The Washington herald., 1922-02-05

highest since August IS. 1910. What's the meanin
Of ii all.
"Lefs ask few questions and try to answe
to our own satisfaction. Perhaps we can learn VIII
British exchange is. rising and some others dc
clihing.
!. What is par as applied TO foreign
currency?
par" is the stipulated or pretended gold
express the par value OF foreign currency
by STING what the unit Of that currency would
be worth in dollars and cents il that unit act
to represent. The British pound IS supposed 70
represent S4.s6' So in gold. That is its par.
2. What causes money to be at 'pars'
Money is at par" when it is exchangeable
paper money in amounts equal to those pre-
sersbed on the money. Europeans, with certain
unimportant exceptions, cannot exchange their
paper money. for gold.
and is. therefore, in international exchange, be-
low par, what determines how much below par
it is?
In general, money is below par in proper
ton to the chances Of it's getting back to gold
basis. to the point where it is exehangeable for
4. What determines its likelihood Of getting
gold?
The ratio of the amount of paper money or
other below par money outstanding to the gold
reserve held by the government to support such
money. For money to be at par it is not neces-
sary that the gold should equal the money out
standing, but there must be enough gold to
meet. all demands made upon it. Nations,
therefore, with gold reserves bearing a rela-
lively high ratio to the paper or other below
par money in circulation but not high enough
to make that money exchangeable for gold,
have foreign exchange quotations nearer to
par than nations whose gold-to-money ratio is
lower.
5. If the exchange value of currency rises
what causes that rise?
The increased likelihood of that currency's
returning to gold basis.
6. What causes such increased likelihood
These causes may be listed: An increase in
the gold reserve; decrease in the paper money
or other below par money outstanding; better
business, thereby causing greater demand for
money as medium OF exchange and having an
effect similar to reducing the amount outstand-
ing; greater political stability and thereby
greater confidence in the future of the currency
what causes that fall?
The decreased likelihood of that currency's
returning to gold basis.
8. What causes such decreased likelihood
The contrary of those listed before. These
may be listed: decrease in the gold reserve;
an increase in the paper money other below
par money outstanding (consider the vast floods
OF paper money issued from the government
printing presses of EuropeD; poorer business:
decline in political stability.
1t is apparent that the old rule of supply an
demand affecting the price is not absent from tn
foreign exchange situation. The more paper none
4 government prints without increasing the gol
or equivalent supporting that money!, the les
valuable it becomes Indeed, the value usually de
creases even faster than the increased printin
would seem to warrant for these floods of pape
money destroy confidence outside of the country +
the future of the money. 1t is quite the rule tina
the internal purchasing power of money decrease
proportionately to the amount issued while the for
sign exchange value may decrease much faster, per
haps twice as fast 1t is clear that Favorable
balance Of trade, that is excess of exports owe
imports, causes a greater demand for country
money and, thus contributes to rise in that coun
try's foreign exchange. The reverse, of course, i
true of "unfsvorable" balance of trade. Specu
ative buying OF country's currency would, like
wise, for time, send up the rate, though this is
temporary factor and would be nulli6ed when tn
unloading process took place.
Perhaps, now, we can some reason in tn
course of British foreign exchange Up to tn
time of the coal strike in Brtain-April /, 1921
the prospect of Britain's getting back to gol
basis was gradually improving. Business was ge,
ting better, the debt was being decreased, tn
amount OF paper money outstanding was being re
duced, political conditions were becoming NOR
steady. The debt had actually been reduced 'abou
81 ooo,oooyooo in year. The coal strike curtaile
business terribly greatly increased the government
expense. cut the governments income greatl
through vast losses of income tax and other re
cepts, disturbed the political situation 1t post
poned the time of putting the currency on a gol
basis. Since the settlement of the strike, Britis
business has improved, especially her foreign trad,
the reduction of the debt has been resumed, tn
currency in circulation has decreased the politics
situation is better The prospect of prodigious gov
srnment economies, recommended by the econ
omy committee headed by Sir Eric Geddes ind
-ates further debt and currency reduction and fur
her progress toward gold basis. Britain finance
The war and the after war period without grea
currency imitation. She paid her bills principal
by internal loans and taxation, the British take
being the highest in the world. Is it any wonde
that German exchange has fallen so that the mar
IS worth but half cent when the German note cir
culation has increased from 1890, $4,000 in 1914 t