The theory of foreign exchanges has been made the subject of many most valuable works, and little or nothing that is new can be said about it. The influences, however, which are at work and which determine the course of exchanges, as we see them quoted in the daily lists, are so various that, however completely the theory may have been expounded, there always remains something to be added in the shape of illustration or explanation.

The increase latterly in the number of the countries which use the single gold standard is an important circumstance considered in connection with the foreign exchanges. Germany, Denmark, Sweden, Norway, Japan, and, practically, also Holland and the states of the Latin convention, have worked latterly on the mono-metallic system. This circumstance, and the plan of remitting money from one place to another by ' telegraphic' or 'wire transfers,' a system which has already become so prevalent that even the India Council has adopted it, have in some respects simplified and in others changed the modus operandi of the exchanges. It may therefore, perhaps, be useful to review their present position; to foreshadow if possible in what direction the next step in this department of economic science will be taken; and to show what other methods may be employed for the more expeditious and economic adjustment of international debts.

We will begin by referring to the international medium of exchange, i. e., money.

Money, the ' representative' and ' distributor' of capital, has for a long time been confounded with the capital which it aids in reproducing and distributing, and mistaken political economists have tried to increase the capital of a country by increasing the amount of money or by artificially preventing money from leaving the country. These views, which added so much to the commercial decline of Spain and which found their fullest development in the 'mercantile theory,' have been exposed long ago, and are to-day generally repudiated, though still entertained to a greater extent than is often supposed, and almost openly adopted by the 'soft money' advocates of the United States.

Money, however, as we need scarcely remind the intelligent reader, even if understood to mean only gold or silver or notes convertible into such, is but a very small part of the capital of a country, viz. that employed in the transfer of goods; and it will be clear that it is as much a gain to a country to effect its transfers of goods, i. e., its commerce, with less money, as it would be to effect it with fewer conveyances.

It is by comprehending the use of money as a medium of exchange in this light that we can realise that the clearinghouse system is a national gain; for its object and pur-pose is to dispense with the use of money. In other words, it is the reduction of modern commerce to a system of 'perfected barter.'

The amount of money, i. e., gold or silver, or notes convertible into these metals, which a country may require, is dependent upon the activity of commerce and the value of gold and silver, i. e., the prices of goods, on one side, and upon the efficiency of the currency and the perfection of the clearing system on the other. An increase in the number of transactions or a rise in prices will cause a greater amount of money to be required; and an increase in the efficiency of the currency or the perfection of the system of paying by cheques will allow of a certain amount of money being withdrawn; and it will depend upon the comparative power of these two forces whether more money is wanted by the country or not. This, of course, applies only to metallic money, which is the international medium of exchange; inconvertible paper currency isolates a country and shuts it out from the self-acting control of imports and exports.

From the above remarks it will be clear that the amount of money which a country requires cannot be fixed, but that it will always regulate itself and be readjusted by exports and imports of specie if no artificial obstacles are placed in the way. 'Money,' as has been remarked, 'must like water find its own level'

This is accomplished in the following manner. The alterations that occur in the demand and supply of single commodities vary in different parts of the globe; while prices rise in one country they often fall in another. It thus happens that a country in which prices have risen will find it profitable to buy abroad, while foreign countries cease to buy of it; the balance of indebtedness will have to be paid in specie; bullion will leave the country, and this will in the end bring about a fall in prices.

But there is another way of recovering the quantity of money which a country may have lost and which it needs, by raising the rate of interest.

A portion of the money in every country represents its loanable capital, and a surplus of exports over imports will, simultaneously, or anterior to its effect on prices, affect the rate of interest of the loanable capital. If, therefore, money leaves the country which is not set free through economical developments, such as a greater extension of the clearing system, but which is taken from the stock which the country requires to carry on its commerce, the rate of interest rises in the bullion-exporting and falls in the bullion-importing country. The consequence is that the money will flow back to the market whence it came and where in the shape of loanable capital it commands a higher rate of interest.

A reduction of prices or a rise in the rate of discount is the means of augmenting the diminished quantity of the bullion in a country, and thus we notice that, when the amount of our gold reserve in the Bank of England falls below a certain point, one or both of these methods will be operative to attract gold from abroad.

These movements of specie have always existed, but formerly, when the means of communication were less developed and the risks attending shipments were larger, those who sent specie had to take these uncertainties into account and, to use the common term, the exchanges had to go very much against the country to indemnify the bullion dealers for the greater expenses of shipments. The result was that the difference between the two 'specie points ' of the foreign exchanges at which money began either to flow into or to leave the country, was considerable, and this difference was often further artificially increased by putting export and occasionally also import duties upon gold or silver, which did not, as some governments supposed, prevent these metals from leaving or entering the country, but which simply raised the point at which they left or entered, making the community pay for the difference. The same result of widening the distance between the specie points has been brought about by a high mint-signorage, such as that of 1/2 per cent. which up to 1873 existed in the United States.