Barry Eichengreen 225payment of a tax. In no sense did British example or suggestion dictate the
form of the monetary system.
The Interwar Gold Exchange Standard
The interwar gold exchange standard offers a radically different picture: on the
one hand, there was no single dominant power like nineteenth century Britain or
mid-twentieth century America; on the other, there were conscious efforts by rivals
to shape the international monetary order to their national advantage.
Contemporary views of the design of the interwar monetary system were aired
at a series of international meetings, the most important of which was the Genoa
Economic and Financial Conference convened in April 1922. Although the United
States declined to send an official delegation to Genoa, proceedings there reflected
the differing economic objectives of Britain and the United States. British officials
were aware that the war had burdened domestic industry with adjustment problems,
had disrupted trade, and had accentuated financial rivalry between London and
New York. Their objectives were to prevent worldwide deflation (which was sure
to exacerbate the problems of structural adjustment), to promote the expansion of
international trade (to which the nation’s prosperity was inextricably linked), and
to recapture the financial business diverted to New York as a result of the war. To
prevent deflation, they advocated that countries economize on the use of gold by
adopting the gold exchange standard along lines practiced by members of the
British Empire. Presuming London to be a reserve center, British officials hoped
that these measures would restore the City to its traditional prominence in
international finance. Stable exchange rates would stimulate international trade,
particularly if the United States forgave its war debt claims, which would permit
reparations to be reduced and encourage creditor countries to extend loans to
Central Europe.
The United States, in contrast, was less dependent for its prosperity on the
rapid expansion of trade. It was less reliant on income from financial and insurance
services and perceived as less urgent the need to encourage the deposit of foreign
balances in New York. Influential American officials, notably Benjamin Strong of
the Federal Reserve Bank of New York, opposed any extension of the gold exchange
standard. Above all, American officials were hesitant to participate in a conference
whose success appeared to hinge on unilateral concessions regarding war debts.
In the absence of an American delegation, Britain’s proposals formed the basis
for the resolutions of the Financial Committee of the Genoa Conference....
Participating countries would fix their exchange rates against one another, and
any that failed to do so would lose the right to hold the reserve balances of the
others. The principal creditor nations were encouraged to take immediate steps to
restore convertibility in order to become “gold centers” where the bulk of foreign
exchange reserves would be held. Following earlier recommendations by the Cunliffe
committee, governments were urged to economize on gold by eliminating gold
coin from circulation and concentrating reserves at central banks. Countries with
significantly depreciated currencies were urged to stabilize at current exchange