-currency system is possible, and how poor policymaking can speed a currency’s...Continue reading