One - Early Divergence

Summary

It is well known that after World War I only a small number of countries succeeded in restoring the gold standard at prewar parity, namely, the United Kingdom and the five small neutral countries. It is also well established that within this group the time of restoration differed considerably. Sweden completed the process shortly before and the Netherlands and Switzerland shortly after the United Kingdom, whereas Denmark and Norway needed another two to three years (Table 1.1). As Chapter Two will show, the main reason for this unwanted delay was that their banking systems suffered from a particularly severe crisis in the early 1920s.

What is less known, by contrast, is that the Danish krone and the Norwegian krone had been weaker even before the outbreak of these banking crises. As Figure 1.1 illustrates, both currencies depreciated by 50 percent from the end of the war until October 1920, whereas the Dutch guilder, the Swedish krona, and the Swiss franc lost only 20 to 30 percent of their prewar parity and remained just as strong as or even stronger than the British pound. The figure also shows that the Danish and Norwegian currencies never fully recovered from this plunge. In 1922, the Danish krone reached only 80 percent and the Norwegian krone only 70 percent of prewar parity, whereas the other currencies were near or even above the prewar parity.