218 MODERN MONETARY SYSTEMS 
to international payments in countries with a gold circula- 
tion the objections to the system of the gold reserve still 
arise from a misunderstanding of the conditions in which 
the latter works. In the first place, it must be pointed out 
that the gold points are determined under this system in 
exactly thesame wayas under the old system with a gold cir- 
culation—whether actual gold be supplied with a view to 
export, or whether the institution entrusted with the duty 
of conversion issues bills payable in gold. For in the latter 
case the bills are issued at a rate corresponding to the fixed 
parity after deducting the cost of sending gold.r ‘Therefore 
in so far as the small exchange fluctuations which can occur 
within the gold points can exercise any regulating influence 
on international trade, that influence has its full scope. 
On the other hand, the mechanism of conversion, which 
is usually adopted in countries with a gold reserve, also 
implies variations in the volume of currency required for the 
purpose of making international payments which are exactly 
similar to those variations which would occur if yellow metal 
were taken out of circulation and transported. For the coin 
which is deposited in order toobtain foreign bills, when the 
trade balance shows a deficit, is withdrawn from circula- 
tion. On the other hand, new coins or new notes are put 
into circulation in exchange for bills drawn on the country 
with a gold reserve when the balance of payments is posi- 
tive. In our opinion all that precedes has shown that slight 
variations in the volume of currency have no appreciable 
influence on the working of the system.? At any rate, the 
method adopted by countries with a gold exchange stand- 
ard is important, because it demonstrates the following 
facts: this monetary system, based on principles absolutely 
identical with those of the former #égime of the gold 
standard, can also work successfully in precisely the same 
conditions. If the latter has the merit of bringing inter- 
national trade back to equilibrium, the same phenomenon 
1 See above, in particular the passages relating to the exchange offices 
in Manilla, the Straits Settlements and British India. 
2 See also Ansiaux, “Principes de la Politique Régulatrice des Changes,” 
Brussels, 1919, p. 257.