LIBRARY OF THE UNIVERSITY OF CALIFORNIA. Class m v-^?HS ^rS^v A PROPOSAL FOR A SYSTEM OF INTERNATIONAL MONEY A Paper read before the Economic Section of the British Association at Ipswich \$th September 1895 BV W. A. SHAW AUTHOR OF "THE HISTORY OF CURRENCY OF THE ; UNIVERSITY OF GENERAL A PROPOSAL FOR A SYSTEM OF INTERNATIONAL MONEY THE commercial and financial development of the modern world has with long deviations, and with some inequality in rate of progress, followed one line. Along that line it has achieved a three- fold result. Firstly, The practice of commerce has from the first necessitated a free international flow and employment of the precious metals. The realisa- tion of this condition was achieved with the final abandonment of the mercantile theory, and with the abolition of the old system of restriction on the export of the precious metals. Secondly, Under the mint regulations, which have existed up to the present day, the only way to ensure a full or automatic employment of those metals was to leave the mints open to importers. This was the practice of Europe for centuries, and with the abolition of seigniorage by Charles n. in England, and at the Revolution in France, became a practically unqualified and unrestricted right. 1 08216 Under the then existing and ill-understood bi- metallic system, however, this practice of leaving the mint open to the individual brought with it disaster. A trade in coins or money was carried on under it, the cheaper coins being used to buy up the dearer, the dearer being then exported and exchanged for the cheaper abroad with the profit of the difference made, and the cheaper then re- imported, sent to the mint, coined into the money of the realm, and again brought to bear on the dearer ; and so on in an endless vicious circle. Thirdly, Therefore it was only as the result of an almost countless series of monetary crises caused thereby that the modern world has developed its monometallic system and theory. That system the monometallic system is to be regarded primarily and only as a defence of the internal (or national or local) coinage system of any particular state against such a trade in coins, against the selling of one nation's coin to another nation, simply for the secret and private profit of the vending merchant. It has been said and supposed that, in this important respect, mediaeval Europe differed fundamentally from Europe of the nine- teenth century. In mediaeval Europe the coins of one state were admittedly issued at a different value from those of another state, and there was, equally admittedly, a profit to be got by melting down the coins of the one and exporting them, and turning them into the coins of the other state. But modern Europe is different, so it is said. We have a fixed and more uniform system, and there is no longer any profit in turning English sovereigns into Louis d'or or Friedrichs d'or. Further, so it is urged, we have attained to the conception of a universally applicable ratio. The mercantile ratio is the same all the world over, and mint ratios approximate to it ; whereas, in the old state of things, the mint ratio in England may have been 13 to i, while in France it was 15 to i, and somewhere else 12 to i, or in India 6 or 8 to i . All this has passed away ; and the profit, therefore, which used to be made from the difference of ratio in different countries has passed away with it. In respect, therefore, to both the evils to which the mediaeval system of Europe exposed her various national currencies, the modern system is blameless. And so the ex- perience of mediaeval Europe is not valid for argument against the modern conception and practice of bimetallism, which is based on practi- cally uniform systems of coinage, and on a uni- versally recognised and applicable ratio. Such is the argument. Grant its premises to the full, how far do they lead ? So far as this, and no further. That the forms or ways in which one and the same underlying principle has manifested itself are different to-day from what they were in the seventeenth century. Both then and now the evil or underlying principle has been that the action of law has afforded an opportunity of private gain, and that in the pursuit of that gain the private individual has sold the interests, or been utterly regardless of the interests of, his own country. Whether the action of law has been the mere fixing of mint terms, as in the olden days, or the fixing of a ratio as by the French law of 1803, the effect has been the same. The one system enabled a man to sell his country's coins to another country piece by piece, the other and more modern system enabled men to sell the whole bulk or reservoir of the one metal of their country for a less valued bulk or reservoir of the other metal elsewhere. The two operations differ only as retail and wholesale. Both were practi- cable and carried on by or through the mechanism of free coinage, both brought disaster, and both had to be swept away by the restriction of that right of free coinage. England abolished that right at the beginning of the present century ; in her case it was as a safeguard against the old evil of private trade in coins. France acted differ- ently. She declared a legal ratio, and thought that her experience had entered on a new phase. But it had not. Does anyone suppose that the mintings of the French mint from 1803 have been determined in accordance with the requirements of the French people or of French commerce ? They have not. They have been determined by the personal skill of great operators or importers men who saw the turn of the market in im- porting gold, and exporting silver as its price, or vice versa ; and it is these men who, for private profit, have