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Originally appearing in Volume V10, Page 54 of the 1911 Encyclopedia Britannica.
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EXCHANGE, in general, the action of mutual giving and receiving objects, interests, benefits, rights, &c. The word comes through the French from the Late Lat. excambium (see Ex-CAMBroN). The present article deals with the theory and practice of exchange in monetary transactions, but this may conveniently be prefaced by a brief statement as to the law relating to the exchange of property and other matters. In English law exchange is defined as the mutual grant of equal interests, the one in consideration of the other. The ancient common law conveyance had certain restrictions, e.g. identity in quantity of interest, fee-simple for fee-simple, &c., entry to perfect the conveyance, and an implied warranty of title and right of entry by either party in case of eviction. Such exchanges are now effected by mutual conveyances with the usual covenants for title. Exchanges are also frequently made by order of the Board' of Agriculture under the Inclosure Acts, and there are also statutes enabling ecclesiastical corporations to exchange benefices with the approval of the ecclesiastical commissioners. The international exchange of territories is effected by treaties. The exchange of prisoners of war is regulated by documents called " cartels " (Med. Lat. cartellus, diminutive of carla, paper, bill), which specify a certain agreed-on value for each rank of prisoners. The practice superseded the older one of ransom at the end of a war. By the Regimental Exchanges Act1875 the sovereign may by regulation authorize exchanges by officers from one regiment to another. (For" labour exchanges " see UNEMPLOYMENT.) Exchange in relation to money affairs denotes a species of barter not of goods but of the value of goods, a payment in one place being exchanged for a payment in another place. The popular statement of the theory of exchange represents four principals involved in two transactions. A and B are two persons residing in one place different from the domicile of C and D; A sells goods to C; B buys goods from D; A sells his claim on C to B, who remits it to D in satisfaction of his debt, and D receives the cash from C, so that, assuming the two transactions to be of equal value, one piece of paper satisfies the four parties to these two transactions, and the trouble, expense and risk of sending money from both places are avoided. The piece of paper which performs the service may be a telegraphic order, cheque or bill of exchange. In this elementary proposition there would be no difficulty of exchange, as the full value of A's claim on C would be paid for by B, who is under the necessity of sending in exactly similar amount of money to D; but it can be seen that in actual practice the claims of one place on another place would not be exactly balanced by the necessities of the one place to meet obligations in the other place; thus arises the complication of exchange, which may best be described as the price of monetary claims on distant debtors. Supposing, for example, that A in London had a claim on C in Edinburgh amounting to £loo, and that B in London did not require to remit more than £90 to D in Edinburgh, it is evident that B in London must be offered some inducement to take over the whole of A's claim. B might give A £99: 19: o, and could then, after satisfying his debt to D, have £10 to his credit in Edinburgh, which he could retain there at interest until he had incurred further liability to D, or he could have the balance of £ro returned him in coin at an expense, say, of sixpence; this would leave B with a profit of sixpence on the transaction, and, assuming that these figures are reasonable, exchange on Edinburgh in London would be one shilling discount per £roo. Supposing the necessities of B induced him to offer A only £99 :14 : o for his boo claim, A would then prefer that C remitted him £roo in coin, which, on the above scale of expenses would cost 5s. and A would receive L99:15: o net. On these premises, exchange on Edinburgh in London cannot fall below I% discount, and the same circumstances prevent it from rising above I% premium, for B, in no case, would pay more for A's claim than £roo plus the cost of sending coin to Scotland. If this basis is appreciated, all exchange problems between different countries can be mastered, and the quotations in the daily papers of cable payments, sight drafts (cheques) and long bills are then understood and supply an interesting indication of the state of international financial relations. As shown above, the balance of indebtedness must eventually be remitted by coin, and consequently when exchange in any city is quoted at one or other of the limit points given in our example as I% discount or I% premium, this exchange immediately acquires a very serious importance, because with the development of modern monetary systems under which enormous trade is carried on with a most moderate foundation of actual coin the weakening or strengthening of that foundation is a very vital matter. While the understanding of the theory is essential for any facile interpretation of an exchange, there are of course in-numerable details of practice which require to be known to identify the limit points of exchange in any particular city. The limit points can only be taken advantage of by banking experts, and, although we assume a trader remitting his indebtedness in coin when he is