If it be an account current, and kept by a pass-book, it is subject to drafts or checks.

The facility with which business is transacted by means of drafts or other paper substitutes, for money, has given to the term Exchange a technical use, and now signifies the method of making payments at distant places by the use of Drafts or Bills of Exchange, without the transmission of money. The business is usually transacted through bankers, who buy the credits payable in distant places, and sell to those having payments to make in those places.

To illustrate, suppose the pork dealers of Cincinnati to send their pork to New York for sale, and receive therefor gold, which is returned to them by express. Suppose also the drygoods' merchants of New York to send their goods to Cincinnati for sale, and receive therefor gold, which is returned to them by express. If the pork purchasers in New York had paid the dry-goods' merchants there, and the dry-goods' purchasers in Cincinnati had paid the pork dealers there, the whole business might have been closed without the risk and expense of transmitting gold either way. This would be done by the pork sellers drawing drafts or orders on the pork buyers, in favor of the dry-goods' buyers, who, having paid for these drafts, would forward them to the dry-goods' sellers in payment of their purchase. These drafts being presented to the pork buyers would be cashed, and thereby the debts arising in both cities liquidated without the transmission of any money. In making this system general, to include all kinds of trade in many different places, it would frequently be very difficult for those having bills of exchange to sell to find buyers, and vice versa. An exchange broker, or bank of exchange, will obviate this difficulty. They bring the buyers and sellers together, by buying bills with their own capital, and sending them forward for credit, then selling their own drafts drawn against this credit, in amounts to suit purchasers. If between any two places the amount of bills bought equal those sold, then no gold need be transmitted, and the difference between the buying and selling rate would be the commission charged

by the broker for his services, use of his capital, and risk in buying such drafts as would not be honored.

PAR OF EXCHANGE.

ART. 119. To understand the quotations of premium or discount in exchange, it is necessary to consider the currencies of the different places. Supposing gold, as a metal, to be so distributed as to have in all places a uniform intrinsic value, and gold coin to be the only currency, the true par of exchange between two countries is the exact equivalent of gold in the standard coin of one country compared with the gold in the coin of the other. If, however, gold is the standard of currency in one country, and silver in the other, the relative intrinsic values must be compared. This need be computed only when the coins and money of account in the two countries are different. Comparing the sovereign of England with the half eagle of America, for instance, we find the sovereign to weigh 123.3 grains, but only 9163 thousandths of it pure gold. The half eagle weighs 129 grains and 900 thousandths pure gold. If we reduce the fineness of the sovereign to that of the half eagle, without changing its value, it must weigh 125,5% grains. In this estimate the alloy is reckoned of no value. To ascertain the true equivalent we have this simple proportion, 129 grains: 125.583 grains :: $5 : $4.8675.

As the weight and fineness of the sovereigns coined previously to the present reign were somewhat less than the value, as derived above, the average value, as fixed by our mint, is $4.84. A new Victoria sovereign, however, is worth $4.863. A pound sterling (£) is a denomination in the money of account only; the sovereign is a coin of an equivalent value. It follows from the above that exchange on London is par when a bill for £100 can be bought for $486.75 in American gold.

The common quotations are based upon a purely nominal value of the pound sterling, viz.: $4.44%, for that is not now its value in any other sense.

Difference 91% (nearly) of the nominal par,

$4.8675 4.4444 +

.4230

When the quotations are 1091%, sterling exchange is really at par; when 110%, it is at a premium; when 109%, it is at a discount. Quotations are generally made on sterling bills drawn at 60 days' sight. As the cost of transmitting gold, including insurance, is about equal to the interest on the bill for 60 days, the time for the passage of both being the same, remittances often are made in these time drafts, for which the same is paid as for sovereigns of equivalent amount.

RULE FOR COMPUTING STERLING EXCHANGE.

ART. 120. To $40 add the premium on $40, at the quoted rate. By this sum multiply the amount of sterling exchange expressed in pounds, and divide the product by 9. The quotient will be the value in dollars.

Example.

What will a bill for £224 5s. 6d. cost in New York when sterling exchange is par, quoted at 1091% or 91% premium ?

By comparing French coin with that of the United States, we find 20 francs Louis Napoleon equal to $3.84, or one dollar in gold equal to 5 francs and 21 centimes nearly, or 5% francs. The quotations of Paris exchange are usually made in this way, without involving percentage. If a bill of ex

change for more than 521 francs can be bought for $100, Paris exchange is at a discount; if less, it is at a premium, and the quotations express the number of francs that can be thus bought.

The sum mentioned in a bill of exchange on a foreign country is usually expressed in the denominations of the money of account in the place where it is made payable. Computations in foreign exchange therefore require the use of tables of foreign money, including the comparative values of the coins. or currencies in those countries.

NOMINAL EXCHANGE.

ART. 121. In the United States, though the money of account be nominally the same, yet owing to the character of the paper money in circulation, the currencies, and hence the moneys of account of different states and cities, are essentially different. The relative value of paper money, as stated heretofore, depends upon the risk and cost of converting it into coin.

If, for example, in Buffalo, it costs 3% to convert the usual paper currency into coin, the true par of exchange between that city and New York (where coin only, or its equivalent, is current) would be expressed by the nominal rate of 3% premium, in favor of New York. For the same reason the currency of Chicago being redeemable in coin at still greater cost, exchange on New York may actually be at par when the nominal rate is 2% premium. This 2% no more expresses the actual premium than does the 91% the actual premium of exchange on London. It is really the premium of New York currency over Chicago currency. The true value of the denominations in our money of account is represented by coin only, being established by the law regulating legal tender. Practically, however, by the use of a depreciated local currency, the money of account for that place is equally depreciated. Thus, goods bought in New York for $100, when sold in Chicago for $100

are sold for less than their cost, counting transportation and insurance nothing. Prices, however, will tend to appreciate as the value of the currency depreciates, so that the apparent loss by an unfavorable nominal exchange is, in general, compensated by increased prices. Inasmuch as increasing the supply of even a metallic currency depreciates its relative value, the nominal exchange between two places, using the same kind of currency, with the same mint standard, will be in favor of the place having the smallest amount of currency in proportion to its business wants, and therefore having the least depreciation. The nominal exchange is then measured by the excess of the market price of bullion above the mint price, and is, so far, unfavorable. A depreciation of metallic currency which affects the nominal exchange may also be occasioned by abrasion or wear of circulation, or by making only one of two metals legal tender where the other is in general circulation. It will be observed that, although this "exchange," which is merely nominal, almost universally enters into the quotations of exchange between different countries, it belongs rather to the exchange of currencies in the same country, and expresses the difference between the current and the standard moneys of that place.

Agio, meaning "difference," is the proper term to express this nominal exchange when considered alone. In the United States the expense of sending coin to and from New York, by the modern express companies, being so trifling, the premium on New York exchange must always be very nearly the same as on coin. The fluctuations in the nominal rate of exchange, or agio, where a depreciated paper currency is used, will be much greater than if the currency were coin or its equivalent, for the reason that the depreciation will be more variable. Sometimes the scarcity of such currency, compared with business wants, raises its current value temporarily to nearly par with coin. Just so far the nominal exchange disappears. In Bank notes that can be converted into coin at less expense than the usual local currency are, for that place, at a premium. Those costing more are at a discount, and are called uncurrent. Indeed, these notes, when removed from their