Specie points

Updated: Aug 20, 2021

The limits between which the exchange rate between two currencies on the gold standard fluctuated. For instance, befare the First World War the same amount of gold could be bought in London for £1 and in New York for $4,87, and therefore the par rate of exchange was £1 for $4,87. If the pound fetched less than $4,87 in London, it would pay a merchant to ship gold to the U.S. to settle his debts provided the cost offreight and insurance were less than the difference between the par rate and the London rate. Therefore in practice the rate never fell by an amount more than the cost of shipment. Similar forces applied in reverse to prevent the rate rising by an amount in excess of the cost of shipment.

Reference: The Penguin Dictionary og Economics, 3rd edt.

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James Knight
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