Royal Exchange

“ Brokers and others, whose business calls them to the Royal Exchange, are also pretty constant visitors, to meet captains and traders—dispose of different articles of merchandise—engage shipping and bind bargains—it is a sort of under Exchange, where business and refreshment go hand in hand with the news of the day, and the clamour of the moment; beside which, the respectable tradesmen of the neighbourhood meet in an evening to drive dull care away, and converse on promiscuous subjects ”

“ The merchants, who used to congregate “on ’Change,” were accommodated in the Guildhall, and the members of Lloyd’s met at the Jerusalem Coffee House—but these arrangements were, afterwards, modified. The Royal Exchange Insurance Coy. took Sir James Esdaile’s house, in Lombard Street.
Times, 4 Ap., 1838:—“The Royal Exchange.—Yesterday, the first day’s sale of the materials of the Royal Exchange took place. It produced nearly £2,000. ”

“ The Thing which gives me this Prospect, and so much Offence, is the Neglect of the Royal-Exchange, I mean the Edifice so called, and the Walks appertaining thereunto. The Royal-Exchange is a Fabrick that well deserves to be so called, as well to express that our Monarch's highest Glory and Advantage consists in being the Patrons of Trade, as that it is commodious for Business, and an Instance of the Grandeur both of Prince and People. ”

“ The first place he went into was the Royal Exchange. He had been there before to see the building, and hear the jargon at the time of high change; but now his curiosity was quite of a different kind. He could not have gone anywhere to have seen a more melancholy prospect, or with more likelihood of being disappointed of his design, than where men of all ages and all nations were assembled, with no other view than to barter for interest. ”

“ But these are cynical thoughts, for no doubt trade ranks as many generous, honourable, and pious people among its followers as any other profession; and we have surely every reason to hope that the moral standard is still rising, and that "the honour of an Englishman" will for ever remain a proverb in the East.
The whole of the west end of the Exchange is taken up by the offices and board-rooms of the Royal Exchange Assurance Company, first organised in 1717, at meetings in Mercers' Hall. ”

“ The Acts for converting the Monarchy into a Commonwealth were burnt at the Royal Exchange, May 28, 1661, by the hands of the common hangman.
Samuel Rolle, a clergyman who wrote on the Great Fire, has left the following account of this edifice as it appeared in his day:—"How full of riches," he exclaims, "was that Royal Exchange! [Pg 1024] Rich men in the midst of it, rich goods both above and beneath! There men walked upon the top of a wealthy mine, considering what Eastern treasures, costly spices, and such-like things were laid up in the bowels (I mean the cellars) of that place. ”

“ Exchange then moves in favour of England, and the Bank of England can replenish its reserve. Over the greater part of the world the rate of exchange on London is an indication simply of the trade balance. The greater part of the world receives payment for food stuffs, and has to pay for European manufactures, shipping freights, banking services and professional commissions. ”

“ A merchant in New York has sold a bill of goods to a merchant in London, having thus become his creditor, say, for $5,000. To get his money, the merchant in New York will, in the great majority of cases, draw a sterling draft upon the debtor in London for a little over £1,000. This draft his banker will readily enough convert for him into dollars. The buying and selling and discounting of countless such bills of exchange constitute the very foundation of the foreign exchange business. ”

“ Therefore it is no argument to say, that, on examining the accounts of customs fifty years back, they appear to be trebled now; for England, by some sudden stroke, might lose such a proportion of its trade, as would ruin it as a commercial nation, yet the amount of what remained might be tenfold of what it enjoyed in the reign of Queen Elizabeth. Trade, properly speaking, is the commutations of the product of each country— this extends itself to the exchange of commodities in which art has fixed a price. ”

“ So much for the transaction from the importer's standpoint—‌what does the seller of the goods get out of it? Payment for his goods as soon as he is ready to ship them. No waiting for a remittance, no drawing of a dollar-draft on an obscure firm in Paterson, N.J., which no Canton bank will be willing to buy at any price. The credit constitutes authority for the shipper to draw in pounds sterling on London—‌the one kind of draft which he can always be sure of turning at once into local currency and at the most favorable rate of exchange. ”

“ All the main elements of the problem of foreign exchange have now been examined—British exchange control, the sterling area, the payments agreements with foreign countries, the value of British reserves and external investments and the process of turning the latter into current cash, import restrictions, the export drive, the mounting total of overseas war expenditure. ”

“ When France owed to England more than the equivalent of what England owed to France, a bill for 2500 francs would be worth less than 100l., or would be at a discount.
When bills on foreign countries are at a premium, it is customary to say that the exchanges are against the country, or unfavourable to it. In order to understand these phrases, we must take notice of what "the exchange," in the language of merchants, really means. It means the power which the money of the country has of purchasing the money of other countries. ”

“ As I have already said, the fact of our being the recognised financial centre is beyond doubt. That this is so is a matter of the very greatest moment, for it will be admitted that the prosperity of the whole of the United Kingdom must, in a great measure, depend on our being able to maintain that position. A bill of exchange on London is the recognised medium of settling international transactions, which is made use of in all parts of the world. ”

“ The secret export of money still continued, and it was again proposed to register bills of exchange, and also to make Spanish and French coins current in the country. In June the Privy Council issued circulars to the East India, Turkey, French, Eastland, and Spanish companies, and the Company of Merchant-Adventurers—practically the whole mercantile corporation of London—desiring them to choose experienced persons from each of these companies, to consult upon the best means of managing the exchange of monies, so as to encourage the import of silver, and prevent its export. ”

