19 - Money, The Balance of Payments, and Exchange Rates

Abstract

Monetary events have important influences upon the international balance of payments and exchange rates between national currencies. They often cause surpluses or deficits in a country's balance of payments, which, in turn, have further repercussions within the country. Monetary and fiscal policy is often directed to removing imbalances in the international accounts. The same is true of exchange rates, variations in which are often taken to be the source of domestic economic troubles. For these reasons, it is important to have the guidance of a theory that helps policymakers understand the causes of changes in the balance of payments and exchange rates and which comes to their aid when they seek to improve the international position of the dollar.