This chapter traces the evolution of the international monetary system and the management of sterling from Britain's suspension of convertibility in September 1931 to the eve of Franklin Roosevelt's inauguration in March 1933. To influence the pound's value now that it was no longer tied to gold, Britain created the Exchange Equalisation Account, an innovation of lasting consequence that led to accusations of currency manipulation. All the while, the world splintered into monetary blocs: many countries followed sterling's lead, some recommitted to gold, and others found refuge in exchange controls. This fragmentation, coupled with sterling's depreciation, the secrecy with which London employed the fund to manage the pound, and the increasing tendency of all to view policy in zero-sum terms, drowned the powers in bad blood and brought monetary cooperation to a halt.

This chapter describes the monetary antagonism that pervaded the world from Roosevelt's inauguration in 1933 to the development of an uneasy ceasefire by the middle of 1935. Roosevelt's departure from the gold standard fundamentally changed the monetary system, and his chaotic method of doing so exacerbated the mutual suspicion already rife in the great capitals of the world. Once Roosevelt officially devalued the dollar in January 1934, Britain and France were clueless as to what, if anything America would do next; America and France were furious as Britain refused to stabilize the pound; and the world watched France flounder as its currency increasingly came under pressure. While Britain and America reached an uneasy suspension of monetary hostilities in 1935, the precariousness of the franc meant that this superficial stability was liable to crumble at any moment.