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# Trade Balance Mechanism

## Definition

The economic process by which international payments naturally adjust to bring exports and imports into equilibrium, operating through exchange rates, price adjustments, and the flow of precious metals to settle imbalances between nations.

## Source Chapter

Book IV, Chapter 1

## Context

Smith explains how the balance of trade mechanism functions automatically to correct imbalances, with exchange rates adjusting to make imports more expensive when a country owes money abroad and exports more attractive when others owe money to it. This natural adjustment process undermines the need for government intervention.

## Economic Domain

Exchange

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