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61ST Congress 1 ottmatp / Document
2d Session ] bliNAlB -^ No. 493
NATIONAL MONETARY COMMISSION
The Banking System
of Mexico
CHARLfiS A. CONANT
Authot of "a History of Modern Banks of Issue," "The Principles
of Money and Banking," etc.
Washington : Government Printing Office : 1910
NATIONAL MONETARY COMMISSION.
NSUSON W. Ai^BRiCH, Rhode Island. Chairman.
Edward B. Vrssi<and, New York, Vice-Chairman.
Julius C. Burrows, Michigan.
EuGSN^ Halb, Maine.
Philander C. Knox, Pennsylvania.
Thbodorb E. Burton, Ohio.
John W. Baniel, Virginia.
Henry M. Teller, Colorado.
Hernando D. Money, Mississippi.
Joseph W. Bailey, Texas.
Jesse Overstreet, Indiana.
John W. Weeks, Massachusetts.
Robert W. Bonynge, Colorado.
SYL'frESTER C. Smith, California.
Lemuel P. Padgett, Tennessee.
George F. Burgess, Texas.
Ars&ne p. Pujo, Louisiana.
Arthur B. ShelTOn, Secretary.
A. Piatt Andr:Bw, Special Assistant to CotMnission.
CONTENTS.
Page.
Chapter I. — General scope of the system 5
II. — Banking development before 1897 6
III. — ^The banking law of 1897 10
IV. — Motives of the new legislation 18
V. — Conditions governing note issue 26
VI. — ^The position of the National Bank 33
VII. — Functions of the Banco Central 41
VIII. — Character of Mexican banking business 46
IX. — Movement of the circulation 54
X. — Adoption of the gold exchange standard 62
XI. — The banks and the monetary reform 73
XII. — -Organization of the state banks ^ 76
XIII. — Publicity and official supervision 78
XIV. — Growth of the banks of issue 84
XV. — ^The banks in the crisis of 1907 87
XVI. — ^Development of Mexican banking under the law of
1897 99
Appendix A. — Report on the banking system by the secretary of
finance to Congress, November 15, 1897 109
B. — ^The banking laws of Mexico:
The preliminary law of 1896 169
The general law on institutions of credit:
Chapter I. — Of institutions of credit and their
organization 172
II. — Of banks of issue 175
III.^ — Of mortgage banks 183
IV. — Of banks of promotion 195
V. — Enactments common to all banks. _ 199
VI. — Franchises and taxes 210
Transient articles 212
C. — rReport of the Exchange and Currency Commission. . 215
D. — Statistical Tables Folders.
Table No. i . — Reports of condition of Mexican institu-
tions of credit, June 30, 1909.
No. 2. — Balance sheet of banks of promotion,
1 898-1 909.
No. 3. — Balance sheet of mortgage banks, 1898-
1909.
No. 4. — Balance sheet of banks of issue, 1898-
1909.
THE BANKING SYSTEM OF MEXICO,
Chapter I. — General scope of the system.
The banking system of Mexico is based upon a plurality
of banks of issue, with a single institution at the center
without numerous branches, but maintaining a large
metallic reserve and ^supporting the local banks by redis-
count. The system thus combines some of the features
of the central bank system, which is all but universal in
Europe, with the system of isolated independent banks of
issue which prevails in the United States.
While there are several banking institutions of impor-
tance which date back more than a generation, the Mexican
system as now constituted is the result of a complete
reorganization by. Mr. Limantour, the Minister of Finance,
in 1897. It was then that a sharp line was drawn between
banks of issue, dealing with commercial credits, and banks
for mortgage loans and for promotion, authorized to deal
with their respective classes of business. In the reorgan-
ization the National Bank of Mexico, which had for a time
a practical monopoly of note issue, was left in a position of
influence at the center of the new system, but banks of
issue were permitted in the different states under condi-
tions which, without establishing an absolute monopoly,
tended to encourage the creation of one strong bank in each
state. An auxiliary organ of the state banks, not con-
templated by the law, has arisen in the form of the Banco
5
National M on et ary Commission
Central, or central bank, which acts as clearing agent in
the City of Mexico for the state banks and affords a bond
of union among them which permits cooperation in critical
situations.
When the law^ of 1897 was enacted, it was supposed to
restrict banks of issue to commercial business. Some
abuses of the privileges of these banks, however, led to still
further restrictions upon their field of operations by a law
of 1908. The tendencies which developed in Mexico,
as well as in the United States, to participate in syndicate
operations and to loan too large a proportion of the assets
of the bank to a single institution were checked by new
prohibitions, which carried out in greater detail the pur-
pose of the original law. To remove assets which were
valuable, but not readily convertible, from the banks of
issue, a new institution was created for loans to irrigation
works and for the encouragement of agriculture.
Chapter II. — Banking development prior to iSgj.
The history of banking in Mexico prior to the steps taken
in 1896 to bring about unity of system was that of a few
banks, largely financed from abroad, having special con-
cessions and acting according to no uniform requirements
as to circulation, reserves, and other obligations of sound
banking. Up to 1864 the banking business was done by
large mercantile houses having foreign relations. Ad-
vances were made in connection with commercial opera-
tions, such as are still made by sugar refiners to growers
and by distillers to producers of the materials for alcohol.
These houses in some cases issued certificates of deposit in
the form of bills, but they were filled in for the uneven
Banking System of Mexico
amounts deposited, as with the notes issued in England by
the goldsmiths in the seventeenth century, instead of
being issued for fixed sums.
The first real banking office established in Mexico was a
branch of the London Bank of Mexico and South America,
which became later the Bank of London and Mexico
(Banco de Londrfes y Mexico). This branch was estab-
lished in 1864, without any special concession or authority,
and was subjected to violent opposition by the old com-
mercial houses, which gained support from the fact that it
did not make public its accounts. It nevertheless attained
a cbnsiderable degree of success, thanks to its skillful man-
agement, scrupulous fulfillment of its obligations, and
absence of speculative loans to the Government, and intro-
duced to some extent the use of bank notes."
This bank was for some time without a serious com-
petitor except among the commercial houses. About
1875 two or three small banks were founded in the state of
Chihuahua under authority of the local government,
which issued notes to bearer, payable in copper or silver.
At about the same time (in 1879) the oldest institution of
credit in Mexico, the Monte de Piedad, whose foundation
extended back to the eighteenth century, obtained author-
ity to carry on banking operations and to issue certificates
of deposit payable to bearer on demand. The use which
was made of this authority did not, however, prove profit-
able, and it was ultimately allowed to fall into disuse.
It was about the time of the first administration of
President Diaz that the serious economic development of
oFavre, Les Banques au Mexique, p. 9.
National Monetary C ommis s ibn
Mexico began and foreign capital poured into the country
for the construction of railways. An important banking
foundation naturally followed. A special concession was
granted by Congress in 1881 to the Franco-Egyptian Bank,
which afterwards became the International Bank of Paris,
to establish a bank of issue in Mexico. The conditions of
the concession were that the circulation should always be
covered by readily negotiable securities, and should not
exceed in amount three times the cash reserve. No mo-
nopoly was granted by this concession, but the charter was
in the nature of an official indorsement, in order to produce
a favorable impression upon the public. The bank was,
however, given the functions of cashier for the State.
The new institution was named the National Bank of
Mexico. The capital was fixed at $8,000,000, divided into
8,000 shares of $100 each, and was paid up in the pro-
portion of 40 per cent." Another institution, the Mexican
Mercantile Bank, sprang into existence without any
special concessions, and, continued in business until 1884,
when it was absorbed by the National Bank. Deficient as
was the banking equipment of Mexico, the creation of
such banking facilities brought down the current rate of
interest from above 12 per cent to 9 and 8, and ultimately
in some cases to 6 per cent.
The first attempt to introduce uniform legislation in
regard to banks was made in the Code of Commerce pre-
a The dollar sign is used in this paper for the peso, which has continued
for several centuries to be the name of the Mexican monetary unit. The
value of the peso, or dollar, was $1,012 in the present standard of the
United States, while gold and silver remained at 16 to i. As the value of
silver bullion declined, the gold value of the peso declined, approximately
pari passu, until the monetary reform of 1905.
Banking System of Mexico
. I
pared in 1884. In the spring of that year Mexico was
taught the lesson which Belgium had learned thirty years
earlier and which other countries have learned at various
times which have sought to base the issue of demand
liabilities upon Joqg-term loans. The Monte de Piedad,
although it held a cash reserve of $2,480,000 against a
circulation of $4,327,000, found its position threatened.
The fact was suddenly realized that the reserve constituted
the only available resource for the redemption of the
notes, because the remainder of the assets were locked up
in mortgages for long terms. Political disorders com-
pleted the distrust which was produced by these condi-
tions, a run was made for the redemption of notes, and the
institution was compelled to suspend. Outside aid was
obtained, and the bank was kept upon its feet, but its
experience brought home in a striking manner to the-
legislators as well as to the financial world the inadequacy
of long-terra investments for meeting liabilities payable
on demand.
It was undertaken in the Code of Commerce to lay down
general rules for the incorporation of banks. Existing
concessions were recognized, but the right to grant new
concessions was taken from the local authorities and vested
exclusively in the Federal Government. The issue of
notes without a concession was prohibited, and the limit
of circulation was fixed at three times the metallic reserve.
One-third of the circulation might be secured by a deposit
of money or securities of the public debt. The amount of
notes outstanding was subject to a tax of 5 per cent, and
banks were required to make monthly publication of
National Monetary C ontmis s ion
the state of their reserve. No attempt was made to pre-
scribe the character of paper to be discounted or even to
forbid mortgage loans, such as had wrecked the Monte
de Piedad.
Under this general law many local banks were projected
and some were established, but many projects proved
abortive, and the thorough organization of the banking
system awaited the installation of Mr. Limantour as
Minister of Finance in 1893. He saw at once the danger
of a situation in which there was no real uniformity of
system or effectiveness of regulation and decided to grant
no ftirther concessions until these conditions had been
modified. After laying down a few fundamental prin-
ciples in the law of June 3, 1896, he appointed a special
committee to prepare a new project to work out these
principles in detail, constituting the committee of repre-
sentatives of the National Bank of Mexico, the Bank of
London and Mexico, the Mortgage Bank, and several
prominent financiers, including Senor Joaquin D. Casasus,
afterwards ambassador to the United States. A careful
and exhaustive report on the principles of sound banking
and the system best adapted to conditions in Mexico was
prepared by this committee, approving the fundamental
principles which the minister laid down and authorizing
him to prepare the definitive project, which became the
law of March 19, 1897.
Chapter III. — The hanking law of iSgj.
The essential feature of the law of March 19, 1897, so
far as it related to banks of issue, was the abandonment
of the system of monopoly of note issue, but the extension
of regulations conforming to the rules of sound banking
Banking System of Mexico
over all banks to be in future established. The federal
banking system was in future to recognize three classes
of institutions — banks of issue, issuing notes payable to
bearer on demand ; mortgage banks, issuing mortgage bonds
to cover loans on real estate ; and banks of finance or pro-
motion, issuing treasury bonds to cover loans to industry
and agriculture for short terms, but longer than the term
of the usual commercial loan.
The mortgage banks of Mexico are of the usual type
existing in Europe — issuing bonds for even amounts and
for long terms, capable of easy transfer in the open market.
The object of the so-called banks of promotion, or finance
banks, was to extend credit to agricultural and to mining
enterprises. The essential difference between them and
the mortgage banks was the term of their obligations,
which was limited in 1897 to a maximum of two years,
extended in 1908 to three years. The funds thus obtained
are loaned to mining and agricultural enterprises for a
corresponding period, not exceeding three years. This
term was adopted in order to afford sufficient time for the
completion of the transactions for which the money was
advanced, and in case of a bad year to permit the enter-
prise to recoup in the year following. The security for
such loans is the tools, machinery, etc., employed and the
fruits of the enterprise. The instability of rnining opera-
tions made it necessary for the banks to require reports
from experts that the proceeds of operation would be
sufficient to repay the loan. In cases where advances
were made, the bank was invested with the right of super-
vising closely the management of the enterprise and
N ation al ' M on etary Commission
especially to note if the funds advanced found the employ-
ment for which they were destined. Moreover, the
products of the enterprise were remitted to the bank as
they were realized."
These restrictions were so severe that the finance banks
were availed of only to a very limited extent. Apart
from the unwillingness of the borrower to make a loan
under such restrictions, the demand from the investor
for short-term bonds proved very limited, since they con-
stituted neither a permanent investment nor a resource
immediately realizable.'' The new form of banking
charter did not, however, prove entirely futile. It
afforded an opportunity for the creation of at least one
important institution of a special character which con-
tributed much to the banking development of the
country. This was the Banco Central, which became
a sort of clearing agent for the state banks, and did
much in binding them together in effective cooperation. "
The abandonment of the system of monopoly of note
issue required negotiations with the National Bank, with
a view to modifying its existing privileges, the regulation
of other existing banks, and provisions which should
attract capital into the proposed new banks. The new
«■ Banking law of 1 897, art. 90.
6 Favre, pp. 51-54.
<- As this monograph is concerned chiefly with commercial banking, it
has not been deemed necessary to go into great detail in the text regarding
the mortgage and finance banks, but their scope and purpose will be found
set forth in the report of the Finance Minister, given in full as Appendix
A, and in the text of the law, given as Appendix B.
Banking System of Mexico
fabric did not involve restrictions upon private banks,
several of which were well established in Mexico. In
order to avoid confusion, however, the use of the term
"bank" by institutions organized outside the statute
was ultimately limited by a presidential decree of May
28, 1903. It was then provided that the word could not
be used except by corporations legally constituted or by
branches of foreign banks which satisfied the Minister of
Finance of their standing and conformed to Mexican law.
Existing corporations already using the name in Mexico
might continue to do so by appending to their title the
words, "sin concesidn" (without franchise)." The fact
was appfeciated, however, that the forms of banking
organization proposed by the law might not meet all the
requirements of banking operations in the Republic. It
was accordingly provided that an individual or a cor-
poration might continue to receive concessions, but that
in the case of joint-stock companies claiming limited
liability, they should be organized according to the laws
of the country. Institutions not falling within the scope
of the three classes of banks recognized by the new law
were to continue to be governed by the general laws of the
Republic until such time as special laws might be enacted. *
Foreign institutions issuing notes payable to bearer were
forbidden to open agencies or branches in the Republic
for the circulation or redemption of such notes. °
" Decree of May 28, 1903. InstittKiones de Cridito: Leyes y Circuiares
Relativas, pp. 41-42.
6 Banking law, art. i.
c Banking law, art. 13.