changed the visible currency of France from gold to silver, or from silver to gold, at their own mysterious and as it were magic will. And the profit which these men made was the loss of the State. How can a private man make profit out of his country's coinage, save at his country's loss ? Who has gained by the coinage of the 5-franc pieces now held by the Bank of France ; what is their value at this moment ; and whose would be the loss if that loss had to be liquidated ? The gain has been private ; the loss will fall on the French nation. The breaking down of the Latin Union, and the abolition of the right of free coinage of silver, were forced upon the states of the Latin Union by the same train of circumstance which forced England to her monometallic law almost a century earlier. The only difference was that France postponed the necessary step, and tried an experiment on a larger scale, with the result that bullion operations ensued of a dimension which mediaeval Europe had never witnessed. The smashing down of the Latin Union is the last, but only the last, testimony to the impossi- bility of maintaining free coinage along with a fixed ratio. This is the simple and absolutely unanswerable teaching of history. The monometallic system, therefore, which the modern world has developed is a purely defensive contrivance against certain quite simple and his- torically ascertainable evils. To turn, however, now to another train of thought and circumstance. That monometallic system has per contra brought with it two results, and by implication a third which have changed the monetary situation and problem for the whole world. Firstly, The old right of freedom of coinage is no longer applicable, speaking in large, save to one metal. Secondly, The international flow and em- ployment of the remaining metal, on whose coinage there is a restriction, is impeded. Thirdly, As a consequence, the whole development of six centuries of painful endeavour and experi- ence, as far as relates to commerce, is rendered, or is increasingly in danger of being rendered, nugatory. 9 It is on this latter point that the main stress of the argument against monometallism rests. Moving along the lines of development just re- ferred to the world has through the various phases of Venetian, Netherlands, and English commerce, and of mercantilist and free-trade theory, attained at last to a conception of, and a practice of, a theory of international trade. According to that theory the trade of the world is one completed; circle of operations, exchanges, and mutual in- debtednesses. Its two postulates are freedom of trade and freedom of international flow and employment of bullion. Both these con- ditions are essential to its very being. In the latter of the two is involved free Coinage. The precious metals must be as fluid as water, flowing into the channels of commerce here or there as necessity, indicated by mint, exchange, discount and interest rates, demands. The evolution of the system of free coinage is practically due to the experience of the Netherlands. Her general trade attracted the precious metals. That trade also demanded its free export. The conditions realised themselves gradually, with the result that at one and the same time the Netherlands achieved freedom of trade in the precious metals and a huge resort of such metals to her marts. When Eng- land followed the example of the Netherlands, it 10 was confessedly on the ground that the precious metals were found by daily experience most to resort there where no restriction on its import or export existed. There was a second and more practical reason still for the adoption of free trade in and free minting of the precious metals. The only way to use the metals commercially was to mint them. To what commercial use could the new gold and silver of the New World in the sixteenth century have been put, and how could they have flowed into the channels of commerce save and except by being minted, and by appearing as coin of some particular realm ? They could not have so flowed. There was no other way by which they could become a factor in commerce. There was no idea of a bullion reserve, there was no institution which could keep bullion in bullion form, and still provide for its commercial employment. Up to the time of the evolution of a banking system, and of the con- sequent idea of a reserve, which could consist not in coin but in uncoined metal, and yet form the basis of commercial transactions, bullion as bullion was commercially useless, i.e. until it could be minted at the mint of this or that country. If the coinage system of the mediaeval world had been governmental, i.e. with a right of minting restricted to the government, only so much of the ever-in- 11 coming metal would have entered the commercial system to stimulate it as governments thought fit. Now this was against the clear sight and sense of the commercial instinct. That instinct demanded that the precious metals should flow unhampered into the channels of commerce. How could it do so ? The only way possible was to give the right of private minting. Hence, commercial and free- trade development has in history gone hand in hand with the evolution of free minting, or, in other words, with the gradual relinquishing of seignorage and minting restrictions generally. This is all that free coinage historically means, and this is how it has grown. There was even a theoretic basis for the process of the gradual re- linquishment of seignorage ; for there were cases, e.g. in the history of France, in which the imposi- tion of such seignorage had demonstrably acted like a change of ratio, and caused an export of specie. This point was urged with admirable force and weight by Hamilton, when, in