The International Law and Politics of the Financial and Monetary System
Chapter 6: The gold standard
The pre-World War I, gold-standard era lays bare the tradeoffs states must be willing to make to address the Trilemma. A country was on the gold standard if its central bank specified a fixed exchange rate between the domestic currency and gold and was willing to buy and sell gold at this fixed exchange rate. The gold-standard era ushered the first globalization as market participants were confident that states were ready to sacrifice domestic economic policy prerogatives that put at risk their foreign economic policy agenda – the fixed ER of their currency to the gold. States, though, were unfaithful executioners of the gold standard. Many of them violated the rules of the game dictated by the gold standard to pursue economic policies aligned with domestic objectives.
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