786 EXCHANGE to only 100 of British money in the nominal par of ex- clianwe. between Great Britain and Ireland, or a difference of 8| psr cent, against the latter. In the course of another century the monetary system of Ireland and Great Britain had so far become uniform that the bank-notes of both countries were payable on demand in gold, but the dilution of standard proclaimed by James II. was still in force. In the eight years previous to 1797, the date of the Bank Restriction Act suspanding specie payments, the rate of exchange between London and Dublin had ranged from 1 to 9 par cent., being from f- below to per cent, above the par of exchange, as determined by the actual value of the British and Irish money. The banks of England and Ireland were now alike free to issue notes without legal liability to pay them in gold on demand ; and in 1 803 the Bank of Ire land had increased its issues from 621,917 to 2,707,956, being in the proportion of 1 to 4 3 ; while the Bank of Eng land had increased its issues in the same period from 9,181,843 to 16,505,272, or in the proportion only of 1 to 1 8. The rate of exchange was then 17 per cent, against Dublin, being 8 per cent, more than the normal par. But in the seven subsequent years the issues of the Bank of Ireland increased at the rate of 2- per cent., and the issues of the Bank of England at the rate of 5 per cent., while the country bank issues of Ireland were much dimin ished in amount, and those of England were largely increased. During this period the current rates of ex change became more favourable to Dublin. The inconver tible paper currency of Ireland had increased, but it had not increased in nearly the same proportion as the same kind of money in England. The manufacturers of Ulster, at once disaffected against the Government and annoyed at the uncertain value of the bank notes, clung to a gold cur rency ; and while Dublin was under a discount of 8 per cent, in its exchange with London, Bslfast was commanding a premium of 3 per cent, against London, and 10 percent, against Dublin. 1 Apart, however, from this element of the differing stand ards and values of money, which comes more fully into view under the head of " foreign exchange," it is impossible to follow closely the description of inland exchange above quoted from Mr M Culloch without apprehending many of the principal characteristics of the operation, which, as they are sure to arise in exchange transactions under all circum stances, cannot be too soon brought into formal notice; such as (1) that the rate of exchange is ruled by the supply and demand of bills for the time being ; (2) when in any market the demand for bills on a given centre is greater than the supply, the deficiency may be supplemented by bills on other centres having a favourable exchange with the given centre a resource which, though indirect, receives much extension in the wide theatre of the commercial world under the watchful study of experts in bills; (3) the profit of a premium and the loss of a discount on bills fall within the market where the bill is drawn or sold, the drawee or acceptor having the definite sum on the bill to pay in either case ; (4) exchange between one country or one centre and another is never a completed or perfectly adjusted process, but a constant series of transactions, reflecting the varying phases of claims and debts as they mature ; and (5) the fluctuation of rates of exchange is effectually limited by the 1 The Bullion Inquiry and Report .of 1819 is full of information and discussion as to the effects on exchange of the long breach in our monetary system during the French Revolutionary wars, which will always be highly instructive, but on which it would here be out of date to dwell. The Scotch banks do not appear, during that trying period, to have departed from the rule of paying their notes in gold on demand. The contrary lesson may have been so well impressed on lem by the experience of the previous century, and so well explained by the intermediate instructions of Adam Smith, whom, of course, they were the first to read, as to raise them above temptation. expense of transmitting money, that is, coin or bullion,- - a principle which, though subject to partial exceptions in foreign exchange, is an underlying and potential law of the whole system. In the study of foreign exchange some embarrassment Fore; arises from the twofold character of the action and its re- ex " suits, and the necessity of realizing in one conception the drawers and buyers of the bills, and the two countries to which their transactions apply. It tends to simplify the matter to remember that what is transacted either in London or Paris expends the whole effect, for purposes of comprehension at least, of the course of exchange between the two cities; and so in other cases. If the debts, the time of settlement of which has come, of London to Paris be greater than the debts of Paris to London, the supply of bills on Paris in London will be less, and the supply of bills on London in Paris will be greater than the demand, which are only different forms of expressing the same relation. There may be a momentary variation in the rate of exchange in the two cities, but as soon as the relation of supply is discovered the variation will disappear. On both fields the same two classes of people, drawers and remitters, are at work, only the party in stronger force on the one is in weaker force on the other, and at both ends there is the same though converse result. In any one market, there fore, there is a complete representation of the action of exchange. To a circle of exchange four persons, as is explained by Mr Mill, are always necessary : A, say of England, has ex ported English goods to B, say in France ; and in order that B may be saved the expense and risk of sending money to A, A draws a bill on B for the sum due, and sells it to his neighbour D in England, in order that he may send it instead of money to C in France, from whom D has imported French goods of exactly equivalent value, and who, on the expiry of days the bill has to run, takes it to his neighbour B, and gets his payment, while in possession of the bill B has his discharge from A. The debt on both sides is thus paid without the transmission of a single ounce of gold or silver. This is a genuine circle of foreign exchange ; but in the great commerce and diversified creditorship and clebtorship of the world the process is frequently of a very complex kind. Not only all the exports and imports, freights, and transit dues round the globe, but nearly all the public and private outlays which one country expends upon another, are paid by means of foreign bills of exchange. Mr Goschen, in a prac tical treatise which may be said to bring up the science of exchange to the present time, 2 examines the various classes of foreign bills, and specifies some movements of exchange which could hardly be dreamed of save by professional men. For instance, teas shipped from China to New York are generally paid for by a draft of the exporter on a London merchant for account of the American importer. The exporter in China is paid by the price which is given him for his bill on London ; and the London acceptor looks for payment to the importer in New York. In the East Indies those who ship produce to America draw on London and not on New York; and the New Orleans cotton exporter to Puissia draws on London instead of on St Petersburg The explanation of this may be partly that Great Britain exports more in manufactures and silver to China, for example, than she imports of Chinese tea and silk, and thus leaves a balance of trade due to her, which the Chinese pay by transferring their claims on New York to their London creditors, and partly from the greater reputation and custom of the London banking houses than 8 The Theory of Foreign Exchanges, by the Right Hon. G. J,
Goschen, M.P., ninth edition, London, Effingham Wilson, 1876.