:

THE

THEORY
OF THE

FOREIGN EXCHANGES
BY

The Right Hon. GEORGE

J.

GOSCHEN,

M.P.

NINTH EDITION,

LONDON
EFFINGHAM WILSON, ROYAL EXCHANGE.
1876.

The Right of Translation

is reserved.

PEEFACE
THIED EDITION,

The few weeks which have

pubhcation of the

second

elapsed since the

edition

have again

proved the rapidity with which the situation of

Exchanges" may be

reversed,

and

the difficulty of selecting durable illustrations.

In

the ''Foreign

the preface to the second edition,

made

to the fact that the

allusion

was

Hussian Exchange, so

long an example of unlimited fluctuations, had

been brought almost to par.

Since then a severe

has again taken place.

So, in the former

fall

edition,

the rapid

fall

in

the price of gold in

for

comment

also a turn

has taken

America furnished the opportunity

and examination.
place,

and to-day

But there
it

would be necessary rather

seek an explanation of the rise than of the

to

fall.

It is scarcely the province of a theoretical treatise

A 2

PREFACE TO THE TUIRD EDITION.

to keep pace with each

An

author

progress

may

new combination

be considered bound to watch the

of events,

as

a constant

accuracy of his principles, but

sible,

new

nor

is

of facts.

it

illustrations.

it

test

is

hardly pos-

necessary, perpetually to
It has, therefore,

of the

adopt

been deemed

unnecessary to make any further alterations in the

present edition.

PEEFACE
lO XHB

SECOND EDITION.
The
last

history of the Foreign

two years

is

Exchanges

for the

a history of revokitions.

movements which have occurred

in

many

The

quarters

have been almost unexampled in rapidity and

extent.

Countries which formerly supplied

trations of particular

Exchanges,

may now

phenomena

illus-

in the Foreign

be cited as instances of per-

fectly opposite combinations.

The various causes

which have been stated in the following work as

determining the course of the Foreign Exchanges

have been at work with more ilmn usual intensity,

and the new combinations which events have presented have afforded

many opportunities

of testing

the correctness and sufticiency cf the principles

advanced. The exchanges of those countries which,

two years ago, were selected as exemplifying the

results of a depreciated currency or excessive in-

debtedness, might now, on the contrary, be cited as

instances of rapid recovery.

change has recovered

fully

The Austrian Ex30 per cent.

The

PREl-ACE TO

VI

THE SECOND EDITION.

Eussian rouble has approached the parvahie of gold.

In America, on the other hand, the very opposite

has occurred.

The American Exchanges, which in

the former edition were shown to

tain limits

move within

cer-

determined by the cost of bullion ship-

ments and by the intermediate value

of

money

have since afforded the most notorious examples in

recent days of unlimited and indeterminable fluctuation.

An

inquiry into the theory of the Foreign

Exchanges can scarcely keep pace with the

events.

However

tide of

interesting a review of the events

themselves might have been,

it

could not conve-

niently be introduced into a treatise which aimed

chiefly at the statement of a theory,

and

dealt

with contemporary fact only as illustrating general

causes.

The new matter which,

in this respect, has

been introduced into the second edition,

to the consideration of the
It

is

confined

American Exchanges.

would not have been compatible with the general

course of the argument to treat so complicated a

question exhaustively or historically.

The mone-

tary situation of America has been so extraordinary,

the difficulty of acquiring accurate knowledge on

is so great,

rapid, that
facts

the changes to which

it is

it

subject are so

an exhaustive inquiry into the actual

would have assumed the proportions of a

PREFACE TO THE SECOND EDITION.

separate work.
arise

Thus any controversy which may

on that portion

deals with the

which

of the present treatise

American Exchanges, should turn

rather on the correctness of the

pretation

Vll

mode

of inter-

on a common ground of fact, than on the

absolute correctness of the facts themselves.

latter

have been stated as carefully as possible, and

every precaution against error has been taken.

nevertheless, any uncertainty should be

regard to the description

stances,

it

must not be allowed

The other important

felt

If,

with

of particular circumto place in doubt

the scientific certainty of the theory

made

The

alterations

itself.

which have been

in the second edition are to be found in those

chapters which discuss the question of so-called

*^

Unfavourable Exchanges," and the

**

Adverse

Balance of Trade," and which examines the possibiUty of

**

correcting " such a situation by

of a high rate of interest.

exact force of the term

and

^^

*'

With regard

means
to

Unfavourable Exchanges"

Adverse Balance of Trade," as they are

used in monetary

the

still

treatises, not as characterising

any situation which from the general point of view

of the prosperity of
able,

any country

is really

unfavour-

but simply as denoting a certain set of circum-

stances which bankers and merchants persist in

PREFACE TO THE SECOND EDITION.

VIU

calling

by that name, the original text scarcely

left

much misconception. Nevertheless the

endeavour has now been made to limit and define

room

for

the sense of these terms

is

still

more

rigorously, as

it

highly important that a real discrepancy should

not be supposed to exist between political econo-

mists and the banking world, whereas the discre-

pancy,

exists

if it

at

only in the nomen-

all, lies

With regard

and not in the theory.

clature

to

the power of a high rate of interest to effect the

exchanges, the objection has been raised against

certain passages in

seemed

the

first

countenance the idea that money might

to

artificially

be

made cheaper

or dearer, and that the

action of banks or individuals

must

that which

and demand.

may have
events,

more

it

edition, that they

really be

might accomplish

determined by supply

Possibly the expressions employed

lent a colour to this objection, and, at all

seemed desirable

fully.

It is

to develop their

hoped that the

meaning

alterations intro-

duced

will clear

up any misconception in

spect,

and that

will

made

as to the limits within

of the

Bank

discount
its

is

of

it

this re-

appear from the observations

England

which the influence

in dealing with the rate of

confined, that

no exaggerated ideas of

owers were intended to be conveved.

CONTENTS.
rxOB

INTRODUCTION

CHAPTER

I.

AND PRELIMINARY EXAMINATION OF THE

DEFINITION

TRANSACTIONS

WITH

WHICH THE FOREIGN EX-

CHANGES ARE CONCERNED

CHAPTER
ANALYSIS

xi

OF

SIDERED

INDEBTEDNESS

INTERNATIONAL
AS

THE

BASIS

II.

OF

CON-

THE FOREIGN EX-

CHANGES

11

CHAPTER

III.

EXAMINATION OF THE VARIOUS CLASSES OF FOREIGN

BILLS
IS

IN

WHICH INTERNATIONAL INDEBTEDNESS

ULTIMATELY EMBODIED

23

CONTENTS.

CHAPTEK

IV.

ENUMERATTON OF THE VARIOUS ELEMENTS OF VALUE

WHICH DETERMINE THE FLUCTUATIONS IN THE

PRICES OF FOREIGN BILLS

43

CHAPTEE

V.

.......

REMARKS ON THE INTERPRETATION OF THE FOREIGN

EXCHANGES

84

CHAPTEE VL
REVIEW

OF

THE

SO-CALLED

FOREIGN EXCHANGES

.....
CORRECTIVES

OF

THE
125

INTRODUCTION.

The

inquiry which

is

conducted in the following

pages belongs to that class of discussions for

which, owing to the prevalent belief that they are
peculiarly abstruse and technical,

it is difficult,

ordinary times, to obtain a hearing.

must be

The moment

seized for the ventilation of such subjects,

when peculiar combinations

them

in

into prominent

when they

of circumstances bring

and exceptional

notice,

are exhibited as influencing or explain-

ing events which are of universal interest

and

To those who make the Foreign

importance.

Exchanges

and

their

them not only

constant

study,

in the light in

and examine

which they present

themselves to the political economist, as an index of

the balance of trade between different countries,

but also from the point of view from which they

INTRODUCTION.

Xll

regarded by bankers and merchants,

are

reliable

as a

barometer of the state of the money-market,

of the soundness of credit, of the rate of interest,

and of the comparative position of the circulation

in

different

monetary phases and

countries, all

mercantile incidents furnish an opportunity for

correcting their theories by the test of facts.

But

comparatively few, even of leading bankers and

merchants, with the exception of those who are

exclusively

or

mainly engaged in international

transactions, are as conversant with the subject as

its

immense importance deserves

and it is thought

that the present situation of monetary affairs, in

which the Foreign Exchanges are exercising an

abnormal and extraordinary influence,
peculiarly

suitable

affords a

opportunity for a discussion

which otherwise might be considered uninviting

and superfluous.

means

to

The

object proposed is by

propound any dogmatic

rather to call attention to

commonly
and

many

theories,

facts

no
but

which are

believed to be pecuharly complicated

unintelligible,

which, however,

analyzed and illustrated,

may

if

carefully

be presented in a

simple form, and under such an aspect as to

command
If

the

general assent.

present

treatise

should in any way

INTRODUCTION.

Xlll

contribute towards producing a better and clearer

understanding of

many

principles, the

true ap-

preciation of which is absolutely indispensable for

the formation of just and comprehensive views as

to the laws

which govern our money-market and

our foreign commerce,

it

will

have attained

its

end.

In

of the

treatment

the

subject, the

main

has been to decide what degree of ac-

difiiculty

quaintance with the matters discussed the readers

of the

present essay might be

possess

presupposed to

and, further, from w^hat point of view

they might have been accustomed to regard

The inquiry may be conducted on

several distinct

principles according to the class of readers

likely to interest

and thus

is

it

not easy to adopt a

who have

themselves,

who

are

themselves in the investigation,

shall be equally satisfactory to

to those

it.

all.

mode which
If addressed

studied the subject theoretically

much may

be taken for granted, the

exposition of which would be

and un-

tedious

necessaiy, and would only serve to

encumber the

examination of the more interesting problems and

theories

public

is

while, on the other hand,

to

if

the general

share in the discussion,

necessary to adopt

the

opposite

it

plan,

seems

and

to

INTRODUCTION.

XIV

presume that as yet the

first

axioms and leading

and inaccu-

features of the subject are but vaguely

rately

Under

understood.

would be desirable

this

supposition,

to proceed as systematically

it

and

completely as possible, even at the risk of enumerating or illustrating

of some,

and

much

which, in the opinion

might be passed over in

distinct course

silence.

third

might be most suitable

for

those who, on the one hand, have ample practical

acquaintance with the Foreign Exchanges, and accordingly

may

be addressed as persons conversant

with the subject

but who, on the other hand,

have not in anyway systematised their experiences

or

drawn any conclusions from the

facts

which they

The Foreign Exchanges should

have observed.

be an object of interest as well to the political

economist as to the general reader, but they will

mainly fix the attention of the mercantile part of the

community, who, consciously or unconsciously, are

always under their influence. It is to this class that

which

the present essay

relations of the Foreign

attempts to exhibit the

Exchanges

to our

own

money-market, as well as generally to international

transactions,

and

of the hazy

the subject

and

is

to bring into clearer relief

indefinite notions

some

which surround

primarily and mainly addressed.

XV

INTRODUCTION.

in this sense the inquiry is conducted

But while

from a mercantile point of view with the special

upon mercantile questions,

desire of throwing light

the author has attempted to be sufficiently precise

in his arguments as not to offend the
theorist,

and

scientific

sufficiently diffuse in his illustrations

and explanations, as

make himself understood

to

by the general and uninitiated reader.

His only

qualification for the undertaking is to be

found in

his having daily opportunities of studying

many

various forms of international transactions, and of

practically feeling the effect of each different

of the Foreign Exchanges.

tunities

it

is

exceedingly

test the various opinions

formed

phase

Without such oppor-

difficult to

correct

and

which maybe theoretically

but even with their aid the author

conscious that he

may

is

prove unequal to his task.

found in his

His motive

for

conviction

that

ventilation,

and in his hope that even an imperfect

undertaking
the

subject

attempt in this direction

more

it is

able investigation.

may

to be

urgently

requires

lead to further and

FOREIGN EXCHANGES.

CHAPTEK

I.

DEFINITION AND PRELIMINARY EXAMINATION OF THE TRANSACTIONS WITH WHICH THE FOREIGN EXCHANGES ARE

CONCERNED.

In order to clear the ground for the consideration of the

more

interesting theories connected

with the Foreign Exchanges,

the

first

it

is

instance to define as clearly as possible

the general meaning of the term.

**

desirable in

Foreign Exchanges

biguous, being

"

is

The phrase

in itself vague

more frequently used

and am-

to express

the rates at which the exchanges in question are

effected

than the exchanges themselves

rather than the transactions.

When

the prices
it

is said

in

technical phraseology that the exchanges are rising

or falling,

or that the exchanges are at

point, allusion is

made

specie

to the fluctuations in the

terms on which bargains are made between buyers

and

sellers of

Foreign

Bills.

However, before we

FOREIGN EXCHANGES.

treat tlie subject in this sense of the phrase,

that

is to say,

as denoting the rates at

changes take place,

necessary to examine the

it is

subject-matter of the exchange

distinctly ^Yhat

is

it

which ex-

that

is

itself,

and

bought or

ferred or given in exchange.

When

sold, trans-

the transac-

tion takes a practical form, Foreign Bills,

to say, bills

on foreign countries,

to realize

that

is

constitute this

subject-matter; but a less technical explanation

That which forms the subject of

can be given.

exchange

is

able in his

a debt owing by a foreigner

own

country, which

is

the creditor or claimant for a certain

to a third person,

who

and pay-

transferred by

sum

desires to receive

of

money

money

that foreign country, probably in order to assign

over to a fourth person in the same place, to

he in his turn may be indebted.

which takes place

is

A merchant

whom

The operation

in England, A, has exported

lish commodities,

it

put very clearly by Mr. Mill

in the following passage

**

in

Eng-

consigning them to his corre-

spondent B in France. Another merchant inFrance,

0, has

exported French commodities, suppose of

equivalent value, to a merchant

is

evidently unnecessary that

send money to

in England.

It

in France should

A in England, and that D in England

FOREIGN EXCHANGES.

should send an equal

sum

of

money to C

The one debt may be applied

other,

to the

in France.

payment

of the

and the double cost and risk of carriage be

thus saved.

which

B owes

draws a

to

him

Bill

on

for the

amount

D, having an equal amount

to

pay in France, buys this

it

to C,

bill

from

and sends

who, at the expiration of the number of

for

Thus the debt due from France

to

days which the

payment.
England,

bill

has to run, presents

and the

it

to

due from England to

debt

France, are both paid without sending an ounce of

gold or silver from one country to the other."

This explanation, however, involves the idea of

the transaction being carried out by the instrumentality of

an actual

bill of

exchange, which, at the

present stage of the inquiry,

it is

better to ignore

altogether. It will be found

more convenient to treat

the transaction, in the

instance, as a simple ex-

first

change of debts and claims, without considering the

instruments by which

it is

general form, the case

As the result
portion of the

accomplished. In its most

may be

stated as follows

of international

commerce, a certain

community has become indebted

merchants in foreign countries

and in order

to
to

save the trouble, risk, and expense of sending coin,

*

'

Principles of Political Economy,' oh. xx. par. 2.

B 2

FOREIGN EXCHANGES.

4
it

community

seeks out another portion of the

whom

a similar

amount

is

owing by the identical

foreign countries in question, and buying

debts, assigns

them over

foreign creditors.

to

in

And if the

payment

up these

own

to its

aggregate sums owing

by any two countries to each other were absolutely

that

equal,

is

to say, equal in

amount, coincident

as to the period fixed for settlement, and payable,

too, in

be no

an equal or identical currency,

difficulty of

there would

any kind in determining the

equivalent which the purchasers of such claims

would pay to the

equal

to, or

sellers.

It

would simply be a sum

rather identical with, that which

is

The

payable abroad under the transferred claims.

amount required by the purchasers being equal

to

the amount held by the sellers, and required, too,

at the

same time, there would be no cause

in

operation to vary the price, and there would be no

fluctuations in the rates of Foreign Exchanges. In

technical language they would always remain at

But, conversely, we arrive at the point which

par.

forms the essence of the present discussion

fluctuations

which actually

take

place

in

Foreign Exchanges are at once the necessary

sult

and the certain index of the

exist

inequalities

the
the
re-

which

in the indebtedness of different countries,

FOREIGN EXCHANGES.
either in

inequalities

amount

the

biUties or in the time within

be

made

of their Ha-

which payment must

or in the relation of the currency of one

country to that of another.

It

might have seemed

easier to have explained

the exchanges in question as exchanges between

different currencies, as of sovereigns against francs,

or of florins against dollars

tically this is the

the more

so, as prac-

shape which actual transactions

But

generally assume.

if

the definition had been

thus limited, a most important, and indeed essential feature,

would have been overlooked

that

is

though one system of coinage were

to say, that

adopted for

all

countries, claims

on foreign coun-

and would

tries

would nevertheless vary in

still

be either at a premium or at a discount,

price,

according as there happened to be at any

demand on

a greater or less

moment

the part of such as

desired to transmit funds abroad as compared with

the supply offered by such as had outstandings

abroad which they were entitled to draw

this is the first cause of

of as the rise

some
large

and

fall

what

is

of Foreign

in.

For

generally spoken

Exchanges.

On

particular day, or through a given season, a

amount

payment

required to

is

of debts

England,

let

be sent abroad in

us say,

is

heavily

FOREIGN EXCHANGES.

indebted to France, and the time has arrived for

payment.

At this time, however,

in the opposite
in

happens that

it

branch of trade, that which results

France being indebted to England, fewer trans-

actions have taken place,

and thus there are com-

paratively few

who have amounts

credit in Paris

which they might transfer

who have

to remit

standing to their

in other words, adopting the

who have

language of merchants, there are few

upon France.

bills
is

The consequence

is,

great competition for these few bills

them

do not bid high enough for

to

go through

all

to those

that there

those

will either

who
have

the trouble of packing, insuring,

and despatching gold, or

else will not punctually

meet their engagements.

Thus those who have

more than the

the bills to sell are able to obtain

actual par value
their
it is

for

them.

In consideration of

having a given sum already

at a spot

where

required by another, and whither the latter

must convey
do not cede

it
it

himself at some expense

to

if

they

him, they are able to secure for

themselves the whole of the benefit, which,

exchanges were at par (that

is

to

if

the

say, if the in-

debtedness of the two countries were equal), would

be divided between the buyer and the
stead

of the

seller.

In-

arrangement being a mutual con-

FOREIGN EXCHANGES.

venience, the seller

is

able,

of the buyers, to secure the

by the competition

whole convenience to

himself.

Supply and demand, in their usual form, deter-

mine the transaction

at this stage.

in the case just put,

would be

the opposite case,

there were

had money

if

Bills

premium.

at a

In

more persons who

from France than those who

to claim

required to send funds thither,

would be

on France,

on France

bills

These are the

at a discount.

first

and

most elementary instances of fluctuations in the

Foreign Exchanges
ciating clearly
it is

what

and

is

purpose of appre-

for the

and

their real nature

important to discard in the

origin,

instance

first

all

the accessory circumstances, and to hold fast to

the general principle that what

is really

given in

exchange in the natural and simple transactions

from which

money

at

all

others are derived,

one place

at another.

for

By way

is

sum

of

an equivalent sum of money

of anticipation

it

might, how-

ever, be stated here that, in contradistinction to

this

simplest transaction, the most complicated

would be one in which the sum of money given

would be payable immediately,
recoverable three

months

later

the
;

be in gold, the equivalent in silver

the
;

the

equivalent

sum

given

sum given

FOREIGN EXCHANGES.

be perfectly undoubted, being paid down at once,

the equivalent be of doubtful character, because
involying a lengthened credit.

To

equality between the two sums,

it

establish the

would accord-

ingly be necessary to take into account the relative

value at the time of gold to silver, the amount of

interest

which would be

lost

by waiting three

months, and the amount of risk which would be

run by receiving a piece of paper representing a
promise to pay three months hence in exchange
for cash paid

which

affect

down.

These are

all

considerations

the exchanges, and which indeed

render the subject so complicated that the ground-

work may

easily be lost sight of.

sometimes held on the

Discussions are

state of the

changes in which attention

is

Foreign Ex-

paid mainly to the

value of money in different countries, to the

of bullion held

by each, and

of their paper currency,

highest

moment

amount

to the relative position

no doubt,

points,

of the

in influencing the fluctuations in

the exchanges, but nevertheless subordinate to the

question of relative indebtedness, which remains

the

first

and most material element.

the subject as a v/hole,

it is

above

all

sary to form a clear view of what

international

indebtedness,

of

the

In studying
things necesis

meant by

elements of

FOREIGN EXCHANGES..

which

it is

which

it

question,

constituted,

and the various phenomena

As soon

presents.

as this elementary

which underHes the whole theory of the

Foreign Exchanges,

properly understood,

is

and

an idea has been gained of the various modes in

wiiich countries

become indebted

we can proceed

to

consider the form which this

when

indebtedness assumes
arrives

the time of settlement

and when the floating debt

of exchange.

one another,

to

The course

is fixed

in bills

of the discussion will then

naturally lead to the nature and form of these bills

and

of exchange, to their purchase

sale,

to the

various influences which determine their price to

their frequent fluctuations, to the

meaning and

force of the usual phrase that the

Foreign Ex-

changes are favourable or adverse, and to the value

of the state of the exchanges as

national transactions.

We

an index of

shall first consider the

debts themselves, and shall find

presented by, and embodied

bills

of exchange;

it

will

inter-

in,

them

finally re-

a constant

mass

of

then be necessary to

inquire whether these bills are payable at once, or

at fixed future
final transaction

terms, v/hetber they represent a

or vdiether a portion only of a

commercial operation, and how the rate of interest,

the credit of the debtors, the indulgence of the

10

FOREIGN EXCHANGES.

creditors, the depreciation of the currency in

the

bills are

which

payable, affect their exchangeabihty.

"We shall examine what circumstances lead to a

demand
is

for bills

possible to

Thus,

at the

on foreign countries and

hovN^ it

check or intensify that demand.

of our investigation,

close

we

shall

on many of the most important questions

light

which have
circles,

as

lately

been ventilated in monetary

to the effect of a

high rate of interest

in checking the efflux of gold, as to the

which foreign

capitalists, holders

change on England,

may

forced

of bills of ex-

money-

exert over our

market, as to the result of these

upon the money-market

power

bills

for

being

all

discount at

once, instead of being gradually encashed as they

mature, and other matters of this nature

tions

which are by no means theoretical or

ques-

abstract,

but of vital and practical importance to every one

engaged in mercantile pursuits.

CHAPTER

II.

ANALYSIS OF INTERNATIONAL INDEBTEDNESS CONSIDERED AS

THE BASIS OF THE FOREIGN EXCHANGES,

The

first

element which

^Ye

have to consider in

discussing the Foreign Exchanges

as

is to

be found,

has been abeady stated, in international in-

debtedness; the exchanges in question are ex-

changes of claims or debts, and an inquiry into

the origin and nature of these debts will throw
considerable light upon the subject.
It is

an error often committed

to

imagine these

debts to be incurred simply by the importation of

foreign commodities,

trade as a

and

mere question

to look

on the balance of

of import

and export, as

being the excess of the one over the other.

It is

necessary to look closer into the transactions be-

tween two countries before an idea can be formed

of the position of their

mutual indebtedness.

12

FOREIGN EXCHANGES.
It will be discovered to result not so

much from

the exchange of their respective produce as from

the relative totals of

all

the amounts expended by

each upon the other, whether in payment of pro-

duce and manufactures, or for the purchase of

shares and public securities, or for the settlement
of profits, commissions, or tribute of
for the discharge of the

residence or travel

ments

expenses incurred in foreign

in fact, from the entire pay-

(or promises to pay)

the respective countries.

rowing must be

any kind, or

lost

which pass between

The

sight of

incurred with which we are

idea of actual bor;

is

it

the liabiHty

now concerned

and

this liability is identical in its effect, whatever its

origin

may

be.

Payments which have to be made by one country

to another for

same

effect as

Thus

it is

any purpose whatsoever, have the

payments

for direct importations.

possible that the general indebtedness

of two countries to

may

each other

be almost

balanced, though the one imports far more com-

from the other than those which

modities

supplies in return.

amount

it

For instance, the excess may

to three millions sterling

but the nation

which, through this class of transactions, has thus

become a

creditor for the excess of three millions.

FOREIGN EXCHANQES.

may

dispose

making

of one million thereof in

such of

remittances to

up

13

body as have taken

its

have

their residence in the other country, or

been travelling and spending money abroad

another milHon

may

be sent to the country which

order to buy up

has imported the excess, in

public securities

and supposing this

latter

country

to be a great shipping nation, another million

be due to

it

and

for freights.

may

Thus the equilibrium

between the two countries would be restored, and

there would be no adverse balance on either side

the indebtedness would be equal.

It

may

not be superfluous to examine some of

these international transactions

As an

instance,

foreign loans.

more in

we may examine the

Treating the subject, as

detail.

force

is at

of

present

the case, with a view to the Foreign Exchanges, a

foreign loan will

tell

against the balance, not of

the borrowing country which receives the loan, but

of the lending country

The loan may

repaid

which supplies

certainly have ultimately to be

but, at the time

acts with the

it.

same

when

force as

it

is

contracted,

it

an export upon the

country which borrows, and with that of an import

to the country

which lends.

country exports

In

its securities,

fact,

the borrowing

which are imported

FOREIGN EXCHANGES.