his report to the House of Representatives in 1791, he was called upon to consider the question of a seignorage against the alternative of free coinage. Free coinage, therefore, has been yielded by governments, however reluctantly, before the im- perious and irresistible demand of the commercial instinct, and of a long train of commercial develop- 12 ment. The abolishing, therefore, of the right of free coinage, militates against the whole develop- ment of centuries of commerce, against that prin- ciple which the commercial history of the Nether- lands and of England had so clearly enunciated, namely, that the precious metals must be left to flow into the nerve channels of trade as freely and unfetteredly as human device could provide, whether by the relinquishment of seignorage, or by the annulling of all laws against export. It is this right of free coinage, evolved as it were thus unanswerably and necessarily, which the modern world has been driven to restrict, not in the interest of commerce, but in the interest of nationalities. The restriction of free coinage has o effectually safeguarded the currency of each par- ticular country which has adopted it from the old historic, evil of bimetallic arbitrage. But the gain has been accompanied with loss. What the national currencies have gained in safety, the theory and practice of international trade have lost in mechanism. The abolition of free coinage has thrown that international system out of joint by limiting the resort and employment of one of the two precious metals, and has thus given a blow to that theory of international trade which has established itself as the result of centuries of development, and which we are bound at all costs 13 to maintain and not overthrow. The blow to this theory and practice of international trade has come, and must increasingly come from the monometallic system. We are undoing the con- structive work of centuries. Monometallism has partially destroyed one prime postulate of inter- national trade, namely, freedom of employ and minting of the precious metals, and it is equally tending to destroy the other prime postulate, namely, freedom of trade, and that by means of the exchange difficulty. By the two combined causes we are unbinding or unloosing a real inter- national system, one which bound the whole world in one completed circle, and we are thereby reversing and letting slip all the course and advantage of the centuries of development which it has taken to build that system. If the present situation of the currency question continues for a century, it will sever the world into two completely independent and non-communicating circles, silver- using East and gold-using West. The East will go its own way, and the West will be left to re- construct its shattered system, how and with what friction and loss it may. The one state to surfer by such a cleaving of the world asunder will be England, by losing her eastern trade, and London by losing her position as the centre of the ex- changes. 14 So much in brief for the history of the evil. The diagnosis itself will surely suggest the remedy. The financial development of the world has stopped short at the point of safeguarding each national or local currency. It has not gone on to the erecting of an international monetary system, such an one as should form a fit accompaniment and basis for that international practice and theory of trade to which the world has attained. So much of the development as is accomplished we must accept. One prime postulate of the, or of any future, system, must be the safeguarding of the internal currency of each state by the present monometallic scheme. But a further step must be taken in the erection of a separate international currency, and that step must follow in the path of the development, which is visible through six centuries of history the path, namely, of perfect freedom of employment of the precious metals, perfect freedom of its international flow, and per- fect adaptation of international or world exchanges and trade. This can only be accomplished by maintaining the national or local currencies as they are, each for its own national or local use, and each mono- metallic in nature, and, by the side of these various national currencies, erecting an international sys- tern to form the basis of international commerce, and which shall be bimetallic in nature. Firstly, Therefore the international system must be so contrived as to leave the various national or local systems standing as they are, untouched, un- injured, and unhindered, each for its own national or local use or function or office. Secondly, The international money must be bimetallic ; otherwise it cannot be international. For if either metal is tabooed or handicapped, to that extent there is a fault, or want of corre- spondence, or a break, in the international circle ; such a break simply meaning the reduction of trade between the non-corresponding parts to barter, as indeed a good deal of our trade with India is at this moment. 