Under such circumstances those who have re mittances to malce can make them only by means of bills of exchange and must pay whatever price is asked.
Gold exports and imports, it must be borne in mind, are exclusively in the hands of the bankers because it is only the banker who has the facilities necessary for dealing in bullion. Upon the exchange rate rising, for instance, to the gold export point, the shipments of gold which take place are not made by merchants but by bankers who through thus replenishing their balances abroad keep themselves in a position to sell to merchants the needed bills of ex change. The rate on London at New York, for example, rises to $4.88, at which rate conditions at the time happen to be such that a remittance made in the form of gold and a remittance made by means of a bill of exchange cost the sender exactly the same amount of dollars and cents. At this point bankers will begin to ship gold knowing well that they will be able to sell their drafts against the balances thus created at a slightly higher rate than $4.&8, for the simple reason that merchants, having no facilities for handling bullion, are willing to pay, say, a quar ter of a cent in the pound sterling in order to avoid the necessity of having to ship the actual gold themselves. The rise ui the exchange to
the gold export point thus means the shipping of gold on the part of bankers, and the consequent creation of a fresh supply of bills of exchange out of which mercantile needs are satisfied.
What has been said above applies only to the exchange relationship between , countries having the gold standard or the gold exchange standard, i.e., where the government, as in the case of the Philippines or in India, guarantees a gold value to the silver medium of exchange. Where the exchange relationship is between a country on the gold standard and a country on the silver standard, the dominant factor in the rate of exchange is the price of silver. A rise in the price of silver in China, for instance, overshadows everything else as an influence upon the rate of exchange on London, and in variably causes a fall in the price at which the pound sterling will exchange for the local silver currency. Conversely a fall in silver invariably brings about a rise in the exchange.
Barbour, D. M., (Standard of Value) (New York 1912) ; Escher, F., (Foreign Exchange Explained) (New York 1917) ; Goschen, G. J., (Theory of Foreign Ex change) (London 1894) ; Margraff, A. W., (In ternational Exchange) (ib. 1912); Withers, H., (Money Changing) (London 1913).