The Washington herald., 1915-02-23

rent information knows by this time that what i.
known as the foreign exchange situation in thi:
country and the state of financial relation:
since the outbreak of war in Europe, of extraord
nary and unprecedented character. The war found
us in debt current balance to Europe, that is
to say chiefly to England, to the extent of perhaps
$780, 900, and the sum was largely augmented
by enormous sales in markets of our securities
owned by European investors.
We have been indebted to Europe before in a
greater sum than this on current balance but the
popularity of the situation last summer that
Europe asked to pay off debt at and
in gold, and not willing to allow any extern
sion of the Indebtedness. The pressure here to
remit money to Europe was so great that sterling
exchange advanced to price of 81 to the pound;
but in short time by means both of purchases of
exchange in the open market and by very heavy
shipments of gold coin we liquidated the entire
foreign obligation.
Then Europe began to make purchases in this
country of foodstuffs. supplies, and pretty
nearly everything that could be bought for any
purpose. Our own country was practically the
only place where mercantile transactions of this
kind could be consummated The purchases ran
TO so great figure that Europe soon found her
self indebted to greater sum that
we were previously indebted to her. If the present
excess value of our exports imports continues
we shall have foreign trade balance in our favor
the end of the year of over ST 900 900 ooo-some
thing that has never before occurred in our his
tory.
We are concerned at the moment with the bear
ing OF all this upon foreign exchange. We pre-
sumo that most OF our readers not experts in
foreign exchange, and in fact have only a eursory
knowledge of this rather complicated matter. 1t
is surely worth while to explain to them the man
ner in which country is affected by these very
important developments.
The term foreign exchange, it is used in the
United States has reference mostly to fluctuations
in the price. in terms of American money. of the
English pound sterling. The gold in English
pound sovereign is under ordinary circum-
stances worth about $3.50 in money. that is
to say, the gold in sovereign weighs much
as $3.50 in United States money will buy When,
for any reason, there is pressure to remit money
from this side of the Atlantic England, the rate
of exchange rises, or, other words, the pressure
to buy pounds is great that the price OF pounds
as measured in terms OF American money, ad-
vances. When the situation is reversed and 1t is
in England that the pressure is felt to remit money
TO the United States, the price OF exchange de-
clincs. When trying to send money to
England the price of pounds is higher because
pounds arc more in demand. When England tries
to send money here large scale the price Of
pounds, as measured in American dollars, declines,
because it is American dollars that more in de-
mand. OF course this is only another way of say
ing that in this last named event it is really the
price of the dollar that rises; the Engshman in !
this case is trying to buy dollars but the only thing
that he has to buy them with is pounds. There
in prnnortiop his desire urpent |
he offers to take smaller number of dollars for
MS pounds When exchange is at 81 to the pound, !!
as it was last summer, it that pound
sterling will buy 81 worth of money COM |
modities in the United States. When exchange is |
s. 70 per pound, it short time ago, it |
means that pound sterling will buy only $40
worth of money commodities in this country. !
Usually there is very wide fluctuation in the
price of a pound because the price Of pound
sther rises or falls to certain point at which it
$ cheaper for the person making the remittance,
ther to or from England, to go to the expense OF
hipping the actual gold. rather than of mailing
draft upon a foreign bank for money; but there
rc times when the bankers in any country do
lot like to send gold out of the country and this
nay be because of great many political fnan
ial reasons These bankers, the governing |
authorities OF the country have it in their physi-
xport OF gold when political or other reasons
ccomc paramount but this docs not mean that
he bankers or the governing authorities can avoid
aging their dcbts-it only means proposition
m their part to postpone paying these debts for
short season, and, in consideration of this post
oncment, to pay greater sum than the original
cbt. The intcrposition OF forcble obstacles to
he export OF gold from country on CONNER
ial basis only means that gold in that country
premium. Therefore when the mer
hant CT that country desires to continue doing
usness in foreign land he says in effect to the
oregn merchant with whom he is dealing, "lf
on will allow me to delay the payment of this {
ebt for little while | will pay you larger
um than we had bargained for
Thus, suppose wheat is selling in Chicago at
I.62 bushel. The foreign merchant who buys $
heat in Chicago for export at this price has to
i've the American seller of wheat the Ameri- ,
an banker who figures in the transaction bill
f exchange London in payment therefor; I
ut, the English pound sterling will buy a
mailer number of dollars than it would few
lonths ago, the London merchant in effect pays
or his American wheat at the rate OF something
Sr IF he cI 6o oDe01vl