The year 1876 can be considered as the beginning of the classical gold standard in continental Europe. By that year, Germany had completed the transformation of its monetary system from a predominantly silver standard to a gold standard. From 1876 until 1913 all major industrial powers of the world, including the United States, were operating under the rules of the gold standard, with London as the financial center of the system. During this period, the central exchange rates between the currencies of the major countries were never changed. It follows that expectations that exchange rates would remain fixed were very firmly held. Member countries gave up their monetary policy independence entirely in favor of free trade in most industrial goods, free capital mobility, and fixed exchange rates.2 Private capital flows are believed to have been relatively large and proved to be generally of an equilibrating nature, because of the firmly held expectations that there would be no change in exchange rates. The need for actual gold flows to finance current account disequilibria was therefore relatively limited (Bloomfield (1959, 1963)). Fiscal policies were not a source of disturbance, as budget deficits were modest in size, as were government revenues and expenditures relative to gross domestic product (GDP). Nevertheless, financial crises occurred in 1884, 1890, 1893, and 1907.