Donald Trump promised to “make America great again,” but he might make America Great Britain. To re-industrialize the U.S. economy, President Trump must avoid the mistake that de-industrialized Britain: namely, he must end the dollar’s role as the world’s chief reserve currency.
A century ago when Britain began to lose its place as the world’s leading power, it was suffering economic maladies today’s Americans will find familiar: declining exports, large government deficits, and a huge amount of foreign debt. The British pound’s role as the world’s chief reserve currency was a major driver of this economic decline.
John Maynard Keynes promoted the British pound’s use as the world’s reserve currency, writing in 1913 that replacing gold with foreign-exchange reserves was a step toward “the ideal currency of the future.” But it didn’t take long for the markets to prove that currency reserves are not a foolproof form of savings. The monetary system Keynes recommended was established throughout Europe after a 1922 conference in Genoa, but it collapsed in 1931 at the onset of the Depression.
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