بِسۡمِ اللّٰہِ الرَّحۡمٰنِ الرَّحِیۡمِِ

Al Islam

The Official Website of the Ahmadiyya Muslim Community
Muslims who believe in the Messiah,
Hazrat Mirza Ghulam Ahmad of Qadian(as)Muslims who believe in the Messiah, Hazrat Mirza Ghulam Ahmad Qadiani (as), Love for All, Hatred for None.

Adoption of Prevailing Exchange Rate System

The sixth flaw of the Communist economic system — one that will not let it supersede capitalism — lies in its adoption of the exchange rate mechanism, which emerged out of banks’ manipulation and government interference. Communism not only supports this mechanism, but has chosen to act according to its dictates. As it is, the exchange rate (which is the relative price of two currencies) is no longer determined by a country’s balance of trade, but is fixed by the great economic powers. In fixing the exchange rate, these powers pursue basically their own self-interest and trade strategy. They take into account not only the current balance of trade but also the development of future commercial relations. As far as the weaker or poorer economies are concerned, their exchange rates are in the hands of banks.

Weaker countries often complain about the prevailing system but their protests go unheeded, and they continue to face a disadvantage in trade, as they lack sufficient economic influence. As things stand, an exchange rate between two currencies is essentially artificial and can be utilised to their advantage by banks as well as governments. As a result, international trade, instead of being governed by supply and demand conditions in the markets of commodities and precious metals, is driven by the exchange rates between different currencies. Consequently, the trade of the weaker economies is subject to manoeuvring on the part of banks, while the trade of the stronger economies is influenced by political considerations. There is no doubt that the exchange rate system has facilitated commerce, and the growing volume of international trade would not be possible without a satisfactory system of exchange. But it is not necessary that for the exchange rates to be subject to politics and used as a means to exploit poor economies.

With careful consideration, it should be possible to adapt the old barter system — which was based on the exchange of goods, not the exchange rate — to meet the present-day requirements of trade, while protecting it from government interference. After due consultation with traders and government representatives, the exchange rate regime could be adjusted as needed, but its guiding principle must remain the exchange of goods rather than paper money.

After the war [of 1914–18], Germany manipulated its exchange rate and depreciated its currency so much that capital began to flow into the country from all over the world. And when it had built up large enough foreign exchange reserves to meet its commercial requirements, Germany just abolished its currency at little or no cost. This kind of measure could not have been possible under the barter system. Russia did attempt to follow in Germany’s footsteps, but because of its lack of financial expertise and backward industry, it could not derive much benefit from it. An artificial exchange rate, in short, is a weapon that the strong can use to gain control over the trade of weaker countries and to make trade flow not in its natural directions but into channels of their choice.

By accepting the prevailing exchange rate system, Communist Russia in effect has left the foundation of capitalism intact. As a consequence, with the growth of its industries, the country would resort increasingly to this weapon to secure new markets, thereby gaining control over the trade of weaker countries. The Soviet State may of course amass great wealth this way, but in the process she would undermine the weaker economies and thus nullify the very principle that gave it birth.1


1 Note: The author’s above remarks were both profound and prescient. Soon after the time of this lecture, The International Monetary Fund (IMF) and the World Bank were established, and currency manipulation by any country was made unacceptable and subject to sanctions. (publishers)