Show I I I I I I I I i I I FOREIGN EXCHANGE IS 15 A COMMODITY BANKER SAYS James S. S Alexander Tells ot of Conditions Affecting Trade NEW EW ia tan Jan 2 i r ex cx- x- x change is a comm commodity and present demoralized depreciation in rates for tor torI forsterling forsterling sterling sterling- and other European ex exchanges exchanges ex- ex changes Is a a normal expression of the law of supply and demand It Is de declared declared de- de dared by James S. S Alexander president president president dent of the National Bank of ot Commerce Commerce Com Corn merce In New York In a statement on the situation made in response to a request by the Associated Press for foran foran foran an explanation in plain terms of ot this highly complicated International business business busi busl- ness problem Restoration of an ap approximate approximate ap- ap proximate t equilibrium of the imports and exports between the United States and Europe and a return of the currencies of Europe to a gold basis are the fundamental factors which will restore the normal demand for foreign exchange In this country and bring It back to normal levels levels- he says Mr Alexander has taken a leading part in considering the foreign trade situation having been chairman of the committee on credit and finance at the Atlantic City international trade conference held with unofficial representatives from Europe under the auspices of the chamber of commerce commerce com corn merce of the United States and be being being being be- be ing now chairman of the executive committee of the national committee on European finance He lie is chairman chairman chairman chair chair- man of the board of ot directors of ot the French-American French Banking corporation corporation corporation corpora corpora- tion and a director of the Foreign Finance corporation His statement In full tull i is s as as follows PROBLEMS UNDERLYING Depreciation of ot the the foreign n ex exchanges cx- cx changes changeR Is primarily only a reflection of deeper problems In the relation of exports and Imports J between America and Europe The Tho may be stated as follows When hen exporters sell ell ell to foreign buyers they draw checks drafts on those foreign consignees or their ther banks for the amounts due These bills are drawn In foreign money preponderantly pounds that that is i. ort ot houses In tn London lon long the worlds world's international clearing house Americans drawing these bills sell sen them In the foreign orelen exchange e market for tor what hat they will bring which under normal conditions fluctuates within narrow limits of ot face value The total volume of such checks and drafts coming into the foreign exI exchange ex- ex ex cx- chan change e market constitutes the supply I of ot foreign exchange In existence at that time The forel foreign n exchange I market consists of ot foreign exchange houses whose hose function is to buy exchange ex tx change chan say sav a in New York on London and send it there for collection or the establishment of ot balances Ordinarily at the same sam time Americans are selling goods good to foreigners for for- eigners foreigners are selling goods to Americans who therefore have re remittances remittances re- re mitt to to make abroad They I therefore buy from the foreign exchange ex e change dealers drafts or 01 checks I I a against the balances those dealers have established abroad through the I purchase of ot foreign exchange Thus I II while American exporters sell foreign exchange American Importers importers' buy I I foreign exchange The one creates the supply the other creates the demand I I EQUALITY NEAR I Normally this supply and demand I were about equal because the total volume volume of goods and services sold sold I to Europe about equaled the total volume of goods and services bought I from Europe In Tn prewar times the difference In the two volumes fluctuated flue flue- between narrow limits and the excess one way or 01 the other was settled settled set set- I tied by shipments of gold sold The foregoing states in general terms what normally took place in inthe inthe inthe the foreign exchange market Ignoring many technical details which however how how- ever do not alter the main thou thought ht The war however has materially changed the situation In the first place while there have been huge increases es In our our exports to Europe there have been treat creat decreases in I our our imports from e. e There has therefore come into the foreign ex- ex e chane-e market a greater volume of checks and drafts on Europe than European drafts on America resulting in a far tar greater reater supply of or foreign exchange in this market than there is a demand for on on the part of I Americans having remittances to tomake tomake tomake I make abroad As liv ii the case of any commodity when sun sun- I ply exceeds demand of ot sun sun-I the I foreign exchanges es fell The depre de dc- de depreciation pre predation l of ot forel foreign n exchange in this market et therefore Js a normal I expression lon o of the law of supply and I demand GOLD SAVES SITUATION I During Europe's war purchases from us before Americas America's entry into I J Ithe the war wr w r foreign exchange e on Europe I was kent tro from fron depreciation to present i levels by the great volume of gold Jold I she sent us In cash liquidation of ot her adverse balance until she sent about all the gold cold she could spare At this I point America entered the tIle war and and government credits were extended to I our allies nerving to keep a large I volume of ot foreign exchange for Europe's Eu Eu- ropes rope's purchases out of the market I I Drafts and checks which would other i wise have come Into the market during dur dur- ing this period were In effect funded In a consolidated lon long time Ume credit This postponed the depreciation The extension of ot government credit however how how- ever has ceased and there is nothing now to prevent foreign exchange from fram coming Into the market In greater eater I supply I than there Is demand for due I to the continuing s of Europe's I purchases from us over her sales to us I In addition to this exchange e on Europe is further depreciated by the fact that forel foreign n currencies are de depreciated de- de because of the abandonment abandonment abandonment abandon abandon- I ment of gold old redemption made necessary necessary necessary sary by great grett issues of If paper papel money mone 1 I and the reduction of ot the sold gold old basis basis' through shipments of ot told gold to tn America Amere 1 I I I Foreign exchange calls alls for payment inI in foreign moneys and naturally since these foreign moneys money are b below low face val value e. e foreign exchange bills themselves themselves them them- themI I selves will be e correspondingly beio below elo face value IThe i iThe The qu question stion as to what will correct correct cor cor- reet the situation can can be answered on general principles without ut any at attempt attempt at- at tempt to prophesy Foreign exchange cannot come back bacle to parity until the restoration of ot the gold standard In Europe corrects the depreciation of E European currencies and until the restoration of ot approximate equilibrium between our exports and our Imports in respect to Europe again makes the I demand for foreign exchange approximate the supply |