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weight of gold or silver which the sum of Portuguese money for which it is drawn is supposed to contain, exchange between London and Lisbon is said to be at par; when it can be procured for less, exchange is said to be below par, or in favour of London; when more must be given, exchange is said to be above par, or against London. The value of all the bills of exchange, which the merchants of London can draw upon the merchants of any other place, must in general be regulated by the value of the consignments and remittances, direct or indirect, through other countries, which they have made to that place, and consequently the course of exchange affords an indication of the state of the trade between different countries. When bills upon Lisbon, for instance, are scarce in London, and exchange *. above par, it is a sign that London owes more to Lisbon, than Lisbon to London : and the reverse is a sign of the contrary. But there are other circumstances by which the course of exchange is very materially affected. Should the circulating coin of any country, v.g. be considerably debased, and its real value, the quantity of gold or silver which it really contains, be much less than its nominal value, exchange may appear to be against a country, while actually it is in favour of it. Before the reformation of our silver coinage in the reign of William III. we are informed by Dr. Smith, the exchange between England and Holland, computed by the standard of their respective mints, was 25 per cent. against England; but the current coin of England was at that time rather more than 25 per cent. below its standard value, and consequently exchange was really in favour of England. The issue of assignats, during the revolution, depreciated the currency of France in a greater degree than was ever known in any other instance ; and accordingly the exchange between London and Paris became between 60 and 70 per cent. against the latter place An unfavourable state of the exchange with any country furnishes a motive for exporting commodities to it. The merchant, under these circumstances, can afford to sell his commodities as much cheaper as the premium which he is obliged to pay for a bill of exchange amounts to. Hence the course of exchange always tends to an equilibrium. Indeed it can never really exceed the expense of sending gold or silver bullion to the place upon which the bill is

drawn : since this is the money of the commercial world, and will every where be accepted in payment. Its apparent rise above this expense is to be ascribed to a depreciation of the currency, or some similar cause. We shall now enter more into the practical part of exchange. In treating this subject, we shall first give an idea of the nature of exchanges, and in the second place, we propose explaining the peculiar terms in use among merchants relative to bills. In transactions between a buyer and seller, both residing in the same place, it is obvious that the mode of payment is extremely simple. It takes place either in cash or by bill, and is attended with no intricacy of computation. Transactions between two towns in the same country are almost equally easy. Payment in cash is out of the question, but the seller eithcraraws on the buyer a bill payable at the residence of the buyer, or, if this residence is not a town of extensive trade, the buyer domiciles his acceptance at a place of this description; that is, he makes it payable there. The simplicity of this process arises from the money being of the same denomination in both places, and nearly of the same value. But in dealing with foreign countries, the calculation becomes less simple from the difference of denomination; and although this causes no real difference in the value of money, yet obstacles exist to the conveyance of specie, which almost always prevent money from being of equal value in two different countries at the same time. Among merchants resident in different countries, bills serve nearly the same purpose as cash to the inhabitants of the same town. They are the current coin, by which the buyer in one country repays the seller in another; they pass like money from hand to hand; and this facility of circulation would always make money of nearly equal value in two countries, whose exchange of merchandize should be nearly equal. But it seldom happens that the exchange of merchandize is equal; there is almost always a balance on one side or the other. Hence the fluctuations of exchange. These fluctuations are greater or less, according to the amount of the balance to be paid, and according to the expence and difficulty of conveying specie. By the expense of conveying specie, is meant the carriage and insurance; by the difficulty, is meant the hazard of evading those prohibitory regulations, which in most countries impede its exportation. So powerful is the operation of these causes, that the exchange is often high, even between neighbouring countries; for instance, during 1793, the trade between Holland and England was completely open, insurance was low, and the voyage is known to be short, yet money was worth 10 or 12 per cent. more in England than in Holland; that is, a bill on London cost on the exchange of Amsterdam between 10 and 12 per cent, more than the intrinsic value of the money. This continued until the spring of 1794, when the King of Prussia having promised to act with vigour against the French, on condition of receiving a large subsidy, the remittance of a part of that subsidy through Amsterdam caused an immediate fall in the rate of exchange between England and Holland. II. Having explained the origin of fluctuations in exchange, we shall next advert to the peculiar terms used in bill transactions. Usance. This term, derived, like many of our mercantile phrases, from the Italian (uzanzia) means the customary period at which bills used to be drawn from one particular country on another. This period between Holland and England was a month., “At two usance pay to order of, &c.” in such a bill means, “at two months after date pay to order, &c.” Between England and Hamburgh, and between England and France, usance is also a month. Between England and Portugal or Spain, it is two months; and between England and Italy it is three months. Its length evidently increases with the distance of two countries from each other, and was regulated by the time formerly required for the conveyance of bills. In the American and West India trades, the phrase is not known, and the common term of a bill is sixty or ninety days after sight. The word usance continues to be employed only from conformity to ancient custom; for it has no signification, which would not be equally well expressed by the more generally intelligible phrase of months or days. Days of grace. It has been judged fit, by the legislatures of different countries, to consider the acceptance of a bill of exchange as an engagement decidedly obligatory on the acceptor. If he failin paying it, he not only loses his credit, but the holder of the bill may, in most countries, arrest either his person or his property. The policy of these enactments is,

