Q. How did the international monetary system influence macroeconomic policy-making and performance during the interwar period (1918 - 1939)?
Answer: Governments efficiently suspended the gold standard during World War I and financed part of their massive military expenditures by printing money. Additional labor forces and productivity capacity had been abridged sharply through war losses. Consequently price levels were higher everywhere at the conclusion of the war in 1918. Of extraordinary note is the German hyperinflation that takes place when prices in Germany increased by a factor of 481.5 billion!
The United States go again to gold in 1919. In 1922 at a conference in Italy, Genoa a group of countries including France, Britain, Italy and Japan agreed on a program of a partial gold exchange standard in which smaller countries could hold as reserves the currencies of several large countries whose own international reserves would consist completely of gold.
In 1925 Britain returned to the gold typical by pegging the pound to gold at the prewar price. Therefore the Bank of England was therefore forced to follow contractionary monetary policies that contributed to severe unemployment as well as to the decline of London as the leading financial center.
The world economy crumbles into increasingly autarkic (self-sufficient) national units in the early 1930s.