A few days before the famous Bretton Woods monetary ??conference in July 1944, John Maynard Keynes, the UK’s lead negotiator, had one of his legendary dust-ups with his American counterpart, Harry Dexter White. It was over the role of the US dollar in the postwar world. White was determined to make the dollar the sole international currency; legally a surrogate for gold itself. Keynes, whose country was effectively bankrupt – meaning it had not nearly enough gold or dollars to settle its international debts – was equally determined to ensure the dollar would have no such special status. The survival of the British empire itself could hinge on Britain’s ability to salvage some measure of international acceptability for the pound sterling or, at the very least, access to an international medium of exchange (which he wanted to call “bancor”) not controlled by the Americans. Britain was a desperate debtor with no cards to play, and Keynes lost that battle.

Some 65 years later, the governor of the Chinese central bank issued a public statement lamenting the fact that Keynes had not got his way. America’s exorbitant privilege had produced an unstable international monetary system. The country had reneged on its commitment to keep its currency redeemable in gold and, predictably, had made its domestic priorities paramount over international ones. China began initiatives to pave the way for what it hoped would be an eventual orderly departure from this system – such as bilateral agreements with Russia, Brazil and Turkey to conduct trade without dollars, and a slow build-up of gold reserves, which would be at least as useful in a crisis as dollars had been.

Curiously, Keynes’ most reflexive modern acolyte, Nobel Prize-winning economist and New York Times columnist Paul Krugman, thinks it would be no big deal for the dollar to lose its international status. To establish his point, he offers the argument that Australia, like the US, runs persistent trade deficits even though its currency has no special role. So it is not America’s minting of global money that matters.