asked to pay too high a price for his bill of exchange, in actual affairs the banker will supply the cheque or bill and himself will do the professional business of sending away bullion. Similarly, we have represented one trader drawing on another trader and selling his draft to a third trader who remits the draft to a fourth. In actual practice, however, No. x draws on No. 2 and disposes of his draft to a banker; No. 4 draws on No. 3 and sells his draft to a banker; because, speaking generally, whenever goods are shipped, the shipper immediately requires his money; he draws a bill against the goods, and it is the function of a banker to help, as a sort of debt-collecting agency, by buying these drafts; and the bank, being a mart for all forms of remittance, gets an immense variety of demand for cable payments, cheques and bills on all centres. This does not affect the theory, for it must be remembered that the banker is a necessary link between the buyer and seller of exchange, because the seller can only sell what he has and the buyer must have exactly what he wants. To return to the question of limit points: if a universal currency system existed, with the same monetary standard that is used in England, and the coinage kept in a proper condition of weight and fineness, and the coin readily supplied to meet every reasonable claim—if, in fact, the pound sterling were the prevalent coin and the English banking system obtained everywhere, then we should find all exchange quotations as simple as our case of London and Edinburgh, that is to say, all exchanges would be quoted at par or a premium or a discount. The limit points in any place of the exchange on London would represent simply and obviously the cost of the transmission of the coin. These limit points would vary at each place according to the distance from London, the cost of freight, the risk involved in the transmission and the local rate of interest. On the continent of Europe some advance has been made in the direction of a universal coinage. Countries subscribing to the Latin Union have agreed on the franc as a common unit, and Belgium, Switzerland, France and Italy quote exchange between them-selves at a premium or discount. Greece, Spain and other countries are also parties to the arrangement, but their currencies are in a bad state, and the exchange quotations involve a considerable element of speculation. We have, however, to deal with another factor in international finance, namely, the enormous variety of currency systems; and we have then to discover, in each case, the exchange which represents par and corresponds to our Lioo for boo in the London-Edinburgh example. The United States furnishes perhaps the easiest problem, and we must find out how many dollars in gold contain exactly the same amount of the precious metal as is contained in one hundred sovereigns. The answer is 486fi and the arithmetic is a question of the mint laws of the two countries. Gold coin in the United States contains one-tenth alloy and in England one-twelfth alloy. Ten dollars contain 258 grains of gold, nine-tenths fine. One pound contains 123.274 grains of gold, eleven-twelfths fine, consequently Lioo is worth $4868, or, to be exact, $4863, and when cable payments between London and New York are quoted at 4.868 for the Li sterling, exchange is about par. As a cable payment is an immediate transfer from one city to another, no question of interest or other charge is involved. Owing to the cost of sending gold as detailed above, the New York cable exchange varies from about 4.84 to 4.892; at the former point gold leaves London for New York, and at the latter point gold comes to England. Besides insurance, freight, packing, commission and interest, there must also be considered the circumstance that coin taken in bulk is always a little worn and under full weight, and in the process of turning sovereigns into dollars, the result would not bear out the calculation based on the mint regulations: consequently, when taking gold from London, the demand would first fall on the raw metal as received from South Africa or Australia to be minted in the United States, then on any stock of American coin the Bank of England might have and be willing to sell by weight (which would be accounted by tale in New York), and lastly the demand would be satisfied by sovereigns taken by tale from the Bank of England and converted by weight in America. The instance of the American quotation may be further taken to explain some of the numerous points which the study of the exchange involves. In the first place, it will be noted that we have quoted the price in dollars. In London, business in bills, &c., on New York is quoted either in pence or in dollars, that is to say, payments are negotiated for so many dollars either at 49186- pence per dollar, or at the equivalent rate $4.88 for the pound. In practice it is much more convenient to quote in London in the money of the foreign country, as it makes comparison with the foreign rate on London very simple. Some foreign countries quote exchange on London in pence, and then, of course, in relation to those countries the same practice will obtain in England, but the majority of the exchange quotations on London are in francs, marks, gulden, lire, kronen or other foreign money. Another point which must be explained is the reason why exchange varies between what we have called the limit points; why there is sometimes so much demand for bills on London and why at other times so many bills are being offered. Similar causes