Public-domain ebook

Foreign Exchange

Name: Foreign Exchange
Author: Robert L. Owen

by Robert L. Owen

Read now Add to library

Language: en318 downloads on Project Gutenberg

Subjects

Foreign exchange Federal Reserve banks

In: History - Modern (1750+)·Politics·Economics

Public-domain ebook sourced from Project Gutenberg #62050.

The opening · free to read

The U. S. Dollar in Spain

The American dollar should buy 5.18 pesetas, lire or francs on a gold par basis, but at present (August, 1918) will buy 8.90 Italian lire and about 3.5 Spanish pesetas, although the gold value of the Italian lira and the Spanish peseta is identical. The reason for this is that Italy has an urgent demand for dollars in America to pay for the purchases of the Italian Government and of the Italian people, and the credits being extended to Italy for this purpose are being furnished at enormously high rates by private banks and capitalists, while Spain is selling more commodities than she is buying, is an international creditor, has no need for dollars, and pesetas in Spain are being sold at an artificial high price by private banks and capitalists. The Allies requiring Spanish pesetas are being charged enormously high rates for the pesetas required in Spain, which means that the pesetas are selling for 28 cents apiece instead of 19 cents and that the gold dollar measured in pesetas is at a heavy discount and only worth 67 cents.

The gold dollar in New York instead of buying 67 cents’ worth of Spanish gold currency should buy 50 per cent. more than it does, and American and Allied purchasers of Spanish goods suffer this 50 per cent. loss with the added penalty of war prices which makes the 50 per cent. loss probably 100 per cent., to which must be added the merchants’ profit.

It is obvious, therefore, that the loss to the United States and to the Allies from a condition of this character ought to be promptly met. It can be done. It is necessary to understand foreign exchange, the factors entering into it, the means by which to economically settle international commodity trade balances and to provide the mechanism under Government control through which the steps can be taken to obtain the desired results.

I desire, therefore, to explain the factors entering into foreign exchange, the steps required to bring the dollar to par, the steps required to keep the dollar at par, and the mechanism necessary to make effective the proposed policy.

Foreign Exchange Defined

Foreign exchange is a broad term referring to the business of international bills of exchange. These bills of exchange take the form of drafts representing an evidence of debt in the form of a negotiable instrument, the drawer or maker constituting the creditor, the drawee the debtor, and the title to such bill being vested in the payee. These drafts take the form of acceptances, often endorsed by acceptance banking companies. When drawn against merchandise exported they are often accompanied by documents—such as the receipt of the transportation company, or bills of lading, certificates of insurance, certificates of inspection, weight, etc. These foreign bills of exchange may be drawn against securities which are sold as merchandise. They may appear as authorized commercial or banking credits or as finance bills.

They may be drawn against actual cash funds or credits in banks, but, whatever they are, they comprise at last merely the order of the drawer or maker upon the drawee or debtor to pay to a payee a certain amount of money in the currency of the country upon which they are drawn, in pounds sterling in London, in pesetas in Spain, in francs in France, in lire in Italy, in dollars in New York. The forms of these bills are well established and can be found in any of the many comprehensive works on international exchange.

These bills may be at sight, payable on presentation, or thirty, sixty, or ninety days; they may be with documents attached or without documents attached; they may be acceptance bills or payment bills. The scope of this book does not permit of an elaborate discussion of the mere forms of such bills or the mechanism employed by the banks in handling such bills or the mathematics of converting one currency into another.

The book keeps going