Going Dutch: How the Netherlands Escaped its Golden Fetters, 1925–1936

Abstract

The interwar gold standard is long thought to have prevented central bankers from running an independent monetary policy, forcing governments to leave this fixed exchange rate system in order to take control over domestic policy. But our study of the day-to-day management of monetary policy in the Netherlands reveals that officials were both willing and able to deviate from the monetary policy paths set by other countries, all while remaining firmly within the gold bloc. The Netherlands could afford to stay on gold thanks to its central bank’s plentiful gold reserves. Additionally, we find that central bankers could quell any speculation against the guilder by exploiting their domestic policy influence and international reputation to restrict capital mobility. However, remaining on gold until September 1936 came at a cost. Our international comparisons and counterfactual simulations suggest that Dutch policymakers could have avoided a deepening the Great Depression by leaving gold alongside the UK in 1931. Our research opens new perspectives on the golden fetters literature, and revises the historiography on Dutch interwar monetary policy, by describing the operationalisation of the gold standard in the 1930s, and quantifying the costs of continued gold standard adherence.