Article II: On Exchange

567. Exchange (change; wissel) is a contract in which money is exchanged for money in some way diverse, with the profit of him (the exchanger, changeur, wisselagent) who exchanges in favor of another.

It is said: in some way diverse, because in this consists the essence and utility of exchange, and from this it comes that the exchanger justly receives profit. Moreover, that diversity can consist in quantity, as if smaller money (divisionnaire) is given for greater; in quality, as if new coins are given for old, current coins for obsolete ones (not reprobated); by reason of species, as if gold is given in place of silver money; by reason of place, as if money is given at Louvain and letters are returned by which other money is received at Rome. These letters are called letters of exchange (lettre de change; wisselbrief, postwissel).

Exchange differs:

1. From purchase-sale: in this latter, merchandise is exchanged for money; in exchange, money for other money;

2. From deposit, letting, and commodatum, in which dominion is not transferred, while in exchange it is transferred;

3. From mutuum: a) mutuum can be made in money and in other things; exchange in money alone;

b) mutuum is made for some time; exchange can be made in the present;

c) mutuum is perfected by the handing over of the principal alone with the obligation of returning; exchange by mutual handing over;

d) in mutuum a thing of the same value is returned; in exchange a thing of lesser value is returned, and therefore, that equality may be made, the exchanger must give utility.

568. Species of exchange. Exchange:

A. One kind is real or true, when in fact one money is exchanged for another as regards thing or place, and it is twofold:

1. Small or manual, when in the same place, as if from hand to hand, present money is exchanged with other present money of a diverse kind, for example, domestic with foreign, gold with silver. Those who exercise this office, offering diverse monies set forth, are properly called exchangers, changeurs, wisselaars;

2. Local, or by letters, or transmarine, when present money received in one place is exchanged with absent money, to be paid in another place, as if you give money here to someone and he gives you letters by means of which you (or another to whom you concede the right) receive the same sum at Rome (a son ordre, par une banque). Bankers exercise this office. Moreover, this can be done in a twofold way: either a) the money is to be paid by him who received it, and then it is called personal exchange, and the writing is called billet a ordre, billet a domicile; betaal-orderbriefje; or b) the money is to be paid by a third party, and the writing is called traite, lettre de change, or mandat a ordre; wisselbrief (cf. Belgian law of 20 May 1872, and 20 June 1873, and 31 May 1919).

B. Another kind is fictitious (change sec; pret dissimule), which has only the appearance of exchange, because no transfer of money is made, but in itself it is a mutuum with usury disguised; concerning this the things to be said about mutuum have force. Such is temporary exchange (change a terme), by which money is given to be returned after a certain time in the same place, with an increase greater or lesser according as the money meanwhile will have been worth more or less; for example, if someone receives from an exchanger one hundred gold pieces to be paid later in the same place with the price of exchange customarily given for distant places.

569. Real exchange is licit and just, provided that the just price determined by law or by the common estimation of places is observed; indeed it is very advantageous and useful, and almost necessary for commerce. Certainly the exchanger has a title of just profit, because he is not held gratis to procure monies, whether in the same place or in another, with labor, expenses, and danger, for all of which compensation is owed. This also has force concerning local exchange, in which there is virtually made a transfer of money from one place to another, with security; this is estimable by price, and no less than real transfer demands industry, nor is it made without expenses and danger.

Nor is it an obstacle that money formally as such has a legal price. For here it is considered materially, according as it consists of diverse materials and coins, and one coin is more precious than another, more advantageous, more apt for several uses, received in several regions; and thus it is merchandise which has only a common price. That price is determined not only on the part of the exchanger, but from the abundance of money to be sent into some city, or to be withdrawn, from the ease of commerce with such a city, from dangers, from the diversity of monies in diverse kingdoms and their intrinsic value, from the riches and debts of diverse nations (cours du change), whence it is frequently changed according to various circumstances. From this theologians conclude:

1. That profit from common estimation can ordinarily be received by the exchanger, even if he himself had no expenses or damages, indeed if it is more useful to the exchanger to receive the money here, because otherwise he would have had to take care that it be transferred here: for this is by accident and to be attributed to good fortune;

2. That in the same way it can happen by accident in local exchange that the exchanger himself sometimes makes profit;

3. Indeed, that even a private man who does not exercise the office of exchanger and exchanges one money for another seems able to take profit from it, because he can sell money at the common price established by common estimation; for money is merchandise sellable by anyone at a just price.

570. Observations. 1. Exchange, as being a species of trading, is prohibited to clerics.

2. On re-exchange (rechange; herwissel) see art. 72-81 in the law of the Commercial Code. One who in fact has not borne expenses cannot demand them, since they are attributed to him only by title of indemnity.

3. A bank, or money-changer's table, is called that institution in which all operations of credit are disposed, duly ordered, and brought together. These operations are reduced to three principal categories:

a) Deposit, and the operations which are referred to it, namely, the transfer of accounts and computations to the creditor, transcription to another, recovery, compensation (clearing), mandated instruments of transfer (checks), current accounts or computations, and emissions of paper money.

b) Commerce of monies and their substitutes, which comprehends the trading of precious metal, the exchange of monies, exchange properly so called, namely of paper money, the purchase and sale of titles, and the discounting of capitals (escompte, disconto).

c) Emissions of loans, which consists in the emission of titles of credit.

Considered in themselves and merely according to principles, the aforesaid banking operations in no way seem illegitimate, since they are nothing but onerous services furnished and loans at interest under various forms, to which, today at least, just remuneration ordinarily is owed. But most unhappily, bankers sometimes abandon the honorable practices of their office and not rarely give themselves to speculations more or less usurious, as often happens in issuing loans.

The procuring of large loans is entrusted to bankers, whether solitary or federated, which certainly has nothing illegitimate. Nevertheless, by these operations it can happen that the metallic reserves of banks are weakened, or even that the cash which circulates from them suffers an excessive contraction harmful to the market. But graver inconveniences more often accompany negotiations of loans or titles.

Loans or titles are put on the market below the indicated price, by reason of a certain fictitious interest. Certain titles or "shares" are ceded gratis or for a lesser price to some persons so that they may be willing to recommend the purchase publicly. When the titles have been issued, they are eagerly sought, for this reason, that the bankers studiously buy back their own shares. Hence the price of titles quickly grows and brings about an elevation of values; wherefore outside persons, seeing the great favor which the titles enjoy, themselves fervently buy. But when the last titles have been sold, depression begins, and just as quickly the price decreases, so that the later buyers perceive too late that they have been deceived and fraudulently despoiled.

The responsibility of bankers is of great moment:

a) A banker who has great deposits of enormous value is thereby easily inclined to use them in speculations of the stock exchange and dangerous aleatory operations, although his own shipwreck and the fall of the deposits is carried along with it.

b) If he grants many loans with insufficient security, the fall of some of his debtors can notably diminish or even overturn the condition of the bank itself.

c) Between the capitals entrusted to him in deposits, and the capitals lent to others with a certain discount, there is always this difference: that the former can be demanded back without delay, while the latter are not to be returned except after a determined time. This difference is sufficient to bring about ruin, if the pecuniary reserves are insufficient, or if many depositors, moved by some fear, withdraw their deposits at the same time.

These things being considered, the oversight of public power over banks must be said to be necessary; and, in present-day circumstances, it is often insufficient, so that security is lacking. And yet by the frequent fall of banks, much money carefully gathered by the labor or thrift of citizens is squandered, and is lost to them!