134 MODERN MONETARY SYSTEMS 
essential test of the exchange phenomena which we are 
about to examine lies not so much in depreciation (which 
at first and in the course of successive fluctuations always 
involves some recoveries) as in instability. 
If, then, the essential characteristic of an exchange 
crisis is instability, let us inquire, in the first place, how 
the crisis begins. The above remarks show that the begin- 
ning is a radical transformation of the exchange market. 
For so long as the country in question and a group of 
others continue to have a currency of the same kind which 
can be transported, the only reason for the profits on 
negotiating bills of exchange is to avoid the difficulties 
and expenses of transporting this currency ; and the price 
paid by those who derive advantage from the transaction 
cannot exceed the amount of costs of transport. This 
being so, the exchange market is one in which supply and 
demand have free play, but only in so far as it is profitable 
to negotiate the bills on it, 7.e., in so far as it is not possible 
to use another method of settlement. As soon as this other 
method disappears, the limiting condition also disappears; 
this is what happens in countries with a gold currency 
when it becomes impossible to export gold either as a 
result of legal prohibitions or other circumstances; and 
as the prohibition is usually directed, not against the im- 
port, but against the export, of the precious metal, iz is ze 
export gold point which alone disappears and with it all ob- 
stacles to negotiating at a higher rate ; thereafter the ex- 
change will fluctuate and move towards a decline in value, 
or depreciation of the national currency 1n relation to cur- 
rencies which have kept their gold points. 
The disappearance of the export gold point is thus seen to be 
the beginning of a fall in the exchange beyond normal limits, 
i.e., an exchange loss or external depreciation of the currency ; 
and as this disappearance of the export gold point is usually 
the immediate result of granting forced currency and there- 
fore of making paper énconvertible and prohibiting the export 
of gold, the immediate and as it were physical cause of ex- 
change crises in such circumstances which are very common, is 
to be found in this inconvertibility and in the prohibition to 
export gold.