When the exchange between two places, such as London and Paris, is at par, it is said to be a sign that the debts due from London to Paris are compensated by those due from Paris to London.On the contrary, when a premium is paid at London for a bill upon Paris, it is said to be a sign that the debts due from London to Paris are not compensated by those due from Paris to London, but that a balance in money must be sent out from the latter place; for the risk, trouble, and expense of exporting which, the premium is both demanded and given.But the ordinary state of debt and credit between those two cities must necessarily be regulated, it is said, by the ordinary course of their dealings with one another.When neither of them imports from the other to a greater amount than it exports to that other, the debts and credits of each may compensate one another.But when one of them imports from the other to a greater value than it exports to that other, the former necessarily becomes indebted to the latter in a greater sum than the latter becomes indebted to it; the debts and credits of each do not compensate one another, and money must be sent out from that place of which the debts overbalance the credits.The ordinary course of exchange, therefore, being an indication of the ordinary state of debt and credit between two places, must likewise be an indication of the ordinary course of their exports and imports, as these necessarily regulate that state.
But though the ordinary course of exchange should be allowed to be a sufficient indication of the ordinary state of debt and credit between any two places, it would not from thence follow that the balance of trade was in favour of that place which had the ordinary state of debt and credit in its favour.The ordinary state of debt and credit between any two places is not always entirely regulated by the ordinary course of their dealings with one another; but is often influenced by that of the dealings of either with many other places.If it is usual, for example, for the merchants of England to pay for the goods which they buy of Hamburg, Danzig, Riga, etc., by bills upon Holland, the ordinary state of debt and credit between England and Holland will not be regulated entirely by the ordinary course of the dealings of those two countries with one another, but will be influenced by that of the dealings of England with those other places.England may be obliged to send out every year money to Holland, though its annual exports to that country may exceed very much the annual value of its imports from thence; and though what is called the balance of trade may be very much in favour of England.
In the way, besides, in which the par of exchange has hitherto been computed, the ordinary course of exchange can afford no sufficient indication that the ordinary state of debt and credit is in favour of that country which seems to have, or which is supposed to have, the ordinary course of exchange in its favour: or, in other words, the real exchange may be, and, in fact, often is so very different from the computed one, that from the course of the latter no certain conclusion can, upon many occasions, be drawn concerning that of the former.
When for a sum of money paid in England, containing, according to the standard of the English mint, a certain number of ounces of pure silver, you receive a bill for a sum of money to be paid in France, containing, according to the standard of the French mint, an equal number of ounces of pure silver, exchange is said to be at par between England and France.When you pay more, you are supposed to give a premium, and exchange is said to be against England and in favour of France.When you pay less, you are supposed to get a premium, and exchange is said to be against France and in favour of England.
But, first, we cannot always judge of the value of the current money of different countries by the standard of their respective mints.In some it is more, in others it is less worn, clipt, and otherwise degenerated from that standard.But the value of the current coin of every country, compared with that of any other country, is in proportion not to the quantity of pure silver which it ought to contain, but to that which it actually does contain.Before the reformation of the silver coin in King William's time, exchange between England and Holland, computed in the usual manner according to the standard of their respective mints, was five-and-twenty per cent against England.But the value of the current coin of England, as we learn from Mr.
Lowndes, was at that time rather more than five-and-twenty per cent below its standard value.The real exchange, therefore, may even at that time have been in favour of England, notwithstanding the computed exchange was so much against it; a smaller number of ounces of pure silver actually paid in England may have purchased a bill for a greater number of ounces of pure silver to be paid in Holland, and the man who was supposed to give may in reality have got the premium.The French coin was, before the late reformation of the English gold coin, much less worn than the English, and was perhaps two or three per cent nearer its standard.If the computed exchange with France, therefore, was not more than two or three per cent against England, the real exchange might have been in its favour.Since the reformation of the gold coin, the exchange has been constantly in favour of England, and against France.