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Foreign Exchange

In: Money

Author

Listed:
  • Roy Harrod

Abstract

As between two countries on the gold standard, the ‘ parity’ of exchange is fixed by the statutory gold content of each of the two currencies. Being on the gold standard was always taken to imply convertibility. The holder of a note could present it for conversion into gold in accordance with the official gold valuation of the note. There was also, as already described, reverse convertibility, by which anyone could tender gold bars and obtain notes in exchange for them. Anyone who so wished could pay a debt to another country on the gold standard by presenting the notes of his own country for conversion by his own central bank, obtaining gold, remitting it to the other country, and there getting the notes of that country in exchange for gold at the official valuation. Most international payments were not made by this method, but through foreign exchange markets. In these markets the great mass of people who wanted to convert, say, sterling into dollars would meet those who had payments to make in the opposite direction, and the dealers in the market could marry the demand for a foreign currency to the supply of it.

Suggested Citation

  • Roy Harrod, 1969. "Foreign Exchange," Palgrave Macmillan Books, in: Money, chapter 3, pages 66-94, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-15348-0_3
    DOI: 10.1007/978-1-349-15348-0_3
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