1 - Introduction

Summary

The main theme of this volume is that, under a gold (or any metallic) standard, the precise location of the exchange rate is of importance – and this is so whether the exchange rate is within the gold-point spread (the range of the exchange rate delimited by the gold points) or outside the spread. This viewpoint is contrary to the traditional approach, which is dichotomous in nature, checking only whether the exchange rate is inside or outside the spread. The traditional approach typically analyzes the gold standard as a fixed exchange-rate regime. While the existence of a gold-point spread is recognized (if only implicitly), the location of the exchange rate is deemed irrelevant as long as the rate remains within the spread.

The common procedure, then, is simply to represent the exchange rate by the mint parity, a practice justified by long-term automatic adjustment processes that eliminate balance-of-payments disequilibria that can exist only at (or beyond) a gold point. For example, the interwar dollar–sterling gold standard is almost universally viewed as involving a pound substantially overvalued at the mint parity but with corrective processes stymied by altered circumstances and policies compared to the prewar period, eventually leading to the demise of the gold standard. So the existing studies of the stability of the interwar gold standard are long run in nature, making no reference to the gold-point spread or the movement of the exchange rate within it.

In this book a different focus is adopted.