Economic Problems of Latin America

By Seymour E. Harris | Go to book overview

Chapter VII Exchanges and Prices

by SEYMOUR E. HARRIS


INTRODUCTION

Exchange problems are dealt with incidentally in several chapters in this volume.1 It seems necessary to treat them somewhat more fully here. They are, of course, technical problems, but in this chapter the treatment is as nontechnical as it can be made without being inadequate.

In recent years Latin American countries have not been disposed to allow their exchanges to fluctuate freely in response to supply and demand. They have not, on the other hand, adhered to fixed exchanges. When demand for their exports has weakened seriously, exchanges have frequently been allowed to drop. Dollars (used interchangeably for world currencies) become more expensive and pesos (here used for purposes of exposition as the Latin American currency) cheaper. When, on the other hand, exports have been greatly in demand and capital has flowed in, the authorities have not been inclined to allow the exchanges to find their free level. Appreciation has not been so popular as depreciation. Governments have found ways of holding appreciation in check.

Exchange policy has also been directed toward (1) encouraging exports; (2) discouraging imports; and (3) improving the terms of trade, i.e., obtaining more units of imports for X units of exports.

Exchange depreciation is, of course, a simple technique for the encouragement of exports and discouragement of imports. Assume

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1
See especially Chs. IV on Central Banking and Monetary Management and X, XII, XIV, and XVIII on Bolivia, Chile, Cuba and Venezuela.

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