The nominal variation from par is caused by an alteration in the value of the currency of any country, which, of course, destroys the relative proportion of its denominations to the denominations of the currency of other countries. But it does not affect the amount of commodities exchanged.
The real variation from par takes place when any two countries import respectively more money and less of other commodities, or less money and more of other commodities.
This kind of variation is sure to correct itself, since the country which receives the larger proportion of money will return it for other commodities when it becomes a superfluity; and the country which receives the smaller proportion of money will gladly import more as it becomes deficient.
The real variation from par can never therefore exceed a certain limit.
This limit is determined by the cost of substituting for each other metal money and one of its representatives,--viz., that species of paper currency which is called Bills of Exchange.
When this representative becomes scarce in proportion to commodities, and thereby mounts up to a higher value than the represented metal money, with the cost of transmission added; metal money is transmitted as a substitute for Bills of Exchange, and the course of Exchange is reversed and restored to par.
Even the range of variation above described is much contracted by the operations of dealers in bills of exchange, who equalize their value by transmitting those of all countries from places where they are abundant to places where they are scarce.
A self-balancing power being thus inherent in the entire system of commercial exchange, all apprehensions about the results of its unimpeded operation are absurd.
ILLUSTRATIONS