Answer to Question #80648 in Macroeconomics for Bobby

Question

An international gold standard system was re-established in the late 1920s, as other countries
followed the UK’s lead and made their own currencies convertible again (though not necessarily
at their pre-war rates). Discuss the factors that contributed to the system’s collapse in 1931.

Answer 1

In 1931, England was faced with large budgetary difficulties, related to the reduction of revenues as a result of the crisis and the increase in costs associated with it. European countries (in particular, the Netherlands, Switzerland), as a result of the worsened financial situation, withdrew their capital from England. France, displeased with Britain's position on Germany's and Austria's desire for a customs union, and wishing to exert political pressure on England, began to liquidate its London holdings. Thus, from England began a huge "outflow" of gold . Panic in the financial market of London led to a change in the leaders of reserve currencies. In the first place came the dollar, and the pound moved to the second role.
I think that the main problem of the Golden Standard was that it appeared in a world where there were no industrial economies. With the advent of plants and factories, economic changes have become too rapid and abrupt.
In addition, England lost its dominant position, losing to the United States. The dollar became the new reserve currency.