The Gold Exchange Standard, an Earlier Form of the Reserve-Currency System, Was a Machine for Perpetual Inflation in the Late 1920s

The reconstruction carried out in the twenties proved entirely ineffective, because instead of restoring the gold standard, governments and the experts who guided their decisions preferred to substitute for it the Gold Exchange Standard, i.e. an earlier form of the 'reserve-currency system'. In the latter twenties, the system proved to be, to borrow Dr Holtrop's phrase, 'a machine for perpetual inflation'. But the inflation did not prove to be as perpetual as all that--no inflation ever is, except maybe the Brazilian. It broke down on the occasion of the New York Stock Market crash in the autumn of 1929 and was followed by the deepest depression the modern world has known. That depression led, in 1931, to a run on Britain's gold (sterling was the principal 'reserve currency' of the twenties). There ensued years of competitive currency depreciations, of growing restrictions on international trade and payments, and not till the autumn of 1936 did the United States, the United Kingdom, and France reach a 'tripartite agreement' introducing a small but significant degree of order into foreign exchange markets. But the war was almost upon us and further measures of reconstruction could not be planned, let alone adopted.

--Michael A. Heilperin, Aspects of the Pathology of Money: Monetary Essays from Four Decades (Auburn, AL: Ludwig von Mises Institute, 2007), 284.