13
National Monetary Commission
The arrangements rnade with the National Bank of
Mexico involved concessions satisfactory to both sides,
which did not impair essentially the power of the bank
or its position toward the Government, but required the
abandonment of the pledge previously given by the
Government, that it would not permit the creation of
additional banks of issue." It was the aim of Mr. Liman-
tour to extend the advantages of credit institutions to
all the productive parts of the Republic by the creation
of a system of local banks, meeting the varied require-
ments of each state. It was not his desire, however, to
throw the field open to promiscuous competition, like
that invited by the national banking law of the United
States. It was necessary, in order to carry out this pro-
gramme and to afford a powerful attraction to the invest-
ment of capital, to offer special inducements to the first
comers. With this object was adopted the system of a
single bank of issue in each state, which should have a
qualified monopoly in the local field. The new law did
not prohibit the foundation of more than one bank in
each state, but it accomplished this limitation practically
by extending special privileges for a term of years to the
first bank of issue to which a charter might be granted.
The granting of new charters, however, was not auto-
matic, and was hedged about with careful restrictions.
A bank of issue could not be founded with a less capital
than $500,000, which was raised by the law of June 19,
1908, to $1,000,000 for banks which might thereafter be
estabUshed. The express authorization of the Depart-
ment of Finance was made necessary for the increase
o The terms of this arrangement are set forth elsewhere.
14
Banking System of M e x i c o
or diminution of banking capital, and no bank could be
organized until the capital had been fully subscribed and
at least 50 per cent in cash paid in. Those seeking a
concession for any institution of credit organized under
the law were required to deposit in the treasury or in the
National Bank of Mexico government bonds of a nominal
value equivalent to at least 20 per cent of the sum which
the bank was required to have in hand in order to be
incorporated. The preliminary concession might be
granted to fJrivate individuals, not less than three in
number, but they must show within four months that
they had organized a joint stock company to operate
the concession and had transferred the concession to such
company."
The duration of new bank charters was not in any case
to exceed thirty years from the date of the enactment
of the law for banks of issue and fifty years for the other
classes of banks. By this provision the privilege was
reserved to the Government of revising the general bank-
ing law at stated periods and making the new require-
ment3 applicable at once to all the banks.
The special privileges conferred upon the banks author-
ized by the law of 1897 consisted chiefly of exemptions
from taxation. These exemptions were generous enough
to afford to the bank, for a time at least, sufficient advan-
tage to discourage competition under the federal law.
They were in brief as follows: ^
Capital, dividends, and issues of securities were ex-
empted from all forms of taxation, federal, state, or
a Banking law, arts. 8-11. 6 Banking law, arts. 1 21-128.
15
National Monetary Commission
municipal, except the usual tax on buildings and certain
stamp taxes.
Stamp duties were remitted on documents used by
institutions of credit in their internal management or on
documents passing between the head institution and its
agencies or branches, provided such docuniefits did not
create rights in favor of the bank or of third parties for-
eign to the institution.
Stamp duties were not required on contracts entered
into by institutions of credit with the Federal Govern-
ment or with the governments of states and municipal
corporations.
Stamp duties were not required on sumtaaries of
accounts, advices of payment for receipt, drafts, bills of
exchange, promissory notes, telegraphic or other forms
of transfer of money, in cases relating to business done
with the federal, state, or municipal governments of
Mexico.
In the case of bank notes,, mortgage bonds, certifi-
cates of deposit, and treasury bonds piit in circulation,
checks drawn by or upon a bank, the amount of the stamp
required, whatever the amount mentioned in the contract,
was lirnited to 5 cents.
' Notarial contracts and loans, sureties, pledges, or
mortgages in favor of or against institutions of credit were
limited to a stamp duty of two tenths per cent, except where
the general laws imposed a lower rate. The same con-
tracts when drawn up in private form were limited to a
stamp rate of one tenth per cent.
16
Banking System of Mexico
Fees of experts, notaries, and other persons whose
remuneration was fixed by schedule by local laws were
required to be reduced in the case of institutions of credit
to two-thirds of the schedule rate. In no case was it per-
mitted that local enactments should be observed which
authorized higher charges because one of the contracting
parties was a corporation.
It was provided that the States of the Federation should
not impose any tax on banking business, properly so
called, when transacted by institutions of credit, except
on mortgage loans, where the rate should not exceed one-
quarter of I per cent on the amount of the transaction.
All these exemptions and special privileges were to run for
twenty-five years from the date of the law. These pro-
visions applied equally to mortgage banks as well as to
banks of issue. The provision which protected the com-
parative monopoly of the first bank of issue in eadh State
was that these regulations should benefit only the first
bank established in each of the States or federal territories,
and that concessions for other banks of issue could be
granted only with the understanding that the new bank
should be subject to all the taxes imposed by general law
and to a special tax of 2 per cent per annum on paid-up
capital. This tax was to be paid to the Federal Govern-
ment at the end of each quarter."
So rapidly did banks multiply under the provisions of
the law of 1897 that it was deemed prudent as early as
1905 to check their further extension. It was accordingly
provided tha,t no further charter for a bank of issue should
» Banking law of 1897, art. 129.
8648 — 10 2 17
National Monetary Commission
be granted until after December 31, 1909, and that those
granted after that date should not carry the exemptions
from taxation accorded to the first'banks. " After the
disturbances of 1907 and 1908, it was deemed best to ex-
tend the limit of time, within which new charters would be
refused, until March 19, 1922.* As this date was exactly
coincident with the period for which the first banks were
to enjoy their exemptions from taxation, it was tantamount
to a decision by the Government that the latter should
enjoy, without further competition, their qualified mo-
nopoly of the note circulation, until the time arrived for a
general revision of the privileges conferred by the banking
law.
Chapter IV. — Motives of the new legislation.
The motives actuating the Government in introducing
the banking law of 1897, and the manner in which the new
system was put in operation, were discussed at length by
the Minister of Finance in a report to Congress on Novem-
ber 15, 1897. In recommending a radical revision of the
banking system of Mexico, Mr. lyimantour pointed out
the need of introducing uniformity into the complex
conditions which had arisen from the granting of special
charters. It was necessary, he declared, to fix a common
term for the charters, to reduce privileges to an equality,
and to establish uniform regulations in regard to the
issue of notes. The conditions existing when the minister
began the reform were described by him as follows :■=
o Law of May 13, 1905, art. 5. Instiiuciones de Cridito: Leyes y Circu-
lares Relativas, p. 47.
6 Law of June 19, 1908, art. 3.
^Instiiuciones de Cridito: Leyes y Circulares Relativas, p. 117.
iS
Banking System of Mexico
"Seven banks were operating in the States when the
decree of June 3, 1896, was promulgated, and no two of
them had identical charters, but all differed in various
points, more or less essential. Thus, for example, one
charter terminated in 1904, the others at later dates up
to 1939; the issue was regulated, in the case of some
banks, by the amount of capital, in the case of others, by
three times the capital; to guarantee the circulation,
sureties were required of some banks, deposits of others,
and of yet others neither sureties nor deposits, but a dif-
ferent kind of guaranty. The reserve funds differed
greatly in amount with the different establishments; the
right to establish branch banks was unlimited for some
banks, while for others it was subject to various restric-
tions. The value of the notes which they were allowed to
issue was, in some cases, 25 centavos as a minimum, while
in others i peso was the smallest value authorized. There
was one bank which was authorized to make loans subject
to extension up to twelve months, while the operations
of the others were not to exceed six months. Similar
differences existed in the guaranties for loans and dis-
counts, as well as in privileges and exemptions from tax-
ation, and in other fundamental requirements of the
charter."
With a view to putting an end to this diversity in legis-
lation, a term was fixed within which the banks established
in the States were to submit to the provisions of the new
law, in exchange for the character of first bank in each of
the respective States, with the full rights and privileges
granted to such first banks. This inducement proved
19
National Monetary Commission
insufficient to secure the desired object. Most of the
institutions of credit that were in operation in the country
when the law of March 19 was brought in agreed to sub-
ject their charters to the provisions of the law; but since
the new charters bore the character only of a mere author-
ization, and the banks were obliged to accept the modifi-
cations which the law might undergo in future, some of
them decided ilot to surrender the rights and obligations
of their original charters, which could not be altered
during the life of the franchise, except by the consent of
both parties. Ultimately, however, agreements were
reached by which the existing banks accepted the pro-
visions of the new law, with the reservation that they
should not be bound by subsequent modifications, dtuing
the life of their original charters, unless such modifications
were acceptable to them.
According to this limitation any futiue legal enact-
ments in the matter of banks will affect these establish-
ments only in those matters which are not opposed to the
provisions of the law of 1897 and to the express stipula-
tions of the agreements; but it was also agreed that, if
provisions of a general character or stipulations contained
in subsequent charters should grant greater privileges to
the banks as a whole, the older banks could claim the
benefit of them, provided they made express application
for the purpose to the Department of Finance, and that,
if said privileges were associated with certain obligations
or legal requirements, the benefit of the privileges should
accrue to the banks only in case they accepted at the
same time these obligations or legal requirements.
Banking System of Mexico
In adopting the system of local banks having the power
of issuing notes upon their assets Mr. I^imantour assigned
three principal reasons for rejecting the system of center-
ing in one institution complete monopoly of note issue.
He declared that it would be contrary, in the first place,
to the rights acquired by the banks which had previously
obtained concessions. In the second place, an estabhsh-
ment which should be invested with the exclusive privi-
lege of note issue throughout Mexico would be fatally
under the domination of the Government. The financial
distress of the state was still too recent to be forgotten.
If siinilar periods should occur in the future, the first idea
of an embarrassed government would obviously be to
appeal to the bank and its power of note issue to obtain
the resources of which it had need. Clearly it would not
require a long time under such conditions not merely to
deteriorate the condition of the public finances but to
bring the country under the regime of forced legal-tender
paper.
The principal reason assigned, however, for the new
system was that the system of monopoly would not meet
the needs of the country. The economic organization of
Mexico, it was declared, is still too simple for the need of
a single bank playing the r61e of regulator of the money
market, of rediscount, and of the ultimate banking reserve.
On the contrary, the true r61e of a bank of issue should
be to mingle intimately in the life of the country and to
provide for the daily needs of commerce and of industry.
These, it was argued, were not the same throughout the
extent of Mexican territory. Physically and politically,
National Monetary Commission
Mexico is a country decentralized. Its variety of alti-
tudes divides it into three climatic zones, having each its
own character, resources, and different products. In the
warm belt (tierra caliente) , a low, humid, and hot country,
flourish all forms of tropical vegetation, cacao, vanilla,
pepper, coffee, sugar cane, and the hard woods utilized for
ebony and ornament. The temperate zone {tierra tem-
plada), between i,ooo and 2,000 meters above the sea, and
the cold zone {tierra jria), land high and cold, produce,
according to elevation, rice, cotton, and all varieties of
European plants — cereals; vegetables, the vine, fruits, and,
on the summit, forests of firs. Mineral riches are not less
varied. Apart from silver, which is found in all the"
States of the Confederation, the Mexican subsoil contains
gold, copper, iron, lead, sulphur, mercury, and even petro-
leum and precious stones. This variety of resources, agri-
cultural and mineral, is still further complicated by a great
diversity in their distribution throughout the country.
Certain States are almost exclusively mineral and others
almost exclusively agricultural."
Upon the economic merits of the conflict between
monopoly and local banking, Mr. Limantour expressed
himself as follows : ^
" If we examine the subject from the standpoint of the
development of public wealth, is it likely that the privilege
granted to a single bank of issuing notes for the entire
Republic would yield the best results? The examples of
monopoly which might be cited in support of an affirma-
« Favre, pp. 23-25.
i Instituciones de Cridito: Leyes y Circulares Relativas, p. 91.
Banking System of Mexico
tive reply are confined to nations of small territory, with
climates and natural resources of no great variety, and
whose population, generally dense, shows great homo-
geneity; or to countries with strong centralizing tenden-
cies, for the most part absolute monarchies, a system
which readily and naturally admits of the union of the two
supreme powers — the civil power and the power which
regulates credit.
" In the Republic of Mexico, with its vast territory, its
sparse population, its imperfect means of communication,
and its immense variety of products, each locality has as it
were local interests, the development of which, so far as
the use of credit is concerned, can not be confided to a
single banking institution, which, no matter how many
branches and dependencies it may estabjish, could never
supply the needs nor remedy the ills of each part of the
national territory.
" And it is not unreasonable to declare that branches of a
central bank are incapable of exercising satisfactorily, in
every corner of the country, the beneficent influence of
establishments of this kind, because a branch bank can
have neither the initiative nor the authority to provide for
the exigencies of every economic situation; and, on the
other hand, the general and permanent regulations to
which every administration must be subject, especially one
so complicated as that of a central bank, lack that flexi-
bility which is necessary to meet the innumerable and
unforeseen emergencies arising from interests so divergent
as those of the various localities of the Republic
n
National Monetary Commission
"From this point of view, the creation of local banks
evidently presents undeniable advantages. Managed by
persons whose interests are centered in the same locality,
who are acquainted with the people and the affairs of the
community, and who are so situated as to be able to give
personal attention to the business and to understand the
peculiar needs of a given district, its resources and their
chances of development, such banks will undoubtedly be
better able to realize the objects of the credit circulation
confided to banking establishments.
" Furthermore, the adoption of the system of a plurality
of banks will, in the course of time, permit the development
of specialization, the sphere of action of local banks being
marked off from that of the great banks located in the
Federal District, with their ramifications in the States.
There can be no doubt that, through the very nature of
both kinds of institutions, the general banks, which operate
at many points in the Republic with large capital and
extensive connections, will develop into banks of redis-
count, and, by that very fact, become true protectors of
the local banks, with which they neither should nor ca;n
come into conflict, because they complement each other
and constitute, in brief, distinct organs of a homogeneous
and well-balanced system."
In order to obtain an accurate view of all the aspects of
the problem, Mr. I^imantour deemed it necessary, on the
other hand, to examine carefully the consequences that
might arise from liberty of banking, in order not to run
the risk of inconveniences as grave, or even graver, than
those that would have ensued from the system of entire
24
Banking System of Mexico
monopoly of note issue. Upon this point he referred to the
general banking law of the United States, but concluded
that it was not entirely adapted to conditions in a country
which had not had an extended banking experience. On
this subject he declared:"'
"On comparing the political and economic conditions
of the nations whose legislation does not require banks
to apply for a concession to issue notes, it appears at once
that their citizens are familiar with the practice of indi-
vidual liberty and by that very fact know how to guard
against the grave consequences that might arise from the
abuse, and sometimes even from the normal exercise, of
that Hberty. The degree of intellectual development
which the masses have attained and their experience in
business constitute the most effective counterweight pos-
sible to the reckless or even tortuous and mischievous
tendencies of an ill-administered establishment. Finally,
the well-understood interest of the banks themselves
prompts them to ent^r into close relations of mutual
support, whereby they are almost always shielded against
economic crises and adverse incidents.
