EXCHANGE 787 those of New York or St Petersburg, though many of these may be no less wealthy than the others, or simply from the greater convenience of a bill on London. In propor tion, however, as direct trade in mutual import and export of goods is established between two countries, direct ex change follows. Formerly the New York houses drew, for their shipments of tobacco and other produce to Bremen, on England for German account. But now since German manufactures and products have been making progress in the New World, bills of exchange aie drawn between New York and Bremen, and Rio Janeiro and Hamburg. But the merchants of Bombay and other parts of India, finding few purchasers of bills on Bremen, still draw on London for German account. These indirect exchanges maybe re garded as examples of the common expedient of utilizing both debts and credits at various distant points in redressing the inequalities of direct exchange; and, also, of the advantage of London, from the greater extent of British commerce and the greater distribution of British exports than those of any other country, as the centre for ultimate adjustments and clearings of this kind. But Mr Goschen has adduced an extensive class of foreign bills still more remarkable. These are bills " technically said to be drawn in blank," which represent no actual indebtedness at the period of drawing, and by which the acceptor does not pay his debt to the drawer, but on the contrary, the drawer incurs a debt to the acceptor. Mr Goschen admits that they approach nearly to the character of accommodation bills in the home trade, might be even worse abused, and consequently require to be discriminated. In many cases such bills have a function of public utility, as, for example, where the imports of a country do not fall into the same period of the year as its exports, and the bills in payment of them do not meet each other in the ordinary course. In that case, the importers in seeking to buy bills on foreign countries would not find them, and would have no recourse but to remit specie in payment of their purchases abroad In like manner the exporters of grain, cotton, and other produce might draw bills for their value, but would find the bills were unsaleable, and would have to order the gold, remitted by the importers a few months before, to be sent back again. In this situation banking-houses draw " in blank " on bankers abroad, selling- their drafts to importers at one period of the year and buying the bills of the exporters at another, therewith to refund the bankers abroad by whom their drafts have been honoured. The case implies a raising of capital in anticipation of the produce, but there need be nothing fictitious either in its manner or character, and it may well be believed to be the case of many large producing countries and colonies. In the deal ings of foreign exchange the small as well as the large bills are embraced. With the piles of single bills for many thousands of pounds sterling, from such countries as China, India, or America, are commingled many bills of small amounts ; while from all parts of Europe they are of a still more miscellaneous character bills of retail as well as wholesale trade, bills of Swedish or Norwegian shipmasters for freights, of Dutch and Belgian farmers for parcels of eggs and butter, of Germans for toys, and French for odd articles de Paris, on minor agents, shopkeepers, milliners, and others, who may not have come in the course of their business within the range of inland exchange. The developments of foreign exchange are always more or less modified in the course of a generation, and so much seems necessary as an introduction to the essential subject itself, and in particular to the explanation of the rate of exchange, how it is determined, and what in a general sense it imports. Mr M Culloch, in former editions of this work, treated foreign exchange under three heads : (1) nominal ex change, or the rate of exchange established between two countries on a strict estimate of the respective money, or coins, or currencies, in which the value of their goods are usually denominated and exchanged; (2) real exchange, or the effect of the supply and demand of bills in raising the current rate above, or depressing it below, the mean point or equilibrium nominal, inasmuch as it is an equal value from which there is constant variation by other elements acting on the rate of exchange, but yet of radical fixity and importance; and (3) computed exchange, or, in reality, the actual course of exchange as determined day by day from the combined consideration and effects of the other two. While this division was appropriate enough, it may be better here to consider still more in detail the various elements entering into the valuation of foreign bills or, in other words, the rate of foreign exchange. These may be con veniently embraced under the following heads: (1) par of exchange ; (2) supply and demand of bills ; (3) rate of interest ; (4) cost of specie remittance ; to which may be added, what is always implied, (5) correct judgment of the force and duration of the cause or causes affecting the rate of exchange, or its opposite, panic. 1 . Without some common medium of value in commercial Par o countries, bills of exchange could not be drawn between one ex- and another. The " cash" of China has played no more part clian 8 in the foreign exchanges than the cowries of Africa; but since a mint has been established in Japan, from which gold pieces are issued under public regulation as to weight and fineness, there may be no difficulty in ascertaining the mone tary equivalency, at Yokohama, of any debt due by Japan to England, or vice versa. The nations have thus found a medium of exchange in bullion, in gold or silver, or in both. In countries of the double standard, it has been usual to modify the law by liberty of contract for payment in one of the metals, without which liberty, indeed, it would be as well to have only one standard, since it is certain that the debtor will always choose to pay in the metal that has become relatively cheaper. In countries where silver is the sole standard, the par of silver to gold may be 15 to 1, or 16 to 1, as law or custom may have established; but in foreign exchange the par of silver to gold cannot be fixed at any absolute point by the law of any one country, and in the case of a depreciation, say of silver, even though temporary, by which the market price of silver to gold became 1 1 to 1, a proportionate addition would be made to the figures of the mint or former customary par, and this new sum become practically the par of exchange between the gold currency of England or California and the silver dollars of Mexico or rupees of India. Thus, having gold and silver to deal with, it is always possible, whatever may be the variety and names of the coins of different countries, to estimate the equivalents of the one to the other This is a matter simply of weight and assay; and the ratio thus found is the par of exchange between one country and another. Mr M Culloch seems to have thought that the par of ex change should properly include, not only equivalent weight and purity of the precious metals, but their relative cheap ness or dearness in given places. " Thus, " he says, "if, because of the expense of carriage, the value of bullion iti Great Britain be 5 per cent, greater than in San Francisco, 100 ounces of pure gold in the latter would not be worth 100 ounces of pure gold in London, but 5 per cent, less ; and the exchange would be at true par when bills for 105 ounces standard bullion, payable in San Fran cisco, sold in London for 100 ounces." Since this has not been the practice in determining the par of exchange the 25-30 of Paris, and the old 109 of New York, etc., with London having been based more or less exactly on equal weights of pure gold for pure gold a question is suggested
which the following considerations may help to resolve.