Everyone who has any acquaintance with the international monetary system knows that the pound sterling and the U.S. dollar have a special status as international or key currencies. In this brief history the author describes how they came to acquire this status.
Bo S. Karlstroem
ONE SIGNIFICANT FEATURE of the international monetary system is that most international payments are settled in either U.S. dollars or pounds sterling and that a large share of international reserves is denominated in either of these two currencies. But there is no necessary relationship between these two functions: Germany has a larger volume of trade than the United Kingdom, yet the deutsche mark is not a reserve currency. Nor do the two reserve currencies have much in common with one another. They have quite different origins in their reserve role, different histories, and today they have rather different characteristics. What has been said about the dollar holds true for both the reserve currencies, namely that they “became international currencies neither by Act of Congress (Parliament) nor by Act of God, but rather because they met various needs of foreign official institutions and foreign private parties more effectively than other financial assets could.” 1
What then were the historical factors which gave these two currencies a particular position? As these factors were quite different in the two cases it is probably wise to look at them separately for the moment.
Robert Z. Aliber, The Future of the Dollar as an International Currency (New York, 1966), p. 8.
Peter M. Oppenheimer, “Monetary Movements and the International Position of Sterling,” D. J. Robertson and L. C. Hunter, Eds., The British Balance of Payments, (Edinburgh, 1966).
For a discussion of international financial developments in this period, see R. Nurkse, International Currency Experience (League of Nations, 1944).
Alan Day, The Future of Sterling (Oxford, England, 1954), p. 33.
Ibid., p. 36.