The International Bank and the Gold Standard

April 17, 1930

Report Outline
Evolution of the Gold Standard Since 1913
Peculiarities of the Post-War Gold Standard
World Supply of Gold and its Distribution
Gold Functions of the International Bank
Special Focus

Evolution of the Gold Standard Since 1913

The Bank for International Settlements, organized by the central banks of the principal European countries and by unofficial representatives of the United States, is scheduled to open its doors at Basel, Switzerland, on or about May 1,1930. The final agreement for establishment of the bank signed at The Hague, January 20, 1930, was ratified by Germany on March 12 and by France on April 5, 1930, A sufficient number of ratifications by other leading powers to permit the bank to open for business early in May is expected before the close of the present month.

While the Bank for International Settlements originated as a part of the Young plan, with the primary purpose of facilitating the transfer of reparation payments from Germany to her creditors, in substitute for the Transfer Agent of the Dawes plan, its significance is by no means confined to the reparation problem. It is apparently intended to function as a bank for all kinds of international settlements and as such cannot but have an important influence on financial relationships among all nations. In a sense, the creation of this new institution represents a final step in the long and arduous process by which the world has been reëstablishing the gold standard as the monetary basis of its economy, or, more accurately, establishing a new gold standard. For the gold standard as it functions under current conditions differs widely from that of pre-war days, and involves many new problems that can be best worked out through some kind of international coöperation. The conscious policy of governments and central banks has been substituted in many respects for the automatic working of the free gold market, and the machinery of an international banking institution is consequently of great importance to the success of this new method of control.

The Gold Standard Before the War

In 1914 the gold standard had been so long established as the basis of all international payments and of all internal payments in the leading countries of the western world that it was taken for granted. The period of the Civil War in the United States had been the last important experience of the western nations with the behavior of a depreciated currency, and its effects in this ease had been confined largely to America. The English pound sterling, the currency on which the bulk of international transactions were based, had been as good as gold since the Napoleonic wars. With regard to internal trade, the public was exercised about price changes of all sorts of commodities and about the general price level, but not at all about the price of gold in terms of currencies. That was looked upon as a certainty.

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International Finance