The bank of France and the sterilization of gold, 1926–1932

Abstract

The malfunctioning of the interwar gold standard is frequently ascribed to sterilization of gold flows by central banks, particularly the Bank of France. This paper analyzes the actions of the Bank of France and the issue of sterilization. New estimates of the impact of policy on the Bank of France's gold reserves indicate that, of the policies which ostensibly influenced gold flows, only the absence of expansionary open market operations, which were precluded by statute, significantly affected French reserves. Those statutes and the sentiment which led to their adoption are in turn ascribed to France's experience with inflation earlier in the decade. Thus, the gold standard's collapse in the 1930s is linked to the circumstances under which it was reconstructed in the 1920s.