The Theory of Money and Credit

The endeavors of the central banks-of-issue to build up as large gold reserves as possible have led to the employment of devices which have just the opposite appearance to that of the premium policy and the systems similar to it. By raising the price they paid for gold imports the banks used to try to diminish the cost to the importer of importing gold and so to reduce the lower gold point.

Among these devices was the practice of granting interest-free or low-interest-bearing advances to importers of gold, a practice which was not unknown in England, France, and Germany.24  There was also the practice of buying gold not only at the chief office, but also at branches situated near the national boundary.25  Perhaps the most interesting of these devices was that of buying certain kinds of gold coin at a price in excess of their bullion value. If the bank issued to a gold exporter, instead of ingots or coins of the country, coins of the country to which he intended to send the gold, it could get a higher price for them than that corresponding to their gold content. For the exporter would save the expense of melting and recoinage and avoid the loss in which he would be involved by the fact that the domestic coins would be worn down to some extent. So the bank would be able to agree to pay a higher price than that corresponding to their metal content for the current gold coins of the states into which a future export of gold was probable.26

All of these measures can best be described as weapons against the premium policies and related devices employed by foreign banks. If the central bank in a country A endeavored to raise the upper gold point for export from A to country B, then the bank in B took steps to lower it. If only used coins were issued for export purposes in A, this procedure was rendered nugatory when a price in excess of the gold content was paid in B for coins of country A. It is very probable that the devices and counterdevices were largely compensatory, so that the extension of the gap between the gold points, which otherwise would necessarily have resulted from the intervention of the banks, did not in fact occur.

• 24See Koch, op. cit., p. 79; Die Reichsbank 1876-1900 (Berlin, 190l), p. 146.
• 25See Obst, Banken und Bankpolitik (Leipzig, 1909), pp. 90 f.; Hertz, “Die Diskont und Devisenpolitik der österreichisch-ungarischen Bank,” Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung 12 (1903): 496.
• 26See Koch, op. cit., pp. 79 ff.; Hertz, op. cit., p. 521; Spitzmüller, “Valutareform und Währungsgesetzgebung,” in Oesterreichischen Staatswörterbuch, 2d ed., vol. 2, p. 300.