792 out of a market where it bore a weight of 7 per cent, to one where it bore a weight of only 3-| per cent, interest. But suppose the balance of indebtedness has become so adverse to the country of low interest that the rate has been increased to 7 per cent, in order to improve the course of exchange, and that the effect has been, as must more or less follow, to render the foreign drawer less eager to sell, and the foreign remitter more eager to buy. The remitter or buyer will find the new influence thus intro duced operating in the same direction viz., in favour of the price of the bill ; but, on the other hand, the difference of interest has disappeared. Two effects have thus pro ceeded from the same cause, which neutralize each other so far as they go ; and the remitter, instead of buying a bill, may as well, as regards the rate of interest in the two countries, be drawn upon by his foreign creditor. If the rate of interest be further increased to 10 per cent., the drawer may be induced to hold the bill in order to save the 3 per cent, of discount above the rate of interest in his own market, or an investing buyer may intervene, and give such a price for the bill as will allow the seller 1| or 1 per cent, of the profit, and leave 1| or 2 per cent, to himself. In either case the bill would be held till it matured, and relief to that extent be afforded to the ex change of the country raising its rate of interest. But it is clear that not until the rate were raised 3, 4, or 5 per cent, above the rates of the countries drawing upon it could any effect of this kind be produced. It thus appears that the function of rate of interest in controlling the supply and demand of bills is a strictly limited function; and this limitation will probably be found in all the effects expected from it on the state of exchange. It may hasten the course of payments due to a country, but it does not lessen the adverse balance of indebtedness, nor can it much retard the pressure of the foreign claims. It may restrain importation of foreign goods, but it may not at the same time increase exportation of domestic goods ; or, if increasing export, it may not diminish import. These are results which will depend on many other causes. It may tend to lower prices, and thus seem to check import, while facilitatingexport; but, forming in itself an addition to the cost of production and exchange, it may render much outward as well as inward trade less possible. If the rate of interest be carried high enough it may attract much capital from neighbouring countries. Foreign bankers and lenders will buy up bills on the country as the best mode of importing their capital, or may import specie ; and admirable as this service may often be, yet it does not lessen the foreign indebtedness of the country. It only transmutes one form of the adverse balance into another more convenient for the time being ; and in the meanwhile, if the high rate of interest has crippled the productive and exporting resources of the country, little good or a reverse balance of evil may have been done. Hence bullion reserves are either inadequate in the plan of their formation, or they miss their use and efficacy if, when a heavy balance of indebtedness appears in the exchanges, they cannot be trenched upon without large and excited advances of the rate of interest. of 4. Nothing is more definite in the system of exchange ic than what has been more than once stated in the course of these remarks, namely, that the cost of remitting specie forms the limit of variation in the rates of bills. That the buyer of a foreign bill will not give more for it than the cost of remitting specie equal in amount to his foreign debt is an axiom which holds good under all the ordinary conditions. But there are exceptions to the rule where the conditions vary from the ordinary. From the countries of productive gold and silver mines bullion flows abroad as naturally as the corn, cotton, wine, or oil which forms the special merchandise of a country, and it will so flow irrespective of supply and demand of bills, rate of interest, and other causes which have so much sway in rates of exchange. San Francisco will export gold and silver to London in ali states of supply and demand of bills, and when its rate of interest may be double that of the Bank of England, and in the common parlance money is there dearer than in London, though it may be only that the average profits of capital are larger in the one place than in the other. If bullion is needed at New York, and commanding a higher premium on the Federal currency, it will be matter of calculation to the bullion exporter at San Francisco whether to send a consignment to New York or to London. If, since the dis covery of the California!! mines, a metallic currency had been established throughout the Federal Union, the United States would no doubt have absorbed a proportion of the gold and silver shipped to Europe ; but this object accom plished, the export to Europe would have proceeded much as it has been proceeding. In short, from gold and silver producing countries the export of bullion is not a remittance of money, but a transmission of the exportable produce of labour, which but for export would not have been produced. Then, there is the case of exchange between countries of silver standard and countries of gold standard, from either of which remittances of specie cannot be made without exact reference to the market value of the two metals. This will have been already marked in the par of exchange between the gold and the silver country, but it will have introduced a new element into the cost of remit-
tance, since the specie remitted will have to be sold into
! the specie standard of the country to which it is remitted. i Silver from India and China, for example, in the circum stances of recent years, cannot be remitted in payment of an adverse balance of exchange without taking into account a subsequent act of merchandise namely, what the silver will bring in the gold of England ; and this, with silver under a course of depreciation, may be so doubtful that the buyer of a bill on London will rather yield in the rate of exchange, and give some fraction more of a rupee for the pound sterling than run the risk of it. Neither in payment of an adverse balance of debt, nor in transferring capital from one country to another with the view of taking advan tage of a higher rate of interest, can specie be remitted between gold and silver standard countries free from this contingency. A Hamburg capitalist wishes to profit by a rate of interest two or three per cent, higher in England than at home. He will therefore buy bills on London uj> to a certain limit of price ; if he has any gold, he will then remit gold rather than exceed this limit for bills; or he wii! remit the silver specie of Hamburg subject to its market value in London. In this case, indeed, the foreign capitalist has more than one act of merchandise to contemplate, for he has to look to the reverse action when the rate of inte rest may be higher at home than in England, and when it will be his motive to re-convert his English sovereigns into silver, which in the relative condition of the market value of the two metals may be either favourable or unfavourable. If unfavourable, he will buy bills of England on Hamburg, or some other centre with which the exchange is favourable to Hamburg, rather than re-transmit silver at a higher cost than the rate of the bills. It is obvious that all this doe.s not alter the principle that the cost of specie remittance is the limit of rate of exchange on bills, but only that it gives a larger range to the variation of rate, and to the specie limit, between two countries whose money and standard of value are of different metals than would exist between two countries where they were of the same metal. In exchange between a gold-paying and a silver-paying country, one of which, say the silver country, lias gone largely into an inconvertible paper currency, the case
becomes more complicated, and the specie limit to adrerse