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 consequently 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 consequent ly 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 either draws 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 coun tries, 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

lity, 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 obtain payment by it; but in case of the insolvency 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 up on 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 consider ing 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, pay. able 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 com. mand 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 situa tion 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 understand

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 mi. nute 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.