THE THEORY OF EXCHANGE 129 
dollar; but the process of purchase and sale actually centres 
round a bill of exchange or draft, drawn on a foreign country 
and payable in a foreign currency, which is purchased with 
the national currency. In transactions between two countries 
using the same metal which can be freely exported, imported 
and coined, a settlement could, if necessary, be effected by 
means of coin which would bz recoined, and therefore on 
the basis of metallic par plus the various expenses of 
transport and recoinage (gold points). For instance, before 
the war a Frenchman knew that there was as much fine 
gold in 25221 francs as in 1000 pounds sterling and 
that in any case it was open to him to pay 1000 
pounds which he owed in London by sending fine metal 
of the same weight in the form of French coin, if he 
were prepared to have the specie recoined and pay the 
freight. Similarly, he knew that he could bring 1000 
pounds from England in gold and by having them recoined 
at the Paris Mint, obtain 25221 francs after deducting 
the cost of freight and recoinage. Hence the rate of bills 
in Paris on London—and conversely—could only fluctuate 
between these two outside limits which corresponded to the 
costs of settling in specie. It could only deviate from metallic 
par in so far as it might be necessary to add the expenses 
of exporting (export gold point) or necessary to deduct the 
expenses of importing (import gold point) the precious 
metal. The rate of franc bills sold in London for sterling 
was governed by the same considerations and restricted 
within the same limits, the import gold point of sterling 
corresponding to the export gold point of the franc and 
conversely. In a theoretical inquiry we need not examine 
1 Since also private individuals effected settlements through bills only 
in order to avoid the expense of shipping metal. 
2 Moreover, the rates corresponding to the quotations of two similar 
currencies on two markets are always in harmony on account of the arbitra- 
tion granted by bankers. For if at any given moment sterling is quoted at 
25-25 in Paris and at 25-22 in London, there will be persons ready to sell 
francs, 1.., bills on France in London, in order to obtain sterling at the 
rate of 25-22 and sell sterling, i.e., bills on London in Paris, at the rate of 
25-25. This action by sending up falling and bringing down rising rates 
constantly keeps the exchange between two markets at the same level.