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Rh enemy countries. It was afterwards ascertained that these bank- notes were actually bought for enemy account, and many of them are believed to have found their way to Turkey and Bulgaria. Subsequent events proved that the action of the purchasers, though perhaps not patriotic, was from a financial point of view a prudent one, as it was evident in 1918 that in the very probable event of the Allies winning the war, the value of the pound sterling in terms of their own currency was certain to increase to a far greater extent than the 10 or 15% beyond the then current rate of exchange on London that they were willing to pay to convert their currency into sterling in the only way they could do it, while at the same time circumventing the vigilance of the British Ministry of Blockade.

Business Developments. One interesting and important re- sult of the enormous increase of the volume of foreign-exchange transactions carried out in London, which, after the Armistice, established itself more firmly that ever as the world's clearing- house for that class of trade, has been a remarkable development in the business of the London foreign-exchange brokers.

Exchange brokers have existed in London for centuries, but their business was generally confined to buying and selling foreign exchange for merchants and for those bankers who had no direct relations with foreign countries. They were in the habit of meeting twice a week on the Royal Exchange, where the ex- change dealers also attended, and foreign bills of exchange and cheques were then sold to the best buyers, and official rates of exchange were fixed. It is true that with the advent of the telephone it became more and more the custom to carry through the more important transactions, especially those between exchange dealers themselves, by means of telephonic com- munication, but such transactions were far from numerous, and, such as they were, they were generally done in a leisurely manner. Now all this is changed. The leading exchange brokers confine themselves entirely to working between the various exchange dealers. From ten in the morning until six in the evening their offices are a regular pandemonium. Some of them employ as many as 40 or 50 private telephones in addition to several general ones, and the largest of them carry through on an average about two-hundred transactions a day, mostly for very large sums. They make it their business to keep their clients posted in all the various and quick movements that occur almost from minute to minute in exchange rates, and carry out their trans- actions with the rapidity and accuracy without which business of that class would be impossible.. They assume no financial liability, for when their contracts are passed their responsibility ceases. To succeed and their business is a very lucrative one though their scale of commission is infinitesimal they need discretion, integrity and intelligence. They must never discuss one client's business with another client, nor divulge the name of a buyer to a seller or vice versa, until the transaction is completed. The service the broker renders to the dealer is an extremely valuable one, and the result is that there is practically no business done between dealers without the intermediary of a broker. An interesting fact in this connexion is that, at the end of 1920, the biweekly meetings that had been held between dealers for generations "on 'Change" were abolished.

Partly because this system of employing exchange brokers enables large and numerous transactions to be carried out with great rapidity, partly because the temperament of the chief London dealers in foreign exchange is such that they are easily able to resist the temptation to speculate to any great extent on their own account, partly because those who deal in foreign exchange in London are banks and bankers of the highest stand- ing, but more particularly because the sterling bill has by no means lost its prestige throughout the world, London has established herself more firmly than ever as the central foreign exchange market of the world, and all day and every day there is a constant flow of cables and telegrams from all quarters bringing orders to buy and sell every possible kind of exchange in amounts that were never imagined possible in pre-war days.

Lessons of the War. Many lessons have been taught by the new conditions brought about by the war. One of the most

important of these is that State interference with the natural movements of exchange, excepting for a limited period and with success practically assured, is a mistake and likely to lead to disastrous results. The " pegging " of. the pound sterling to the American dollar certainly so long as America was a neutral Power proved nevertheless to be wise and legitimate. The attempts of other countries to stabilize their exchanges at that time were for the most part unsuccessful.

Another fact that has been brought to light is that, to a credi- tor country, especially one which depends for its prosperity to a large extent on its export trade, a favourable exchange is a dis- tinct disadvantage, which can only be overcome if the nationals of that country are willing to invest a substantial proportion of the value of their exports in those foreign countries which buy their goods. An outstanding example of such a country is Amer- ica, for up till the spring of 1921 Americans were only just begin- ning to acquire the habit of investing their money outside their own country; this rendered it extremely difficult for their export merchants to finance their business, as the majority of foreign importers were only able to pay for their goods by means of their own currencies.

It does not follow, however, that an American merchant would be absolutely precluded from selling goods (say) to Poland against payment in Polish marks merely because no one in America would be willing to invest his money in that country. So long as exchange dealers or speculators in another country whose own currency is in fair repute would be willing to purchase Polish marks either directly or indirectly against dollars that is to say, either paying for the Polish marks in American dollars or in some currency that could be converted into dollars if the American exchange dealer so desired so long could the American merchant continue to sell his goods to Poland against payment in that country's currency.

On the other hand, manufacturing countries whose exchanges have depreciated heavily and rapidly are in a very favourable position to compete in foreign markets. They can buy their raw materials abroad just as cheaply as any other country, while, as has been proved, the rise in the cost of manufacture particularly as regards wages lags far behind any rapid rise that may take place in exchange rates. Such a country would be able to under- sell its competitors to a considerable extent while still making very large paper profits. As an example: the first serious set-back in trade that occurred in Germany after the declaration of peace, was when the German rate of exchange fell temporarily from 365 to 120 marks to the pound, in the early part of 1920. Had the internal value of the mark, that is to say its purchasing power within the boundaries of Germany, depreciated to anything approaching its external value, it would not have been possible for German trade to revive as rapidly as it did.

It is safe to predict that in a highly civilized country, well organized for trade purposes, such as Germany, the internal and external value of its currency must equalize itself approximately sooner or later, but the process is slow and gradual, and during the years that intervene it may be possible for that country to build up an export trade on so firm a basis that it would be difficult for other countries to oust it from its position, even when it is no longer helped by favourable exchange conditions. In fact, it is a mistake to suppose that any country derives advantage from the greater depreciation of another country's currency. The latter cannot afford to import from the former anything beyond its merest necessaries, and on the other hand it is able to under- sell it in all competitive markets. (E. L. F.) EXPLOSIVES (see 10.81-4). In the World War of 1914-8 the use of high explosives went beyond anything previously known. Economic considerations played a large part in determining the types used, and their methods of manufacture. Many improvements were introduced to save labour and eliminate waste in production, but it became evident very early in the struggle that to meet the demand with existing types was a sheer impossibility, and this led to the adoption of others, hitherto untried and unproved. Apart from military uses, explosives also play an essential part in industrial work, the necessary supply