The United States dollar, as it is recognized currently, was initiated in fear. In 1906, the Pacific tectonic plate dashed towards the north approximately twenty feet in less than one minute (Davidson par. 1). In this regard, the buildings that did not collapse due to the quake burnt, and in just a couple of days, eighty percent of San Francisco was destroyed.
In the course of that occurrence, the old British companies insured the US corporations, in addition to the government, and the payouts after the destructions were massive. As was the normal process, the insurers paid in terms of gold, which were approximately 65 million dollars and about fourteen percent of all gold stores in Britain.
Davidson affirms that for fear that such an amount of gold departing from its reserves would completely weaken the kingdom; the Bank of England raised the interest rates on the British bonds twofold (par. 1). In return, the majority of rich Americans sent funds to Britain. The reserves in Britain were refilled as the United States stock dropped by ten percent in a couple of months. At that time, regional banks and not the government issued the dollar bills where every bill was a representation of the real gold resting in a particular bank’s vault.
Attributable to the large quantities of gold being hurled around, the majority of Americans became apprehensive that their reserves did not have sufficient anymore. The occurrence took the most influential moneyman in the country, J. P. Morgan, to settle the predicament. The residents of the US believed that their fiscal lives were established on a firm basis of gold. Nevertheless, all of a sudden became aware that the only item of lasting worth was the strength of a single wealthy person.
To make sure that such an occurrence never arose again, the Congress set up a new body with professionals that would control the worth of the dollar through the determination of major interest rates (Davidson par. 2-4). The coordination operated better than any person would have thought. Frank Knight sought to distinguish risk from uncertainty by affirming that the term risk ought to pertain to facts that can be represented mathematically while uncertainty is a dissimilar thing altogether; the profound unknown.
Foretelling where the stock marketplace will be in days or years is a risk. People may differ on the figure but concur on the fundamental data and computing instruments. Uncertainty defines the items that people cannot start to compute and are not aware of their existence (Davidson par. 5-9).
The happening of the financial crisis could be attributed to people believing that they were in a state of risk, where the opportunity for evasion on mortgages, as well as more intricate derivatives, could be designed with great accuracy when in its place there was profound uncertainty taking place.
Following the collapse, it appeared, for a while, as though economics may, at last, internalize this message, admitting that overabundance of certainty, too much confidence, could be aggressively disparaging (Davidson par. 10-13). However, as an alternative, the international economy just grasped the most certain thing achievable, and that happened to be the American dollar.
Possibly in years to come, the economists will understand that the US dollar is not the most certain thing at the core, and nothing is. If people lose some confidence in the dollar and believe that the world is highly mystifying and disordered than they envisage, then they might realize that existence with no certainty could be better-off as compared to an existence having false beliefs.
Works Cited
Davidson, Adam. “In greenbacks we trust.” The New York Times Magazine 2015: MM20. Web.