.14

by the lending

and thus, with regard to

capitalists,

the balance of trade, to contract a foreign loan

Some-

equivalent to an increase of exportation.

times

when

is

the indebtedness of a country to others

becomes so great that the

liability

cannot be liqui-

dated either by shipments of bullion, or by an

increase of exportation, recourse
in

order to readjust the balance

exports public

when
which

it

made

securities

had

is

the country

for the purpose,

has no other available resources

to satisfy its foreign creditors.

more than once adopted

Or, again, there

contains within

may be
own

its

left

with

Eussia has

this course.

a nation, rich in capital

and very self-dependent, importing

it

to a loan

limits

little,

most

ments, but exporting very largely.

because

of its require-

The tendency

of

such a country would be to become the creditor

of

all

her neighbours.

restored
just

now

This case

considered

present hypothesis

is

How
is

will the balance be

the converse of the one

the indebtedness under the

not excessive, but under the

mark; such a country often

restores the equili-

brium by becoming the speculative purchaser and

importer of loans and stocks and securities of

all

kinds; her manufactures are repaid by railway

debentures, and the

sums which other

countries

FOREIGN EXCHANGES.

expend on the commodities with which she supphes them, she in her turn expends on the Stock

Exchanges

but what the balance of trade

at

There

of foreign capitals.
is

is

no doubt

immensely

affected

such times, when any great speculative mania

In the same way

for foreign securities springs up.

as the monetary position of a country

dangered when

it

may

be en-

imports more foreign produce

than the amount of

its

exportation, so

endangered by the undue purchase

may
of

it

be

foreign

stocks, with the sole distinction that the latter are

often

far

more adapted

for re-exportation

than

manufactured goods or produce, on which the

charges of shipment or re-shipment are infinitely
heavier.
It will

that,

appear from the foregoing observations

when the

relative indebtedness or the balance

of trade between two countries is spoken of, the

permanent debts of one country

enter into consideration,

to another do not

at least,

term of payment has arrived

not until the

the balance of trade

depends upon the transactions v/hich have to be

settled,

not upon those which by

common

consent

are held in abeyance for a long term of years.

instance, there

is

For

no doubt that the United States

owe an enormous amount

to

England

in the shape

16
of

F0IIEIG2<

American

holders

EXCHANGES.

hands of English

securities in the

but with the exception of the interest on

these securities, this consolidated indebtedness, as

it

does not require settlement, exercises hardly any

influence on that floating indebtedness, by the

balance of which the fluctuations in the exchanges

between the two countries are determined.

These securities are

commerce, im-

articles of

ported by England from America, w^hich, at the

time of their importation, no doubt acted upon the

exchanges equally with the cotton which came

from the same quarter; and which, when they

come

to be re-exported to

America (but not

till

then), will affect the exchanges in the contrary

direction
is

that

it

exercised by cotton

America in the shape

wise, involving

same

to say, with the

of

when

re-exported to

is

it

force as

Manchester goods.

Other-

no immediate claim, they cannot

be regarded as a set-off to the debts which we

incur to the Americans for cotton and corn, and

which must be
trade

may be

amount

of

settled at once.

The balance

entirely against England,

American

securities in

of

though the

English hands

should immensely exceed that balance.

The
is

case of the coupons attached to such stock

very different.

The

interest

which they repre-

^17

FOREIGN EXCHANGES.

sent

a constant

is

indebtedness.

and important feature in national

It constitutes

an immediate

incurred by the borrowing country

it

diture in favour of a foreign creditor.

which has annually large sums of

must import

abroad,

much

much

so

is

liability

expen-

country

interest to

pay

less or export so

Conversely, a rich country with an

more.

annual income of interest from other nations,

able, as

far as this

equivalent excess of
It

sets

off

It

may

coming in against
large

to

imports over

its

these receipts

expenditure.

The

income goes,

against

look upon

pay

for

is

an

its exports.

its

them

excessive
as capital

capital going out.

sums which England

receives every

year in payment of interest from foreign countries,

considerably reduces the balance w^hich, notwith-

standing our

enormous exportation,

always against us

w^hen they are contracted

The

them

contributes

to

we have

Among

and commissions on the

nations

liability of

that which
interest.

the time

reduction.

effect of profits

mutual

at

but the annual revenue

subsequently derived from

its

almost

the foreign loans negotiated in

England increase her indebtedness

wards

is

is

much

the same as

just described as exercised

such

profits,

we may

by

class the

rOBEIGN EXCHANGES.

18

freights earned by the ships of various countries

the country which becomes the carrier for others,

thereby estabhshes claims against them with which

it

can pay for

its

The

importations from them.

charge of freight acts with the same force as a

charge for a commodity actually produced and

An

exported.

exclusively maritime country could

obligations to other countries

which

discharge

its

supply

with necessaries, simply by becoming

their

it

exporting any produce or

carrier without

manufacture to them in return.

Or, again, a

peculiar favorable

position

may

enable one nation to

make

various tributes and

commissions, and thus to

others

its

debtors for

ob^ain a revenue equivalent to one consisting of

interest, of freights, or of the proceeds of exported

commodities.

country which, like England,

mediates the transactions of

throagh

its

many

mission or profit upon

all

some

slight

com-

the operations which

it

conducting, derives no inconsiderable

revenue from this source.

was the great emporium

kets,

and

position as a great banking and mer-

cantile centre, is able to secure

assists in

others,

Formerly, when London

of goods for foreign

mar-

and English merchants supplied the greater

part of the Continent (which was itself in no direct

19

FOREIGN EXCHANGES.

trade with India or America) with cotton, coffee,

sugar, tea,

in

fact,

with

all

the produce of the East

and West Indies, the commissions and

this intervention

profits

on

must have been very considerable,

and have been an important element in the income

How-

secured to the nation from foreign sources.

ever, the

tendency of the age, which

is

constantly

bringing the producer and consumer into closer

and more
dle

by eliminating mid-

direct connexion

men and

intermediate

profits,

is

likewise

Transatlantic or

exhibited in the fact that the

Indian producer

is

brought more and more into

immediate connexion with the continental consumer.

and

At present the continental shipowners

merchants

make

importations from

their

most producing countries

direct,

thus emancipating

themselves from the London market, though not

London banking

entirely

from

interest

and commissions which are

The

facilities.
still

paid by

almost every country to English capitalists, certainly form a noticeable element in the revenue

by which England

enormous foreign

An
ture

is

enabled to discharge her

liabilities.

allusion v/as cursorily

in

made

to the expendi-

travelling or residence abroad.

Eussia

supplies the best ihustration to the force of this

2

20

FOREIGN EXCHANGES.

expenditure.

Several millions sterling are annually

spent by the rich Piussian nobility in travelling or

in foreign residence,

from Eussia

tells

precisely in the

and the

capital thus taken

against the balance of her trade

same manner

as

if

had been

it

spent in Eussia in the importation of foreign goods.

The
St.

bills

drav/n by the travelling princes on their

Petersburg bankers

cisely

exchanges pre-

affect the

with the same force as

bills

drawn on

St.

Petersburg for the champagne sent thither from

France.

The

liabilities

are peculiarly felt

incurred by foreign travel

by Eussia,

in the

first

instance,

because they are of themselves excessive, in the

second, because, independently of this expenditure,

Eussia tends to consume more than she produces.

There are many other international transactions

which, in a complete

summary

of the items

which the so-called balance of trade

might well deserve enumeration

is

from

formed,

instance,

for

import duties, or transit dues, and the whole range

of

Government imposts.

But the consideration

of

the force of these charges belongs to a different

field of

ployed.

inquiry to that on which

The expenses

of

we

are

armaments

now em-

to distant

regions, especially the regular expenditure of ships

of

war

at foreign stations, also

form an item in

21

FOREIGN EXCHANGES.

international indebtedness which should not bo

overlooked.

The preceding
portant elements

and

analysis of

may

suffice

intelligible notion

more im-

convey a general

directed,

when

a judg-

as to the relative transactions between two

nations, and the balance

present, is to be formed.

element no doubt

is to

which they may ultimately

The

first

and principal

be found in the comparative

imports and exports in the

term

to

of the

of the different points to

which attention should be

ment

some

literal

sense of the

but the operation of these transactions

self-evident

and generally understood, that

not been necessary to dilate

to be requisite to

of nations

it

has

this por-

In addition to the considera-

tion of the subject.

tion of the exports

much upon

is so

and imports,

it

has been shown

measure the further expenditure

upon each other

including

therein

all

national extravagance exhibited in the granting of

foreign subsidies or loans and in keeping

armaments abroad,

up

costly

as well as all individual ex-

travagance, as displayed in excessive foreign travel

or residence, or in speculations on foreign Stock

Exchanges.
to

On the

other hand,

it

will

be necessary

measure the force of national acquisitiveness in

securing tributes, voluntary or involuntary, from

FOREiaN EXCHANGES.

22

other countries

securing to

itself,

and

of individual enterprise in

by superiority of position,

capital,

or activity, the larger share of the advantages of

international commerce.

To form

a correct notion

of the relative indebtedness of two given countries

is,

from the complexity of the

task

but

it is

facts, a

most

difficult

hoped that the principles on which

the balance should be struck, and the class

facts

which should be especially searched

for

of

and

examined, have become sufficiently plain to the

general reader in the
observations.

course

of the

foregoing

CHAPTEK

III.

EXAMINATION OF THE VARIOUS CLASSES OF FOREIGN BILLS

WHICH

IN

INTERNATIONAL

INDEBTEDNESS

ULTI-

IS

MATELY EMBODIED.

Haying thus passed

in review the different kinds

of liabiHties which nations incur towards each other,

we

now

are

in a position to consider the

mode

of

adjustment of such debts and claims, and the instru-

ments by which

it

is

accompHshed.

Most

inter-

national transactions are settled by a transfer of

debts,

through the medium of foreign

bills of ex-

change, and for the general reader (who has no

opportunity of handling and examining the

bills

themselves, and of gaining, through their study, a

knowledge of the various classes into which they

may be

divided,

and the properties which attach to

them), some remarks on this portion of the subject

may

not be superfluous.

-^

FOKEIGN EXCHANGES.

From
changes,

the point of view of the Foreign Exit

must be considered that the debts

contracted between different nations are on the

point of being closed.

Practically, credit is given,

in the vast majority of cases, previously to the

drawing of the

bills

or the transmission of the

remittances which are to settle pending accounts.

"With this, however,

we

are at present not directly

concerned, though a discussion on the Foreign

Exchanges would not be complete without an

allusion to the fact.

The knowledge

that there

a certain balance owing, for which credit

but which will ultimately be called

certain extent,

in, acts, to

may

demand

as in

be indefinitely increased acts

But what we have now

su]3ply.

to deal with is the liquida-

tion of debts which are

liabilities for

the knowledge

almost with the same force as actual present

the

given,

upon the exchanges, just

questions of supply and

that the supply

is

is

becoming due,

in

fact,

which the time of settlement has

arrived.

The

debts between different countries,

when they

approach this time of settlement, are embodied, as

far as possible, in bills of

exchange

this

mode

of

adjustment being universally applied, so far as the

indebtedness of one country to others

is

covered

FOREIGN EXCHANGE?.

by the

liabilities of

ZO

those countries to

It is

itself.

certain that as far as accounts can be paid off with-

out the risk and expense of bullion remittances,

through simple transfers, through a direct

ment between the

creditors of

and those who are in

its

any foreign country

debt, their respective

debtors and creditors being

left

sponding adjustment abroad, so

of

exchange

settle-

to

make

a corre-

far the use of bills

But how

will invariably extend.

foreign liabilities to be discharged

when

are

the claims

where

on one

side or the other are exhausted,

there

a balance of debts to be paid without any

is

equivalent of claims which might be set against

them

It will

somewhat

subsequently be found that, by

artificial

arrangements,

it

is

that even a portion of such a balance

settled, at least for the time,

But the consideration

by

of this

bills of

possible

may

exchange.

more complicated

question must be deferred for the present.

have, in the
bills

as

first

embody

be

We

instance, to deal with such foreign

actual debts

present an exchange

and claims, and

an exchange

the drawer or seller of the

bill

re-

made between

and the purchaser

of the bill; the former ceding his claim

on a foreign

debtor against payment on the spot, and the pur-

chaser remitting the

whom

he

is

bill to

himself indebted.

another foreigner to

FOREIGN EXCHANGES.

26

The majority
(to

of foreign bills of

exchange carry

an eye practised in deciphering their history)

the evidence of their origin and nature written

upon them

and much may be

international transactions

both as to

learnt,

generally,

and as

to

the peculiar features of the times, from a careful

study of large miscellaneous parcels of

will be

found among them

bills

The

exports of produce

There

representing each

of the different causes of indebtedness

been described.

bills.

which have

greater portion will represent

and

this will especially be

found to be the case between countries which

at great distances

transactions

from each other, and whose

are comparatively

closer the countries,

nected in what

lie

simple; but

the

and the more they are con-

may be

called neighbourly relations,

the more diversified and complicated are the transactions represented by bills of exchange.

the Continent and England there

proportion of

bills

is

Between

a very large

which represent the expenditure

of the foreign residents, drafts

on their bankers

home, and encashments

dividends

sources of revenue.

of

There

will

at

or other

be found innu-

based on the sales or purchases

merable

bills

of stock,

and large amounts which represent the

transfer of capital from one country to another

by

rOEEIGN EXCHANGES.

way

27

of giving effect to a public loan or a joint-stock

Few

undertaking.

loans are negotiated

foreign

which are not accompanied by a certain issue of

bills of

"Whenever the country which

exchange.

has secured a loan owes a balance on

mercantile transactions, and
tances to cover

bills

it,

its

general

in

want of remit-

may most

conveniently bo

is

drawn upon the lending country for the amount

the loan thus contracted

of

for they will at once be

eagerly purchased, in order to be remitted to the

In the contrary case, where

foreign creditors.

there

is

no balance requiring settlement, a loan

would generally be taken in

Amongst any

specie.

parcel of bills there will probably

be some which are drawn against freights which

have become payable,

tries

a large item in those coun-

which have a great shipping

Sweden

natural produce.

interest, but little

or Norway, for instance,

when they have remittances

to

siderable difficulty in finding

any other

make, have conbills

than

such as are drawn either against wood (their chief

article of export), or against the freights

their ships.

They

are

hampered in

tions by the difficulty of

what are
There

is,

called

''

earned by

their importa-

making remittances

in

acknowledged

fiist-class bills.'*

some

peculiarity about

indeed, generally

FOREIGN EXCHANGES.

28

the remittances from each different country

from

the East Indies and China, where the chief articles

of export are of great vahie,

and where, from the

necessity of large capital for bringing such valuable produce to market, the transactions are

more

than elsewhere concentrated in wealthy houses, the

bills are to a

and on

great extent drawn in large amounts

European firms

first-class

to see bills of ten

it is

very usual

thousand pounds, and the cha-

racter of the bills is generally exceedingly good.

The

distance between the two countries, and the

length of credit which the purchaser of the

must accordingly
sary,

and render

whom

the

known

repute.

From

bills

give,
it

make

bill

great caution neces-

highly important that those on

are

drawn should be persons

of

the Continent, on the other hand, the re-

mittances received are generally of a very different

character

from the frequency of transactions and

the facility of communication, the bills are drawn

in the greatest variety of

amounts.

form and in much smaller

They represent

daily retail operations,

as well as the great transactions of merchants

bankers.

Any one

and

receiving remittances from the

interior of the Continent to the

amount

of ten or

twenty thousand pounds at a time, will find the

FOREIGN EXCHANGES.

sum made up

29

of a very considerable

There will be bills against

little bills.

mimber

of

cattle, against

eggs, against butter, drafts of travelling English-

men on their London bankers,

French nicknacks, wine,

toys,

And

bills

amongst

fruit,

bills

chants and importers, large

German

and vegetables.

now much

as the transactions are

in a retail form,

against

carried on

on regular mer-

and small,

will be

many on persons whom it is difficult to

classify, and who belong to the lower strata of the
found

mercantile community

on agents who have per-

suaded German manufacturers to trust them with

the disposal of their goods, and on branches of
small foreign establishments

London markets

also

who wish

to try the

on shop-keepers and

ners,

and others quite beyond the commercial

in

fact,

them

in

on every

some

cotton, of

bills are like

respects.

circle

whose business brings

anyway into connexion with

The American
in

class

milli-

foreign goods.

the East Indian bills

Being generally based upon

which a small quantity costs a large sum,

they are drawn in large amounts, and represent

considerable mercantile transactions.

But the trade

between the United States and Liverpool being

muchmore rapidlyand easilymanaged than between

England and India, and peculiar

facilities for

the

FOREIGN EXCHANGES.

so

conducting of the operations without capital on the

part of either the exporter or importer being obtainable in the cotton trade,

American

class

bills

there

beyond their immediate

circle,

which

is

first-

also to be found a

firms not

known

and who have no

of paying their acceptances except

identical produce

such

is

number drawn on

considerable

means

amongst many

by the

consigned them against

drafts.

Thus

far the bills

which have been taken into

consideration have been assumed to represent and

close direct

and

hond-fide transactions

class of foreign bills

tions,

which

There

is

it is

little

but a large

perform very different func-

important properly to appreciate.

mystery in the operations of the

Foreign Exchanges when confined to the direct

and immediate transactions of which we have been

treating hitherto.

The

subject is complicated by

the fact that a very large proportion of

sent indirect operations which
follow,

it

is

bills repre-

less easy to

and that others do not represent any actual

previous transaction whatever, at least in the sense

of

closing

different

In the

indebtedness,

but act in a perfectly

manner.
first

instance,

we should enumerate those

foreign bills which do not represent the usual in-

FOREIGN EXCHANGES.

debtedness which

assumed

is

81

between the

to exist

acceptor and drawer, but a debt due to the drawer

by a third party residing in a third country, of

which the acceptor merely mediates the payment.

For instance, teas shipped from China

York are generally paid

porter on a

on London

bills

given

is

New

is

for his bill

payment

for

York.

important to remember that this class of

does not offer the same kind of evidence as

others, as to the indebtedness of the

which they are drawn

is

China

in

him

and the acceptor looks

to the importer in
It is

for account of the

The exporter

paid by the price which

New

by a draft of the ex-

for

London merchant

American importer.

to

country on

for the accepting country

a creditor of a third country for exactly the

amount

as that

which

must pay

it

to the

same

drawing

country; and any estimate which might be

tempted as

to the liabilities of a country,

the bills afloat upon

consideration

of

it,

fail

based on

which should omit the

these

accounts, v/ould not

at-

acceptances

for

third

to be erroneous.

It is

necessary at least to attempt to discover what proportion of the liabilities

as by principals and

men.

may have been

what

For instance,

let

as

incurred

by agents or middle-

us

suppose

it

to

be

FOREIGN EXCHANGES.

S2

any particular moment,

desired, at

relative indebtedness

United States.

It

to consider the

between England and the

might be discovered that the sum

total of the exports of the

Americans

to us, in the

largest sense of the word, taking into consideration

all

the supplementary causes of indebtedness to

which allusion has been made, exceeded

that

all

they had taken from us, or spent on us, and that

we should have

accordingly

But an element

in gold.

omitted

if

of

to remit the balance

importance would be

the question were not asked.

How

do

the United States stand as regards their imports

from the East

upon England
have

still

are there not large

for

to remit

might lead

to

sums running

American account, which they

The

ansvv^er to this

different

inference

as

question
to

the

balance.
It is especially necessary not to overlook these

indirect liabilities in the case of the bills

upon

England, as they form a very large item in the

total of our acceptances.

Those

to

v/hom these questions are new, may

not be able at

which

still

London

first

sight to discover the cause

compels most other countries to make

their banking centre

the East Indies those

who

why

it

is

that in

ship produce to America

FOREIGN EXCHANGES.

draw on London and not on

the

New

S3

New York

and why

London

Orleans cotton exporter draws on

instead of on St. Petersburg for the cotton shipped

to Eussia.

partial cause

by London bankers, and

credit granted

the

greater

reputation of the

which extending
a

bill

might be found in the

also in

London houses,

to all quarters of the globe, gives

on them quite a

could be assigned to

different value to that

bills

which

on American and Eus-

sian bankers equally wealthy, but less widely known.

But

this can only be called a secondary reason,

and appears on

closer examination to be itself the

result of the primary cause

the great banking centre

primary cause

is to

which makes England

That

of the world.

be found in the stupendous

and never-ceasing exports of England, which have

for effect that every country in the world, being

in constant receipt of English

manufactures,

is

under the necessity of making remittances to pay

for
It

them, either in bullion, in produce, or in

may

the

divert its produce to other countries, but

bills

drawn against such produce

to find their

way

there will be a
ers,

bills.

England.

demand

and English

any others.

to

for bills

bills will

will be sure

In other words,

on London bank-

be more saleable than

There can be no exchange on any

D

FOREIGN EXCHANGES.'

S^

place to which remittances have not constantly

and regularly

to be

And

made.

vice versa,

when

remittances have to be regularly made, an exchange

is

soon established, and the intervention of a

mutual centre

is

For instance, Eng-

not required.

quantities of Manchester

land exi^orts fabulous

goods to the East, and

into the bargain,

silver

receiving in exchange tea and

But suppose

silk.

the tea and silk which England requires to be less

in value than

How

the merchandize exported.

As

The

can the balance be regulated

Americans export very

to China, but require

more
give

tea

and

them

silk

little

follows

from the Chinese than what they

Consequently, the Chinese

in goods.

have a surplus claim on

New

This they

York.

whom

transfer to their English creditors, to

they

are indebted for the surplus value of the goods

imported from England over their own produce

shipped to England
to

their

in other words, they remit

English creditors the

drawn

bills

for

American account, or instruct the Americans

send gold to England for
instance given

is

the

amount.

but an illustration

ticular case is not entirely correct,

might be supplied in
of

its place.

England exceed her

if

to

The

the par-

many

others

That the imports

exports, does not invalidate

35

FOREIGN EXCHANGES.

the present proposition

it is

the universal diffusion

of the products of English industry, which tends

to bring about the result described.

from, and

sells

almost every country in the

to,

Of other countries,

world.

but export to

A may import

C and if B and C
;

intercourse,

England buys

will not

him an assignment on

are not in constant

be able to pay
0.

from B,

by giving

However, A, B, and C

are all commercially connected with England,

thus

can pay

by assigning

to

him

and

a claim

against England, which he himself has received in

payment from C

or

more simply, C draws

on England and remits

passes

it

on

to B,

with England,

As

is

it

to

who being in

in payment,

a bill

and

constant connexion

in his turn easily able to use

it.

illustrations of the converse proposition, that,

where there
of imports

exchange

is

a regular

and constant interchange

and exports between two countries, an

is

at

once established by which trans-

may be settled without the intervention of

England, may be cited the cases of Java and Holland, of New York and Bremen, of Eio Janeiro
actions

and Hamburg.
farther behind
at present, the

for their

Formerly, when Germany was

England in her exports than she

New York

is

houses paid themselves

shipments of tobacco or other produce

D 3

FOREIGN EXCHANGIS.

<J6

to

Bremen, by drawing

for

Bremen account on

England, and Bremen would

settle

by buying up and remitting

to

the transaction

England the

bills

of the Holstein cattle-dealers or of the butter-

exporters of the

Low

Countries.

many German manufactures

direct

or,

man

paid for by Ger-

is

manufactures, and no further intervention

What becomes then

required.

butter

bills,

which are thus

collected in

still

These are

set free ?

Bremen and remitted

to

Eng-

The regu-

mutual intercourse established between Ne^v

York and Germany does not yet

Germany and Bombay. Bombay

little

still

with England

Bombay merchants,
bills

man

between

exist

as yet takes very

from Germany, the great bulk of her deal-

ings being

on Bremen,
account,

Continent
fact

is

and

of the cattle

land, but against different transactions.

lar

drawn on

more simply, the tobacco and

Germany

cotton shipped to

so

are sent to the States,

are always buyers for bills

that there

Bremen

But now

consequently the

finding few purchasers

still

draw on London

when they

for

for

Ger-

ship cotton direct to the

and a transaction takes place

amounts

Vv^hich in

to this, that they direct their

London

payment from

German

creditors to obtain

debtors.

their

Accordingly these latter are

still

under


37

FOREIGN EXCHANGES.

the necessity of buying up bills upon England, as

most convenient remittance by

constituting the

which they can

effect

those payments to English

merchants which their Bombay creditors instructed

them

to

make.

very large proportion of the

foreign bills afloat will, on a careful analysis, be

discovered to represent adjustments of this kind,

that

is to

and

say, not direct but indirect

inter-

mediate settlements, in which London appears as

the clearing-house of the world, where most international transactions are closed.
It

remains to consider those foreign

bills

which

represent no settlements of indebtedness at

bills

which are technically said

to be

all,

drawn in

blank, by which the acceptor does not pay his

debt to the drawer, but by which, on the contrary,

the drawer incurs a debt to the acceptor.

which these

play in

bills

reign Exchanges

is

careful attention.

all

The part

questions of the Fo-

very considerable, and requires

portion of

them approach

very nearly indeed to the character of what in the

home

may

trade are called accommodation bills

they

be drawn by merchants in one country on

merchants or bankers in another, in order to

cure the use of the
price, for the

money which

is

time during which the

se-

paid as their
bills

have to

FOREIGN EXCHANGES.

33
run.

The purchaser

the place

of the bills in this case takes

the discounter of accommodation

of

paper, and the

may

transactions

be perpetually

renewed in the same way and with more

than accommodation

But there

bills.

is

facility

another

function of bills drawn in blank and representing

no actual transactions, which

by the general
in

many

is little

understood

public, but which, nevertheless, is

cases very important and expedient.

It is very possible,

and indeed probable, that the

imports and exports of any country will not

into the

same period

quently, the seasons

of the year

when

and

that, conse-

the imports have to be

paid for will not coincide with the seasons

payment
exports.

is

fall

when

exacted from foreign countries for the

In the case of a purely corn-growing

country, for instance, the revenue derived from

foreign countries will

when

the harvest,

come

in at the conclusion of

the cargoes of corn begin to be

There will then be

despatched.

bills

drawn against

these shipments on the countries to which they

are directed.

Meanwhile, however, the country in

question has been importing manufactures from its

neighbours

all

the year round, and the importers

have been requiring

order to

make

bills

on foreign countries in

remittances, long before the corn-

FOREIGN EXCHANGES.
bills

89

could be drawn and become available.

