Journal Article Currency Appreciation as an Anti-Inflationary Device: Final Comment Get access Randall Hinshaw Randall Hinshaw Washington, D. C. Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 66, Issue 1, February 1952, Pages 121–127, https://doi.org/10.2307/1882081 Published: 01 February 1952

I. Scope of paper, 448. — II. Appreciation as a remedy for externally induced inflation, 450. — III. Appreciation versus relaxation of restrictions, 451. — IV. Appreciation in cases not characterized by an external surplus, 453. — V. Appreciation and the terms of trade, 456. — VI. Sterling appreciation and British terms of trade, 458. — VII. Conclusion, 461.

For practical reasons it will probably be useful to carry the clearing through in compensation units. In banks and in other firms, this unit will be handled exactly as any other kind of foreign exchange. Between the central banks of the countries in question an agreement may be made to the effect that the central banks can draw on each other in compensation units, and thus put the necessary funds at the disposal of the commercial banks of the country, and the public. This credit between the countries will be only of a temporary character because the credit relations will be extinguished within the prescribed limits of tolerance as soon as the trade is effectuated. For instance if, as a consequence of compensatory trade, the central bank of country A should be credited for an amount in compensation units with the central bank of country B, and this bank in turn should be credited for a corresponding amount with the central bank of country C, which finally should be credited for a similar amount with the central bank of country A, then all these credits would, of course, be extinguished simultaneously -within the given tolerated deviation -if the central bank of country A draws on the central bank of country B and sends this draft to the central bank of country C. If the system shall function according to its purpose, it is necessary that the licenses which are granted are also actually used. Experience will show if this can be assumed to take place by itself with the degree of approximation wanted, or if special measures will have to be taken to assure it.

THROUGHOUT the inter-war period, the 1 value of commodity imports into the United Kingdom was consistently greater than the value of exports. In the fifteen-year period 1924 through 1938, the average annual commodity import surplus was 358 million pounds sterling. Payment for this import surplus was made in three ways. First, the British earned a substantial net income on their overseas investments; average annual receipts from this source in the fifteen-year period amounted to 209 million pounds sterling. Second, average annual net receipts of I04 million pounds sterling were obtained from the sale of shipping services to foreigners. Finally, the United Kingdom received income from abroad, in the form of interest and commissions, for its services as a financial center; the average amount of these receipts was 46 million pounds per year. Considering the inter-war period as a whole, the United Kingdom was able to pay for its commodity import surplus without resort to borrowing or to the sale of overseas assets. The import surplus was offset by invisible exports shipping and financial services and by income from overseas investments. This balanced position for the period as a whole, however, conceals a gradual deterioration in the British balance of payments on current account. In the earlier years (I924-30), invisible exports plus income from overseas investment were slightly greater than the commodity import surplus, but in the thirties (193I-38) the import surplus exceeded invisible income (Table I). Other items, of course, were included in the balance of payments, but in most years these were of minor importance. Changes in the British international position may therefore be described in terms of exports, imports, income from overseas investments, shipping income, and interest and commissions.