For centuries, the British Pound was the world’s reserve currency, because it was consider to be the strongest of all currencies.
That is no longer the case; shortly after World War II economically devastated the British Empire, the pound retreated as the world’s reserve currency and the U.S. dollar took its place.
At the time, the American dollar — paper, to be sure — was at least partially backed by a physical, valuable commodity, gold.
A decade earlier, one of President Franklin D. Roosevelt’s first acts was to take America off the gold standard, which it had used to back its currency since about 1879, to prevent consumers from making a run on banks as the Great Depression dragged on.
In addition, FDR signed an order requiring all gold coins and gold certificates of more than $100 value to be turned in to the Treasury Department in exchange for other money.
It was Keynesian economics at its best; inflating the government’s gold stash by hundreds of millions of dollars allowed the Federal Reserve to inflate the supply of paper money in the U.S. system.
Why is all of this important? Because for more than a half-century, the U.S. dollar has not been valued against a hard commodity but rather by the perception that it has value -- not at all the same thing. But this is nothing new; in fact, as new research indicates, the U.S. dollar is really no different from 599 other failed paper (fiat) currencies that came before it.
Nothing, it seems, is "sound" forever, even in the world's most powerful (economically and otherwise) countries.
According to a report by Gold Silver Worlds, the "fix," as it were, was in to name the U.S. dollar as the world's reserve even before World War II ended via an accord known as the Bretton Woods Agreement, after a resort in New Hampshire where world leaders met in 1944. But it wasn't to last; structural economic imbalances occurred so that many of the world's governments were able to amass huge amounts of dollar reserves, hence Nixon's decision in 1971 to essentially abandon Bretton Woods: