Correspondence: Currency Questions
THE RATE OF EXCHANGE.
How many who read the daily paper understand the financial column ?
For instance:—Paris, 54.30, Aug. 4th; 54.37, Aug. 5th; Madrid, 28.67, Aug. 4th, and so on. Do you think it could be printed in the SICIALIST STANDARD so as to make it clear to the average man.—Yours, G. F. HART
ANSWER TO HART.
The basis of the figures—known as the rate of exchange—given by Mr. Hart may be stated as follows :—When two countries enter into commercial relations and exchange goods, the prices of these goods are balanced against each other, mainly through the medium of Bills of Exchange. In practice over any financial period, such as three or six months, it will usually be found that one country has sent goods whose prices total more than the prices of the goods it has received. Under ordinary circumstances this difference is settled by the other country sending gold equal to the amount of the debt. The costs of transporting this gold, including insurance, etc., will be the basic cause of the difference in the rate of exchange.
If, for example, a balance were due to England from France, and assuming that 50 francs were equal to a sovereign; that a sovereign equalled 1/4 oz. of gold; and that the cost of transporting gold, including insurance, etc., were 20 centimes (roughly a 1d.) per oz., then the rate of exchange for that day would be, approximately, 50.05 francs to the pound. The number of bills available, the state of credit between the various merchants, the manner in which a particular government has honoured—or otherwise—its debts, would all have an influence on these figures, which often vary from day to day, and sometimes during the same day, but the basic factor would be as outlined above.
ANSWER TO J. BLUNDELL.
In regard to their general results “Inflation” and ”Debasing” of the currency are the same, though the terms are generally used with reference to two different kinds of currency. “Inflation” is used in connection with a paper currency, and “Debasing” in connection with a metallic one. When first established the coins of a metallic currency were worth—or were of the value—of their face denomination— Pound, penny, etc. Some of the old rulers tried to rob their subjects by using inferior metal in the manufacture of the coins, or by issuing coins under the legally fixed weight. In either case the difference in value between the original coins and the altered or “Debased” ones, would form a margin for the rulers’ benefit until the debasement was discovered and new higher prices established in line with the lower real value of the new coins.
In the case of a country with an inconvertible paper currency—inflation, of course cannot take place where the paper is convertible into gold upon demand—the purchasing point at which the paper will circulate depends upon how much “foreign” trade is carried on by the country in question, and the amount of notes issued compared with the estimate, made by the trading community, of the power and willingness of the Government to meet its liabilities, or, in other words, upon the “credit” of that particular government.
Should the Government issue notes in excess of this “credit” the notes would circulate at a point below their face denomination in the proportion of the “over-issue.” The “over-issue” would be termed “inflation,” as the notes would have been issued in numbers beyond their legitimate sphere. Poland and Austria are extreme examples of such “inflation.”
We have received the two following questions from Mr. W. A. Archer :—
1: Is minted gold, e.g., a sovereign, a commodity within the borders of the nation of issue?
2: What would be the attitude of the Executive of the S.P.G.B. towards the member of that party who disagreed with the explanation given in reply to question (1)?
REPLY TO W. A. ARCHER.
(1) A sovereign is issued for purposes of currency, under Government control, to ensure that fineness and weight of metal shall be constant in all new coins. To attempt to alter, or interfere, with either the fineness, weight or inscription of such coins is an illegal act. Technically the sovereign can only be used as currency inside the country of issue, and is, therefore, not a commodity.
It is true that on rare occasions jewellers take sovereigns and melt them down for use in their business, to save the time and trouble of assaying gold they might purchase in the ordinary way, but the quantity of sovereigns thus used is extremely small. Moreover, as it is impossible to distinguish minted gold after remelting from any other gold of the same fineness and colour, it is exceedingly difficult to detect such illegal occurrences unless the offender were “caught in the act.”
(2) The attitude of the Executive would be to judge any case brought before them on
its merits, in the light of the declaration of principles and the constitution of the party.
(Socialist Standard, October 1922)