84 MODERN MONETARY SYSTEMS
Since Rasin’s death the crown has resumed its upward
course, but up to the end of 1922 with continuous and
wide fluctuations. The significance of the currency
experiment in Czechoslovakia up to this time can, how-
ever, be described.
In the first period under consideration we have seen how a
vigorous, honest monetary policy, based on a considerable
sacrifice by the taxpayer and on a strict limitation of the
note issue, and supported from the beginning by some
power to influence the exchange market (centralization of
foreign exchange operations and use of the holdings of
foreign bills), succeeded in separating the Czech crown
from the Austrian and in sending up the former. During
the second period, we observe that contraction is insufficient to
produce a permanent recovery in the exchange and a fall in
domestic prices. Although the note issue is limited, the Czech
crown follows the mark and collapses with it ; an increasing
loss on exchange provokes, in spite of various remedies, a rise
in domestic prices, in other words, the depreciation of the
currency at home.
During the third period, when favourable circumstances
prevail—above all she recent constitution of a large stock of
foreign exchangel and the successful intervention on the
exchange market of the Banking Depariment—the Czech
crown definitely breaks with currencies which continue
to depreciate. But although during this period there is a
renewed effort to deflate, iz is clear that deflation does not
influence the exchange in the way certain theoretical writers
have supposed, i.e., by a fall in home prices which pro-
motes the recovery of the balance of payments and so
also of the exchange. For the exchange value of the crown
rose before the fall in home prices occurred, and it is, on
the contrary, the diminution of the loss on exchange for
importers and of the exchange premium for exporters
which causes home prices to be adjusted at a lower level.
1 Tt should be added that at the beginning of 1922 the Czech Govern-
ment had succeeded in again obtaining foreign loans of considerable
dimensions, viz., £2,300,000 in London, £500,000 in Amsterdam and 14
million dollars in New York.
