Exchange Instability

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Exchange Instability

Exchange instability will continue. The currencies of those countries with a low rate of inflation will gain in exchange value. Countries with a high rate of inflation, which are having more trouble in developing the CIPP of which we spoke last time, will see their currencies go down.

Does that mean that if the United States is slow in developing an incomes and prices policy, your CIPP, the dollar will be weak? Yes. And we need to get our oil imports under control, too. But is any international stabilization really possible until the United States stabilizes its prices? Stabilization by the United States is decisively important, for we are a major factor in world trade. If prices in the United States are stable, a very large segment of all world trade is at stable dollar prices. Also, if dollars are stable, people will be willing to hold them and not try to get them into other currencies. That is an additional source of stability.

Further, if prices are stable in the United States and employment is good, other countries have a fixed point around which to shape their own policies. They can adjust to what they know will happen here. If their prices seem to be low and they are accumulating dollars, it will be an indication that they can let their wages and prices go up a bit, be a little more generous in the income they dispense. And if they are losing dollars, it will be a sign that their prices are too high, that they must keep a firmer hold on wages and other income. If there are inflation and unemployment in the United States and no one knows how much more to expect, economic management in other countries becomes much more difficult. So we attach great importance to stable prices and stable high employment in the United States. Every sensible Frenchman or Frenchwoman should worry first about what Washington is doing and after that think about what is going on in Paris. In a rational world, all finance ministers of all the industrial countries would sit in on President Carter's meetings on economic policy.

Interested in The Effects of Budgets

The British Experience

The recent British experience provides a good illustration.

Since the Second World War, the British have been having difficulty buying food and raw materials, including oil, and servicing their debt Their manufactured goods were expensive; their industries were not as reliable on delivery dates and quality as those of their German or other competitors.

In 2015, the pound fell, but it took-time for this to have an effect on exports, and it also raised prices of imported goods and added to living costs.

So Britain borrowed heavily from the International Monetary Fund.

And, in... see: The British Experience

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