" Can it reasonably be maintained that Mexico is in this
condition? The very recent introduction of banks prop-
erly so called; the lack of experience in the use of credit;
the distrust still prevailing, especially in districts outside
the great centers of population, of instruments of credit;
and the pronounced spirit of imitation, which would
assuredly lead to a multiplication of banks out of all pro-
portion to the needs of the country, are some of the
o Institiiciones de Cridito: Leyes y Circulares Relativas, p. 93.
25
National Mo'netary Commission
reasons that speak in favor of certain restrictions until the
country shall have become accustomed to those ideas
and practices without which absolute liberty of banking
involves extreme dangers.
" If to these considerations we add the fear of a powerful
reaction against bank notes, in case of the failure of any
establishment, no matter of how little importance, there
will be no disagreement with the conclusion that the
Government has acted wisely in deciding that the number
of local banks to be estabUshed must not exceed certain
limits.
"In following this plan the new law will no doubt give
birth, at least in the early years of its operation, to a sort
of banking oligarchy, causing the distribution of institu-
tions of credit at all convenient points throughout the
Republic, while their number, nevertheless, will not be so
small as to give color to the statement that the issuing
power constitutes a privilege in favor of a few. In any
case, in a matter so delicate as that of credit, it is more
prudent that the nation shall be in a position later on to
extend the scope of its legislation, in order to favor the
multiplication of banks on a larger scale, than to be
driven by the bad results of a first effort to the restriction
of their number and powers."
Chapter V. — Conditions governing note issue.
The conditions laid down by the Mexican law for the
issue of circulating notes are somewhat more liberal than
those in the United States, but are nevertheless clear and
definite. It is provided that the amount of such issues
26
Banking S y stem of M e x ic o
shall not exceed three times the paid-up capital of the
bank and that a reserve of 50 per cent shall be held not
against notes only, but also against deposits payable on
demand or subject to withdrawal at not more than three
days' notice. This requirement is not so exacting, how-
ever, as might appear, because the Mexican law does not
count as deposits the privilege given to borrowers to.draw
upon the bank. Indeed, all such "current accounts," as
they are called in Mexico as well as in Europe, even
though the depositors have the privilege of checking
against them, are specifically exempted from classification
as deposits.
How considerably these qualifications reduce the pro-
portion of liabilities against which a cash reserve must be
held is disclosed by a glance at the balance sheets. Thus,
on December 31, 1908, deposits payable at sight or in not
more than three days stood at $64,162,230; deposits pay-
able in more than three days, at $48,097,893 ; and creditor
current accounts, at $334,754,206. Only the first item
was subject to the reserve requirements of 50 per cent,
which, with outstanding notes of $87,504,630, was amply
covered by cash holdings of $77,753.503-
In requiring a reserve of 50 per cent against demand
liabilities, Mr. Limantour departed from the previous
requirement of the law, which called for a metallic reserve
of only one-third of the note issue. He admitted, in his
report of 1897, that this provision might err from excess
of caution, but declared that it was preferable to sin in
this direction, since the requirement could ultimately be
relaxed, rather than to expose the bank note, which had
27
National Monetary Commission
only begun with difficulty to penetrate among the mass
of the people, to a disaster which would throw the country
back a long way in the road which had led other nations
to prosperity."
The assets of the banks are left in their own custody,
subject to certain requirements as to their character. In
the revision of 1897 Mr. Limantour definitely rejected the
principle which had been adopted from the Amercian law
in the Code of Commerce of 1884, that the primary
reserve of one-third held against circulation might consist
in whole or in part of bonds. He placed his advocacy of
basing note issues upon assets partly upon political con-
ditions in Mexico, but partly also upon the fundamental
theory of a banking currency. He said on this subject: *
"So strong was the desire to guard the banks against
all outside influences, and especially against political
influence, that notwithstanding the precedents created by
earUer charters, requiring that the circulation be guaran-
teed in part by a deposit of government bonds, it was
deemed inadvisable to retain this requirement and to
provide for a deposit, more or less substantial in amount,
of evidences of the public debt as a guaranty for the re-
demption of the notes. What would be the influence of
such a deposit upon the credit of a bank in case that, in
consequence of the vicissitudes of foreign or domestic
politics, the securities of the State should precipitately
decline? Would not rather the intensity of the evil be
enhanced by the decline in the value of the guaranty at
"• Instituciones de Cridito: Leyes y Circulares Relativas, p. 104.,
b InsiUuciones de Cridito: Leyes y Circulares Relativas, p. 102.
28
Banking System of Mexico
the very moment when business was paralyzed by the
general crisis, cash was hoarded, and payments were
delayed?"
Whenever the circulation exceeds the limits fixed by
law, the bank is required to communicate the fact in
writing to the government inspector and to abstain from
making new loans until the circulation has been reduced
within the legal limits. If the reduction has not been
effected within five days, the Department of Finance is
required to set a period not exceeding one month, within
which the bank must bring its circulation within the legal
limits or be subject to the forfeiture of its charter or to
enforced liquidation.
Bank notes are not legal tender, but circulate only by
Voluntary acceptance on the part of the pubUc. They are
required to bear on their face the promise to pay the
bearer in cash the amount of the face value of the note.
Notes must be redeemed at the head office of the bank or
its branches, but the branches are under legal obligations
only to redeem the notes which they have issued. The
failure of a bank to redeem one of its notes gives to the
bearer the right of summary action against the institution,
after summons to pay has been formulated by a notary.
Bank notes are a first lien on the assets of the bank with
the exception of claims to property pledged to the bank,
under the terms of the Civil Code and the Code of Com-
merce; mortgage debts, when such mortgage has been
registered previous to the transaction, whereby the bank
acquires the mortgage to the property; and debts to the
29
National Monetary Commission
federal, state, or municipal governments for taxes. Other
claims of the public treasury take a different rank.
The denominations of Mexican bank notes are limited to
$5, $io, $20, $50, $100, $500, and $1,000. The smallest
of these denominations, equivalent to $2.50 in American
gold, leaves a vacuum in the circulation for the use of the
silver peso, which for many years was almost the only
money of the Republic except the subsidiary coins.
The notes of Mexican banks are not printed exclusively
at a government agency, but overissue is checked by a
provision that no note shall be put in circulation without a
proper stamp, engraved on the note by the stamp-printing
department. Permission to engrave this stamp must be
obtained from the Finance Department and is granted
only 'upon catisfactory evidence that the proposed issue
does not exceed the legal limit of the circulation. The
banks are allowed to keep their own notes, which are not
in use, in vaults with t-vyo keys, one in the custody of the
government inspector. Such notes are not counted as a
part of the legal issue outstanding, and reserve is not
required against them until they are withdrawn from the
vaults and put in circulation."
Banks are not prohibited from reissuing the notes of
other banks, but by an amendment of the law adopted in
1908 they are required to arrange for a periodical exchange
of such notes and, in the absence of express agreement to
the contrary, to pay balances in such exchanges in cash.*"
The purpose of this provision was explained by the Min-
" Circular of February 25, 1898, Instituciones de Cridito: Leyes y Circu-
lares Relativas, p. 62.
b Instituciones de CrSdilo: Leyes y Circulares Relativas, p. 12.
30
Banking System of Mexico
ister of Finance to be not only to protect the public
against any circulation which might be forced or artificial,
but also to safeguard the banks against the pressure
which might be brought to bear by rivals by the accumu-
lation of a great quantity of notes for presentation at a
given moment." The Government was given authority to
prescribe regulations for the interchange of notes.
The requirements made by the Government in regard to
the metallic reserve have grown more exacting with the
progress of time. The first circular issued under the law
of 1897 simply required a statement of the metallic money
at the close of business on the last day of the month, the
amount of notes issued, the amount which had come into
the bank during the month, and the average stock of
notes in the bank and ' branches. * The exact manner of
calculating the value of gold and silver bullion and foreign
moneys was prescribed four months later by a circular of
October 16, 1897. Details as to the denominations of
outstanding notes were required in 1904." The adoption
of the monetary reform in 1905 called for several tem-
porary regulations, and after the influx of gold, caused by
the rise in the value of silver bullion, statements of cash
holdings were required to give separately the amount held
in gold, in silver pesos, and in fractional money."* Banks
of issue were forbidden to count the old coinage as part of
a Circular of July 8, 1908, Institiiciones de Cridito: Leyes y Circulares
Relativas, p. 81.
i> Circular of June 23, 1897, Instituciones de Cr&dtio: Leyes y Circulares
Relativas, p. 59.
« Circular of October 24, 1904, Instituciones de Cridito: Leyes y Circulares
Relativas, p. 70.
d Circular of March i, 1906. iWd-. P- 78.
31
National Monetary Commission
their reserve after August 28, 1906, and by a circular of
June 10, 1907, were required to restrict the amount of
fractional silver admitted as reserve to 5 per cent of the
total reserve required. It was pointed out by the Minister
of Finance that the amounts of fractional silver reported
by the banks had been steadily increasing until they gener-
ally exceeded 10 per cent and in some cases attained 40
per cent of cash holdings."
These requirements show that the security of the notes
depends upon the solvency of the individual bank, and
acceptance of the notes by the public depends upon belief
in that solvency. The banks are under no obligation to
contribute to a common fund for the redemption of the
notes of failed banks, as in Canada, nor are they under
any obligation to support each other, except such as they
have assumed voluntarily through the mechanism of the
Banco Central, to be hereafter described. Their notes,
without forced legal- tender quality, hypothecated security,
provision for a safety fund, or any form of government
guaranty, circulate upon the merits of the issuing banks.
In seeking to introduce them into circulation, moreover,
the banks have not had the benefit of marked deficiency
in the stock of metallic tools of exchange. Mexico, as one
of the largest producers of silver, kept her mints open
until 1905 to its free coinage, which enabled its producer
to convert his product into money and turn it at once
into the channels of circulation.
o Instituciones de Cridito: Leyes y Circulares Relativas, p. 79.
32
Banking System of Mexico
Chapter VI. — The position of the National Bank.
The National Bank of Mexico occupied a peculiar posi-
tion at the time of the adoption of the general banking
law of 1897. It was conducted under a charter which
granted privileges in regard to note issue about which
there was some difference of opinion between the bank
and the Government. It was the contention of the bank
that the Government was pledged to grant no charters,
beyond those already in force, authorizing the issue of
notes. Notwithstanding this contention such charters
had been granted by the Federal Government or the States
imtil the number of banks of issue stood, in January, 1897,
at seven, exclusive of the National Bank and the Bank of
London and Mexico, whose title to issue circulation was
not disputed. ^ Notwithstanding this competition, how-
ever, the National Bank and the Bank of London and
Mexico possessed $30,000,000 of the capital stock of banks
of issue out of a total capital of $35,550,000, and had in
circulation $33,256,145 of the total note circulation of
$38,497,367."
It was obviously desirable if a new banking system was
to be inaugurated that it should be with the consent and
cooperation of the National Bank and not under condi-
tions which might lead to litigation over the rights of the
new banks. As expressed in the report made by Mr.
Limantour to Congress on this branch of the subject:*
"The anomalous condition arising from the fact that
provisions of a general character affecting outsiders,
oCasasus, Lm.s Reformas a la Ley de InstUuciones de Cridito, p. 309.
6 Inslitiiciones de Cridito: Leyes y Circulares Relativas, p. 90.
8648 — 10 3 33
National Monetary Commission
which are properly a matter of common law, had been
embodied in a charter which, even though sanctioned by.
Congress, still retains the character of a contract entered
into between two parties ; the fact that, despite the stipu-
lations of said contract, and the protests founded on that
contract, which were made by the National Bank, char-
ters were granted for the estabhshment of banks of issue
in various places in the Republic; lastly, the suppression
in the new Commercial Code of 1889 of the provisions
which the earlier code contained on the subject of banks —
all these circumsta:pces created a state of affairs replete
with difficulties, which compelled the Government to
adopt a definite attitude, based on a system which, while
respecting all legitimate rights, should at the same time
be adapted to the needs of the country."
In order to meet these difficulties Mr. Limantour en-
tered upon negotiations with the National Bank with a
view to modifying its charter in such terms as to remove
all doubt concerning the legality of the privileges of the
local banks already in operation and those which it was
proposed to establish. The National Bank was disposed
to take a friendly and receptive attitude, which was not
unnatural in view of the powers which might be invoked
by the Government against an institution which should
resolutely antagonize public policy. An arrangement was
accordingly reached in the early months of 1896 which
took the form of several agreements signed and sealed
between the Executive, acting under authority of Con-
gress, and the administrative council of the bank, acting
under authority of the general assembly of the share-
34
Banking System of Mexico
holders. The concessions made by the National Bank
were summed up by Mr. L-imantour as follows : "
"i. It declared its wilUngness to relinquish the rights
granted in its charter relative to the creation of other
banks, and it announced its unreserved assent to the
principles of the law of June 3, 1896, which authorizes
the establishment of banks of issue in the States and
Territories of the Republic.
"2. It agreed that the maximum of the standing credit
of the Government in current account which the bank
is obliged to maintain in favor of the General Treasury
of the Republic shall hereafter be 4,000,000 pesos instead
of 2,000,000, which was the limit fixed by earlier agree-
ments.
"3. It also agreed that the service of collection and dis-
tribution of government funds, which it has to perform
in accordance with its charter, shall continue to be per-
formed for the coming ten years at a commission of i }i.
per cent, instead of the 2 per cent which it had been
receiving, this commission including not only all expenses,
but also the risks of said operations.
"4. It agreed that the commission of 2 per cent which
the Government, in accordance with contract, was pay-
ing it for the service of the consolidated debt, should be
reduced to i per cent.
"5. It assumed the obUgation to open a credit, not to
exceed 500,000 pesos in current account, in favor of the
National Loan Office (Monte de Piedad), without special
guaranty and with interest of only 3 per cent per annum.
o Instituciones de Cridito: Leyes y Circulares Relaiivas, p. 94.
35
National Monetary Commission
"In return for these concessions the National Bank
obtained two advantages — an addition of fifteen years to
the term of its charter, and a guaranty that during ten
years the National Loan Office shall not avail itself of
nor grant to third parties the authority which it received
from the Government to put in circulation certificates of
deposit or notes payable at sight and to bearer."
While it might appear from this enumeration of con-
cessions that the bank yielded much more than it ob-
tained, the concessions in regard to the loan to the treas-
ury and the charge for the fiscal service of the Govern-
ment were in harmony with the general tendency in
recent years to increase such loans and reduce such
charges among the banking institutions of other countries
where a central bank exists. The cardinal privilege ob-
tained by the bank was the extension of the charter,
which would have expired in 1934 if the bank had taken
an attitude hostile to the policy of the Government.
