America First and the Dollar

America First and the Dollar: What the Sterling Block's History Suggests About Today

The US dollar's role as the world's primary reserve currency has been a defining feature of the modern financial system. Recent structural developments, however, suggest that this arrangement is entering a period of meaningful evolution. What makes the current moment analytically compelling is that we have a useful historical parallel — the British pound sterling's transition roughly a century ago. Understanding how that unfolded offers valuable perspective on what may be developing now.

The Growth Model Under Strain

For decades, the US economy has operated on a recognizable pattern: government deficits generate private sector surpluses, which support consumption and imports, producing a current account deficit that returns dollars to global markets. Those dollars have historically been reinvested in US Treasuries, closing the loop.

Recent developments suggest this equilibrium is shifting. Since last October, government borrowing has increasingly funded corporate investment, but the anticipated broad domestic multiplier effect has been more limited than expected. A substantial portion of this capital flows toward imported hardware, equipment, and semiconductors, meaning the benefits are less widely distributed across the domestic economy than in prior cycles.

For emerging Asian economies that historically earned dollars by exporting to the US, this shift creates genuine difficulty. Their traditional path to accumulating and recycling dollars is narrowing. When the anchor economy of a currency block experiences structural change, partner economies typically feel amplified effects — a consideration relevant for the UK, Japan, and much of the Asia-Pacific region.

The Sterling Block Precedent

The British pound's experience offers instructive parallels. At its height, the Sterling Block encompassed more than 70 territories across Africa, Asia, and Europe. Britain maintained a fixed exchange rate system requiring member countries to peg to the pound and hold approximately 80% of reserves in sterling — an arrangement that sustained capital flows back toward London.

The system came under pressure after World War II. British sterling reserves declined substantially amid war expenditure. Efforts to expand the block and denominate international arrangements in pounds encountered resistance, particularly as France and others recognized that Britain's war obligations were largely dollar-denominated.

As sterling depreciated, member countries faced a compounding challenge: defending their own currencies while simultaneously acquiring more pounds to satisfy reserve requirements. Egypt began the exit in the 1950s. By the 1970s, India, Pakistan, Kenya, Nigeria, Ghana, Malaysia, and Singapore had all departed, shifting toward the dollar. Sterling's share of global reserves declined accordingly, and the dollar's era began.

The Dollar's Current Transition and Gold's Emergence

The dollar's ascendancy from the 1990s through the 2010s rested on a similar architecture: the US served as the world's primary buyer, supplying dollars through trade, which partner nations recycled into Treasuries. It functioned well for all parties for an extended period.

The pattern began shifting around 2015–2016 with the rise of America First and protectionist trade policy. Trade growth — the key mechanism by which emerging economies accumulated dollars — began slowing. Fewer dollar-earning opportunities naturally reduce incentives to hold dollar-denominated assets.

The reallocation has favored gold. Gold's market value has now surpassed that of US Treasuries, a notable milestone. This reflects structural adjustment more than any single confidence factor. Onshoring policy is a significant driver: countries like Mexico, which built manufacturing capacity oriented toward US export markets, now face pressure to relocate production stateside. Without those export engines, surplus generation weakens, redirecting reserves toward domestic investment rather than foreign bonds.

Central banks in emerging economies have been accumulating gold at a meaningful pace, with some — Russia and China among them — holding physical reserves domestically. If the dollar's share of global reserves approaches the 50% threshold, the pace of diversification could accelerate.

What This Means Going Forward

This is not a collapse narrative. The dollar is not facing imminent displacement, and the timeline for meaningful structural change likely extends over ten to twenty years rather than five. But the pattern of gradual fracturing resembles the sterling experience closely enough to warrant attention.

The key difference is what fills the space. When sterling faltered, the dollar was ready to assume the role. Today, no single currency offers comparable depth, liquidity, and institutional infrastructure. Gold is emerging as the primary diversification vehicle rather than a replacement reserve currency — suggesting coexistence rather than succession.

For economies embedded within the dollar system, including Korea and Japan, periods of dollar volatility create disproportionate pressure: currency depreciation, reserve defense costs, and the need to replenish holdings simultaneously.

Looking further ahead, as emerging economies accumulate gold reserves, they gain standing to advocate for reconsidering aspects of the international monetary framework — potentially including elements reminiscent of Bretton Woods-era arrangements.

For individual investors, dollar assets remain reasonable holdings. But the structural reallocation occurring at the sovereign and institutional level is real, measurable, and worth understanding.