Monetary Reconstruction in Belgium

Monetary Reconstruction in Belgium

Monetary Reconstruction in Belgium

Monetary Reconstruction in Belgium

Excerpt

It was at Brussels in 1920 that the Inter-Allied Financial Conference set the pattern of financial and monetary policy after the first world war. That policy was based upon orthodox nineteenth century gold standard theory. Despite the inflationary experiences that many countries went through in the years that followed, indeed in some measure because of them, the gold standard was restored, at least in legal form if not in economic reality. Beginning with the Austrian stabilisation on a gold basis in 1922, the European countries pegged their currencies, one by one, on gold parities of their own choosing. Aided by a large and somewhat undiscriminating flow of credit to the war-devastated areas, the gold standard was maintained in operation until the financial panic in 1931.

In the ensuing decade of exchange instabiilty, great advances were made in monetary theory and practice. A much clearer knowledge was gained of the working of the credit system, and it became necessary in many countries to devise policies of conscious credit control. J. M. Keynes pointed out as early as 1923 that a shift was in process from the nineteenth century method of regulating the currency by reference to the available gold reserves and allowing the volume of credit to adjust itself to the supply of currency. This method of regulation gave scope for the free adjustment of international balances since national currencies were kept at parity with gold and the movements of gold in and out of central bank reserves were determined largely by international payments. The amount of credit available, and therefore the level of prices, in each country adjusted itself to the currency based on the gold reserves. Trade was free and exchange stability was maintained; but prices, production and employment in every . . .

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