Agio (commerce)

:"See Agio for other uses of this word"Agio (Italian "aggio", exchange rate, discount, premium), a term used in commerce in three slightly different connections,
*The variations from fixed pars or rates of exchange in the currencies of different countries. For example, in most of the gold-standard countries, the standard coin was kept up to a uniform point of fineness, so that an English sovereign fresh from the mint would bear the following constant relation to coins of other countries in a similar condition: ₤ = francs. 25-221 = mks. 20-429 = $4-867, etc. This was what is known as the mint par of exchange. But the mint par of exchange, say, between France and England was not necessarily the market value of French currency in England, or English currency in France. The balance of trade between the various countries was the factor determining the rate of exchange. Should the balance of trade be against England, money would have to be remitted to France in payment of the indebtedness, but owing to the cost for/the transmission of specie there would be a demand for bills drawn on Paris as a cheaper and more expeditious method of sending money, and it therefore would be necessary, in order to procure the one of the higher current value, to pay a premium for it, called the agio,
*The term was also used to denote the difference in exchange between two currencies in the same country; where silver coinage was the legal tender, agio was sometimes allowed for payment in the more convenient form of gold, or where the paper currency of a country was reduced below the bullion which it professes to represent, an agio was payable on the appreciated currency,
*Lastly, in some states the coinage got to be so debased, owing to the wear of circulation, that the real was greatly reduced below the nominal value. Supposing that this reduction amounted to 5%, then if 100 sovereigns were offered as payment of a debt in England while such sovereigns were current there at their nominal value, they would be received as just payment; but if they were offered as payment of the same amount of debt in a foreign state, they would be received only at their intrinsic value of 95, the additional 5 constituting the agio. Where the state kept its coinage up to a standard value no agio was required.

ee also

*currency
*exchange rates

References

*1911