operate on other exchanges, and if we develop the New York case we shall provide explanations for exchange movements in other countries. At one time the financial relations between England and America were as follows. England was the principal creditor of the United States, and the latter country had to remit continually very large amounts in payment of interest on English money and profits on English investments, in payment for shipping freights, for banking commissions, insurance premiums and an immense variety of services, besides paying for the large imports which crossed the Atlantic from English ports. In the fall of the year these payments would be more than offset by the enormous exports of food-stuffs, cotton, tobacco, &c., so that during the first half of the year exchange would be at or about the limit of 4.891 and gold would have to be sent from New York to supplement the deficient quantity of bills. In the autumn the produce bills would flood the exchange market and gold would be sent from London as exchange got to the other limit point of 4.84. These conditions are still very potent, but latterly another element has entered into the position, and the new development is so powerful as to reverse sometimes what we may call the natural and legitimate movement in the exchange. This new element is the more intimate banking and financial relation-ship which has been established between the two countries. As American conditions have become more stable, with better security for capital and an assured feeling about the currency of the United States, bankers in London have gladly allowed their banking friends in New York and other large cities to draw bills on London whenever there was a good demand for sterling remittances. We have, therefore, to consider a fresh type of bill of which the drawer has no claim on the drawee, but, on the other hand, incurs a debt to the drawee. To take a very usual method, a banker in Wall Street, New York, will advance money to stockbrokers, investors and speculators against bonds and shares with a 20% margin. He deposits this security with a trust company in New York which acts both for the American and English banker. The Wall Street banker then draws a bill at 6o days' sight or 90 days' sight on the banker in Lombard Street and sells this draft to supply the money he lends the stockbroker. Two or three months hence the New York banker must send money to London with which to meet the bill, so that, whereas, in the case of a commercial bill, the produce is despatched and in due course the consignee must find the money for the bill, in the case of a finance bill, as it is called, the bill is drawn and in due course the drawer must send the value with which it is to be honoured. In any event the acceptor, the London banker, has to pay the bill, so that it will be easily understood that relations of the greatest confidence are necessary between the drawer and drawee before finance bills of this class can he created. The profit arising from the transaction we have sketched is realized by the separate parties in this way. The New York banker lends money for three months, say, at 5% per annum, he pays a commission of A.% to the trust company which has custody of the security, a charge equivalent toe % interest per annum. He draws on London at 90 days' sight and sells the bill at 4.838, the cable rate being 4.87*i the buyer of a three months' bill making the allowance for the English bill stamp of 2 per mille and the London discount rate of 3%. The drawer of the bill must also pay a commission of i % to the London banker who accepts the draft; this is equivalent to another !% per annum in the rate of discount, so that money raised in this way costs 3 % for the trust company, 3% the London discount rate, about I% for bill stamps, and 4 % for London commission—altogether, 41%; and, as the money is loaned at 5%, there appears to be j% profit to the drawer of the bill. This, however, is on the assumption that the cable rate is still 4.874 when the bill falls due for payment and that the drawer would have to pay that price to telegraph the money to meet the draft. But exchange on London can go up or down between 4.84 and 4.892, and if at the end of the three months the cable rate is 4.84 the New York banker will be able to cover his. bill at almost the same rate at which he sold it and will only be out of pocket to the extent of the commissions and stamps, so that the accommodation will only cost him 11% and his profit will be 32%. If he has to pay more than 4.87; for his cable at the maturity of the bill his profit will be less than a %, and he may even be a loser on the transaction. It is obvious, then, that a high rate of interest in New York, with a high rate of exchange on London and a low rate of discount in England, would induce the creation of these finance bills. The supply of these bills would prevent New York ex-change reaching the limit point at which gold leaves the United States, and the maturity of these bills in the autumn would ensure a demand for the produce bills and possibly prevent exchange from falling to the other limit point at which London has to send gold to New York. We have pointed out the essential difference between these finance bills and what we have called produce bills, but there is another very striking difference, that of the question of supply. These finance bills are obviously very difficult to limit in their amounts; produce bills are, of course, limited by the extent of the surplus crops of the United States and