“ In all which places we receive either money, bills of exchange, or commodities that suit for remittance to Britain; which, together with all the profits on the industry of our merchants and mariners, arising in those circuitous voyages, and the freights made by their ships, centre finally in Britain to discharge the balance, and pay for British manufactures continually used in the province, or sold to foreigners by our traders. ”

“ Obligations continually arising in the course of trade and finance between firms in New York and firms in London, it follows that every day in New York there will be merchants with sterling drafts on London which they are anxious to sell for dollars, and vice versa. The supply of exchange, therefore, varies with the obligations of one country to another. If merchants in New York, for instance, have sold goods in quantity in London, a great many drafts on London will be drawn and offered for sale in the New York exchange market. ”

“ In the latter case some one in Berlin will have a claim to meet in London and will have to bid there for a bill on London, and his bidding will have the same beneficent effect on the exchange. When we import gold, whether brought out of bankers' vaults, or dug out of the bowels of the earth, the country that sends it to us meets claims of ours on it or establishes claims on us. In either case the tendency is for the exchange to move against us. ”

“ If the debts are payable in some other currency they shall be paid or credited in the currency of the country concerned, whether an Allied or Associated Power, Colony, Protectorate, British Dominion or India, at the pre-war rate of exchange. ”

“ From the twelfth century wool had been the one great export of England, and the one great source of wealth for nobles, churchmen, farmers, even kings. So important was its sale that statesmen very early saw the necessity of securing for the national Exchequer a share in the profits of the main national trade; and in aid of the royal treasury they devised in the first half of the thirteenth century a system which was quite peculiar to England, the organization of the Staple. ”

“ For if the stranger-merchant bring in his wares, and find that our moneys are raised, shall not he likewise keep his Commodities untill he may sell them dearer? and shall not the price of the Merchants exchange with forraign Countries rise in proportion with our Moneys? All which being undoubtedly true, why may not our Moneys be carried out of the Kingdom as well and to as much profit after the raising thereof, as before the alteration? ”

“ Merchants, manufacturers, farmers, graziers, tradesmen, and persons of respectability in England, Ireland, Scotland, and Wales, or in any foreign part, may have good London accepted bills of exchange procured for them, regularly drawn, accepted, and indorsed, and, if necessary, specially indorsed to them, at any dates and for any amount their circumstances may require ”

“ The mechanism of such transactions will be treated in greater detail later on, but without any knowledge of the subject whatever, it is plain that the transfer of banking capital, say from England to the United States, can best be effected by having the American house draw upon the English bank which wants to lend the money. In the finely adjusted state of the foreign exchanges nowadays, loans are continually being made by bankers in one country to bankers and merchants in another. ”

“ The force of the axiom that, with regard to the balance of trade, to contract a foreign loan is equivalent to an increase of exportation, will subsequently be more fully felt when the correctives of an unfavorable exchange come to be discussed. ”

“ Through the system now in force this is accomplished by a banker in New York issuing a credit and by a banker in London putting his "acceptance" on drafts drawn under that credit. The combination makes the drafts good; makes the great discount market in London willing to take them, and absorb them, and advance real money on them. And for the opening up of this great reservoir of capital the importer here has to pay an interest rate of but from one to two per cent. per annum. Naturally the business has grown to tremendous proportions. ”

“ Course of exchange no rule of judging of the balance of trade, but only of the value of coin. May we not also conclude, that in a kingdom such as England, where coinage is free, the course of exchange is no certain rule for judging of the balance of trade with France ”

“ The second practical outcome of the revolution was the development of the modern system of control of the flow of gold balances, viz. by means of the bank rate and the arbitrage transactions depending thereon, and on interest and discount rates generally.
The modern theory of international trade does not say that between two particular countries, or at any one particular point of time there is an equivalence of exchange, but that between a circle of commercially interconnected countries, and over a certain cycle of time or operations, there is an equivalence of exchange of goods and services. ”

“ During the past decade it has come about that every European city of any consequence has its "American Colony," a society no longer composed of poor art students or those whose residence abroad is not a matter of volition, but consisting now of many of the wealthiest Americans. By these expatriates money is spent extremely freely, their drafts on London and Paris requiring the frequent replenishment, by remittances of exchange from this side, of their bank balances at those points. ”

“ During the autumn months, under normal conditions, the advantage is all with the buyer of foreign exchange. By every mail huge packages of bills, drawn against shipments of cotton, wheat and corn, come pouring into the New York market. Bankers' portfolios become crowded with bills; remittances by each steamer, in the case of some of the big bankers, run up, literally, into the millions of dollars. Naturally, any one wanting bankers' exchange is usually able to secure it at a low price. ”

“ Particular attention will be given later on to the way in which the Bank of England and the other great foreign banks manipulate the money market and so control the course of foreign exchange upon themselves, but in passing it is well to note just why it is that when the interest rate at any given point begins to go up, foreign exchange drawn upon that point begins to go up, too. Remittances to the point where the better bid for money is being made, are the very simple explanation. Bankers want to send money there, and to do it they need bills of exchange. ”

“ There can be no exchange on any place to which remittances have no constantly and regularly to be made. And vice versa, when remittances have to be regularly made, an exchange is soon established, and the mediation of a mutual centre is not required. For instance, England exports fabulous quantities of Manchester goods to the East, and silver into the bargain, receiving in exchange tea and silk. ”