Prosperity and Depression.pdf

Chap. 12 InfernafionalAspecfS -oj' Business Cycles 437Recent years have provided many·examples ofCurretIfY deliberate and - substantial ./changes in exchangedevaluation. rates. Since the gold value of a currency is stillregarded as the norm, -and -since the initiative ISalmost invariably taken by the country whose currency is depreciated,these changes in the exchange rate are commonly referredto as a depreciation or devaluation of a currency in terms of theother currencies, although the depreciation of one currencynecessarily implies the appreciation of the others. The consequencesof these changes on the international and domestic tradeof all the different countries involved have been extensivelydiscussed in connection with recent experiences. 1 Jt is not proposedto reproduce all the arguments which may be, or have been,advanced for or against devaluation under the various possiblecircumstances. It is proposed, instead, to apply our analysis ofthe cyclical movement in-order to trace the main channels throughwhich alterations in exchange rates are likely to exert an expansionaryor depressing influence on the national economies concerned,and to indicate the relevant circumstances on whichthe resulting effect will depend.We assume that, before and after the devaluation, the countriesconcerned will pursue a policy of stabilising the existing rate, atany rate for the time being. If the exchanges are allowed tofluctuate freely with the changes ofsupply and demand, we have the.system of"tree exchanges" which will come up for discussion later.In order to make it easier for the reader to follow the analysis, weshall refer to the country or countries whose currency has been devaluedas " D countries " or simply''; D " and to the country orcountries whose currency has appreciated as "A countries~'or"A".We have first the effect of an act of devaluationEffects on on the flow of goods-i.e., on international trade.exchange of (We shall disregard for the moment effects due togoods. the stimulation of capital movements.) In thecase with which we are concerned) the influenceis clearly expansionary for the D country. Exports are stimulated;imports are made more difficult. Export industries and industries1 Compare the exhaustive treatment by S. E. Harris, ExchangeDepreciation (