At the height of its power from the 19th to the 20th centuries, the British Empire was famously called “the empire over which the sun never sets.” Throughout these years, Britain was the world’s dominant power, controlling nearly 25% of the Earth’s landmass leading in both industrial and military capabilities. Despite this dominance, by the start of World War 2 in 1939, the British were struggling to keep its empire intact nearing collapse by 1940 at the hands of the Nazis. Meanwhile, its former colony, the U.S, rose to prominence, surpassing the once-mighty empire to become a global hegemon underscoring Britain’s dependence on American support. The U.S. capitalized on wartime production, strategic partnerships, and financial power to shape the post-war world. As Britain’s dominance waned, the U.S. took its place as a leading power, asserting itself economically, militarily, and ideologically.
Who Needs Enemies?
Who needs enemies when you have the USA as your ‘special relationship’ friend? We have all heard of the special relationship between Britain and the USA. This is how it works with an inbuilt warning to Israel. Throughout the course of the war the U.S. supplied over 31 billion dollars of military aid to Britain, further supplying them more equipment through a lend-lease deal between both nations. Following the end of WW2. when Britain was greatly weakened the US did not simply “kill sterling” in one bold move. The American first leveraged and then exposed and accelerated that weakness. The pound’s loss of status came from war debts, dollar shortages, the end of ‘Lend-Lease’ resulting in Britain’s inability to sustain sterling as a global reserve currency. The Americans took advantage and replaced sterling with their new dollar-cantered system.
How it Happened
Britain came out of WW2. financially battered and exhausted, with major debts and depleted reserves, while the US emerged as the dominant creditor and industrial power. The 1945 Anglo-American loan of $3.75 billion kept Britain afloat, but it also came at a price with draconian conditions tied to convertibility and trade liberalization. As a result, the weakened sterling was forced to become convertible in 1947, resulting in a rush to exchange pounds for dollars. This quickly drained Britain’s reserves and forcing it to suspend convertibility within weeks.
Why Sterling Weakened
Sterling had depended largely on Britain’s empire exploitation, overseas investments, and confidence in the City of London’s financial system. Those foundations were decimated by the war and the US saw an opportunity. The US took advantage and benefitted greatly from the transition enabling American power to expanded through lending, trade access, and the post war dollar system. It was more of a smartly leveraged structural shift than a single financial ambush. After all wasn’t there a special relationship? In short, the US didn’t simply “kill” sterling. It helped itself by replacing a weakened imperial currency with the US dollar after a weakened Britain had already lost its imperial economic base that supported sterling. As I said at the beginning ‘who needs enemies when you have the USA as your ‘special relationship’ friend?’