The increase in the credit accorded to the treasury —
from $2,000,000 to $4,000,000 — ^was a natural sequence of
the growth in the volume of public receipts and expendi-
tures. The result of such a growth was to require a larger
working balance, and already, from 1892 to 1895, the
balance of this current account in favor of the treasury
had been allowed to exceed, sometimes by considerable
amounts, the original Umit of $2,000,000. In view of the
wilUngness of the bank to extend such credits in the past
it was not, therefore, a great concession merely to give
legal sanction to this extension."
" InsHtuciones de CrMito: Leyes y Circulares Relativas, p. 95.
36
Banking System of Mexico
Whatever might have been the apprehensions of the
officers of the National Bank of Mexico in regard to the
results of the competition to be expected from the new
state banks of issue, events did not prove such competi-
tion to be seriously injurious. It was the obvious inten-
tion of the Government, indicated by continuing the fiscal
functions of the National Bank on behalf of the treasury,
th^t the National Bank should continue to occupy a
distinctive position in the banking system. It was de-
clared in the report submitted to Congress that under the
new law there would be two great banks of issue (includ-
ing the Bank of London and Mexico) in the Federal
District, with authority to create branches throughout
the country and a number of banks in the States and Ter-
ritories, with special privileges for the first bank estab-
lished in any one of them and with authority to establish
branches, under fixed conditions, in any part of the Re-
pubUc, except for the exchange of notes in the Federal
District.
The history of the growth of the banking system under
the law of 1897 indicated at first, as was naturally to be
expected, considerable development of the state banks,
as banks of circulation and of discount. The National
Bank of Mexico had a circulation at the close of January,
1897, amounting to $21,772,100, and the Bank of London
and Mexico a circulation of $11,529,045, leaving to the
other banks only about $5,000,000 of the total circulation
of $38,497,367. The next few years witnessed the crea-
tion of many new state banks and a corresponding ex-
pansion in the note circulation. The condition of all the
37
National Monetary Commission
banks on June 30, 1901, showed a total volume of notes
outstanding of $63,505,969, to which the. National Bank
contributed $23,325,827. At this time the circulation of
banks other than the National Bank was $40,180,142,
but this included the circulation of the Bank of London
and Mexico, which was $16,492,043.
1 This upward movement of the circulation of the state
banks, while that of the National Bank remained com-
paratively stationary, continued until the summer of 1905.
From that date different tendencies developed, and the
National Bank became more than previously the reserve
bank of the country and the source of note issues which
were acceptable in all parts of Mexico. The aid given by
the National Bank in the adoption of the monetary re-
form, by contributing the entire fund turned over to the
exchange and currency commission and by substituting
its notes for silver withdrawn from use, was undoubtedly
a factor in this change in the proportion of notes in cir-
culation. The panic of 1907 in the United States, with
its reaction upon Mexico in the form of restricted credit,
also tended to improve the position of the National Bank.
So far as there was a demand for the support of the
market by the issue of additional notes, it seems to have
been met by the expansion of the note issues of the
National Bank of Mexico, while the circulation of the
state banks was tmdergoing contraction. The table given
below, showing the ratio of the circulation of the National
Bank of Mexico and that of the state banks to the total
circulation, throws an interesting Ught on this phase of the
subject. It discloses the fact that while the National
38
Banking System of Mexico
Bank issued only about 29 per cent of the total circulation
at the close of 1905, its proportion had risen at the close of
1908 to more than 41 per cent. The details for the end of
each quarter for several years appear in the table.
Circulation of the National Bank and other banks.
Month ending-
National Bank. Other banks.
Total.
1904.
Dec. 31
1 90s.
Mar. 31 _
June 30
Sept. 30
Dec. 31
1906.
Mar. 31
June 30
Sept. 30
Dec. 31
1907.
Mar. 31
June 30
Sept. 30
Dec. 31
Z908,
Mar. 31
June 30
Sept. 30
Dec. 31
$23.595. 281
23.689, 739
26, 439,982
25.572,486
27.749.27s
30,188,347
31,608,69s
33.633.490
35.472,833
37,894, 286
37,566.398
35,040,817
34,682,544
39,283.609
39,479.934
34, 173,359
36, 225,518
$59,935,595
62, 134, 829
63, 014, 273
64, 803, 817
66,392, 132
66, 724. 404
6s,S26, 281
61, 964, 003
62,315,045
63,070,454
60, 904, 130
60,633,073
56,793,438
SS, 126,868
52,773,359
50,365, 763
SI, 279, 112
$83,525,876
85,824,568
89,454.255
90,376,303
94,141.407
96,912, 751
97,134.976
94,597.493
97,787,878
100, 964, 740
98,470,528
95.673,890
91,475,982
94,410,477
92,253,293
84.539.122
87,504,630
In so far as this relative movement of the circulation of
the state banks and the National Bank can be considered
as permanent, it would seem to indicate a tendency to-
ward the evolution of a bank of rediscount, supporting
the minor banking institutions of the cotmtry by the issue
of notes to meet emergencies, even in the absence of any
legal obligation to fulfill such a function. It was declared
by Mr. Limantour, in his budget report in December,
1908, that "under the present trying conditions the bank
39
National Monetary Commission
in question has rendered vital service to the commercial
and industrial interests and private individuals, thus giving
another proof of its great usefulness to the community —
a usefulness which time assuredly will only enhance.""
Further evidence of this primacy of the National Bank
is afforded by the movement of specie holdings and note
issues during the interval of business contraction, between
July 31, 1907, and June 30, 1908. During this period
the total note circulation of the country diminished by
nearly $4,000,000, but the circulation of the National Bank
increased by about $3,750,000. The specie holdings of
the National Bank, on the other hand, while declining in
September, 1907, by about $500,000 from the high point
of July, recovered rapidly during the period of business
relaxation in the spring of 1908, until they reached the
unusual total of $40,176,282, or considerably more than
half of the total specie holdings of all the banks. The
different manner in which note issues and specie holdings
fluctuated during this period of stress, as between the
National Bank and other institutions, appears in the table
below :
Movements of notes and specie, igo'j—S.
Notes in circulation.
Specie held.
July 31, 1907.
June 30, 1908.
July 31, 1907.
June 30, 1908.
National Bank
Bank of London
$35,766,709
15.587.928
$39,479,934
12,977,776
$30, 197,977
11,135,265
1, 140,348
27, 219,311
$40,176,283
10,597,532
I, 160,994
24, 762, 0S4
Other banks-
44,792,790
39,795,583
Total
96, 147,427
92,253, 293
69,692,901
76,696,893
(i Financial Documents , 1908, p. 21.
40
Banking System of Mexico
Chapter VII. — Functions of the Banco Central.
The Banco Central Mexicafio was an organ which grew
logically out of the new order of things established in
Mexico under the law of 1897, but was the conception of
individual initiative rather than of the law. The Banco
Central is not a bank of issue. It was organized nominally
under that division of the law relating to banks of promo-
tion {Bancos Refaccionarios) , but its function differs in
many respects from that contemplated for those institu-
tions. Instead of devoting its energies primarily to loans
for agriculture and industry for terms of two or three
years, it has acted as a sort of clearing agent for the state
banks. The obvious weakness of the system laid down
by the law of 1897 was the lack of common support among
the state banks. As the situation was stated by Favre:"
"The principle of local banks, excellent in itself for as-
suring to the entire country a distribution of credit ap-
propriate to the varied needs of different regions, had one
defect. The isolation of the banks was to a certain extent
the price of their independence. Very flexible, but aban-
doned to their own resoturces, they were far from having
the solidity of the branches of a great establishment which,
supported by the central office, form a compact aggregate,
capable of resisting attacks and crises. On the other hand,
in spite of the close relations which they could not fail to
establish among themselves, the need made itself felt of
a common center, in the nature of a clearing house, which
should facilitate the settlement of their operations and
the exchange of their notes."
o Les Banques au Mexique, p. 62.
41
National Monetary Commission
It was to meet this need that the Banco Central came
into being. The bank opened on February 15, 1899, with
a capital of $6,000,000, of which one-half was paid up.
Originally 50 per cent of the stock belonged to a syndi-
cate represented by the Deutschebank, Messrs. Bleich-
roeder & Co., and J. P. Morgan & Co. This syndicate
had a majority of the board, but this arrangement was
found to be a hindrance to the progress of the bank and
a plan was devised by which the various state banks of
the Mexican Republic took over these foreign shares and
placed the control in Mexican hands."
The new plan, which went into effect in 1902, provided
that each of the state banks should possess a number of
shares in the Banco Central which should be equal to at
least 10 per cent of the nominal capital of the state bank
on December 31, 1901. The shares of the Banco Central
were divided into two series, one representing those sub-
scribed by the shareholders and the other those belonging
to the banks. The latter were registered in the names
of the banks and can not be transferred. When a new
establishment was founded, if the number of available
shares set aside for the banks was insufficient, the new
bank was compelled to go into the market and buy the
general shares, which were deposited in the vaults of the
Banco Central with a certificate setting forth that they were
subject to the same conditions as the other shares owned
by the banks. This method of pooling the stock was sub-
ject, however, to the condition that ten years after the
<^New York Bankers' Magazine, (October, 1908), LXXVII, p. 527.
42
Banking System of Mexico
agreement, with the consent of the majority of the bank-
ing shareholders, the banks might convert their banking
shares into general shares."
The relations between the Banco Central and the state
banks are regulated by a contract which is made for a year
with each of them. The Banco Central grants to each local
bank a current account, of which the debtor balance may
reach lo per cent of its paid-up capital. This current ac-
count is at a differential rate of interest — 5 per cent in favor
of the local bank when there is a balance in its favor, 7^^ per
cent in favor of the Banco Central when the balance is
against the local bank. The account is balanced and the
allotment of interest made every six months. When the
balance in favor of the local bank rises above 10 per cent
of its capital, the rate of interest allotted is increased by
3 per cent; on the contrary, when the balance against the
bank exceeds 10 per cent, the interest paid is increased by
2 per cent. *
, The Banco Central buys the notes of the local banks to
the amount of the credit which it has extended. These
notes must be reimbursed at par. The Banco Central,
however, in order to guard against emergencies, reserves
the right to refuse notes which are presented in abnormal
quantities or with suspicious intent. The Banco Central
discounts the obligations remitted to it by the local banks,
buys and sells exchange for their account at a commission
of 4 per cent of the net profits, and undertakes to represent
them in relations with the Government. Both parties
o Favre, p. 64.
43
National Monetary Commission
agree mutually and gratuitously to make collections for
each other.
Thus is established a community of interests and mutual
support among the local banks which would otherwise be
lacking. Still further strength is given to the system by
the careful regulations which have been framed to secure
prompt support for any bank which may be involved in
difficulties. As soon as a bank considers itself threatened,
it is authorized to notify the Banco Central. The latter
telegra;phs immediately to the other associated banks, who
are under agreement to establish at once at the Banco
Central a fund equal to 50 per cent of the capital of the
threatened bank. Contributions to this fund are limited,
however, to not more than 2 per cent of the capital of any
contributing bank. The amount thus placed in the hands
of the Banco Central is employed in redeeming at par the
notes of the establishment which is threatened. If the
bank itselPis intrusted with the funds for redeeming the
notes, it is required to remit them promptly to the central
bank, where they are held in trust on account of the banks
in the proportion in which they have contributed to the
fund. For this service the bank receiving aid is required
to pay 12 per cent on the sums paid and the costs of the
operation.
The importance of the Banco Central as a part of the
banking system was promptly recognized by the Minister
of Finance and received his cordial support. He saw
in it not only a means of cooperation, but a more efficient
means than government inspection of keeping the opera-
tions of the state banks within sound limits.
44
Banking System of Mexico
The operation of the Banco Central was so successful
that its capital was several times increased after 1901.
The later issues were taken by foreign syndicates, which
did not, however, undertake to interfere with the local
management of the bank. It was on the initiative of
the Banco Central that a clearing house was established
in the City of Mexico in 1905 for the banks of the capital.
The extent to which the Banco Central is availed of
by the state banks is shown by the rapid growth of its
transactions. The balance sheet of December 31, 1908,
showed assets of $84,141,461, of which the largest item
was loans upon pledges, $21,176,893. Discounts, how-
ever, stood at $10,201,991; the balance of current
accounts to the banks, $12,633,153; and accounts of
various classes, $18,365,673. Several items of the balance
sheet indicated the investment of the assets in securities
and industrial loans. Among them were securities
immediately realizable, $3,593,862; investments in bonds
and shares, $5,656,399; and industrial loans, $3,410,197.
On the side of liabilities, the large capital of the bank,
$30,000,000, affords a guaranty which permits certain
classes of operations which would be less secure with a
small capital and a large deposit liability. The reserve
fund and the profit and loss account add, respectively,
$6,186,605 and $3,945,307 to this amount, making up
with the capital not far from half of the liabilities of the
bank. The deposits payable on demand with interest
stood on December 31, 1908, at $6,758,900; those payable
after more than three days at $5,917,893; and various
45
National Monetary Commission
liabilities at $^,047,800." The item of accounts of various
classes, $18,365,673, balances the corresponding item of
the assets and is made up to a considerable extent of
accounts in process of collection between the banks.
The benefits of the Banco Central to the state banks are
disclosed, as much by the volume of operations as by the
state of the balance sheet. The entry and outgo of cash,
check accounts, and other items, a usual feature in
European bank reports, although rarely kept by banks of
the United States, show a very rapid inflow and outgo
under nearly every head. The following figures show
these movements under some of the principal items:
Movement of accounts of Banco Central..
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
State banks.
$84,029,913
159.165,489
220, 469, 437
317, 728, 928
406, 489, 92S
467. 741. 46s
670.585.461
483, 460, iiS
527, 629, 120
441,915,280
Current
accounts.
$47,510,675
64, 970, 181
93.811,717
201, 321, 669
199.778,557
174.448. 963
315.463.093
441.931,928
348, 298,843
Cash turnover.
$232,
417.
710,
955.
1, 133.
1,375.
2,588,
». 740.
2.891.
2,SS6.
596.011
311,344
311.344
149.526
273. 240
930. 244
754,858
912, 7SO
485.979
416, 914
Chapter VIII. — Character of Mexican hanking business.
The method of extending accommodation to commerce
by the banks of Mexico differs in several respects from
the methods pursued in other countries. The compara-
tively small proportion of commercial operations of the
type which afford suitable paper for discount compels
"These figures are from the oiBcial report of the bank, made to the
shareholders April 14, 1909.
