International Monetary Options

Abstract

The law of monetary evolution has not been unambiguously determined, yet a few observations stand out in the panorama of historical perspective. 1. The first is that monetary systems do not change without warning. There is usually substantial lead time. Thus the breakdown of the international monetary system in the 1790s occurred after the Revolution and the assignat inflation in France, then the most powerful country in Europe. The restoration of bimetallism in France in 1803, or gold monometallism in Britain in 1820, was predictable. The trend toward gold in the 19th century became evident soon after the Californian and Australian discoveries drove silver out of monetary circulation in France, the pivot bimetallic country, and silver was dislodged as a monetary metal in Austria-Hungary and the Russian Empire in the 189Os. The use of sterling as an overvalued supplement to gold under the gold exchange standard had decades of advance warning through imperial ties and nations associated with Britain; Keynes’ first book, Indian Currency and Finance, was published in 1910 and had as its subject the gold exchange standard. The rise of the dollar was also easily foreseen. An aging John Stuart Mill could foresee the dominance of the U.S. in 1869, long before the currency of the new giant displaced the pound sterling as top international money. 2. America emerged from both world wars as the dominant power militarily, industrially, and financially, and the dollar became the global currency. It is a fact of historical tradition that the top currency is provided by the top power. Money is a political phenomenon that

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