The Rise of the Dollar and the Decline of Sterling

Abstract

This chapter will examine, through the story of the two main participants, the evolution of payments and the international monetary system between 1955 and 1964. This period must first be set in its total postwar context. The opening date, 1955, is chosen because it marks the end of what we may call the ‘first dollar problem’. At, or near to, that time the American balance of payments changed from surplus to the deficit which was to increase and dominate the payments situation throughout the sixties and seventies. American accommodating finance to the rest of the industrial world ceased as it became unnecessary and the dollar became readily available either as a transactions or a reserve currency. Three years later, on 31 December 1958, the Western European currencies became convertible into dollars, thereby establishing, several years later than had been hoped,¹ the currency system agreed to at Bretton Woods. This tardiness in establishing the Bretton Woods system was, in great part, due to the delay in making sterling convertible. Our first task in this chapter then is to examine briefly the transition from the regionalised currency system of the fifties to the Bretton Woods world of the sixties.