"Par of exchange" means equal of exchange. There is a "mint par of exchange," and also what might be termed a "commercial par of exchange."

The mint par of exchange between the United States and foreign countries is the actual value in our money of the pure metal contained in the coins representing the units of money of the various countries. The Director of the United States Mint is required at stated periods in each year to proclaim the values of these coins or units in our money for the purpose of computing the worth of importations of goods and also the amount of customs duties assessable thereon. The value of gold coins, as fixed by the Director of the Mint, rarely ever changes, since the weight and fineness of the gold units of countries are fixed by law - in the United States by act of Congress, in Great Britain by act of Parliament.

The mint par of exchange of the English pound or sovereign in our money is $4.8665; of the French franc and the franc of the Latin Union countries, 19.3 cents; of the German mark, 23.8 cents; of the Scandinavian krone, 26.8 cents; and of the Holland gulden or guilder, 40.2 cents; and for many years it has been the same. While these values as furnished are not exactly correct, they are sufficiently accurate to serve the purpose intended, and are accepted for all computations at the custom houses.

To Find The Par Of Exchange

In order to determine the actual mint par of exchange between any two countries, it is necessary only to divide the weight of the pure gold in the gold unit of the one country by the weight of the pure gold in the coin of the other country. The mint par of exchange between the United States and countries having silver monetary units is arrived at in the same way, but as the price of silver fluctuates, the value of silver coins frequently changes.

As an illustration of how the pars of exchange are arrived at, we will take for example the mint par of exchange between the United States and Great Britain. Our gold dollar (which is our unit of money of account) weighs gross 25.8 troy grains and is 9/10 fine, 1/10 alloy being allowed to increase its durability, which, if deducted, leaves 23.22 troy grains of pure gold. The sovereign contains gross 123.274478 troy grains and is 11/12 fine, which leaves the pure gold in the sovereign 113.001603 troy grains, which, if divided by 23.22, the pure gold in the United States dollar, gives $4.866560, the mint par of exchange.

If you divide the value of the sovereign ($4.8665) by 20 (there being 20 shillings to the pound), it will give you the actual value of the shilling in our money, or if you divide it by 240, the number of pence to the pound, it will give you the value of the penny in our money (a fraction over 2 cents).

Commercial Par Of Exchange

Now, as to the commercial par of exchange, if you add to the mint par of exchange between two countries the cost of transferring the coin or bullion, which involves freight charges, insurance, interest, commissions, and sometimes discounts, you will arrive at what would be termed, under normal conditions, the "commercial par of exchange," or the amount necessary to discharge a debt of a merchant in one country to a merchant in another country.

In further illustration of the commercial par of exchange, if the United States owed England exactly the same amount that England owed us, the debts between these two countries could be paid without the intervention of money, and the commercial price of exchange would be at par. If, however, we owed England a greater amount than it owed us, exchange here would be higher, and in England lower, and vice versa. In other words, exchange in the United States would be at a premium, and in England at a discount, the premium in one case being about equal to the discount in the other.