94 EXCHANGE Ie anJ -har"e"
To take a more recent case. The exchange value of the Russian rouble during the last twelve months of war between Russia and Turkey will amply illustrate what is meant by the prevailing judgment on events in their future aspect, which, while proceeding on a certain amount of reason, yet borders on panic, and may be of the nature of panic. The issue of paper roubles had gone the length of 730 millions before the war, and there was a constantly in creased remission during the year, counteracted in some measure by conversions into loans bearing interest. On the mobilization of the troops the value of the rouble was 29d. to 30d. ; on war being declared it fell to 27d. ; when it seemed as if Plevna could not be taken it sank to 22Ad. ; when Plevna fell it rose to 2G^d. ; and when it followed that the conquest of Turkey and an armistice did not end the difficulties, it fell to the lowest point it had touched, 22^d. The terra " favourable exchange," as commonly used, not ou |y means a state of the exchanges when the debts due to a couutl T abroad are so much greater than what it owes abroad as to affect potentially the demand and supply of bills, and when the money of the country so situated, as expressed in the price of bills, is equvl to more of the money of a foreign country than the nominal par -when its bills on abroad, in short, are dull of sale, while the foreign bills on itself are in much demand; it is also applied to all stages, moderate or extreme, of this relation of the foreign exchanges. And so the term unfavourable," of course, applies to the opposite conditions. If these phrases had ever any reference to the prosperity of the foreign trade of a country, they must have arisen under the sway of " the mercantile system " of the last century, the principle of which was that a balance payable in specie is the cardinal condition of prosperous trade with any foreign country ; or, if introduced under that erroneous theory, they have been prolonged by the usage of bankers and other dealers in foreign exchange, who, hiving large liabilities entailing bullion payment, naturally consider a state of exchange which is on the eve of bringing specie more favourable than one on the eve of taking it away. This is quite true in the monetary view of the question, and it is true also as to the relative indebtedness for the tima being, But it is not true to extremes even in a monetary sense. The condition of a country to which specie was always flowing in and never going out would be a realization of the fate of Midas. The most favourable exchange, therefore, is that where there are only moderate oscillations up or down from the par of exchange. While the terms " favourable " and " unfavourable " are thus somewhat misleading as regards substantial inter ests, they are involved in a minor technical complexity, which, though well understood by those in the business, may here be stated. The terms would be strictly applicable in the ssnsethey are used, were the rate of exchange always quote I in the home money. The certain properly in ex change transactions is the number of pounds, dollars, francs, or florins a remitter has to pay abroad; the uncertain is what amount of his own money is equal to this amount of the foreign money. Were the quotation on both sides respectively always made in the home money, the fall or rise of the quotation would always be identifiable with such terms as " favourable " or " unfavourable." Both drawers ani remitters would be so familiar with their significance as to know what they meant. But this is not the practice, und, with so much variety of currency, could hardly have been the developed practice of exchange. The pound ster ling of England is the largest monetary unit, and there is always facility of expressing minute shades of difference in the smaller units, more especially when, as in the case of Paris or New York, they have a decimal character. In London, consequently. the public only hear quotations of rate of exchange with such countries as France and the United States in the foreign money London thus giving what is called the certain, and the smaller moneys the variable. On the other hand, not only in the Australian and other British colonies, where the standard of value is the same as in the parent country, but in such large commercial regions as China and India the quotation of rate of exchange on both sides is always expressed in sterling. The Chinese tael of silver is worth so many English pence sterling at Canton ; and the rupee is worth so many English pence at Bombay or Calcutta ; and in the same terms run the quotations in London. The practice may not alter in any iota the true rate of exchange, but it has the result that when the rate is quoted in sterling money, as in the Indian, Chinese, and Australian exchanges, every drop in the quotation is " more favourable " to England, every rise " less favourable," and this will hold good whether the quotations are made in England or in India, China, or Australia ; whereas, on the other hand, when exchanges are quoted in foreign money French, German, or American, &c. every drop in the rate by the same rule is " less favourable," every rise in the rate " more favourable " to England, whether the quotation be made in England or in the foreign countries. The states of exchange to which the terms " favourable " and " unfavourable " are thus applied refer wholly to the effect of the demand and supply of bills ; so that, since the fluctuations of exchange are due to various causes, it would be an improvement were the quotation always to include the par of exchange, whether between the gold money of one country and the silver money of another, or between either and inconvertible paper, the depreciation of which has to be determined by the gold or silver premium in the country of its currency. The actual rate above or below par would show the effect due to the supply and demand of bills. When a sudden alteration takes place in foreign exchange, nothing is more difficult than to discover the relative force of the cause or causes to which it is to be ascribed, and yet nothing is more necessary to know than this, whether hi the correctives that may be applied or in the lessons to b^ conveyed to importers and exporters. The limited meaning to be given to such terms as O O " favourable " and " unfavourable " exchange probably applies to other statements that may arise legitimate! in connexion with this subject. The principle, for instance, that the profit and loss of exchange transactions fall, not between the two countries concerned, but between the foreign creditors and debtors in one or other, is exact within its own range ; but it leaves as an open question whether in a country where from a depreciated and depre ciating currency the rate of foreign exchange is always rising, the general result may not be adverse to its interests in ex port and import trade. In like manner it would be more than questionable, because "the mercantile theory" was wrong in supposing that a balance of foreign trade in specie, or an excess of export value over import value, was the necessary condition of national prosperity, to posit the opposite doctrine that an excess of imports over exports is the only prosperous condition. The solution of this ques tion must depend on what may be called the permanent in debtedness of some countries to others. A country which is under large tribute to foreign capital is assuredly in the right way for itself and for other countries when the value of its exported exceeds that of its imported produce. And so also it may be observed that " rate of interest," if we are correct in our reasoning on that head, may not have the absolute control over the exchanges which was so strongly emphasized for some years after the passing of the Bank Charter Act of 1844, and has since only been modified in practice without any express recognition of the principles
involved.