FIXED EXCHANGE WITHIN THE EMPIRE.
To the Editor of the " Bankers' Magazine."
SIR, The proposal to establish fixed rates of exchange
within the British Empire, made by the chairman of Barclays
Bank in his address on January 24, seems to me to have
received less public attention than it deserves. So far as I
have noticed, it does not appear to have been formally con-
sidered except in a letter from Mr. Frank Morris to the Morning
Post, where that gentleman, with less than his accustomed
acuteness, makes it the subject of an uncompromising attack.
But what Mr. Goodenough proposes would really be a great
advance in the development of our banking system, as I have
tried to show for many years past ; and it is encouraging to
hear that so high an authority regards the question as one
of practical business.
Mr. Morris says that to fix exchange within the Empire
(it is already fixed within the United Kingdom) is " to make
water run up-hill." The illustration is unfortunate. If the
water companies did not make water run up-hill, our domestic
life in large cities would be impossible. The editorial com-
ment on Mr. Morris's letter, though it expresses sympathy
with Mr. Goodenough's proposal, makes the reserve that the
fixed exchange would be clearly artificial. No doubt ; but
could not every step which civilisation makes in controlling
to our convenience the irregularities of nature be condemned
on the same ground ?
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APPENDIX 279
Mr. Goodenough is really only asking us to go a little further
on well-proved lines. He proposes to extend to the whole
Empire the service of free remittance which the later develop-
ment of our banking system has made so perfect within the
United Kingdom. Why should I be able to make a payment
to Edinburgh without any question of exchange rate, while
that question at once arises in the case of a payment to
Montreal or Melbourne ? Some will say because the first
case is one of internal, the second of foreign exchange. Even
so, this explains nothing ; but in neither case is there a
" foreign " exchange. If for " foreign " we substitute the
term " overseas," we are no nearer an explanation. The
question of exchange arises whenever the cost of remittance
has to be paid for by individuals, on the basis of a particular
set of conditions. It is not necessarily a question of payments
over-seas, or even of payments to foreign countries ; in fact
it is a misfortune that the term foreign has become associated
with exchange. The real distinction is found in the fact that
in the last century our banks developed a machinery of free
remittance within the limits of their system ; but that as
soon as we cross the frontiers of that system we have to make
special exchange arrangements for remittance.
In the eighteenth century such arrangements had to be made
in every case of inland remittance. How heavy these inland
exchange rates were may be seen by a reference to Boase's
Century of Banlving in Dundee (pp. 53, 274, etc.). Inland
exchange rates, though small, still remain in the United
States. The Federal Reserve Board are now trying to abolish
internal exchange there. Would Mr. Morris think that their
action also is due to "an unconscious phase of socialistic
leaven " ? If not, at what precise point does the provision
of parity of exchange incur his censure ?
There is no magic connected with remittance over- seas.
At present it usually involves crossing the frontier of a banking
system. This need not necessarily be the case. Our banks
are extending their frontiers. In the last fifteen years they
280 PAPERS ON CURRENT FINANCE
have established direct banking connections over-seas to a
remarkable extent ; one of the latest examples being the
arrangement between Barclays Bank and the Colonial Bank.
We have had a striking object-lesson, too, in the Ottawa
Deposit system of the methods by which over-seas remittance
may be economised.
It is really a question for the banks whether they should
or should not add to the many services they render the public
the further service of free remittance at fixed parity between
the various parts of the British Empire. This service need
not, on balance, be very costly ; nothing like so costly, if
one may guess, as the cashing and crediting of coupons which
they now undertake. Such a development would be most
timely. Our position as the international clearing-house will
be subject to competition from more quarters than one after
the war. New York and Amsterdam have both developed
an acceptance business, and the Central Powers are not likely
to be less active in their rivalry.
Would not our long-standing financial supremacy be dis-
tinctly fortified against the new attacks if we were able to
say that exchange on London meant exchange on any part
of the British Empire ? Exchange on London, since 1820
or thereabouts, has meant exchange on any part of Great
Britain. Why not, after 1920, exchange on any part of
Greater Britain ?
H. S. FOXWELL.
1 HARVEY KOAD, CAMBRIDGE,
February 15, 1918.
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