H.W. Brands: The End of the Dollar Standard

H.W. Brands taught at Texas A&M University for sixteen years before joining the faculty at the University of Texas at Austin, where he is the Dickson Allen Anderson Centennial Professor of History. His books include “Traitor to His Class,” “Andrew Jackson,” “The Age of Gold,” “The First American,” and “TR.” “Traitor to His Class” and “The First American” were finalists for the Pulitzer Prize.

This is an excerpt of an excerpt from his latest book, "Greenback Planet."

...The nineteenth century had been the era of the gold standard, the twentieth of the dollar standard. What the twenty-first century will be is anyone’s guess. But some guesses have been more credible than others. The dollar has had a good run. It made America rich; it saved democracy; it defeated communism. Yet it suffered from its very success. As the closest thing to a world currency, it knitted the planet into a single economy more fully than any currency before. In doing so it spread prosperity more widely than prosperity had ever been spread, but it diluted prosperity for those steelworkers in America, maize farmers in Mexico, cobblers in Italy who found they couldn’t compete in the new world market.

And it magnified the effects of the instabilities that have always afflicted dynamic markets. The financial panics of the early nineteenth century in America were local affairs, confined to a modest number of firms and affecting comparatively few people. The panics of the late nineteenth century had national effects, with some transatlantic connections via the gold standard, yet most of the world hardly noticed. In the modern era — the era of the dollar — the world couldn’t help noticing. The panic of 1929 helped trigger the global crisis of the 1930s. Not by accident did the nations of the world, gathered in London in 1933, listen for Franklin Roosevelt to declare the value of the dollar and thereby decree their fate. Richard Nixon’s closing of the gold window in 1971 rocked financial markets from London to Tokyo and Buenos Aires to Bombay. The dot-com bubble of the late 1990s burst in Silicon Valley but blew out lights in Bangalore and Mumbai (Bombay’s new name), Shanghai and Taipei, Seoul and Sydney...

The dollar’s demise, if it came to that, would be America’s problem, but the world’s as well. Much of the planet has come to depend on the dollar, and replacing it would be difficult and painful. No alternative reserve currency made a compelling claim. Use of the euro is spreading, but the EU’s money lacks the ubiquity of the greenback, and efforts to rescue the Greek government have revealed deep rifts in the euro zone. China’s currency, the yuan, isn’t even traded on world markets. Japan’s once-mighty yen still floundered two decades after Tokyo’s swoon. Besides, with so much of the world invested in the dollar, the costs of changing over to another root currency would be prohibitive.

But the alternative to the dollar need not be a single currency. When Gao Xiqing and others spoke of a second Bretton Woods conference, they envisioned replacing the dollar with a market basket of moneys. No one of the currencies need be as strong as the dollar had been; together they could do what the dollar no longer could. The market basket approach had its own problems, but as time passed and the American deficit continued to grow, the dollar doubters seemed ever more likely to have their way. Financial power talked, just as it had for the Americans at the first Bretton Woods conference....