46
Banking System of Mexico
the banks, with due regard to the encouragement of
Mexican industry, to make loans for longer terms and in
a different manner than the banks in Europe and the
United States. The law regarding discounts requires
that paper discounted shall bear at least two signatures
and shall be payable in not more than six months. It is
not through discounts, however, that the bulk of Mexican
banking business is done." The bulk of the assets of a
commercial bank in Mexico consists of notes deposited as
a pledge for advances made by the bank, but these notes
are not indorsed over to the bank in the same manner as
in Europe and America.
The client who has received an advance upon the
deposit of a note as collateral is debtor to the bank to
the amount of the advance if the paper is not paid at
maturity. Banks in nearly all cases hold the paper until
maturity, and the advances are usually for a period of
not less than nine months, and sometimes for a year.
This detracts from the convertibility of the assets^ but
the position of the local banks has been materially
strengthened by the arrangement made with the Banco
Central for discounting their own paper in case of need.
The advances made upon commercial paper in this man-
ner afford returns often running to 8 and 9 per cent.
The paper is selected with considerable care, and Mexican
debtors are usually punctilious in keeping their engage-
ments.^ The character of the paper carried is verified
o It is declared by Favre that discount, as employed in Europe, is so
little in use in Mexico that it is regarded as almost a. disgrace to have a
note discounted. — Les Banqties au Mexique, p. 44.
6 Favre, p. 73.
47
National Monetary Commission
by the commissioners of the Government, who are not
tolerant toward obligations with signatures of doubtful
value. In order to make loans under the conditions
which exist in Mexico, a minute knowledge is required
of the men to whom credit is granted and of the character
of the business which they carry on.
Among the items which are required by law to appear
in the monthly balance sheets of the banks are the
amount of paper discounted, the amount of loans on col-
lateral, and the amount of creditor current accounts.
The creditor current accounts involve a certain amount
of duplication between the banks, as in the case of the
reserve deposits of banks in the United States. Thus,
the creditor current accounts of the Banco Central rep-
resent credits opened in favor of the local banks. Such
accounts at the local banks themselves represent the
credits extended among themselves for the purpose of
covering their exchanges. They also represent the cred-
its extended to commercial and industrial houses against
guaranties of a character approved by the representative
of the Government. As these credits are not necessarily
for any fixed term, they afford such means as the banks
have at their command for extending aid to industrial
and commercial enterprises. In this respect they play to
a certain degree the part played by the cash credits of
the Scotch banks in the eighteenth and nineteenth
centuries.
Variations in the manner of classifying assets led to
some reforms in 1908, which caused a considerable change
in the amounts appearing under different items "of the
48
Banking System of Mexico
balance sheets. These changes were explained by the
Minister of Finance in his report for 1908, as follows:"
"The considerable oscillation observable in the items
of "notes discounted' and 'loans on collateral' is due
largely to the new classification of the constituent ele-
ments of the assets, for the increase in the item of 'ac-
counts current, debtors' in the balance sheet of the
banks of issue is undoubtedly due to the transfer thereto
of accounts that had been improperly included under
' notes discounted ' and ' loans on collateral. ' The large
reduction of the two last-named items is also partly due
to the volume of accounts collected during the year.
"The magnitude of the items 'accounts current, debt-
ors' and 'accounts current, creditors' is also due to the
practice of including under them the balances of book-
keeping accounts, which do not represent credits or debits,
properly so called, and which should balance exactly.
These bookkeeping accounts amount on the side both of
assets and liabilities to more than $220,000,000. Im-
personal accounts, such as 'profit and loss,' "dividends
distributable,' etc., are also included under the items of
"accounts current, debtors' and 'accounts current,
creditors.' "
The item of the assets designated as "securities and
obligations immediately realizable or negotiable" is re-
quired by the Government to represent only what its title
implies. Securities thus held are required to be govern-
ment bonds or industrial securities enjoying a market
sufficiently wide to permit their sale or negotiation within
"■ Financial Documents, December, 1908, p. 21.
8648 — 10 4 49
National Monetary Commission
a short time. The banks are not permitted under this
head to carry shares in participations nor securities which
are not quoted. As the situation is defined by M. Favre : "
"The banks are strangers to the issue of company
securities. Mexico does not yet know the pompous
flotations and guaranteeing syndicates, nor any of the
necessary but dangerous methods of our modern banks.
It is by new companies themselves that their securities
are usually issued, with the support of private bankers
or of banks without concessions which make a specialty
of deaUng in securities. But the establishments of credit
are not permitted to participate, and there is no danger of
finding among their assets certificates arising from issues
which have failed or only partially succeeded."
As required by the fundamental conditions of the law,
the chief business of the banks of issue is Umited to com-
mercial loans and discounts of the character above set
forth. A certain amount is permitted, however, to be
advanced upon stocks and bonds. The law requires that
such advances shall not exceed 90 per cent of market
value and that in "case of depreciation the deficiency shall
be made good within three days or the securities imme-
diately sold.
The lurking element of danger in loans of the last two
types, by banks having large demand liabilities, which
caused so much embarrassment to the trust companies of
the United States in 1907, was revealed in Mexico at about
the same time. Loans upon securities increased very
rapidly after the impetus given to Mexican industry by
<* Les Banqties au Mexique, p. 74.
50
Banking System of Mexico
the monetary reform. The increase had, indeed, begun
before the reform was put in execution and had already-
carried the amount of such loans from $49,513,193 on
December 31, 1902, to $62,818,661 for 1903; whence,
after the monetary reform, they rose to $86,098,254
for 1905; $102,240,713 for 1906; and to $110,244,160 on
June 30, 1907. The halt called in all speculative move-
ments and the pressure in the money market caused a
sharp contraction of such loans to $64,609,118 on June
30, 1908, and a still further reduction at the close of the
year 1908 to $56,012,818.
Mortgage loans occupy only a subordinate place among
the assets of the banks of issue. They represent ordi-
narily only the pledge of real estate as a supplementary
guarantee where the value of the original pledge has
declined and the borrower has not been able to substitute
any other form of security. The tendency to the over-
extension of credit immediately before the pressure of
1907 is indicated by the fact that these loans secured by
mortgage multiplied several times during the period of
liquidation which followed the pressure. They stood on
June 30, 1906, at only $1,680,224, to rise on June 30, 1907,
to $2,910,744. Then came the sudden shrinkage in the
value of securities, the curtailment of loans, and demands
by the banks for supplementary security, which carried
the amount of loans on mortgage on December 31, 1907,
to $6,240,828; on June 30, 1908, to $7,773,865; and on
December 31, 1908, to $10,504,677. It is to be expected
that these amounts will be gradually reduced with, the
restoration of sound conditions, since they are contrary
51
National Monetary Commission
to the policy of the law which governs banks of issue and
contrary to the condition of the banks themselves prior
to the last few years, when loans on mortgage for all the
banks were kept below $1,000,000.
The original banking law of 1897 imposed four restric-
tions upon banks of issue in regard to classes of business
allowed. Two of these restrictions were directed to limit-
ing the character of paper discounted — that it should not
run for more than six months and that it should be guar-
anteed by at least two responsible signatures, unless col-
lateral security was given. It is under the latter exemp-
tion, as stated above, that a large share of Mexican banking
business is done. The other two prohibitions were against
loans secured by mortgage (with the usual exemptions for
property taken in case of default) and the pledging of cir-
culating notes or creating any lien upon them.
In spite of these restrictions, the rapid influx of capital
into Mexico for investment in fixed forms after 1905
encouraged the employment of banking methods which
did not meet the approval of the Minister of Finance.
This became apparent after Mexico had felt the reaction
of the crisis of 1907 in the United States. Hence re-
sulted a circular letter, issued by Mr. Limantour to the
banks vmder date of February 10, 1908, pointing out
that certain reforms seemed to be called for in banking
practice and proposing a conference of bankers in April
for the discussion of the subject. One of the results of
these conferences was that further restrictions were im-
posed upon the character of business permitted to the
banks, much more minute and specific than those con-
52
Banking System of Mexico
tained in the original act. It was deemed advisable to
directly prohibit participation in industrial enterprises
and to limit to lo per cent of capital and reserve the
amount invested in corporation securities. A leaf was
taken also from the national banking law of the United
States, by prohibiting loans to any one person or corpora-
tion exceeding lo per cent of paid-up capital. The text
of these restrictions was embodied in a new draft of article
29 of the law of 1897, which was made to read as follows:"
"ARTICI.E XXIX.
" It is prohibited to banks of issue:
"i. To make loans or discount notes or other paper
running for more than six months.
"2. To discount notes or other commercial paper
without at least two signatures of well-known solvency,
unless collateral security is given.
"3. To make loans secured by mortgage except in
the cases set forth in the following article.
"4. To make loans without sufficient collateral to per-
sons or associations not domiciled nor having business of
importance in the States or Territories wherein, the home
office, branches, or agencies expressly authorized by the
Treasury Departitient may be located. From this pro-
vision are excepted operations between banks.
"5. To mortgage their real property or borrow on their
credits.
"6. To pledge or pawn their bank notes or to contract
obligations respecting them.
o Instituciones de CrSdiio: Leyes y Circulares Relativas, p. 13.
53
National Monetary Commission
' 7. To accept uncovered bills of exchange or drafts, or
to open credits not revocable at discretion by the bank.
"8. To hold corporation stocks or bonds exceeding 10
per cent of the amount of paid-up capital and reserve at the
time. Securities representing the federal debt and others
where the capital or revenues are guaranteed by the
Government are not included in this limitation.
"9. To operate on their own account mines, metal-
lurgical offices, mercantile estabHshments, industrial or
agricultural enterprises, or to take part, either by general
or silent partnership, in associations, except under circum-
stances analogous to those set out in article 100, in which
case the provisions of article loi shall be complied with.
"10. To engage in insurance operations.
"11. To accept responsibilities, whether direct, indirect,
or associate, from any single person or association, which
in the aggregate exceed 10 per cent of the paid-up capital
of the establishment. Rediscounts between banks are
excepted."
Chapter IX. — Movement of the circulation.
The Mexican bank-note system has not been long
enough in operation to justify final conclusions in regard
to the character of its movements. Any tendency which
might exist toward automatic expansion or contraction to
meet seasonal requirements has been more or less obscured
by a number of special circumstances, the most con-
spicuous of which have been the natural expansion of a
new system to meet the requirements of a country going
through a rapid process of development and the issues
54
Banking System of Mexico
made to meet the changes which took place in the volume
of metallic money during the initiation of the monetary-
reform. A further circumstance which tended to obscure
any purely rythmical movement which might occur under
stable conditions was the sharp contraction in the volume
of business caused by the panic of 1907 in the United
States and its after effects in Mexico.
It was almost inevitable that the creation of new banks
of issue in a large number of the Mexican States should
cause an increase in the note circulation. This tendency
may be explained as the provision of an adequate medium
of exchange where it did not before exist. This has been a
common phenomenon in banking history, and also in the
history of the distribution of the precious metals, that the
new supply has gone largely to those localities where the
means of circulation were scanty, instead of being super-
imposed upon the circulation in that part of the com-
munity where it was already adequate, or nearly adequate,
for commercial operations."
The net increase in circulation in Mexico has not been
large, however, in proportion to the growth in banking
facihties. The issue of notes has been accompanied by a
more than corresponding increase in the metallic reserves
of the banks, which has left the amount of notes only
slightly in excess of reserves. The reason for the growth
of the reserve is found in the requirement of the banking
law that metallic money shall be held to the amount of 50
per cent of certain classes of demand liabilities in addition
oThis subject is discussed more fully in the author's "Principles of
Money and Banking," Book II, Chap. VI, on "The Distribution of Money."
35
National Monetary Commission
to circulating notes. The relative increase in circulation
and in metallic reserve for representative years since the
enactment of the new banking law has been as follows :
Increase of note issue and metallic reserve.
December 3 1-
1898
1900
1903
190S
1906
1907.
1908
1909 (June 30).
Circulation.
$54.375. 769
64. 012, 464
84, 202, 709
94. 141.407
97.787.878
91.475.982
87,504,630
92, 221, 477
Metallic
reserve.
$39,197,024
49.394.761
61,564,982
68,312,005
64,909,345
69,818,349
77,753.503
84,352, 541
The increase in note issues within ten years shown by
the above figures is about 65 per cent, while the increase
in reserves is 98 per cent. This increase in circulation is
not in itself insignificant, but it is small compared with
the increase in total banking assets, which was more than
300 per cent between 1898 and 1908. The rapidity of
this growth over five-year periods is graphically shown by
these figures :
Growth in banking assets.
Dec. 31, 1898 $170,650,776
Dec. 31, 1903 360, 144, 145
Dec. 31, 1908 _. 704,522,244
The comparatively moderate increase in bank-note cir-
culation is susceptible of several explanations having
special reference to conditions in Mexico. In countries
where the check system has been highly perfected, as in
Great Britain and in the United States, it would be pos-
sible to attribute such a condition to the preference for
56
Banking System of Mexico
checks over bank notes. To a limited extent, but to a
limited extent only, this explanation would probably fit
conditions in Mexico. The extensive operations carried
on by American smelting and mining companies and by
other large corporations, both domestic and foreign, have
been facilitated by the extension of the banking system
and are consummated largely by checks, drafts, and bills
of exchange rather than by the employment of notes. A
part of the reason for the slow increase in note circulation
is to be found, however, in the preference of the mass of
the community for "hard money," or for the physical
possession of silver coin, which was for so long a time
almost the only medium of exchange. The use of silver
was a part of national economic policy for many years, in
order to afford a market for the metal, and was promoted
by limiting the minimum issue of bank notes to five pesos.
For all transactions in smaller amounts a void was left
for the use of the peso duro (or hard dollar) , which so long
enjoyed the monetary empire not only of Mexico, but of
China, the Philippines, and other countries of the Orient.
This and another cause for the limited circulation of notes
are thus set forth by Favre:"
"For this state of things may be assigned two reasons,
which, however, mutually supplement each other. It
should not be forgotten, in the first place, that the Mex-
ican bank note is not legal tender. Although it is received
everywhere, even in the public offices, no one is compelled
to accept it. In the second place, thanks to the large
production of silver and to its free coinage, Mexico was
"' Les Banques au Mexique, p. 78.
57
National Monetary Commission
always abundantly supplied with metallic money, and as
no one was compelled to receive notes, the employment
of silver money, which had already entered so deeply into
popular habits, was continued. It is probable that with
the adoption of the gold standard and the suspension of
the free coinage of silver this situation will be modified
and the credit circulation will acquire a wider extension. "
So far as it is possible to draw inferences in a guarded
way from the fluctuations in the Mexican bank circula-
tion, it would seem that the end of the quarter— in
March, June, September, and December — is usually a
period of expansion. Examination of the table given
below, showing the changes in note circulation at the
end of each month for the four years ending with 1908,
shows that, with the single exception of December, 1907,
the circulation at the close of these months was larger
than that for the month preceding. In the spring the
increase often extended over to the close of April, but in
the summer showed usually a considerable contraction in
July. The record of October is less uniform. The month
of December, with the exception of the crisis period of
1907, shows the expansion at the end of the quarter in a
rather more marked degree than in other cases. So far
as any inference can be drawn from so limited a set of
data, the spring months appear as those of active demand
for notes, while the summer shows a considerable con-
traction.
