Answer to Question 1
Governments effectively suspended the gold standard during World War I and financed part of their massive military expenditures by printing money. Further, labor forces and productivity capacity had been reduced sharply through war losses. As a result, price levels were higher everywhere at the conclusion of the war in 1918. Of special note is the German hyperinflation that occurred when prices in Germany increased by a factor of 481.5 billion
The United States returned to gold in 1919. In 1922, at a conference in Genoa, Italy, a group of countries including Britain, France, Italy and Japan agreed on a program of a partial gold exchange standard in which smaller countries could hold as reserves the currencies of several large countries whose own international reserves would consist entirely of gold.
In 1925, Britain returned to the gold standard by pegging the pound to gold at the prewar price. Thus, the Bank of England was therefore forced to follow contractionary monetary policies that contributed to severe unemployment and to the decline of London as the leading financial center.
The world economy disintegrated into increasingly autarkic (self-sufficient) national units in the early 1930s.
Answer to Question 2
During the Cold War, the Soviets feared the United States might confiscate dollars placed in American banks if the events were to escalate. So, Soviet dollars were placed in Europeans banks, outside the jurisdiction of the United States.
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