Economics and government

ECONOA'lICS AND GOVERNMENT
XLVIII. STABILITY OF FOREIGN EXCHANGE
A. B. Adams
From the Department of Economics of the University of Oklahoma.
The constant fluctuation in the exchange value of foreign cur~
rencies for the past three years has been a source of irritation to all
those who are engaged in foreign trade, both in America and in
Europe. This constant fluctuation has caused great losses to
both buyers and se~tcrs; it has degraded the foreign trade business
from the plane of .a conservative business undertaking to that of
\~ild speculation.
. The professional speculator has been much condemned bv
the public through the press for causing this violent foreign ex'.'
change fluctuation. and many have advocated the passage of national
laws prohibiting speculation in foreign exchange, while others
have sugKcstcd that some scheme be devised whereby foreign exchangl'
rates would te "pegged" or stabilized at definite points.
Whatever influence speculators might have had on the daily
fluctuation in foreign exchange rates, it is admitted that they are
not responsil.>le for the great depreciation of foreign currencies in
American markets. This depreciation is due primarily to the inflatiOM
of European currencies and to the excess of European imports
over exports. The accumulative process of inflation of their
currencies and the continued excessive buying by Europeans have
been the two major causes for the constant decline of their currencies
in the American markets.
Thert: is little doubt that daily speculation in foreign exchange
bills has produced many marked changes in daily foreign ex·
change rates. American speculators who in 1919 bought German
marks in great quaptities held the "Mark" exchange rate at a much
higher level than would have been 'maintained if there had been
no speculation in marks. But under present conditions if ,there
were no speculation in any of the foreign currencies the exchange
rates would nevertheless greatly fluctuate from ~ay to day; and it
is quite probable that the fluctuation in their ratios would be mUCh.
more violent than it has been· under the present condition of feverish
speculation in foreign exchange bills.