79 MODERN MONETARY SYSTEMS
exchange crisis continues, especially in Europe, and has
often become more serious and threatening. But the
results obtained in three countries—England, Czecho-
slovakia and Austria—under different circumstances and
by different methods, should be particularly noted.
The English exchange, which had on the whole been
little affected during the war, thanks to the timely help of
the United States, had suddenly begun to fluctuate at the
beginning of 1919 when the American credits were with-
drawn. For a short time at the end of 1920 it suffered
considerable depreciation, the dollar rate falling to a little
less than 3-50 in London. But on an average for 1920
and 1921 the dollar did not stand in London at a premium
of more than 309, and the internal depreciation of the
currency as measured by the cost of living (retail prices)
never went beyond the index of 265, which it reached for
only a very short period, also in 1920. On the whole,
Great Britain experienced only slight depreciation both
at home and in the foreign exchanges, and she sought the
remedy in both cases, particularly the former, in her
traditional policy which was formulated at the end of the
hostilities by the Commitee on Currencies and Foreign
Exchanges after the War, under the chairmanship of Lord
Cunliffe, the Governor of the Bank of England. It was
thought that the appropriate method of restoring its
“normal” (i.e., the previous) purchasing power to sterling
and of rectifying the exchange was to put an end to in-
flation and to “deflate,” and that this result could be
obtained by balancing the Budget, and reducing and con-
solidating the floating debt, so that the State would no
longer have to have recourse to further issues of currency
notes.
This policy, clearly formulated at the close of hostilities,
was not immediately carried out, and the note issue rose
from 391-1 million pounds at the end of 1918 to 481-8
millions in 1920; meanwhile, the Budget still showed a
deficit. But, as is well known, an exceedingly vigorous
policy of taxation produced a magnificent surplus in the
1920-1921 Budget, and it was possible to begin to
