Foreign exchange

“ If there is a stock operation in the conduct of a foreign exchange business it is the selling by bankers of their demand bills of exchange against remittances of commercial and bankers' long paper. Bills of the latter class make up the bulk of foreign exchange traded in, and its disposal naturally is the most important phase of foreign exchange business. What the foreign exchange business really is grounded on is the existence of commercial bills called into existence by exports of merchandise. ”

“ In order, however, that the people of the respective countries should actually derive this advantage or any advantage from foreign exchange, it would be necessary that the exchanges should be carried on in the general interest for the purpose of giving the people at large the benefit of them, as is done at the present day, when foreign commerce, like other economic undertakings, is carried on by the governments of the several countries. ”

“ But we must not overlook another factor in the foreign exchange history. A new element has arisen as a gold-producer in late years, and the importance of this new factor in the science of foreign exchanges is neither generallv recognised nor acknowledged. ”

“ For several weeks on either side of the two important interest periods, the exchange market feels the stimulus of the demand for exchange with which the proceeds of these masses of coupons are to be sent abroad.
4. Freights and insurance are responsible for a fourth important source of demand for foreign exchange. A walk along William Street in New York is all that is necessary to give a good idea of the number and importance of the foreign companies doing business in the United States. ”

“ The arranging of these loans, it will be seen, means the continuous creation of very large amounts of foreign exchange. As the financial relationships between our bankers and those of the Old World have been developed, it has come about that European money is being put out in this market in increasing volume. ”

“ But under ordinary circumstances foreign exchange dealers who engage in the business of selling cables carry adequate balances on the other side, balances which they keep replenishing by continuous remittances of demand exchange. Which in itself constitutes an important form of foreign exchange activity and an operation out of which many large houses make a good deal of money. ”

“ There are thus only a dozen or so merchants in the world, and their business being supervised by the international council, a simple system of book accounts serves perfectly to regulate their dealings. Customs duties of every sort are of course superfluous. A nation simply does not import what its government does not think requisite for the general interest. Each nation has a bureau of foreign exchange, which manages its trading. ”

“ There are exporters who have been shipping merchandise and selling foreign exchange against the shipments all their lives who have never even heard of a mint par of exchange. All they know is, that when exports are running large and bills in great quantity are being offered, bankers are willing to pay them only low rates—‌$4.83 or $4.84, perhaps, for the commercial bills they want to sell for dollars. ”

“ It is, of course, of the last importance to keep a watch over the foreign exchanges, as these are affected more or less at certain periods when the imports and exports of special kinds of produce and manufactures are active. ”

“ There are one or two well-written textbooks on foreign exchange, but never yet has the author come across a book which covered this subject in such a way that the man who knew little or nothing about it could pick up the book and within a few hours get a clear idea of how foreign exchange works,—‌the causes which bear upon its movement, its influence on the money and security markets, etc. ”

“ 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. ”

“ The direct benefits of commerce consist in increased Efficiency of the productive powers of the World. From this exposition we perceive in what consists the benefit of international exchange, or, in other words, foreign commerce. Setting aside its enabling countries to obtain commodities which they could not themselves produce at all, its advantage consists in a more efficient employment of the productive forces of the world. ”

“ But in addition to the amount of foreign money thus employed in these bills of exchange, our vast foreign trade must result in the temporary employment here of the proceeds either of these bills or of goods sold in our market, to be used in the purchase of goods here, for investment, or for safe-keeping in time of trouble, and must greatly add to our available resources. ”

“ From the maturities, refunding operations, and interest remittances alone, growing out of the permanent investment of foreign money in our securities, there results a very great amount of international security and exchange business. Whether Europe's investment here amounts to three billions or four billions or five billions, it is impossible to say ”

“ A third and distinct course might be most suitable for those who, on the hand, have ample practical acquaintance with the Foreign Exchanges, and accordingly may be addressed as person conversant with the subject ”

“ Such resources are, evidently, much more independent, and have much less need of being exchanged against their equals, than private resources. The foreign commerce, of the greatest and most advanced nations, has, hitherto, been but a small quota of their internal commerce.93 A valuation, [pg 067] therefore, based on value in exchange, however interesting it might be to enable us to determine how property is shared by the different classes and persons that compose the nation, would afford but little information concerning the absolute amount of the national wealth. ”

“ The Foreign Exchanges should 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 the present essay - which attempts to exhibit the relations of the Foreign Exchanges to our own money-market,a s well as generally to international transactions, and to bring into clearer relief some of the hazy and indefinite notions which surround the subject - is primarily and mainly address. ”

“ 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, affords a peculiarly suitable opportunity for a discussion, which otherwise might be considered uninviting and superfluous. ”

“ His only qualification for the undertaking is to be found in his having daily opportunities of studying many various forms of international transactions, of practically feeling the effect of each different phase of the Foreign Exchanges. Without such opportunities it is exceedingly difficult to correct and test the various opinions which may be theoretically formed ”

“ And yet we have heard strange doctrines—ancient superstitions revived—in our days: that commercial intercourse with foreign nations is a thing of doubtful desirability; that importing is sinful; that goods may go out of the country, but only cash should come in ”

