ABSTRACT
The decline in domestic prices and costs is replaced by external currency appreciation, and instead of domestic rise in demand we have a permanent currency depreciation. If an economy should pursue a dual strategy of fighting off both imported inflation and depression, relative depreciation and appreciation can even be combined. The undervalued currency continues to appreciate until the domestic monetary unit attains the same unrefracted real purchasing power in domestic and foreign markets. The restoration of real purchasing power parity of domestic and foreign money use or spending in one stroke also restores the equilibrium in the balances on current accounts and in exchange-rate relations. The international money and credit market "freest" of all control is at the same time the one farthest removed from all official information, as well as the most unequal among partners.
