158 MODERN MONETARY SYSTEMS
tant to leave the volume of currency at a point which
corresponds to the level of prices which has been reached,
and avoid new issues of currency which might indirectly
compromise stabilisation.
With regard to the purchasing power parity, we believe
that it should also be taken into consideration, not as a means
of stabilisation, but as a circumstance favourable to stabilis-
ation. For supposing that in attempting to stabilise the
sterling-franc exchange when francs are 80 to the pound,
a rate of go is adopted for the new parity, there would be
a difference in the purchasing powers of the two curren-
cies highly detrimental to French exports, as the franc
value of bills drawn in sterling would fall heavily without
any hope of an immediate and corresponding fall in the
cost of production. Moreover, it will be observed that
whenever the policy of a return to stable exchanges has
been inaugurated after a heavy depreciation, a new
exchange parity has been set up taking into account the
purchasing power parity.
Subject to these preliminary remarks, the theory or a
return to stable exchanges appears to follow from the
elements of exchange mechanism and is already confirmed
by a number of well-established precedents in recent
monetary history.
We have indeed observed that the exchange problem,
as it presents itself to the minds of economists, arises when
a country can no longer use for its international require-
ments a currency which can be exported and imported
without loss—such as gold which has a constant exchange
value in passing from one country to another owing to the
system of free coinage and the constant definition of the
chief monetary units. On the other hand, as gold only
forms part of the circulation in modern countries, the first
condition for stabilising the exchanges is the freedom to
convert the other elements in the circulation—notes or
silver—into gold coin; and the second condition 1s the
power freely to export and import this gold. 4 return to
convertibility and to the free export and import of gold con-
stitutes in the present state of monetary technique the only