If

no

other device could be found, the importers would,

before the harvest-time, be obliged to remit gold

abroad in payment of their purchases

wards the exporters, not being able to

bills,

and

after-

sell their

which the importers would now no longer

want, would have to receive back the equivalent of

their exports in remittances of gold

Thus the

risk,

of circulation,

from abroad.

the expense, and the

reduction

which are consequent on repeated

journeys of bullion, would be twice incurred, owing

to the exports
falling into

and imports

if

difficulty is

the bankers in one country

upon those in another,

bills,

at the

dravNT

time when no actual

representing hond-fide transac-

tions can be bought,

liability

same country

This

different seasons.

often avoided

commercial

of the

and subsequently square the

which they have incurred towards the

acceptors of their bills drawn in blank, by buying-

up and remitting the

export-bills as soon as the

goods have been shipped and are made available

Thus the importers

for drafts.
bills

are able to procure

from such banking houses

at a time

otherwise they could buy no bills at

exporters

time

sell to

when

all,

when

and the

the same bankers later on, at a

otherwise they would find no pur-

40

FOREIGN EXCHANGES.

chasers, the importations having been previously

paid

The same

for.

object is often sought for

and

attained by the exporting houses receiving per-

mission from those to

their shipments, to

whom

draw

they

sell

the

consign

bills in anticipation of

the

Thus they

are

goods being actually despatched.

enabled to

sell or

bills at a

time when there

demand and when a premium is

is

likely to be paid

by

the importing branch of the community, instead of

waiting for the time

are despatched,

when

the bulk of the exports

and when consequently, from the

number of those who have

to

draw bills, they would

have to accept a lower price.

Great complaints

have been made in the Court of Bankruptcy, and in

many quarters where

the force of such transactions

not clearly understood, of what

is

system of blank credits

of drawing bills

is

called the

in other words, the system

from abroad not representing

at

the time any actual settlement of indebtedness.

The reason may probably be

found such
it

is

true

bills

that

it is

easy to con-

with accommodation paper.

And

that wherever the existence of these

blank credits has been brought before the public,

it

has been owing to some catastrophe in which

the

bill

transactions

actually were only under-

taken with the intention of raising

fictitious capi-

FOREIGN EXCHANGES.
tal.

may

But

it

will

41

have been seen that blank credits

and useful purpose, only

serve a legitimate

requiring 1) be most jealously, and even suspi-

Those who are not versed in

ciously, watched.

the various details of international banking trans-

some

actions wiU have

how

foreign

dation,

bills,

representing mutual accommo-

and merely intended

may

to

raise a fictitious

which the

capital during the time

run,

understanding,

difficulty in

be distinguished from

anticipate actual transactions,

bills

bills

and

have to

drawn

to

to bridge over

the interval which exists between a season of importation and a season of exportation.
certain extent

way

it

is

Yet

same

possible to do so, in the

as the discounting establishments at

to a

home

arc able to distinguish

between legitimate and

inland drafts.

The system cannot be

fictitious

condemned because
events not

until

it

abused,

at

all

becomes evident that the

it

abuses which follow in

the advantages which

often

is

wake are greater than

its

it

secures.

For the present, however,

it is

not necessary to

inquire into the beneficial or pernicious results of

these bills drawn in blank.

They have simply

to

be enumerated as constantly forming a portion of

the aggregate

amount

of foreign bills afloat,

and

42

FOREIGN EXCHANGES.

as playing a peculiarly important part in affecting

The

the Foreign Exchanges.

prices of foreign bills,

fluctuations in the

which constitute the

real

subject-matter of every treatise on the Foreign

Exchanges, can only then be properly understood,

when

a tolerably accurate insight has been gained

into the nature

selves,

may

and character of the

bills

them-

and the various classes under which they

be ranged.

The foregoing chapters have

accordingly been devoted, in the

first

place, to

an

elementary inquiry into the transactions in which

foreign bills have their origin

then to a more

minute analysis of that international indebtedness

which we discover these

finally, to

these bills

bills to

represent

and

the classification and characteristics of

when

actually drawn.

speak, examined the material

and are now in a position

themselves.

We

have, so to

and the machinery,

to study the operations

CHAPTEK

IV.

ENUMERATION OF THE VARIOUS ELEiMENTS OF VALUE WHICH

DETERMINE THE

FLUCTUATIONS

THE

IN

OF

PRICES

FOREIGN BILLS.

When
operation,

place

Foreign Exchanges are in actual

the

and adjustments

of accounts are taking

between different countries,

it

appears at

once that, though the purchase and sale of foreign

bills originally

and thus,

represent a simple transfer of debts,

at first sight,

seem

to exclude the idea

of varying prices, the value of these bills

theless, in

is,

never-

a state of constant fluctuation.

The

enumeration of the various elements of value which

determine these

differences

in

next step in our inquiry, and

by the

fact

that, while

is

forms the

price

rendered possible

every instance of such

variations admits of a special practical explanation,

all

are,

nevertheless,

subject

to

well-defined

general laws, and capable of scientific analysis.

The primary
as

difference

of value clearly arises,

was previously pointed

aggregate amount of the

out,

either

from the

claims of any given

44

FOREIGN EXCHANGES.

sum

country upon others exceeding the

liabilities to

sum.

them,

In the

draw (whom
call

or, vice versa, falling

first

for the

short of that

who have

bills to

sake of conciseness

we

will

the exporters, though the class embraces

those

who have

all

their bills

all

claims of any kind on foreign

countries) will not

take

case, those

of its

find

sufficient

purchasers to

for only those will

buy who have

debts abroad to settle, and these debts are by our

hypothesis of less amount than the claims.

Ac-

cordingly the exporters, competing with each other

money

for the sale of the bills, will take less

them than their nominal par value

will sell

them

at a discount.

the importing

those

class,

liabilities to foreigners,

larger remittances to

for

that is to say,

In the second case,

who have

incurred

having, by our hypothesis,

make than

the exporters can

supply to them, bid against each other for such

bills as

may

them.

In both cases, what exporters and import-

be got, and pay a

premium

to secure

ers are seeking to avoid is the transmission of

bullion, with all the sacrifices thereby entailed,

accordingly the extent of the

which can be given

these sacrifices.

is

premium

and

or discount

determined by the extent of

Let us suppose that importers

foresee that the bills

which they

will be able^to

FOREIGN EXCHANGES.

procure, will not suffice for

they have to make.

They

45

all

the payments which

at

once become aware

that the balance will have to be remitted in bullion;

and each

individual, to avoid this necessity falling

to his share, hastens to offer a slight

who draw, intending by

those

premium

to

this small sacrifice

to secure himself against the greater loss in freight,

insurance, and interest, which

always involved

is

The premium may rise

in a bullion remittance.

within a fraction of this expense or loss

even reach that actual point

premium paid

for the bill

to

and the

send the

cost of the specie

it

would

still

Beyond

bill.

point the balance of trade cannot cause the

to rise

may

because though the

remittance were absolutely equal,

more convenient

nay,

to

nor, on the other hand, can

it

be

this

premium
cause the

discount at which bills are sold ever to exceed

the sacrifices which exporters would incur,

if

they

found themselves obliged to instruct their foreign

debtors to send
bills

them

bullion, in consequence of

upon them no longer being

time, however,

when they would

saleable.

receive

The

payment

would, in this case, be an important consideration.

As long

as the exporters can find purchasers for

their bills, they get

payment

cannot dispose of their

bills

at once; but

when they

any more, they are not

46

FOEEIGN EXCHANGES,

reimbursed for the value of their exports

equivalent for

them

is

the

till

Accord-

returned in gold.

ingly each individual will submit to a sacrifice in

order to
is

his bills before the

sell

exhausted and a discount

demand

established

is

for
;

them

but the

discount will not be greater than the estimate

which the

seller

makes

The

been pointed out.

clear

when

result

which have

becomes perfectly

stated in actual figures, especially

illustration
bills

of the sacrifices

if

an

can be found where the par value of

drawn between two commercial centres

is

not

hidden or rendered more complicated by differences

of currency.

New

the secession,

when their

Orleans and

New

York, before

respective currencies

had

not been disturbed and divided by independent

issues of inconvertible paper

Under the hypothesis

instance in point.

identical currency, if at
bills

on

New York

equalled the

offered for sale in

amount

New

Orleans

of remittances required for

New York

say, if the indebtedness of the

point of equilibrium

of an

any time the amount of

the payment of debts due to

for

money, suppUed an

two

citie^

that

is to

reached the

the price to be paid

for a bill

one hundred dollars payable at sight in New York

(for differences in

interest,

point of time, and consequently of

should at this stage be eliminated), would

FOREIGN EXCHANGES.

be exactly one hundred dollars.

however, as

it

those

In proportion,

might become evident, that a greater

New York than could

claims of New Orleans upon

sum was due

against the

47

to

who were bound

be drawn
that city,

would hasten

to remit

to

pay a small premium to the drawers, and give them

one hundred dollars and a
hension that

if

in freight
it

to send gold,

rise, till

which might

Thus the more

cost

clearly

was growing

in-

and the more the supply actually

di-

appeared that the stock of

minished

they

bills,

a half dollar for each hundred dollars

and insurance.

sufficient,

under the appre-

they did not secure these

might be obliged

them one and

half,

the

bills

higher the premium was sure to

the sellers might realize almost one and a

half dollar profit.

At

clearly so high, that

it

this point the

would be

premium was

indifferent to re-

mitters whether they bought bills or sent gold, and

some would despatch gold and others buy the

bills,

the surplus excess required to be remitted being in

the meantime gradually lessened by this despatch

of gold.

The exporters being

their bills,

less

pressed for

soon had the opportunity of feeling

the change in the situation, and might content

themselves with a smaller premium in order to

secure

some

profit before the

demand was

entirely

FOEEiaN EXCHANGES.

4S

The

satisfied.

of bills,

till

or below

more

would be a

fall

in the price

the exchange stood once more at par,

it.

bills

result

Conversely,

if at

any time there were

than purchasers for them, the drawers,

feeling that their export business

might have

to

bear the charge of one and a half per cent, for

them from New York

bullion shipped to

as re-

turns, were ready to sell at a discount long before

that point was reached

a discount which would,

however, not exceed the charges on bullion ship-

ments, which, in the case in point, we have sup-

posed to be one and a half per cent.

clear deduction

bills are

same currency),

is

from these considerations, that

the limits within which the exchanges

(provided the

It

drawn

are, at the

at sight

may

vary

and in the

one extreme, the par

value, plus the cost of the transmission of bullion

this

at the other

identical

extreme, the par value, minus

sum.

Practically the

exchanges

rarely touch either extreme, but fluctuate between

them, owing to the various measures and influences brought to bear

upon the

situation before

the extreme case arrives, which cause a reaction

in the opposite direction.

There are occasions, however, when the exchanges sink and

rise

much below

the specie

FORErGN EXCIIAXGE3.

point

and as

this is not to be accounted for

the cause which

we have been engaged

lyzing, viz., a balance

favour

of,

49

or against

by

in ana-

of indebtedness either in

any given country, we musfc

endeavour to discover others.

Such an instance occurred in the

months

first

of 1861,

when, under the growing apprehensions

of civil

war in the United

States, lluctuations

occurred in the American rates of exchange which

extended far below the specie point.

The balance

of trade

vour of America.

had been strongly

in fa-

Very considerable exports

of

grain and flour, coupled with a reduction of imports, in consequence of political apprehensions,

had established a surplus

of claims

on foreign

countries over the debts due to them.

ingly

it

was natural that the exchanges should

to specie point

below

Accord-

it.

How

but the fact was, they

The reason must be sought

much

fell

could this be accounted for

fall

in the peculiarly

urgent necessity under which the exporters were

labouring, of selling their bills immediately, at any
sacrifice.

It

was a question of time.

Three or

four per cent, were sacrificed to secure the pro-

ceeds of the bills on England at once, instead of

waiting for the arrival of gold.

The exporter had

FOREIGN EXCHANGES.

50

two courses before him,

what they would

either to sell his bills at

fetch, or to

send them himself to

Europe, with instructions to his correspondents to

encash them and remit the amount in bullion.

The

was cheaper, but as he required

latter course

funds immediately

(or,

under

the

influence

of

panic, believed that he would so require them), he

adopted the former.

In ordinary times,

would have com-

capitalists

peted with each other in buying up the drafts of

urgent

them

They would then have remitted

sellers.

to

Europe

for their

own

account, so as to

secure the profit between the low price paid for the
bills

and

their

specie value

would have bought

at

that

is to say,

they

heavy discount, much

below specie point, in order subsequently to realize

at least the specie value (which

we have seen

to be

the par value, minus the charges on the bullion

remittance).

But

at a

time of commercial panic,

such capitalists are seldom willing to launch out

into a speculation

which deprives them, during the

weeks which must elapse before the gold

arrives,

command over their funds. They may fancy

during that interval the rate of interest may

of the

that

rise to

such a height as to neutralize the anti-

cipated profit.

For instance,

let

us suppose that

FOREIGN EXCHANGES.

61

they expected to gain one and a half per cent, net

on the exchange

in their calculation they

must

have taken into account the interest they would

lose

from the time when they paid the drawer

up

his hill

to the

The amount

gold arrive.
terval,

moment

which we

vvhen the returns in

should suddenly

cent, per

annum,

Now,
rise

two per cent,

or one half

the rate of in-

if

twenty-four per

to

annum, they would have

at the rate of

to

for the

borrow money

month, in order
which

to replace that portion of their capital

travelling to

Europe and back

and a half per

on

cent,

this in-

month, they may have

calculated at six per cent, per

terest

on

of interest

will call a

per cent for the month.

for

that

is to say,

more than they had

is

one

calculated

and accordingly, that being their estimated

profit,

they would gain nothing

change operation.
that what

is

We

accordingly

on

their

may

ex-

conclude

technically called a stringent

money-

market, acts materially upon the exchanges, in-

ducing

sellers

to force

sales,

and creating a

re-

luctance on the part of purchasers to buy unless,

This cause

absolutely compelled to remit.

however, not come forcibly into operation,

the international transactions
equilibrium

for

then there

will,

when

are in a state of

will

be as

many

pur-

FOREIGN EXCHANGES.

52

on compulsion as there are

cliasers

money may

the clearness of

and

sellers,

only operate so far

as to induce purchasers to defer their remittances

to the last

moment, whereas

that they should he hastened.

be

a time

felt at

when

sellers

Its full force

is

it

will

money is

the country where

supposed to be dear, or where panic

exported more than

would wish

has

exists,

has imported, and when

it

consequently certain that gold will finally have

be

to

while

ordered,

willing to wait for

no individual

its arrival.

himself

is

seldom, how-

It is

ever, that this peculiar contingency will occur

generally, the

has taken

as,

money-market in such a country as

less

given to them,

from other countries than

has

it

particularly well supplied with

is

surplus capital.

There

are,

however, further causes which deter-

mine the fluctuations

We

in the rates

of exchange.

have hitherto, in order to obtain a clear view

of the first leading principles, considered

as

drawn payable

immense majority

at

are

sight

but,

all

bills

practically,

drawn payable

an

at various

periods after the date of their issue or

first

pre-

sentation to the acceptors, giving rise respectively

to the expressions, payable at so
date, or so

many

days after sight.

many

days after

Thus, two new.

53"

FOREIGN EXCHANGES.

elements of value are introduced whicli will

the rate

exchange.

of

consideration

made from
which

is

as

first

place, the

what deduction should be

the price, in consequence of the

bought

payable

till

to the

security

can

to

In the

affect

for ready

after a certain

money not being

time

itself

and, secondly, as

which the purchaser of the

bill

the drawer and acceptor of the

feel that

will continue solvent

till

becomes due.

it

bill

bill

Thus,

the state of credit in both countries, and the rate

of interest

in

that

remitted, likewise

country whither the

bill

is

become determining elements

in the rate of exchange.

It

has been shown that the state of the money-

market in the country where the

affects the

exchanges, since

it

bill

is

drawn,

renders the seller

more eager and the purchaser more

reluctant

and, as one or the other must bear the loss of interest

bills

which must ensue

till

the proceeds of the

reach their hands, this loss of interest will be

own money-market

at the rate established in their

at

home.

But when any

bills

other than such as

are payable at once, form the subject of bargain,

the buyer

must further

consider what

rate of interest in the country

are drawn.

If

is

the

on which the

bills

he owes money abroad, he

will

be

FOREIGN EXCHANGES.

54

paying interest to his foreign creditor at the foreign

and

rate,

this interest will not cease

tance becomes due.

him

difference to

Accordingly,

till

it

his remit-

make

will

two months' interest

of

at the

foreign rate, whether the bill which he purchases

as a remittance

days after
rises,
bill,

he

its

is

arrival

will insist

whereas,

drawn payable

and, as the foreign interest

on paying

if it falls,

less for the sixty-day

he can afford

heavier deduction must be

in the

first

at once or sixty

to

pay more.

made from

the price

instance than in the second.

the case of the capitalists

who buy up

Or, in

bills at

time of pressure in order to send them abroad and

have them converted into gold, their foreign correspondents will have to discount the long

them, and the amount of discount

profits.

bills for

affects their

If they fear the rate of interest in the

country on which the

they pay so

much

bills are

drawn

less for the bills

cipate cheap rates, they

"Without any doubt, the

will
if

be high,

they anti-

pay so much the more.

New York

suffered the price of bills

capitalists,

upon England

who

to sink

three and four per cent, below the specie point,

were influenced by a natural anxiety as to the rate

which they would have

to

pay in England

discount of their sixty-day remittances.

for the

FOREIGN EXCHANGES.

In the rates of exchange for

bills at sight,

stant

and

there

is

55

all bills

other than

no element of value so con-

so effective as the rate of interest in the

country on ^hich the

bill is

drawn.

The

fluctua-

tions in bills at sight are limited, to a certain extent,

by what we have called the specie point

they can exceed the specie limit either upwards or

downwards

when

for a

time

but, be

it

remarked, only

the two countries are at a considerable dis-

tance from each other, so that specie cannot be

rapidly

returns

sent

and

to

and w4ien immediate

fro,

become a matter

of importance

in fact,

only under very extraordinary circumstances.

The

fluctuations in long bills,

on the other hand,

are unlimited, because they are co-extensive with

the fluctuations in the value of money in the accept-

ing country, and co-extensive, too, with the appre-

hensions which
the

may

names on the

be

bills.

felt

as to the solvency of

The

effect of

the value of

money, or rather of every variation in the prevailing rates of discount, upon the Foreign Exchanges,
is a

matter of the highest importance, and will have

to be considered

On

with some minuteness later on.

the other hand, the extent to w^hich the sol-

vency and credit of the drawer, as well as of the

acceptor, of a

bill, affects

the value of that

bill,

and

56

FOREIGN EXCHANGES.

consequently the rate of exchange at which

sell,

does not require

first-rate
^'

make

much

elucidation.

it

will

Firms

of

standing are said, in technical language, to

the best exchanges."

The

price

which

is

paid to a merchant of undoubted position for his

sixty days' sight bill

on a foreign country,

higher than that which

bill

on the same

is

place.

granted for a second-rate

The purchasers

must be induced, by a concession

an

be

will

of bills

in price, to take

They must be

article of inferior security.

demnified for the greater risk.

Credit

is

in-

a very

important element to be considered in the rate of

exchange

and

so notorious is this

amongst those

engaged in international trade, that the price

which exporting houses can

is

at

sell their foreign bills,

looked upon as an unerring test of the credit

which they enjoy among their neighbours.

Thus

credit causes a difference in the value even of such

foreign bills as are

ing

it difiicult

drawn on the same day, render-

to give

any exact or

tion of the price of long-dated paper

it

operates

definite quota;

and, further,

on exchanges generally in times of

commercial panic or excitement, and causes the

prices of all bills to
to

fall.

In the case of America,

which allusion has been made, doubtless the

purchasers of

bills felt

bound

to indemnify

them-

FOREIGN EXCHANGES.
selves

for the risks

by a large discount

thought they ran

accepted at

all,

have

enormous

in consequence of an

drawn, and the drawers

call

upon

whom

the purchaser would

or,

fall

which they were

to refund the

failed in the interim

which they

might not be

either the bills

in the value of the goods against

then have to

57

the

amount, might

bills

might have

been accepted, but not be paid at maturity, owing

to the difficulties in

which

it

was expected that

all

connected with America would be involved.

Thus,
credit,

too,

when

it is difficult

a whole nation falls into disto sell bills

made

concessions must be
felt

that

little

upon

it,

and large

in consequence.

It is

security can be placed in the acceptor.

The purchaser has then only the

drawer, and not, as

is

security of the

otherwise the case, of the

drawer and acceptor jointly.

However, this

gument cannot be pushed very

far

speaking,

when

there are

many

for,

a whole country

is

ar-

generally

in discredit,

other influences at work to lower

the value of bills upon

it,

and

it

is

not easy to

separate to what extent the different causes have

respectively operated

how much,

for instance, is

due to a so-called adverse balance of trade and

excessive indebtedness,

and how much

how much

to loss of credit,

to a further element of value

which

FOREIGN EXCHANGES.

we have

the depreciation

of the

be remembered that the basis of a

settle-

still

to examine,

currency.
It will

ment through
a

sum

of

a bill of exchange, is the

money

payment

of

in one place, in order to receive

The purchase

the equivalent at another.

of a bill

on France, consists in the payment of a certain

amount

money

in sterling

to a

merchant trading

with France, against his giving an assignment for

the same value on a French merchant.
all

Hitherto,

that has been said has been applicable to all

countries

The

equally.

been examined would

operation, even

if

principles

exist,

which have

and be in constant

a universal currency

had been

adopted, and the perplexing calculations between

francs

and

florins,

and

given

sum

in

fact,

that

London

value.

When

there

for the

same sum

made,

what may be
is

to deal

when an exchange

or St. Petersburg has to be

difficult to ascertain

and roubles, were

But now we have

no longer necessary.
with the actual

dollars

it is

in

of a

Vienna

excessively

called the par

a gold currency in both

countries, the calculation is comparatively easy

though,

if

a large paper currency exists side by

side with the gold, the

more involved.

problem becomes somewhat

Between two countries

of Vvliich


FOREIGN EXCHANGES.

59

the one has a gold, and the other a silver currency,

a comparison becomes
while

it

complicated,

hopeless to look for any trustworthy

is

when

results

more

still

either of the two countries has

Given

unlimited or inconvertible paper currency.

one hundred pounds sterling in London

the value of these hundred

What

pounds in Vienna

is
?

Applying experimentally the prin-

which we have previously examined, we

them apparently

discover

The

what

are the laws v/hich will govern the exchanges

in this case
ciples

an

to

break down here.

fluctuations in the prices of foreign bills have

been exhibited hitherto as confined within certain

limits, subject indeed, within these

limits to the

ordinary laws of supply and demand, but unable to

rise or fall

beyond the indicated boundary, except

under extraordinary circumstances.

If the

drawers

were more numerous than such as had to remit

that

is to say, if

the creditors of any given country

were more numerous than the debtors

shown

to be difficult to sell bills

and the

sellers

had

to

make

it

was

on such a country,

a sacrifice.

On

the

opposite hypothesis, the buyers were mulcted in a

premium.

But

in either case, the sacrifice could

not materially extend beyond the loss which would

accrue directly and indirectly in the transmission

rOREIGN EXCHANGES.

0
of bullion.

he who has money

If

cannot draw and

sell

to claim abroad,

a bill against the

amount

to

advantage, rather than submit to a sacrifice beyond

the limit indicated, he will instruct his foreign

him

debtor to send

moneys

to

gold.

So

if

he who owes

merchants abroad, cannot buy a

bill

except at a loss greater than the expense of sending

bullion in payment, he will naturally at once adopt

But what

the latter plan.

case, if the country

is to

be done in either

on which we suppose the

bills

has an unlimited paper currency,

to be drawn,

represented by no bullion at

all ?

or, if bullion

cannot be thence obtained except at an enormous

premium

or

if

altogether, or

the export of bullion

prohibited

be illegal to give or take a

if it

premium on gold

is

It

seems evident

at once, that

the hmits previously assigned to the fluctuations

of exchanges are,

under most of these hypotheses,

removed altogether.

If the

creditor of such a

country loses the alternative of being able to obtain

gold in payment of his claim, there
the sacrifice which he
in order to sell his
of those

Similarly,

bill,

may

no hmit

to

be compelled to make,

except in the competition

who may be obhged

if,

is

to

purchase

it.

as is very unlikely in the case of a

country with a depreciated currency,

its

foreign

FOREIGN EXCHANGES.

debtors should be
creditors,

would

more numerous than

demand

so that the

exceed

61

the

foreign

upon

for bills

the

supply,

its

debtors

it

(being

deprived of the alternative of sending a specie re-

mittance by the fact that gold, though enhanced

in value like everything else

the currency,

still is

by the depreciation of

commanding

prohibited from

in the country in question its legitimate

would have
sellers

to

premium)

pay the price demanded by the

of bills, this price being apparently only

limited by the competition of sellers.

on closer inspection,

it

will be

limit, similar in nature

pointed out,

is after all

be possible to discern
in

which there

is

it

is

we

and

it

will

the case of a country

a depreciated currency, but in

not restricted by

examined.

which has been

in operation

which a premium on gold

and

found that a kind of

to that

when

However,

It will

is

regularly established

artificial

means, has been

appear that, in this latter case,

shall not be far

commanded by gold

wTong

if

we add the premium

in the depreciated currency to

the expenses which are incurred by the creditors of

such a country, who have to recover their claim by

sending for the gold instead of selling
the opposite case of the debtors,

sponding deduction.

bills,

we make

If the latter, rather

or

if,

in

a corre-

than pay

FOREIGN EXCHANGES.

62

an extravagant price for the

bills

which they wish

and remit, incur the expense of send-

to purchase

ing bullion, the

premium which they will

obtain on

such bullion will naturally go in reduction of the

This will accordingly give

expenses incurred.

them

a great advantage over the sellers

in other

words, over the creditors of the country in question.

