Monetary pricing mechanism
The money supply price mechanism is a balance of payments adjustment mechanism which reduces balance of payments surpluses or balance of payments deficits via changes in exchange rates and thus leads to the restoration of balance of payments adjustment.
Effective range
The money supply price mechanism works in the following scenarios:
- with a gold standard or
- at fixed exchange rates , when the central bank defends the exchange rate by buying foreign currency and does not neutralize the resulting increase in the amount of money through sterilization .
The prerequisite is always that the export - and import demand elastic responding. Furthermore, the money supply price mechanism only works if the country with balance of payments deficits waives economic stimulus programs.
Mode of action
If there is a balance of payments surplus in country A, the supply of foreign currency in the foreign exchange market is greater than the demand. The exchange rate mechanism does not work, however, because the central bank buys foreign currency to prevent its own currency from appreciating. Foreign currency purchases are paid for by issuing central bank money, which means that the money supply rises above the growth in goods and services, which in turn causes price increases ( inflation ). In a fixed exchange rate system, rising domestic prices lead to rising export prices, while exports decline. In addition, rising domestic prices mean that import prices become relatively cheaper and imports rise. Falling exports and rising imports ultimately lead to the restoration of balance of payments. This means that the upward pressure on the currency disappears and the central bank no longer has to intervene.
disadvantage
The money supply price mechanism leads to balance of payments adjustment by increasing inflation in countries with balance of payments surpluses . In countries with balance of payments deficits, balance of payments is equalized by causing deflation, causing depression and increased unemployment .
Individual evidence
- ^ Springer Gabler Verlag, Gabler Wirtschaftslexikon , balance of payments adjustment
- ^ Rainer Fischbach, Volkswirtschaftslehre II , Oldenbourg Verlag, 2002, ISBN 9783486258707 , p. 212
- ^ Rainer Fischbach, Volkswirtschaftslehre II , Oldenbourg Verlag, 2002, ISBN 9783486258707 , p. 212
- ^ Rainer Fischbach, Volkswirtschaftslehre II , Oldenbourg Verlag, 2002, ISBN 9783486258707 , p. 212
- ^ Rainer Fischbach, Volkswirtschaftslehre II , Oldenbourg Verlag, 2002, ISBN 9783486258707 , p. 212