THE THEORY OF EXCHANGE 159 
method of restoring the gold points and therefore of re-institut- 
ing a system of stable exchanges with countries on a gold 
currency. 
When inflation has not gone very far, so that new issues can 
be easily withdrawn, and the level of prices has not risen 
100 high while the loss on exchange remains low, a return to the 
gold points can be brought about by abolishing forced currency 
50 that the unlimited convertibility of notes is restored. This 
method has been used particularly in France after 1870 
and may be ultimately adopted in England. 
It should be added that it is inapplicable except when all 
the conditions described above are present, or unless the 
definition of the monetary unit is changed ; and even then 
it cannot be used without running serious risks. 
The first consequence of merely abolishing forced 
currency would be to force the bank of issue to ex- 
change them at the rate of one gold unit for one paper 
unit, thus involving possibly a temporary but certainly 
a violent return to a par exchange. If the forced currency 
were in fact abrogated at the present time in France it 
would at once be open to anyone to obtain gold at the rate 
of one gold franc for one paper franc, and so the exchange 
would revert to 25221 to the pound and 5°18 to the 
dollar. It would be superfluous to recall what has already 
been said on this subject and to describe the catastrophe 
which would follow. 
There would be only two methods of avoiding such an 
upheaval. The first one would be to wait for a gradual 
improvement in the exchange until it nearly reached par ; 
1 As we have seen particularly from the relation between the Moroccan 
and Algerian franc and the French franc, it is possible to establish 
harmonious exchanges between different countries by making one paper 
currency convertible into another. But a general monetary restoration 
presupposes that harmony has been restored with the few countries—like 
the United States—where the internal currency is on a par with gold 
owing to the freedom to export, import and coin the yellow metal. Hence 
the formula “convertibility into gold” is more generally and more easily 
accepted than the one which aims at making the various paper currencies 
convertible into United States dollars. But the method of convertibility 
into gold should also be understood as extending to the system of buying 
and selling at a constant rate bills payable abroad in gold.