“ Surely it is a commonplace of Political Economy, that the effect of an unfavourable exchange, i.e. of an excess of imports over exports, is to stimulate production and export, and bring about a more favourable course of exchange. ”

“ Our commerce is rapidly increasing, and is extending more widely the circle of international exchanges. Great as has been the increase of our imports during the past year, our exports of domestic products sold in foreign markets have been still greater. ”

“ In the so-called political economies of our forefathers we read a vast deal about the advantages to a country of having an international trade. It was supposed to be one of the great secrets of national prosperity, and a chief study of the nineteenth-century statesmen seems to have been to establish and extend foreign commerce.--Now, Paul, will you tell us the economic theory as to the advantages of foreign commerce? ”

“ An unrestrained intercourse between the States themselves will advance the trade of each, by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished, and will acquire additional motion and vigor from a free circulation of the commodities of every part. ”

“ On the other hand, there are imports so entirely of foreign origin, and so free from considerations of competition with domestic industry, that a large revenue may be raised upon them in the custom-house, without disturbing the freedom or equity of international trade. ”

“ The vulgar theory disregards this benefit, and deems the advantage of commerce to reside in the exports: as if not what a country obtains, but what it parts with, by its foreign trade, was supposed to constitute the gain to it. An extended market for its produce—an abundant consumption for its goods—a vent for its surplus—are the phrases by which it has been customary to designate the uses and recommendations of commerce with foreign countries. ”

“ A danger to foreign trade is that our exports might conceivably be limited to certain quarters, and might thus rest upon a frail and shifting foundation. Fortunately, however, this is not so, for our commerce is being built upon the prosperity of the whole world. ”

“ High duties on imports were resorted to, at first perhaps mainly for revenue, but afterwards in the interest of national production. Commercial treaties were a principal object of diplomacy, the end in view being to exclude the competition of other nations in foreign markets, whilst in the home market as little room as possible was given for the introduction of anything but raw materials from abroad. The colonies were prohibited from trading with other European nations than the parent country, to which they supplied either the precious metals or raw produce purchased with home manufactures. ”

“ To determine what persons and commodities shall be taken abroad is to control what persons and commodities may become the subject of foreign commerce, and that is to control the lifeblood of the commerce itself. ”

“ In looking over the specific articles of our export and import, I have often been astonished to see for how small a part of the supply of our consumption, either luxurious or convenient, we are indebted to nations properly foreign to us. ”

“ For certain purposes it is, no doubt, convenient to have balances and analyses of foreign trade presented separately, so as to show the volumes and values of different goods which pass from the members of one nation to those of another. ”

“ In the case of England and Germany, as well as many other prosperous countries whose foreign-trade sheets show an excess of imports over exports, this excess represents the profit on trading abroad, and the inflow of returns upon capital invested abroad. ”

“ For the present we are concerned with the benefits of international finance, which have been shown to begin with its enormous importance as the handmaid of international trade. Trade between nations is desirable for exactly the same reason as trade between one man and another, namely, that each is, naturally or otherwise, better fitted to grow or make certain things, and so an exchange is to their mutual advantage. ”

“ The people of a nation have it within their power to advance the interests of their foreign commerce in two ways: one by intelligent legislation at home, and the other by intelligent diplomacy abroad. The shipment of merchandise from one country to another means to the selling nation a foreign market for the raw material, the employment of labor to the extent of from thirty to ninety per cent. ”

“ It is in this field that diplomacy joins hands with commerce and industry, for modern diplomacy is based upon equal trading rights and trade extension. The foreign minister or secretary of state of to-day is judged by his people upon the success or failure of his policy as it affects the export trade of his country at the moment, or in its guarantees for the future. ”

“ I shall now give a short sketch of the general principles upon which a system of foreign trade may be established and preserved as long as possible, and of the methods by which it may be again recovered, when, from the natural advantages and superior ability of administration in rival nations, (not from vices at home) a people have lost for a time every advantage they used to draw from their foreign commerce. ”

“ My object was to point out in plain words some fundamental conditions without the fulfilment of which all those contrivances that are devised for the benefit of commerce and merchant marine will miss the main object. Even commercial reciprocity which, in its true sense, is a good thing, and the more of it the better—even that will not open new markets for those of our goods which cannot compete with foreign articles of the same quality in point of price—unless reciprocity treaties give us exclusive markets for them, which foreign nations will hardly grant, for they are not fools. ”

“ Our diversified productions, however, are increasing in such unprecedented volume as to admonish us of the necessity of still further enlarging our foreign markets by broader commercial relations. For this purpose reciprocal trade arrangements with other nations should in liberal spirit be carefully cultivated and promoted. ”

“ Prosperity of American commerce and shipping.—The European wars, therefore, introduced American commerce to a new era of prosperity. “No one was limited to any one506 branch of trade; the same individual was concerned in voyages to Asia, South America, the West Indies, and Europe.” Our ships gathered the products of distant countries, coffee, sugar, tea, pepper, etc., and purveyed them to the people of Europe. In many years the value of foreign exports exceeded that of domestic exports ”