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
