Note: This piece was originally published under the headline “To Bring Back U.S. Manufacturing, Get the World to Dump the Dollar”
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.
Mr. Mueller directs the economics and ethics program at the Ethics and Public Policy Center.