by the demand for the produce in Europe, but so long as it is mutually satisfactory to the big finance houses in both countries to draw on credit granted in London, so long may these accommodation . bills be created, and the pressure of the bills in New York may depress exchange so much that gold leaves London at a time when it is required in other directions. In such a case the embarrassment caused by this artificial drain of the gold reserve would much more than offset the amount of the commission earned by the accepting houses. The Bank of England may have to raise its rate of discount at the expense of the entire home trade; probably, also, with the rise in the value of money, consequent on the diminished resources, all investment securities fall in value and more onerous terms must be submitted to by the government, corporations and colonies, in the issue of any loans they may require. It will, therefore, be appreciated that, although these finance bills may be perfectly safe, their excessive creation is viewed with great disfavour, and considerable apprehension is felt when the adventures of speculators in New York make great demands for loans against stocks and shares, and, through the instrumentality of these finance bills, shift the burden on to the shoulders of the London discount market. The effect of this is to level money rates as between New York and London, and in the process the pressure falls on London and the relief goes to America. Eventually, of course, the bills must be met and funds sent for that purpose from across the Atlantic, but in the meanwhile the disturbance of the gold supply is an inconvenience. We have explained the process of employing credits granted in London to finance Wall Street; there are, also, many other types of bill to which the acceptor lends his name on the assurance that he will in due course be supplied with the funds required to meet the acceptance. In the case of the produce bills, a London banker will accept the bills in order that they may be more easily marketable than if they were drawn direct on the actual consignee of the cotton, tobacco or wheat. The consignees in Liverpool, &c., pay a commission for this assistance and reimburse the London bank as the produce is gradually disposed of. The transaction appears slightly more complicated when English bankers accept bills for produce shipped from the United States to merchants living in Hamburg, Genoa, Singapore and all other great ports, but the principle is the same, and the influence of such business on the exchange affects, in the firstinstance, the quotation between America and London, but after-wards, when money must be sent to London with which to honour the bills, the exchanges with Germany, Italy or the Straits Settlements bear their share in the eventual adjustment, the spinners, tobacco manufacturers and corn factors requiring drafts on London where so much of the trade of the world is financed. We shall have to consider later the reasons which ensure to London this peculiar and predominant position. We have so far used the American exchange as an example to explain causes which produce fluctuations in all the principal exchanges on London and to show the points between which fluctuations are limited. The fact that America is still developing at a much greater rate than the Old World makes an important distinction between the financial position in New York and the financial position of the big capitals in Europe. There is not in America the huge accumulation of savings and investment money which the Old World has collected, so that whereas Europe helps to finance the United States, the latter country has so many home enterprises that she can spare none of her funds to assist Europe: It would not be possible for London to draw on New York such bills as we have described as finance bills, for they could never be discounted there except on the most onerous terms, and there is nothing in America which corresponds to the London money market. We have to deal with dollars and cents in America, with francs in France, with marks in Germany, and different money units in nearly every country; but, given the mint regulations, the theoretical par of exchange and the theoretical limit points are arrived at by simple arithmetic. An exhaustive statement with reference to every country would involve an amount of tedious repetition, so that for the purposes of this article it is more instructive to consider the essential differences between the important exchanges than to go into the details of coinage, which would appeal rather to the numismatist than to the ex-change expert. The United States, offering as it does a vast field for profitable investment, must annually remit huge amounts for interest on bonds and shares held by Europeans; coupons and dividend warrants payable in America are offered for sale daily inLondon, and at the end of the quarters the amount of these claims, coupons and drawn bonds is very large, and a considerable set off to the indebtedness of Europe for American produce. It is often asserted that the United States is rapidly getting sufficiently wealthy to repurchase all these bonds and shares; but whenever trade conditions are exceptionally good in the States, fresh evidence is forthcoming that assistance from London and Europe is essential to finance the commercial development of the United States. This illustrates a feature common to all new countries and the effect is that they make annual payments to the older countries and especially to England. A