7^hirdly, There must be no restriction on the employment of the precious metals. They must be allowed to flow automatically into the channels of trade. Whatever restrictions of free coinage the various national or local systems may adopt, the international system must be free from them. It must have either free coinage, or the equiva- lent of free coinage. Fourthly, In order^to provide against the historic danger, which has always assailed the various national or local systems from a sur- rounding bimetallic regime, it will be necessary to 16 cut off for ever the new international money from any possibility of acting upon the various national or local currencies. It will be necessary to stop the opportunity of private gain which is offered, and in the past has always been offered, to the individual, by a system of free coinage, at rates legally fixed and differing from the market rates. This can only be done by the imposition of such a seigniorage as will prevent the bullion of the international system from breaking in upon the national systems and flooding them with the lower valued metal. The plan I propose is as follows : The new international money shall consist in bullion, and in bullion only and always. The bullion or international money shall be in- differently gold and (or) silver. The only unit to be one of weight. A convenient unit might be the gramme or 10- gramme. The ratio of gold to silver must be fixed. The ratio may be fixed for long, or altered periodically, as experience may decide. There shall be only one unit or method of expression ; e.g. an importer of gold or silver, or a creator of credit in terms of gold or silver, shall not be credited with so many units of gold or so many units in silver, but only with so many total 17 units of international money, without distinction of metal. How will it be possible to cut off this inter- national money from producing the old historic evil of bimetallic action upon the various now existing national or local currencies ? By the system of seignorage, which shall operate in each separate national or local coinage by or through a mint regulation. This seignorage shall be so calculated as to remove either or both of the constituent parts of each national or local currency beyond the reach of the purchasing power of the international money, or of either of the two constituent parts of the in- ternational money. The seignorage could be put on either metal. It would be effectual either way. For the purpose of debate and suggestion I sketch a scheme for either method. AN INTERNATIONAL BULLION- MONEY SYSTEM, WITH A SEIGNORAGE ON SILVER. The seignorage would take the form of a tax on silver before it would be allowed to enter the international money system. The tax would be so much in amount as would equal the actual existing market depreciation of silver. In simple words, in the international system, silver would be booked to the credit of importers at its market value. Suppose in the new international system the covenanted ratio is to be 15.5, and at a particular point of time the market ratio is 23, then the international bureau charged with the working of the scheme shall fix for a certain period say a month, or three months the rate at which silver shall be taken as equivalent to the new inter- national money. That rate will have to be as near the market average as possible. When the rate is settled, the banks will be thereby compelled to take all silver tendered at that rate, and give credit for it in terms of the new international money. If the ratio fixed is 23, then the bank will credit to any importer of silver international credit to the amount of ^ of the total weight of pure silver imported. Any gold imported under the first draft scheme I am considering would be, instanter, international money to the amount of its own weight in pure metal. The position of silver, therefore, under this system would remain exactly what it is under the present disjointed system, save that it would in future form part of bank balances, and be again reinstated to its function as money. What effect this would have upon the market price of silver would have to be seen. But there is this further difference, which is one of great importance, that we should thereby have an international 19 bimetallic money. It may be said, why have such a system at all, since it only legalises what is the present actual value of silver ? The answer is, that we thereby create an 'international bi- metallic money, and when a sufficient fund of that money, or of credit in the terms of that money, is created or established, there is a single and uniform means of exchange between silver- using and gold-using countries. That means of exchange would enable any number of transac- tions to be conducted without loss, save the one initial loss where the creator of credit in the new system has unfortunately been a silver man. When once that fund is created, there is no limit to the operations, mercantile or financial, which can be built upon it, without hav- ing at every moment to turn silver into gold, and losing the exchange loss in every single transaction. All the remaining problems, e.g. of interna- tional indebtedness, etc., under the first system the system, namely, of seignorage on silver will remain exactly as they are at present, i.e. actually unchanged. The terms of debtor and creditor will not be affected. All existing national indebtednesses will remain as they are, i.e. the specie they are now payable in they will and must in future be payable in. This point is of vital importance. 20 Under the system of bimetallism advocated at present, and up to the present, the argument of the London banker is absolutely unanswerable. Bimetallism, i.e. such bimetallism as is advocated up to the present, would enable foreign nations to settle their indebtedness to England, at a discount of from 40 to 50 per cent. It is impossible to have free coinage and a fixed ratio and at the same time restriction as to tender. Declare free coinage and a fixed ratio by international agreement, and at once a man is entitled to offer eleven shillings', or more, worth of silver for a sovereign. Even putting aside the record of history against the old bimetallism, it would split on this rock, if no other. Under the system I advocate, however, there is no interference possible with regard to the terms of international indebtedness. That question stands exactly where it does