186
T
he gold standard was a
monetary system that
backed paper money
with gold, thereby guaranteeing
its value. It came into effect in
Britain in 1812 and was adopted
internationally in 1871.
The system provided a stable
anchor for the international monetary
system by fixing the exchange rates
of various currencies relative to the
price of gold. It also acted as a
mechanism for making gold
transfers between countries toreflect new balances of trade and
capital flows. However, World War I
placed exceptional demands on
government financing, and the
system began to break down.
Some countries suspended
their gold standard membership
to allow substantial borrowing and
expenditure, often financed simply
by printing money. The war’s end
did not see a smooth return to the
status quo—countries such as
Germany had exhausted their gold
reserves and could not return to
membership, while other nations
reentered the standard at wildly
variable rates.Abandoning gold
During the Great Depression of the
1930s nations left the gold standard
in droves as they tried to expand
their economies by devaluing their
currencies to promote exports. At
the same time international trade,
which had been fairly unrestricted
before the war, became subject to
an increasing range of restrictions,
as countries tried to maintain their
position in a shrunken world
market. These policies helped to
prolong the Depression since each
new restriction or devaluation
further reduced the world market.IN THE WAKE OF WAR
AND DEPRESSION,
NATIONS MUST
COOPERATE
INTERNATIONAL TRADE AND BRETTON WOODS
IN CONTEXT
FOCUS
Global economyKEY EVENT
The Bretton Woods
agreements are signed in New
Hampshire, in July 1944.BEFORE
1930s The world economic
system collapses during
the Great Depression, and
cooperation between
economies breaks down.1944 John Maynard Keynes
publishes his plans for an
“international currency union”
to regulate world trade.AFTER
1971 President Nixon cuts the
link between the dollar and
the price of gold, ending the
Bretton Woods system.2009 The Bank of China says
the dollar is unable to act as
a credible reserve currency
because of conflicts between
the US’s domestic and
international policies.Dresden was among countless cities
in Europe and Asia destroyed during
World War II. The International Bank
for Reconstruction and Development
was set up to fund reconstruction.