New-York tribune., 1918-06-09
War Credits and Great Destruction
u pset Foreign Exchange Stability
World Conflict Changing the Methods Of Settling nteaona
Trade Balances and Popuanzng knowledge About Them
Yet the Underlying Principles Remain Unaltered

all neutral exchanges are against
the United States. Yet this country
has tremendous export surplus,
against which, of course, have to be
put the purchases effected by the
United States abroad of American
securities held by American invest
ors. 1t is not to be assumed, how
ever, that even so the total balance
Of payment could have been against
the United States. In other words,
it is to be assumed that the United
States had to remit abroad more than
it had to receive from abroad. The
premium which the American dollar
commands in Allied countries is,
therefore, easily explained; but the
discount Of American dollars in neu-
trail countries would seem to indi-
cate that the balance of payment
alone is not sufficient to explain the
position Of exchanges, and that we
have to regard this problem from
the wider point of view of the con-
dition of the currency of each coun-
try; in other words, the proportion
Of currency to values. The whole
question of the issuance of govern
melt securities comes under this
definition. Government securities
to large extent, are avilable cur
rency. In so far as they are not paid
fo1 out Of existing credit balances
or out of funds boarded, they must
be paid for by the creation of fresh
credit balances, which perform the
same function as actual currency.
The position Of neutral exchanges
on the United States seems to indi-
cate that the price level Of those
countries has not arisen in the same
proportion as in the United States.
As regards the United States and
the other belligerents, the inverse
is the case. 1t would, therefore, be
reasonable to assume that the heavy
loans made by the United States to
belligerents-preponderantly to the
Allies-are considerable factor in
producing the depreciation Of Amer
ican exchange in neutral countries.
The country granting the credit as
sumes for the time being the burden
which should normally have been
undertaken by the importing country,
which would then have had to look
for the means of satisfying the
credit balance in favor of the ex-
porting country.
Loans Merely
Defer Payments
At the same time, though the
loans momentarily favor the ex-
change on the country to whom they
have been granted, the seeds for the
future deterioration of the latter
country's exchange position are
sown. For the merchandise it has
been able to purchase with the aid
Of credit will be consumed, but in
terest and redemption of the credit
must be provided for. In other
words, credit balances in favor of
the country which has been granted
that credit are constantly created,
to liquidate which credit balances
on the creditor country have to be
bought; that is to say, there will be
a demand for exchange on the cred
itor country. Besides, there is the
overhanging knowledge that repay
ment has to be made some day,
which causes spectators to acquire
credit balances in the creditor coun-
try in advance. Hence a credit
abroad, while momentarily alleviat-
ing the situation, ultimately tends
to imitation in the borrowing coun-
try. In the lending country the re-
verse process manifesta itself. VAL
ues are produced to replace those
exported, and interest payments re-
ceived on the loan gradually tend to
reduce the modification of the pro-
portion between values and cur
rency originally occasioned by the
expectation of merchandise against
the loan. Hence the tendency is
toward the reduction of imitation.
AT the present time we see large
sums lent by Britain to financially
weaker nations among the Allies.
In its turn the United States has
made loans, both directly by the
government and indirectly through
financial institutions to the Allies.
They represent the creation of
credit balances that can be convert
ed into currency. They are like big
pools of available currency tempo
rarily added to the big pool of cur
rcncy representing the country's
values. But all %hese additions to
available currency in their turn
cause values to rise and more cur