In Henry Hazlitt’s book, “Economics in One Lesson”, he writes how money spent in a foreign country to import goods from that country must be spent by that country to buy goods from the original country (either directly or indirectly by exchanging with someone else who wants to do so), because the foreign currency is generally not useful in that country. A snippit:
An American exporter sells his goods to a British importer and is paid in British pounds sterling. But he cannot use British pounds to pay the wages of his workers, to buy his wife’s clothes, or to buy theater tickets. For all these purposes he needs American dollars. Therefore his British pounds are of no use to him unless he either uses them himself to buy British goods or sells them to some American importer who wishes to use them to buy British goods. Whichever he does, the transaction cannot be completed until the American exports have been paid for by an equal amount of imports.
My question is this: does Fiat Currency change this?
In the current world, exchanges between currencies can be done almost instantaneously via electronic exchanges. Therefore, a selling country does not need to hold foreign currencies which therefore must be used to buy other items from the country in which that currency is held. All well and good as far as it goes. But in a commodity-backed currency world, there is only so much of the other currency to exchange, so it seems that there is a limit on the amount of money that can be converted.
However, if governments can print money at whim, does this change the equation? Granted, the U.S. can’t print Chinese Yuan, but with an indeterminate and constantly changing soft “cap” on the total amount of money “out there”, does this break the feedback loop whereby excessive exports would spur imports because the foreign currency received would have to be spent in kind?