Why did the gold standard collapse?
The gold standard broke down during the 1930s as countries engaged in competitive devaluations. The gold standard worked fairly well from the 1870s until the start of World War I. During the war the government financed military expenses by printing money resulting in inflation, and price levels were high everywhere by the end of the war. Then, in an effort to encourage exports and domestic employment, countries started regularly devaluing their currencies. People lost confidence in the system and started to demand gold for their currency putting pressure on countries’ gold reserves, and forcing them to suspend gold convertibility and by World War II, the gold standard was over.
