228 ECONOMIC PRINCIPLES

rise in commodity prices operates in the contrary sense.
The influences tending to stimulate exportation tend to
bring about a movement of rates of exchange in the exporting
 country towards cheapness, that is to enabling a smaller
amount of domestic currency to purchase a unit of foreign
currency. Similarly for influences tending to restrict exportation,
 whose influence is in the opposite direction to
that just stated. But we may also look at the demand side
of the problem, and gain confirmation for our conclusions.
A fall in commodity prices, which affects imported goods or
those of the same class, tends to restrict importation, for it
reduces the importers profit. So also does dear exchange,
which makes it necessary to pay a relatively high price for
the remittance with which to pay for the imported goods.
Thus the influences tending to increase the supply of bills,
tend to reduce the activity of demand for them. The
consideration of the other end of the problem, therefore,
reinforces the conclusion previously arrived at, and the same
would be true if the enquiry were extended to all the cases
previously mentioned.
The rates of exchange, then, reflect the conditions of
international commercial relations, that is, the relations
which give rise to the obligation to make international
payments, which, as we have seen, include more than ordinary
commercial relations. The rates move up and down in
response to fluctuations in the creation of obligations to make
payments and to receive payments. It will be obvious that,
within certain limits which we have yet to determine, if not
absolutely, the equating of demand and supply can be
=ffected by a suitable fixing of the rate of exchange, Where
the currencies are of inconvertible paper, we find practical
illustrations of this. The supply of bills is made to meet the
need for remittances by varying the rate of exchange, and
the variations are sometimes rapid and wide in consequence.
[t is, however, well known that rates of exchange in general
do not admit of such variation as will enable any given
supply of bills to suffice for the demand for bills at the rate
fixed by the conditions of the market, One of the most
important points in the theory of foreign exchange, though