Financial Support-Bargaining and the Realignment of Bargaining Counters

The gold standard, and the parities set under the gold standard, are sustained by support-bargaining and support groups. Doubts developed over the working of the gold standard and its parities in the early 1930s, so that support eroded from both arrangements. A notable meeting of central bankers in 1927 resolved certain difficulties arising from the operation of a gold exchange standard, but overlooked the more fundamental problem of exchange rates. A sequence of currency adjustments began with the failure of the leading Austrian bank, the Credit Anstalt, in 1931. Bank failures spread to Germany and exchange controls were imposed, effectively taking Germany off the gold standard. There followed withdrawal of support for sterling, which was devalued in September 1931. The U.S. dollar then felt the pressures of withdrawal of support. To stem outflows of gold, President Roosevelt imposed a banking holiday and suspended trade in gold. The dollar was devalued, with a new rate to gold fixed in January 1934. The sequence of currency adjustments reached France in 1936, where fear of inflation made it particularly difficult to abandon the gold standard. Nevertheless, the franc was devalued. The devaluations generally had the desired effects, though benefitting the early devaluers more than the later.