Text b The Disappearing Dollar

Consider the headline and subtitles of the text. What do you know about the issue? Read the text to find out:

- why America’s privilege of being the world’s reserve currency is at risk now;

- what makes a dollar devaluation inevitable;

- what economic consequences of America’s easy-money policy can be.

How long can it remain the world’s most important reserve currency?

The dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted. If America keeps on spending and borrowing at its present pace, the dollar will eventually lose its mighty status in international finance. And that would hurt: the privilege of being able to print the world’s reserve currency, a privilege which is now at risk, allows America to borrow cheaply, and thus to spend much more than it earns, on far better terms than are available to others. Imagine you could write cheques that were accepted as payment but never cashed. That is what it amounts to. If you had been granted that ability, you might take care to hang on to it. America is taking no such care, and may come to regret it.

The cost of neglect

The dollar is not what it used to be. Over the past three years it has fallen by 35% against the euro and by 24% against the yen. But its latest slide is merely a symptom of a worse malaise: the global financial system is under great strain. America has habits that are inappropriate for the guardian of the world’s main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago. This makes a dollar devaluation inevitable, not least because it becomes a seemingly attractive option for the leaders of a heavily indebted America. Policymakers now seem to be talking the dollar down. Yet this is a dangerous game. Why would anybody want to invest in a currency that will almost certainly depreciate?

A second disturbing feature of the global financial system is that it has become a giant money press as America’s easy-money policy has spilled beyond its borders. Total global liquidity is growing faster in real terms than ever before. Emerging economies that try to fix their currencies against the dollar, notably in Asia, have been forced to amplify the Fed’s super-loose monetary policy: when central banks buy dollars to hold down their currencies, they print local money to do so.

In a free market, without the massive support of Asian central banks, the dollar would be far weaker. In any case, such support has its limits, and the dollar now seems likely to fall further. How harmful will the economic consequences be? Will it really undermine the dollar’s reserve-currency status?

Practice 1. Look through the text to find out who this text is intended for:

1) general readers;

2) students in economics;

3) professional accountants.

Practice 2. Read the text to find out which paragraph says that:

1) the dollar is going to depreciate eventually;

2) the American economy greatly relies on the economies of other countries;

3) the American dollar stops being the leading international currency.

Practice 3. Re-read the text to discover the author’s main idea. Choose the statement which best expresses it.

1. America’s easy-money policy can lead to losing the dollar’s mighty status in the world.

2. The American dollar has been the leading international currency for a long time.

3. America keeps on borrowing money on far better terms than other countries.

Practice 4. Make a review of the text (see the vocabulary in Appendix 2, p.40).

Practice 5. Discuss in small groups:

1) which countries the two main world currencies – the euro and dollar- are widely spread in;

2) if the euro (or some other currency) ever will be able to substitute the dollar in the end;

3) what you expect from different world currencies (the euro, dollar, yen) in the future.

Practice 6. Imagine there’s no American dollar any more. What can happen in the world economy, in your opinion?

Text C

Write a letter to your friend in which tell him/ her what interesting things you’ve learnt from this text (see Appendix 3 on p.42)

History of British Money

As a unit of currency, the term pound originates from the value of a troy pound of high purity silver known as sterling silver. An Act in 1266 set the weight of the silver penny, so one pound of sterling silver would yield 240 silver pennies. However, although the Pound was subsequently used in accounting, no pound coin was issued until 1489.

The penny was originally one '"pennyweight"' of silver. A pennyweight is a unit of mass which is the same as 1.555 grams, or 1⁄240 of a troy pound. So, a penny was literally, as well as monetarily, 1⁄240 of a troy pound of sterling silver.

Sterling was introduced as the English currency by King Henry II in 1158 , though the name sterling wasn't acquired until later.

Pound sterling was established in 1560 – 61 by Elizabeth I and her advisors, foremost among them Sir Thomas Gresham, brought order to the financial chaos of Tudor England. By 1551, according to Fernand Braudel, the silver content of a penny had dropped to one part in three. The coinage had become mere fiduciary currency (as modern coins are), and the exchange rate in Antwerp where English cloth was marketed to Europe, had deteriorated. All the coin in circulation was called in for reminting at the higher standard, and paid for at discounted rates.

Pound sterling maintained its intrinsic value — "a fetish in public opinion" Braudel called it — uniquely among European currencies, even after the United Kingdom officially adopted the gold standard, until after World War I, weathering financial crises in 1621. Not even the violent disorders of the Civil War devalued the pound sterling in European money markets. Braudel attributes to the fixed currency, which was never devalued over the centuries, England's easy credit, security of contracts and rise to financial superiority during the 18th century. The pound sterling has been the money of account of the Bank of England from its inception in 1694.

By 1945, the money in circulation was as follows. The most commonly used nicknames are given in brackets.

Farthing = copper coin value 1/4 penny Ha'penny = copper coin value 1/2 penny Penny = copper coin, one of the basic units = 1d Thrupenny bit = brass coloured twelve sided coin value three pennies = 3d (thrupence) Sixpence (tanner) = silver coin value six pennies = 6d Shilling (bob) = silver coin second basic unit, value 12 pennies =1/- Florin (two bob) = silver coin value two shillings = 2/- Half-crown (half a dollar) = silver coin value two shillings and six pence = 2/6d Ten shillings (ten bob) = banknote value 10 shillings = 10/- Pound (quid) = third basic unit, banknote value 20 shillings or 240 pennies = £1 Five pounds (fiver) = banknote value five pounds = £5

'Copper' and 'silver' coins were, by this time, made from alloys and were named for their colour, rather than the actual metal used. There were 20 shillings to the pound and 12 pence to the shilling.

Farthings were not produced after 1956 and were withdrawn in 1960, because of inflation. In preparation for decimalisation, the ha'penny was withdrawn in 1969, with the half-crown being withdrawn the year after. From 1968, 5p and 10p coins, identical in size, weight and value to the shilling and florin respectively, were introduced.

The symbol, £, for the pound is derived from the first letter of the Latin word for pound, the librum.