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The EBS: analysis (definitions of analysis tools, series tables and charts)

Pars:

Under a metal standard regime, analysis of the exchange position between two currencies involves the notion of a "cross-exchange par", defined as the exchange rate (R) at which the value of these currencies are equal in the standard. If these are official values, this is the legal par. However, as early as Steuart in 1767, the legal par was considered to be an imprecise benchmark for assessing the exchange rate position, as the market price of bullion could differ from its legal price. Therefore, the real (commercial) par must be used, which can be calculated for gold and for silver. When arbitrages associated with international settlements are bimetallic, as was the rule during the EBS from 1821 to 1873, the bimetallic par must be applied.

  • The legal par or ratio (RL – ratio légal)

The legal par is the ratio between the legal prices of the metal-standard on the market that quotes rates in indirect terms and the market that quotes in direct terms. London quoted direct rates for Paris and Hamburg, while Hamburg quoted direct rates for Paris.
The calculation for monetary regimes with the same metal standard or at least a shared metal is direct (silver for Paris and Hamburg and gold for London and Paris). However, when two countries with different monometallic standards are analysed, it was customary at the time to use Paris' official gold to silver commercial ratio of 15.50 to 1. See the institutional framework for the values of each legal par.

  • The market gold-par (RO – ratio d'or)

The market gold-par is the ratio between the prices of gold on the market that quotes rates in indirect terms and the market that quotes in direct terms.

  • Between London and Paris: ROLP = POB/LOB (London-Paris market gold-par = Paris gold bullion price/London gold bullion price)

  • Between London and Hamburg: ROLH = HOB/LOB (London-Hamburg market gold-par = Hamburg gold bullion price/London gold bullion price)

  • Between Hamburg and Paris: ROHP = POB/HOB (Hamburg-Paris market gold-par = Paris gold bullion price/Hamburg gold bullion price)

  • The market silver-par (RA – ratio d'argent)

The market silver-par is the ratio between the prices of silver on the market that quotes rates in indirect terms and the market that quotes in direct terms.

  • Between London and Paris: RALP = PAB/LAB (London-Paris market silver-par = Paris silver bullion price/London silver bullion price)

  • Between London and Hamburg: RALH = HAB/LAB (London-Hamburg market silver-par = Hamburg silver bullion price/London silver bullion price)

  • Between Hamburg and Paris: RAHP = PAB/HAB (Hamburg-Paris market silver-par = Paris silver bullion price/Hamburg silver bullion price)

  • The bimetallic par (ROA – ratio d'or et d'argent)

The bimetallic par is the arithmetical average of the gold and silver market pars.

  • Between London and Paris: ROALP = (ROLP + RALP) / 2 (London-Paris bimetallic par = the average of the sum of the London-Paris market gold-par and the London-Paris market silver-par)

  • Between London and Hamburg: ROALH = (ROLH + RALH) / 2 (London-Hamburg bimetallic par = the average of the sum of the London-Hamburg market gold-par and the London-Hamburg market silver-par)

  • Between Hamburg and Paris: ROAHP = (ROHP + RAHP) / 2 (Hamburg-Paris bimetallic par = the average of the sum of the Hamburg-Paris market gold-par and the Hamburg-Paris market silver-par)

Relative gold-silver prices

As is the case with the par, the ratio between official values (generally referred to as the monetary relationship) differs from the ratio between market prices. In the EBS, a legal gold-silver price could only be calculated for Paris, which was the only one of the three zones to have a bimetallic regime, and was equal to 15.50. Relative market prices are defined as follows:

  • In Paris: POB/PAB (Paris gold bullion price/Paris silver bullion price)

  • In London: LOB/LAB (London gold bullion price/London silver bullion price)

  • In Hamburg: HOB/HAB (Hamburg gold bullion price/Hamburg silver bullion price)

Relative divergence between the exchange rate and the bimetallic par

This indicates whether the external balance is in deficit (–) or surplus (+), from the perspective of the market that quotes direct rates.

  • Between London and Paris: if LPV > ROALP (the London-Paris rate is greater than the London-Paris bimetallic par), there is a surplus for London

  • Between London and Hamburg: if LHV > ROALH (the London-Hamburg rate is greater than the London-Hamburg bimetallic par), there is a surplus for London.

  • Between Hamburg and Paris: if HPV > ROAHP (the Hamburg-Paris rate is greater than the Hamburg-Paris bimetallic par), there is a surplus for Hamburg.

Updated on: 05/04/2018 15:15