Glossary of Key Terms
Glossary of Key Terms
| Term | Definition |
| Arbitrage | The operation of buying assets on a market where they are cheaper and selling them where they are more expensive. In foreign exchange, arbitrage serves to equalize exchange rates between different markets. |
| Balance of Payments | Can refer to two concepts: 1) The momentary difference between immediate debit and credit obligations of a country, reflected in the foreign exchange market. 2) A summary statement of all transactions (trade, capital, etc.) over a period (e.g., a year), which necessarily balances. |
| Bank Money | Demand deposits subject to cheque, which form a major component of the circulating medium in modern economies. |
| Blocked Accounts | Bank accounts, typically owned by foreigners, whose owners are prevented from converting them into foreign currency and are restricted in their use even within the country that has “blocked” them. |
| Currency Based on Gold | A monetary system where the circulating medium (e.g., bank notes) is convertible into gold at a specified price, but is not itself gold. Also known as a gold-standard currency. |
| Economic Nationalism | The policy of national self-sufficiency or the pursuit of national economic “autonomy,” which subordinates international relations to purely national objectives and often disrupts the mechanisms of monetary internationalism. |
| Exchange Control | The centralization of all dealings in foreign exchange in the hands of a public authority, which buys and sells foreign currency at legally fixed rates, thereby suppressing the free market mechanism. |
| Exchange Equalization Fund | A large governmental fund used for systematic, planned intervention in foreign exchange markets to reduce fluctuations and discourage speculation by acting as a major buyer or seller. |
| Exchange Standard | A monetary system where a country’s monetary standard is the currency of another country. The central bank maintains a fixed parity with the standard currency by holding reserves of it and ensuring convertibility. |
| Free Paper Currency | A monetary system in which the currency is not based on any standard (like gold or a foreign currency), allowing monetary authorities freedom from the obligation of stabilizing the price of a standard. |
| Gold Clearing Standard | A proposed system where international gold shipments are replaced by transfers of earmarked gold on the books of a central clearing institution, such as the Bank for International Settlements, thereby eliminating gold points and creating absolutely fixed exchanges. |
| Gold Currency (All-Gold Currency) | A monetary system where all money in circulation consists of gold coin. In this system, prices are rigorously “gold prices.” |
| Gold Exchange Standard | A hybrid system where gold is the monetary standard, but the central bank can redeem its notes in either gold or the foreign exchange of a gold-standard country. It allows a country to hold reserves in the form of foreign balances. |
| Gold Points | The upper and lower limits of exchange rate fluctuations under a gold standard, determined by the cost of shipping gold. When the exchange rate hits a gold point, it becomes profitable to ship gold rather than buy foreign exchange. |
| Gold Standard | A monetary system where the price of gold in terms of the national monetary unit is fixed by law and maintained by the obligation of the monetary authorities to buy and sell unlimited quantities of gold at that price. |
| Induced Re-equilibrium | A theory explaining the restoration of equilibrium in international payments through policies adopted in response to a disequilibrium, such as a central bank raising its interest rate in response to a gold outflow. |
| Maldistribution of Gold | A situation where a shortage of gold in certain countries co-exists with a redundancy of gold in other countries, typically resulting from a failure of the international adjustment mechanism. |
| Mint-Par | The parity between two currencies on a common metallic standard (e.g., gold), determined by the ratio of their legally fixed prices for a given quantity of the metal. |
| Monetary Internationalism | An international co-ordination of national monetary policies with the view to maintaining monetary stability and the smooth working of international trade and finance. |
| Monetary Nationalism | The doctrine that a country’s monetary policy should be governed merely by considerations of national stability, without co-ordination with other countries, often leading to fluctuating exchanges. |
| Purchasing Power of Gold | A term for the power of gold to purchase goods and services. The author critiques its common definition as being synonymous with the reverse of the price level in gold-standard countries. |
| Purchasing Power Parity | The theory that the equilibrium rate of exchange between two currencies is determined by the ratio of their respective internal purchasing powers, typically measured by price level indexes. The author finds this theory unacceptable. |
| Sterilization of Gold | Occurs when a central bank does not allow an inflow of gold to serve as the basis for the greatest possible expansion of credit, effectively preventing the gold from influencing the domestic money supply. |