Editing Gold standard (section)

=== Impact of World War&nbsp;I ===
Governments with insufficient tax revenue suspended [[convertibility]] repeatedly in the 19th century. The real test, however, came in the form of [[World War&nbsp;I]], a test which "it failed utterly" according to economist [[Richard Lipsey]].{{sfn|Lipsey|1975|pp=683-702}} The gold specie standard came to an end in the United Kingdom and the rest of the British Empire with the outbreak of World War&nbsp;I.<ref>{{cite web|url=https://www.parliament.uk/business/publications/research/olympic-britain/the-economy/small-change/|title=Small change|website=Parliament.uk|language=en|access-date=2019-02-09}}</ref>

By the end of 1913, the classical gold standard was at its peak, but World War&nbsp;I caused many countries to suspend or abandon it.<ref>{{cite journal|author=Nicholson, J. S.|author-link=Joseph Shield Nicholson |title=The Abandonment of the Gold Standard|journal=The Quarterly Review|date=April 1915|volume=223 |pages=409–423|url=https://babel.hathitrust.org/cgi/pt?id=umn.31951d001510207;view=1up;seq=431}}</ref> According to Lawrence Officer the main cause of the gold standard's failure to resume its previous position after World War&nbsp;I was "the Bank of England's precarious liquidity position and the gold-exchange standard". A [[Currency crisis|run on sterling]] caused Britain to impose [[Exchange controls in the United Kingdom|exchange controls]] that fatally weakened the standard; convertibility was not legally suspended, but gold prices no longer played the role that they did before.<ref>{{cite web |last=Officer |first=Lawrence |title=Gold Standard |website=EH.Net Encyclopedia |editor=Robert Whaples |date=March 26, 2008 |url=http://eh.net/encyclopedia/gold-standard/}}</ref> In financing the war and abandoning gold, many of the belligerents suffered drastic [[inflation]]s. Price levels doubled in the U.S. and Britain, tripled in France and quadrupled in Italy. Exchange rates changed less, even though European inflation rates were more severe than America's. This meant that the costs of American goods decreased relative to those in Europe. Between August 1914 and spring of 1915, the dollar value of U.S. exports tripled, and its trade surplus exceeded $1&nbsp;billion for the first time.{{sfn|Eichengreen|1995}}

Ultimately, the system could not deal quickly enough with the large [[balance of payments|deficits and surpluses]]; this was previously attributed to downward wage rigidity brought about by the advent of [[trade union|unionized labor]] but is now considered as an inherent fault of the system that arose under the pressures of war and rapid technological change. In any case, prices had not reached equilibrium by the time of the [[Great Depression]], which served to kill off the system completely.{{sfn|Lipsey|1975|pp=683–702}}

For example, [[Germany]] had gone off the gold standard in 1914 and could not effectively return to it because [[war reparations]] had cost it much of its gold reserves. During the [[occupation of the Ruhr]] the German central bank ([[Reichsbank]]) issued enormous sums of non-convertible marks to support workers who were on strike against the French occupation and to buy foreign currency for reparations; this led to the [[Hyperinflation in the Weimar Republic|German hyperinflation of the early 1920s]] and the decimation of the German middle class.

The U.S. did not suspend the gold standard during the war. The newly created [[Federal Reserve]] intervened in currency markets and sold bonds to "[[Sterilization (economics)|sterilize]]" some of the gold imports that would have otherwise increased the stock of money.{{citation needed|date=September 2014}} By 1927 many countries had returned to the gold standard.{{sfn|Elwell|2011}} As a result of World War&nbsp;I the United States, which had been a net debtor country, had become a net creditor by 1919.<ref>Drummond, Ian M. (1987). ''The Gold Standard and the International Monetary System 1900–1939''. Macmillan Education.</ref>