Twentieth Century Monetary Regimes in Canadian Perspective

Three monetary regimes - the gold standard, a regime of 'socialism in many countries' and the post-Bretton Woods regime - and difficult transitions between them have shaped the economic history of the twentieth century. The regimes consisted of coherent sets of government policies and equally importantly, the publics expectations about policy and each made different decisions about which of the trilemma of policy goals - fixed exchange rates, domestic policy independence and integrated capital markets - to subordinate. Canada, as a small, open economy dependent on access to international capital markets, provides a revealing window on the monetary regimes and the transitions between regimes. The gold standard supported relatively smooth integration of the expanding Canadian economy into the pre First World War international economy, but proved disastrous in the changed environment that led to the Great Depression. Although Canada was unique with its floating exchange rate it experienced the success of the post war Bretton Woods era. The collapse of the regime under the stress of internationally integrated capital markets set off an inflationary transition that again demonstrated the difficulties of regime transition. A new stable regime required two decades of learning about the new economic environment by both government and the public.