The Lambertville record. [volume] (Lambertville, N.J.) 1872-1968, 1883-07-25
DOMESTIC EXCHANGE.
hsw tho hioney Currentr Of the Conntry
Ebh and Flew and Find Their
GhnnneIs.

Ebh and Flaw and Find Their
ChnnueIs.
A vast amount of pork. grain and other
produce is sent from Wesiirn points of our
country to the seaboard. Correspondence
large amounts of cotton ard wooden goods,
bats, boots and other artic es are sent from
our Eastern States for distribution in the
Western States.
How are the goods paid for2 How does
she South get its pay for the cotton consum-
ed in Northern mills /? How does New Eng
land get its pay for the cloth aud buttons
vhioh are sold in New OrleansP
OF course each separate account is settled
by itself That is, the planter in Mississippi
receives in hard money the price of his bales
of cotton; each person or firm through
whose bands it passes also receives money
In payment for service given; and this
money is at last paid by the mills of the
North that consume the cotton. And vet
the amount of actual money sent to the
South bears no relation to the value of the
cotton sent North.
The payments or settlements of accounts
ire effected by means of exchange" Let
us suppose two business transactions, be-
tween Western and an Eastern city, and
SHOW how they are completed. A y-goods
merchant in Chicago has bought fifty thou
sand dollars worth of merchandise in New
York. grain merchant in New York has
bought seventy-five thousand dollars worth
of wheat in Chicago New York being the
financial centre of the country, both trans
actions are settled by means of checks on
New York.
Let us assume that the grain merchant
sends his check on the First National Bank
Of New York TO Chicago, and the seller OF
the grain, who receives it, deposits it in his
own bank in Chicago. The Chicago bank
has an account with New York bank; let
us suppose il is the Second National Bank.
To that bank the check is sent by the Chi.
cago bank. On the day after it is received
in New York it goes through the clearing.
honse and is paid.
Meanwhile the dry goods merchant has
gone to his own bank in Chicago, with his
check for fifty thousand dollars, and has
obtained draft-whieh is form of check
upon the Park Bauk of New York, and he
sends that to his creditor in New York, to
pay for the goods bought. The creditor de-
posts the check to his own credit in another
bank, the check goes through the clearing.
house, and the Park Bank pays it.
Now, what has happenedY One bank In
Chicago has diminished its deposit in New
York fifty thousand dollars another Chca-
go bank has increased its deposit by seventy
five thousand dollars. On the other hand.
the Second National Bank of New York has
credited tho aforementioned of the Chicago
banks with a deposit of seventy-five thou
sand dollars, while the Park Bank has lost
fifty thousand dollars of the deposit of the
other Chicago Bank
1t is evident, then, that all the none,
which leeds TO go to Chicago to close up
the two business accounts, which are now
bank accounts, is twenty-five thousand dol.
lars, the difference between the two. But
how rs 1t to be managed How are the
tour bunks 10 DE brought lugetner 30 that
the several debts and credits may be made
TO offset each other as far as possible
Thus:
Each OF the Chicago banks il willing to
keep its New York balance as it was before
these imagined transactions were begun.
Accordingly, it is necessary for one Of them
to procure credit to the amount of fifty
th0ngand rha 9TH Ia, L baa
enty-five thousand dollars to its credit to be
disposed Of Such credit is called tex
change on New York." or "New York
funds"
The two banks come together at the Chi
cago clearing house. As there ia more New
York exchange offering than there is mar
ket for exchange will be low. To transport
money from New York to Chicago costs for
express charges, and the interest is lost dur
ing the time required.
Accordingly, the bank which has seventy.
five thousand dollars too much will sell fifty
thousand dollars exchange at discount of
say one eighth per cent. That is, it will
sell for forty thousand, nine hundred
and thirty seven dollars and fifty cents, its
own check for fifty thousand dollars. That
check is drawn upon the Second National
Bant, but il sent to the Park Bank. The
latter puts the check through the clearing
house, and 1t is paid. Then all that remains
of the whole transaction is that one Chicago
bank has twenty. Five thousand dolla"a more
to it's credit in New York than 1t had before,
which sum may remain iii New York or be
shipped to the West.
OF course it should be remembered that
these are only two transactions where there
are really thousand and that the process
in practice is much more complicated than
what we have described. But one result OF
the great number of transactions is, that the
amount Of money which needs to be sent in
proportion to the whole amount involved in
the commerce of the two cities, is a very
small one.
Also there arc times when the current OF
money is very strong one way or the other.
When the crops are moving vastly more
money is spent by the East in the West than
is spent by the West in the East.
At such times money is sent by express to
Chicago, frequently million Or two of dol
lars in day. And then the current will be
reversed at other seasons. Then if more
New York exchange is needed than is to be
had, the price Of it rises to premium, and
when that premium gets so high that it will
more than cover express charges and inter.
sst, money is shipped TO New Ycrk.--
Youths Companion
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