to give free currency to bills of exchange, by satisfying the buyer or holder of a good bill that the obligation in his hands is almost as effectual as money. Having given so much power to the holder, it was thought adviseable to extend some indulgence also to the acceptor. Accordingly days of grace were allowed him, that is, it was ordered that the holder should take no measures, and not even protest an acceptance, until the expiration of certain days after the bill became due. In London three days of grace are allowed; in Amsterdam, six; in Hamburg, twelve : in Dantzic, ten; in Copenhagen, eight ; in Berlin, three; in the United States, three; and a different termin many other mercantile countries. The practice of giving days of grace is, now at least, of no real use ; for every acceptor, knowing that he may avail him: self of them, does not fail to do it, and it would be considered quite ridiculous in the holder of a bill to send it for payment before the end of the three days. So that when a bill is drawn at sixty days sight or date, the only effect of the days of grace is to make sixty, sixty-three. Protest. This is the notarial act which denotes that an irregularity has taken place in regard to the bill, either that it is not accepted, or that it is not paid. In some branches of trade it is customary, in cases of non-acceptance, not to extend, but only to note, a protest. Noting a protest is said, when a notary only records the irregularity; to extend a protest, implies that he has written out on a stamp a formal statement of that irregularity. In a case of non-acceptance, the protest gives the holder of course no power over the person on whom the bill is drawn, but it enables him in some countries to demand security from the person of whom he received it; in other countries, the holder can do little or nothing with a protest for non-acceptance; and in these cases he generally contents himself with noting a bill when acceptance is refused. In the British West India trade, for example, it is much more customary merely to note bills for non-acceptance, than to extend the protest; for it is only in particular colonies (St. Vincent, for instance) that the holder can take prompt measures to oblige the drawer to find security to him for the amount of the bill : But on refusal of payment, a protest should always be extended; otherwise the holder would, by this omission, relieve every indorser on the bill from responsibility, and have no resourse, except on the drawer. If an accepted bill is refused payment, it is a proof that the acceptor is insolvent. The holder may either proceed against the acceptor, or he may send back the bill to the last indorser, or if there be no indorser, to the drawer. The drawer, or last indorser, as the case may be, is pledged to refund the amount immediately to the holder. This mode being generally the speediest means of reimbursement, the holder always prefers it when he can ob

tain payment by it; but in case of the in

solvency of both drawer and acceptor, the holder retains the bill, and gets what he can from the estates of both. When the Bank of England finds that a merchant has suspended payment, their rule is to examine all the bills drawn upon him, which have been discounted by different persons at the Bank, and to send notice to these persons that the Bank expect the bills will be taken up, and the money refunded. It is disreputable not to comply as early as possible with this intimation. .Accommodation Bills. By this term are understood bills drawn, not on occasion of a real transaction, but for the purpose of affording a temporary supply of money, or accommodation to the parties. Such bills obtain currency for several reasons. It is often difficult to distinguish a real from a fictitious bill: even when a bill is considered fictitious, it will still obtain currency, as the holder of it has the double security of the drawer and acceptor. It is as valid as a real bill, the law considering only whether the holder has given value for it, and protecting him in the recovery of that value: the shortness of the term also (seldom exceeding two months, and never almost exceeding three) naturally induces persons to think, that, although the drawer and acceptor be of doubtful credit, they will not fail quite so soon; and, in the worst event, the holder has the prospect of a double chance of recovery from the estates of both parties. In the United States of America, the Banks avowedly sanction the practice of accommodation, and discount notes which they know to be fictitious. These notes are understood to be renewable, not so much at the pleasure of the bank, as of the borrowers of the money, and the consequence has been, that the banks have lost sight of the object of their institution, and, instead of confining their loans to the anticipation of funds, for short periods, have resolved themselves