The consideration

of the various cases

under exa-

mination, from the two opposite points of view

of the drawers

and purchasers of

bills respectively,

tends to embarrass the course of the argument,

but cannot be avoided entirely.

When

in the

course of the discussion the case of one class only

is

considered,

it is

highly desirable that the reader

should himself clearly realize the converse proposition,

and consider the

results

from the opposite

point of view.

In propounding the
the prices of
is

bills

fact,

that the fluctuations in

on a country, where the currency

depreciated, are governed, not only by aU those

elements of value previously considered, but to a

much
as

greater degree by the

premium on bulhon

compared with the depreciated currency, we are

stating the final result rather than the process by

which

this position is reached

the ultimate hmit,

rather than the gradual development.

We

shall

FOREIGN EXCHANGES.

63

same conclusion by the following

arrive at the

more prominence

reasoning, in which

given to

is

the depreciation of the paper circulation than to the

premium on

bullion,

which however, in

almost the same thing.

the

premium on

bullion,

reality, is

Practically, the idea of

though more

clearly intelligible in theory, rises less

easily

and

to the sur-

face than the depreciation, or smaller purchasing

power, of

its

paper competitor.

For, in a country where there

is

convertible paper currency, the

a large and in-

precious metals

tend to recede from their more important function

as the

circulating

of ordinary

medium, while

merchandize comes out into stronger

relief.

As another currency

are by

no means

to

owing

another

to this

with which they

they no longer con-

but themselves become sub-

standard.

new

exists,

identical,

stitute the standard,

ject

their character

Accordingly,

standard, the prices of

chandize begin to fluctuate, bullion

the same influences
issue of paper

is

when,
all

mer-

subject to

and when, through the over-

money, a general

rise

of prices

ensues, the price of gold, as measured by paper

money,

rises

with the

rest.

Thus, supposing the

Austrian Government to be constantly depreciating

the Austrian currency by issues of paper money,

FOREIGN EXCHANGES,

C4:

the value of gold in Austria will be constantly

rising,

and one hundred English sovereigns

many more

be worth so

Those who purchase a

Austrian paper

bill

on Vienna

will

florins.

will, accord-

ingly, in such circumstances require a correspond-

ing exchange
sell,

is

that

they

is to say, to

due in Austria,

more

who have

whom a certain sum of

will

to

florins

have to throw in so many

florins, in order to

them gold

on Vienna

bills

induce the buyers to give

And why

for the depreciated article.

Because, otherwise, the buyer

who

remit would do better to send the gold

is

going to

itself.

Just

as an English traveller in Austria will at such a

time obtain fifteen florins instead of ten for his

who pay

sovereign, so will those

florins

sovereigns for

on the London Exchange, require the same

favourable terms.

We

have thus discovered an

in-

fluence which apparently affects the fluctuations in

the Foreign Exchanges far more powerfully than

any previously discussed;

interest

of

money, a

balance of debts over claims, panic, distance, and

so forth, practically cause the exchanges to vary

within a few per cents.

cent.,
is

owing

a variation of ten per

to all these circumstances combined,"

considered something extraordinary, and only

occurs under rare combinations.

But, as soon as

FOREIGN EXCHANGES.

the element of currency

had

at

65

we have

introduced,

is

once an instance before us in the Vienna

exchange of a variation of

So in

per cent.

fifty

the Piussian exchanges, owing to the enormous

amount

money afloat, which

of paper

the most

inconvertible,

is

practically

violent fluctuations are

constantly occurring.*

But

in a certain sense these fluctuations are

apparent, and do not involve the same gain or

loss,

the same difference in value, as those alluded

to above.

generally
florins

As the depreciation
speaking,

prices

all

alike,

bought by the Englishman

are not worth

bought

in currency affects,

more

for the

to

him than

same money

the fifteen

for his sovereign

the ten which he

before.

When

the

fluctuations were determined simply by the l)alance

of trade, (within the limits of the specie point

either extreme,) the purchaser

cheap

that

sum than

is

to say,

when he

upon

when he bought

obtained a greater

usual in foreign coin for his

own money

* This passage was written in 1861.

Great changes have

and Russian Exchanges.

since then occurred in the Austrian

The former has

fallen

much more than

even touched

its

it

very considerably, and the

was two years

par value.

ago.

But the measurestaken

the Russian currency to

its specie

the paper rouble

what

was

is still,

florin is

it

worth

The Russian rouble has

to bring

value have broken down, and

was when the above passage

written, practically inconvertible.

December,

1863.

FOREIGN EXCHANGES.

65

secured an actual

advantage

had an actual greater purchasing

of foreign coin

But where the cheapness

power.

sum

this greater

of the bills is

caused by the depreciation of the foreign currency,

he has no advantage

the nominally larger

sum

for the

purchasing power of

not greater than that

is

of the smaller.

Again, while the purchaser of the

shown

to

of

any loss

exchange

for the sovereign

after the

established, has the

true that he will be under

it is

is

the necessity of ceding a greater

number

of florins

which the buyer pays him

but

produce which he has sent abroad against

the

which he draws,
sis,

has been

have no advantage, so neither,

new standard
seller

bill

will,

under our present hypothe-

have risen in value in the same proportion,

and therefore

number

yield

him

of florins for

a proportionately greater

which he can draw.

instance, before any great fluctuation,

a certain quantity of sugar,

pose

him

florins,

and

to

of ten

to

the

have sold these

pound.

<1,000 for his sugar.

cent,

now

have sold the sugar

to

occurs,

owing

to

let

for

drafts

us sup-

10,000

florins at the rate

He would

he exported

and sold his

against this sugar for a certain price

For

thus reahze

fluctuation of ten per

an over-issue of paper

FOREIGN EXCHANGES.

Prices generally rise 10 per cent., and

in Austria.

the exchange rises also.

now

chant

must

sell

07

sells his

The same

foreign mer-

sugar for 11,000 florins, but he

his florins at the rate of eleven to the

pound, thus realizing ^1,000, precisely as before.

It is scarcely

necessary to observe that in assuming

a general equal rise in prices,

to express

it

not intended

is

an opinion that such an event could

Some

actually occur.

to

the well-known prin-

economy

relative to this subject.

than others, according

ciples of political

much more

prices will rise

In Austria the manufacturers insisted that they

made

considerable profits by the depreciation of

the currency, as the cost of labour had not risen

same proportion as the manufactured goods.

in the

The raw material being imported from abroad had

risen to the full extent at once

and

this enabled

the manufacturers to increase the price paid for

their

same

products in the

ratio,

though one

element of production, labour, remained compa-

But

ratively stationary.

porary.

The adjustment must take

or later; and

if

the

mained the same

risen

till

this could only be

they

as

demand
before,

tem-

place sooner

for labour

had

re-

wages would have

commanded the same amount

labourer's necessaries as before.

As

of the

far as the

F 2

FOREIGN EXCHANGES.

68

force of the previous

argument

assumption of a general equal

admissible, and

it

is

concerned, the
of prices is

rise

appear that the apparent

will

fluctuation in the exchanges extends

no further

than the apparent increase of value which has

resulted from the

factured goods

A parcel

same cause.

commands more

of

florins,

English sovereign commands more

manu-

and an
also;

florins

but neither in the one case nor in the other has

any greater purchasing power been acquired.

Hitherto the comparison has been instituted be-

tween a transaction before any given fluctuation

and a transaction

after it

difference in the exchange,

by the depreciation
rise to

and

appears that the

it

when it has been caused

of the currency, does not give

any difference of

However,

result.

be seen at once that the very opposite

when

the

fluctuation

is

is

it

the

will
fact,

not supposed to occur

between two different transactions, but between

the beginning and the end of the same operation.

Suppose the exporter of sugar

sugar
for

first,

10,000

and

to

florins,

have sold

to

it,

have shipped his

as

assumed

before,

the exchange being at the time

10 florins to the pound.

However, he defers his

drafts against these 10,000 florins for

some time,

and, in the interval, the rate of exchange changes

69

FOREIGN EXCHANGES.

to 11 florins to the pound, as in the previous case.

Accordingly, his florins, having to be divided hy 11,

only realize nine hundred and nine pounds odd,

instead of the thousand, which the former exchange

would have given him.

In

fact,

a fluctuation in

the exchange, produced by a depreciation of the

existing claims on a country

makes the

currency,

in such a situation worth so

all

debts due to

it

can be so

tageously discharged
loses

and

its

much less, whereas

much more advan-

the creditor of the country

debtor gains.

If its

imports and

exports were in a state of equilibrium, that

say, if it

owed

as

much

as

it

had

is to

to claim, there

would, on the aggregate of transactions, be neither

loss

nor gain resulting from the apparent

tuation

fluc-

but the individual creditor of the country

might consider himself robbed, and the individual

debtor might

charge his

rejoice

when proceeding

liabilities, to find

to

dis-

himself able, for the

same sovereign, which previously would buy only

ten florins,

now

to purchase eleven.

The examination

of the nature

and tendency of

the fluctuations just described, serves to lead us

conclusively

enough

to their limits,

which

special object of our present investigation.

is

the

The

FOREIGN EXCHANGES.

70
bills

on a given conntry fluctuate in value, in pro-

portion

extent to which the prices

the

to

purchasable

all

affected

articles

bullion

included

of

are

by the depreciation of the currency

in

other words, in proportion to the discount of the

Beyond

paper money, or the premium on gold.

that proportion, the fact of the depreciation of the

currency cannot cause them to deviate; otherwise,

if it

were possible, the creditor of any sum payable

in the inferior

money, rather than submit

to a

further sacrifice in the exchange, would request

his debtor to send

him

gold for the amount of his

debt, notwithstanding the

premium upon

it

for,

under the hypothesis, such a premium would be

less

than the loss entailed in settling the trans-

action by the sale of a

What, however,

will

bill.

be the case

if

the export of

bullion from the country, where the depreciated

currency exists,
sible to

buy up

is

prohibited

And these

all

is

on such a country

due to him

if it

it is

is

impos-

illegal to

bullion has actually

are the

cases which, in practice, arise.

of a claim

or

gold, either because

pay a premium, or because

disappeared

more frequent

How

is

the holder

to encash that

which

Let us suppose the case of a

merchant who had supplied Eussia with cotton

FOREIGN EXCHANGES.

when

the export of bullion from Eussia was prac-

How was he to

tically prohibited.

When

payment

exact

the cotton was sold, he became entitled to a

amount

certain

How

71

roubles

of

in

Petersburg.

St.

could he convert those roubles into English

sovereigns

Or, put the case otherwise

a Kussian

spinner has imported the cotton, and owes the

amount thereof

in English sovereigns to a

He

chant in Liverpool.
his

has roubles

sufficient in

hands in paper money, but what steps

take to procure sovereigns for

them

mer-

is

he to

Being de-

barred from

sending bullion, he has only two

courses open,

either

buy a

to

bill

on England

from others who happen to have sent produce

thither,

and thus have a claim on an English

house, which he can buy and transfer to his Liverpool creditor

sell for

or to send the produce,

sovereigns, himself.

which

Where there

is

will

a pause

in exportation, as is the case during a large portion

of the winter season in Eussia,
lutely unable to send

he would be abso-

any remittances

at all, unless

he could find bankers or others who might draw

on England, or on some other foreign banking

centre, in anticipation of future exports,
sell

him

to price,

the

bills.

he

is

But

it

and would

will be apparent, that, as

entirely in their hands.

If,

as is

FOREIGN EXCHANGES.

72

often the case, such Eussians as are indebted to

foreigners are

bound

at

any cost

to place funds in

Engiish money into the hands of their creditors

by a given day, there would be no limit to the

which might be exacted from them

price

in other

words, no limit to the fluctuations in the exchange.

The

relative value of their paper roubles to bullion

seems not

to enter into the question at

and demand alone determine the

Supply

all.

And if the

price.

exports of such a country do not equal the imports,

(and this
the

is

by

demand

far the

most general

for bills to

ceeds the quantity of

exports, the balance

bills

pay

case,) so that

for the imports ex-

which

is

supplied by the
to

pay

sacrifice,

in

which the country has

can only be settled by an enormous

all

except by a cessation

or diminution of imports, or

by a foreign loan, the

cannot be settled at

fact,

latter

being only an expedient to gain time and an

adjournment of the payment of the balance due.

It will be

easily seen

why

it

is

possible

to

assume that a country in which a depreciated currency and a prohibition to export bullion
likely to
If it

be importing more than

it is

exist, is

exporting.

were otherwise if its exports exceeded

ports

bulhon would be flowing towards

it

its
;

im-

other

countries would be paying part of their debts to

73

FOREIGN EXCHANGES.
it

in gold,

for a prohibition of the

and no grounds

export of biilHon would have existed.

too,

The currency,

would be in the course of improvement, and

many

Probably there are as

not of depreciation.

cases in which the depreciation of the currency

consequence of excessive

directly, or indirectly, the

importations, as in which
errors

and bankruptcy

is,

due solely to the

is

it

Governments.

of

Often,

both influences are combined, taking alternately

the

position

of

cause

and

Governments, simply

for their

a quantity of paper

money

own

consequence of

and accordingly

the

attract

purposes, issue

the natural conse-

quence will be over-importation

in

Sometimes

effect.

prices will rise

increase in

circulation,

commodities from other

markets, while the exports, having risen also, will

be less easy of sale abroad.
takes place in the
in order to

first

remedy

Or, over-importation

instance,

artificially

and Governments,

and apparently what

can only actually be remedied by the cessation of

the real primary cause,

commit the

fatal error of in-

creasing the circulation by an issue of paper money.

They think thus to

increase the

debts which are being incurred

is, still

means
;

farther to increase the evil

instead of being checked,

is

of paying the

but the only

;

effect

for importation,

fostered by such a plan.

74

FOREIGN EXCHANGES.

When, during a period

of apprehension caused

large efflux of gold from

England

by a

to America, views

were expressed in Manchester and Liverpool, that

a

much

larger issue of bank-notes ought to be

permitted,

this

opinion tended manifestly to a

depreciation of our currency.

But as the con-

sequence of the depreciation of the currency in any

country

offer

inducement

for further

by creating an appearance of high

tation,

and

is to

at the

same time

The

that the balance of trade

for the

when

time

prices,

to increase the difficulty of

paying for such importations, how

balance to be paid

impor-

is

the final

efflux of specie

is

shows

against that country

the equilibrium must be restored,

the specie

is

exhausted, by slackening im-

portation and consumption.

We were led to these somewhat premature

reflec-

tions regarding the result of an over-issue of paper

money and

over-importation, by the consideration

of the position of such debtors to foreign countries

as were prohibited, either by the actual absence of

bullion or by legal enactments, from

remittances, and were

mercy
sell

of such as

their

met by

had

therefore
drafts

making

specie

entirely at

the

on other countries

to

only resource being, in case they were

prices too exorbitant, to

buy produce and

75

FOREIGN EXCIIANOES.

send

it

The

themselves.

changes in these cases

supply and

demand

fluctuations in the ex-

will

and,

if

exceeds the supply, there

is

whatever to the price of

It

depend entirely on

demand

for bills

theoretically

no limit

the

bills.

may, however, be asked vdiat

be the

will

general range of the exchanges in such a case,

if

the importations and exportations are, for a time,

in a state of equilibrium

natural value in sterling

What would

money

at

be the

such a time, of

a bill on St. Petersburg, payable in roubles

natural value at such a time seems to be, not

nominal par
rouble

when

silver coin,

was convertible and was in

reality a

but this value minus the depreciation

v/hich the rouble has suffered in Eussia

at the

tJie

of the

of exchange, not the value

it

The

itself.

If

time when the currency in Eussia, owing to

the enormous

amount

of paper

money

afloat

the insufficient stock of bullion to meet

actually

though

it,

and
was

perhaps unconsciously to the

Eussians themselves

depreciated

per cent.,

then we apprehend the natural value of the rouble

in sterling

money would have been

at

such a time

5 per cent, below the nominal par of exchange

but

it

cannot be too often repeated that no calcu-

lation can be founded

upon

this proposition, as

FOREIGN EXCHANGES.

76
practically,

owing

to

deferred payments,

and

the system of credit

there

never an equality

is

between exportations and importations

increasing balance of debts lowers
at least in reference to the

and an

more and more,

Foreign Exchanges, the

value of what, in this case,

we have

called the

rouble.

Such seem

to be the general principles

which

regulate the fluctuations of the exchanges in those

cases where bills are sold payable in a depreciated

The treatment

currency.

be complete without

between

silver

payable in

and

silver, is

of the subject

considering

gold.

When

the value

We

the

a bill

bought in London

price, payable in sovereigns,

what

would not
case

on Hamburg,
for a certain

determine

will

shall arrive at this value

of reasoning

as determined

by a similar process
the previous

case.

may be

called

Either gold or silver will be at what

the par value between the two, or, as

compared with the other.

France, which with

somewhat

its

is

as

With the exception

of

double standard,

is

subject

different influences, gold is simply

merchandize in such countries as have a

currency,

and

more

premium

generally the fact, the one will be at a

to

as

silver

is

merchandize

in

silver

such

FOREIGN EXCHANGES.

countries as have a gold standard

to the price of the

merchandize

is to

and according

at a given

When

so will the exchanges fluctuate.

Hamburg

77

be sold in London,

all

moment,
a

on

bill

the previous

elements of value will have to be taken into consideration

the

rate of interest in the two countries,

the state of credit, relative indebtedness, and so

forth

but the value of silver in England will enter

largely into consideration, or in the opposite case,

When

the value of gold in Hamburg.

great

demand

when

large shipments are to be

for silver in

there will be a great

burg

for

demand

made

for bills

one means of procuring

buy up such
certain

England, as

bills

amount

there

is

is

the case

to the East,

upon Hambe to

silver will

as entitle the purchaser to a

of silver in

Hamburg, and

to send

these bills for encashment, with instructions that

the silver thus encashed

to

England.

Thus,

if

is to

be actually shipped

silver is at a

England, those who have claims on

able to exact this
their claims

that

is

premium

Hamburg

to say, the

money

banco,"

or,

receive

less

are

premium from the purchaser

by raising the price of their

sterling

in

bills

buyer will have to pay more

for the

what comes

marks

of

for

same amount
to the

his

same

pound

of

**

marks

thing, he will
sterling.

If,

FOREIGN EXCHANGES.

78

when

silver

thirteen

not at

is

premium, he receives

marks and a quarter

for his sovereign, as

the price of silver rises he will receive less

number

Hamburg

have fallen

of

are to be

Hamburg

pound, the exchange on

bills

being expressed by the

marks banco which

of

had

the fact, however, being clearly that

less

marks commanding the same amount

supposing the case of a

merchant who wishes

purpose whatever
sending
bills

it

to

him

requires

owing

to

and

Hamburg

us say for the purpose of

let

to

buy cotton therewith,

they

an amount of that metal which he

if

be able to exact

there

is

is

competition for such

demand

bills,

for gold for the object

who have bills upon London will

a premium for them, and in this

more marks banco

of the

of gold.

will serve his purpose, as

to a general

pound which

amount

procure gold for any

to

America

indicated, those

case

on London

entitle

for a

will be said to

on Hamburg have risen in price, a

Conversely,

for

marks and an eighth; and

instance, only thirteen

the exchange on

will

placed in

purchaser of the

be demanded for every

London
bills

at the disposal

accordingly, the

Hamburg exchange will rise, and thirteen marks

and a half may be given for the pound. The limit
of the fluctuation

is,

however, easily discernible.

FOREIGN EXCHANGES.

and

will

79

be found to correspond exactly with that

which was discovered in the case of two countries,

one of which had a metallic currency and the
other a depreciated currency, with a
missible on gold.

premium

The

obtainable.

London, in the case

premium

per-

limit will be the extent of

on

If the holders of bills

many

put, exact too

last

marks, those who are anxious to purchase gold will

find their advantage in sending the

over to England, and selling

if

the English merchants,

on Hamburg

portion to the existing

will either

may

or

desire to ship silver

demanded by such

to the East, find that the price

as have bills

there for gold

it

who

silver itself

to sell, is out of pro-

premium on

pay that premium

for

silver,

such

they
as

silver

be procurable elsewhere, or they will send

gold to Hamburg,

which gold

sell it

will stand in

there at the discount at

Hamburg, under the

cir-

cumstances, and have the proceeds invested in

silver

and shipped over to them.

necessary for the argument

is

The assumption
that a sale of gold

is,

always possible in Hamburg, and a

silver

possible

in

England

sale of

the price may, in

either case, sometimes be exceedingly low,

premium on

the

heavy charge

to the purchaser

other metal

and the

accordingly be
;

but the sale

may

FOEEIGN EXCIIAXGES.

80

generally be

assumed

to be

possible,

and thus

defines the limits of the fluctuations in the rates

of exchange.

This result has, in the case before us, been

attained by the consideration of transactions which

arose from the fact of certain merchants being

obliged to possess themselves of that one of the

two precious metals which did not constitute the

currency of their

own

ing to

by the

obtain

it

such countries where

it

country, and endeavour-

we

if

bills

however, quite as

is,

on

The

formed the standard.

truth of the proposition

evident

purchase of

self-

confine ourselves, as before, to the

An English meramount of Hamburg money

case of debtors and creditors.

chant owes a certain

that
to

is

to

pay in

say,

an amount w^hich he

silver.

Silver, let

The amount

usual in England.
will be

silver

price

and shipping

also,

market

it

to

the

of the difi"erence

price

The

of bills

and the purchaser

at

the enhanced

Hamburg,

Hamburg, payable

favourable exchange.
risen,

when

compelled to pay either by purchasing

the English

in

a bill on

is,

becomes due, considerably dearer than

his debt

he

us suppose,

bound

is

or by buying

in marks, at an un-

price of silver having

payable in silver rises

will receive fewer

marks

rCKEIGN EXCHANGES.

pound

for his

but

81

the seller of the

if

bill

were to

ask a greater difference of price than would be

warranted by the rise of

payments in

silver to

silver,

make

who have

those

will prefer to

pay the

premium

in the open market for the article

Thus the

limit of the fluctuations in the rates of

exchange which

may

result

itself.

from the difference in

value between gold and silver

and

is clearly

easily

established.

The case
like

of transactions between two countries

England and France,

of

which one has

gold

currency, and the other a currency of gold and

combined,

silver

offers

no

difficulty

whatever.

fluctuations in the prices of bills of one

The

upon the

other cannot, except under a most rare and almost

impossible combination of circumstances, exceed

the limits of such variations as can exist between

two countries having the same currency

will

be determined by that which

both of them

that

is

to

say,

is

they

common

by gold.

to

Hovv',

indeed, could a bill on Paris, payable on demand,

be sold at a higher value than that of the gold

which

it

represents, plus the expenses

and com-

missions incurred in sending that gold to Paris

For,

if

a higher price were asked,

cheaper to send gold

it

would be

itself.

8^

FOnETGN EXCHANGES.

soon as a premium

It is clear that, as

any country on gold or

silver, this

is

paid in

premium

^yill

increase the yalue of bills which are payable in

that particular metal

no other.

in

but only

If

either in napoleons or in

they are payable

Paris

is

silver five -franc

payable
pieces,

be sure to be paid in that coin which

it will

least in

demand, in that which

compared with the

such a

on

bill

if

bill wdll

is at

is

a discount as

Thus, the purchaser of

other.

not aUow the price to be enhanced

by the existence of a premium on one portion of

the currency.

exchange

shown
tries

The

will be

to be

when

fluctuations

in the rates of

as strictly limited as they were

the currencies of any

tvv^o

coun-

were practically identical.

In concluding this portion of the subject,

necessary to remark once more that no

it is

stress

should be laid on any of the special cases selected

as illustrations being correct in fact.

the

mode

and the

in

It is rather

which the question should be handled

principles,

which the present

treatise en-

deavours to evolve, on which reliance should be

placed

when any

particular instance is to be ana-

lyzed and examined.

For

ferent elements of value

this purpose the

dif-

which enter into con-

sideration in the sale of foreign

bills,

have been

FOREIGi: EXCHANGES.

dwelt npon at some length

83

but the proportion

in which they stand to each other in any particular case,

and the

details

which must be studied

in considering hov/ far the currency of one country

coincides with or varies from the currency of another, do not fall within the scope of this in(juiry.

CHAPTER

V.

REMARKS ON THE INTERPRETATION OF THE FOREIGN

EXCHANGES.

In the preceding chapters

we have been

occu-

pied in tracing the origin and development of the

transactions which

result

in

the Foreign Ex-

changes, from their simplest to their more complicated forms, with the special object of discover-

ing the various causes which combine to produce

constant and important fluctuations in the prices
of foreign bills.

Having gained a

theoretical in-

sight into the principles of the system,

now

in a position to approach the

and interesting portion of the

examine

it

in its direct bearing

in general.

we

subject,

are

practical

and

to

upon commerce

Being acquainted with the influences

which are proved

question,

more

we

to determine the fluctuations in

are enabled, by a reverse process, to

argue back from them to the existence of their

determining causes, and to consider the Foreign

Exchanges in

their peculiarly valuable character


FOREIGN EXCHANGES.
as

85

an unerring mercantile and monetary baro-

But they

meter.

do they

offer to

are

more than

this.

Not only

the trading community the

means

of ascertaining the state of the commercial atmo-

sphere

indicating when the

storm, or

when

fair

weather

air is
is

charged with a

likely to set in,

they so clearly point to the disturbing currents,

that their study and due

comprehension suggest

the course by which danger can be avoided, and

moderate the precipitate action of panic.

The general

feeling with regard to the function

of the exchanges, as giving evidence of the mercantile

country,
**

rather monetary)

(or

indicated by the

is

favourable " or

*^

situation

of

any

usual phrase of a

unfavourable state of the ex-

changes," a phrase which occurs so frequently in

all

banking discussions that

over without remark.

far as

it

Of

enters into the

nomy and

applies

the country,

it is

to

it

cannot be passed

its

inaccuracy, in so

domain

of political eco-

the general prosperity of

not necessary to speak.

