Letter: The Rate of Exchange. (1922)

Letter to the Editors from the October 1922 issue of the Socialist Standard

Dear Comrade,

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 Socialist 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.

Editorial Committee