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  • Print publication year: 2006
  • Online publication date: December 2009

2 - INTERNATIONAL MONETARY EQUILIBRIUM AND THE PROPERTIES OF THE GOLD STANDARD

Summary

In a detailed reconstruction of international monetary developments between the wars, Barry Eichengreen (1992a) underscores the period's continuity with the gold standard and the decisive role of the monetary system in aggravating the depression and propagating its effects from the United States to the rest of the world. He identifies two factors underlying the success of the gold standard until 1914: the credibility of the official commitment to gold and international cooperation. The loss of credibility after World War I could only have been remedied by even stronger cooperation, whose absence made the crisis inevitable (Eichengreen 1992a, xi). Credibility and cooperation are important elements of the gold standard, but the relation between them appears to be more complex than a simple inverse relation, suggesting a link that is not in the nature of a trade-off. In general, how the gold standard worked has always been controversial. A clarifying analysis of its properties is therefore essential to understanding the evolution of the monetary system in the interwar years, especially the contrast between the success of the gold standard and the failure of the gold exchange standard. The monetary gyrations and economic instability of the 1920s and 1930s showed the need to devise new rules, which eventually led to the Bretton Woods negotiations and the creation of a new international monetary order.

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