The Falling U.S. Dollar

One could not tell by watching the news that the U.S. dollar was in major decline and oil prices were reaching close to $100 a barrel. Instead the top stories were Brittney Spears latest drama, the newest foul singer on American Idol and the latest diet fade for 2008.

My local newspapers, the Gainesville Times and the Atlanta Journal Constitution, did not even enlighten me either. Sure they had the oil barrel price but no real indebt articles. Nothing about the instability of the stock market, nothing to the reason of the rising gas prices, nothing about the falling strength of the U.S. Dollar.

Thank God for the internet and the Financial times of London, I am aware of the ongoing international financial crisis aggravated by the millions of people defaulting on their mortgages and the consequent fall in the value of U.S. currency.

40 years ago British news reported that the British currency, the pound sterling, was devalued by 14.2%. In comparison, the American currency dropped in value by 16% in just a few weeks this past November.

Forty years ago currency had a fixed value, only fluctuating one or two cents either way. After the devaluation of the British pound and partly because of it, fluctuating currency rates became the norm, with values changing daily.

A British news item from 40 years ago may not seem all that important today, but there are lessons from it that resonate in it right now in today's headlines. To understand this fully lets step back in time just a bit further.

A century ago British currency, the pound sterling, the international trading measure of standard. A reserve, the was the only way a currency could be considered stable, if they had a reserve of pound sterling to back up the printed notes they were exchanging.

Prior to WWI if China wanted to do business with France or Germany, payment would be arranged in pound sterling, not between their own national currencies. Only the British pound was relied on to maintain its value from time of purchase until time of payment.