The gold exchange standard was effectively a double standard. There were two tiers of currencies: minor and main. Minor currencies could only be swapped for main currencies and main currencies could be swapped for either foreign currencies or gold bars (except the US dollars), not coins, but only by central banks.
To better understand this “double standard” system we need to harken back to the two main schools of thoughts about a return to a gold standard after WWI. There were two main issues to tackle: fear of a lack of gold at world-wide level to back the gold standard and the inability by some countries to return at pre-WWI prices. The first school of thought, championed by Ludwig Von Mises and Gustav Cassel, called for a devaluation of currencies relative to the artificially undervalued gold and a pure, classic gold standard. The second school of thought, championed by Keynes (who else?) and Montagu Norman, Governor of the Bank of England, called for other means of exchange besides precious metal. This of course meant foreign currencies.
The problem is that, among “main currency countries” only France and the US had accumulated substantial gold reserves (between them they held about 60% of the world’s gold in 1925) while Britain, due to political and economical considerations, preferred to go on a printing spree. This of course meant inflation, but it also meant Britain managed to get a tight grip economically wise on most European countries (Hungary, Austria etc and even Fascist Italy) and this led to frictions with both France and the US.
The Fed Chairman, Benjamin Strong, came to believe the gold exchange standard was being manipulated both to obtain immediate commercial advantages and, more critically, to force the US to inflate the dollar (still on a gold coin standard). Most European countries (including Germany) owed enormous debts to the US and a devalued dollar would have meant lower repayments in absolute value. Needless to say Strong had backed Mises’ and Cassel’s idea.
The Poincaré government in France became very wary of Britain’s liberal use of the gold exchange standard to gain a solid foothold in most of Europe and France and Britain came to blows (diplomatically speaking) over Yugoslavia. Moreau, the Bank of France governor, blunty asked Poincaré “Should we allow them to go on?”.
It was France’s decision to redeem their sterling pounds in gold in 1931 which called the British bluff. The Fed refused to help the Bank of England by acting as a lender of last resort for gold (Strong never took a decision without first consulting the Department of State, so the move was most likely politically motivated) and Britain simply went the gold exchange standard altogether as a result.