# The passing of the torch: how the American century replaced the British one How the United States replaced Britain as the world's dominant power: the two wars that bankrupted Britain, Bretton Woods and the dollar, the Suez humiliation of 1956, and the 1971 Nixon Shock. *This story led to: Anatomy of a superpower: the American state* *This story continues: The British Empire* *This story led to: World order: the transnational forums* *This story part of: The military-industrial complex and Pax Americana* *This story parallel: The Cold War* *This story parallel: Lancaster House: the room where the empire negotiated its exits* *This story part of: Money and finance* *The petrodollar order: the dollar without gold continues this story* *The new powers abroad: US bases, immunity, and Israeli arms parallel this story* *The Project for a New American Century part of this story* *Pax Britannica and the primacy of the Royal Navy led to this story* *American Viscose and the stripping of Britain part of this story* *Occupation Japan keeps the controls parallel this story* ## c. 1815 — Pax Britannica and the primacy of the Royal Navy After the defeat of Napoleon, Britain emerged as the world's leading naval, financial, and industrial power, opening a century of relative peace among the great powers that historians call the Pax Britannica. British sea power secured trade routes across the globe and made London the hub of world commerce. ## c. 1870 to c. 1900 — The United States overtakes Britain in industrial output Vast resources, a large market, and heavy investment made the United States a leading industrial power. Steel, railways, oil, and machinery grew on an enormous scale. ## c. 1870 — The classical gold standard centered on the City of London By the late nineteenth century the major trading nations pegged their currencies to gold, and the system ran through London, where the pound sterling served as the world's main reserve and settlement currency. The Bank of England and the City financed much of global trade, giving Britain financial influence far beyond its size. ## 1889 — The Naval Defence Act and the two-power standard Parliament passed the Naval Defence Act, formally committing Britain to keep a fleet at least equal to the next two largest navies combined. The policy defined British sea supremacy but grew steadily more expensive as other powers built modern battleships. ## October 1899 — The Boer War exposes imperial overstretch Britain needed nearly three years and almost half a million troops to defeat the two small Boer republics in South Africa, at a cost of more than two hundred million pounds. The struggle shocked opinion at home and abroad and exposed the growing gap between imperial commitments and British strength that Kennedy and other historians describe as overstretch. ## c. 1915 — Britain turns to America to finance the Great War To pay for the First World War, Britain borrowed heavily in the United States, with the bank J.P. Morgan acting as its purchasing agent for American munitions and supplies. The world's greatest creditor nation was becoming a debtor, and Adam Tooze argues in The Deluge that this dependence quietly shifted financial power across the Atlantic. ## April 1917 — The United States enters the First World War The United States declared war on Germany and began lending directly to Britain and France on a vast scale, replacing the private loans that had funded the Allied war effort. American money and manpower helped decide the war and left the European victors owing large war debts to Washington. ## March 1941 — Lend-Lease keeps Britain in the war at a price With British cash reserves nearly exhausted, Congress passed the Lend-Lease Act, letting the United States supply arms and goods without immediate payment. The aid kept Britain fighting, but Washington first pressed Britain to spend down its dollar reserves and sell overseas assets, and it used its leverage to push for opening the closed markets of the British Empire. ## c. 1941 — Britain liquidates its overseas assets to pay for war To buy American supplies before Lend-Lease, Britain sold off large parts of its foreign investment portfolio, including the forced sale of the American Viscose company at a low price. The dismantling of the overseas assets built up over a century stripped Britain of the invisible earnings that had long balanced its books. ## July 1944 — Keynes loses the argument to Harry Dexter White John Maynard Keynes, leading the British delegation, proposed an International Clearing Union and a neutral reserve unit he called bancor to spread the burden of adjustment between creditors and debtors. The American negotiator Harry Dexter White rejected the plan in favor of a dollar-centered system, and the United States, holding most of the world's gold and capital, got the design it wanted. *Source: Why White, Not Keynes? Inventing the Post-War International Monetary System* ## July 1944 — The Bretton Woods conference builds a new financial order Delegates from forty-four nations met in New Hampshire and agreed to a postwar monetary system fixing currencies to the US dollar, which was in turn tied to gold at thirty-five dollars an ounce. The dollar, not sterling, became the anchor of world finance, a direct measure of America's new economic dominance. ## July 1944 — The IMF and the World Bank are created The Bretton Woods conference established the International Monetary Fund to manage exchange rates and the World Bank to fund reconstruction and development. Both were headquartered in Washington and weighted toward American voting power, embedding US influence in the machinery of global finance. ## c. 1945 — American supremacy is plain by war's end At the end of the Second World War the United States produced roughly half of the world's manufactured goods, held about two-thirds of the world's gold reserves, and accounted for around a third of world output. Its homeland was undamaged while the other great powers were exhausted or in ruins, a concentration of economic power without precedent in modern history. ## July 1946 — The Anglo-American Loan makes Britain a supplicant With Lend-Lease abruptly cut off at the end of the war, a near-bankrupt