The events attending the consummation of the mone-
tary reform in 1905 and 1906 and those attending the
business reaction at the close of 1907, disclose at least a
S8
Banking System of Mexico
considerable degree of responsiveness on the part of the
note circulation to the demand for currency. The details
regarding the action of the banks in supplying notes to
cover the withdrawal of silver coin in carrying out the
monetary reform are set forth elsewhere. It is sufficient
to say in this connection that the banks met the require-
ment for currency by increasing their note issues to take
up the coin withdrawn.
The movement of the note issue at the time of the
crisis of 1907 was quite different from that ofthe note issue
by the national banks of the United States. The note
issue of Mexico showed a fall from a maximum of
$100,964,740 at the close of March, 1907, to $95,673,890
at the close of September and to $91,475,982 at the close
of December. A still lower figure was reached in Janu-
ary, 1908, to be followed by an expansion in March of
about $4,750,000. Contraction then set in again in
earnest, until the dose of August, 1908, showed a circula-
tion of only $83,741,316, or more than 16 per cent below
the maximum of the period of expansion. Some recovery
took place during the autumn of 1908, but the circulation
still remained at the close of December, in spite of the
end-of-the-quarter demand, at $87,504,630, or fully i2}4
per cent below the maximum of 1907. The details of
these movements of the circulation at the end of each
month appear below.
59
National Monetary Commission
Changes in note circulation at end of each month.
End of—
1905-
1906;
1907.
1908.
January
$82,995,576
84,246,461
85,824,568
87, 213,076
87,054.131
89.454.255
92,002, 194
89,461,960
90.376.303
92.933.798
91.91S, ];8o
94,141,407
$93,597,868
96, r8r, 246
96,912,751
98,143,032
95,985.238
97.134.976
95.487,247
93.275.113
94.597.493
95.108,751
96,017,09s
97,787,878
$98,184,395
99,674.882
100, 964, 740
99,072, 829
98,297,088
98,470,528
96,147.427
95.521,153
95,673,890
94,577,098
92,699,333
91,475,982
^89. 659, 571
March
94, 410, 477
May
June - - -
92, 253, 293
July
August
84.539. 122
October
November - .
84. 544, 942
Whether these figures indicate a healthy movement of
the circulation or not, they at least indicate susceptibility
to change in conformity with changes in commercial con-
ditions. How widely this movement differs from that of
the circulation in the United States, based upon United
States bonds, may be judged by the brief summary of the
movement of the American circulation contained in the
following table :
Movement of circulation in the United States.
Date.
July I, 1907
January 1, 1908
July I, 1908
January i, 1909
July I, 1909
August I, 1909.
Secured by—
Bonds.
$555,570,881
643,459,898
623, 250,517
638, 786,20s
659,673,408
667,508, 731
Lawful
money.
$48,217,809
46, 670, 997
75,083,400
48, 281, 960
30, 246.666
27,845,433
Total.
$603, 788,690
690, 130,89s
698,333,917
677,068, 16s
689, 920, 074
695,354. 164
60
Banking System of Mexico
The significance of these figures is found chiefly in the
movement of the circulation secured by bonds. It appears
that while there was an increase of about $88,000,000,
or less than 8 per cent, at the time of the panic, to meet
the demand for currency, there was a subsequent con-
traction of only about $20,250,000, or less than 3^ per
cent, after money had become redtmdant, and rates for
call loans in New York were for a long time continuously
below 2 per cent. This trifling contraction, moreover,
was offset more than twice over within about another year
by the issue of notes upon bonds which had previously
been used to protect deposits of public money with the
banks."
The criticism might perhaps be made against the move-
ment of the Mexican circulation that it did not meet the
requirements of an elastic currency by prompt expansion
for tiding over the temporary demand for a medium of
exchange at the height of the panic. It does not appear,
however, that such a demand was acutely felt, and it is
certain that there was no suspension of currency payments
nor any abnormal increase in the discount rate for sound
loans. There was considerable disturbance in the market
for credit due to large investments in securities which
could not be quickly realized, but the effect was felt upon
the credit situation rather than upon the demand for cur-
rency. Such demand as arose for the support of the mar-
ket by the issue of additional notes was met chiefly by
the National Bank rather than by the state banks, as
oCf. Wall Street Journal, August 10, 1909, from which the above figures
are taken.
61
National Monetary Commission
has been set forth in the chapter devoted to that insti-
tution.
Chapter X. — Adoption of the gold exchange standard.'^
The work of putting the banking system upon a modern
basis had hardly been achieved when Mr. Limantour
turned his attention to the subject of the metaUic stand-
ard. Mexico had been a large producer of silver from
the times of the Spanish conquest, and her standard coins
had found their way through the gateways of Europe
and the Philippines — ^which was at one time an appanage
of Mexico — into China, Japan, and most of the countries
of the China Sea. But the gradual fall in the gold price
of silver, accentuated in 1902 by the lowest level ever
touched by the metal, convinced Mr. Limantour and his
advisers that Mexico must follow other advanced nations
onto the gold basis. The public finances were deranged
by the fall of silver, because much of the foreign debt of
the country had been contracted in gold, and the import
trade had been reduced almost to gambling because ex-
change with gold countries had become subject to such
wide fluctuations. More important still was the effect of
the fall of silver and its incessant fluctuations upon the
earnings of the railways and the refusal of foreign capital
from gold countries to embark in the extension of the
railway network or in other Mexican enterprises. While
many local enterprises profited after a fashion from the
rise in exchange, the railways were governed by official
a The account here given of the adoption of the exchange sta.ndard fol-
lows in the main the narrative of the author's " History of Modem Banks
of Issue," fourth edition, New York, G. P. Putnam's Sons, 1909.
62
Banking System of Mexico
rates, which the Government only tardily, in 1902, au-
thorized them to change.
Confronted by these conditions, Minister Limantour
obtained the approval of President Diaz for the appoint-
ment of a monetary commission to investigate all phases
of the subject of the metallic standard. While this com-
mission was at work in Mexico, beginning in the spring
of 1903, another step was taken by the Mexican Govern-
ment, designed to secure a certain degree of international
cooperation in establishing more stable exchange between
other silver-using countries and gold-standard countries.
Notes substantially identical in language were addressed
in January, 1903, by the representatives of China and
Mexico to the Government of the United States, asking
the aid of the latter in presenting the subject to those
Governments having commercial and territorial interests
in the Orient. It was pointed out that the imports
of certain silver-using countries reached a total of
$574,627,323 (in United States gold coin), and that the
problem of securing relative stability of exchange between
the gold and silver countries is one whose importance is
not limited to silver countries, but comes home with
force to all those gold-standard countries which are seek-
ing markets for their products in silver countries and are
seeking the extension of their trade in the Orient.
The Government of the United States responded favor-
ably to this appeal, and President Roosevelt, under
authority of Congress, appointed a commission of three
members to cooperate with a commission appointed by
o Commission on International Exchange, 1903, p. 39.
63
National Monetary Commission
Mexico to present the subject to other Governments."
These commissions visited successively London, Paris,
The Hague, Berlin, and St. Petersburg, where they con-
ferred with commissions appointed for the purpose. The
result of their mission was an agreement between repre-
sentatives of all the Governments visited — those of Great
Britain, Prance, the Netherlands, Germany, and Russia —
which was well expressed by the first resolution adopted
at London:*
"That the adoption in silver-using countries of the gold
standard on the basis of a silver coin of unlimited legal
tender, but with a fixed gold value, would greatly pro-
mote the development of those countries and stimulate
the trade between those countries and countries already
possessing the gold standard, besides enlarging the invest-
ment opportunities of the world."
There was not absolute agreement among the various
powers in regard to the best means of reaching this
result, but in most cases it was agreed that the ratio of
32 to I should be adopted as the relation between the
gold standard and the new silver coins. This funda-
mental resolution was an indorsement of the principle of
the gold-exchange standard.
Not much more than a moral effect was anticipated by
the Government of Mexico from the efforts made abroad.
oThe members of the American commission were Hugh H. Hanna, of
Indiana; Charles A. Conant, of New York; and Prof. Jeremiah W. Jenks,
of New York. The members of the Mexican commission were Enrique C.
Creel, president of the Banco Central; Luis Camacho, financial representa-
tive of Mexico in London; and Eduardo Meade, of San Luis Potosi.
6 Report of the Commission on International Exchange, 1903, p. 141.
64
Banking System of Mexico
Public opinion tvas still sensitive in the United States,
and to some extent in Europe, against international bi-
metallism, for which the United States had made their
last effort in 1897." It was expressly declared, therefore,
in both tlie Mexican and Chinese memoranda to the
United States, that it was not the expectation or the
wish "that the gold-standard countries should take any
action tending to impair their monetary standard or to
make material changes in their monetary systems. * One
of the objects sought, however, was to bring about
greater regularity in the purchase of silver bullion by
different powers, when required for coinage purposes, in
order to diminish fluctuations in exchange with silver
countries. The soundness of this policy was so far recog-
nized by the British Government that it was afterwards
adopted on a large scale in purchases of silver for India.
While the commission on international exchange was
pursuing its mission in Europe the commission appointed
to study the subject at home continued its inquiries through
several subcommittees. The fourth subcommittee, which
was charged with analyzing the effects of the fall of silver,
reported in favor of a system of stable exchange for
Mexico at a ratio of 33 to i . The full commission held its
" Vide "Statement respecting the Work of the Recent International
Bimetallic Commission," by Senator Wolcott, of Colorado, in United States
Senate, January 17, 1898. It was then proposed to the government of
British India that it should retrace the steps of 1893 by again opening its
mints to free coinage of silver, but this was met by a "unanimous and
decided opinion" on the part of the government against such action. —
Commission on International Exchange, 1903, p. 303.
6 Com/mission on International Exchange, 1903, p. 45.
8648 — 10 S 65
National Monetary Commission
final sitting on February lo, 1904, and in*its report recom-
mended the adoption of a stysem based on the gold stand-
ard. They did not advise the adoption of a gold currency,
biit of a system which would keep silver in circulation in
quantities as large as possible without impairing the main-
tenance of the legal ratio with gold. To these ends it
was recommended :
1 . That the mints be closed to the free coinage of silver,
and that the reimportation of Mexican pesos be prohibited
after proper delay.
2. That a ratio be established between gold and silver
based upon the average gold price of silver for the pre-
ceding ten years, which should not be raised more than
10 per cent.
3. That gold should not at first be coined for either the
Government or individuals, but that such coinage should
be deferred until the new coin should have attained parity
with gold and when in the opinion of the Government the
circulation of gold would not impair the maintenance of
this parity.**
A plan for carrying out these ideas was presented to
Congress by Minister I^mantour on November 16, 1904,
which reviewed all sides of the discussion which had been
taking place in Mexico, frankly discussed the merits and
defects of the old systerii, and pointed out the means of
establishing the new. In this report the argument that
the export trade profited by a depreciating currency was
examined and found to have little foundation in the com-
mercial history of Mexico. It was the conclusion of the
1 Commission on International Exchange, 1904, p. 419.
66
Banking System of Mexico
minister that the expansion of the mining industry,
though facilitated by the depreciation of the local cur-
rency, could not be ascribed to that as the chief cause,
but to other causes, foremost among which were the con-
struction of railways into new regions, the cheapening of
transportation rates, and modern methods of treating the
ores. Turning to the figures of gross export trade, it was
pointed out that during the ten years ending with 1891,
when the fluctuations in the gold value of silver were
slight, total exports rose from $26,000,000 to $53,000,000
in American gold, or more than 100 per cent, while for
the ten years ending with 1901, during which the value
of the Mexican peso fell from 84 to 48 cents in gold, the
increase in the value of exports, reduced to gold, was only
from $63,000,000 to $77,000,000, or about 22 per cent."
The minister did not adopt, in terms, the conclusion of
members of the American commission in 1903, that,
under the system of a falling monetary unit, "Mexico
had in recent years given up a growing proportion of the
products of her own labor and intellectual efficiency in
return for foreign products;" but in his report in the
autumn of 1905 he brought out the corollary of this
proposition, that the rise in the unit in 1905 enabled
Mexico "to purchase a much larger quantity of foreign
merchandise without any very material increase in our
o Monetary Reform in Mexico, p. 4. This subject was discussed and
similar conclusions reached in a paper submitted to the Mexican commis-
sion by the present writer, Professor Jenks, and Mr. Edward Brush, April
18, 1903. (See Commission on International Exchange, zpoj, pp. 431-439.)
It was also discussed exhaustively by Senor Casasus, Currency Reform
in Mexico, pp. 193-239. On the same subject in other countries, vide
the author's Principles of Money and Banking, I., pp. 347-351.
67
National Monetary Commission
remittances abroad."" An important factor in the prog-
ress of recent years was the aboUtion of the alcahalas,
or interior customs taxes at state hnes. It was not
until the middle of the year 1896 that this reform was
effected, with the result of relieving commerce from a
galhng exaction and greatly stimulating the public reve-
nue from other sources.
A measure to carry out the reforms proposed by Minister
Limantour was submitted with his report and became law
on December 9, 1904. This law declare;d that the existing
silver coin, containing 24.4391 grams of pure silver and
2 .6342 grams of copper, should continue to possess full legal-
tender powers, but that it should have a value equal to
75 centigrams of pure gold. The issue of money of all kinds
was reserved to the executive, who was also clothed with
authority to forbid or tax the importation of Mexican pesos
into the RepubUc ; to continue coinage of old pesos for ex-
port; to modify the form of the peso; to authorize the
circulation for a limited time of the gold money of other
nations ; to modify the mining laws by reducing the charge
of 2 per cent upon coinage, the stamp tax of 3 per cent,
and the charges for assaying, smelting, and refining; to
modify the taxes on mine titles and various local taxes ; to
exempt mining machinery from import duties; to arrange
for advances upon silver bullion and for its sale under favor-
able conditions at home and abroad; and to create a com-
o Financial Documents, December, 1905, p. 4. The minister calculated
that exports valued in silver, amounting for the fiscal years 1903, 1904, and
1905 to $207,377,793, $210,312,374, and $208,520,451, respectively, worked
out in gold value, at the average rate of exchange, at $82,950,000,
$91,440,000, and $101,710,000, respectively.
68
Banking System of Mexico
mission for the purpose of maintaining stability of ex-
change, to which should be confided a special fund to be
created by the executive and such powers as the executive
thought proper."
