The Interwar Gold Standard in Operation

Barry Eichengreen

in Golden Fetters

Published in print July 1996 | ISBN: 9780195101133
Published online November 2003 | e-ISBN: 9780199869626 | DOI:
The Interwar Gold Standard in Operation

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This is the first of three chapters that consider the operation of the reconstructed gold standard system following World War I; it documents the decline in its credibility and in international cooperation over it, in comparison with the prewar era. Britain joined the USA on the gold standard in April 1925, and by the end of that year, nearly three dozen countries had effectively restored convertibility; the French franc was stabilized de facto in 1926, the Italian lira in 1927, and by the beginning of 1928, the reconstruction of the gold standard system was essentially complete. However, from the outset, it was apparent that the new gold standard was not having the beneficial effects so widely envisaged; the most glaring problem was its failure to maintain price stability, and the adjustment mechanism did not succeed in swiftly eliminating balance‐of‐payments surpluses and deficits. The obvious solution was international cooperation, but the requisite level was not forthcoming. The different sections of the chapter look at the form of the reconstructed system, problems of its operation – liquidity and adjustment, the role of international cooperation, monetary policy in 1927, 1928–1929, and impediments to cooperation.

Keywords: adjustment; balance‐of‐payments deficits; balance‐of‐payments surpluses; credibility; gold standard; international cooperation; interwar period; price stability; reconstructed gold standard

Chapter.  16564 words.  Illustrated.

Subjects: Economic History

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