It

may

originally have implied the erroneous theory that

the object of commerce

that
sets

is to attract gold,

and that

country towards which the tide of bullion

with the greatest force

is

ipso facto the

most

prosperous; that, accordingly, a position of the

86

FOREIGN EXCHANGES.

exchanges which points to an influx of specie

favourable, whereas, vdien bills

that the precious metals

become

is

so scarce

must be exported, the

But the

eminently unfavourable.

situation

is

phrase

accurate enough from the monetary or

is

Under the present

banking point of view.

of legislation all

in gold or

engagements involve payments

paper convertible into gold, the

in

merchants engaging
at their option,

bound by

state

to

pay in gold or bank-notes,

and the Bank of England being

law, without option, to pay those bank-

notes in gold.

Consequently

it

is

of the highest

importance to the whole banking and mercantile

community, with a view

to the certain fulfilment

of such engagements, that the aggregate stock of

the country should suffice to meet

bullion in

Whether the law

wants.
beside

is

wise in

all

itself

is

argument, so long as the currency

the

laws continue as they are.

Under present

cumstances a merchant or banker

cir-

will consider

that to be an unfavourable state of things which

points to a dangerous diminution of the stock of

gold,

and he

of the

will consider that

a favourable turn

exchanges which tends in the opposite

"When the stock of gold

direction.

adequate,

it

is

is

evidently

even in a banking point of view

87

FOREIGN EXCHANGES.

erroneous to consider

accumulation

further

And

advantageous or desirable.

be found with the use of the term

exchange" beyond the

of the
for the

bulhon

for the

limits

may

just fault
*'

favourable

of the sufficiency

purposes of the currency

temporary excess of gold

one point

at

is

no advantage whatever, but rather the reverse.

of

The

limit of the phrase should be strictly kept

in view as legitimately applied to

express the

anxiety or confidence of the banking world as to

the

And

means

of

meeting their legal

accordingly there

is

no

obhgations.

real discrepancy as

words

to the class of facts which, in practice, the

**

favourable and unfavourable " exchanges denote.

Political economists,

from their point of view, are

correct in their statement that,

as

regards the

country at large and the interchange of commodities,

exports and imports are always balanced,

and that both the words

of trade "
a fallacy.

and

**

*^

unfavourable balance

unfavourable exchanges " involve

But merchants and bankers are

enced by the feeling, that at any given

they

may

be under greater

liabilities for

than they can temporarily meet,

owing

influ-

moment
imports
to

the

system of credit which disturbs the coincidence

of

payments

for exports

and imports, though their

FdlEIGN Exr;nANGES.

S8
value

may

actually be equal

and

by the

further,

anxiety as to the possibility of meeting these

liabilities in

that

specific

mode

of

payment

to

Tvhich they are pledged, namely, in gold or convertible notes.

proper understanding on these

points is absolutely necessary, as otherwise differ-

ences of opinion might be

supposed to

while the difference does not

lie

exist,

in the opinion

or the theory, but simply in the application of

When,

a technical phrase.

any particular country,

derstood that the intention

is

fact that bills of that country

it

at

upon foreign

a premium,
So,

eventual influx of specie.

should be un-

simply to state the

are difficult of sale, whilst bills

from abroad are

banking

exchanges are favour-

treatises, it is said that the

able to

therefore, in

cities

drawn upon

it

indicating

an

when

it

is

said

that the exchanges are unfavourable, a situation

is

described in which foreign bills are in great de-

mand, and when, consequently,

likely to be so

enhanced as

their value

seems

to render the export of

bullion an unavoidable alternative.

It is necessary to call attention to another point

before

we proceed

to consider the interpretation of

fluctuating rates of exchange.

in

mind

that

it

is

It

must be borne

the price of short

bills,

not of

rOREIGN EXCHANGES.

89

those whicli have some time to ruD, which deter-

Most

mines the course of bullion shipments.

the primary elements of value
short bills equally

of

long and

affect

but the rate of interest and

the question of credit exercise an additional influence

upon the former, and

so modify the fluc-

tuations in their price as to render

them

as indications of the currents of gold.

a

demand

upon any

for bills

price of all such bills,

That

rise.

If there is

particular town, the

whether short or long,

the general tendency.

is

unreliable

If,

will

however,

in the city in question, the rate of interest were at

a very high point,

long

bills

it

would not

as that of short

is

evident that the price of

rise in the

for the

same proportion

purchaser must bear the

discount, which has to be deducted from the long

bill

before

the short

can become equally available with

it

bill

and

for

any increase in

this dis-

count he requires to be compensated by a so

cheaper price.

He must

same manner

for the risk

the

bill

much

be compensated in the

which he

will

run

till

be ultimately paid.

As an index

of the general position of trade,

the value of short

bills

is

the more important

com-

whereas the rates given

for long paper, as

pared with those for

on demand, point mainly

bills

FOREIGN EXCHANGES.

90

to the rate of interest,

and

partially to the state of

credit.

Bearing in mind the existence of this distinction

in those cases

London and

where

(as,

for instance, betv/een

prominent, and not straining

owing

it

much

too

where,

to various circumstances, long bills only are

any amount, as

to be obtained to
St. Petersburg,

the

most

Paris) the short exchange is the

method

to

is

the case in

we may now proceed

to illustrate

be followed when

becomes

it

desir-

able to interpret the indications afforded at any

given

moment by

the Foreign Exchanges.

It

from the whole tenor of the previous

results,

arguments, that

member

it

is,

above

all,

essential to re-

that fluctuations can arise not only from

one cause but many, and that

till

that actually no other influence

is at

proof

is

given

work than the

one which may be selected as possible and plausible,

no trustworthy opinion can be formed.

error often committed,

when

to point out

an

scientific subjects are

superficially or popularly treated,

enough

It is

to

consider

it

one cause as sufficiently ac-

counting for any phenomena, regardless of the

fact that

it is

far

more important

to prove that

there are no other causes which could have led to

the same results.

But on no occasion does

this

FOREIGN EXCHANGES.
fallacy

91

more frequently blind the judgment than

in questions of mercantile finance, j^ossibly because

the facts with which they have to deal are so complex and entangled that any clear and intelligible
solution of the difficulty
satisfactory,

is

held to be sufficiently

without regard to

applying further

Half of the benefit which

tests.

might be derived by a study

lost in

of the

exchanges

is

consequence of the tendency to be satisfied

with the
errors

the necessity of

plausible explanation.

first

might be committed

if

Egregious

an argument were

founded on the state of the exchanges between

Hamburg and London which relied on

the balance

of trade alone, without considering the difl:erence

of value Vv^hich
silver, the

currencies of the two countries being

So

dissimilar.

Piussian

would result from a premium on

it is

exchanges

not sufficient to consider the

simply

enormous indebtedness
exclusion

of

the

as

indicating

the

to foreign creditors, to the

influence

of

the

depreciated

currency.

notable instance of the necessity of never

losing sight of any of the various elements of value

which enter into the prices paid

change, and also

valuable

for bills

of ex-

illustration of the

question of interpretation generally, was afforded

02

FOI^EIGN EXCHANGES.

by the extraordinary course

of

American

the

exchanges at the beginning of 1861.

large

efflux

from Europe to the United States took

place,

and various theories were started as

But strangely enough, months elapsed

cause.

before

it

was

clearly

acknowledged and understood

by the majority of the public that

lion

to its

this efflux of bul-

was mainly the consequence of indebtedness.

Another explanation, grounded on the growing

troubles in the States (which were leading to a kind
of panic), and on the

English

capitalists,

presumed speculations

had been put forward

ciently explaining the prevailing drain

of

as suffi-

whereas

the test of indebtedness should have been applied

first

of

The

specie shipments were hurried

and

by peculiar modifications of that

in-

all.

intensified

debtedness

for instance,

by the Americans draw-

ing sooner than usual against their claims on

England, by their suspending their orders

for

English manufactures, and by the forced and unnatural increase of exportation even of articles not

wanted in Europe.
fall

But the primary cause

of the exchanges

which led

bullion to America lay in the

their exports of

wheat and

of the

to the flow

immense

excess of

flour, following too,

a cotton crop of unprecedented extent.

of

on

Independ-

FOREIGN EXCHANQES,

ently of the political crisis,

to

93

Europe would have had

pay a balance to America in gold

and

was

this

surely the cardinal point to keep in view, in con-

sidering whether the export of buUion would con-

Such

tinue or cease.

mencement
considering

of the
it

efflux of bullion, insisted

as a simple speculation,

to the folly of the

com-

authorities as, at the

and pointed

merchants who sent

phesying that probably

it

on

it

out, pro-

would return to them in

the same ships, committed the error of looking

principally to the stock of gold in

New York,

to the

speculations in American securities, and to

the

operations of capitalists, rather than to the one

broad

fact,

which was

inspection, that

clearly discernible

on closer

England and Europe were simply

paying for their importations from America.

Stress

was continually laid upon the fact that the

stock of gold was accumulating in

was decreasing here, and

it

New York and

was argued that conse-

quently the gold must return.

It is plain,

however,

that for this result to take place, one of the follow-

ing events would have to occur

either the bullion

would be returned because the Americans owed

money

to us,

and sent

it

to

pay their debts

would be remitted against fresh orders

for

or

it

English

manufactures or for American stocks held inEnghsh

FOEEIGi^ EXCHANGES.

94:

hands; or
English

would be sent here as a loan

it

capitalists, in the expectation that

to

money

would, as was certainly probable, become dearer

here than in America.

Those who maintained that

bullion would return, were

of these operations

bound

would take

to prove that

one

The

was

place.

first

a question of fact: Did the Americans owe

to

Europe

bability

regain

The second was

Was

it

sufficient

mercantile transactions

it

to

The

Americans would
enter

upon new

third w^as also a

opinions might be divided

question on which

"Was

a question of pro-

likely that the

confidence

much

probable, or the reverce, that in a time of

great national emergency the Kev^^

York bankers

would remit their capital for employment

to

Europe,

because gold accumulated rapidly in their vaults

These were the questions upon the solution of

which the slow or rapid return

and they might
of discussion.

fairly

But

of bullion depended,

have been made the subject

to argue that, because in

1857

the bullion which was exported to America was

immediately returned, the same result would be

witnessed in 1861, was to overlook the fundamental

and primary element of value in the Foreign Exchanges

the

relative indebtedness.

In 1857 the

Americans had incurred enormous debts to Europe;

in

FOREIGN EXCHAlTGESr

95;

1803 Europe had incurred enormous debts

to

Here

them.

On

vras the

key to the whole position.

the former occasion the export of specie to the

States

was unnatural and

was lending

It

artificial.

your debtor more, in the place of exacting payment.-

On

the latter occasion the export of bullion was

natural and inevitable, because

charge a debt

it

was made

to dis-

but the payment was somewhat

hurried, and the usual rules were a

little set aside,

because the creditor (the American), finding himself,

in the midst of a most dangerous political crisis,

became suddenly urgent

due

to

him, and

to receive

to forestall, rather

that was'

all

than to delay,

He drew

the settlement of his claim.

his bills

and forced them on the market with the eagerness

Few

of panic.

them

remittances in discharge

as

liabilities

orders

buyers were to be found requiring

for,

trade

had been

of

European

curtailed,

had been given, and, before the

no new

crisis

com-

menced, the unusual prosperity of the Western

States, in

made

it

consequence of vast crops of grain, had

possible for remittances against previous

transactions to be sent earlier than usual.

the
as

bills

had

were bought up in

New York,

liabilities to discharge,

Thus,

not by such

but by such as were

willing to advance the value of the bills

till

their

96

roEEiGi^ ExciiAKors.

equivalent in gold could be procured from England.

This was the

office of

the

New York

banks, and by

far the greater quantity of the bullion

what may be

consisted in

proceeds of these
panic, a

called the anticipated

Without the influence

bills.

high rate of

shipments

interest

on this side might

have delayed the export of the proceeds, at

the maturity of the

till

least

If these proceeds

bills.

had remained longer on

of

they would

this side,

either have constituted a loan to the banker to

whom

they were remitted, or they would have been

invested in

some kind

and

of merchandize,

turned in that form rather than in gold.

other alternative was possible
It
its

may

be asked,

Why,

if

re-

What

the balance of tra'de, in

simplest sense, was, to use the popular phrase,

in favour of America
less

that

than they had to claim,

any ground for panic in

they owed

is to say, if

why, then, was there

New York ? The

answer

is

from a monetary point of view, not

clearly that,

only was there no reason whatever to induce a

panic, but,

grounds
see

on the contrary, there

for confidence.

Sellers of bills

a difficulty in disposing of

specie point,

evident

might

fore-

them above the

and consequently up

press their bills

Vv^ere

to that point

upon the market ; but the only

FOREIGN EXCHANGES.

apprehension that could be

when

facilities till

the equivalent of their

Europe

was, as to whether

felt

they would be able to obtain

97

remitted to

bills, if

to be converted into specie,

would return

The aggregate

into their possession.

munity cannot be alarmed

the time

com-

of a

at the position

of its

money-market and of the exchanges, when the

whole world
it

is

indebted to

itself, at least

so long as

has every confidence in the solvency of its debtors.

The

panic,

if it

may be

called so,

which occurred in

America during that winter, was attributable

to political causes,
for sale eager to

of

which rendered

all

solely

who had bills

underbid each other for the sake

immediate payment, and to accept a price

below what they would have realized

if

their bills

was

this urgency to secure themselves

any price which induced the

New York

to export every kind of produce,

owing

risen in value in the States, to

where prices were sure

creasing currency.
of

at

merchants

would have

European markets,

to fall

A panic

money

It

which normally,

to the increase of the currency,

money-market

they had

exchanged into gold in England.

had

far

owing

to the de-

usually occurs in the

any country when the exchanges

become unfavourable
rence to see alarm

to

it

felt at

but

it is

a rare occur-

an unusually favourable

situation of the exchanges.

FOREIGN EXCHANGES.

98

The ambiguity
changes," unless
above, that

term

of the

**

favourable

ex-

be taken within the limits given

it

is to say,

as denoting a simple

mone-

tary fact, and not as any judgment on the prosperity

of trade, can be easily appreciated in this instance.

The exchanges, when

such a point that the

at

necessity of specie remittances from

America was
is,

to

clearly indicated, were, as the phrase

highly favourable to America, and the very re-

The American exporters

verse to ourselves.

grain

and cotton were, however, the very

who, in the

instance, suffered

first

transmission of specie, with

it,

would

fall

plausibility not to

them

at

maturity

may

the losses attached

On

the other hand,

be argued with some

have suffered any

loss,

because
bills

whether by handing the amount over

to their neighbours, to

whom the Americans would,

in normal times, have remitted bills

or by shipping
of their

class

most from the

was immaterial how they paid their

to

it

all

upon them.

the English debtors

of

expense of the costly

situation, in so far as the

to

England

it

is

in gold by order and for account

American

extent there

upon them

creditors.

But

to a certain

a fallacy in this, as the charge on

the exporter so often

produce exported.

falls

To

on the consumer of the

this extent the interests of

the exporter become identical with those of the

FOREIGN EXCHANGES.

99

For, that which adds to the cost

foreign country.

of the article which he exports,

either

and

by him or by the consumer

their joint interest that

it is

should be made.
bullion
it is

must be borne

is

The

an addition

of his produce

no such addition

cost of the transmission of

of this nature

and therefore

contrary to the interest of the exporter, and of

the country to which he exports, that such an

expense should have to be incurred.

Thus we come
of the exchanges

to the position, that a condition

which leads

to the

importation of

specie into any country favours the importers and

consumers of that country, but causes an additional

charge to the export trade.

However, the extra

charge upon this export trade having ultimately, on

the above supposition, to be paid by foreign countries, it

may

be maintained that the state of the

exchanges indicated
able

to

is,

in a certain sense, favour-

the country in question, and unfavour-

able to the foreigners with

clearer view

assumed

may

for the

whom

it

trades.

be gained of this position

moment (what

if it

is partially

A
be

true)

that each country fetches from the other that which

it

requires

in other words, that the export trade

of a country is

managed upon the order system.

Cotton and grain

may be

sent from the States, not

H 2

FOREIGN EXCHANGES.

100
for

account of

American

sellers,

who have given

buyers,

their

but of English
If the

orders.

bought by a foreign buyer in the place

article

is

of its

production,

extra charge

it

any sudden

plain that

is

upon exportation must be borne by

him; and thus

which makes his

a sudden

fall

upon

his

bill

in the exchanges,

London house

less

valuable, or causes the whole cost of the trans-

mission of bullion from England to pay for his

purchases to

fall

to the country to

he
is

is

upon him, becomes unfavourable

which he belongs, and

for

which

buying, and not to that from which he

buying.

Conversely, the Americans

who

give

orders to English manufacturers are able, during

the same period of low exchanges, to buy up bills

on England which

will

pay

for their goods, at a

cheaper rate than usual, and are able to save the

expense of the transmission of bullion, which,

during normal times, generally
of the

American importers.

falls

As

on a portion

far as facility

and

economy

in paying for the products of other coun-

tries are

concerned, a state of the exchanges which

renders

it

possible to purchase bills to pay for

them, cheaply and

easily,

may

correctly be

de-

signated as favourable.

Eeturning

from

this

digression,

which was

FOEEIGN EXCHANGES.

101

prompted by the desire of throwing additional

Hght on the use of the words

*^

favourable and

unfavourable exchanges," and resuming the congeneral

the

sideration of

mode

in which

the

Foreign Exchanges are to be read and interpreted,

we

shall

course

the

in

find

of

the American

Exchanges during 1862-3 further materials

instructive analysis.

In 1861 we saw an extra-

ordinary depression in the price of foreign

New

bills

in

York. The situation was afterwards reversed.

After the

lapse of a certain interval

extraordinary extent and rapidity occurred.

was

for

this

change to be interpreted?

phenomena did

No

it

point

of

rise

How

To what

better illustration for the examination of the

different influences

could be found.

which

affect

Foreign Exchanges

Here we have a case where the

effects

were evidently greater than could be caused

solely

by a change in that which we have called

the primary element of value

debtedness

for

normal specie
capital

the

limit.

from America

tinuance of a

rise

international

went

far

in-

beyond the

The sudden transmission

to

of

Europe, and the con-

demand for importations from abroad,

while the exportation of cotton was stopped by the

bloi^kade of the

Southern ports, might account for

102

the

FOREIGN EXCHANGES.

phenomenon

to

certain

but not

extent,

beyond what we have so often called the specie

We

limit.

are driven to look for another element

of value, for one

and that

more unlimited

in its operation;

once be found in the depreciation

will at

of the currenc}^, of

which alone, among the various

elements of value determining the price of foreign

bills, it

could be said, that

The passing

illimitable.

specie

it

rendered fluctuations

an

of

payments in the United

rising the issue of inconvertible

suspending

act

and autho-

States,

Government paper

money, removed the normal specie

limit,

and the

extent to which the prices of foreign bills could

rise, at

once became an open question.

be anticipated that the

effects of

it

became possible

to rise, not a

200 per

cent.

few per

for the

was

to

a depreciated

currency would be developed to their

and

It

full extent,

Foreign Exchanges

cents., but

50 or 100 or even

In the Southern States the exchange

on London actually rose

to

400 per

cent.

Experience was at fault as to the

practical limits,

and theory could only

probable

establish, as

a result certain to ensue, that with every issue of

inconvertible paper

portionate

to

the

money

a progressive rise, pro-

depreciation of the

would unavoidably take place.

currency,

Strangely enough,

103

rOREIGN EXCHANGES.

in the Northern States the rise

layed far beyond the time

when

was possible

was expected

to

to believe that

it

it

and the Americans began

occur,

was actually de-

money without

to print paper

losing-

gold, or depreciating the remainder of the currency.

The causes

of

mination, though,

delay well deserve

this

from the complexity of the

any certain

facts, it is difficult to arrive at

Two

have

causes

been

sufficiently plausible
first

months

exa-

suggested,

results.

which

are

the one that, during the

of the issue of the

money, the private banks

Government paper

called in their notes to a

very great extent, and that thus the aggregate

currency was not increased as

been expected

much as might have

the other, that the area over which

the American currency extends

of

rapidly

felt.*

considerable

be

and

filled up.

tion

vast that the

an over-issue of paper would be

effects

existed,

is so

It

was

said, too, that in the

less

West a

dearth of currency had previously

that, consequently, there

However

which was

felt

this

might

was a gap

to

be, the satisfac-

by the Americans

at the issue

* In a criticism
furtlier causes

on tlie second edition of this work, two

Lave been suggested which no doubt were also

in operation

the general contraction of credit thro'.ighout the

and the enormous war expenditure ; boih of which circumstances would unquestionably lead to the absorption of a
States,

considerable

amount

of currency.

104

FOREIGN EXCHANGES.

of pajDer
Xy'as

money without

of short duration,

a heavy

fall

in its value

and the theories of

political

economy were abundantly justified in the end.

unexampled
place, the

more than

American exchanges took

rise in the

exchange advancing by degrees in

a year from 110 to 180.

chapter, the endeavour

An

was made

little

In a former

to gauge, as far

as possible, the probable extent of fluctuations in

the exchanges arising from a depreciated currency,

and

it

was shown that where a premium in gold

was not prohibited by law, the prices of foreign

bills

would

rise in proportion to the extent to

which

prices of all purchasable articles, bullion included,

are raised

by such depreciation

in proportion to the discount

or the

premium on gold.

in other words,

on the paper money,

Beyond that proportion,

the fact of the depreciation of the currency would

scarcely cause

them

to

deviate.

examining the price of foreign

and the price of

constantly rose

gold,

and

fell

we

Accordingly, on

bills in

New York

shall see that they

together.

Before the

depreciation of the currency, the actual par of ex-

change

for bills

on England was, as

will presently

be explained, expressed in the form of 109.

gold rose, the foreign bills rose as

When

much beyond

this point of 109, as gold rose above par, leaving

105

FOREIGN EXCHANGES.

the same margin (and the same variations within

premium on gold and

that margin), between the

the price of sterling

as that which, in

bills,

normal

times, existed between the nominal par of exchange

and the actual mean premium on English

bills

but this margin, which was 9 per cent, before,

having
rency,

itself to

be calculated in depreciated cur-

became apparently

but

only apparently

greater.

In order that this

it

may be

may

necessary to state the

value of bills on England

The

be properly understood,

is

mode

in

which the

calculated in America.

basis of the calculation is that forty dollars

are equal to 9, so that the dollar

to 45.

But

6cl.

as this

would be equal

assumed par

of

exchange

does not coincide with the actual value of the gold

in the dollar

and the sovereign, the ^9 being worth

9 per cent, more than the forty dollars, gold for

gold,* (by

which the value of the

to about 45. lid.,) the calculation

when

bills

dollar is reduced

has to be

rectified,

on England are bought, by 9 dollars

being added to every 100 dollars of the purchase-

money.
*

It

The exact

was a

fact that, as long as a gold cur-

difference

between the gold contained in 9

sovereigns and in 40 dollars

is

nearer 9J than 9 per cent., but

is accurate enough for the

the quotation given in the text

general argument.

306

FOREIGN EXCHANGES.

rency existed on both sides of the Atlantic, the

York and

actual par of exchange between Nev7

London was about 9 per

or as

it

cent,

nominal premium,

was technically phrased,

bills

when the exchanges were

stood,

equilibrium, at 109.

on London

in a

state

of

This difference (or corrective

premium)

of 9 per cent, in gold currency

modified,

either

would be

upwards or downwards, by the

various other influences to which the Foreign

Ex-

changes have been shown to be subject, by the

state of indebtedness, the rate of interest, in fact,

by supply and demand

when

but

it

constituted the

mean

After the depreciation of the cur-

specie point.

rency,

prices of bills, as of other articles,

were no longer expressed in dollars having a certain

value in gold, but in dollars of depreciated value,
it

was

to be expected that the

of 9 per cent, in gold

same actual

would

price of foreign bills, but that

enter into the

still

it

difference

would be expressed

in its equivalent of paper dollars

in other words,

that these 9 per cent, would also be increased in

exact proportion to the

we

premium on

arrive at the following result

issue of paper

if

the

money, the purchaser

England paid 100

would,

dollars

and 9

gold.
if,

before the

of a bill

dollars for

premuim on gold had

Thus

it,

on
he

risen to 50 per

FOREIGN EXOHANQES.

107

pay 150 dollars instead of

cent., in the first place

the 100, and in the second ISJ dollars instead of

nine dollars, or half as

may

much

the correcting premium.

call

price of bills,

when

would correspond

the time

when

there was no

The

might

rise to

price

Thus,

if

we
the

gold stood at 150, was IBSJ,

this price

as there

again as what

to the price of

165 or

109 at

premium on

fall to

gold.

161, according

was supply or demand, but the mean point

would be ascertained by the process which has

been described.
Disturbing causes were introduced by legislative

enactments which interfered with the

merce in

gold,

com-

free

and consequently tended

to vary

occasionally the relative value between bills and

gold,

by encumbering

all

operations in the latter

with certain charges and inconveniences.

Taxes

on transactions in gold would have the same

as

increased charges

force

on specie shipments, and

would thus have a tendency

to

widen the margin

between the premium on gold and the premium on

bills.

And, besides the taxes imposed on operations in

gold, there

those

were other circumstances which induced

who had

occasion to buy either foreign

bills

or gold, to give a preference to the latter, so that a

FOREIGN EXCHANGES,

1.08

somewhat

demand

artificial

For instance,

arose.

fears were continually entertained that the export

of gold

might

directly or

at

any time be prohibited, either

indirectly;

and thus, naturally, the

preference was given to that species of remittance

of

which the export could not be forbidden.

again,
to be

if

gold or

were to be purchased in order

bills

hoarded or held some

little

time before being

used as remittances, interest would be

gold but earned upon
to be sold, they

bills

for

when

lost

upon

these

came

would be worth so much more, as

being nearer their maturity.

