Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1920-02-23
THE EXCHANGE 'SEE-SAW
By William r. Benet i'm 1.-THE Nations Rusiness

them. AS there are always many in
circulation, they are bought and
sold like stocks upon the stock ex-
change.
When there is more demand for
them than supply of them, they
rise above par, Conversely, if sup
ply exceeds demand they fall. The
par, as has been said, is the normal
equivalent of the English pound
sterling In our money-or, S4.S665.
The exchange rate can vary only
between two gold points, the up
per limit being the cost of actually
shipping the gold, the lower being
| the cost of importing the, gold.
These points vary with the cost OF
freight and insurance on the gold at
any time. Normally the range be-
tween them is about sos. Fluetu-
atoms between these points help TO
determine, or course, the period
lefty of gold shipments from Eng
land to America or vice versa.
What does this all simplify down
to9
To this: that on either side of the
ocean the banks of each country
are both buying and selling bills of
exchange and that actual gold
shipments is deferred until it be-
comes cheaper to ship the gold than
to pay the premiums for making
remittances by bills of exchange.
When Gold Moves.
This point comes when, for in
stance, the sales Of American goods
to England so exceed the value or
goods England sells to us that the
American banks become chary or
buying bills on London because
they find few Americans to whom
they can sell them in turn, There
fore, Americans wishing to sell bills
on London must do so for less than
the face value of the bill, or at a
discount-the banks in turn offer
ing at a discount the bills they
have so bought.
Conversely. the London banks
viii be selling bills at premium
because they are compelled to puS
them at premium. In such a case
it is said that the pound sterling
declines" it's value in dollars de-
creases. Before the war, when II
reached a quotation of S4.SS "a
gold would begin to move from
England to America. Today an
charges are higher-ocean freight
insurance, etc,--and so the as
count would have to be much great
err before gold would move. :,
That is, if there were a goia
point today. But there remains
only the upper limit, the cost OF
shipping from the United states,
because Europe needs all her gold
and foreign bankers are prohlolteu
from shipping it. Removal of this
prohibition would at present bank
rupt Europe, and as it is we have
too much gold already and greater
importation of it would simply tur-
Their initiate the II. c. of l..
We are now led to explain what
is known as the balance of trade
People in one country buy the
securities of another. Interest and
dividends on these securities are
paid back and forth between the
| two countries. Loans are made nS
the people of one country, or theii
government, to those of another
II a person in one country ships
his goods in the vessel of another
something the United States ulo
| largely before the war, before the
new rise of our merchant marine
freight must be paid the owner OF
| the foreign vessel, Likewise pas
sengers passing from one country
to another in foreign vessels mus
nav their fares. When they arrive
abroad and travel, the money they
spend abroad goes into the circu
| lation of the other country. Also
foreigners settling in another coun
try send remittances back 10 thell
own land. And today, to glance al
the United States, we have to CON
slider the enormous war loans we
have made abroad and the grea'
bulk of foreign securities poughI ny
us during the war -, l.
These factors constitute what Is
called the invisible" trade balance
They all enter into any estimate oil
the true balance of trade. TheS
all affect the credit and debit col
umns of the big bank book OF eacn
| nation. And, of course, the fluctu'
ating exchange value of the cur
| rencjes of the different countries
depends constantly upon the pal-
ance of trade, for with gold as .
standard, there is fixed norma
system of equivalents between tht
! currency of every nation ana ina
of every other. In general IL may
be said that the foreign exchange
rate against a country (when I'M.
| ports far exceed exports) is gooC
| for sellers and producers but pac
| for buyers and consumers.
For centuries the English poune
sterling has been the internatloha
commercial unit of value. The Oil
of exchange on London has peer
preferred to gold, because 1t coulC
| be transferred more readily AM
| with less risk. 1t has been callel
1.-THE only currency of the world
since London has been the centra
clearing house, as 1t were. OF al
the multifold foreign eXchang'
transfers of the world. The bill o.
exchange has, in fact, been in the
past a more usual instrument fol
settling business abroad than II
the United States.
An automatic check fortunateIN
seems to operate by natural la"
upon the foreign exchange situa'
ton. For instance, low exchange
| rates increase the cost of imports
which reduces import consumption
This operates to decrease eXtraVa
gance, encourage home production
thus increase exports and put rate'
back to par. There should soon D'
a natural increase in exports o
| European products to this country