into permanent loan offices. Now there can be no doubt but that a bank, like an individual, has a right to lend its capital to whom, and for as long a period, as it pleases; but on the other hand it is evident, that the profitable nature of the banking business consists in its lending to a greater amount than its capital. If it does not do so, its expenses will diminish its dividends below the legal interest. But how is a bank to lend more than its capital We answer, in two ways, first, by lending the money of depositors, and secondly, by lending its credit in the shape of bank notes. This latter operation is performed by a bank’s giving its promissory note, payable on demand, without interest, in exchange for the promissory note of an individual, payable in a specified time, for which the interest is charged. If, then, a bank note is kept in circulation without being presented for payment, until the note, in exchange for which it was issued, becomes due and paid, the bank has gained the interest, without any advance of capital. Now it must be plain, that the faculty of a bank to trade thus upon its credit, without the danger of stopping payment, depends upon the length of time for which it makes loans. The shorter the period at which it discounts bills and notes, the greater is the extent to which it can safely loan, in as much as the command of its resources is more within its reach. If a bank, for instance, were to limit its loans to thirty days, it would have the command of all its capital and means within that short space of time, and thus be enabled to defend itself against any run which would be likely to be made by the presentment of its notes for payment, or the drawing out of the money of the depositors. But, on the other hand, if a bank were to give its notes, payable on demand, in exchange for the notes of individuals, payable in six months, its excessive issues over and above the amount of its capital must be very limited, or it will be in danger of more immediate demands than it is able to meet, from its immediate resources. Now this has been precisely the situation of the banks in many parts of the United States. Although the notes discounted by them have been usually drawn at 60 days, (which has been the term adopted in Great Britain and America, and elsewhere, as the longest at which banks should anticipate commercial capital,) yet the implied understanding that they were not to be paid, but renewed, when due, has virtually deprived the banks of the real command of their resources; and this has been the chief cause, why all the banks in the United States, except those of New England, were obliged to suspend specie payments in August, 1814, or soon after. Since we have thus touched upon the suspension of specie payments by our banks, and have pointed out one of the causes thereof, it may not be amiss to pursue the subject a little further. Whilst our banks, from a general spirit of overtrading, and particularly in that kind of loan for long periods, which cannot fail to paralize the power of a banker, they were induced, either from motives of patriotism or of speculation, to make considerable loans to the government. These loans called for an issue of bank notes, the same as if they were made to individuals, and the circulation being surcharged with paper, more of these notes were returned for payment than the banks could meet, with their immediate resources. The excess occasioned by these loans to government might, it is true, have been absorbed by reversing the operation, that is, by selling the stock for the very notes with which it was purchased; but the banks, influenced in this respect by a sordid spirit of avarice, preferred the disreputable alternative of stopping payment, whilst they possessed ample means to support their credit. But this was not all. During a state of war, it was an easy matter to palliate the disgraceful measure, by representing to the public that it was one of choice, and not of necessity; but what ought to have been the course of the banks after the restoration of peace Surely to return to the practice of correct and honourable principles, by paying their notes with the punctuality which they demand from others. So far, however, from pursuing this course, they plunged themselves deeper into disgrace and the public into distress. Considering themselves as no longer bound to the fulfilment of contracts, no longer obliged to limit the amount of their loans, they extended their purchases of government stock, and their discounts of notes, to an excess, which created a depreciation of their paper from 15 to 30 per cent. In vain were they told, that the system pursued by them was dishonourable and ruinous. That the prices of commodities were elevated, just in the degree

