Britain’s Return to the Gold Standard
Before the war the monetary system of Europe had been based on gold. That is, each national treasury on demand bought and sold gold at a specified price so that currencies were freely convertible into gold or other currencies, and no restrictions upon the import or export of gold impeded its international movement. The period from the late 1890’s to 1914 had been, in general, one of remarkable financial stability, and the gold standard had greatly facilitated multilateral trade and foreign investment. During the war and the immediate postwar period, gold payments were suspended, and restrictions were placed upon the export of gold. A return to the gold standard and the monetary stability it would provide was regarded as a key step in recovery. This was especially true in Britain, the financial center of the world before the war, where restoration of the pound to gold took on symbolic importance because it was hoped that would re-establish Britain’s prewar financial dominance. With fairly wide public support, the Chancellor of the Exchequer, Winston Churchill, announced the return to gold during his budget speech on April 28, 1925. By this means the value of the pound was stabilized, but at the high prewar rate of $4.86, which had the effect of raising the price of British goods to foreign buyers. The following selection is from Churchill’s speech.
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