The stabilization of European currencies in relation to gold dragged on throughout most of the 1920s (Kenwood & Lougheed, 1983, pp. 190-192). The British decided to return to an exchange rate near prewar parity and U.S. cooperation and assistance was of great importance in making such a return. The United States apparently saw the stabilization of the pound as an important step in the stabilization of the general European monetary situation.
The U.S. role in stabilizing the pound was one indication that America was attempting to exercise leadership in the world economy. During the 1920s the U.S. was the major supplier of capital internationally, providing funds for relief, for currency stabilization, and for a variety of other purposes (Kindleberger, 1973, pp. 54-57). However, it soon appeared clear that the U.S. was not prepared to take on all the responsibility that Britain had assumed earlier.
The U.S. contribution to the reparations issue was to lend Germany huge sums of capital which were then used to finance the reparations payments. The Dawes Plan in 1924 and the Young Plan in 1929 both established schedules for German reparations payments linked to new international loans to Germany. In both plans U.S. initiative was crucial and large quantities of U.S. direct and portfolio capital flowed into Germany between 1924 and 1929 (Kindleberger, 1973, pp. 78-82). However, when the New York Stock Market boomed in the late 1920s, it absorbed most available funds and the halt in the movement of capital to Germany placed severe pressure on the German economy, because it had become dependent on the U.S. capital flow.
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