What are the possible remedies for this discount of the American dollar
in Spain?
1st. The shipment of gold in such volume as to meet
the international commodity trade balance in
favor of Spain would at once put the dollar,
the pound sterling and the French franc to par,
but in order to safeguard the currencies of the
nations during the war it is not deemed expedient
to ship gold at this time. When the war closes
Spain, having depleted itself in commodities and
having accumulated for these commodity shipments
large volumes of credits, will be in a position
immediately to buy from other countries and she
will become almost at once a commodity trade
debtor, which will bring Spanish currency down to
par and bring the currency of other countries up
to par in Spain;
2nd. Cutting off purchases from Spain of commodities
and expanding the shipment of commodities to Spain
would be another factor of importance in bringing
Spanish currency down to par and other currencies
up to par, but is injurious both to Spain and to
the countries driven to adopt this policy.
[This remedy is only partially available because the Allies for war
purposes need available Spanish commodities and are only cutting off
non-essential goods, depressing Spanish commerce engaged in what are
not necessities for war and unduly stimulating Spanish business in
commodities required for war. The undue stimulation of one line of
commodities and the depreciation of another line of commodities is
injurious to the normal business of Spain and at whatever price will
be corrected with the revival of peace by an injurious reaction of
the industries engaged in commodities required for war, while other
industries not required for war which have been impaired must be
rehabilitated.]
3rd. The remaining and most available and economical
factor by which this unhealthy condition of a
highly appreciated Spanish currency and severely
depreciated Allied currency in Spain can be
corrected, is _by credits extended_ by Spanish
_banks_ and Spanish _merchants_ and Spanish
_business people_ during the period of the war to
the extent of their favorable trade balance. This
can be accomplished in various ways:
(a) Spanish banks can leave balances in New York,
London and Paris. They are doing this but not on
a basis of a fair rate of interest, superficially,
because these balances in New York, for example,
are only paying two or three per cent. However,
since the Spanish pesetas are sold for American
dollars, selling on the exchange for but
sixty-seven cents in New York, the Spanish banks
buying such dollars will make a profit of fifty
cents when the war ends and the dollar reacts to
par.
The same thing is true of United States banks that buy pesetas in Spain
at an acceptable rate of interest there for the period of the war.
This is being done to a certain extent and American banks thus buying
American dollars at sixty-seven cents, thro Spanish loans will make a
profit of fifty per cent. on such dollars when the dollar reacts to par
and gold can be freely shipped.
It is obvious that American commerce and Allied commerce and Spanish
commerce is being subjected in this way to a serious injury with
compensatory benefits to the Spanish and American bankers who are
selling credits in Spain.