It would have been much better for Spain to buy Spanish securities held by foreign countries, to make temporary loans to countries compelled to buy in excess from Spain, or to the nationals of such countries against adequate securities—better for Spain and better for her commercial customers. True commerce in its highest and best form serves equally well both parties to such commerce.
Spain also adopted the policy of refusing to take foreign gold except at a discount, on the theory that she did not desire to expand her currency, and in that way cause a rise in the price of labor and commodities in Spain. The effect of this was to deprive other nations of a fair means of settling commodity trade balances with Spain, and had the effect of automatically raising the prices to foreigners of Spanish commodities, thus serving to dislocate Spanish trade.
These unfavorable conditions in Spain have also led many people in the Entente Allied Countries to believe the Spanish policy was swayed, if not controlled, by German influences and after this war this opinion may prove commercially injurious to Spain.
HOW TO PUT THE DOLLAR AT PAR
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.