The dollar maintained stability in the 1920s, emerging as a major international currency, but due to the global depression of the 1930s, the pound retained the dominant position as the key currency of the interwar period. This had much to do with British borrowing from the United States to fight World War I.” In the successive years, US exports pulled ahead of those made in the United Kingdom. As Chinn and Frankel pointed out, following 1914, “the US passed from net debtor to net creditor as the UK moved in the opposite direction. The overall size of the American economy had surpassed United Kingdom as early as 1872 and continued to grow. The decades before the start of World War I revealed signs of a strengthening US economy. How did such a remarkable transformation occur? Within a few decades, the United States transformed from an isolationist, inward-looking power with minimal presence on the global stage to an economic powerhouse that controlled the most valuable currency in international markets. By 1945, the status of the dollar and the pound had essentially flipped. Economic scholars Menzie Chinn and Jeffrey Frankel argued that the waning power of the British pound, hit by two world wars and a global economic depression, allowed the American dollar to surpass the once robust British currency. The strength of the British pound continued to persist, but its preference as a standard currency for global commerce was weakening over time. American dollars could not compete with European currencies. Far from the isolationism that characterized US global politics, the immediate aftermath of World War II established a clear desire among American political and economic leaders to protect this newfound power and to secure the United States as the leader of the “free world.”Īt end of nineteenth century, the British pound was more than double in value to its closest competitor, which included the French franc and the German mark. By the end of World War II, however, the United States stood as one of two leading global powers, alongside the Soviet Union, which had experienced a similarly unexpected rise to power. Most Americans remained content to let other powers, such as Great Britain, fill that role. Before the start of World War II, the idea of the United States as a leading global power was not an ambition of American politicians. The “war to end all wars” ultimately failed to live up to its name, and Americans were wary of once again of getting involved in foreign conflicts. The aftermath of World War I confirmed the importance of isolationism to many Americans. Courtesy of the National Archives and Records Administration, 200610. Top Image: President Truman with members of his Cabinet and other officials, in the Cabinet Room of the White House.

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