Roosevelt's Monetary Diplomacy in 1933

Abstract

AMERICAN diplomatic policy pivots on a new center point in the midtwentieth century, and thoughtful historians are coming to realize it as they watch the Marshall Plan in action. Foreign friend and foreign foe experience, at home and abroad, the effects of the dollar as an economic, political, and military weapon. It has come to pass that, second only to its military program, a monetary system is the chief instrument used by the currently most powerful government in its efforts to shape important internal and external relationships.' Never before did a single currency occupy so high a diplomatic status. The pound sterling, in its day, had less and different work to do. It had, among other factors, the aid of an international gold standard which many governments allowed to function as an adjuster of trade-of production, prices, and the balance of payments. Under the gold standard, internal economic needs were held adjustable to the requirements of international trade. Under it also, a nation whose trading position became impaired had to pay the penalty in a loss of gold, in falling prices and unemployment, followed by a gradual readjustment leading to a modified recovery. The process was painful, but the peoples of the world tolerated it in the nineteenth century. Thereafter, two world wars, with a world-wide depression between them, gave the masses the political leverage to demand that internal economic stability should be the first consideration of the diplomats; such stability should be the cornerstone on which a nation rested its monetary policy. Currencies must be managed by governments; no international agent, like a gold standard, should be allowed to affect jobs and prices. On the contrary, a nation's internal situation as to emplovment and the price level must shape its foreign economic policy. If competition with labor and prices elsewhere imposed severe penalties, the government must provide protection, far more flexible than tariff laws, through exchange control, multiple currencies, import quotas, double-pricing, or whatnot. The day of monetary and financial diplomacy was dawning.2