Similarly, there were

charges and risks, needless to

upon the holding

of gold,

in the holding of

bills,

tions

Or

specify, incident

which were not incurred

and thus many considera-

(but especially the constant interference of

the Government) would tend to widen the margin

between gold and

bills,

bations at particular

and create violent pertur-

moments which

could not be

accounted for simply by the depreciation of the

currency.

The extraordinary

state

of the

Foreign

Ex-

changes in America during the period with vvhich

we have been

dealing, is peculiarly difficult to

explain in a simple form, but

instructive

because

it

is

offers the

all

the more

opportunity of

TORHIGN EXCHANGES.

viewing

tlie different

10&

elements of value in simulta-

neous and sometimes conflicting operation.

depreciation
**

of

the

currency by the

greenbacks " exercised,

it is

true, so

ing an influence, as to have rendered

The

issue

of

overwhelmthe

dilSicult

discovery of the operation of other elements

of

These, however, so long as any foreign

value.

trade subsists, can never be entirely absent.

Ac-

cording as the Americans have remitted their funds

to this country, in order to secure a portion of

their fortune against the contingency of progressive

depreciation, so has there been a

upon England.

Immense sums

demand

for bills

are said to have

been remitted to Enghsh bankers by American

correspondents, because this was clearly the safest

course by which to secure their fortunes against

loss

and

interest.

at the

same time

to earn a

moderate

In America every species of banking in-

vestments was subject to daily depreciation, and

such fortunes as consisted in securities payable in
dollars,

were rapidly melting away.

Investments

in gold were largely resorted to, but as

we have

ex-

plained, they were dangerous, on account of the

action of the Government, and unremunerative,

owing to the

loss of interest.

Eemittances to

fo-

reign countries combined the advantage of security

FOREIGN EXCHANGES.

11

with that of remunerative employment for capital,

and many millions

sterling

Some

for this purpose.

have been sent to Europe

surprise has been caused by

the fact that the gold remittances from

New York

have not been so great as might have been expected.

Bat a portion

which thus found

of the capital

its

way to England flowed through an indirect channel.

It

was sent from the ports

from the port of

New

of California instead of

By

York.

this course, the great risks

gold from California to

the adoption of

on the transmission of

New York

Europe was as

w^hile the object of remittances to

Without these bullion

conveniently attained.

mittances the

demand

even greater than

required

were avoided,

it

for bills

was

must have been

for

funds in England,

re-

the Americans

not

only for

the

purposes which have just been indicated, but also

for the

payment

of the large quantities of military

stores purchased in

amount

much

of

this country,

and

for

that

European manufactures which, however

the Americans

may

curtail their trade, they

are obliged to purchase for immediate wants.

cotton bills being obtainable in

the blockade, and fewer corn

No

New York, owing

bills existing,

to

owing

to the reduction of that trade in consequence of

plentiful harvests in

Europe, no doubt the demand

FOREIGN EXCHANGES.
for bills

Ill

(notwithstanding the Californian remit-

tances) has been great,

creased the

premium on

increase of the

premium,

and

this

demand has
But

sterling bills.

in-

this

be remembered, can

it will

never exceed the expense, the risks, and the inconveniences, in their widest sense, on bullion remittances.

For as soon as

margin between the

this

premium on gold and the premium on

England, exceeded the 9 per
alluded, plus the

cent, to

premium on

which we have

these 9 per cent, and

plus the expenses on shipping the bullion,

who

on

bills

those

desired to remit, would, as explained before,

rather ship the bullion itself

and as the export

of

gold had not been prohibited, a remittance in gold

could always be made.
crepancies, the

"With

many

apparent dis-

upward course of the American

ex-

changes was really governed by the few simple

principles w^hich have been discussed in the earlier

portion of this treatise.

Amidst the complexity

the particular combination, the effect of the

of

few"

leading causes which lay at the bottom of the whole,

stands out clearly enough, and,

the rise in the price of foreign

it

may be

bills,

repeated,

owing

to the

unlimited issue of greenbacks, could be predicted

with the most absolute certainty.

It is less easy to explain the rapid fall

which

"112

FOREIGN EXCHANGES.

followed on the battle of Gettysburg and the open-

But the

ing up of the Mississippi,

rather in explaining the

than the

fall

fall

in the

difQculty lies

premium on gold

in the prices of foreign bills, the latter

being simply the consequence of the former.

It is

true, indeed, that in a question of the interpretation

of the Foreign

Exchanges, the premium on gold

But

only a collateral issue.

the rise in gold,

examine

its

fall.

it

as

we have

is

followed

may

be interesting briefly to

If a

redundancy of currency

created the premium,

it

would seem natural that

only a diminution of the over-issue should cause

a

corresponding

fall.

The conversion

of

some

portion of greenbacks into stock was a measure

operating in this direction, but

it

was accom-

panied by fresh issues, which neutralized

its effect.

Besides, this conversion was in operation before

the

fall,

rising,

even at the time when the premium was

and therefore cannot have contributed

the sudden

fall

in any great degree.

would rather be due to the

up that the quantity

belief

of paper

The

to

result

suddenly springing

money would

really

be reduced, either by a further more effectual conversion, or

by a redemption in bullion

at a shorter

date than appeared possible

during the darker

period of Northern prospects.

It is scarcely pos-

FOREIGN EXCHANGES.
sible to

judge whether the

113

in gold

fall

was

justified

or not, without venturing on an opinion as to the

ability or the intention of the

Washington Govern-

ment

which

to reduce that currency

own purposes

created

has

it

for its

but the belief on the part of

the American community that this intention and

ability did exist,

no doubt exercised some portion

of the influence which actual measures taken by

the Government would have produced.

had the further

effect of

This belief

inducing persons,

who had

hoarded gold from a fear of a further depreciation of

the currency, (and

who had even before been some-

what alarmed by the measures taken against

very hoarding by the Government,) to
stock of gold as fast as possible, giving
of a further rise.

by somewhat

to a premature decline in the

too, is said

artificial

premium on

very purpose.

An

it

was thought,

it

by

had

for this

If so, a reaction is highly probable.

over-issue of paper

money can

only be coun-

teracted by a subsequent contraction.

possible, perhaps,

by

to be anticipated that, unless

It

may

be

means, to discount

artificial

this result, but not to produce

to follow

means

gold,

throwing large sums on the market which

been able to accumulate, as

their

sell

up the idea

And the Government,

to have contributed,

this

it.

And thus

it is

measures are taken

up temporary expedients by permanent

FOREIGN EXCHANGES.

11-i

improvements, the price of gold

advance.

"^

On

such measures

may

once more

the other hand, the adoption of

is

facihtated by the fact of the

position of the Americans being favourable in this

respect

that

their currency is depreciated simply

by internal and not by external causes.

Probably

they owe less to Europe than they have done at

any other previous time in

late years,

and they

have the further advantage that the large deposits

which they have made in Europe, give them the

power, at any

moment they may want

it,

of regain-

ing a great portion of the gold which they have

lost.

As

to the extent to

cotton trade

Europe

may affect

which the revival of the

the exchanges, and compel

to send bullion to America,

stances will have to be considered.

many

circum-

It will

be a

question of time, rather than of indebtedness.

The Americans
of goods

will be in

from this

side,

need of large quantities

and the question

whether they can supply us

will be,

faster with cotton

than

we can supply them with goods. The probabihty is,

that
for

we

shall be

more urgent

manufactures

quantity of cotton
*

The

but

it

is

for cotton

than they

less certain that the

required will be immediately

correctness of this viev/

was

practically demonstrated

even before the second edition was issued. An advance in gold

again took place, which has since, with maiiy iliictuatious, iiiado
further progress.

Decemher, 18G3.

FOREIGN EXCHANGES.
available,

on

whereas the export of our manufactures

former scale can,

its

renewed.

and

cotton,

necessary, at once be

if

may

However, on the whole, as we

assume that we

tainly

115

as,

cer-

immediately want the

shall

from the disorganization of the

cotton trade, credit will be less available, and cash

payments more imperative, the probable necessity

of an export of bullion

on our part seems

ponderate, though not to the extent that

rally believed.

is

gene-

most important consideration

whether the Americans

will be,

to pre-

will be

anxious to

receive gold with a view to re-establish a metallic

currency, or whether, owing

tries,

they will be content to

little

to foreign coun-

let their

depreciated

currency continue in the state in which the end of

the war
right

may find

itself.

it,

fancying, perhaps, that

"What,

it

may

value of gold to them,

if

it

may

be asked, will be the

they neither require

for internal circulation, which,

they

may think,

it

can

be managed as well by paper, nor for the payment

of foreign liabilities,
thesis,

from which, under our hypo-

they will be comparatively free

Nevertheless, gold will be the only equivalent

which,

if

tities of

offer

they do not immediately take large quan-

goods from Europe, we shall be able to

them for

cotton.

Consequently we

one of two things to happen.

may expect

Either, though they

T

FOREIGN EXCHANGES.

116

may not have the immediate

their currency, the

intention of improving

premium on

gold,

through the

abundant supply which the circumstances indicated

will place at their disposal, will fall to

such a degree

as to hasten their action in spite of their indif-

ference

or,

what

is

quite as probable, the tempta-

tion will rather be to increase their imports than to

improve their currency ; a great inflation of prices

and

of trade in general will ensue

the inducement

which a redundant circulation of paper money

so

often creates, of importing to an unlimited extent,

will

have

its full effect

and foreign

liabilities will

thus be created which will absorb that surplus of

gold of which the situation described has given

them the command. In

finance

may

the former case American

possibly issue from

a catastrophe, in the latter and

its

ordeal without

more probable

case,

a terrible collapse will, in the end, be inevitable.

The foregoing remarks upon

particular instances

where the Foreign Exchanges

offered

peculiar

opportunities for analysis, are not intended to be

historical or exhaustive, but only illustrative of the

general question of interpretation which forms the

special subject of the present chapter.

description of the

In the

American exchanges in 1861,

it

was proved that the omission of the most important

element of value, namely, relative indebtedness, led

117

FOREIGN EXCHANGES.

in the iSrst place to an erroneous interpretation of

the perfectly natural efiux of bullion, and in the

second to a mistaken estimate of its probable dura-

In the course of the same exchanges during

tion.

the two following years,

it

was the depreciation

of

the currency to which, while interpreting the reocci:rred,

we

In both cases,

in-

markable fluctuations which have

mainly found we had

deed,

it

to look.

was seen, that

it

was indispensable not

to

lose sight of other elements of value, while attri-

buting the chief influence to one

all,

but

it is,

above

important that a real and fundamental cause

should always be sought, and that

supposed, as

it

speculators can

natural causes.
exported,

what

it is

is called

sometimes

is,

it

should not be

that the action of

more than modify, hasten,

or retard

For instance, when specie is being

sometimes supposed to be merely

an exchange operation, undertaken

by a certain class of speculators, whose business

is to

make

a profit out of the variations in the price

of foreign bills at different

when they

are cheap

and

moments, buying them

selling

them

at a profit,

and sometimes sending bullion abroad

bills

on their own country,

if

to

buy up

the prices should be

temporarily below or touching specie point.

will

it

G old

of course not be exported so long as these

speculators in exchange, or cambists, as they are

FOREIGN EXCHANGES.

118

They

technically called, can procure short bills.

wish to place funds

they can procure short

desire

as long, that

cient foreign debts

As long as

at a certain spot.
bills in

is

the quantities they

to say, as there are suffi-

owing to their own country,

payable immediately, which can be transferred to

them, and which they can pass on to others

An

will not export gold.

efflux of gold accord-

ingly proves, whoever the exporters

the supply of short

exhausted, that there

moment from

may

on other countries

bills

they

is little

more

be, that
is

being

to claim at the

the country to which the bullion

is

despatched, and that the balance of indebtedness

is

temporarily against the country in question.

further inference

foregoing remarks.
is

may

be deduced from the

It is often

supposed that gold

never exported unless to give a profit to those

who despatch it. But this is manifestly a fallacious

The expression which is so often made use
idea.
of,

at

that the rates of exchange in any country are

such a point that no profit

shipments of gold to

from leading

it,

must be

is

to be

made on

carefully guarded

to a misconception.

Such a

valuable to know, to a certain degree

but

not prove that the despatch of bullion

may

natural and necessary nevertheless.

It

sent by those

who

fact is
it

does

not be

must be

are in debt to that country,

if

119

FOREIGN EXCHANGES.
tliey

to

cannot find

Is the balance of indebtedness

inquire,

charged

more important

It is far

bills.

The exchanges may remain

specie point for a long time, offering

dis-

exactly at

no prospects

any cambists, yet compelling the con-

of profits to

stant flow of bullion in order to discharge liabilities.

It is indispensable to consider

what debl j have

to

be paid, before a judgment as to the drain of

bullion can be formed.
as

many might

so strongly

It is not so superfluous

believe, to dwell so frequently

upon

this point, because, as a matter

of fact, language is continually held, even

men who

and

among

should be well versed in questions of this

kind, which

is

practically at variance with

the

principles here put forth, though, in theory, they

command immediate
The question

assent.

of profits

on exchange operations

can be reduced within very narrow limits.

carried

beyond them,

it

If

only serves to obscure the

plain operation of natural causes, without being

essential to the real understanding of the subject.
Profits can habitually be

when they
demand

realized

observe that there

is

by those who,

a prospect of the

for bills exceeding the supply,

purchase in

anticipation, in order to sell at a higher price

the natural buyers,

tLUiccs,

who require

the

enter the market later on.

bills for

when

remit-

And even when

1'20

FOREIGN EXCHANGES.

the exchanges

reach

the

though on a very Hmited

specie

scale, are

point,

profits,

made by

those

who, by having estabhshments identical with their

own

in foreign cities,

and having a machinery

specially organized for the purpose, are able

by

the avoidance of commission and the reduction of

charges, to

make bulHon shipments

at a

cheaper

cost than the actual merchants or manufacturers

who have

the remittances to make.

the gold and

to those

sell

They despatch

the bills drawn against this gold

who require to send funds

abroad, realizing

a fractional profit for the convenience which they

This, however,

afford.

in reality a matter of

and, as far as the exchanges and the prin-

detail,

ciples

is

which determine them are concerned,

perfectly indifferent

it is

whether the debtors to foreign

that
importers, merchants, or
consumers remit gold themselves, or pay a
countries

is to say,

slight

profit to

ping

it

cambists and bullion dealers, who, ship-

in large quantities, retail the bills drawn

there- against to such as require to remit.

It is only in perfectly

profits are to be

only
are

when
made,

that those

abnormal times that large

made on

specie shipments,

and

the countries to which the shipments

lie

at a very considerable distance

who have

or before others

so

the sagacity to ship in time,

deem

it

necessary, have the ad-


FOREIGN EXCHANGES.

121

vantage of being able to buy up

owing

specie point,
sellers

of

to the urgent necessity of the

the bills

immediately

below the

bills

otherwise,

it

abundantly clear that the

equivalent

the

receive

to

has been proved to be

such a

seller of

bill,

rather than allow such as have bullion on the spot

by having shipped

in anticipation, to

it

which would be his own

profit

his bill to be encashed,

Where

specie himself.

loss,

make

would

send

and wait for the returns in

there can be immediate

action and immediate communication, as between

London and
profits

Paris, there can be scarcely

upon shipments

of gold

any further

beyond those which

can be effected by an economy of charges.

those

who have

Only

a machinery for the purpose can

gain a profit which, in reality,

a kind of com-

is

mission paid by the rest of the community.

distance, there is

months may

much more margin

elapse

before

bills

can,

as,

At a
where

by their

natural process, be converted into coin, those

often

make

The

their

own

who

on the spot can

can undertake to give this coin

terms.

limits are, therefore, clear

enough within

which the natural action of the exchanges may be

checked or intensified by the operations of cambists.

In the case of a gradual

distant country, where,

fall

in the exchanges in a

if left to

themselves, they

FOREIGN EXCHANGES.

122

miglit recede below specie point, because the un-

fortunate drawers of
arrival

bills,

of specie for

require

own

their

account, might

equivalent immediately,

their

modify the position very

foreign bills

being unable to wait the

much

it

might

speculators in

if

had foreseen the occurrence, and sent

out specie to anticipate their wants, securing to

themselves

moderate

drawers from a
points which
appreciate,

profit,

much heavier

it

is

saving the

but

sacrifice.

These are

necessary to understand and

and which come

into consideration in

interpreting the exchanges of a given country at

any given moment, but they can never impair the

correctness of those elements of value which in
principle determine the price of bills.

Of these

it

has repeatedly been pointed out, that

the balance of indebtedness, in

its

widest sense, is

the most fundamental, entering in a greater or less

degree into almost every case in which Foreign

Exchanges are concerned.

But the interpreter

of

the fluctuations in Foreign Exchanges will bear in

mind

that there are limits to the variations pro-

He

duced by this one particular cause.

member

the peculiar

features

in

will re-

the rates

of

exchange which would point to differences in currency,

causes.

as

distinguished

These

will

from

other

disturbing

be remarkable for extending

FOREIGN EXCHANGES.
far

123

beyond the limits Yv^ithin \Yhich such fluctuations

as are caused by excessive imports or exports, are

ordinarily confined,

and for being

and eccentric in their movements.

more

far

arbitrary

So, too,

he

will

not forget the influence of credit or discredit, and

at

anytime of panic or other temporary derangement

of confidence, the discount at

will

which

bills are

sold

not be mistaken for the result of an adverse

And,

balance of trade or a depreciated currency.

again,

will

it

be borne in mind that sudden move-

ments in the exchanges, either upwards or downwards,

may reflect the position of the rate

of interest

in different countries, not only in the case of long

dated

bills,

when they

the variations in the prices of which,

differ

from the variations of bills payable

on demand, are regulated exclusively by the value

of

money and by

these bills on

credit

but also in the case of

demand themselves, as indicating that

a high or low rate of interest is causing certain

movements

of capital

The most general

the sign,

demand

is

from one country

fact of

which the exchanges are

the degree of intensity to which the

for bills

on a foreign country

whatever purpose this demand

is clear

to another.

that such a

may

exists, for

arise

and

it

demand may be caused as much

by a desire to remit a certain amount of capital to

that country for the sake of employing

it

at a

high

FOREIGN EXCHANGES.

124

rate of interest, as for the purpose of paying a debt.

A high rate of interest

and the

from abroad,

attracts capital

effect of this attraction

By

perceptible in the exchanges.

immediately

is

recalling the

most elementary view of the transactions with

which the exchanges are concerned, and by reahzing the fact that foreign
so

bills, to

the prices of which

much importance is attached,

are but the instru-

ments by which payments are

different countries,

it

becomes

effected

between

clear at once that

in the prices paid for such bills

we may

discern

the strength of the current in which capital

setting towards one point or another,
effect of

every influence which

may

is

and that the

be brought to

bear, to arrest or to hasten the force of this tide,

will be registered

with unerring certainty in the

variations of the so-called

Hence

'^

rates of exchange."

arises that intimate connection

between the

variations in the rate of interest, and the fluctuations in the Foreign Exchanges,

been recognised as one of the

which has long

first

principles to be

kept in view in the study of monetary questions.

CHAPTEE

VI.

REVIEW OF THE SO-CALLED CORRECTIVES OF THE FOREIGN

EXCHANGES.

In the last chapter we have been engaged in

considering the subject of the interpretation of

The question now

the Foreign Exchanges.

how

far the results obtained

by such a study can

be turned to practical account.

as the phrase has

Exchanges
so

it

are

**

arises,

In the same way

become usual that the Foreign

favourable " or

*'

unfavourable,"

has been the custom to say that the Foreign

Exchanges might be

^'

of this phrase is just as

much

as

it

At

open to question, inas-

depends upon the view which

whether what
not.

The accuracy

corrected."

all

is

termed correction

events,

it

is

must be borne

taken,

desirable or

in

that which is really to be corrected

is

mind
is

that

not the

actual position of the exchanges, but that state of

things which has brought

We

have seen that

it

it

about.

was a certain course of

trade, or certain arrangements for payment,

which

caused the situation that was considered unfavourable from a monetary point of

vieiv,

A modification

of that course, or different arrangements for pay-

FOREIGN EXCHANGES.

126
nient,

might naturally be expected

the contrary direction, and therefore

as

if it

to operate in
it

would seem

were possible, as soon as a correct idea has

been gained of the causes which have led to what

is

termed an unfavourable

either directly or

remedy

is

desired

situation,

meet

by a remedy,

indirectly,
;

to

if

it

in other words, to check the

This export of gold would, as we

export of gold.

have seen, be the result either of the settlement of

indebtedness,

money, or

or of differences

in the value of

of differences in currency.

When

it is

attributable to this latter cause, the question of

the correction of the Foreign Exchanges, unfa-

vourable in this respect, namely, owing to a depreciated currency, widens into the consideration of

the

means by which a currency once depreciated

can be improved, and the equilibrium restored.

In

the last chapter, the close connection of this subject

with the Foreign Exchanges was illustrated at some

length in the case of America

but we should travel

beyond the scope of the present

treatise,

if,

while

discussing the so-called correctives of the Foreign

Exchanges, we were to enter on the whole question

of currency.

It

must suffice if we simply enumerate

the restoration of a depreciated currency amongst

such correctives, without entering further into the

inquiry as to

how

this restoration can be effected.

FOREIGN EXCHANGES.

127

We shall confine ourselves to the discussion of those

cases where the

**

unfavourable " situation

is

caused

by circumstances connected with the mutual

in-

debtedness of two countries, or with the relative

value of

money

in each,

in other words,

fluctuations have been caused

where

by some disturbance

in the ordinary balance of trade^ or by a rise or

fall

in the rate of interest.

These two influences

will be generally

found to

be operating simultaneously in opposite directions.

Money

will

be dear and scarce in the country

which owes much

to foreign creditors,

much
money to

in that which has exported

terest will be attracting

whence specie

is

flowing out in

and

plentiful

and, high inthat quarter

payment

of foreign

debts.

The adverse balance

of trade will, as far as its

power extends, render the bills on the country which

is

most in debt

it

to export specie

rest,

which

is

difficult of sale,
;

and tend

to

compel

whereas the high rate of inte-

generally contemporaneous with a

drain, or the prospect of a drain, of specie, will re-

vive a

demand

for bills

on

this

same country, and

enhance their value in other quarters

will be a general desire to procure the

remitting capital to that market where

the highest value.

it

for there

means

of

commands

For instance, when in 1861 the

128

FOREIGN EXCHANGES.

excessive indebtedness of

England

America (the

to

and corn)

result of her importations of cotton

lowered the price of English

bills in

New York,

and

rendered specie remittances to the States inevitable,

the high rate of interest in England which this
situation

had brought about, was

so attractive to

continental bankers, that they drove

of bills
finally

upon

this country to specie point,

price

and were

induced even to resort to bullion remittances.

From

the foregoing,

when the exchanges

country, and

debtedness

it is

is

it

seems to be evident that

the cause, the equilibrium can be

crease of exports

ways

the one being the in-

and diminution of imports

an advance in the rate of

When

any

are manifestly against

perceived that a balance of in-

restored only in two

other,

up the

the

interest.

the payments for imports continue for any

length of time in excess of the receipts for exports,

the redress of the balance can clearly only take
place by ceasing to incur liabilities

by a change in the course of

that

trade.

taking advantage of unlimited credit,

and consuming more than

ing,

it is

and accordingly runs into

If a nation,
is

If,

importing

exporting and earndebt,

it

from this position only by consuming

ducing more.

is to say,

can escape
less or pro-

however, the derangement

temporary, and while

it

consumes more than

is
it

but
pro-

FOllEIGN EXCHANGES.

months

129

duces in the

first six

more than

imports in the second six months,

can,
raise

it

of the year,

it

exports
it

Hke an individual with a prospective income,

money to

carry

it

By offer-

over the interval.

ing a very high rate of interest,

it

be

will either

able to procure a prolongation of credit from its

creditors,

till

in the natural course of things,

subsequent increase of exports, the balance

off, or, it

loan.

may

Even

country

induce third parties to

spending beyond

where, by borrowing,

it

its

is

make

in the case supposed above,

is actually

by the
paid
it

where a

means, and

can only increase the

evil,

as being thus enabled to keep the real danger out

of sight for a time, a very high value of

in a certain sense,
of the value of

most desirable

money on

as,

money

is,

by the action

prices generally (accord-

ing to the well-known principles which determine

the relation between the two), a diminution of imports, and, consequently, of indebtedness, is likely
to ensue.

But what we

cerned to examine,
of interest in those
to deal with

is

are at present

most con-

the operation of a high rate

more usual cases where we have

temporary fluctuations and sudden

emergencies, such as

may

be caused by the loss of

a harvest, or by a period of general national extra-

vagance, ending in a critical inflation of prices, or

by excessive warlike expenditure.

In such times.

FOREIGN EXCHANGES.

ISO

the resources of a country are crippled for

when

the moment, and

desirable

and

debts increased,

its

it is

most

indeed, absolutely indispensable

that not only bankers and merchants, but also the

public

at

should clearly understand

large,

quick and effectual a relief

may

high rate of interest, which

is

result of such a state of things.

that

what they
and

losses

call

community have,

part of the

be afforded by a

indeed the natural

Those who imagine

an oppressive

difficulties against

adds to the

rate,

which the trading

at

such periods, to

contend, seem very much in error. For

enough in theory (and events have

firmed the theory in practice), that
is felt,

how

it is

obvious

strikingly conif

apprehension

that the export of gold, which is resulting

from any of the temporary emergencies just alluded

to, is

exceeding the amount which may conveniently

be spared, and that the withdrawal of capital or currency which

scarcity

is

taking place

which may render

is likely to

it difficult

to

produce a

conduct the

business of the country on the ordinary footing,

there can be no
offer

more

an inducement

that which

is

effectual a

remedy than

to

to foreign countries to replace

being

lost.

