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.
- 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.
- The expense of administration is divided among the countries of the Association in proportion to the amount of Iva notes issued to them.
- 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).
- A country can leave the Association at any time on redemption of the bill of exchange mentioned in paragraph 12.
- To dissolve the Association, these bills of exchange could be paid to the Iva Office which could then destroy the Iva notes so recalled.