Foreign Exchange
BY
Hon. ROBERT L. OWEN
UNITED STATES SENATOR OF OKLAHOMA
CHAIRMAN OF THE UNITED STATES SENATE COMMITTEE
ON BANKING AND CURRENCY
NEW YORK
THE CENTURY CO.
1919
Copyright, 1919, by Robert L. Owen
FOREIGN EXCHANGE
THE FEDERAL RESERVE
FOREIGN BANK
PUT THE AMERICAN DOLLAR AT
PAR IN FOREIGN EXCHANGE
Because of war conditions the American dollar is at a serious discountin all of the neutral countries of Europe and throughout the world,notwithstanding the fact that the United States had a favorable balanceof trade of over three thousand millions last year, and ten thousandmillions since the war began.[Pg 2]
It is important that American business men, American bankers, Americanimporters and exporters should understand this problem and the remedy for it.
The problem is not really a difficult one. It is the purpose of thislittle book to explain the problem; to show the factors entering intoit; to show the remedy and point the path and mechanism by whichto maintain the American dollar at par, and make it the medium ofinternational exchange and of international contracts.
THE U. S. DOLLAR IN SPAIN
The American dollar should buy 5.18 pesetas, lire or francs on a goldpar basis, but at present (August, 1918) will buy 8.90 Italian lire and[Pg 3]about 3.5 Spanish pesetas, although the gold value of the Italian liraand the Spanish peseta is identical. The reason for this is that Italyhas an urgent demand for dollars in America to pay for the purchases ofthe Italian Government and of the Italian people, and the credits beingextended to Italy for this purpose are being furnished at enormouslyhigh rates by private banks and capitalists, while Spain is sellingmore commodities than she is buying, is an international creditor,has no need for dollars, and pesetas in Spain are being sold at anartificial high price by private banks and capitalists. The Alliesrequiring Spanish pesetas are being charged enormously high rates forthe pesetas required in Spain, which means that the pesetas are selling[Pg 4]for 28 cents apiece instead of 19 cents and that the gold dollarmeasured in pesetas is at a heavy discount and only worth 67 cents.
The gold dollar in New York instead of buying 67 cents’ worth ofSpanish gold currency should buy 50 per cent. more than it does, andAmerican and Allied purchasers of Spanish goods suffer this 50 percent. loss with the added penalty of war prices which makes the 50per cent. loss probably 100 per cent., to which must be added themerchants’ profit.
It is obvious, therefore, that the loss to the United States and to theAllies from a condition of this character ought to be promptly met.It can be done. It is necessary to understand foreign exchange, thefactors entering into it, the means by which to economically settle[Pg 5]international commodity trade balances and to provide the mechanismunder Government control through which the steps can be taken to obtainthe desired results.
I desire, therefore, to explain the factors entering into foreignexchange, the steps required to bring the d