Modern monetary systems

Bibliographic data

Monograph

Identifikator:: 1753210836

URN:: urn:nbn:de:zbw-retromon-128414

Document type:: Monograph

Author:: Nogaro, Bertrand http://d-nb.info/gnd/117039713

Title:: Modern monetary systems

Place of publication:: London

Publisher:: King

Year of publication:: 1927

Scope:: XII, 236 S.

Digitisation:: 2021

Collection:: Economics Books

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part II. The explanation of contemporary monetary phenomena and currency theory

Collection:: Economics Books

THE THEORY OF EXCHANGE ISI to be the case, the loss on exchange is greater than the decline in the internal purchasing power of a currency, or, in other words, that as a result of the exchange crisis there is a certain disparity in purchasing power in favour of the country with a depreciated currency. Thus the exchange profit obtained by exporters in the purchase of foreign bills is not at first wiped out by a rise in the cost of production; and this additional profit tends to bring the balance of payments into equilibrium. On the other hand, this return to equilibrium cannot fail to promote the restoration of the exchange until such time as its own restoration, by eliminating the premium on exports, allows the exchange to fall back to its normal level. An attempt has been made to find a confirmation of this theory by comparing the curve of such disparities with that of the trade balance. In the absence of sufficient 1 Some writers have such confidence in this theory of automatic adjust- ment that they do not think it possible to explain a continuous exchange depreciation without finding some factor which has prevented this automatic mechanism from coming into play. For instance, M. Rist in his work, “Les Finances de guerre de I’Allemagne,” asks how the mark could have continued to fall during the hostilities. “This can only be explained,” he says (p. 179), “by some new factor, viz., the internal rise in prices due to inflation.” Superficial observers may perhaps content themselves by pointing out that it is not very surprising for the premium on exports resulting from the loss on exchange to be incapable of developing exports in a country which is at war and which is devoting all its productive energy to the manufacture of arms and munitions and is also subjected to a strict blockade. But this argument is in itself worth examining, and it is an interesting question whether it is true that in peace time and without inflation a balance of payments, and with it the exchange, will be automatically restored. Now Germany after the war offers an example of an exchange falling indefinitely, whereas expansion of the currency at any rate from 1919 onwards lags behind the fall in the exchange, and is so far behind the rise in prices that this apparent inflation really amounts to a modified form of contraction. In the case of Czechoslovakia from August 1919 to the end of 1921, we have also seen a crash in the exchange and a prodigious rise in internal prices in spite of a currency steadily restricted. Moreover, further observations in this chapter will show that while there may be in every fall in the exchange some balancing factor tending to restore it, the influence of this factor could hardly be considered as decisive in normal times.

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