purpose:

analysis of the forms of international monetary system in the period until World War II The Gold Standard (Period Before World War II) first complete international monetary system based on the automatic balance-of-payments mechanism under fixed exchange rate: classical gold standard period: from about 1870 to 1914 (beginning of World War II) managed gold standard period: from 1926 to 1931 Evolution of the Gold Standard replacement of bimetalism with gold standard in Great Britain (1816): Greshams Law, forfeiting different shares of silver in silver coins increasing financial dependency between countries because of trading (industrial revolution) unpromising political circumstances in Europe: numerous countries had to give up convertibility of their currencies Germany gave up bimetalism in 1871 and set up the gold standard chain reaction in the area of establishing gold standard: strong interest of every country to implement the same international monetary system as their most important economic and financial partners have implemented The Interwar Experience With the outbreak of World War I, the classical gold standard came to an end: exchange rate depended completely on the supply of and demand for foreign currency extremely negative effects of the lack of agreement on the functioning of the international monetary system three trials of establishment: Conference in Genova (1922)

 negotiations in 1933 three-party agreement between the USA, Great Britain and France (1936) Weaknesses of the Gold Standard The gold standard tended to be deflationary under some circumstances, it pushed countries to raise their interest rates which reduced output and increased unemployment it never provided a countervailing push to other countries to lower their interest rates

If the exchange rate is floating, foreigners domestic currency earnings must be used to buy exports or to invest in the home country

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If a countrys net exports plus net foreign investment are less than zero, its Treasury will find itself losing gold the countrys gold reserves shrink

If a countrys gold reserves are shrinking, it has a choice abandon the fixed exchange rate system make it more attractive for foreigners to invest by raising domestic interest rates puts contractionary pressure on the economy

Countries gaining gold face no incentive to lower interest rates in order to stay on the gold standard

Collapse of the Gold Stand The gold standard was suspended during World War I After the war ended, politicians and central bankers sought to restore it Four factors made the gold standard a less secure monetary system they believed it was an important step in restoring prosperity

After the Great Depression began, the gold standard broke apart

everyone knew that governments could abandon their gold parities in an emergency everyone knew that governments were trying to keep interest rates low enough to produce full employment

Four factors made the gold standard a less secure monetary system after World War I, countries held their reserves in foreign currencies rather than gold the post-war surplus economies did not lower interest rates as gold flowed in

As soon as a recession hit, governments found themselves under pressure to raise interest rates and lower output could either stay on the gold standard and face a deep depression or abandon the gold standard the further countries moved away from their gold-standard rates, the faster they recovered from the Great Depression

The Gold Standard Journey

The Gold Standard is a national framework for continuous professional development setting out the skills required for world class performance in key job roles in the process industries.

It describes and maps the competencies required to do each job across four areas of competence:

Technical Competence Business Improvement Compliance Functional and Behavioural