194 Professor Whewell on the 



THE RATE OF EXCHANGE. 



17. The different tendency of the money metals to flow into 

 or out of different countries, and the different level of prices con- 

 sequent on this, is not at all indicated by the rate of exchange. 

 On the contrary when the equilibrium is attained which such 

 tendencies produce, the exchange is at par. The average rate of 

 exchange can only be for or against a country when the 

 value of the exports is greater or less than that of the imports. 

 In that case the following appear to be the principles upon which, 

 in accordance with the views commonly promulgated on this 

 subject, the amount of the rate must be determined. 



POSTULATES CONCERNING EXCHANGE. 



I. When between two countries A and B, the debts due 

 from A to B are of greater money amount that those due from 

 B to A, bills in A payable in B will be sold for more than 

 their nominal value. 



The seller in A of a bill on B, authorizes a person coming 

 from A to make a demand on his correspondent in B. If his cor- 

 respondent cannot answer this demand by a bill on A, he must 

 pay in coin ; and if there be not, arising from mercantile trans- 

 actions, a sufficient number of bills on A to meet such demands, 

 gold must be exported from A to B for that purpose. The seller 

 of the bill in A will not therefore sell it without providing for 

 the foreseen expense of this transfer of gold, and the price of 

 the bill will rise above its nominal value, by some premium 

 dependent on the amount of such expense supposed to be 

 necessary. 



