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Rh 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 (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 60 days’ sight drafts on Y, who pays the 60 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 bank 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 exchanges on Paris and Berlin are therefore 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 Bank 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 London 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 (q.v.) was especially persistent at a time when silver had suffered a very great fall in price and the 