government loan or other large borrowing arranged abroad will immediately move the exchange in favour of the borrowing country. A tendency adverse to the United States results from the drafts and letters of credit of the large number of holiday makers who cross the Atlantic and spend so much money in Europe. When remittance is made of the incomes of Americans who have taken up their residence in the Old World the exchange is affected in a similar manner. In one respect the United States stands far superior to most of the older countries. There are no restrictions on the free export of gold when exchange reaches the limit point showing that the demand for bills on London exceeds the supply. New York (with London and India) is a free gold market, and this is undoubtedly one of the reasons why money is so readily advanced to the United States, and the finance bills, to which we referred above, would not be allowed to the same extent were it not for the fact that New York will remit gold when other forms of remittance are insufficient to satisfy foreign creditors. When exchange between Paris and London reaches the theoretical limit point of 25.32 (25 francs 32 centimes for the r sterling), gold does not leave Paris for London unless the Bank of France is willing to allow it. By law, silver is also legal tender in France, and if the State Bank is pressed for gold a premium will be charged for it if it is supplied. Gold may be collected on cheaper terms in small amounts from the great trading corporations or from the offices of the railways, but a large shipment can only be made by special arrangement with the Bank of France. Similarly, in Germany, where a gold standard is supposed to obtain, if a banker requires a large amount of gold from the Reichsbank he is warned that he had better not take it, and if he persists he incurs the displeasure of the government institution to the prejudice of his business, so that the theoretical limit point of 20 marks 52 pf. to the pound sterling has no practical significance, and gold cannot be secured from Berlin when exchange is against that city, and Germany has, when put to the test, an inconvertible and sometimes a debased currency. There is no state bank in the United States, and no government interference with the natural course of paying debts. On the other hand, when monetary conditions in New York indicate a great shortage of funds, and rates of interest are uncomfortably high, the United States treasury has sometimes parted with some of its revenue accumulations to the principal New York bankers on condition that they at once engage a similar amount of gold for import from abroad,which shall be turned over to the treasury on arrival. As these advances are made free of interest the effect is to adjust the limit point of 484 to about 485, and the United States treasury seems to have taken a leaf out of the book of the German Reichsbank, which frequently offers similar facilities to gold importers and creates an artificial limit point in the Berlin Exchange. The Reichsbank gives credit in Berlin for gold that has only got as far as Hamburg, and sometimes gives so many days' credit that the agent in London of German banking houses can afford an extravagant price for bar gold and even risk the loss in weight on a withdrawal of sovereigns, although the exchange may not have fallen to the other limit point of 20.32. In England the only effort that is made to attract gold is some action by the Bank of England in the direction of raising discount rates; occasionally, also, the bank outbids other purchasers for the arrivals of raw gold from South Africa, Australia and other mining countries. Quite exceptionally, for instance during the Boer War, the Bank of England allowed advances free of interest against gold shipped to London. Many of the principal banking houses in all the important capitals receive continually throughout the day telegraphic information of the tendency and movement of all the exchanges, and on the smallest margin of profit a large business is done in what is called arbitrage (q.v.). For instance, cheques or bills on London will be bought by X in Paris and remitted to Y in London. X will recoup himself by selling a cable payment on Z in New York. Z will put himself in funds to meet the cable payment by selling 6o days' sight drafts on Y, who pays the 6o days' drafts at maturity out of the proceeds of the cheques or bills received from Paris, and this complicated transaction, involving no outlay of capital, must show some minute profit after all expense of bill stamps; discount, cables and commissions has been allowed for. Such business is very difficult and very technical. The arbitrageur must be in first-class credit, must make the most exact calculation, and be prompt to take advantage of the small differences in exchange, differences which can be only temporary, as these operations soon bring about an adjustment. The European exchanges with which London is chiefly concerned are Paris and Berlin, through which centres most of the financial business of the rest of Europe is conducted; for example, Scandinavia, Russia and Austria hank more largely with Berlin than elsewhere. Italy, Switzerland, Belgium and Spain bank chiefly in Paris. European claims on London or debts to London are settled mostly through Germany or France, and consequently the German and French rates of exchange are affected by the relation of England with the rest of the Continent. The ex-changes on Paris and Berlin are theretore most carefully watched by all those