Keynes had argued in his book Indian Currency and Finance that whether a central bank holds its reserves in gold or in foreign exchange "is a matter of comparative indifference," and that "in her Gold-Exchange Standard
The gold-exchange standard
may be said to exist when gold does not circulate in a country to an appreciable extent, when the local currency is not necessarily redeemable in gold, but when the government or central bank makes arrangements for the provision of foreign remittances in gold at a fixed maximum rate in terms of the local currency, the reserves necessary to provide these remittances being kept to a considerable extent abroad.
Interwar, the United States was on a gold-exchange standard
until 1933, and a restricted pseudostandard until 1944.
Under the Bretton Woods agreement, the dollar would remain on an international gold-exchange standard
(meaning that dollars could be redeemed for gold, but only by international traders), and other currencies would be convertible into the dollar.
Ahamed does to history is to fail to distinguish between the flaws of the classical gold standard, on the one hand, and the far deeper imperfections of the gold-exchange standard
(so similar to the evils of today's dollar standard), on the other.
Although the authors of these publications note differences between the classical pre-World War I gold standard and the post-World War I gold-exchange standard
, they nonetheless claim that the latter "gold standard" was operational during the 1920s and early 1930s.
Under the gold-exchange standard
that governed international finance prior to August 1971, a shift out of dollars would have led to a transfer of U.
In this introduction, Harold James traces the banking crises to the deflationary policies necessitated by the gold-exchange standard
through their effects on the profitability of client firms.