Pueblo chieftain., 1921-05-01

that the exchanges would return to the levels
Citing the theory of Gustav Casse the Swedish econ
omis that the normal exchange parity is the rela
tive purchasing power of the currences, DIR. Chandler
continues: t
g A large part of the depreciation of the European
exchange below the mint parity with respect to
the United States to be accounted for by the change
in the relative price levels of the several countries The
relation of these price levels presents exchange
parity based the relative purchasing power of the
currencies of the several countries.
'This parity between the currencies of any two
countries has not become stable because the two elements
in the parity vz the two price levels, have repeatedly
changed Several factors have entered into the changes
of the relative price levels but in present problem
the most important the continued issue of paper money
other currency Europe. So long foreign govern
mens continue to emit issues in large volume and
trade is not increased in proportion, expect the
levels of those countries to relation to the
American price level.
ln other words may expect the purchasing power
of the currences of the issuing countries to fall and
therefore the parity to continue to decline. On the
other hand if those countries whose production has been
below normal bring it up to, increase it beyond
normal, and at the time resist the temptation to
issue currency may expect the price level to fall
and other things being equal, the purchasing power
parity to rise.
'1t appears that in the of several of the Euro
an currences the actual exchange rate has remained
for considerable period below the purchasing power
parity. Specifically this depreciation may be ex-
planned in part by the accumulation of large adverse
trade balances that result throwing upon the market
large number of foreign bills than Americans require
for the payment for their imports. In most cases,
however, tho underlying is to be found in long
series of trade restrictions and other obstacles to the
free outflow of goods and other values obstacles
to their importation into other countries Again. in the
case Of several countries uncertainty to the future
value of the currences we'll as future
political conditions undoubtedly accounts for part of
the depreciation below the purchasing power parity
Dr. Chandler emphasizes the point that numerous
other factors contribute to the fall of exchange rates
low their purchasing power parity, especially the partial
disruption of the machinery for financing both importa
tion and e1poraton the actual shortage of exporable
commodities IN certain cases, and the decline in the
credit of the nations. Turning again the trade bal
ancc in relation to the old mint parity, he adds:
"Ofter it has been assumed that the rccstabshment
of the normal trade would bring the principal
European exchanges back to their old mint parity Not
of the kind may be expected for that the
trade balance has not been the of most of the
larger deprecations below the Irc-war mint parity The
most that be expected when Earopc finally reaches
the point where the normal trade balance can become
rccstablished is to bring the foreign exchange np
proxmaely up to the then existing purchasing power
parity expressed by the ratio of the price levels