THE FOREIGN EXCHANGES 
217 
that they signify nothing as regards the advantage secured by one 
country from its trade with that other country or with all countries. 
What they do mainly signify is that all those balances are handled 
by the exchange market as a series of connected items. The buying 
and selling of exchange by the dealers in the several countries 
bring it about that a payment due from the United States to Brazil 
for coffee is easily effected thru bills of exchange on London drawn 
against American exports of cotton to Great Britain. The dealers 
in exchange watch the whole financial world, and exert their 
ingenuity — spurred by remarkably keen competition — toward 
effecting remittances at the minimum expense. The actual trans- 
portation of gold is a comparatively dear way of settling the 
balances. Hence not only are present and future sales of com- 
modities calculated or guessed at, present and future carrying 
charges in the way of interest worked out, but the existing and 
prospective supplies of bills on the several countries against each 
and every other country are followed with trained eyes. A pres- 
ent deficiency is met by a subsequent surplus; a debit balance 
payable to one country is met by a credit balance available 
against another country. Such is the net effect, in normal times, 
of the speculative operations of the professional dealers in the 
foreign exchange markets. 
A similar smoothing and equalizing ensues from the holding by 
large banks, and especially by the great public banks, of bills of 
exchange on foreign countries and especially on gold standard 
countries. In pre-war days these were most commonly sterling 
bills; in post-war days they have often been dollar bills. Often 
they are treated as a “reserve,” and in gold standard countries are 
often regarded as in effect the same as a gold stock. In whatever 
way law or custom treats them as reserve, they are in fact simply a 
means of enabling demands for remittances abroad to be met with- 
out trenching on actual gold. When deliberately held in consider- 
able quantities, they serve, even more obviously than the specu- 
lative operations of the exchange dealers, to prevent the ups and 
downs of international payments from disturbing the monetary 
situation. They constitute a reservoir of foreign exchange from