MODIFIED GOLD AND DOLLAR STANDARDS (4)

Another development helped economize on gold .Many countries ,particularly small ones (like the Philippines ),kept their money exchangeable at fixed rates with respect to gold . But they held little or no gold . Instead ,they would hold the money of some big country (like the united States ) that was on the gold standard .so long as the small country could stay on such a " gold-exchange standard" the effect would be much like the pure gold standard ,but with great economizing on gold .
fortunately for those who favored the gold standard , the deflationary pressures eased some when gold was discovered in the Klondike and south Africa in the mid-nineties and when the cyanide process greatly increased the output of gold mines.Together with the increasing leverage attained by having smaller and smaller fractional-reserve ratios and more and more gold exchange standards,the increase in mining enabled the world to keep on the gold standard and stave off deflation up until the 1929 crash . But this did involve a strain on international liquidity ,and some economic historians actually attribute that slump to an increasing shortage of world liquidity.