THE EXCHANGE CRISIS"

Dominion, Volume 8, Issue 2564, 11 September 1915, Page 10

THE EXCHANGE CRISIS"

— AN EXPLANATION..

The references in the cable messages tortile "exchange crisis" between Bri- I tain and United States have puzzled many people. > To understand the situation it is necessary .to- bear in mind that the trade of the world is based on credit, and the "Bill on London" is the .international currency. The trouble witli America has arisen through there being an excess of Bills on London.'- Tlio position may be,briefly explained'as follows:—X, a Chicago grain merchant, lias sold to a Liverpool buyer wheat' valued at 100,000 while F, a Bradford woollen merchant, has sold to a New York wholosalo houso woollen goods worth 100,000 dollars. The position as between England and the United States is. that the wheat of ono pays for t'ho woollen goods of the other. The settlement is I effected by bills of exchange. X would in tlio ordinary courso draw on the Liverpool merchant, at sight, 30. days, 60 days, or 90 days, as may bo agreed, and discount the bill with his hankers, who, in turn, would probably sell- it with their endorsement. on it. to a bill broker or to some other banker who may havo money to remit to England. If, supposing there wero no otlier bills available . in either country, the- bill of exchange drawa by the Chicago merchant would be bought up by the New York wholesale house and sent to ,London 'or Liverpool for collelction, the proceeds to be paid over to the Bradford woollen merchant from whom the goods were purchased. Tlio Bradford merchant on his jjart would draw a bill on the Now York houso, and this bill would be secured by the Liverpool grain merchant and sent to America for collection, and the proceeds to be paid over, to the Chicago merchant. In normal times there is a great volume of bills of cxcliango between the two countries, tho balanco being slightly in favour of Great- Britain. Since tho war commenced tho Allies havo placed orders for munitions running into millions sterling, thus creating a vast volume of balls, whilst on the other hand, owing to the war there are fewer Americans travelling abroad, while the embargo or. the exports of wool and other commodities, and tlio difficulties experienced by British manufacturers in exporting merchandise, has provided no set- off to the munitions purchases, awLthere are only two ways by which tho position can bo overcome: (1) By tho ■ export of gold; (2) by the export of securities. Considerable . quantities of the yellow metal have already : been sent to the United States, and American bankers are complaining that they are holding too much of the metal, which to a banker means dead stock. The export of securities involves the transfer by sale of railway bonds and stocks, industrial shares, or for the Allies to obtain a straightout loan in the United States for, say, 150 millions or 200 millions sterling, or by adopting both methods. :, If this is done Loudon would have'the'right to draw.on New York and tliero would be an evening up of niatters. The New York rrtto of exchange on London is at present about 4 dollais 61 cents, that is.to say, a merchant in New York having a bill on London to discount would only recoivo 4 dollars 64 cents per £~ while prior to the war the price was about I dollars 85 cents, and, of course, the Allies are paying tho difference.