The passage states that when productivity goes up, it generally drives up wages. If wages are held down, then the value of the currency goes up. In the last sentence, the author states that the free movement of capital makes it hard for a country to deliberately keep its currency undervalued.
So let's say Country X increases its productivity and holds wages down. Normally this would increase the value of the currency. However, if capital does not move freely, Country X may also be able to hold down the value of its currency. We now have a case in which productivity increases without an increase in the value of the currency.
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