Suppose you paid a sum of money in Britain which, by the standards of the British mint, contained a certain number of ounces of pure silver, and the amount paid out on the bill of exchange you received in France contained exactly the same amount of pure silver by the standards of the French mint. People would then say that Britain and France exchanged at par.
If you paid more than you received upon payment, people considered that you had paid exchange premium and said the exchange was unfavorable to Britain and favorable to France. If you paid less than you received upon payment, people said that you had gained exchange premium and that the exchange was unfavorable to France and favorable to Britain.
Great powers such as Britain and France were responsible for their own coinage, while countries such as the Netherlands, Antwerp, Hamburg, and Venice held foreign bills of exchange of a fixed value. Such banks were established on the credit and under the protection of the state, and redeemed bills according to state standards with sound, genuine currency. Their bank money was superior to the nation's circulating currency, and thus a discount existed in transactions.
Currency was often worn down, and some people even cut coins in half to use them. Bank money, on the other hand, sat in the bank where no one could touch it. When such deposits were sold on the market, they too generated a discount.
A new Shilling could not buy more goods than an old Shilling. Good money from private vaults mixed with circulating currency was worth no more than ordinary currency. For instance, the vault of Galleons Harry's wealthy father James Potter had left him was one kind of bank money. The amount he spent on a Nimbus 2000 broomstick