I9. As long as commodity trade, exchange of services, long-term investments and unilateral payments are treated as the only sources of supply and demand of foreign exchange, as long, therefore, as international movements of gold and short-term balances are excluded, the analysis can be said to deal with " independent currencies As soon as international movements of gold (and other monetary metals) and short-term (bank) balances are introduced as sources of supply and demand of foreign exchange, the analysis proceeds to currency systems whose effective circulation is not independent of international transactions. Inflow and outflow of gold, and acquisition and disposal of foreign bank balances, may change the effective monetary circulation of the countries concerned. Institutions which secure that gold and foreign bank balances can be bought and sold at fairly fixed prices, constitute the essence of the gold standard. Leaving international movements of bank balances for the last step of our analysis, we introduce first international gold movements, and make the assumption that the monetary authorities of both countries are prepared to buy and sell gold at fixed prices or pairs of prices. This assumption, i.e., the assumption of the gold standard maintained in both countries, implies that at a certain exchange rate the supply of foreign exchange becomes infinitely elastic, and at another (somewhat lower) exchange rate, the demand for foreign exchange becomes infinitely elastic. Under an "orthodox " gold standard system, it is not the monetary authorities themselves which offer to sell