Zwevende wisselkoersen

Summary

Fixed rates of exchange have been a matter of monetary creed for decades. Money as a medium of exchange and as a unit of account should have a fixed value and not be allowed to fluctuate in relation to other currencies on the basis of supply and demand. The consequences of fixed rates of exchange, i.e. deficits or surplusses in the balance of payments as well as consequences on the price and interest level in order to restore equilibrium, should be accepted and are part of the function of the fixed rate. Also, a global monetary interdependence is an integral part of the picture.

Governments have to make a well-balanced choice as to their economic aims. There is a certain freedom of choice. One may put constant full employment at the top of the priority list. But one has then to accept the possible consequences on the balance of payments. As regards the equilibrium of the balance of payment, however, this is not an element of political choice in the long run. That equilibrium is a hard-fact necessity. As long as one adheres to the desirability of fixed exchange rates, this means that there are limits to other objects of economic policy. The fixed rate may be an impediment to full employment. It may also jeopardize a policy of internal price stability.

A general system of fluctuating rates would be impossible without constant intervention in the market by the monetary authorities. This also holds true in case only one currency would be subject to rate fluctuations. The functioning of the futuresmarket which is essential both under a system of fixed and of fluctuating rates, would also become more dependent on intervention by monetary authorities, because private parties on that market lose their orientation on the fixed rate. This means that the function of short-term credit movements, which normally are initiated automatically to bridge-over temporary balance of payment gaps, will now be dependent on that official intervention.

There are two dangers involved in fluctuating rates. One is that the psychological effect of a trend can influence the internal price and cost structure in such a way that a movement in the exchange-rate instead of restoring equilibrium might further impede equilibrium. The other danger is that governments, once moving rates are accepted on principle, might indulge in internal economic policies, which are in the long run detrimental, and which would have to be checked in case of fixed rates of exchange. Monetary discipline seems to be a difficult proposition anyway.

Seen from the angle of an individual country there is, especially for smaller countries, the objection to the fixed rate that the internal monetary policy is no longer basically autonomous. In case this disadvantage begins to outgrow the undoubted advantages of fixed rates, it should be possible to forego the fixed rate. In such a case, however, the most advisable and most effective system seems to be to stick to the fixed rate-principle, however widening the “spread” of possible fluctuations around parity, accompanied by the possibility of relatively small, but possibly frequent, adaptations of the parity to the level indicated by the wanted relation between internal and external price level.