What was the main cause of the Great Depression?
Causes of the Great Depression
According to their conclusions, during a time of crisis, policy makers may have wanted to loosen monetary and fiscal policy, but such action would threaten the countries' ability to maintain their obligation to exchange gold at its contractual rate. The gold standard required countries to maintain high interest rates to attract international investors who bought foreign assets with gold. Therefore, governments had their hands tied as the economies collapsed, unless they abandoned their currency's link to gold. Fixing the exchange rate of all countries on the gold standard ensured that the market for foreign exchange can only equilibrate through interest rates. As the Depression worsened, many countries started to abandon the gold standard, and those that abandoned it earlier suffered less from deflation and tended to recover more quickly.[70]