6. INTERNATIONAL TRADE

3. Stabilisation of the International Exchanges: Practice.
The International Valuta Association. (Iva).

1. Countries desiring to join the International Valuta Association adopt the "Iva" unit of currency standard.
2. This new unit is not static (substance); it is dynamic (action). As the result of a continuous active currency policy it can remain a fixed quantity only as long as that currency policy keeps it so.
3. The currency policy of the Iva countries is based upon stabilisation of the currency. (*By currency stabilisation is meant the equilibrium between the supply of money and the supply of goods - the fixed general level of prices - resulting from an active currency policy with this aim.)
4. The statistics of prices required for a policy of stabilisation are recorded on a unified system by all the countries of the Association.
5. An active currency policy with stabilisation as aim depends upon the quantity theory of money, upon the fact that if the general level of prices fluctuates, it can under all circumstances, even in time of war, be brought back to a starting point by an increase or decrease of the monetary circulation.
6. The currency systems of the Iva countries remain national, but are based on unified principles, valid in all circumstances and for all stages of development.
7. This unified national currency policy removes the chief cause of disturbances in the balance of trade and of the resulting fluctuations in the exchanges.
8. Small disturbances in the balance of trade caused, for example, by the course of the seasons, are still possible.
9. To eliminate completely the effect of these disturbances upon the exchanges, a special form of international paper-money is issued which is imported and exported without hindrance by all the countries of the Association and is recognised by them as legal tender at par with the national currency.
10. This international paper-money is issued by the Iva Office, say at Beme, to the countries of the Association and under their supervision. The Iva notes are issued free of charge, except for the expense of printing and administration.
11. The quantity of Iva notes is determined solely by their regulating effect upon the exchanges, about 20% of the national issues being required for this purpose.
12. For the amount of the Iva notes issued to each country the Iva office at Beme receives a bill of exchange payable only in case the country, by mismanagement of the national currency resulting in a permanent deficit in its balance of trade, has forced the export of its Iva notes, Iva notes being obtainable only on payment of an agio. From the date of this occurrence the bill of exchange bears interest.
13. The Iva notes are issued in a denomination especially suitable for retail trade. Scarcity of superfluity of the notes is therefore felt immediately.
14. It is in the interest of the countries of the Association to take the measures necessary for keeping the Iva notes at par with the national currency.
15. For this purpose national notes are issued when Iva notes are flowing into the country, and national notes are withdrawn when Iva notes are leaving the country.
16. If this international currency policy, undertaken in the interest of the Iva note, leads to an appreciable and lasting discrepancy with currency stabilisation, an international investigation is instituted by the Iva office to discover the cause of the disturbance and to issue to all the countries of the Association the instructions necessary for its elimination.

Figure 7.
Stabilisation of the international Exchanges by means of international (Iva) notes.

The upper, lightly shaded part of the reservoirs represents national notes; the darker shading international notes.

Explanation of Figure 7.

Just as Water in a System of communicating pipes tends, when disturbed, to return automatically to the same level, so in countries which link their currencies by means of Iva notes, prices will remain at the same level, or tend, if disturbed, to return to that level - provided, of course, that the national currencies are based on the principle of stabilisation.

If one of these countries abandons the principle of stabilisation and pays no heed to the danger signals (export and import of Iva notes), it will become flooded with Iva notes (U.S.A. in the figure), or completely drained of them (England in the figure). But it is detrimental to a country to become flooded with international notes, since it loses the interest on the national paper-money that it might have issued. And it is still more detrimental to a country to become drained of iva notes, on account of the resulting premium on these notes which disturbs its foreign trade. The normal situation is shown in the reservoirs marked France and Italy. In the reservoir marked U.S.A. the plethora of international notes is being relieved by a strong dose of national notes. In the reservoir marked England, on the contrary, the premium on iva notes is being removed by withdrawal of national notes. (The Open tap in the figure).

The drawing represents a closed system, but the communicating pipe is shown with a coupling (on the right) to facilitate the entry, later, of other countries into the Iva system.

Any form of international currency, not only gold, will stabilise the international exchanges. Countries adopting the gold standard had stabilised exchanges but a fluctuating price level. Countries adopting the Iva system have stabilised exchanges but, as well, a stabilised price level.

17. To exclude the influence of the cost of transport (import and export) of Iva notes upon the exchanges, this expense is borne by the Iva Office.
18. The expense of administration is divided among the countries of the Association in proportion to the amount of Iva notes issued to them.
19. Any non-European country observing paragraphs 1 and 9, and adopting the principle of currency stabilisation can join the Association and will then receive the usual amount of Iva notes (20% of the national issue).
20. A country can leave the Association at any time on redemption of the bill of exchange mentioned in paragraph 12.
21. To dissolve the Association, these bills of exchange could be paid to the Iva Office which could then destroy the Iva notes so recalled.