big interests which are concerned with the rate of discount and the value of money in London. If the Paris cheque falls to 25.12, gold arrivals in the London bullion market will be taken by French bankers unless the profit shown by the exchange on some other country enables other buyers to pay more for the gold than Paris can afford. If the Paris cheque falls still further, it would pay to take sovereigns from the Rank of England for export, and so much would be taken as would satisfy the demand to send money to France, or until the consequent scarcity of money in London made rates of interest so high in England that French bankers would prefer to leave money and perhaps increase their balances. As between London and Paris and Berlin the greatest factor operating the exchanges is the relative value of money in the three centres. There is no great excess of trade balance at any season in favour of Germany or France and against England. On the other hand the banking relations between those countries are very intimate, and if funds can be very profitably employed in one of these places, there will be a good demand for remittance, and exchange will move in favour of that place, that is to say, exchange will go towards that limit point at which gold will be sent. The great pastoral and agricultural countries like South America, Egypt and India are in a position to draw very largely on London when their crops or other products are ready for shipment. In the early months of the year gold goes freely to South America to pay for the cereals, hides and meat, and in the autumn Egypt and India send such quantities of cotton and wheat that exchange moves 'heavily in favour of those countries, and gold must go to adjust the trade balance. During the rest of the year the gold tends to return as these countries always require bills on Londofi or some form of payment to meet interest and dividends on European money invested in their government debts, railways and trading enterprises, and to pay for the European manufactures which they import. Exchange then moves in favour of England, and the Bank of England can replenish its reserve. Over the greater part of the world the rate of exchange on London is an indication simply of the trade balance. The greater part of the world receives payment for food stuffs, and has to pay for European manufactures, shipping freights, banking services and professional commissions. The greatest complication in exchange questions arises when we have to deal with a country employing a silver standard, and, fortunately for the development of trade, this problem has disappeared of late years in the case of. India, Ceylon, Japan, Mexico and the Straits Settlements, and now the only important country using silver as a standard is China. When the monetary standard in one country is only a commodity in another country we are as far removed from the ideal of an international currency as can be imagined. We can fix no limit points to the exchange and we cannot settle any theoretical par of exchange. The price of silver in the gold-using country may vary as much as the price of copper or tin, and in the silver-using country gold is dealt in just as any other metal. In both cases the only metal of constant price is the metal which is used as the money standard. The easiest method of explaining the position is to consider that any one in a gold-using country having a claim in currency on a silver-using country has to offer for sale so many ounces of silver, and vice versa the exporter in a silver-using country sending produce to London has to offer a draft representing so many ounces of gold. This introduces a very unsatisfactory element. To take a practical example; a tea-grower in China has raised his crop in spite of the usual experience of weather and labour difficulties and the endless risks that a planter must face; the tea is then sent to London to take its chance of good or bad prices, and at the same time the planter has a draft to sell representing locally a certain weight of gold; now, in addition to all the risks of weather and trading conditions, and the chances of the fluctuations in the tea market, he is compelled to gamble in the metal market on the price of gold. Some years ago when a large number of important countries employed a silver standard it was seriously suggested that a fixed ratio should be agreed internationally at which gold and silver should be exchanged. This advocacy of bimetallism (q.v.) was especially persistent at a time when silver had suffered a very great fall in price and the prominent exponents could generally be identified either as extremely practical men who were interested in the price of silver, or as very inexperienced theorists. The difficulty of the two standards was successfully solved by discarding the use of silver, and the chief silver-using countries adopted a gold standard which has given greater security for the investment of foreign capital, has simplified business and brought about a large increase of trade. In the case of a country of which the government has been subject to great financial difficulties, gold has been shipped to satisfy foreign creditors so long as the supply held out, and the exchange with such a country will continue to move adversely with every fresh political embarrassment and any other economic cause reflecting on the national credit. With the collapse of the monarchy in Brazil the value of the milreis fell from 27d. to 5d., and all the Spanish-American countries have from time to time afforded