Y THE MIDDLE OF 1951, the "dollar problem" had come much nearer to solution than most observers had considered possible not many months earlier. Some of the more recent improvement in the dollar position of countries outside the United States is due to the rapid acceleration of U.S. imports after the middle of 1950 in connection with the hostilities in Korea. But even before this, the change in the situation had been very pronounced. The surplus on account of goods and services in the U.S. balance of payments, which had been at an annual rate of $7.6 billion in the first half of 1949, was reduced to an annual rate of $3 billion in the first half of 1950. In transactions with the OEEC countries in Europe alone, the U.S. surplus decreased from $3.7 billion to $1.9 billion (annual rates). Measured by the amount of grants from the United States and the use of dollar balances and gold sales to the United States, the improvement in the position of the European countries was even more striking, with the U.S. surplus vis-a-vis these countries dropping from $5.2 billion to $1.9 billion (annual rates). Between these two periods occurred the greatest adjustment of exchange rates that ever took place in so short a period. Countries accounting for 65 per cent of world imports devalued their currencies, most of them by about 30 per cent. The question naturally arises, therefore, of the connection between progress toward the solution of the dollar problem and the widespread devaluations. To this question the present paper is directed; for practical reasons, its scope is limited to changes in the position of the European devaluing countries. Ideally, an appraisal of the effects of the devaluations, which obviously had not fully materialized by the middle of 1950, should be based on observations drawn from as long a subsequent period as possible. But while it is difficult to disentangle the effects of the devalua-