Britain negotiated a loan of roughly 3.75 billion dollars from the United States. The terms required Britain to make the pound freely convertible, a condition that triggered a sterling crisis in 1947 and underlined how far the balance of power had shifted. Correlli Barnett cites the episode as evidence of Britain's postwar illusions about its own strength. ## March 1947 — The Truman Doctrine commits America to containment President Truman asked Congress to aid Greece and Turkey and pledged American support for free peoples resisting subjugation, taking over a security role Britain had told Washington it could no longer afford. The speech launched the policy of containment and marked the United States stepping into the global leadership Britain was giving up. ## July 1947 — The National Security Act builds the American security state The National Security Act reorganized the American government for a permanent global role, creating the National Security Council, the Central Intelligence Agency, and a unified military establishment that became the Department of Defense. These institutions gave Washington the standing machinery to project power worldwide in peacetime. ## c. 1947 — Sterling is marginalized as a world currency The 1947 attempt to make the pound convertible under the American loan collapsed within weeks as holders rushed to swap sterling for dollars, forcing Britain to suspend convertibility. The crisis showed that sterling could no longer function as a global reserve currency on its own, leaving the dollar without a rival. ## April 1948 — The Marshall Plan rebuilds Western Europe The United States pours billions of dollars into rebuilding war-torn Western Europe under the Marshall Plan, first proposed by Secretary of State George Marshall in 1947. Washington framed it as recovery aid; it also bound Western economies to the American orbit and was rejected by Stalin for the Soviet bloc. The plan drew the economic line of the Cold War. ## April 1949 — NATO binds America to the defense of Europe The United States, Canada, and ten European nations signed the North Atlantic Treaty, pledging that an attack on one would be treated as an attack on all. It was the first peacetime military alliance the United States had joined, confirming that Washington, not London, now underwrote Western security. ## 26 July 1956 — Nasser nationalizes the Suez Canal Gamal Abdel Nasser announces the nationalization of the Suez Canal Company in a speech in Alexandria, defying Britain and France. The act makes him the hero of pan-Arab nationalism at its peak. > "Then, in July 1956, Nasser challenged the legacies of colonialism by nationalizing the Suez Canal Company, the corporation created by the British and the French to run the Middle East’s man-made maritime trade route." > — Legacy of Ashes: The History of the CIA ## October 1956 — Britain and France invade at Suez In collusion with Israel, which attacked Egypt first, Britain and France bombed Egyptian targets and landed troops around Port Said to seize the canal zone. Militarily the operation succeeded on the ground, but it was launched without American backing and against a wave of international condemnation. ## November 1956 — Washington forces the invaders to stand down President Eisenhower, furious at not being consulted, refused to support the pound as it came under heavy selling pressure and blocked Britain's access to emergency IMF funds unless it agreed to withdraw. Facing a run on sterling and a fuel crisis, Britain accepted a ceasefire and pulled out, the clearest single demonstration that real power had passed to the United States. ## January 1957 — Eden falls and decolonization accelerates Prime Minister Anthony Eden, his health broken and his authority shattered by the Suez humiliation, resigned in January 1957. The debacle punctured British claims to independent great-power status and is widely seen as a trigger for the rapid winding down of the empire over the following decade. ## c. 1960 — The dollar glut and the drain on American gold As dollars piled up abroad through American spending, trade, and overseas bases, foreign holders increasingly claimed gold in exchange, draining US reserves. Central banks set up the London Gold Pool in 1961 to hold the price at thirty-five dollars an ounce, but it collapsed under the pressure in 1968, exposing the strain in the Bretton Woods system. ## January 1968 — Britain announces withdrawal from East of Suez Facing a devaluation of the pound and mounting costs, the government of Harold Wilson announced that Britain would pull its military forces back from major bases east of Suez, in the Persian Gulf and Southeast Asia, by the early 1970s. It was an official admission that Britain could no longer afford to police the wider world, a role increasingly filled by the United States. ## August 1971 — Nixon shock ends dollar-gold convertibility In August 1971, after France demanded conversion of its dollars into gold, the United States suspended the convertibility of dollars into gold, collapsing the fixed exchange rate system and sending the dollar sharply lower. > "Consequently, in August 1971, in what is often called the “Nixon shock,” the United States had to suspend the convertibility of dollars into gold. The fixed exchange rate system collapsed and the U.S. dollar fell sharply on world markets." > — Princes of the Yen ## c. 1973 — Currencies move to floating exchange rates An attempt to patch the fixed-rate system with the Smithsonian Agreement of December 1971 failed within two years, and the major currencies began to float freely against the dollar. The change confirmed the end of the postwar monetary order and gave the United States, as issuer of the dominant currency, unusual freedom in managing its economy. ## c. 1974 — The petrodollar keeps the dollar central without gold After the 1973 oil shock, the United States and Saudi Arabia reached understandings under which oil continued to be priced and sold in dollars, and oil-exporting states recycled their surpluses into American assets. This arrangement kept the world demanding dollars for trade and reserves even after the link to gold was gone, entrenching American financial power on a new basis.