The Guardian view on globalisation: the world system risks undoing itself | Editorial

Over the holidays, this column will explore next year's urgent issues. Today we look at how the past helps us understand the dollar's power and pitfalls

Next year marks the 110th anniversary of a global financial crisis that shaped the world. The crash of 1914 was the biggest systemic crisis that the City, the centre of imperial rent extraction, had faced. It was also, at the time, a largely unremarked upon event. The unprecedented closure of the London Stock Exchange did cause headlines, with this paper noting that the shutdown left brokers swarming outside like ants around the destroyed heap". In the summer of 1914, however, Britons could be forgiven for being preoccupied by a life-and-death struggle emergingonthe continent.

What makes the episode historically significant is the UK government's unprecedented scale of spending to save the City. In 1914, the Bank of England invented quantitative easing by purchasing bad loans from the banks in order to support the economy. Britain's declaration of war on Germany effectively rendered banks bust, since international bills of exchange, bills of trade and other financial instruments issued by enemy nations were unenforceable and hence in default. Since these were traded in London, the losses began to pile up in the City's finance houses. Something had to be done.