Currency exchange

“ Such a currency is necessarily confined to the country where it is issued: it cannot, when too abundant, diffuse itself generally amongst other countries. The level of circulation is destroyed, and the exchange will inevitably be unfavourable to the country where it is excessive in quantity: just so would be the effects of a metallic circulation, if by forcible means, by laws which could not be evaded, money should be detained in a country, when the stream of trade gave it an impetus towards other countries. ”

“ In fact, it is evident that the method of maintaining par by selling exchange on other countries, and by exchanging currency directly for some commodity, such as gold, are at bottom much the same thing. ”

“ Under the most favorable state of trade between the east and west an exchange of one per cent. was demanded from drafts and bills of exchange. With a national currency, uniform and equal throughout the country, this cost for exchange would not exist or would be greatly reduced. I called attention to the then increasing volume of local currency in the United States. When the United States had issued $250,000,000 of notes, the banks had largely increased their circulation. ”

“ On the contrary, it is too commonly a token of want of commercial confidence, and all indisposition to receive that far larger but uncalculated species of currency, by means of which the great transactions of the country are carried on, and to which the whole coinage and bank paper of the realm bears a mere fractional proportion—we mean the commercial bills of exchange. ”

“ To-day the safety and supply of the internal currency of the various states is provided for by a monometallic system or by note issue, while, conversely, trade in the precious metals has become free, and bullion flows automatically from land to land in accordance with the dictates of a now rightly-conceived theory of international trade. Just so far the monetary problem has changed—becoming a question of the evolution of a stable international exchange system. ”

“ The contraction of the currency is secured by selling foreign bills of exchange and locking up the currency received therefor, while the expansion of the currency is secured by releasing this currency to circulation, or, if necessary, by coining more currency. ”

“ The willingness of the government to sell foreign exchange at a fixed price, and to lock up the silver it receives thereby, takes that much currency out of circulation just as effectively as though the equivalent of gold had been exported. ”

“ When, therefore, the real exchange is at par, there will be a nominal exchange against the country, of as much per cent as the amount of the depreciation. If the currency is depreciated 10, 15, or 20 per cent, then in whatever way the real exchange, arising from the variations of international debts and credits, may vary, the quoted exchange will always differ 10, 15, or 20 per cent from it. ”

“ For international payments, so far as specie is concerned, France and the United States depend ultimately on the international medium of exchange, which is gold. In the last resort, it is their gold which, acting through the foreign exchanges, maintains the whole mass of their currency at its nominal value for internal purposes. ”

“ But when the currency of any country is altered, no operations of the bill-brokers, or of any one else, can prevent the exchange from appearing to sustain a great variation, though those who understand the circumstances, and are not apt to be alarmed by the mere sound of words, know that, in such a case, if the exchange be really at par, it cannot be nominally so, and do not therefore trouble themselves about the apparent difference. ”

“ Surprisingly, history demonstrates that a monetary union is not necessarily predicated on the existence of a single currency. A monetary union could incorporate "several currencies, fully and permanently convertible into one another at irrevocably fixed exchange rates". ”

“ At your late session I invited your attention to the condition of the currency and exchanges and urged the necessity of adopting such measures as were consistent with the constitutional competency of the Government in order to correct the unsoundness of the one and, as far as practicable, the inequalities of the other. No country can be in the enjoyment of its full measure of prosperity without the presence of a medium of exchange approximating to uniformity of value. ”

“ Just as unusually large imports of commodities mean a sharp demand for exchange with which to pay for them, unusually large exports mean a big supply of bills. In a previous chapter it has been explained how, when merchandise is shipped out of the country, the shipper draws his draft upon the buyer, in the currency of the country to which the merchandise goes. When exports are heavy, therefore, a great volume of bills of exchange drawn in various kinds of currency comes on the market for sale, naturally depressing rates. ”

“ So enormous did the evil grow, and so pervasive were its effects, that it absorbed all attention to the exclusion of everything else. What fixity of value between the different units of its currency is to the internal transactions of a country, a par of exchange is to its external transactions. A par of exchange between any two countries expresses the relative exchange values of their respective currencies in terms of each other. ”

“ We have seen that the real worth of the currency, so far as dependent on its relation to the magnitude of the store, may vary, within certain limits, without affecting its worth in exchange. The diminution or increase of the represented wealth may be unperceived, and the currency may be taken either for more or less than it is truly worth. Usually it is taken for much more; and its power in exchange, or credit-power, is thus increased up to a given strain upon its relation to existing wealth. ”

“ If foreign bills of exchange are paid in this currency, the uncertain value of any sum, of what is in its own nature so uncertain, must render the exchange always very much against such a state, its currency being in all foreign states necessarily valued even below what it is worth. ”

“ In order to remedy the inconvenience to which this disadvantageous exchange must have subjected their merchants, such small States, when they began to attend to the interest of trade, have frequently enacted, that foreign bills of exchange of a certain value should be paid, not in common currency, but by an order upon, or by a transfer in, the books of a certain bank, established upon the credit and under the protection of the State, this bank being always obliged to pay, in good and true money, exactly according to the standard of the State. ”

