The present rate of exchange, which is a recovery from the first panicky drop of paper here, as in many other parts of the world on the outbreak of the European War, is below a rate which the efforts of Brazilian financial men succeeded in preserving for eight years by the establishment of the Caixa de Conversão; continuance of exchange at a lowered level is probably partly the result of the issue of extensive amounts of inconvertible paper into circulation for budgetary purposes since the middle of 1914, and partly on account of the heavy demand for bills of exchange on London, which began to have their effect from the time of the Balkan trouble of 1913. The drop would without doubt have been much sharper were it not for three causes of strength: the first is the unprecedentedly large trade balance in favour of Brazil in 1915, amounting to nearly £28,000,000 ($140,000,000); the second is the Funding Loan which the Federal Government succeeded in making with its European creditors in the latter part of 1914 and which prevented the outflow of other large sums in gold; and, third, the strong gold reserves of the Caixa de Conversão. It is true that these reserves have been drawn upon until they now stand at less than one-fifth of their level at the beginning of 1913, but without that stream of gold and its strengthening effect on circulation it is reasonable to suppose that exchange would have suffered to a greater extent. The Caixa de Conversão, which I will henceforth call the Conversion Office, is Brazil’s concrete effort to fix a rate of exchange; it was excellent in conception and performed its function admirably until unforeseen world conditions overpowered its operation. After the establishment of a Republic in Brazil large issues of paper were for the first time put into circulation, with the accompaniment of successive falls in exchange; the proclamation of the overthrow of the Empire found Brazil with not more than 199,000 contos in paper, but eight years later the amount had risen to nearly 790,000 and Brazil was obliged to suspend interest on her debt to Europe. A Funding Loan of ten million pounds sterling was arranged with Rothschild’s, which had the effect of checking the fall in the value of the milreis, then (1897–98) down to eight pence or nine pence, and even touching the threatening level of six pence; the arrangement included destruction of the debased paper in considerable quantities, and as this work was accomplished exchange steadily rose until in another ten years’ time, 1908, outstanding inconvertible paper amounted to less than 650,000 contos, and the value of the milreis was sixteen pence. But by this time the Conversion Office was in operation, thanks largely to the efforts of President Affonso Penna; this office in 1906 began receiving deposits of gold and issuing against them convertible paper bills having the fixed exchange value of fifteen pence; these bills always equalling the amount of gold in the