EXCHANGE. 



EXCHANGE. 



1000 



different countries, arose ; and the various legal rights, of the parties to 

 a bill of exchange, are also in that article, fully explained. 



In investigating that part of the subject which belongs to the 

 present article it is necessary to bear in mind that different countries 

 make use of different coinsdifferent in denomination, in weight, and 

 consequently in value. Thus, the pound is the money of England, 

 the franc that of France, the dollar that of America. These several 

 coins contain very different quantities of the precious metals. The 

 dollar, fur instance, contains about five times as much silver as the 

 franc, whilst the guilder contains only twice as much. The value 

 of a currency depends on the quantity of pure metal, contained in the 

 coin which forms its legal tender, alloy being left wholly out of the 

 account. 



In the language made use of by merchants, the existence of a par 

 of exchange is usually assumed. The Par of exchange, here in 

 England, is the expression of the relative worth of the coins of two 

 countries, with each other, at our Mint standard price. (' Report of 

 House of Commons Committee of Secrecy on Bank, &c.,' 1819, p. 206.) 

 Between two countries making use of the same metal a par may exist ; 

 but between two countries, one of which makes use, as its legal tender, 

 of gold, and the other of silver, an invariable par cannot exist. 



The following is a statement of the contents, in pure silver, of the 

 several coins forming the money of account, of the several countries 

 specified : 



Grains. 



Franc of France 69-4 



Mark of Hamburg 105-15 



Florin of Amsterdam 146-8 



Dollar of America 370-1 



Hence the mark is worth, in Paris, 1'515 francs; in Amsterdam, 

 14 stivers 5 pfennings ; and in New York, 28'2 cents. 



Gold is now a legal tender in America, and the sovereign is by law 

 worth 4-87 dollars, making the eagle of 10 dollars worth 21. Is. OJrf. ; 

 the dollar (of gold), 4s. 1 Jrf. ; and the 1001. sterling equal to 487 dollars ; 

 all of which are different expressions for the par between England and 

 the United States both being gold-using countries. 



We have said that a par of exchange cannot exist, between two 

 countries, making use of different metals, as the standard of tluir 

 respective currencies ; we shall now explain the reason. Gold is the 

 standard in England. The silver coin of England possesses a con- 

 ventional value, independent of the market value, and the latter may 

 fluctuate without affecting the former. Foreign -coins, the franc 

 or the guilder for instance, possess no such conventional value. They 

 are merely a commodity, liable to fluctuation, with the varying price 

 of silver. 



Some time ago it was found that, in a period of ten years, the price 

 of silver in the London market varied from 4s. lOJrf. to 5s. Irf. per 

 ounce of 444 grains pure, the medium price being 4*. lljrf. to 5>. The 

 extreme prices gave the following results : 



Price of Silver pr oz. 

 i. d. 

 4 10i 

 1 



Value of Franc. 



9* 

 8 f 54 



Value of SI. 



f. 



26-30 

 25-15 



Thus making a fluctuation in the so-called par of exchange of rather 

 more than 4| per cent. 



The assumption of a par of exchange, where no par can exist, is 

 likely to lead, at times, to great inconvenience. Suppose, for instance, 

 that the par between Paris and London be assumed at 25'58 f., which 

 is about the medium. Suppose further that the exchange is quoted at 

 26'SO f. ; what would be the inference ? Why that exchange was 2'8 

 per cent, in favour of England, and (the cost of transmission being 

 much less than the above difference) that consequently bullion was 

 about to pour into London. But suppose that, at the same time, the 

 market price of silver had declined, in London, to 4s. lOjrf. per ounce, 

 and gold, in Paris, had advanced in a like ratio, what would be the 

 effect ? Why the supposed premium, in favour of England, would 

 vanish, and the par, for the time being, would be brought to coincide 

 with the actual rate. 



The mining countries are the only exceptions to the rule, that no 

 country cm have the exchange permanently favourable or unfavour- 

 able with the whole world. ' Senior's Lectures Lect. I. on Transmission 

 of Precious Metals, p. 17. 



Though there exists no invariable par of exchange it is extremely 

 useful to the merchant to know the average value of the currency of 

 every country with which he trades, in order to ascertain, what may 

 be called the approximate par, which must be the pivot around which 

 fluctuations will necessarily turn. This approximate par (a term 

 which we make use of for the sake of conforming, .is nearly as truth 

 will permit, to the language familiar to merchants) should be grounded, 

 on the average value of a currency, taken on rv period sufficiently 

 long to include fluctuations from highest to lowest. To the ap- 

 proximate par so taken will be the tendency of the rate of exchange 

 to conform. 



The approximate par of exchange will be liable to be affected by four 

 pairs of circumstance*, in addition to a rise and fall in tin- price of the 

 yreciou* uietaln. These are 



1. Changes made by the supreme authority in the quantity of the 

 pure metal contained in the coin by way of increase or diminution. 



