The American dollar should buy 5.18 pesetas, lire or francs on a gold
par basis, but at present (August, 1918) will buy 8.90 Italian lire and
about 3.5 Spanish pesetas, although the gold value of the Italian lira
and the Spanish peseta is identical. The reason for this is that Italy
has an urgent demand for dollars in America to pay for the purchases of
the Italian Government and of the Italian people, and the credits being
extended to Italy for this purpose are being furnished at enormously
high rates by private banks and capitalists, while Spain is selling
more commodities than she is buying, is an international creditor,
has no need for dollars, and pesetas in Spain are being sold at an
artificial high price by private banks and capitalists. The Allies
requiring Spanish pesetas are being charged enormously high rates for
the pesetas required in Spain, which means that the pesetas are selling
for 28 cents apiece instead of 19 cents and that the gold dollar
measured in pesetas is at a heavy discount and only worth 67 cents.
The gold dollar in New York instead of buying 67 cents’ worth of
Spanish gold currency should buy 50 per cent. more than it does, and
American and Allied purchasers of Spanish goods suffer this 50 per
cent. loss with the added penalty of war prices which makes the 50
per cent. loss probably 100 per cent., to which must be added the
merchants’ profit.
It is obvious, therefore, that the loss to the United States and to the
Allies from a condition of this character ought to be promptly met.
It can be done. It is necessary to understand foreign exchange, the
factors entering into it, the means by which to economically settle
international commodity trade balances and to provide the mechanism
under Government control through which the steps can be taken to obtain
the desired results.
I desire, therefore, to explain the factors entering into foreign
exchange, the steps required to bring the dollar to par, the steps
required to keep the dollar at par, and the mechanism necessary to make
effective the proposed policy.