Does the US dollar’s power to be a reserve money shaken? Some think so. Defending this view, President Trump’s tariffs, America’s growing debt burden and financial sanctions as a foreign policy means. Russia, which was forbidden to use the dollar in 2022, turned to China’s yuan in international transactions.
According to Wall Street Journal, other countries are looking for alternatives; Because the US participation in the global economy on a global economy may end and the Fed will be forced to keep interest rates low due to the debt, which will trigger inflation and the depreciation of the dollar.
On the other hand, according to many people, these claims are quite distant. The size of the US economy and the widespread use of the dollar throughout the world are guaranteed the international role of the dollar.
However, those who advocate the perspective of this “everything is fine” forget that the dollar has once lost its throne before. This is a story worthy of again.
The rise of the dollar
Until the First World War, the dollar was hardly used in the international arena; At that time, the world’s currency was the pound of England. US banks were not allowed to open branches abroad, and there was no central bank to support financial markets in the country.
In 1913, this situation changed with the adoption of the Federal Reserve Law. The law established the Central Bank (FED) and allowed American commercial banks to open branches abroad.
Fed’s founders had different motivations. Carter Glass, a member of the House of Representatives from Virginia, wanted an Adam-i-centralized bank system, especially in the southern states to support non-loan segments. Nelson Aldrich, the powerful president of the Senate Finance Committee, was in favor of a European -style central bank, such as the Central Bank of the UK or the German Reichsbank.
German -American banker Paul Warburg, on the other hand, saw the US dependence on pounds as a disadvantage of competition. Because this was forcing American exporters to find loans abroad and take a rate of exchange rates. Warburg demanded a central bank that will provide a trade loan through the dollar.
The Bank would have stable in the market by purchasing short -term payment bills called “commercial acceptance” (Trade Acceptance) at a fixed price, so that imports and exports could be financed over the dollar.
Warburg attended the secret meeting on Jekyll Island on the Georgia coast in 1910 with Aldrich. Here, the foundations of the Fed Law were laid together with the leading bankers. President Woodrow Wilson appointed Warburg to the FED Board of Directors.
From here, Warburg worked to support the Fed to support the dollar credit market. In addition, in 1919, the American Admission Council established the International Admission Bank in 1921, strengthening the financing of foreign trade over the dollar.
In the late 1920s, New York became the most important center of the world for a trade loan, and the dollar reduced the pound to the throne. This ascension was not a coincidence: the United States has been the world’s largest economy since 1880, it was the largest exporter in 1913, and after the First World War, it had the largest financial markets and the largest foreign loan volume.
The fall of the dollar
However, the acquired position can be lost. In 1929, the US imports and exports collapsed with the Great Depression. Smoot-Hawley tariffs and retaliation measures narrowed further. The three consecutive major financial crises shook confidence in the US banking system.
At that time, one -third of the US banks and the Fed held in the hands of the FED was caused by Germany, especially from Germany. Following the hyperinflation in the 1920s, the German people did not trust local banks, so American banks provided the Germans with high interest rates. However, with the explosion of the crisis, American banks cut loans. Germany declared a moratorium to debts. The US banks and the FED remained alone with worthless paper.
The Fed did not intervene in the market. As reserve banks reduced their purchases in the dollar acceptance market, the value of the bills decreased. By 1934, the value of the dollar deeds declined to half of the pound.
There were a few reasons for this:
Chart exchange: Fed New York President Benjamin Strong, Warburg’s close friend and internationalist name. He died in 1928. George Harrison did not have the same sensitivity to support the dollar market.
Politics: Carter Glass was now a strong name in the Senate, and he saw Warburg’s policies as responsible for the speculation and collapse in the Wall Street. He forced the Fed to accept trade bills only “guaranteed with real goods”.
Under these pressures, the Fed stepped back, and banks lost their confidence in the market. The United States came out of the Great Depression, but the role of the dollar in the international credit market did not come back.
The second rise of the dollar
However, II. After World War II, when the only major economy was the US, the dollar became a global money again. This time, the Fed took lessons from the past and took the role of the “Last Resort Kreditor ve and supported the international power of the dollar. The next quarter century was a relative period of financial stability.
The lessons for today are clear; The global superiority of the dollar is not eternal. In order to continue this superiority, actively supported and protected by merit staff. An experienced Fed President is critical. The intervention of politicians is dangerous for this position.
Source: Newspaper Oxygen
