GOIN, PAPER, AND EXCHANGE IN AMERICA.

Southland Times, Volume I, Issue I, 14 November 1862, Page 4

GOIN, PAPER, AND EXCHANGE IN AMERICA.

(From the Globe.) i Many of those who study the which are almost daily reaching us from America are probably in the habit of disregarding as unintelligible a sentence such as this :— " Gold firm at 20 per cent, premium; silver at 15 percent premium; exchange irregular at 131 £tp 132.'' Now, m these paragraphs aYe usually the most . trustworthy, and often the most instructive part of the telegraphic news, it maybe Worth while to attempt an explanation of a purely technical phraseology, to translate it into popular language, and to point out the - conclusions immediately Reducible therefrom. . ' „ "Gold firm at 20 per cent premium. \V hat does this mean ? The idea of a premium on exchange presupposes a par of exchange. What does that mean ? The par of exchange is the formula by which 1 merchants measure and express the money of any one country in terms of the money of another country— gold in terms of gold or silver in terms of silver— and therefore the par is, under a sound monetary system, invariable. But the intrinsic par of exchange is liable to be displaced by various causes, and then, arises a greater or less •"aviation from , the par in that which is technically called the course of exchange or * price of bills. The chief eause^ now operating in America to produce the already Alarge; yet constantly increasing divergence between the course and the par is paper moriey; that is to say, a class of paper money passing by State authority, or an "argent idree," land not passing by confidence, as in the case of hank notes. The effect is that "gold is firm at 20 per cent, -.iremium." If, therefore, the par of ex-change-could be spoken of as 100, the \ course of exchange in America at this time .might properly enough be called l^U. it , .happens, however, that between England "and the United States the par of exchange is by an anomalous nomenclature spoken of as nearly 110 per cent, as its starting point, for the following reason. Ihe mode 'of quoting exchanges has continued the •ame .ince an Act of Congress of the 2nd March, 1799, regulating the collection of duties, which then fixed the proportion between the pound sterling and the dollar at 4.44 dollars to Ll. This, by various changes in the coinage of the two countries, in now nearly 4.85 dollars to the Ll ; but the manner of stating the rate of exchange continues to be the same, and the bill tor LI.OOO, which sells for 4,8 15 dollars, its real value at par, is quoted at nine and an cigth per cent, above par. Students ot chronology are well aware that, owing to a somewhat similar derangement, the birth of our Lord is generally dated AD. 4. Departures from exactness are found in all sciences, and, so long as they are generally recognised, are not of much importance. In consequence, however, of this peculiarity of the par, the present course of exchange between New York and London is not 120 per cent. In other words, 100 grains of fine gold in London are now equal to about 130 grains, as represented by the money of New York, or rather would be so it the tale which New York money tells were But silver is only at 15 per cent, premium. The reason why silver is less affected by the over-issue of State paper than « ild is, that whereas the gold coin, being ■Ihe staple coin of the United States, is as ■nearly as possible worth what it professes to be, the silver coin is merely a token lor a sum which it would not fetch if it were melted down ; consequently, while the intrinsic value of the gold coin carries it up .20 per cent, premium when compared with the State paper, the intrinsic value of the silver coin can only carry it up to 15 ? per .cent, premium. In England the subsidiary -silver coin is wisely protected from demonetisation by a seigniorage of 10 per cent., in America of only 5 per cent.; or to state the case scientifically, the natural ratio of silver to gold being assumed as 15£ to 1, its ratio by the Mint regulations of the United States i's 1«£ to 1, and by the Mint regulations of Great Britain about 17 to 1. The expression " exchange irregular at ISI- to 132" refers to the price of bills of exchange upon England when sold at New York, to be paid for in State paper. Ihe price will, of course, be paid for in State - paper. The price will, of course, be paid in s*-*te v*r or . as the currency most favorable to the buyer; and p« c blils w « l ev f,ntually be redeemed in England with gold or notes, which are the same as gold, the seller is enabled to raise his demands according to the actual or probable deflection of the . money en the spot. But the price of gold, as we have seen, is only 130, while these bills, although not payable for two months after sight in London, are at 181£ to 132. How is this? Is it because, although in the great centres of exchange in Europe, bills on distant places are always paid form ready money, such is not the course of dealing in America. There all trade proceeds on a system of deferred payments or credit, and therefore the uncertain solvency of the purchaser, and now the uncertain quality of the money some two or three months forward, must all be considered in the cost of the bill as in any other transactions of trade. Hence the price of bills is in some degree a guide to the probable price of gold. There is a moral to be drawn from all this. When a projector came to the late George Stephenson with some scheme which set the first principles of mechanics at defiance, Stephenson said to him — " I see what you are at ; you want to make a pound weigh more than a pound, but you cannot do it." Just so it is when a Government issuing its own netes wants to make a dollar buy more than a dollar's worth. They cannot do it. True, if they issue a five-dollar note, they must ultimately redeem that note for five dollars, or break faith ; but meanwhile, because of the uncertainty which alternative they will accept, it will only buy the equivalent of four silver dollars, and, if they multiply their five-dollar notes, it will soon only buy the equivalent of three silver dollars, and so on until they reach the point of coma or collapse,- when the five-dollor note will buy little or nothing. Things are not at the worst pass yet, but already the inconveniences are very great. For instance, there is no small change, or at least no change between the copper and the dollar note. The floodgates of paper money being set bpen, the gold, the silver, and even the -nickel coins are naturally turning into merchandise, and dec'.ine to perform any longer - tho- grovelling duties which many of us are - prone to connect with monetary .transactions;' They strike, work, and the unlucky citizens have to carry in their pockets post- : age stamps only too adhesive, and I.O.US of tradesmen only too readily substituted V for "change in hard cash.