It is fairly clear that the real trouble in Eastern exchange lies in the fact that we have three main factors to deal with instead of two. In the gold exchanges we have simply the demand for and supply of bills and telegraphic transfers; in the silver exchanges the matter is complicated by the way in which we also have to depend upon the fluctuations in the price of silver on the London market.... Shanghai draws on London for the cost of her exports and remits to London for the value of her imports, and the principal reason for this procedure is that the manufacturer in Great Britain does not wish to be bothered with the variations in exchange, although as the reader has seen, he may be pretty severely affected if silver has depreciated before his goods are sold. Leaving that out of the question, however, we may take it that as all his expenses are payable in gold, he naturally prefers to deal in terms of that metal. Consequently, goods shipped to China are nearly always paid for by remittances, or drawn for in sterling, which comes to the same thing. The Chinese producer is on rather a different footing. His expenses are in silver, and in silver he wishes to be paid. His produce, however, he has sold to Great Britain for a gold price, and either he cannot afford to, or does not want to wait until a remittance can be sent by mail from London. The one way open to him is to draw in sterling and settle the rate of exchange on the spot, which he does and so makes an end of the matter.... FOOTNOTES: [103] Hartley Withers, _Money Changing_, pp. 30-35. E. P. Dutton and Company. New York. 1914. [104] Adapted from the Rt. Hon. Viscount Goschen, _The Theory of the Foreign Exchanges_, pp. 85-88. Effingham Wilson. London. 1913. [105] Adapted from Franklin Escher, _The Elements of Foreign Exchange_, pp. 3-14. Bankers Publishing Company. New York. 1913. [106] _Ibid._, pp. 15-24, 26, 31-33, 44. [107] Adapted from Frederick I. Kent, _Financing Our Foreign Trade_, The Annals of the American Academy of Political and Social Science, Vol. XXXVI, No. 3, November, 1910, pp. 492-500. [108] [The method explained would apply without qualification to our imports generally prior to 1914, whether coffee from Brazil, hides from the Levant or textiles from France. The recent and growing practice of drawing on New York rather than on London is discussed later in this chapter.] [109] Adapted from Archibald J. Wolfe, _Foreign Credits_, pp. 22, 23, Special Agents Series--No. 62. Department of Commerce and Labor. Washington. 1913. [110] George Clare, _The A B C of the Foreign Exchanges_, pp. 11-15. Macmillan and Company. London. 1911. [111] [English bills drawn on our banks have increased in volume since 1914, through the operation of the Federal Reserve Act and the amended New York State Bank Law which make provision for the acceptance of time drafts by National and New York State banks, respectively.]