An

influx of capital is

desired to take the place of that of which the

country, owing to its exigences in another quarter,

is likely to

be deprived for a time; and this influx

FOREIGN EXCHANGES,

131

of capital is only to be procured by offering

advantages of a high rate of interest

is to say,

higher than

the

rate, that

can make at home, and

it

indemnify the capitalist

sufficient to

it

for all the

expenses involved in the transmission of his capital

from one country

to another.

Whether the inducement

effect its object, v/ill at

is

powerful enough to

once be apparent from the

symptoms exhibited by the Foreign Exchanges.

the

bills

on the country where interest

in increased

demand

at

is

If

high are

advancing prices, an indi-

cation will be afforded that the attraction of the

high rate

is

working

its effect.

When the English

public was anxiously watching the weekly shipments

of gold to America,

and was taught

to look for con-

solation to the continental exchanges, which, let

us suppose, were said to be taking a favourable

turn,

it

was meant that the Continent sought

greater eagerness for English

bills,

v/ith

a symptom

that they were preparing remittances for the pur-

pose of sending over funds to England, and that

capital

was passing from the Continent

more the

The

price of bills advances, the nearer is the

specie limit approached,

are made, not in

effect

to us.

bills,

till

finally the remittances

but in gold.

Practically the

of the purcliasc of bills for the purpose of

placing funds in England,

is

identical in its effect

R 2

FOREIGN EXCHANGES.

132

with a shipment of gold

for every

held by continental capitalists gives to

English
its

bill

possessor

the power of drawing gold from us.

It

may be

been spoken of as

terest has
cially

be

said that an advance in the rate of in-

made

dear.

if

But the

money

could

fact is, as

artifi-

has already

been pointed out, that, where a considerable

efflux

of specie is taking place, the rate of interest will

rise in the natural course of things.

tion caused

by the bullion shipments

tend to raise that rate

will in their

own

The

abstrac-

will of itself

and banking establishments

interest (which will be identical

with the interest of the public) accelerate this result

as far as lies in their power.

It

would encumber

the course of the argument to enter at this stage

on the discussion as

money which
of bullion,

is

to

whether

it

is

capital or

rendered scarce by the exportation

and which can be attracted by a high

Whichever be the

rate of interest.

case, the oppor-

tunity given by higher rates of interest for advan-

tageous employment will be seized.

which

is

paying

portion of

off its

its capital

the foreign bankers

buy up English

debts, is sending

when

country

away a

exports specie

it

who send

bills,

and

over gold in order to

are supplying us with capital

for a time, to take its place.

At the same time,

the actual export of bullion

a loss to the

is

money

FOREIGN EXCHANGES.

of the country,

and the import of gold from abroad

which has thus been

replaces that

which

cases, that

103

lost.

In both

will effectually bring the gold

from abroad, in the most general and practical

sense, will be the opportunities offered by a high
rate of interest, to effect profitable

and

attractive

investments.

The

favourable exchanges, on which

lating,

Bank

we have been

di-

has been most thoroughly tested since the

of

varying

England has adopted

its

minimum

Bank

England

of

more rapidly

rate of discount

Not that

former years.

it is

itself

system of

the

and more extensively than was

the

un-

efficacy of that corrective of so-called

its

to be

practice in

supposed that

can make money dear

Before the Act of 1814 was passed,

or cheap.

when the Bank had

the privilege of an unlimited

issue, its influence over the

certainly very great.

monev-market was

But now that

its

resources

are as strictly limited as those of any other estab-

lishment,

its

power to make money dear or cheap

does not extend beyond

and by lending them

rate

its

own

stock of notes

to the public at a cheaper

than the demand for discount warranted,

could only keep

down the

price of

money

for a

it

few

days or weeks.

The

real

importance of

a variation in the

134

FOREIGN EXCHANGES.

minimum

Bank does not

rate of the

consist in

the power exercised over, but in the indications

afforded

minimum

The

the money-market.

of,

fixity of

rate has this effect, that practically

becomes a

maximum

Bank

a fraction under the

sequently the

Bank

England

of

to

procure

rate,

and con-

is

generally the

demand.

last to feel the pressure of a rising

it

Persons in

to the public.

good credit are almost always able

money

the

Thus,

an advance in the Bank rate generally means, that

a previous pressure has been put on
sources where discount

demand has reached

the

Bank may

all

other

obtainable,

and that the

the last reserve.

Sometimes

is

raise its rate

from internal causes,

or from apprehension, but the general inference

from such an advance

For

sketched.

this

is

which we have

that

reason

foreign

capitalists

rightly attach great importance to the variations of

the

Bank

of

England minimum, regarding them

correctly rather as indications of the

money than

of

changing value

an attempt to

as the results of

control its price.

The
the

fact

Bank

has been that almost every advance in

rate of discount is followed

by a turn of

the exchanges in favour of England;

versa, as

soon as the rate of interest

exchanges become

less favourable

and,

is lov/ered,

that

vice

the

is to say.

135

FOREIGN EXCHANGES.

in the

first case,

for bills

there

is

an indication of a demand

on England, as a means

of placing capital

here, to take advantage of the ruling rate

in tlie

second case, there comes the reaction, that

say, there is a

demand here

or,

what comes

money back

to the same, in the first instance

there are few buyers here

capitals,

drawn upon

for bills

foreign cities, in order to send this

is to

for

bills

on foreign

because foreign creditors give their Eng-

lish debtors a respite,

and prefer

to wait longer for

remittances, gaining interest meanwhile at the profitable

is

English rate

in the second,

when

this rate

lowered, the foreign creditors find that they have

no longer any advantage in leaving their claims

upon us open, and require pending accounts

to be

closed.

The general effect of

a high rate of interest in at-

tracting capital, and its consequent action

the Foreign Exchanges,

may

upon

easily be understood

and appreciated, even by those who are not conbut

versant with the details of banking business

a further effect of the same cause

more

is of

technical nature.
It will

be remembered, that of the aggregate in-

debtedness of any country,

large

portion

is

generally embodied in bills of exchange which have

some time

to run.

Now, these

bills

seldom

re-

186

FOREIGN EXCHANGES.

main

in the hands of the drawers, but are partly

used as immediate remittances to the country

where the

payable, and partly are bought

bills are

by bankers or

capitalists

who desire them

as

an

in-

vestment of money, yielding a certain interest

during the interval between the date of their issue

and the date when they

lies in

the cheaper price of the

on demand

less three

is

A bill drawn

bills.

payable three months after date

banker at a price which

This interest

due.

fall

is

bought by a

equal to a

months'

interest,

bill

and this

terest will not be that of the country

payable

the

bill in

for the purchaser will

bill

have to discount

the foreign country at the rate there

ruling, before

a draft on

in-

where the

drawn, but that of the place where the

bill is
is

payable

he can make

demand

it

equally available with

and the drawer can

deduction from the price of the

bill at

suffer this

the same

rate without loss, as, giving the foreign acceptor

three months' grace before payment, he will receive

from him the same amount of interest until the

debt
bill,

is

discharged by the actual payment of the

as he loses in the price of the bill

Accordingly,

when

investment,

it

is

itself.

foreign bills are bought as an

wdth the view of earning the

higher rate of a foreign country, in the place

of the

lower rate ruling at

home

a circum-

187

FOREIGN EXCHANGES.
stance,

which

most important constantly

is

it

may

remember, as the tendency described

to

relied

on as always in operation when the rate of

any country, the

interest is peculiarly high in

dit of

which

is

unimpeached.

As

lies

cre-

a matter of fact,

we may

the interest which can be secured by what

call

be

the speculative purchasers of

generally

bills,

between the rate of the country where the

purchased, and the rate of that on which it

is

bill is

drawn,

as competition enables the seller to secure a portion

If the rate in

of this species of profit.

is

Germany

3 per cent., and the rate in England

cent., those

who have

is

three months' bills on

5 per

Eng-

land vdll not be obliged to submit to a discount

of 5 per cent., which, according to first principles,

Many

should be deducted.
order themselves to

make

will be found,

1 per cent,

who, in

more than the

highest rate which they can secure at home, vnll

not claim to deduct more than 4 per cent, from the

price

which they would pay

for a bill

on demand,

instead of the 5 per cent, which would seem the

natural rate.

should be observed that these

It

greater or lesser deductions are generally expressed,

not in the rate of interest, which

the

but in the price of the

bill

cheaper or dearer

it is

the case in what

Vv^e

but

may

is to

bill

be deducted,
is

so

much

expedient to consider

call its original

form, in

-;

FOREIGN EXCHANGES.

1S8

order the more clearly to discern the force of the

rate of interest.

We now

come

to the fact,

which

it is

also very

important clearly to appreciate, that at any moment

there

is

hands of hankers and exchange

in the

dealers a large

amount of hills on various

countries,

held partly for the purpose of speculating on a rise

or

fall

in the price of bills, hut, to a very large ex-

tent, solely for the sake of the interest

be

made on them.

Bills

which

on England, owing

is to

to the

high rate of interest which they often bear, as compared with continental rates, are a favourite invest-

ment abroad.

In Paris, Berlin, Frankfort,

Ham-

burg, and other continental cities, the bills on

England held by the bankers and

panies often amount to

many

joint- stock

com-

millions sterling

and a very large sum remains in their hands

several months,

in

bills are dravv^n to

fact,

the time

for

from the time when the

when they fall due.

The

immense importance

of this circumstance cannot

be overlooked.

any time the rate of

If at

below that which rules on the Continent,

here

falls

it is

inevitable that the v/hole

will at

interest

mass

of these bills

once be sent to London, and be discounted

there at the cheaper rate, so that the proceeds

may

be

remitted in gold to

the

Continent to

be invested there in local securities at the supposed

FOREIGN EXCHANGES.

On the

higher rate.

count in London

is

39

other hand, so long as the dis-

higher than that which can bo

obtained abroad, so long the foreign bankers will be

induced to hold their

The

debt,

it

will be

they become due.

bills till

remembered, which

in the bills in question,

is

embodied

and without which they

could not exist, must be paid sooner or later

the time

when

it

must be liquidated

certain limits, depend

it

be high, the

and the gold

ment
^Yhole

if it

mass

upon the

bills will

but

within

will,

rate of interest.

If

be allowed to run off abroad,

will not be exported

be low, there

is

till

the last

mo-

the possibility of the

England

of bills being sent to

for dis-

count as soon as they are dravm, and the gold being

exported at once instead of three months afterwards.
Accordingly, if, to take a practical instance, specie
is

being exported from England to America, an ad-

vance in the rate of discount

is

an inducement to

foreign capitalists to hold back their bills

upon

England

make

to the

last

moment,

as well as to

remittances hither to invest the proceeds at the high

rate
bills

both circumstances cause a demand for these

abroad, and their price

time, a proportionate
bills will occur.

fall

must

rise.

At the same

in the price of foreign

For, a convenient

mode

of placing

funds in England being to instruct English firms

to

draw on foreign bankers, these

bills are

hkely to

140

FOREIGN EXCHANGES.

be pressed on the market

assumed
than

whereas, owing to the

desire rather to leave capital in

to call

there will be few purchasers for

it in,

them, and their price must decline.

bills

the

on England abroad

fall

(The

either the creditor draws a bill

on the debtor, or the debtor remits a

bill to

the

and accordingly, the same circumstances

which make
bill

England

two ways of settling every interna-

tional transaction

creditor

rise of

always identical with

is

of the prices of foreign bills in

for there are

England

difficult to

it

the creditor to

make it

to advantage, will

difficult for

sell

his

the debtor

to purchase the necessary remittance to advantage.

When
bills

bills

on England decrease in value abroad,

on the Continent increase in value on the

London exchange

a high interest

setting the current of capital to-

is

and when, as in the case where

wards England, there

is

a great demand, at high

upon London, there

prices, for bills

is

a corre-

spondiug absence of demand and low prices in

England

for bills

on foreign

cities.)

After the preceding observations,

inquired,

rapid
nil

How

flov/

is it

of capital

it

may well

bo

possible that, in spite of the

from one country

up any gaps that may have been

to another to
left,

such a

difference in the rates of interest can exist between

two countries as has occasionally been witnessed for

FOREIGN EXCHANGES.

some time
nent

England and the Conti-

in the case of

How,

it

may be

141

asked,

be explained

is it to

that the rate of interest could at one time remain

at 6 per cent, in

Hamburg and

London, and

other continental cities

many

mystery which has puzzled

periods

at 2 or 3 per cent, in

when our

This

during several

rate of interest has so

ceeded that of the Continent.

is

much

ex-

It is a question,

however, which can be solved with the greatest ease.

In the case of Hamburg, we have

to deal with

the fact that there exists a difference of currency.

The

capitalists of

much money

pothesis, so

manage

only

Hamburg, who have, by the hyto spare that they

to obtain 2 per cent, interest for

money

possess this

in silver,

England

silver

will

will

it,

and accordingly, the

possibility of their sending this surplus

to

can

money over

depend upon the probability of the

being sold to advantage. The natural process

be to ship the silver to England, to

there at what

it

will fetch,

sell it

and with the proceeds

to

discount bills at the high rate current in England.

When

these

bills,

however, mature, and the

Ham-

burg banker wishes to re-possess himself of the

money, he

will

have to change the sovereigns, in

which the English

silver, possibly

silver

he

will

bill

is

paid, back again into

paying a premium for

it

and

have to re-ship to Hamburg.

this

This

FOREIGN EXCHANGES.

14,2

is tlie

He

complete theoretical process.

liis

equivalent for a time in bills pay-

silver, invests its

Hamburg when
Accordingly, when he strikes his

and re-ships

able in gold,

remits

the bills mature.

silver to

balance at the end of his operation, he will find, in

in his favour, the difference between

the

first place,

the

Hamburg and

the

Enghsh

which we have

rate,

supposed to be as great as 4 per cent. This

we suppose him

ence, however, if

his

money in three months*

to

he

bills,

differ-

have invested
will only

have

enjoyed for a quarter of a year, and thus his ap-

But out

parent profit will so far be 1 per cent.

of

he may, under favourable circum-

this 1 per cent,

pay the expense of specie remit-

stances, have to

tances to and fro

England, and then on

may lose, and have

on sending his

first

return

its

and

silver to

further,

to sacrifice, a difference

the price at which he sold his silver on

he

between

its arrival

in England, and that at which he bought back a

similar quantity of the

same metal when he

quired his capital again at home.

perceive that

it

is

It is

re-

easy to

exceedingly possible that these

expenses on the transmission of bullion and the

loss

on the

silver

which he

is

cordingly

it is

may

far

exceed the 1 per cent,

supposed to have gained; and acquite natural

and

intelligible that,

under certain combinations of circumstances, even

FOKEIGN EXCHANGES.

much

a difference of as

143

as 4 per cent,

may

exist

between our rate of discount and that in Hamburg,

without their surplus capital finding

money-market.

At the same time,

be conceded that there

it

way

to our

will readily

a point at which the

becomes so great that the chances of

difference
loss

is

its

and expense are more than covered by the

crease of the interest, particularly

if

in-

the high rate

can be secured for six-month instead of three-

month
on

During most periods

of high discount

this side of the Channel, there

have been large

bills.

orders here to take six-month

bills for

foreign

and

clearly the preference is given to the

longer paper,

because the attractive rate being

bankers

secured for so

much

longer a time, while the pro-

bable cost of bullion remittances and risk of loss

upon

silver

remain the same, the chances of

are almost doubled, or at least a larger

at

profit

margin

is

once secured for provision against the risks

which are run.

The instance of Hamburg, with its silver currency,

offers a peculiarly
difficulties

convincing illustration of the

attending the transmission of capital

from one country

to another

and, at the same

time, of the advantage of a rate of interest

ciently
it

suffi-

high to overcome these difficulties, whenever

becomes desirable that foreign bankers should

FOREIGN EXCHANGES.

144

come

to the relief of our

money-market. However,

even when they both have an identical currency,

it is

easy to explain the possibility of two very

different rates of interest existing

in two countries.

The point

simultaneously

to be looked to is the

cost of the transmission of bullion to

and

fro

and,

according to the distance of the two countries, so

will

it

be possible for differences in the rate of in-

terest to exist in a greater or less degree.

the rates in

London and

Paris,

the

Between

expense of

sending gold to and fro having been reduced to a

minimum between

the two cities, the difference

can never be very great

gotten that,

the interest

but

it

must not be

for-

being taken at a per-

centage calculated per annum, and the probable

profit having,
bills is

when an

operation in three-month

contemplated, to be divided by four, whereas

the per-centage of expense has to be wholly borne

by the one transaction,

a very

comes a great impediment.

slight expense be-

If the cost is only i

per cent., there must be a profit of 2 per cent, per

annum

in the rate of interest, or J per cent, on

three months, before any advantage

and thus, supposing that Paris

that they

may

commences

capitalists calculate

send their gold over to England for

J per cent, expense, and chance their being so

favoured by the exchanges as to be able to draw

it

FOREIGN EXCHANGES.

back without any cost

less be

at

all,

345

must neverthe-

there

an excess of more than 2 per cent, in the

London

rate of interest over that in Paris, before

the operation of sending gold over from France,

merely for the sake of the higher interest,

This

is

the simple explanation

crease in the rate of discount

cumstances,

that

is to say,

is,

why

will pay.

a slight in-

under some

when

there

not

great supply of bills

upon England,

to bring over gold

from the Continent.

is

cir-

not a

sufficient

It

must

reach a somewhat high point before the certain ad-

vantage begins
is

and hence

an error to allege

it

becomes clear that

it

that, if 6 per cent, will not bring

over gold, neither will 7 or 8 per cent., a mere fractional increase in an annual rate, have that effect.

Yet on one occasion, when the Bank rate of discount

was advanced

to 8 per cent., the question

quently asked,

Is

it

was

fre-

likely that, if 7 per cent, failed

to bring over the gold, such a result will be attained

by charging

1 per

more

cent,

The preceding

observations place the matter,

it is

hoped, in a

The

first

few per cents, do

ciently intelligible light.

little

more than cover the

possible expenses of the

transmission of the bullion

per cent, per

sufiS-

itself,

a difference of 4

annum on three-month

necessary to cover 1 per cent, expense

biUs being

but as soon

as the charges (or the risk of charges), which are

146

FOREIGN EXCHANGES.

really almost identical with

what

usually called

is

the loss in exchange, are covered, then every addi-

which

tional per cent,

granted as discount be-

is

comes an actual and certain

profit

and, accord-

ingly, if gold is required, the rate of discount

be advanced
of

till

that point

is

reached.

To

must

stop short

may, under some circumstances, be nugatory.

it

In practice
bills

owing to the

fact that the

supply of

uponEngland seems to be almost inexhaustible

the operations

will take a

somewhat different form

from that which we have just examined, but the tendency will be admitted to be

"When the

identical.

English rate of interest advances, there

will be a

general desire on the Continent to take advantage of

this circumstance,
for
is

and

to remit capital to

temporary advantageous investment

England

the transmission to England to be effected

course in

bills,

England, and are willing to

selves in possession of

an

sell

article

bills

which

is

demand, and are thus enabled

suddenly

to

make

Competition raises this price,

remittances by

means

of bills

bills at

till

become almost as

expensive as a shipment of bullion

the profit, which would be

on

them, find them-

higher price.

buy

Of

so long as they can be procured

and consequently those who are holders of

in great

how

but

itself

made by those

and thus
w^ho could

the usual exchange to remit to England

FOREIGN EXCHANQES,

147

for investment at the higher rate, is divided be-

tween those who

and remit

sell

To the

it.

strong, the bill

the

bill

latter,

when

sent.

This

is

the

may finally become

bullion shipments themselves

of bills tends to

and those who buy

become

demand

is

as expensive as

and as the supply

insufficient, gold is actually

the technical explanation of the

rapid rise of the price of bills on any country as

soon as any advance in the general rate of interest

obtainable there takes place.
It is a rise

caused by the competition for the most

ready and most convenient vehicle for the transmission of capital, the competition
result of a

high rate of

interest.

being the

itself

A fall of the

rate

will cause a corresponding fall in the prices of bills

and, acting as

it

does with invariable force, and

being succeeded by invariable results,

there

is

no corrective of a drain of

it is

gold,

clear that

and

all its

attendant consequences, more powerful and effectual

than a rapid advance in the rates of discount.

the only

mode by which that which

is

It is

on the point

may be retained, or that which is

actually gone may be replaced; and its natural effect
of being lost

is,

not to produce a scarcity of money, of which

it

can never be the cause, though often the consequence, but to remedy and correct this scarcity

by offering a premium

to the rest of the world

L 2

FOREIGN EXCHANGES.

148
to send

their

or

capital

money

to

the

dearest

market.

We

should here allude once more to the function

of those peculiar foreign bills of

which mention has

previously been made, which, not representing any

actual indebtedness, do not

become amenable to the

laws which regulate that indebtedness, but on the

contrary, rather influence the exchanges in an opposite

When

direction.

country to another

when almost

all

remitted and paid,

almost settled

is

the

the indebtedness of one

bills

it is

that

is to say,

between them are drawn,

the natural result of this

situation that the price of the few remaining bills

On

should become exceedingly high.

hand, the issue of

bills

the other

representing no transaction

in goods, but simply based

upon

credit,

and conse-

quently (but for the knowledge that they must subsequently be provided

the contrary direction

press the price of

that

is to say,

Thus there

bills.

for the period during

(for,

for), illimitable,

which the

operates in

tends to de-

are times when,

bills

have to run

as soon as they have to be covered, their pre-

vious effect

is

neutralized at once), their issue

may

have a material effect upon the export of gold. Those

who draw

bills in this

manner on

actuated by two different motives

may be
they may

credit,

either

wish to secure the use of the money paid aa

tiie

149

Foreign exchanges.

price of the bills, for legitimate or illegitimate pur-

poses, during the two

months which the

till

again part with the

money

buy remit-

in order to

or they believe that when

tances,

has to

when they must

the time

run, that is to say,

bill

their drafts

come

to maturity there will be a larger supply of bills

on

the market, and that then they will be able to

make

a profit

by buying their remittances

at a

cheaper price than they obtained for their drafts.

The

issue of drafts

against any debt

drawn upon

that

by which

say, drafts

is to

and not

credit,

the drawer incurs a debt, instead of securing to himself the

payment of a debt

of another

is

measure

by which the merchants of the country in which

they are drawn
necessity of

may be

making

temporarily relieved of the

bullion remittances,

in debt, or be enabled to
if

if

they are

make cheaper remittances

And

they want to give orders.

they are useful

enough when they bridge over an interval which

may

exist

between the seasons of exports and im-

ports, as in that

transmission of bullion.
issue of such bills

may

case they

But in other cases the

be attended with dan-

is likely to

gerous consequences,

as,

save the double

though giving

the moment, by supplying that which

is

relief for

in great

at tlie

add to the

diffi-

demand, and which cannot otherwise be got

expiration of a certain time

it

will

FOREIGN EXCHANGES.

150
culty, as

an equal amount must again be with-

drawn.

On

the Continent, this species of

bills

is

often

used as an engine for drawing gold from England

mode

in fact, as a

of borrowing in the

London

market.

Drafts are issued, payable three months

after date

these are remitted to London, and there

discounted, the proceeds being invested in gold,

and shipped abroad.

When the

favourable to the Continent,

a bill on

exchanges are un-

that

is

to say,

when

England commands a larger number

such

of

an

dollars or florins

than usual,

artificial supply,

and may prevent the price from

bills create

running up to specie point.

It

scarcely desirable to enter into

is

details as to the various artificial

ing manoeuvres by which those

the exchanges

that

is to say,

of the prices for foreign bills

or counteract
tuations.

what may be

further

means and bank-

who

speculate in

on the

manage

rise

and

fall

to influence

called the natural fluc-

It is only necessary to point to the exist-

ence of such speculations and their attendant

cir-

cumstances, as otherwise errors might be committed through the confusion of temporary and
artificial fluctuations

with the natural and inevit-

able consequences of regular

The

and definable laws.

object of the present treatise has been to un-

151

FOREIGN EXCHANGES.
ravel a few of the

most important

first

principles at

which we may arrive in the study of the Foreign

Exchanges

and especially

to exhibit, as clearly as

possible, the origin andnatural explanation of trans-

actions which, in their

more complicated form, ap-

pear too technical and confused to be easily appreciatedby the general public. In these
there

is,

first

principles

The

in reality, nothing difficult or abtruse.

difficulty lies,

not in the apprehension of them, when

they are plainly andpopularly stated (they then seem

almost a matter of course), but in the stating of these

principles in sufficiently plain

Thus,

if

and popular language.

the perusal of the preceding pages leaves

the reader more confused as to the Foreign Ex-

changes than he was before, he must by no means

believe that

which

he has been engaged upon a subject

too technical or too difficult, too

is

little

amenable to the usual method of scientific inquiry,

or too complicated by a perpetually shifting
practical details, for

tained.
fault

mass

of

any satisfactory result to be ob-

He must rather beheve that the

author

is

in

through his inability to convey clearly to the

reader's

mind

that which to himself seems patent

enough, and through his not possessing sufficient

mastery of language to be able to dispense entirely

with the jargon of the money-market and the
exchange.

FOREiaN EXCHANGES^

152

The Foreign Exchanges

are pre-eminently a sub-

ject which requires less controversial discussion

The main

a careful and thorough analysis.

ciples

which have been advanced as

than
prin-

to the origin of

exchange operations, as to the groundwork of international indebtedness, as to the various classes of

foreign bills, as to the different causes
late the fluctuations

conclusions which

in their price,

which regu-

and as

may be drawn from these

ations, are rather statements of self-evident

somewhat complex truths, than matters

fluctu-

though

for contro-

versy, while only that branch of the inquiry

treats of the correctives of unfavourable

to the

which

exchanges

can legitimately form a battle-field for discussion.

