4 - The Bank of France and the Gold Standard, 1914-1928

Summary

The gold standard is back, as the great villain of interwar economic history responsible for the origins, the rapid spread, the depth, and the duration of the Great Depression in the 1930s. The Bank of France advocated restoration of the prewar gold standard, opposed its dilution as a gold-exchange standard, and by its gold policy contributed significantly to the onset and the severity of the Depression. In 1928-31, the Bank of France drew more than 30 billion francs in gold from central banks abroad, aggravating the monetary contraction and the price deflation that set off the Depression. After sterling went off gold in September 1931, the Bank withdrew 24 billion francs in gold from the international monetary system, increasing the contractionary force of the gold standard. From 1931 to 1936, France remained committed to the gold standard, organizing a handful of countries in a Gold Bloc to preserve convertibility while the international gold standard disintegrated around them. France was the most consistent and adamant proponent of the gold standard, yet the most disruptive in its actions.

Recent work on the interwar gold standard has paid little attention to gold standard belief: to what policy makers believed and how their beliefs shaped policy. This chapter reviews French experience off gold from August 1914 to June 1928, examining how the Bank of France conceived of the gold standard and the return to convertibility, its role in the depreciation of the franc from 1920 to 1926, and its views on returning to gold in 1928.