3 - Hostilities Commence, 1931–1933

Summary

This chapter traces the evolution of the international monetary system and the management of sterling from Britain's suspension of convertibility in September 1931 to the eve of Franklin Roosevelt's inauguration in March 1933. To influence the pound's value now that it was no longer tied to gold, Britain created the Exchange Equalisation Account, an innovation of lasting consequence that led to accusations of currency manipulation. All the while, the world splintered into monetary blocs: many countries followed sterling's lead, some recommitted to gold, and others found refuge in exchange controls. This fragmentation, coupled with sterling's depreciation, the secrecy with which London employed the fund to manage the pound, and the increasing tendency of all to view policy in zero-sum terms, drowned the powers in bad blood and brought monetary cooperation to a halt.