Sweeping as these measures were, there was some divi-
sion of opinion as to the effective steps required for main-
taining parity. Mr. Creel, chairman of the Commission on
International Exchange, had urged that exchange funds
should be established in New York and Europe, and had
upon this point been vigorously supported by members of .
the American commission, but he was overruled by the
majority of his associates. Minister Limantour accepted
in a tentative way the view of the majority, that the appre-
ciation of the silver peso to gold parity could be brought
about by scarcity, but by the institution of the commission
on money and exchange he recognized the view that some-
thing more than scarcity must be relied on, under all the
conditions of international trade and the money market, to
maintain permanently a parity once attained.
The event which contributed most to allay doubts and
to permit the Government to advance from the ground of
experiment to that of accomplishment was the rise in the
price of silver bullion. The hiatus in the demand for the
metal which had carried its price dowii in the London
market to 2i^s^d. in December, 1902, and January, 1903,
was at length passed, and during the period from April,
1903, to the beginning of 1905 silver moved slowly, but
almost uninterruptedly, upward.'' In January, 1905, the
a The text of this bill (in English) is given in the Report of the Commission
on International Exchange, 1904, pp. 449-50.
6 Commission on International Exchange, 1904, p. 28.
69
National Monetary C ommis s ton
London price was 28 ^d. — an advance of nearly one-third
over the low point of 1903. On March 25, 1905, therefore,
although silver had then receded to about 26d., the new
gold standard was put into effective operation. A step
toward the policy of India was introduced by one of the
laws now promulgated by the provision that henceforth,
except for recoinage, new silver money should be issued
only in exchange for gold coin or bars at the legal parity.
It was provided that this exchange of silver for gold should
.cease to be obligatory when silver rose above the legal
parity.
A fund was constituted by section 27 of one of the new
laws, called " Fund for the regulation of the monetary cir-
culation," with the avowed object of facilitating the adap-
tation of the monetary circulation to the requirements of
stability in foreign exchange. At the same time (April 3,
1905), a commission on money and exchange was created
and a fund of 10,000,000 pesos was placed under its con-
trol, deposited in part at the National Bank of Mexico
and in part at the other principal foreign banks. These
funds were destined to support exchange by enabling the
commission to buy or sell gold drafts according to the
state of the market. "
The work of the commission was given an entirely dif-
ferent direction from what was expected by the continued
rise in the price of silver bullion. By the close of 1905
Mexico was not only firmly established upon the gold
o VioUet declares that this "completed in a happy way the reform, which
could not have been accomplished if it had been founded exclusively on
the scarcity of money." — Le Problhne de V Argent el I'Etalon d'Or au
Mexique, p. 202.
70
Banking System of Mexico
standard, but was beginning to import gold in payment
for her exports of silver. Up to the year 1904 exchange
on New York had fluctuated in harmony, more or less
exact, with the market for silver bullion. During the
latter half of 1904, however, this exchange became prac-
tically fixed at $2.16 in Mexican money for $1 in Unite'd
States gold." The reason was in part the rise in silver,
but was also in part the known purpose of Mexico to
establish soon the relation of two to one. With the fur-
ther rise in silver in 1905, which carried the average Lon^
don quotation for the metal to 27Hd. for the year, and
to a maximum of 33>^d. early in 1906, it became no longer
a question of maintaining the value of the silver coins,
but of keeping them down to the gold value fixed by law.
The first importations of gold were encouraged by the
Government in order to enable the banks to diversify
their reserves, but before the close of 1906 the golden
stream had become a torrent and silver coins were freely
exported because the market price of their bullion con-
tents was above their legal value in Mexico. Exports of
silver from Mexico for the sixteen months ending with
October, 1906, were $55,608,823, and the coinage of gold
was $51,606,500.'' The fear spread that the country
would be denuded of the stock of subsidiary silver neces-
sary to do business, and in the autumn of 1906 an export
tax of 10 per cent was imposed upon the amount of silver
coins sent abroad without the importation of an equiva-
lent ainount of gold. '
o Commission on International Exchange, 1904, p. 29.
6 Financial Documents, December 1906, p. 7.
e Bulletin de Statistique, January, 1907, LXI, p. 120.
71
National Monetary Commission
Fortunately the new monetary law, while leaving the
old silver peso unchanged at 27.03 grams, provided for
subsidiary silver coins lighter in weight in proportion to
their legal value (25 grams to the peso) and with a fineness
of eight-tenths in pure silver instead of 0.902.'' This pre-
cluded the profit which was found with the old pesos in
exporting them for sale in the London silver market. The
poUcy pursued by the Government, therefore, was to re-
frain entirely from the coinage of pesos and to endeavor
to fill the chaimels of circulation with gold, bank paper,
and subsidiary silver. To this end, in December, 1905,
the issue of gold certificates was authorized against
deposits of bar gold and foreign gold coin. Every effort
was made also to increase the coinage of subsidiary silver,
until at the end of November, 1907, the amount coined
in about two years and a half in pieces of 50 centavos was
$26,186,619, and in smaller pieces $5,499,923.*
By the close of the fiscal year 1908 the amoimt of
gold coinage which had been executed since the inaugura-
tion of the monetary reform in 1905 had reached
$81,626,500; silver pesos, $3,700,000; pieces of 50 centa-
vos, $26,830,619.50; pieces of 20 centavos, $3,846,923.80;
and pieces of 10 centavos, $1,823,000, making a total
silver coinage of $36,200,543. " The coinage of the fiscal
year 1908 was $16,600,000 gold and $7,403,619.50 silver.
Within that time, or as early as October, 1907, silver had
dropped below the Mexican legal parity in the bullion
a Decree of March 25, 1905, Bulletin de Siatistiq'ue, May, 1905, LVII,
p. 560.
b Financial Documents, December, 1907, p. 17.
<: Financial Documents, December, 1908, p. 25.
72
Banking System of Mexico
market and the danger of undue exports of the coin was
over." The result of the fluctuations in the value of the
metal had been to equip the banks with an ample stock
of gold and leave the stock of silver coin adequate for
national needs. On June 30, 1908, the exchange and cur-
rency commission had a net fund of $17,100,340, of which
$6,100,000 was in Mexican gold coin, $6,104,169 on deposit
with banks and banking firms at home and abroad, and
$3,000,000 in silver pesos.''
Chapter XI. — The banks and the monetary reform.
The banks under federal jurisdiction naturally played
an important part in carrying out the monetary reform.
They turned over the old silver pesos to the Government
as rapidly as conditions permitted for conversion into the
new. The National Bank furnished the $10,000,000 with
which the exchange and currency commission were pro-
vided by the law of March 25, 1905. The problem which
confronted the administration during the transition from
the old system to the new was to adjust the volume of
coinage to the requirements of business in such a way as
to bring about parity of exchange, without producing
unnecessary stringency in the money market. The cur-
tailment of the amount of silver pesos in the hands of the
public was estimated by Mr. Limantom", the Minister of
Finance, at $3,000,000 between May and October, 1905,
apart from exportations of silver from the exchange fund.
o The average London price of silver bullion for the year ending June 30,
1908, was 27.3313d., but the highest price in August, 1907, was 32Xd. and
in May, 1908, only 24^|d. — Report of the Director of the Mint 1908, p. 24.
6 Financial Documents, December, 1908, p. 26.
73
National Monetary Commission
The contraction was much more considerable during
November, 1905, when, as the result of the rise in the value
of silver bullion, pesos were shipped abroad to an amount
estimated at $10,000,000, of which $5,500,000 was with-
drawn from the exchange fund and $1,000,000 to
$2,000,000 directly from the banks."
While these changes were taking place in the cash hold-
ings of the banks, the void in the circulation was being
filled by increased issues of bank notes. Thus, the total
note circulation advanced from $82,995,576 at the close
of January, 1905, to $92,002,194 at the close of July, 1905.
The increase was principally in the issues of the National
Bank, which increased between the dates named from
$22,513,994 to $28,502,230. As a result of these move-
ments it was declared by the Minister of Finance that the
curtailment of specie was, up to the end of October, more
than compensated by increased issues of notes and that
the heavy shipments of pesos in November only brought
about a reduction of $2,000,000 approximately in the
total stock of monetary units (cash and notes) between
May and the beginning of December, 1905.
The banks were enabled, by the unexpected rise in the
price of silver bullion above the legal parity in 1905 and
at the beginning of 1906, to strengthen their reserves in an
unexpected measure. Up to near the close of 1905 the
metallic resources of the banks consisted chiefly of silver,
and reliance was placed upon the funds of the exchange
and currency commission to keep this silver at its legal
gold value. With the rise in the price of silver bullion in
0' Financial Documents, 1905, p. 13.
74
Banking System of Mexico
the lyondon market, it became possible to sell the coins for
gold at more than their legal gold value. The margin at
first was so slight as to encourage this movement only
through the exchange and currency commission and the
banks. During this period the commission was easily able
to persuade the banks of issue to realize their silver pesos
abroad through its instrumentality for an equivalent
amount in gold. As the price of silver rose, however, so
as to make the margin of profit upon the sale of coins con-
siderable, large shipments were made by private individ-
uals as well as by the banks atid it was deemed necessary
to pass a law, imposing an export tax on Mexican silver
coin sent abroad without the importation of an equivalent
amount in gold."
So rapidly were the reserves of the banks converted from
silver into gold that the Government for the first time, in
January, 1906, decreed that the character of the money
If
held in bank reserves should be classified as to whether it
was gold or silver. In the first statement made under this
requirement, for January 31, 1906, the gold held was as
yet only $15,832,840 and the silver was $49,781,155, in a
total of $65,613,995. By the end of June the gold
had increased to $42,381,837 and the silver had fallen to
$29,849,675, in an increased total of $72,231,513. For
the next few months the increase in gold held by the
banks was not rapid, but there was a gradual advance until
the autumn of 1907, when the amount of gold held on Sep-
tember 30 was $54,262,427 and of silver $14,531,420 in
total cash holdings of $68,793,847.
"■Financial Documents, December, 1906, p. 6.
75
National Monetary Commission
The experience of the depression of 1908 was to reduce
somewhat the proportion of gold and to increase the pro-
portion of silver. This was the natural result of the di-
minished demand for currency caused by the relaxation of
business activity, and the reflex movement of money back
to the banks, because the money actually in use consisted
chiefly of silver and not of gold. Between December 31,
1907, and February 29, 1908, the gold holdings of the banks
fell from $53,854,896 to $48,974,648, while silver holdings
increased from $15,963,452 to $16,156,988 and subse-
quently, on June 30, 1908, to $23,908,748.'^ The decline
in specie from December 31, 1907, to February 29, 1908,
was from $69,818,349 to $65,131,636. Of these sums the
National Bank of Mexico held on December 31, 1907,
$32,015,845 and on February 29, 1908, $29,931,696.
Thus, partly by the operation of normal causes and partly
by their own foresight, the banks of Mexico were supplied
with metallic reserves in actual gold, which not only added
to their capacity to maintain the parity of their own notes,
but greatly strengthened the monetary position of the
country.
Chapter XII. — Organization of the State Banks.
The form of organization of the state banks of issue is
not definitely set forth in the law of 1897, but it is implied
that the bank shall be under the direction of a board of
directors, or council of administration (Consejos de
Administracidn) , who shall exercise their executive
authority through a majority. The members of the
<>■ Financial Documents, 1908, p. 20.
76
Banking System of Mexico
board are declared to be responsible at the civil law for
any infringement of the provisions of the banking law
which has their sanction. The manager carrying out
such infringements is also made liable, unless he has
acted under express orders from the directors. The
severe liability of the board and of the manager, however,
does not impair the criminal liability which they may
have incurred under either federal or local laws." No
member of the board of directors can enter on the dis-
charge of his duties without giving bond, for which pur-
pose he must make a deposit in the bank in cash or in
shares of the bank, according to the amount fixed by its
by-laws.
Members of the board are not permitted during the
first year of the existence of the bank to take part in any
transactions by which they render themselves liable to
become debtors to the bank. After the expiration of
the first year, they are permitted to enter into such trans-
actions when they are associated in the liability with
another guarantor of undoubted solvency or when they
furnish collateral security for double the amount of such
debt or liability. This provision was extended in 1908
to partnerships of which members of the board might be
members. It was also strengthened by the requirement
that there should be unanimous agreement, in cases of
loans of this character, among the directors present in
regard to accepting the guaranteeing firm or the collateral
offered, unless the latter fell under the classes of securities
o Law of 1897, art. no.
77
National Monetary Commission
described by the law as immediately realizable or negoti-
able. It was also prohibited to officers and managers to
transact personal business at the bank."
Chapter XIII. — Publicity and official supervision.
Minister Limantour in the law of 1897 took several leaves
from the banking history of American as well as European
countries in requirements regarding publicity and official
supervision. It was provided, even in the preliminary
outline of the new system embodied in the law of June 3,
1896, that the banks should publish monthly a cash state
ment which, besides showing balances of accounts as
required by law, should also set forth the amoimt of coin
on hand, the amount of notes in circulation, and the
amount of deposits payable on demand or on notice of
three days or less. The purpose of this enactment
seemed to be to disclose merely the relation of the cash
reserve to liabilities. The complete law went further by
setting forth in detail the items which must be included
in these monthly statements. These were, on the side
of assets, the uncalled capital; cash holdings; amount of
discounts; amount of loans on collateral; amotmt of loans
on mortgage; holdings of public funds, other bonds, and
shares capable of being immediately converted into cash;
the balance of debtor current accounts; and the value of
real estate held by the bank. On the side of Uability
only five items were required — capital; notes or other
obligations in circulation; deposits subject to call at
oLaw of June 19, 1908. Instituciones de Cridito: Leyes y Circulares
Relativas, p. 175.
78
Banking System of Mexico
short notice; the balance of debtor current accounts;
and the reserve fund.
Early in 1906 a subdivision was required of cash hold-
ings into gold coin, silver pesos, and subsidiary silver.
The law of 1 908 added some further specifications, designed
to bring to Ught the investment of assets in questionable
forms and to show the amount of surplus funds and the
character of deposit liabilities.
Aside from these published monthly statements, the
banks are subject to the supervision of the federal Depart-
ment of Finance. The power of this department maybe
exercised either through inspectors permanently appointed
for each bank or through special inspectors appointed for
particular reasons." The functions of these inspectors
go beyond those of bank examiners under the national
banking law of the United States and assimilate somewhat
closely to those of the board of censors of the Bank of
France and the Bank of Belgium. They are authorized
to take part in the preparation of the monthly balance
sheets and to verify, when they see fit, the cash holdings
and the outstanding issues of the bank. Their signature
is required to notes or securities which are put in circula-
tion, after they have been stamped by the Government
and been subjected to other official requirements for their
validity. With these powers, it becomes their duty to
see that the notes or securities put in circulation do not
exceed the amount which each^bank is entitled to issue.
