Hence, if a person in Edinburgh wishes to have a bill at sight on London, he must pay 1s. per cent., or four days' interest, on it. And this time is also called the Par of Exchange between London and Edinburgh. There is a similar premium on bills, or par of exchange, between all other cities in the country on London. This is called Inland Exchange.

The Exchange of the country upon London is said to be against the country and in favour of London. But it must be observed that it is only unfavourable to the buyers of bills, or those who wish to send money. It is equally favourable to the sellers of bills, or those who have to receive money.

The exchange is called unfavourable, because, after the settlement of the whole debts between the two places, there remains a sum in cash to be remitted.

It appears from this, that when in any place the demand for bills is greater than the supply, the Exchanges are adverse to that place, because it has more money to pay than to receive: when the supply is greater than the demand, the Exchanges are favourable to it, because it has more money to receive than to pay.

On FOREIGN EXCHANGE.

5. The principle of Foreign Exchange is exactly the same as that of Inland Exchange. But there is somewhat more complication in the detail, on account of the different monies of different countries.

In Exchange between two foreign places and of different monies, the money of one place is always taken as fixed, and the Exchange is reckoned in the variable quantities of the money of the other given for it. The former is called the fixed or certain price, and the latter the variable or uncertain price.

Thus, between London and Paris, the Exchange is always reckoned by the variable sum in francs and cents given for the fixed £.

On the contrary, between London and Spain the Exchange is always reckoned by the variable sum in pence given for the fixed dollar of Exchange.

When a certain place is taken as a centre, if the fixed price is the money of that place, it is said to receive the variable price;

on the contrary, when the money of that place is the variable price, it is said to give the variable price.

Thus, at any time, London receives from Paris so many francs and cents for the £1 sterling, and London gives Spain so many pence for the dollar.

In the quotations of the Rates of Exchange, it is usual to omit the fixed price and name only the variable price, and then that is called the Rate or Course of Exchange.

One source of perplexity in the Foreign Exchange arises from the circumstance that, in consequence of London giving the variable price to some places, and receiving it from others, the same state of the exchanges will have to be expressed in opposite language, as we have observed above, in speaking of the expressions used regarding the Foreign Exchanges rising or falling in consequence of a depreciated currency.

According to Tate's Modern Cambist, the following are the present Rates of Exchanges between London and the principal Foreign Cities:

Now, if the exchange of London on Paris is against London, or the demand in London for bills on Paris is greater than the supply, it is clear that the £ sterling will purchase fewer francs. Hence, between London and Paris, when the example is adverse to London, the rate or course of exchange will fall below par.

On the contrary, when the exchange is favourable to London, that is, the supply is greater than the demand, the Rate of Exchange will rise above par.

And the same is manifestly true with respect to all other places from which London receives the variable price.

But, suppose the Exchange between London and Madrid is against London, or the demand in London for Bills on Madrid is greater than the supply, then London will have to give more pence to purchase the Spanish dollar.

Hence, between London and Madrid, when the Exchange is against London, the Rate, or Course of Exchange, will rise above par.

On the contrary, when the Exchange is favourable to London, she will have to give fewer pence to purchase the Spanish dollar, and, consequently, the Rate of Exchange will fall below par.

And the same is manifestly true, with respect to all other places to which London gives the variable price.

Hence, when the Exchange between London and any other place varies from par, we must always consider whether London gives the variable price to, or receives it from, that place.

The interests also, of the buyers and sellers of bills are always opposite. If the Rate of Exchange is favourable to the one, it is equally unfavourable to the other. The buyers of bills are also called remitters, and the sellers are also called drawers.

Having now stated the places from which London receives, and those to which it gives, the variable price, we will give a table illustrative of the effects of a depreciated coinage on the foreign exchanges, and of its restoration to par. In 1695 the coinage of England had become greatly deteriorated, owing to clipping and wear and tear. The foreign exchanges were in great disorder. But in 1696 a great re-coinage was undertaken, and the effects of it are exhibited in the following table. The figures denote the Rates of Exchange as paid in coin.

Now, on inspecting this table, we perceive that a great change in the figures took place about July, 1696. Some rise very much, others fall. Those from which London received the variable price rose; those to which London gave the variable price, fell. Which exactly verifies the doctrine laid down in § 2.

On the Limits of the Variations of the Exchanges.

6. Supposing that while the Exchange between any two places -say London and Paris-is in a state of equilibrium, that is, when the demand and supply of bills in each city is exactly equal, so that they would each have to receive and send the same sum, it should happen that from any cause whatever, no matter what, there should be a desire on any particular day to send more money from one side than it has to receive. Suppose more money has to be sent from London than it has to receive; then those merchants who want to remit money from London will strive to buy bills on Paris in the London markets. But, as the demand is greater than the supply, a competition will spring up to buy the bills that are in the market, and hence the price of them will rise. It is their duty to place the bullion in Paris at

their own expense and risk, and, consequently, they would rather give somewhat more for a bill than its par price, to save themselves that expense. But they will not give more than the cost of transmitting the bullion itself, because, if the price rose higher than that, they would sooner send the money. Thus, when the Exchange in London rises against London, or, in the case of Paris, falls below par, it shows that London wishes to send to Paris more than it has to receive, and the exchange is said to be against London, but it is clear that it cannot continue at a greater rate against London than the cost of transmitting bullion. Hence this is manifestly a superior limit to the variation of the Real Exchange.

But the reverse case may also happen. The supply of bills in London on Paris may exceed the demand. The price of them will, therefore, manifestly fall. But, for similar reasons, the cost of transmitting bullion will be an inferior limit below which the price will not fall.

We thus see that the state of the exchanges arising out of the cross remittances of money is a simple example of the general law of supply and demand, with the limitation that the variation in the rates of exchanges cannot exceed a certain definite sum, namely, twice the cost of sending bullion from one place to the other.

These limits of the Rate of Exchange are called specie points, because, when the Exchanges reach them, bullion may be expected to flow in, or out, as the case may be.

It is to be observed, however, that these limits of the variations of the Exchange, or specie points, only apply to bills payable at once, and to long periods. During short periods, and for bills which have some time to run, temporary causes may produce fluctuations in the Exchanges greatly exceeding these limits. We shall consider these cases fully afterwards.

On the Effects of an Inconvertible Paper Currency on the Foreign Exchanges.

7. We must now consider what the effect of an inconvertible paper currency will be on the foreign exchanges, and the market price of bullion. So long as paper is convertible, that is, the