Evening star., 1919-11-30
BUYING EXCHANGE
.COSTLyEXPER|ENCE
Loss of Interest and Posi-
bly, of Principal May
Be Result.
1R. n. A. in Commerce Monthly.

Whatever affects the credit OF the
governments of Europe, whatever al.
fects the credit of the banks of issue in
Europe will affect the exchange rates.
Countries which have enormous noating
debts. enormous volumes of irredeem-
able bank notes in circulation and IN
adequate taxes for meeting the expenses
of the government will have deprecated
exchanges. and will have wildly luctuat[-
ing exchanges.
The internal depreciation OF their clf-
rencieS must be reflected in the foreign
exchange rate if the foreign exch3hge
rates are to tell the truth. Even y the
export and import balances werY cor
rected; even if the countries wery pay
ing for what they import by WHIT they
export. and were paying their Interest
obligations abroad by an excesS OF ex-
ports their exchanges would stiu be de-
preciated to the extent that theF cur
rency is deprecated internally
Every rumor regarding plans Tor
granting large credits by the United
States to the different countries OF Eu-
rope tends to strengthen the exchange
rates If the plans for the loan prove
abortive the exchange rates will weaken
again.
UnenIig htened Speculation.
In addition there il some public specu-
iation in the exchanges. mucn OF IL e1-
ceedingly unenlghtened
German marks. for example. after the
signing of the peal Ee treaty. began TO Do
traded in in New York at cents per
mark. The price has since declined TO
less than cents.
Through the whole OF this period
there has been great volume of pur-
chases of mark exchange by the general
public who felt that marks looked
cheap" and that they would speeoiiy
rise again. giving a great proht 10 INC
purchaser II is not the purpose of the
-uresent article to make prediction TO
gardiRS the mark or any other OF the
exchanges. -
II is relevant to point out. however.
that practically all Of the speculation IN
marks is engaged in by people who have
no adequate basis for making a 1udg-
ment on the prospect. Many of them
are ignorant of the character OF the
transaction in which they are engaged.
Released From Obligation.
They purchase checks from New York
banks on German banks and put them
away in their pocketbooks, holding
them.
They thus, in the first place, lose in
terest on the marks which they might
have if they set the checks for deposit
to a German bank, and in the second
place, they release the American bank
which issues the check from its respon-
sbility as drawer, since under the law
checks must be presented for payment
in due course or the drawer is re-
leased.
The opinion in banking circles seems
to be that most of the New York banks
are engaging primarily in norma! bank
operations, taking neither the Dull sioe
nor the bear side of the market, but
seeking merely to protect their custom
ers and themselves by selling bills as
rapidly as they buy them and avoiding
any longtime commitments on either
side of the market.
Limited Effects of Speculation.
Speculation multiplies the minor f1uc-
tuations in the exchanges. but does not
create the prolonged movements: 1t
causes the waves, but not the tide. WIDE
fluctuations are possible because Euro
pean currencies are off the gold stand
ard, and because international gold
shipments are restricted. They exist
because Of the general uncertainties OF
the situation The speculation is merely
the effort to forecast the fluctuations, to
make profits from them and to smooth
them out.
To the extent that the speculation Is
intelligent it actually improves condi-
tions, narrows the fluctuations and
makes the exchange situation safer.
Saves Situation.
Tn. the absence Of spectators. the
bottom would drop out of the market
entirely on days when heavy offerings
occur and exchanges WOulu rise 70 aD-
normal heights when offerings OF bills
were short and some unusual temporary
demands for bills existed.
On the other hand. to the extent that
there is participation by uniformed or
ill-informed spectators, the exchange
rates may be perverted and SO prevented
from telling the truth.
IT is certain that Europe will suffer
from deprecated exchange rates, huc-
tuating exchange rates and fiuctuating
commodity prices until the gold standard
is restored.