at this present. The English sovereign will be in existence after as well as before the change. It will not have been swept away in one bimetallic welter. The sovereign will be the basis of settlement for debts contracted in terms of sovereigns, whether before or after the introduction of the new system. The present outstanding foreign debts due to England will be settled in gold. The position of debtor and creditor will remain unchanged. Each 21 national coin and system of coinage stands intact as it does to-day, and money previously lent in terms of that money will be repayable in the same and no other. I submit it for consideration whether, as the accompaniment of this system of a seignorage on silver, it will not be necessary to declare the national or internal currency of gold its coining, i.e. for the internal needs of each separate country to be a purely governmental function ; and thus abolish free coinage of gold as far as relates to each separate country in its separate or internal-trade capacity. But there are several reasons against this system of putting the seignorage on silver, the chief being one of sentiment, as it would tend to confirm the present discredited position of silver, and might tend to prevent the rise in its value, which it is hoped would be the outcome of its renewed international employment. Consider therefore, as an alternative scheme, a system in which the seignorage should be on gold. AN INTERNATIONAL BULLION-MONEY SYSTEM, WITH A SEIGNORAGE ON GOLD. A seignorage on gold would have exactly the same effect of preventing private minting and bimetallic arbitrage. 22 As an example, take a 2O-franc gold piece. Suppose the new international system established by international agreement, the ratio to be 1 5^ to i, the unit money to be 10 grms., which is to be taken as meaning 10 grms. gold, or 15^ times 10 grms. of silver. The first step which would have to be taken would be to put this 20 -franc gold piece beyond the purchasing power of the cheaper silver of the new international money (presuming, that is, things to be as they are at this moment, with a market ratio much below 15^). 2O-franc gold piece = 6.45 16 1 grms. At a market ratio of 23 to i, it would purchase 23 (6.45161) grms. of silver. If the international ratio be set at 15^. there would be a profit on the buying of this silver of 23-15^ (6.45161) grms. of silver. In order to abolish this, aseignorage must be put upon gold to a proportionable amount. Thus 15.5 : 23 :: 23 : 34.12 ; i.e. the new mint rate for the 2O-franc gold piece must be 3 ^f (6.45161) grms. ; i.e., to get a 2O-franc gold piece from the French mint, the importer would have to take to it international bullion, whether gold or silver, to the amount of the existing piece, plus this heavy seignorage. The second step would be any subsequent one which should be necessitated by a change in the relative values of the precious metals. 23 Suppose in three months the market ratio, as in- dicated, say, by the market price of silver, should fall to 24 to i. It would be necessary to revise the seignorage on gold, in order to prevent the now cheaper silver of the international money breaking down the limits or bulwark of the national or local monetary systems, draining them of gold and flooding them with silver. The calculation would be as follows : 23:24:^(6.45161) :^grms. Similar calculations would have to be made for every part or piece of the gold currency of each member of the new international union. The seignorage calculations would be the duty of an international bureau, a permanent institu- tion, and would need to be declared periodically, at least every three months, possibly monthly. The declaration of the seignorage would have to be accompanied with a declaration, that in- stanter from that moment all national or local coinages would be rated in the terms of the new international money, according to or after the rate of, or with the deduction of that seignorage. In order to prevent loss to the present gold- using countries, the bureau charged with the duty of calculating the seignorage would also have to calculate the rates of equivalence between the national or local system and the international 24 system, so that a merchant who wished to transfer capital from the international to the national system, or rather to sell, in the terms of inter- national money, goods which he has manufactured or bought under the national or local system, may be able to make the calculations readily. As an instance : The new unit of international money = a. The English sovereign contains f units, x being the weight of the English sovereign in grms. The arithmetical equivalence of the sovereign, in terms of the new international money, is expressed by this quantity (f ?.), y being the seignorage ; i.e. this is to be the only equivalence at which the translation of the one system into the other shall be legal. But by this the merchant in question, trading say with India, would lose by the amount of the seignorage. To prevent this he must know exactly, either from his own calculations or from some one else's, what must be added to the price of his goods when expressed in international units, in order to produce the net cash in sterling money, or in the money of any of the national or local systems, which he requires as a fair return. It will be the duty of the bureau to give him this. Thus : a Manchester merchant buys cloth of the manufacturer to the value of ^95. He sells it to a Calcutta importer, and wishes to 25 realise finally 100, in English money, by it. He sells by the international system. By getting the exact legal equivalence, as established between that system and sterling, he would lose to the extent of the seignorage ; when he wished to con- vert the international money he receives in settle- ment, in order to pay his Lancashire manufacturer. He is under the necessity, therefore, of putting up his price, when expressed in the terms of the international system, by the amount of the seignorage. If the seignorage on the sovereign is 8s. ( = 0.4) then the bureau would calculate thus : 20:28:: 100(^-^:140(^-4 This amount 140 - a -y when taken to the mint, or, what would be exactly the same thing, when translated from international to sterling money would produce exactly the ^100 which the mer- chant requires. This second rate of equivalence might be called the " trade" or ''realisation" equivalence. Presuming that for the period in question the system remains as at present, i.e. with silver below the legal rate and consequently with a seignorage on gold, the trade rates of equivalence must show this setting up of gold prices, and this would continue so, i.e. the premium or putting up would have to be on the gold price, so long as 26 the market ratio of silver to gold was below the covenanted international ratio. In the first instance, this setting up of the gold price would be exactly equivalent to the present loss by exchange, but in point of mechanism there is a great difference, as will be seen. What would be the position of the Calcutta importer who would have to meet the Manchester merchant's bill ? He would have to meet 140 ^-y units of international money. He would meet it by paying in silver to that amount, in rupees, those rupees being taken at 2s. on the basis of the international ratio of 1 5^. His position, therefore, is no way different from what it was before, say from what it is under the present system ; since, previously, in order to meet a bill of ;ioo, if the market ratio were 21.7 (= 8s. premium on the sovereign) he would have had to expend rooo.^ 7 rupees, and by the calcula- tion this is the exact equivalent of (140 ^-y) (15.5)- The position, therefore, of the Calcutta importer is not one whit altered, or rather would not be if at every step he had to perform the operation of pay- ing in silver rupees to meet a debt incurred in international money. Looked at, therefore, in the most elementary form the new international standard would be depreciated below the existing national or local 27 gold standards by the market depreciation of silver. This would be accomplished by the im- position of the seignorage, and, on the other hand, the exporting mercantile community would be indemnified by the setting up of gold prices in the manner just described. It will at once, however, occur to the mind, that when the system has got itself established, and a sufficient fund of international credit has been created, it will not be necessary at every turn or transaction to perform the operation of translating the national into the international currency, or vice versa. A fund of ,10,000 turned into international money, with the initial loss to the extent of the seignorage, would furnish the basis of repeated transactions with India, each of which transactions would be attended by no exchange loss. There is no limit to the operations which can be carried on by and based upon that fund of inter- national credit thus created. Transactions with India could thus be conducted with absolutely no loss by exchange, because one common currency would be employed. The only trading loss to the English exporter would arise when, after having turned over his international capital say a hundred times in the year, he wished to transfer his year's profit to his own private purse by trans- lating it from international to sterling money. 28 He would then lose by the seignorage. But that single loss of a tax on profits would be vastly different from a loss by exchange on the actual capital stock involved in each of the hundred transactions. The effects of this second proposal FIRSTLY, ON THE VARIOUS NATIONAL OR LOCAL SYSTEMS. Although the mints will remain nominally or technically open the imposition of the seignorage would practically close the national mints to individuals. The minting function would be assumed to the State, and thereby the one reform which centuries of history have pointed to and demanded would be accomplished. The duty of maintaining the national or local coinage would then devolve upon the national or local govern- ment, and there would be the same control exer- cised over the metallic portion of each national currency that is now exercised over the paper element of it. The amount of the new coinages, say year by year, would be quite small, because the internal or local currency being now stable, and no longer drawn upon for the liquidation of international balances, the only provision that would have to be made would be ( i ) a quantity x, to make up for loss by abrasion and attrition ; (2) a OF THE UNIVERSITY 29 quantity y y automatically determined, as at present in the case of paper money, to meet the general expansion of trade and population, or any sudden expansion of internal commerce or speculation. This would solve at a blow the difficulty of the American treasury and of the drain of gold. The internal currency of every country would be left stable to perform the duty it is intended and manufactured for, namely, the convenience of in- ternal transactions and exchanges. For the ex- ternal trade of the country and the liquidation of international balances the quite separate mechanism of the international money would be employed, and no country could ever again be stripped of that internal currency, which is necessary for hand - to - hand and day - to - day transactions. What this means, only those can know who have followed the record of the mone- tary crises of history. Why