Gold Standard Lessons for the Eurozone

Abstract

This article explores some lessons of the gold standard for the eurozone crisis with specific focus on the interwar period. Resurrected in the 1920s, the interwar gold standard malfunctioned from the onset, contributing to the Great Depression's quick propagation and severity, and its abandonment between 1929 and 1936 was a critical factor in ending the Great Depression, with countries devaluing earlier and more sizeably recovering more quickly. The intricate combination of similarities and differences with the present situation makes one of two outcomes likely: either some countries will eventually leave the eurozone to boost their growth prospects; or, the eurozone will remain intact as a result of stronger political co-operation today, but a poorly working internal adjustment mechanism could result in low growth rates for the foreseeable future, similar to the experience of the gold bloc countries in the 1930s.

Milton Friedman and the Case for Flexible Exchange Rates and Monetary Rules

“…The basic case for fixed exchange rates is that fixed rates eliminate exchangerate uncertainty, which is alleged to impede international trade and investment. 2 Monetary historians have argued that the exchange-rate stability of the period of the classical gold standard helped create a global trade boom and increased investors' confidence in far-away places, giving rise to unprecedented levels of capital exports (Gallarotti, 1995;Morys, 2014).…”

New Perspectives on the Great Depression: A Review Essay

“…Eichengreen's superbly written and highly informative book begins by illustrating a fundamental dilemma faced by central banks. World War I had seen the collapse of the classical gold standard, which many contemporaneous observers believed had produced a global trade boom and given rise to unprecedented long‐term capital flows (Morys ). Benjamin Strong, the governor of the Federal Reserve Bank of New York and the dominant figure in the Federal Reserve System at the time, saw reconstruction of the pre‐war gold standard as a priority.…”

The Bank of England as Lender of Last Resort: New Historical Evidence from Daily Transactional Data

“…A recurring theme in the post-crisis financial history literature is that the recent crisis had much in common with those in the past (Reinhart and Rogoff 2009;Calomiris and Haber 2014;Morys 2014;Turner 2014;Eichengreen 2015). 11 If so, this implies that there are enduring aspects of the financial system that makes it structurally fragile.…”