I0 MODERN MONETARY SYSTEMS 
the kind of problem which arises out of their interaction. 
We shall see below how the power to increase a note 
issue can itself seriously disturb the working of mone- 
tary systems. But in general it may be said that it is 
the relations between different monetary systems which 
chiefly give rise to obscure phenomena and ticklish prob- 
lems. In other words, most monetary phenomena arise in con- 
nection with payments by one country to another and as a result 
of the necessity of converting one national currency into another. 
Therefore in order to understand monetary phenomena 
the reader should have some idea of the mechanism of the 
exchanges. 
As is generally known, the mechanism of the exchanges 
depends on a method of setting off international debts 
which consists in negotiating bills of exchange or drafts 
drawn on foreign countries. For instance, I have to pay a 
thousand pounds in London. A Paris merchant, on the 
other hand, has a similar sum to recover, also in London ; 
he draws a bill on his debtor, Mr. Smith, and sells it to 
his bank ; I purchase this bill and send it to my creditor in 
London, who collects the amount from Mr. Smith. Thus 
a double offset has occurred by which the French creditor 
has been paid in Paris in French money and the English 
creditor has been paid in London in English money. Two 
inverse transfers of specie have thus been avoided, to- 
gether with the various costs of transport and recoinage. 
The service rendered is naturally paid for by the one 
who derives most profit ; for this reason the raze of exchange 
varies according to whether the total claims represented by 
bills drawn on foreign countries are greater than, equal to, 
or less than the debts payable. 
Between two countries which are, as it is said, on ihe 
same standard, or more accurately which use the same metal 
and where that metal can be freely exported, imported and 
coined, this proceeding has for its sole object the saving of 
transport costs. In any settlement between France and 
England before the war, it may be said that, thanks to the 
system of free coinage, it was open to anyone at any time 
to pay in specie. Moreover, as each of the monetary units