should not the internal currency of a country be a perfectly stable element, and why should it not stay at home to do the work it is intended to do ? Simply because it is drawn upon for international settlements and operated upon by arbitragists ; and so, in order to secure the solvency of our banks, and to provide sufficient hand-to-hand currency for daily transac- tions, we are obliged to resort to the mechanism of raising the bank-rate, and in America the State is 30 obliged to put itself into the hands of a syndicate of those very arbitragists who do the work of ex- porting. Sooner or later the world will be obliged to separate between its internal and its external currency, and to provide that whatever else is let go its internal currency shall be firmly held to. In order to accomplish this the only other alternative scheme that I can think of would be to make all internal or local currencies fiduciary (paper) and to reserve the precious metals en- tirely for international trade and settlements. Such a scheme would sweep away minting and coining altogether. The internal currency of a country would be paper, its external currency would be bullion measured by weight. What effect this would have on the values of the precious metals is problematical, but a priori it might lead to a greater approximation of those values. Such a scheme, however, would require an attitude of mind in men, generally, towards paper money which the world has not yet attained to, and perhaps never will. SECONDLY, THE EFFECT ON THE INTER- NATIONAL SYSTEM. Firstly, The effect would be the establishment of free coinage or something more than free coinage in the international domain. The metals would 31 not be minted, but would instantly flow into the channels of trade in the bullion form. Those two prime postulates of international trade, of which I spoke in the beginning of the paper, would be fully realised, instant employment in commerce of all new metals and utmost fluidity of that metal. The coining of metal is only a device to facilitate small and daily transactions. For international transactions that coining is an impediment rather than a help. Secondly, The exchange difficulty would be minimised. The general result would be the establishment of a currency mechanism or institu- tion, which would play the same part in the world's exchanges and trade which was played in the weltering German monetary system by the banco credit of the Bank of Hamburg. The arcana of arbitrage would be abolished, commerce facilitated, and all new metals (with the exception of the amounts to be deducted for local or national coinages or for use in the arts) would be instantly and perforce turned into the channels of inter- national commerce. THE POSITION OF THE INDIVIDUAL UNDER THIS SECOND SYSTEM. Firstly, The individual under the local or national system. His position would be just 32 the same which it is at this present moment. A sovereign would be a sovereign still for all purposes. Its purchasing value at home will be the same, and internal or home trade prices will continue to be reckoned in it, just as at present, without any dislocation or alteration of trading customs, prices, quotations, settlements, or anything else. If an Englishman wished to pass into France, and were necessitated to exchange petty cash for his expenses the ratio of exchange woulcl be ^rXLt^) ^ bein the seignorage in each case. So that the exchange would be as at present for all practical purposes. For internal trade, therefore, and for such petty exchanges as these, the position of the individual is unaltered. For all international trading proper he would employ the new international money. Secondly \ The position of the individual under the new international system with regard to that system. He would have to adopt the tables of equivalent, or trade, or realisation prices, as issued to him by the central standing international bureau. He would create a fund of credit in the terms of that new money, and trade upon that credit, and deal with it and settle by it, just as with bank credits at the present moment. A concrete instance (as before) : -; A Manchester merchant will in future invoice 33 to India not at so many s. d. per yard or pound of cloth or yarn, but at so many unit grms. of the new international money. He will take the equivalence (the trade equivalence) from the tables as published by the central international bureau. The total invoice will be for x units or grms. of the new international money. This will have to be met by the Indian importer in the identical terms of x units or grms. of the new international money. When the Indian importer accepts for the amount, the Manchester merchant will pay the bill into his account at his own (present) bank, and will be credited with x units or grms. of international money (minus discount). On that credit he can draw, settling international indebtednesses by it, e.g. by cheques, in the terms of the new money. THE POSITION OF THE MINER. The miner who finds gold or silver can pay it into any bank, and get credit for so many grms. of international money, as it shall be found by assay to contain. The credit he thereby gets will be good throughout the whole international system. He will, therefore, lose only when he comes to realise his credits in the terms of any national or local money ; e.g. if he comes from Australia to England and wishes to settle here, or for the 34 matter of that if he wishes to invest in Australia. This loss can only be considered as a kind of tax on gold mining. Under the present state of things silver would not be touched by it, i.e. so long as the international system demanded a seignorage on gold and not upon silver. THE POSITION OF SILVER UNDER