Emergence of US Dollar as the major Reserve Currency - A Brief History

The US Dollar 💵 is ubiquitous in trading circles, commodity markets, cryptocurrency(bitcoin is pegged against USD), even Steem has an SBD that is pegged onto the USD.

The US Dollar is USA's currency, not the world currency. So how did it become the de facto fiat currency in international trade?

The Gold Standard:

Till the early 19th century Gold and Silver were used to mint coins all over the world. So when bank notes began replacing these metals they naturally pegged their value to Gold.

The British Pound:

Almost a century ago; the British Sterling Pound was the global currency till the first few years of the 20th century, that was used virtually anywhere thanks to the last 'Empire on which the sun never sets'.

The Birth of US Dollar:

The first US Dollar was printed in 1914 replacing the various continental currencies that were in circulation in its colonies. By 1913, USA had replaced United Kingdom as the major economy of the world. So they needed a unified currency resulting in the birth of the US Dollar.
So how did a currency that is just over a century old become the major global reserve currency?

The World war I:

With the advent of the World War I, countries withdrew their currencies from the Gold Standard so that they can pay military expenses in paper. This caused devaluation of their currencies.The major victim of this downfall was the British Sterling Pound. The World War hammered the British economy and left its coffers bleeding.
If you observe, both the wars came to conclusion once the USA began actively participating, it remained a silent observer and sold weapons and goods to the Allies in the beginning greatly reducing its losses and actually earning profit in process.
USA sold these weapons and accepted payment in gold. By the end of the World War I, US held a major portion of the gold reserves available internationally.

The Depression:

The end of the World War I resulted in the Depression. As part of the Gold Standard, inflation led to selling of assets; diminishing the money supply of the banks in lieu of gold held by the banks. However the economy revived from this pretty quickly.

The Great Depression:

September 4, 1929 - The US Stock market suffered a mini collapse ending with a major stock crash on October 29, 1929 which is known as the Black Tuesday. This lead to a 12 year-long Depression famously known as The Great Depression.

The rigidity of the Gold Standard was a major culprit in making this depression a worldwide phenomenon. Even countries whose banks did not crash during this period had to increase their money supply leading to artificial deflation.

Seeing that the Gold Standard is dragging their countries further into depression most of them left it. Studies show that the countries who left the Gold Standard early were able to recover their economy quickly.

The Gold Reserve Act:

It was during these hard times in 1934; the US Federal Government passed the Gold Reserve Act which outlawed the private possession of gold. The main purpose of this act was to increase the government's gold reserves, devalue the US Dollar and revalue the gold.
The Gross National Product(GNP) increased as a result of this measure and the money supply also grew.
The US Treasury's gold reserve almost tripled as a result of this forced buyback of public gold.

Image credit: https://www.bullionstar.com
In short Fort Knox became the most valued place on the earth in terms of the amount of gold it held.

The red line in the graph indicates the enactment of the Gold Reserve Act. Look at the spike in the US Gold reserves following the red line. The initial spike till 1938 was due to the confiscation of gold held by the public, how did it grow further?

World War II:

The end of World War I triggered a mini depression. However, according to several conspiracy theorists, the Great Depression ended with the occurence of The World War II. This seems to hold true since travails of the great depression were replaced by greater horrors.

The USA replayed its role of a cunning arms dealer who trades weapons for gold as in World War I to perfection. This is the reason for its jump in the gold reserves during these years.

After the end of the war all countries were forced to return to the Gold Standard as their gold reserve levels had depleted fully and ended in the fat pockets of Uncle Sam.

Emergence of US as a monopoly in Gold reserves:

All these years, Gold was the common global fiat that truly held its value. Now almost 75% of the world's gold reserve resides in Fort Knox.

Bretton Wood Agreement 1944 - USD as reserve currency:

The Bretton Wood Agreement of 1944 officialy crowned the US Dollar as the world's reserve currency. Under this agreement, the currencies were linked to gold through the US Dollar which was set as the reserve currency. The Agreement also led to the creation of International Monetary Fund and the World Bank.

USD as the new Gold:

As a result of the Bretton Wood Agreement, countries now started hoarding US Dollars as reserve instead of gold. US Treasury security became the default reserve as it was considered the safest bet. US Dollar has become the backbone of international trading and market economy.

Float rate regime:

By 1970s, countries began asking US for gold in exchange for dollars which led to the Nixon shock ending the Gold Reserve Act and the Gold-Dollar connect established by the Bretton Woods Agreement.

Countries moved to demand-supply based float system that is now known as Forex. Did that devalue USD? No. Why? Because by now, US Dollar was the most dominant reserve currency.

Crude gets traded in USD:

This is one of the main reasons for US Dollar still going strong. Crude oil is pegged onto the US Dollar since the 1970s. Most of the wars fought by USA post 1970s has crude oil reserves as its crux. US is also a major manufacturer of crude oil and has even more untapped oil reserves further cementing the US Dollar's position as the most safe reserve currency in the decades to come.

Reserve currencies in use now:

As of 2016, 8 currencies constitute 98% of global reserve currency. 64% of the total global reserve currency is held as US Dollar.

Image source: https://en.wikipedia.org/wiki/Reserve_currency

Conclusion:

US Dollar has become the most powerful currency in the world due to USA's insistence on being paid in gold for arms deals and the Gold Reserve Act which helped it seize gold from the public.

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My take on Smart Media Tokens
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Cheers and happy steeming,
dbdecoy