that bank notes were depreciated; that helpless, aged, and labouring people, who were living upon fixed incomes, or wages, were deprived by them of their property; and that a system of over-trading, ruinous to the merchant, would be the result. Still they persevered, and still would they continue to persevere, if a resolution of Congress, and the establishment of a formidable rival, the Bank of the United States, had not compelled them to recur to the moral obligation of contracts. That institution, which commenced its operations at Philadelphia on the first of January, 1817, effected an arrangement with the banks of that city, New York, Baltimore, and Richmond, for the resumption of specie payments on the 20th of February following, which engagement has been thus far complied with, (March 1817.) During the deplorable anarchy which so long prevailed amongst the banks, a number of curious particulars were exhibited, in relation to foreign as well as domestic exchanges. The course of exchange between all the different cities, measured in paper money, showed precisely the degree of the different depreciations, and the difference in price, at different cities, of a bill upon Boston, where money was standard, was always equal to the relative degree of depreciation. Specie also bore at every place, upon an average, the same relation to paper as a bill upon Boston, and this was of itself sufficient to show, that all the talk about balance of trade was idle and deceptive. Exchanges, arbitration of, are calculations, made to find through what intermediate place it will be most advantageous to draw or remit. The person who draws a bill of exchange, is called the drawer; he upon whom it is drawn, the drawee, and if he undertake to pay the amount, he is then called the acceptor. The person to whose order it is to be paid, is called the payee, and if he appoint another to receive the money, that other is called the indorsee, as the payee is, with respect to him, the indorser; and any one who happens for the time to be in possession of the bill, is called the holder of it. It was above stated, that the real exchange between two countries never can exceed the expense and risk of transporting gold and silver from one place to the other; and yet, notwithstanding the correctness of this position, most commercial people in the United States were led into erroneous opinions from the mere appearances of things. In the year 1812, the nominal exchange in Philadelphia upon London was as low as 25 per cent. below par; and in 1815, as high as 20 per cent. above par. The cause of it was, that, in the former case, the currency of America was sound, whilst that of London was greatly depreciated ; and in the latter case, the currency of Philadelphia, by the stoppage of specie payments by the banks, was depreciated vastly below that of London. From an examination into this subject, and from comparing the relative value of paper money, in both countries, with the standard, and also taking the rate of exchange upon London at Boston, where the currency continued sound, it resulted, that, during the whole of this period of nominal fluctuation, the real exchange at no time was higher or lower than the expenses, &c. of transmitting bullion. It very often happens that bill payments take place by indirect channels. A Bristol merchant, purchasing grain in Holland, makes the Dutch merchant reimburse himself by drawing on a mercantile house in London or Amsterdam; or if the Dutch merchant draw on the Bristol merchant himself, he makes it a condition that the bill shall be accepted payable in London. The object of this is to give an easy currency in negociation to the bill. The Dutch merchant sells his bill on the Amsterdam exchange; where, for one man who wishes to buy a bill on Bristol, he will find twenty who wish to purchase on London. Hence, the tendency of all exchange transactions to certain central points. That point is always the principal trading city in the country. Throughout Great Britain, a bill on London is preferred to a bill on any other place; and what London is to this country, Amsterdam, in its better days, was to Europe. Every country town in Great Britain is said to have its par of exchange on London. By this is meant the term or number of days at which the country bank will give a bill on London in exchange for cash. This term is greater or less, according to the distance from London. In Bristol it is twenty-five days, in Liverpool thirty, in Glasgow forty-five, and in the more remote parts of Scotland fifty days. It is important to know, that a very small matter will amount to an acceptance. If the person upon whom a bill is drawn say, verbally, that he will accept

the bill, he is not at liberty afterwards to change his mind; or if his clerk say that the bill will be accepted, it is an acceptance. But the most usual mode of acceptance is, for the acceptor to put his name upon the face of the bill, accompanied by the date of presentment, when the bill is payable at such a period after sight. The validity of an acceptance, however, being founded in different countries upon the custom of merchants, reference must be had to them for a minute detail.

Exchange signifies also a place in most considerable trading cities, wherein the merchants, negociants, agents, bankers, brokers, interpreters, and other persons concerned in commerce, meet on certain days, and at certain times thereof, to confer and treat together of matters relating to exchanges, remittances, payments, adventures, assurances, freightments, and other mercantile negociations, both by sea and land.

These assemblies are, in some countries, held with so much exactness, that the absence of a merchant, &c. makes him suspected of drawing to a failure of bankruptcy, as not being able to stand the change.

The most considerable exchanges in Europe are, those of Amsterdam, and that of London, called the Royal Exchange. See Royal Exchange.

Table of the Par of Exchange between the United States and Foreign Countries, in 1817.

Dolls. Cts. Pound Sterling of Great Britain 4 44

Ireland . . 4 10 Livre Tournois of France . . 184 Franc of France . . . . . 19 Guilder or Florin of United Netherlands . . . . . 39 Mark Banco of Hamburgh . . 33} Rix Dollar of Denmark and Sweden . . . . . . . 1 00 Mill Rea of Portugal . . . 1 24 A Johannes . . . . . . 16 00 A Doubloon . . . . . . 14 93% An English Guinea . . . . 4 663 A Ruble of Russia . . - 66 A Dollar of Spain . . . 1 00 Rial Plate of Spain . . . . 10 Pagoda of India . . . . 1 94 Tale of China . . . . . . 1 48 Rupee of Bengal . . . . . 554

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