88 MODERN MONETARY SYSTEMS 
the first instance to a change in public opinion abroad, sur 
it was carried through above all because of the increasingly 
effective operations on the market of the Banking Department, 
which had succeeded in accumulating, with the help of a 
large natural surplus in the trade balance, a very large 
stock of foreign exchange—the outstanding event of 1921.1 
Moreover, while a strict financial policy may in itself 
contribute largely towards exchange recovery, it cannot be 
recognised as sufficient to effect stabilisation, even if it is 
backed by foreign credits.? 
The experience of Czechoslovakia up to the end of 
1922 proves exactly the opposite, and if at the beginning 
of 1923 the Czech crown entered on a new phase, that of 
approximate stabilisation round about 34 crowns to the dollar, 
there can be no doubt that this stabilisation has been due to the 
regulating activities of the Banking Department. 
Although the character of this stabilisation is not 
officially recognised, and although the Czechoslovakian 
Government has not hitherto thought it advisable to 
establish a fixed rate of conversion, iz is common knowledge 
that, to the extent necessary to keep the crown stable, the 
Banking Department buys and sells foreign bills at a rate 
which does not differ widely from the one mentioned above. It 
offers a rather more elastic method of attaining convertibility 
than Conversion or Exchange Offices, but the principle is 
1 The Foreign Exchange Control Office helped to procure bills for the 
Banking Department. But so long as exporters anticipated the con- 
tinuance of depreciation, they made every effort to evade the control of 
foreign exchange, which was never entirely effective until, taken by 
surprise by a series of sharp recoveries in the crown, they regained con- 
fidence in it, and spontaneously handed over their foreign bills. Action 
through control offices thus appears to be an inadequate expedient when 
it is founded on force, but valuable when it is based on confidence. 
2 M. Rist (0p. cit., p. 87) declares that “the mere stoppage of inflation by 
a Government, combined with the perseverance and determination 
necessary to balance the Budget, and supported by foreign credits, is 
sufficient to stabilise the exchange.” Neither the stoppage of inflation nor 
Budget equilibrium nor even foreign credits will suffice to stabilise an 
exchange, if there is no systematic intervention in the exchange market to 
create an almost constant rate for the bills necessary to fill the gap in com- 
mercial drawings, and to allow of the purchase at approximately the same 
rate of surplus commercial foreign bills on foreign countries.