For any subject

to be satisfactorily argued,

and

for

the value which attaches to conflicting theories upon

it

to be fairly appreciated,

necessary that

it

it

is

above

all

things

should be clearly understood

and

the object of the present essay will have been fully

attained

if it

proves in any way instrumental in

promoting clearer and more positive ideas as to

the most general principles and rudimentary facts

which present themselves in any inquiry into the

laws of the

**

Foreign Exchanges."

EFriNOHAM WILSON, rRINTER, ROYAL EXCHANGE.

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10^., cloth.

mm

LONDON

Ruttv^r's

EFFINGHAM WILSON, EOYAL EXCHANGE.

General Interest Tables

Dollars, Francs, Milreis, &c., adapted to both the English and Indian
Currency, at Rates varying from 1 to 12 per cent,, on the Decimal System.

For

By Hexhy Ruttee.

Price 10^.

Rutter's Metrical

Cr/.

System of Weights and

Measures Tables
British Standard Weights and Measures in a complete Set
of Comparative Tables ; also, Tables of Equivalent Prices under the Two
Systems, and of Chinese and Indian Weights compared with Metric,

Compared with the

Weights, &c.

By Henry

Rutteii.

Rutter's Silk and

Price

4^., cloth.

Tea Tables.

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Maertens'

Sillc

Tables,

Showing the cost of Silk per pound, avoirdupois and kilo, as purchased
Japan and laid down in London and Lyons. Price 30^.

in

Maertens' Silk Tables,

Showing the cost of Silk per pound, avoii'dupois and kilo, as purchased at
Shanghai and laid down in London and Lyons. Second Edition. Price 30^.

Wilson's Importance of Punctuality.

On

Sheet.

Price ^d.

Adam's Tables of Exchange.

Arranged Decimally exhibiting the Equivalent of any Sum from 1 pie to 100
rupees, or from 1 penny to 100 sterling, in regular gradations at the
different rates of exchange, from 1^. ^d. to 2*. 4^ per rupee, ascending
by T5 of a penny. By George Uue Adam. Second Edition. Svo, price
;

205., half-bound.

Ward's Safe Guide

to Investment.

on INVESTMENTS; being a Popular Exposition of the

Advantages and Disadvantages of each kind of Investment, and of the
By Robert Arthur Ward, Solicitor,
liability Fo Depreciation and Loss.
Maidenhead, Berkshire.
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A TREATISE

Goschen's (the Right Hon. Geo. J., M.P.)

Theory of the Foreign Exchanges.
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One Volume,

Svo, price G^.

LONDON

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Hankey's Principles of Banking.

UTILITY

Its

ment

and

of the

ECONOMY

Bank

with Remarks ou the Working

merly Governor of the Bank of England.

Price

aiid

Manage-

By Thomson Hankey,

of Enghind.

Esq., M.P., for1 volume, 8vo.

Third Edition.

6*.

Schmidt's Foreign Banking Arbitration

Theory and Practice. A Handbook of Foreign Exchanges, Bullion, Stocks,

and Shares, based upon the New Currencies, &c. By Hermann Schmidt.

Its

Price 125.

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A

Guide to Authors ; showing how to correct the press, according to the mode
adopted and understood by Printers. On Sheet. Price Qd.

Richards's OHver Cromwell

An

Historical

Price

to

2^.

Rose's Columbus
An

By Alfred Bate
Thomas Carlyle. Eourth Edition.

and Pour Acts.

Trag;edy, in a Prologue

Richards. Dedicated by permission

Historical Play, in Five Acts.

By Edward Rose.

Price

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An

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By

C.

Warren Adams.

Price 2*.

Elwes's Through Spain by Rail in 1872.

One

vol., 8vo.

Price 10s.

M.

Elwes's Legend of the

Mount;

or,

the

Days of Chivalry.
By Alfred Elwes.
fcap. 8vo.

Price

With

a Frontispiece by

Alfred Elwes, Jun.

One

vol.,

35. 6^., cloth.

Twelve True Tales of the Law.

By CopiA Fandi,
rister-at-Law.

S.C.L., of the Honorable Society of

Cheap Edition. Price I*.

's

Inn, Bar-

Beauvoisin's French Verbs at a Glance.

Bv Mariot de Beauvoisin.

Price

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Wilson's Time and Money Tables for

Calculating Seamen's Wages.
in calendar months and days, from any one
day in the year to another; also, the amount of Wages due for such periods,
and at any rating, from 10^. up to 50 per annum.
Second Edition. Price 10*., cloth.

Showing the exact Rateable Time,

Smith's Legal Forms for

Common

Use.

Being 250 Precedents, with Introductions and Notes, arranged under the
3. Receipts
2. Securities
following heads
1, Negotiable Instruments
and Acknowledgments 4. Partnership 5. Master and Servant 6. Land9. Conveylord and Tenant
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By
ances 10. Marriage Settlements 11. Wills 12. Miscellaneous.
James Walter Smith, Esq., LL.D., of the Inner Temple, Barrister-atLaw. Ninth Edition. Price 3*. 6^., cloth.
:

Bellairs

and

American

on

Canadian

Securities,
An

Analysis for the

Use

of English Investors.

Price

5*., cloth.

White's Linen and Linen Yarn Trades'

Ready Reckoner.
Containing 88,000 calculations.

Price 20s., cloth.

Shaw's Fire Surveys

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Summary of the Principles to be observed in estimating

ing.
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Shaw's Records of the

late

the Risks of BuildPrice 10s. 6d.

London

Fire

Engine Estahlishment.
Price 21s.

Besemeres' Success in India

And how to attain it, with
John Daly Besemeues.

the Roads to take and the Paths to avoid.

Price Is.

By

Rickard's Practical Mining.

Eully and familiarly Described.

By George Rickaud.

Price

2^. 6d.

cloth.

Barry's Russian Metallurgical

Iron, Copper, and Gold concisely described.

Price

Works

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WJi

LONDON: EFFINGHAM WILSON, ROYAL EXCHANGE.

10

Bosanquet's

Universal

Simple

Interest

Tables,
Showing the Interest of any sum for any number of days at 100 difto 12^ per cent, inclusive; also the Interest of any
ferent rates, from
sum for one day at each of the above rates, by single pounds up to one
hundred, by hundreds up to forty thousand, and thence by longer intervals
up to fifty million pounds with an additional Table showing the Interest
of any number of pounds for one quarter, half-year, or year, at each of the
above rates, less income tax from one penny to one shilling in the pound.
-i-

By Bernard

Ti:ndal Bosa^-quet.

Price 21^., cloth.

8vo, pp. 480.

Bosanquet's Simple Interest Tables,

For Facilitating the Calculating of Interest at all rates, from one thirtyBy Bernard Tindal Bosanquet. Price 5s., cloth.

second upwards.

Roney's Rambles on Railways.

With Maps, Diagrams, and Appendices.
One Volume, Svo. Price reduced to

B.A.

By

Sir

Cusack P. Honey,

Qs., cloth.

Michell's Tariff of Customs' Duties

on the EUROPEAN ERONTIER of the EMPIRE of RUSKINGDOM of POLAND, from the 1st (13th) of January, 1869.

LEVIED
SIA and

Translated by T. Miciiell, Her Britannic Majesty's Consul at St. Petersburg, and Revised by the Imperial Russian Department of Trade and
Manufactures. 4to. i?rice 13^. C)d., in wrapper. Supplement No. 1, 2*. 6<i.

Long's Popular Guide to matters relating

to the Income Tax, the Inhabited
House Duty, and the Land Tax.
Third Thousand Revised and Enlarged.
of Taxes.

By

J.

P. A. Long, Surveyor

Price 1^. Qd.

Seyd's Bullion and Foreign Exchanges,

Theoretically and Practically Considered ; followed by a defence of
Double Valuation, with special reference to the proposed system of
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Universal Coinage.

Price 20s., cloth.

Smith's Odes of Horace,

(Books 1 and

pages.
elegant.

lel

2),

Rendered

into English Verse, with the Latin in paral-

By James Walter Smith,

Esq.,

LL.D.

Price

5^.,

cloth

&l

LONDON

EFFINGHAM

WILSON;,

HOYAL EXCHANGE.

11

Exchange Tables,

Garratt's
To Convert

the Moneys of Brazil, the River Plate Ports, Chili, Peru,

and Lisbon (Milreis and Reis, Dollars and Reals, Dollars and
Cents), into British Currency, and vice versa, at all rates of Exchange that
can be required, varying by eighths of a penny. By John and Charles
California,

Gaiuiatt.

Price

10*'.,

cloth.

Wilson's Gathered Together

By William Wilson, Author

of "

Poems.

A Little

Earnest Book upon a Great

Chapters upon Poetry and Poets," " Such is Life

Old Subject or.

Sketches and Poems," &c.
;

Second Edition,

fcap. 8vo, price 55., cloth.

" Mr. Wilson has added to his acknowledged claims as one of the best poets of the
day." Bell's WeeJclij Messenger.

"A fine and lofty spirit pervades these pieces, one and all. They are in every respect
worthy of praise." Observer.
" This author has no mean poetic power. The last poem in the book is one of great
beauty."

"He

Literary Gazette.

thinks loftily and feels intensely."

Leader.

"Already favorably known in the literary world.

The present volume will not
Morning Fost.
detract from his previous reputation."
" He aims at originality in his thoughts and his diction, and we may safely say he
has succeeded.

collection of the highest merit."

Danliani's

Court Journal.

Multiplication

and

Division

Tables,
Eroin aV^d to 10,000,000

Dunham's

adapted to every Calculation.

Price 21s.

Tables,

Rules and Definitions of Arithmetic, Geometry, Mensuration, and Trigonometry. Price 2s.

Dunham's Domestic Tables

for

Pounds

and Ovmces.
On

a Card, price

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Kaech's Mercantile Tables.

Showing the Cost Value of

all principal Staples of Indian Produce on the

Cobt, at a certain rate of Freight, but different rates of
Exchange, together with a pro forma Invoice based on Actual Charges

basis

of First

and relating to each Article, by Alex. Kaech.

Newman's Summarv
to Clieques
Second Edition, price

2s.

of the

on Bankers.

Law

relatino;

LONDON: EFFINGHAM WILSON, EOYAL EXCHANGE.

12

ParnelFs

Land and Houses.

Investor's Guide to the Purchase of freehold and Leasehold

Rents, Houses, and Land; Observations on the Management

The

same, with Tables.

Third Edition, price

Ground
of

the

Is.

Pearce's Merchant's Clerk.

A

short Exposition of the Laws and Customs regulating the

Eighth Edition. Price Is.
operations of the Counting House.

principal

Ham's Revenue and Mercantile VadeMecuui.

An Epitome

of the Laws, Regulations, and Practice of Customs, Inland

Revenue, and Mercantile Marine. Together with Statistical and other

Information.

Price 12^. Qd,

Crosbie and Law's Tables for the Immediate Conversion of Products into
Interest, at Twenty-nine Rates, viz.
to Eight per cent, inclusive, proceeding by Quarter Rates, each
single Opening, Hundreds of Products being Represented
William C. Law, of Lloyd's Banking
by Units. 'By Andrew Crosbie
Company, Limited; Head Office, Birmingham. Price 10s. Qd.

From One

Rate occupying a

&

Robert's Parlianaentary Buff Book.

Being an Analysis of the Divisions of the House of Commons. Session 1875,
Session
Session 1874, price 6s. Session 1873, price 6s.
price 6s.
1872, price 6s.; Session 1871, price 5s.; Session 1870, price 5s.;
Session 1869, price 4s. Sessions 1866, 1867, 1868, price 5s.
;

City of

London

Directory.

Contents Conveyance Guide, Streets Guide, Alphabetical Directory, Traders'

Guide, Public Companies' Directory, Livery Companies' Guide, CorThe whole forming a complete Directory to the City
poration Directory.
Price 10s. 6d., published annually.
of London.
:

Wine:
An

By N. M., a Graduate of Cambridge

Authoritative Defence of its Use.
University and a Clergyman of the Church of England. Price 2*.

Besemeres'

No

Actress

keeper's Story.
By John Daly Besemeres.

Price 3s. 6d.

a Stage Door-

LONDON

Orridge's

EFFINGHAM WILSON^ EOYAL EXCHANGE.

Account of the

13

of

Citizens

London
And

from lOfjO to 1867, and a Calendar of the Mayors and

from 11S9 to 1SG7. Price 10s. 6d.

their Rulers,

Sheriffs

Table showing the Return on ^'100

Money Invested in Stock

Bearing Interest at 1 to 10 per cent, on Nominal Capital from 1 to 100,

Cloth, Is.

FairHe's Railways or no Railways.

Narrow Gauge, Economy with

Efficiency, v. Broad Gauge, Costliness with

Extravagance. Illustrated with Photographs, Woodcuts, &c. By Robeut
Price 2s. 6d.
F. Pairlie.

Time Table and Tables

Jones's

culating Interest at

all rates

for Cal-

per cent.

Price Is.

Ansell's
Its

Royal Mint

Working, Conduct, and Operations,

lustrated

with

Third

Engravings.

fully

and practically explained.

Edition,

greatly

enlarged,

Il-

vol.

imperial 8vo, price i2s.

Nicholson's Science of Exchanges.

i'ourtk Edition, revised and enlarged, price 5s.

Cohn's Tables of Exchange

Converting
Between England, France, Belgium, Switzerland, and Italy.
Cloth, 10s. 6d.
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Cohn's Table of Exchanges between Germany and England,

By means

oC which any

amount

of Reichsmarcs

by Seventy-six Rates of Exchange.

Cloth.

may be converted

into Sterling

Price 3*.

Cohn's Stock Exchange Arbitrageur,

is added an Inlroduction explanatory of the Decimal System, and
Tables showing the exact amount of Interest to be added to the calculations,
Price 2s. 6d.
together with a chapter on " OPTIONS."

To which

Schultz's Universal Dollar Tables,

of Rates from $1.80 to $4.90 per , and from 3s. lOd. to Is. 6d. per
with an Introductory Chapter on the Coinages and Exchanges of the
world. Price 10s. 6d.

Epitome
$,

_____

__

m 14

LONDON

EFFINGHAM WILSON^ ROYAL EXCHANGE.

Universal Interest and General

Percentage Tables.

Scliultz's

of Bankers, Merchants, and Brokers, in all parts of the

Applicable to all Calculations of Interest, Discount, Conimissiou,
and Brokerage on any given amount, in any Cnrrency, from 1 per cent, to
15 per cent, per annum, by one Quarter per cent, progressively. On
With a Treatise on the Currency of the World,
the Decimal System.
and numerous Examples for Self-instruction, Price 156'.

Eor the use

world.

Scliultz's Universal Dollar Tables.

Covering all Exchanges between
Complete United States Edition.
the United States and Great Britain, Erance, Belgium, Switzerland, Italy,
Spain, and Germany.
Erom $1-50 Cfnts to $5*50 per Pound Sterling, or from 4 Erancs
Erancs 50 Centimes per Dollar, or from 4 Pesetas
50 Centimes to
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Eor the use of Bankers, Merchants, and Brokers.
20 Gold Marcs.

Price 25^.

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English-German

Schultz's

Tables,
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Price

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, by -025

Sternberg's Crisis of 1876

An Epitome

progres-

of its Causes and Eifects, together with suggestions as

By M. Sternbeiig.

to various Remedies.

Young's

Marks per

5s.

Royal

Price 2s.

Exchange Marine

In-

surance Tables,
Eor the use

Mercier

of Brokers, Merchants, &c.

Cloth, price 2s.

& Strettell's Manual of American

Raih^oad Securities.
" Gives some very sound and seasonable counsel about the better class of American
Times.
mortgage bonds."
'Draws an interesting comparison between the position of the preferences of
leading English railways as compared with the similar securities of American railways." Economist.
''A useful little manual." Railway News.

Second Edition.

Mercier

&

Price Is. Gd.

Strettell's

Railway

Manual of Foreign

Securities.

2. Erench Bailway Shares

Ilussian Railway Shares.
4. MisItalian and Spanish Railway Obligations.
Price 2s. 6d.
5. The Suez Canal Company.

Contents. 1.

and Obligations.

cellaneous.

3.

1:

LONDON

EFFINGHAM WILSON^ EOYAL EXCHANGE.

MISCELLANEOUS

15

LIST.

VALUABLE WORKS OF REFERENCE,

COMMESCIAL, LEGAL, GEOGEAPHICAL, AND
STATISTICAL.
A2:er's Teleo:ram
Eor the use

Code,

Bankers, Merchants, and Shipowners.

of

Anglo

Adlington's

French

Price

42.y.

Produce

Tables,
Transferring the Cost of any Article from Sterling per Cwt. into
Francs or Lires (Italian) per 100 Kilogrammes, at Exchanges ranging
to 32.
Price 2^. Qd.
from

2U

Arnould's Marine Insurance.

A Treatise on the Law of Marine Insurance and Average ; with References to the American Cases and the later Continental Authorities.
By
Sir Joseph Arnoulb (Puisne Judge, Bombay).
Fourth Edition, in 2 vols., royafSvo. Price 2 12^. 6^., cloth.

Anderson's Practical
spondence.
A

Collection of

Modern Letters

Commercial Technicalities.

By William Andeuson.

Byles'

Law

missory
Cheques.
By

the Hight
Price 2os.

Bagehots'
A

Mercantile Corre-

of Business, containing a Dictionary of

Twenty-first Edition, revised and enlarged.
Price 5s.

of Bills of Exchange, ProNotes, Bank

Notes, and

Hon.

Sir

John Bernaud Byles.

Lombard

description of the

Street.

Money Market.

Sixtli Edition.

Bank

of England
(The),
Rates of Discount during

Thirty-two Years, and

Bate of each Year.
Price

1^.

Published Annually.

Eleventh Edition.

the

Price

7s.

Gd.

Minimum
the

Past

Average

LOXDOX

16

EFFINGHAM WILSON, ROYAL EXCHANGE.

Banking Almanack (The), Directory, YearBook, and Diary.

/

Parliamentary and complete Banking Directory,

Price 7s. 6d.

Published Annually.

Blackstone's (Sir W.) Commentaries on

the Laws of England.
Twenty-first Edition,
4 vols., 8vo. Price 1

Bradshaw's
Manual.

By Chitty.
By Hargraye, Sweet, Couch, and Welsby.
5^.

Railway

Published Annually.

Shareholders'

Price 12*., cloth.

Brande's Dictionary of Science, Literature and Art

Comprising the History, Description, and Scientific Principles of every
Branch of Human Knowledge; with the Derivation and Definition of all the
Terms in General Use. Edited by W. T. Brande, P.R.S.L. and E.,
and Rev. Geo. W. Cox, M.A.
New Edition, revised and corrected including a Supplement, and nume;

rous

Wood

Engravings.

3 vols.

8vo, cloth.

Price

3.?.

Brooke's Treatise on the Office and Practice of a Notary in England,

Fourth Edition.

With

Alterations

and Additions,

In Svo, boards.

Price 21*.

Carter's Practical

Book-Keeping,

Adapted to Commercial and Judicial Accounting, with sets of books

Third
and forms of Accounts for different professions and trades.
Edition.
Revised and Enlarged. Price 7*. Qd.

Chitty on Bills of Exchange and Promissory Notes.

A Treatise on Bills of Exchange, Promissory Notes, Cheques on Bankers,
with References to the Law of
Bankers' Cash Notes, and Bank Notes
By John A, Russell, LL.B., and David
Scotland, France, and America.
Maclachlan, M.A., Barristers-at-Law.
Tenth Edition, in royal Svo, cloth. Price 1 Ss.
;

Crump's

Theory

of

Speculation.
Fourth Edition.

Price 10s. 6d.

Stock

Exchange

LONDON

EFFINGHAM WILSON, ROYAL EXCHANGE.

17

Crump's Practical Treatise on Banking,

Currency, and the Exchanges.
By Artiiuu Chump, Bank Manager.

Price

Gs.

Egyptian Commercial Calculating Tables.

Price 12s.

Own

Every Man's

Lawyer.

Handybook of the Principles of Law and Equity, comprising the Rights

and Wrongs of Individuals, Landlord and Tenant, Sales, Purchases, Master
and Servant, Workmen and Apprentices, Elections and Registrations, Libel
and Slander, Mercantile and Commercial Laws, Contracts and Agreements,
Railways and Carriers, Companies and Associations, Partners and Agents,
Bankruptcy and Debtors, Trade Marks and Patents, Husband and Wife,
Dower and Divorce, Executor and Trustees, Heirs, Devisees, and Legatees,
Poor Men's Law Suits, Game and Fishery Laws, Parish and Criminal
Law, Porms of Wills, Agreements, Bonds, Notices, &c. &c.
By a
Barkistek. Thirteenth Edition. Price 6s. 8d.

Fortunate

and
Price 3*.

Men

Won

how

they made

Money

and

Stock

Renown.

66?.

Financial

Register

(The)

Exchange Manual,
Showing Capital, Dividends, and Prices of the Public Funds,
Colonial and Foreign Debts, of Banking, Finance, Insurance, Mining,
Railway, Shipping, Telegraph, Water, and Gas, and other British and
Foreign Joint Stock Companies. Published Annually. Price 25s.

Gilbart's Principles

and Practice of Bank-

ing.
Thoroughly revised and adapted to the Practice of the present day.
Price 16*.

Goodfellow's Merchants' and Shipmasters'

Ready

Calculator.

Exhibiting at one View the solid contents of

Casks.
By J. Goodfellow. Price Is. Qd.

all

kinds of Packages and

Harben's Weight Calculator.

From

lb.

shillings per

to 15 Tons, at

Hundredweight.

300 Progressive Rates, from 1 penny to 168

Second Edition. Price 30^.

Hardwick's Trader's Check Book

For Buying and Selling by the Hundredweight, Ton, or by Measure, &c.
Price 2s. 6d.

Holdsworth's
nant.

Law

Price Is.

of Landlord and Te-

LONDON

18

EFFINGHAM WILSON^ llOYAL EXCHANGE.

Holdswortli's
tors.

of Wills and Execu-

Price Is.

Holdswortli's
Price

Law
Law

of the County Court,

Is.

Hopkins' (Manley) Handbook of Average.

Third Edition, 1

vol., Svo.

Price 18^.

Hopkins' (Manley)

Manual of Marine

Assurance.
One

vol.,

Svo.

Price 18^.

Hoppus's Tables
Por Measuring the

Solid Contents of Timber, Stone, &c.

Price

3^. 6^.

Houghton's Mercantile Tables

Por Ascertaining the Value of Goods, Bought or Sold by the Hundredweight, at any price from one farthing to twenty pounds per Hundredweisht : or by the Ton, one shilling to four hundred pounds per Ton.
Price'

Is.

Inw^ood's Tables
Por the Purchasing of Estates, Preehold, Copyhold, or Leasehold AnAdvowsons, &c., and for the Renewing of Leases held under
Cathedral Churches, Colleges, or other Corporate Bodies, for Terms of
Years also for Valuing Keversionary Estates, &c.
Nineteenth Edition. 12mo, boards. Price Ss.
nuities,

Jevons's

Money and

the

Mechanism of

Exchange.
Price

5^.

Johnston's

New Dictionary of Geography,

Descriptive, Physical, Statistical, and Historical: forming a complete

General Gazetteer of the World. By Alexander Keith Johxstox,

P.R.S.E., P.K.G.S., P.G.S. ; Geographer at Edinburgh in Ordinary to Her

In One Volume of 1440 pages ; comprising nearly 50,000 Names
Majesty.
of Places. Svo, cloth, price 1 10^.; or strongly half-bound in russia, with
flexible backs, 1 15^.

King's Interest Tables,

Calculated at 5 per cent., exhibiting at one glance the interest of
any sum, from one pound to three hundred and sixty-five pounds ; and
(advancing by hundreds) to one thousand pounds and (by thousands)
from one day to three hundred and sixty-five
to ten thousand pounds
days.
Also, Monthly Interest Tables, Yearly Interest Tables, and
;

Commission Tables.

Price 7s.

6c7.

19^

LONDON: EFFINGHAM WILSON^ ROYAL EXCHANGE.

Lawson's History of Banking.

One Volume,

Second Edition.

8vo.

(Scarce.)

Laxton's Builders' Price Book,

Containing upwards of 72,000 Prices, carefully corrected and revised
according to the present prices of materials and labour.
Published
Annually.
Price 4s.

High-Rate Tables

Laurie's

Simple

of

Interest,
At 5, 6, 7, 8, 9 and | per cent, per annum, from 1 day to 100 days,
month to 12 months.
Also copious Tables of Commission or
Brokerage, from one eighth to ten per cent.
By James Laurie.
1

Price

7s.

Laws

Lee's

Ninth Edition.

Levi's

of Shipping and Insurance.

One Volume.

Price 12^. Qd.

Commercial Law.

The Commercial Law of the World, or the Mercantile Law of the United
Kingdom, compared with the Codes and Laws of Commerce of Foreign

By Leone Levi,

Countries.

Two

Esq.

Price 35^.

vols., Svo.

London Banks,

Credit,

Discount, and

Finance Companies.
Their Directors, Managers, Capital and Eeserve Eunds
Published twice a year. Price 2s. Qcl.

and Divi-

dends.

Louis's Anglo-French Calculator.

A

Beady Beckoner

for facilitating

Trade with Erance.

Price

1*.

Macleod's Elements of Banking.

Price

7s. Gd.

Martin's History of Lloyd's and Marine

Insurance in Great Britain.

Price

14is.

M'Culloch's Dictionary, Practical, Theo-

and Historical, of Commerce

and Commercial Navigation.

retical,

Illustrated with

Edition,

Maps and

corrected,

Plans.

enlarged,

plement.
Svo, cloth, price
flexible back.

and
'6s.

-,

By J. B. M'Culloch, Esq.
improved
including a New
or

10^.,

New

Suphalf-bound in russia, with

LONDON

20

EFFINGHAM WILSON, EOYAL EXCHANGE.

Geographical,

Dictionary,

M^Cullocli's
Statistical,

and Historical,

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