At the end of World War I, the Treaty of Versailles imposed an indemnity on Germany, a large annual payment from it to the victorious Allies. (Many historians believe this indemnity played a rule in destabilizing nancial markets in the interawar period and even in bring on World War II.) In the 1920s. economists John Maynard Keynes and Bertil Ohlin had a spirited debate in the Economic Journal over the possibility that the transfer payment would impose a "secondary burden" on Germany by worsening its terms of trade. Use theory developed in this chapter to discuss the mechanisms through which a permanent transfer from Poland to the Czech Republic would affect the real zloty/koruna exchange rate in the long run. I II I T\". I III I u I I I. l