Nations currency after World War I

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3-4 lines on role of US

Shortly after World War I, the nations of the world returned to tracking the value of their currencies to the price of gold. This system lasted until the Great Depression era when nations suspended gold convertibility.
what role did the United States play in all of this?

Gold was $20.67 in 1933, when gold was money and a $20 gold coin actually contained 0.9675 ounces of gold. Gold should have been priced at $35 an ounce in 1947.
But President Roosevelt had set the gold price at $35 an ounce back in 1934, thereby overvaluing gold and undervaluing the dollar. As a result, the US Treasury's gold reserves increased by 117% from 1934 to 1940, as foreigners sold massive quantities of the metal to the United States (see last week's column).
From 1940 to 1957 the US Treasury's gold reserves remained relatively constant but by 1958 they started falling. Within three years, by 1960, Treasury gold reserves had declined as much as twenty two percent. Just as the increase in gold reserves from 1935 to 1940 indicated that gold was overvalued and the dollar was undervalued, the decline in reserves after 1957 indicated that the dollar was now overvalued, and gold was undervalued.
It was becoming more and more difficult for the European and American Reserve Banks to maintain the gold price at $35 an ounce. In 1961 the situation was severe enough that the United States, Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands and Luxemburg all agreed to sell gold into the market to try and prevent the price from exceeding $35 an ounce; and so the London Gold Pool was created.The French, who were smart enough to realize that the London Gold Pool was a loosing proposition, eventually started selling francs for dollars and sent the dollars back to the United States in exchange for gold.
By 1968, when the London Gold Pool croaked, US gold reserves had declined more than fifty two percent from their 1957 levels. In 1971 US gold reserves were 9,070 tonnes, only seventy-two tonnes more than they had been in 1935. It was clear that thirty-five dollars were no longer worth an ounce of gold. An increase in the amount of dollars (dollar inflation) reduces the dollar's value and hence prices rise. Similarly, an increase in the amount of gold in the world reduces the value of gold and causes the gold price to decline. If we knew what the increase in US money supply was from 1933 to present, and we knew how much gold had been produced since then, we could theoretically calculate what the gold ...