When two countries have identical systems ex change may be quoted on the percentage basis. Thus, London exchange on Australia is expressed as a percentage discount or premium as the case may be. It is of course to be understood that while the mint par of exchange can be readily calculated from a table which expresses the coins of different countries in terms of fine gold, such a table does not contain the information necessary to ascertain the gold ship ping points. These depend not only upon the cost of transportation including insurance but also on the mint charges of the respective countries.
4. Exchange calculation of the mint par of exchange between certain countries has more of theoretical than of practical interest. There are few if any countries which have direct exchange relations with each one of the others. Most of these countries have dealings with Great Britain and ster ling exchange is therefore the most widely used inter national money of payment. Nearly every country is interested therefore in London exchange, and Lon don, according to the measure of its dealings, is inter ested in exchange on such countries. The interest in other financial centers is less universal.
Consideration has been given in the preceding chap ters to the principal countries with which New York has direct dealings. Before the European war there were only a few other countries perhaps, Italy, Spain, Russia, Austria and the Scandinavian countries with which direct exchange relations were sufficiently nu merous to admit them to the newspaper lists of ex change quotations. Of course this does not imply that the United States was without commercial rela tions with many countries besides those which have been mentioned. Adjustments with those countries were effected for the most part thru the medium of sterling exchange.
Since the outbreak of the European war New York has been less dependent upon London. Countries which heretofore sought new supplies of capital in Europe are looking to the United States. A consid erable number of foreign loans have been floated in New York, and quotations of foreign bonds have be come a regular feature of the stock exchange reports. As a consequence there have been established direct relations which did not exist before, and the exchange quotations now include a number of countries which did not figure in them before 1914. How far these
conditions are likely to be permanent is discussed in the next chapter.
5. Gold exchange standard.—An economical method of enjoying the international advantages of a. gold standard without the burden of maintaining large gold reserves is offered by the gold exchange standard. The local currency may be either silver, paper, or both, but the government or bankers of these countries by the sale of exchange or other means, are able to settle all international transactions on a gold basis.
The government of a gold exchange standard country will take gold in exchange for local currency but does not undertake to give gold for internal use in exchange for local currency, tho it does provide gold in other countries ; that is, it will sell bills on these coun tries or even ship gold if necessary. The bills are sold at a price a little below the normal "export point": in other words, the buyer has to pay a little less than the actual cost of shipping gold itself providing he was able to obtain it. It is essential. however, that the local currency received for the bills must not be put back into general circulation. The reason for this precaution is apparent when it is pointed out that in a gold standard country, when exchange becomes unfavorable, the corrective export of gold contracts the currency and thus tends to raise the rate of dis count and lower prices, which checks the outflow of gold. In a gold exchange standard country the sale of bills is equivalent to an outflow of gold and should, therefore, have the same effect of contracting the cur rency. This it will not do unless the paper or silver money so received is withheld by the Government from circulation until a demand for more currency is manifested by the public offering gold for it.
6. Philippine Philippines may be taken as a concrete example of the operation of a gold exchange standard. The currency consists of silver pesos issued by the United States Government at a guaranteed or fixed value of fifty cents gold, the seigniorage or profits from which are deposited in New York as a reserve. When exchange becomes unfavorable, drafts on New York are sold by the Philippine Treasury and the silver pesos received in payment are withdrawn from circulation until the ex change once more becomes favorable and gold is of fered in exchange for currency.