2. Depreciation from the use of paper money, and restoration. 



3. Clipping, and restoration. 



4. Wear and tear, and restoration. 



1. Ltyal Changes in l/ie Cuinaije. Governments have not (infrequently 

 found the diminution of the quantity of the metal, contained in the 

 current coin, an easy way of getting rid of improvideutly contracted 

 debts. The English pound was once a troy pound of silver ; it is now 

 about four ounces. The French livre, once probably the same quan- 

 tity, is now less than a seventieth part of a Ib. 



A government, having borrowed to many pnimili of its subjects, 

 would find it a very convenient thing, when the day of payment should 

 come round, to call ten or fifteen shillings ' a pound ; ' and as it \\ ml. I 

 have all the debtors in the kingdom on its side, popularity would be 

 divided on the measure. But although creditors, at home, may be 

 compelled to submit to this robbery, creditors abroad cannot. Their 

 contract is to receive a given sum of the money of their own 

 country, and the only effect, of any debasement, will be that the 

 foreign debt will require more of the debased money to liquidate it ; 

 in other words, exchange will fall in the ratio of the debasement. 

 Thus suppose the sovereign to be reduced in weight 10 per cent., 

 exchange on the Parisian Bourse, if at 25'58f., would fall to 23f. 2c. 

 If, on the other hand, the franc were reduced, exchange would i 



We can illustrate this by two historical fact*. Formerly the Spanish 

 dollar contained as much silver as 4s. b'rf. sterling, and consequently 

 the average value of W0(. was 444 dollars 44 cents. The weight of the 

 dollar however has been since reduced, and it now contains only as 

 much silver as 4s. Id. sterling, so that the average value of ]ii(V. 

 sterling is now 480 dollars ; the difference being 8 per cent. The old 

 language of quotation however has never been wholly abandoned by 

 the American merchants. They still assume the old par, so that 

 when exchange is quoted at 10 or 11 per cent, premium a premium 

 which, as we shall presently see, could not be maintained for an hour 

 it is in fact at 2 or 3 per cent, only (the remaining 8 per cent, 

 being nominal) ; and when it is quoted at (i or 7 per cent, premium, 

 it is in fact at 1 or 2 discount. The other fact to which we 

 allude is the adoption of a gold standard, in the United States, at a 

 rate, compared with silver, to render the American currency pr:>, 

 debased. 



Before the introduction of the Gold Bill the average value of 100/. 

 sterling, as we have seen, was 480 dollars ; by the new standard, the 

 quantity of gold contained in 100/. is now coined into 487 dollars, being 

 a difference of 1'45 or nearly 14 per cent. Thus the par between 

 England and America is now 487 d. 1007., or adhering to the old 

 (erroneously assumed) par, a nominal premium of 9'45 per cent. 



2. Paper Money. One of the evils to which paper money is liable 

 is depreciation from excess. The market price of money, like that of 

 every thing else, varies in the inverse ratio of its quantity. If it be 

 scarce it will be dear ; in other words, all other things will be 

 cheap. If, on the other hand, money be in excess, it will be cheap ; 

 in other words, much of it will be given in exchange for other things. 

 To say that prices are advancing, is equivalent to saying that money is 

 getting cheaper and cheaper. The effect of issuing paper money in 

 excess is, then, to make money, both metallic and paper, cheap. Being 

 cheap, it becomes desirable to export it ; but paper money is not 

 available for this purpose, and hence metallic money ia alone exported. 

 Bullion in the uncoined state would, under such circumstances, 

 advance in price, but the sovereign would be still a sovereign ; hence 

 there would exist a motive to convert coined money into bullion, or to 

 export it. Bullion however would not be exported, except when it was 

 really cheaper here than in other countries. 



During the Bank restriction the depreciation reached 27'9 per cent. 

 Gold was then worth 51. 8s. per ounce, and silver 6s. Hit, estimated in 

 paper money. But at these nominally high prices the proportion 

 between gold and silver was precisely the present average proportion , 

 namely, 1 to 15'52; or, gold at 31. 17s. lOjrf., and silver at in. ll;i/. 

 The Parisian par was then 1 8-43f. per II. sterling (instead of 25'58f.) 

 so that although ruin might be sent away as a cheaper mode of con- 

 version than melting, bullion would not necessarily be an article of 

 export, unless when exchange was really, and not merely nominally, 

 against us. 



We have seen that the present average value of the dollar is 4s. 2rf. ; 

 when silver was at 6s. llrf. the value would be 5s 9Jrf. in the <l 

 ated English money. Hence a debt in London of 100/. could !>< di.- 

 charged with 846 dollars 18 cents, whereas now it would require 

 480 dollars. The dollars remained unchanged, but 100?. of 1813 was 

 worth only 72/. 2s. in gold. 



As the par of 4s. (id. was then, as now, retained, the depreciation 

 was met by a heavy nominal discount of 27& per cent. It ia unneces- 

 sary to pursue these rale illations to other countries ; the same prinri]>l< 

 apply to all countries. 



It is scarcely necessary to observe, that, in the process of restoration, 

 the phenomena are reversed. A restoration of the English currency, 

 for instance, would be similar, in its effects, to a depreciation of the 

 currencies of all other countries. 



8. Clijipint/ the C'ltiii. In some countries the practice of clipping the 

 coin still continues, and it is likely to continue just so long as people 





