The main problem with the gold standard was that if a country was not competitive in the world marketplace, it would lose more and more gold as more goods were imported and less exported. With less gold in stock, the country would have to contract the money supply, which would hurt the country's economy. Less money in circulation reduces employment, income, and output; more money increases employment, income, and output. This is the basis of modern monetary policy, which is implemented by central banks to stimulate a sluggish economy by increasing the money supply or to reign in an overheating one by contracting the money supply.
During the 1930's, the world was in the throes of the Great Depression. Countries started abandoning the gold standard by reducing the amount of gold backing their currency so that they could increase the money supply to stimulate their economies. This deliberate reduction of value is called a devaluation of currency. When some of the countries abandoned the gold standard, then it just collapsed, for it was a system that could not work unless all of the trading countries agreed to it.
Of course, at some point, something else would have to take its place; otherwise, there could be no world trade—at least not in the quantities that were then occurring. As World War II was coming to a close, it was obvious that another system would be needed.
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