EXCHANGE 785 increased in the city which has the greatest number of payments to make, and reduced in that which has the fewest. If Glasgow owe London 100,000, whilst the latter only owes the former 90,000, it is clear, inasmuch as Glasgow has a larger sum to remit to London than London has to remit to Glasgow, that the price of bills on London will rise in Glasgow because of the increased demand, and that the price of bills on Glasgow will fall in London because of the diminished demand. A larger sum would consequently be required to discharge a debt due by Glasgow to London, and a less sum to discharge an equal debt due by the latter to the former ; or, which is the same thing, the exchange would be in, favour of London, and against Glasgow. Bills on London would sell in Glasgow at a premium, and bills on Glasgow would sell in London at a dis count ; the premium in the one case being equal to the discoiint in the other. " On the supposition that the balance of 10,000, due by Glasgow, depresses the exchange on London one per cciit., it appears, at first sight, that it will cost Glasgow 101,000 to discharge her debt of 100,000 due to London; and that, on the other hand, 89,100 would be sufficient to discharge the debt of London to Glasgow. Hut a very little consideration will serve to show that this would not be the case. Exchange transactions cannot take place between different cities until debtors and creditors of the one reside in the other. And hence, when the exchange became unfavourable to Glasgow, the premium paid by its merchants for bills on London would not go into the pockets of their creditors in the latter, but into those of their neighbours in Glasgow to whom London was in debted, and from whom the bills were purchased. The loss to Glasgow would, therefore, be limited to the premium paid on the balance of 10,000. Thus, supposing that A of Glasgow owes D of London 100,000, and that of London owes B of Glasgow 90,000, A will pay to B 91,000 for a bill or order on C to pay D 90,000. lu this way the 90,000 of London debt at Glasgow- would be cleared off, the premium, which is lost by the debtor to London in Glasgow, being gained by its creditor in the same place. If the business had been transacted in London, C, with 39,100, would have purchased of D a bill for 90,000, payable by A ; .so that, in this case, the gain would have fallen to the share of the debtor C, and the loss to that of the creditor D, both of London. The complexity of real transactions does not affect the principles on which they are founded. And whatever may be the amount of the debts reciprocally due by different places, the only disadvantage under which any of them could be placed by a fall of the exchange would be the unavoidable one of paying the expense of remitting the balance of debt. " The expense of transmitting money from one place to another limits the fluctuations in the exchange between them. If 20s. sufficed to cover the expense and risk attending the transmission of 100 from Glasgow to London, it would be indifferent to a mer chant, in the event of the exchange becoming unfavourable to the former, whether he paid one per cent, premium for a bill on London, or remitted money direct to the latter. If the premium were less than one per cent., it would be clearly his interest to make his pay ments by means of bills rather than by remittances ; and that it could not exceed one per cent, is obvious, for every individual would rather directly remit money than incur an unnecessary expense by purchasing bills on London at a greater premium than would suflice to cover the expense of a money remittance. If, owing to thu badness of roads, disturbances in the country, or any other cause, the expense of remitting money from Glasgow to London were increased, the difference in the rate of exchange between them might also lie proportionally increased. But in every case the extent to which this difference could attain would be limited by, and could not for any considerable period exceed, the cost of remitting cash. " Exchange transactions become more complex when one place, as is often the case, discharges its debts to another by means of bills drawn on a third place. Thus, though London should owe nothing to Glasgow, yet if Glasgow be indebted to London, London to Manchester, and Manchester to Glasgow, the latter may wholly or partially discharge her debt to London by remitting bills on Man chester. She may wholly discharge it, provided the debt due to her i<y Manchester exceed or is equal to the debt due by her to London. If, however, it be not equal to the latter, Glasgow will either have to remit money to London to pay the balance of debt, or bills on some other place indebted to her. " Transactions in inland bills of exchange are almost entirely con ducted by bankers, who charge a certain rate per cent, for their trouble, and who, by means of their credit and connexions, are able, on all occasions, to supply the demands of their customers. Bills on London drawn in Edinburgh and Glasgow were formerly made payable at forty days date, which was equivalent to a premium of about ^ per cent. ; but, owing to the greater facility of com munication, fins premium is now reduced to twenty days interest, or to about J per cent. Bills for remitting the revenue from Scot- laud are now drawn at thirty days ; previously to 1819 they were drawn at sixty days." The cost of remittance from Scotland to London has con tinued to fall during the last thirty years. Bills OH revenxie account are now drawn at eleven days, free of stamp, and bankers drafts at seven days, or at a charge of 2s. per 100 up to 300, 6s. for all sums between 300 and 600, and Is. additional for every 100 above 600. On the other hand, the London bankers remit money, paid over their counters to-day, to Scotland and other parts of the kingdom, payable at par to-morrow. To this extent the rate of ex change is still adverse to Edinburgh and Glasgow, and in favour of London. In like manner the holder of a bill of exchange in Edinburgh or Glasgow upou London finds himself in a somewhat better position than the holder of a bill in London upon either of the two Scotch centres. Yet it would be an error to suppose that the balance of trade is against Scotland and in favour of England, The balance of value of commodities exchanged between the two countries is in favour of Scotland, and might be greatly in her favour, and yet the rate of exchange be adverse; so that we are thus early admonished that the imports and exports of goods, though an important, are not, as was long supposed, a decisive element in the rate of exchange. The transmission of the revenue of Scotland (seven or eight millions annually), the rental of owners of land having their chief domicile in the metropolis, and the amount of obligations of Scotch merchants made payable in London under the increasing concentration of monetary business, would be sufficient to counteract the effect of a large balance of trade on the rate of exchange. Hence London bankers, in taking money even in small sums payable at par next day in Edinburgh or Glasgow, are simply taking before hand what is already under course of remittance, and re ducing pro tanto the balances to be remitted from Scotland. The relations of inland exchange just stated are those of a country where the money is uniform ; where the bank notes of Ireland and Scotland are payable on demand in the common imperial standard of value, as the country bank notes of England are similarly exchangeable for gold or for Bank of England notes, which latter are orders for the deli very of so much gold in the issue department ; and where, consequently, all inland bills are drawn in precisely the same money. The circumstances are thus highly favourable to an even exchange ; and it may be conclusively held thnt the nearer the monetary system, whether in separate countries within themselves, or in nations closely related by coiu mercial and financial transactions one with another, approaches to these conditions, the difficulties and oscilla tions of exchange, inland and foreign, will be reduced within narrower limits. The history of inland exchange in the three kingdoms presents abundant proofs of the immediate effect of money of differing values in disordering the exchanges, or, in other words, the uniform payment of their debts one to another. In the early days of Scotch banking, when the natural limit of a free legal issue of notes was less under stood than it soon became, and a structure of bills of exchange was reared upon this basis, it was found that bullion had to be raised by constant re-discounts in London, and that exchange, in short, became imprac ticable. Even within the same town, given two kinds of money or currency, one of superior value to another, a premium will be immediately established in favour of the money of superior value, and will affect every transac tion, however small, by calculations of rate of exchange, as was long illustrated by the banco of Hamburg, a strict metallic money of given weight and fineness, in its contact with the worn or degraded coins of various mints in pre vailing circulation. In 1689, when, by a proclamation of James II., one penny was added to the nominal value of the Irish shilling, 108, 6s. 8d. Irish money became equal
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