THE NEW SYSTEM. The position of silver under the second system is exactly, in effect, what it is under the first system. You can produce as much as you like. Take it to the banks, you get credit for so many 'units of international money as it contains by weight and assay. You can employ this inter- national credit as long as or how you please, but you can make no profit on the silver by selling it for gold, because in the international system it is itself equivalent to the gold, and in the national system you would lose by the seignorage on the gold ; and, if the market value of silver falls, the seignorage is bound to mount automatically and in proportion, by means of the proclamations of the international bureau. It will be impossible, therefore, to turn silver into the national or local currencies, save to the extent to which govern- ments shall mint it for subsidiary coinage. The main bulk of the silver found must remain in the form of bullion as the reserve for international 35 credit. The old bimetallic evil of selling the one metal and buying the other, and minting it to a profit, will be done away with. Silver will be employed as currency, but at its market value, not at a fictitious value attempted to be fixed by law. In all probability this renewed accrediting of silver, by employing it as money will steady, its value. But, if not, if, say, a great increase in the production of silver took place, there would be none of the evils and dislocation which are now experienced. The seignorage would have to be revised, that is all, and gold would have to follow the fortunes of silver, linked to it indis- solubly. It stands to sense, however, that the new international money, being as a composite whole depreciated to the level of the lower of the two metals, whatever silver-mining is unprofitable now would be unprofitable then. And, on the other hand, it has to be considered that if the movement is the other way, towards an apprecia- tion of silver, some mechanism such as is here outlined will be necessary in order to link the two metals together in the upward movement, and so diminish the friction of the process of recovery from the state of things now existing. If ever the time should come that the market ratio of silver should rise to the covenanted international ratio, the seigniorage would automatically cease, 36 but in the upward movement there would have been steady exchanges for fixed periods, say for three months together. If ever the market ratio (Of silver should rise above the covenanted inter- national ratio, then the seignorage would fall and grow automatically and proportionably upon silver. Monometallists, who cling unreasoningly to a doctrinaire monometallism, have to consider that they are defenceless and helpless if ever the time should come that silver should rise to such a ratio as to lead to its minting, even in face and spite of the seignorage now imposed on divisional coin. THE QUESTION OF EXISTING NATIONAL INDEBTEDNESSES. This question will probably prove absolutely fatal to the second plan I have here sketched out. For such a plan involves a reduction of gold to the value of silver as far as relates to the international domain. That reduction would tell against any country which had to remit gold obligations to England, by the amount of the forced depreciation put upon gold. While the Indian Government would in future be remitting at par, the American and other gold debtors would be remitting to London at the ruinous loss experienced at the present moment by the 37 Indian Government. There is no via media, or method of dividing or averaging this loss be- tween the two sets of creditors by the adopting, say, of an intermediate scale of depreciation. The system which I outline by its very nature forbids it. We must choose between the two sets of creditors, and there can be little doubt we must choose the gold-using creditors. Unless, therefore, some way out of this particular difficulty is found, the second scheme here outlined is impossible of achievement. THE INCEPTION OF THE SYSTEM. i. An international conference to be called. This conference shall nominate the international bureau and assign it a place to meet, and shall determine its personale. If the first scheme is adopted, the bureau would simply have to follow the market price of silver, and average it for monthly or three- monthly periods. If the second scheme is adopted, the duties of the bureau would be more com- plicated. The bureau would first consider the seignorage. It would take every coin of each of the subscribing members, and calculate and declare the seignorage necessary to put it beyond the reach of the new international money. This will be a mere matter 38 of assay and arithmetic. The declaration of all the seignorages would be instanter. This would be accompanied by another declara- tion that from that moment, until further notice taken and change made, all the existing national or local coinages should, whenever estimated in terms of the international money, be taken and estimated only at their bullion value, i.e. minus the seignorage. A third declaration would issue simultaneously, that all banks shall take gold and silver, or gold or silver indifferently, on deposit at the bullion rate, i.e. at the rate of the new international bullion, giving credit for it in terms of that inter- national money, 4.e. for so many grms. by weight, as above ; the banks to be obliged to keep a reserve to meet each its own proportion of inter- national credit thus created. For the settlement of the bank (international money) balances, an international clearing-house to be established for clearing international bills and cheques. 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