Currency devaluations and beggar‐my‐neighbour penalties: evidence from the 1930s

Abstract

The currency devaluations of the 1930s facilitated a faster recovery from the Great Depression in the countries depreciating, but their unilateral manner provoked retaliatory and discriminatory commercial policies abroad. This article explores the importance of the retaliatory motive in the imposition of trade barriers by gold bloc countries during the 1930s and its effects on trade. Relying on new and existing datasets on the introduction of quotas, tariffs, and bilateral trade costs, the quantification of the discriminatory response suggests that these countries imposed significant beggar-my-neighbour penalties. The penalties reduced trade to a similar degree that modern regional trade agreements foster trade. Furthermore, the analysis of contemporary newspapers reveals that the devaluations of the early 1930s triggered an Anglo-French trade conflict marked by tit-for-tat protectionist policies. With regards to global trade, the unilateral currency depreciations came at a high price in political and economic terms. These costs must have necessarily reduced their benefit to the world as a whole.

Going Dutch: monetary policy in the Netherlands during the interwar gold standard, 1925–1936

“…This finding is consistent with Eichengreen and Sachs (1985), recently extended by Albers (2020), who argue that joint coordinated devaluation could have secured early recovery from the Great Depression.…”

Exchange Rates, Tariffs and Prices in 1930s Britain

“…In order to identify which additional duties applied to the varieties of goods in our sample, we follow Albers (2020) and search the House of Commons Parliamentary Papers for "Import duties recommendations of the Import Duties Advisory Committee" and "Order". However, while hundreds of additional duties were recommended in the 1930s, none were identifiably applicable to the goods in the sample.…”

Competitive devaluations in the 1930s: myth or reality?

“…This is highlighted by Crafts and Fearon (2013) who restate what is now the consensus view, that those countries who in 1931 first left gold recovered more swiftly from the Depression, but nevertheless list "competitive devaluations" among the evils of the Depression (p.2). The same ambiguity is demonstrated in a recent article on currency devaluations in the 1930s: "While their effect on the initiating countries was unquestionably positive, their deflationary effect on those who stayed on the gold standard prevented them from being beneficial in a strictly Paretian sense" (Albers 2020). This is in essence the notion of competitive devaluation: it promotes recovery but at the cost of others as condensed in the metaphor of "beggar-thy-neighbour".…”

“…2 Eichengreen and Irwin (2010) even argue that there was a trade-off between exchange rate policy and protectionism and "countries that stayed on the gold standard tended to restrict trade more than those that allowed their currencies to depreciate" (p. 894). However, one might twist the issue and argue that the one was intertwined with the other, and protectionism was a retaliatory response to those countries who left the gold standard in 1931 (Albers 2020). While Albers admits that currency depreciation was partly beneficial for recovery, he sees it as responsible for a large part of the deterioration of world trade by inviting to protectionist measures among countries that stayed on gold.…”