“ Checks are orders upon these individual accounts or deposits, and by their means exchanges are made with great ease and little risk between individuals in the same neighborhood or even in distant cities or distant countries. The cost of storing, handling or transferring any form of currency is reduced to a minimum. So far-reaching is this comparatively modern machine of exchange that it is properly assumed to be the means of settling 90 per cent of all exchanges, domestic and foreign, with almost no use of money in any of its numerous forms. ”

“ By enabling people to buy [pg 240] foreign goods with foreign currency obtained at a cheaper price the peg virtually raises foreign prices more to the level of the home prices, so that if the exchange is stable it is not because there is a peg, but because the price-levels in the two countries have reached a new equilibrium. Essentially the exchange is stable because it is an artificial purchasing-power parity. ”

“ Exchange Standard arises out of the discovery that, so long as gold is available for payments of international indebtedness at an approximately constant rate in terms of the national currency, it is a matter of comparative indifference whether it actually forms the national currency. ”

“ We would depart from that scheme if we read § 522 (c) as saying that on a given date only one buying rate for a specified foreign currency could be certified by the Federal Reserve Bank of New York or proclaimed by the Secretary of the Treasury. Dual or multiple exchange rates have resulted in recent years from measures for the control and restriction of foreign exchange and export transactions. [3] In the present case the British Government fixed the 'official' rate for the purchase of specified commodities for export. One who purchased woolens for export need not acquire pounds at that rate. ”

“ If the market rates of exchange fall further than the country’s existing or impending currency policy justifies by its effect on the internal purchasing power of the country’s money, then sooner or later the exchange value is bound to recover. ”

“ For the purpose of external or foreign trade, a debasement of currency is fatuous and pernicious. The coins are estimated at their content of pure metal, and the international exchange is so rated. The consequence is an apparent rise of foreign prices proportioned to the extent of the debasement. ”

“ Where it is recognized as necessary for maintaining stability in the foreign exchange market and soundness of foreign exchange agencies, the Minister of Strategy and Finance may impose necessary restrictions on the raising and operation of foreign currency, such as determining the asset-liability ratio of foreign currency of foreign exchange agencies. ”

“ 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. ”

“ The progress of our gold coinage is creditable to the officers of the mint, and promises in a short period to furnish the country with a sound and portable currency, which will much diminish the inconvenience to travellers of the want of a general paper currency, should the State banks be incapable of furnishing it. Those institutions have already shown themselves competent to purchase and furnish domestic exchange for the convenience of trade, at reasonable rates ”

“ If, indeed, coin money were the sole or the most important constituent in the medium of exchange in civilized communities, silver or some other metal must certainly be brought in to supplement the scanty growth of the supply of the gold. In fact, however, the actual currency of civilized countries tends to consist less and less of specie, more and more of credit substitutes for specie. Bank notes, government notes, and above all bank checks, actually perform the commercial transactions of civilized countries. Specie is the basis of exchange ”

“ Approaching the subject as tenderly and in as elementary a manner as possible, I will at once simplify matters by saying that, with a few exceptions (such as regard India, Russia, China, &c.) , the foreign rates of exchange represent the amount of money in its own currency (be it paper or gold) that the specified financial centre of each country is willing to give for a pound sterling on London. ”

“ Now is the time to separate the government from all banks—receive and disburse the revenue in nothing but gold and silver coin, and the circulation of our coin through all public disbursements will regulate the currency forever hereafter—keep the government free from all embarrassment, whilst it leaves the commercial community to trade upon its own capital, and the banks to accommodate it with such exchange and credit as best suits their own interests—both being money making concerns, devoid of patriotism, looking alone to their own interests—regardless of all others. ”

“ They have no bank or post-office where you have a legal right to get a dollar for ten 10-cent pieces, and the result therefore of recklessly coining the base 10-cent pieces has been not only to depreciate it with regard to the dollar, but to make it an uncertain value, so that you must go to the money exchangers almost every morning and ask for the rate of exchange between the dollar and the small silver pieces. ”

“ Permitting the exportation of coin where you have a mint, for paper to supply its place, and a favourable balance on your trade to bring it back, is like establishing two shops for the course of exchange. If the exchanger will not serve trade at the price of transportation and insurance, the coin will do it for him.
In such a country, a bank, properly established, will find great profit upon the interest of their notes, notwithstanding of the obligation to provide, at all times, the quantity of coin necessary for circulation. All the great objects of trade will then be fulfilled ”

“ The truth is that safe and desirable as is our currency system in many respects, it is not properly related. The supply of currency is but remotely, if at all, influenced by the ever changing requirements of trade and industry. It is related most largely, if not entirely, to the price of Government bonds in the market. ”

“ There still remains to be considered the effect of depreciated currency on our trade with other nations. By raising prices at home higher than they are abroad, imports are largely increased beyond the exports; our coin must go abroad; or, what is far worse for us, our bonds, which have also suffered depreciation, and are purchased by foreigners at seventy cents on the dollar. ”