Monetary disorder 191445 a flexible exchange system

The gold standard, as an international monetary system, worked well until World War I interrupted trade patterns and ended the stability of exchange rates for currencies of major industrial countries. The value of currencies fluctuated fairly widely in terms of gold during World War I and in the early 1920s. After World War I, the UK was not the world's only major creditor nation; the USA started to emerge as a leading creditor too.

Several attempts were made to restore the gold standard during the 1920s. The USA returned to the gold standard in 1919, the UK in 1925, and France in 1928. However, these attempts failed, mainly because of the Great Depression of 1929—32 and the international financial crisis of 1931. In other words, country after country devalued its currency to stimulate its exports. Governments also resorted to exchange controls in an attempt to manipulate their net exports. Of course, with the onslaught of World War II, hostile countries used foreign-exchange controls to finance their war effort.

Was this article helpful?

0 0

Post a comment