- The world financial system that emerged after World War I was based upon the gold standard.
The United States and Great Britain guaranteed that they would exchange their currencies for
gold at a fixed rate - $20.67 for an ounce of gold, or £4.86. Other major countries agreed to
exchange their currencies for gold, dollars or pounds. In 1927, several countries, most notably
Germany and Austria, experienced serious bank runs. To stabilize their currencies, they
exchanged their dollars and pounds for gold. The United States experienced a serious loss of
gold (as did Great Britain). To encourage foreign investors to buy American investments, the
Federal Reserve Banks raised interest rates. If you were an American business owner planning
to build a new factory or buy new equipment, what would you have done after interest rates
were increased?