This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1919. Excerpt: ... tion must be made by cutting down the weight representing imports or adding to the weight representing exports. When the deficiency of exports was slight, and the financial mechanism of the world normal, the correction was made by shipments of gold. The shipment of gold tended directly to correct the balance, first, from its own weight, but in a much more important measure, from its indirect effect. When gold was shipped out of a country interest rates tended to rise and prices to fall. The markets of that country became more favorable to buy in than to sell in, and the country's exports increased while its imports decreased. Thus the balance was brought back toward the normal. Now, however, we have a situation where that form of correction can not be applied or can only be applied in a comparatively small degree and in an ineffective way. What else can be done to adjust the weights in the pans so as to hold in check that tendency of exchange rates further to fluctuate from the normal? A nation that facts an imperative need for imports and that has, for the time being at least, an insufficient amount of exports to counter-balance its imports, may throw into the pan with its exports one other weight, the weight of its credit. If such a nation can make an external loan, the proceeds of that loan have the same effect in tending to bring back toward the normal the exchange rate as would an amount of merchandise exports of the same value as the loan. Tf the out-of-balance condition is only a temporary one that needs but the progress of a season to correct, then the loan may take the form of bank credits; and the function of international bank credits is usually that of correcting temporary out-of-balance conditions. But Europe faces a situation in which its de...