ECONOMICS 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 sellers ; it has degraded the foreign trade business 

 from the plane of a conservative business undertaking to that of 

 wild speculation. 



The professional speculator has been much condemned by 

 the public through the press for causing this violent foreign ex- 

 change fluctuation, and many have advocated the passage of na- 

 tional laws prohibiting speculation in foreign exchange, while others 

 have suggested that some scheme be devised whereby .foreign ex- 

 change rates would be "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 responsible for the great depreciation of foreign currencies in 

 American markets. This depreciation is due primarily to the infla- 

 tion of European currencies and to the excess of European im- 

 ports 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. 



There 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 quantities 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 day 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 fever- 

 ish speculation in foreign exchange bills. 



As a matter of fact the commercial demand and the commercial 

 supply of foreign exchange bills in the American market vary 

 greatly from day to day. This variation in demand and supply of 