most distressing examples of the demoralizing effects on the currency of unstable and, reckless administration. In Europe similar results have been shown by the mistrust inspired by the governments of Spain, Greece, Italy and some other states. The raising of revenue by the use of the printing press creates an inconvertible and depreciating paper currency which frightens foreign capital and severely taxes the unfortunate country which must make payment abroad for the service of debt and other obligations. With the tardy appreciation of the old proverb that " honesty is the best policy " nearly every country of importance has made strenuous efforts to improve the integrity of its money. • Exchange quotations are not published from many of the British colonies, as their financial business is in the hands of a comparatively few excellently managed banks, which establish, by agreement, conventional exchanges fixed for a considerable period, notably in the case of Australia, New Zealand and South Africa. The Scottish and Irish banks supply similar examples of a monopoly in exchange. The following table taken from the money article of a London daily paper indicates the exchanges which are of most interest to England: Foreign Exchanges. June 14. June 15. June 16. Paris, cheques . . 25 f. 18 c. 25 f. 18 c. 25 f. 18 c. Mkt. discount . 21-e p.c. 21-8 p.c. 21-e p.c. Brussels, cheques 25 f. 23 C. 25 f. 231 c. Berlin, sight . . . 20 M. 481 pf. 20 M. 481 pf. 20 M. 48 pf. 8 days 20 M. 462 pf. 20 m. 461 pf. 20 M. 451 pf. Mkt. discount 31 p.c. 3s p.c. 38 p.c. Vienna, sight . . . Holiday 24 kr. 02l h. 24 kr. 02 h. Amsterdam, sight 12 fl. 131 C. 12 fl. 134 c. .. Italy, sight Holiday 25 lire 15 C. Madrid, sight. . . „ 27 pS. 68 Lisbon, sight . . 94 r. 10 94 r. Io St Petersburg, 3ms. . Bombay, T.T. . . Is. 4d. Is. 4d. Is. 4d. Calcutta, T.T. I s. 4d. I s. 4d. I s. 4d. Hong-Kong, T.T. 2s. I i'6 d. 2s. 2s. r I'6 d. Shanghai, T.T. . 2s. told. 2s. told. 2s. Iold. Singapore, T.T. . . 2s. 4, d. 2S. 4,'6d. 2S. 4,',d. Yokohama, T.T.. . 2s. old. 2s. old. 2s. old. *Rio de Jan'ro, 90 days 16f d. 16,^6d. 163 ~d. *Valparaiso, 90 days 14ld. 14yd. 1444. Coml. . . *B. Ayres, 90 days 48}d. 48d. 48(1. * These rates are telegraphed on the day preceding their receipt. In the case of Paris and Berlin it will be noticed that the local rate of discount is also given, as the value of money in these centres, in relation to the value of money in London, is the most important factor in a movement of the exchange. Vienna has become important owing to the improvement in the financial position of Austria, and still greater improvement is shown in the case of Italy, whose currency stands in the above list better even than that of France. Spain, which should stand at about the same rate, still has a depreciated paper currency. Lisbon stands also at a discount, as the milreis should be worth 534 pence. In Russia the exchange showing 94.10 roubles to L10 is carc-fully and cleverly controlled in spite of the bad internal position. The India exchanges move slightly, as the currency is firmly established at the rate of 15 rupees to the b1. Hong-Kong quotes for the old Mexican dollar and a British trade dollar; Shanghai for the tael containing on an average 5171 grains of fine silver. The Straits Settlements have fixed their money on a gold basis at 2S. 4d. per dollar, on the lines of the arrangement made in India. In Japan there is a gold standard, and par of exchange is 2S. old. for the yen. Brazil, Chile and Argentina have a depreciated paper currency, and the last quotation of 48d. is for the gold dollar equal to five francs, but there is a premium on gold in the River Plate of 127.271% and for the present a gold standard is re-established on this basis. The letters T.T. with the eastern exchanges signify telegraphic transfer or the rate for payments made by cable. The very important New York rates are always given in another part of the daily paper with other details of American commercial interest. These rates are all quotations for payments in England, and all over. the world the exchange on London is the exchange of the greatest importance. This unique position was gained originally, probably, through the geographical position of the United Kingdom, and has been maintained owing to several reasons which secure to London a peculiar position by comparison with any other capital. Britain's colossal trade ensures a supply of and a demand for English remittances. Even when goods or produce are dealt in between foreign countriesa credit is opened in London, so that the shipper of the produce can offer in the local market a bill of exchange which is readily saleable. With the highly developed banking system a large amount of deposits is collected in London, and the result is that bills of any usance up to six months can be immediately discounted, and the proceeds, if required, can be handed over in gold. There are in London a great number of wealthy banks and banking houses whose reputation and solidity allow any one of them to accept bills for amounts varying from one to ten millions sterling, whereby large commissions are earned. These four advantages, namely, a free gold market, a huge trade, an enormous accumulation of wealth, and a discount market such as exists nowhere else, have made London an unrivalled financial centre, and consequently bills on London are an international money and the best medium of exchange.
End of Article: EXCHANGE
EXCELLENCY (Lat. excellentia, excellence)

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