The US recession of 1937–8 is one of the deepest on record. Yet it did not produce a global depression – quite unlike 1930. According to the standard view, this reflected an unfettering of central banking after the collapse of the international gold standard circa 1931. We challenge this view. While Germany and a couple of Central and Eastern European countries were sheltered by binding exchange controls, most countries were still constrained by their golden fetters, as our new exchange rate regime classification suggests. The underlying policy regime was surprisingly similar to that of the 1929–30 downturn. What mattered was a quick reversal in US policy in 1938 and, for many countries, a more plentiful stock of international reserves.

There is only a sparse literature on the determination of real exchange rate volatility, and little attention has been given to the possible impact of EMU on volatility of real exchange rates of EU countries. A number of papers suggest a negative impact of exchange rate volatility on investment or growth, for advanced as well as developing countries, although we note that price and wage adjustment that might link to real exchange rate volatility is also part of the adjustment mechanism to macroeconomic shocks in EMU. We assess whether an effect of EMU on conditional volatility of real effective exchange rates can be detected, both for EMU and non EMU members. We find that the advent of EMU was accompanied by a reduction in conditional real exchange rate volatility for most EMU countries, as well as Sweden and Denmark that did not join EMU, but did not lead to a reduction in real rate volatility for Germany, Belgium, the Netherlands, nor, outside EMU, for the UK.