This archived content originally appeared at, the predecessor site to, and does not carry the sponsorship of the Cato Institute.

Which is it? Both–or neither

Scott Sumner writes,

"I don’t object to people noting that Bretton Woods had some characteristics of the gold standard; I’ve made that argument myself. But I wish the gold bugs would get the story straight.  Half of them seem to think the US monetary system of the 1920s wasn’t really a gold standard, and half seem to think Bretton Woods was.  Which is it?"

The answer is "both" — or "neither." Here's why.

The pre-World War I gold standard included the following characteristics: (a) On the eve of the war, world GDP was divided roughly 50-50 between countries that had central banks and those that did not. Most of the world outside of Europe did not have central banks, with the significant exception of Japan. (The U.S. Federal Reserve had been established by law, but did not become operational until shortly after war broke out in Europe.) (b) Most independent countries were on a gold or silver standard. (c) Significant exchange controls were rare. (d) Gold and silver coins were in widespread use.

The interwar gold standard differed from the prewar gold standard in each characteristic. (a) Central banking was the dominant monetary system. Free banking almost disappeared; currency boards, though they became more widespread in the period, existed mainly in colonies or League of Nations mandates. (b) The gold standard remained the ideal until the 1930s, but it was an ideal that more and more countries had difficulty adhering to. Among independent countries, the gold exchange standard, rare before the war, became widespread. Under the gold exchange standard, central banks held a large share of reserves in foreign securities that before the war they would instead have held in gold.  (c) Exchange controls were widespread except for a stretch of several years in the 1920s. (d) Gold coins disappeared from use and silver coins became rarer.

Under the Bretton Woods system, the characteristics again changed. (a) Central banking was even more dominant than in the interwar period. (b) Member countries of the Bretton Woods system and their colonies were on a gold exchange standard in which the U.S. dollar was the only major currency exchangeable for gold during most of the life of the system. (c) Exchange controls were widespread for the whole life of the system. Even in the United States, the linchpin of the system, the dollar was only exchangeable for gold by central banks, not by private persons. (d) Gold coins were no longer minted except as collector’s items and silver coins disappeared from use almost everywhere, a sign that governments and the public did not expect the same durability of exchange rates under the Bretton Woods version of the gold standard as under the pre-World War I version.

Keeping the characteristics of each period in mind, it is not surprising that when referring to the interwar or Bretton Woods periods in a short phrase, some people consider them gold standards and others do not. Judged against the pre-World War I gold standard, the later periods retained some similarities but also introduced significant differences. Some people stress the factor of continuity that the monetary system continued to center on gold in one way or another; others, me included, stress the differences.

P.S. Where are the other contributors? If this threatens to become a single-author blog I will cease writing. Most of the interest of the blog lies in its having multiple contributors with varied interests.