They are also required to be present and certify to the
cancellation of notes or securities, to losses by fire or
" Article 113.
79
National Monetary Commission
otherwise, and to exercise similar supervision over the
coupons of securities. They are required to keep a record
of notes and securities put in circulation with their sanc-
tion and such as are canceled and destroyed. It is their
duty to attend auctions and drawings which the banks
may hold and to give immediate notice of any infringement
of the law to the Department of Finance. They are
required to submit in January and July of each year a
detailed report of the discharge of their functions during
the preceding half year, with proper statistical data.
Inspectors are prohibited from interfering with the
management of the bank's business; from giving any in-
formation to outsiders; from holding shares in the bank
for which they are inspectors; or to apply for loans or in
any way become debtors to the bank. To hold shares or
apply for loans makes their dismissal mandatory." In the
preparation and revision of the annual balance sheets, the
inspectors are granted the same powers which are granted
by law to the auditors of joint-stock companies. They
must verify the items of the balance sheet by comparing
each statement with the books of the bank, but they can
not demand the accounts in detail or the correspondence,
minutes, contracts, or other papers of the bank, except
under a special order from the Minister of Finance or
when the bank voluntarily agrees to show these papers.
The inspectors are required, in case a bank is liquidated
or dissolved, to represent the holders of the outstanding
notes or securities in enforcing their rights, but the latter
may protect their rights in person or through an attorney.
" Article ii6.
80
Banking System of Mexico
This system of local inspectors was supplemented in
1904 by the creation of an inspector-general, who super-
vises and coordinates the work of the local inspectors and
has the same rights as they over the bank.<» The compar-
atively small number of banks in Mexico, even after the
expansion of the last ten years, makes it possible for the
Minister of Finance, who stands above the inspector-
general and the local inspectors, to exercise a more direct
supervision than if he had under his care several thousand
independent institutions, as in the United States. The
Minister of Finance is constantly in touch with the
inspector-general and examines from time to time the
reports of the local inspectors. It is in the discretion of
the minister, under the limitations of the law, to forfeit
the charter of a bank or to impose upon it severe penal-
ties. Forfeiture may be decreed for failure to bring the
note issue promptly down to the limit of three times the
metallic reserve, for obvious insolvency, and for various
other reasons.
The right to decide whether a bank shall be consoli-
dated with another or whether it shall establish branches
is subject to the discretion of the Minister of Finance.
Banks are prohibited from establishing agencies, even for
the redemption of notes, within the Federal District, and
can not open other branches or agencies except with the
special permission of the Executive. * Consolidation with-
out the previous consent of the Department of Finance
operates forfeiture of a bank's charter. Another provi-
sion, designed to prevent undue foreign interference with
a Favre, p. 33. 6 Article 38.
1 — 10 6 81
National Monetary Commission
banking in Mexico, declares that a charter shall be for-
feited when the majority of the shares of a bank come
into the hands of a foreign government."^ Forfeiture shall
not be declared, however, until the bank has had an oppor-
tunity to be heard in its own defense.
The Minister of Finance names and dismisses the
inspectors, and thereby exercises a marked degree of con-
trol over banking conditions in each locality. Many
executive decrees and circulars of suggestion to the banks
have been based upon the reports of the inspectors and
upon their special recommendations. The control of
the banking system is thus highly concentrated and the
work of the inspectors, according to the observation of
M. Favre, "exceeds the limits of ordinary supervision
and extends to actual collaboration in the improvement
of the banking regime.*
As M. Favre points out, there are two sides to this
question of executive control. If the Minister of Finance
is a man of experience and capacity, there can be no
better guaranty for the security of the public and the-
prosperity of the banks, for not only will he take care that
they shall not depart from the rules laid down, but he
will not allow them to take a step in advance, either by
increase of capital or the foundation of branches, which
is not absolutely justified by the obvious interest of the
depositors and shareholders. On the other hand, if
power should fall into the hands of a reckless or unscru-
pulous financier, the inspectors might become a terrible
instrument of vexations and blackmail against the banks.
" Article 109. ^ Les Banqties au Mexique, p. 32.
82
Banking System of Mexico
The French author concludes, however, that this system
of surveillance was necessary in Mexico, because in a
country which had long been disturbed, and which had
yet to make its financial education midst all the specula-
tions excited by mining enterprises, the gravest dangers
attended the institutions of credit. In Mexico, under the
administration of Mr. Limantour, the system gives re-
markable results precisely because it permits the personal
influence and counsels of the Minister to guide the policy
of the banks. The possibility of abuse of their functions
by inspectors was recognized and guarded against by Mr.
Limantour in his report of 1897. He said upon this sub-
ject: "^
"The inspectors may be appointed exclusively for
each bank or only for specific cases ; and the aim has been
to give such precision to their duties as will avoid the
difficulties which are always to be feared in connection
with so delicate a function. For this purpose it was
necessary to steer between two sets of shoals of different
character, the one arising from the natural tendency of
the inspected to diminish the sum total of the powers of
the inspectors; the other arising from the very common
propensity of inspectors to carry their function to excess.
"Thus there remained no other way than to specify
with all possible clearness the principal duties and powers
of inspectors and to establish, as reciprocal guarantees in
favor of the banks and of the public, definite prohibitions
and severe penalties for inspectors who might abuse their
position; and, on the other hand, the power to extend
<>■ Instituciones de Cridito: Leyes y Circulares Relativas, p. 113.
83
National Monetary Commission
the inspection, in special cases, to the complete disclosure
of the facts involved, always provided that the Depart-
ment of Finance expressly so orders."
Chapter XIV. — Growth of the hanks of issue.
Judged by the rapidity with which capital has flowed
into banking enterprises, to meet the demands of Mexican
business expansion, the new system of banks of issue has
proved successful. When the general banking law of 1897
took effect there were only nine banks in Mexico, with a
paid-up capital of $23,010,000 and reserve funds amount-
ing to $5,720,047 — a total of $28,730,047. Bills receivable,
the largest items among the assets of these nine banks, stood
at $49,135,683, and creditor current accounts, the chief item
of liability exclusive of notes, were $56,593,226. Out-
standing notes stood at $38,497,367, which was below the
amount of coin and bullion, which stood at $42,573,025.
The relative importance of the nine banks, exclusive of the
National Bank and the Bank of London and Mexico at this
date (January, 1897), may be put in summary form as
follows :
Condition of banks of issue, January, iSgj.
Bank.
Paid-up
capital.
Coin and
bullion.
Bills
receivable.
Creditor cur-
rent accounts.
$8, 000, 000
10, 000, 000
5, 010, 000
S29.68I, 612
9,611, 548
3,279,86s
$23,608, 234
18,032,383
7,495,076
$32,499,021
10, los, 122
13,989,083
Bank of London and Mexico __
Total
23,010,000
42,573,02s
49,135.683
56,593,226
Within less than four and a half years (June, 1 901), the
number of banks had increased from nine to nineteen, and
84
Banking System of Mexico
bills receivable had increased by 1 50 per cent . This was due
to the extension of banking facilities to the principal com-
mercial cities of Mexico, scattered over various parts of the
Republic, some of them deriving their importance from the
development within a very short interval of mining and
other special interests. The new banks already in opera-
tion by 1901 were the Bank of the State of Mexico, Bank of
Coahuila, Bank of San Luis Potosi, Bank of Sonora, Occi-
dental Bank of Mexico, Mercantile Bank of Veracruz, Bank
of Jalisco, Mercantile Bank of Monterey, Oriental Bank of
Mexico, Bank of Tabasco, and Bank of Guanajuato.
Within the next eight years, from June 30, 1901, to
June 30, 1909, the process of banking creation was con-
tinued by the incorporation of ten new institutions. The
total capital was reduced somewhat in 1908 by the merger
of the two banks in the State of Yucatan — ^the Yucatan
Bank, with a capital of $12,000,000, and the Mercantile
Bank of Yucatan, with a capital of $6,000,000. These
two institutions joined forces under the name of the Penin-
sular Bank, with a combined capital of $16,500,000, or
$1,500,000 below the combined capital of the two older
institutions. The greatest upward movement in capital,
as will be seen by examination of the tables, occurred
during the two years 1905 and 1906, after the steps were
consummated for putting the country upon the gold
standard. The paid-up capital and reserve funds in-
creased about $28,200,000 for the fiscal year 1905 and
$29,700,000 for the fiscal year 1906. The loans and dis-
counts increased from $65,712,000 in 1897 to $309,738,564
in 1907, but fell off about $83,000,000 under the pressure
85
National Monetary Commission
of the winter of 1907-8 and the following spring. The
note issue, after increasing from $44,792,000 in June,
1897, to $97,787,878 in 1906, also declined somewhat with
the contraction of business. Cash on hand, however,
after increasing from $34,297,000 in 1897 to $80,599,993
in 1904, declined somewhat during the years of expansion,
only to increase to $80,928,310 with the relaxation in
business activity in 1908 and to $84,352,541 on June 30,
1909.
It is worthy of note that the increase in outstanding
bank notes, while it has been considerable, has not corre-
sponded with the increase in loans and in creditor ac-
counts. The latter increased from $52,920,000 in 1897
to $361,471,004 in 1907. This more rapid increase in ac-
counts than in note issues indicates a growth in the deposit
system which is an interesting indication of the results
of the diffusion of banking facilities under the law of 1897.
As a natural result of these conditions, a large increase has
taken place in the cash reserve for the purpose of pro-
tecting deposit liabilities. This has had the further
result, so notable in France and other countries, that the
ratio of the cash to the circulation has steadily increased
until in 1908 it stood at about 88 per cent. It is declared
by Mr. Casasus that — "
"Should this tendency become more marked and con-
tinue for a greater number of years, it may perhaps prove
what is already an accomplished fact in other countries,
viz, that in proportion as the banking system of a country
becomes more perfected the note issue decreases in im-
o New York Bankers' Magazine, March, 1909, LXXVIII, p. 399.
86
Banking System of Mexico
portance and comes closer to the level of the cash on
hand, because the deposits and checks constitute the
greatest force of the metallic circulation movement, a
force such as notes payable at sight and to bearer are
incapable of giving."
Chapter XV. — The banks in the crisis of 1907.
The Mexican banking system was subjected to a severe
test, almost before it had reached maturity, of the wisdom
and efficiency of the measures adopted to separate com-
mercial banking from the locking up of capital in long-
term investments. It was nearly inevitable, in view of
the rapid industrial development of Mexico during the
present century and the limited volume of estabUshed
commercial business, that, in spite of these precautions,
the banks of issue should be led in some cases to invest
their resources in assets which were not readily con-
vertible. As early as 1906 the Minister of Finance took
note of the reduction of cash in the hands of the banks
in proportion to outstanding notes and declared that it
was a fact which, if it became more accentuated, would
require timely measures to remedy the situation. Al-
ready pledges had been secured from several of the banks
not to increase their note issues beyond given limits, but
only on a scale proportionate to the increase in their cash
holdings."
The adoption of the monetary reform was the signal for
an influx of foreign capital into Mexico on a! scale far
beyond that of previous years. It was declared by the
o Financial Documents, December, 1906, p. 9.
87
National Monetary Commission
Minister of Finance that "this influx of money, though
very considerable, has occasioned no surprise to the
authors of the new monetary regime. Indeed, the influx
of foreign capital was precisely one of the objects sought
to be attained by the reform, not only because that capital
fecundates all branches of the national wealth, but
because it constitutes in itself one of the surest guarantees
for the fixity of the gold value of our currency.""
An estimate of some of the more obvious investments
of foreign capital was presented by the Minister, showing
a total of $86,500,000, which included new banking
capital to the amount of $57,600,000; issues of industrial
shares, $9,900,000; sale of mining properties, $7,500,000;
sale of the Hidalgo Railway, $6,000,000; sales of land,
$3,5op,ooo; and sales of mortgage bonds, $2,000,000.
The amounts invested in banking capital were given in
detail as follows :
Increases of banking capital and sales of shares.
National Bank of Mexico $17,000,000
Bank of London and Mexico 20, 000, 000
Mexican Central Bank 12,000,000
Bank of Guanajuato 1,500,000
Bank of the State of Mexico 800, 000
Bank of Yucatan 4,500,000
Mercantile Bank of Veracruz 500, 000
Occidental Bank 300, 000
Oriental Bank i, 000, 000
It was added that in this table no accoimt was taken
of investments in the shape of machinery or other articles
imported and not fully paid for, nor of the sums applied
to the payment of previous debts, nor, finally, of the
a Financial Documents, December, 1906, p. 10.
88
Banking System of Mexico
money that had come into the country through the sale
of other kinds of securities or of the bonds of the Federal
Government or of the States.
The events of 1907 in the United States and elsewhere
checked this influx of capital. Already, when Minister
Limantour submitted his annual report to Congress in
December, 1907, he was compelled to note that the
money market had become stringent, and that the crisis
in the United States had produced its reaction in Mexico.
Upon this subject he said:**
"At the time of my last report the business situatior
abroad already wore an unfavorable aspect. Money was
with difficulty to be secured even for high-class invest-
ments. The stringency, which originated in the United
States, gradually extended to Europe, and by the middle
of the year business in the chief money centers of th.i
world was almost at a standstill. European capital be-
came more and more reluctant to engage in Mexican
undertakings, and not only new issues, but even old
ones, came to be regarded with disfavor by European
investors, who gradually realized on them, preferring tc
have the money lying idle in their strong boxes."
All through the year the Minister of Finance had been
urging prudence upon the banks, with success in some
cases, but without creating sufficient impression in others.
He declared that perhaps some fault might be found with
certain banks for the large proportion of loans made by
them to industrial concerns and to private persons, who
were known to intend to ask for extensions at the end of
"■ Financial Documents, December, 1907, p. 19.
89
National Monetary Commission
the terms of three, four, or six months for which their
notes were drawn. Perhaps also it might be charged
that in certain localities the banks were in the habit of
confining their operations to too narrow a circle of per-
sons and firms. Upon this subject the minister said
further :"
"Whether or not these criticisms be well grounded, the
Department of Finance has constantly endeavored to
impress on the banks the expedience of not tying up
their resources unduly and of extending their facilities to
the largest possible number of customers, while at the
same time restricting the liabilities 'contracted by one
and the same person or firm. But, in any event, such
ground as there may be for the criticisms in question will
disappear in proportion as institutions of credit are
founded, of which the principal object will be to make
loans for longer periods of time than are customary in
commercial usage; and in the meantime there is no rea-
son to fear that the vicious practices which have been
mentioned will clog the normal activities of the banks of
issue, if, as is to be hoped, they take care not to go alto-
gether beyond the bounds of prudence in that direction."
In thus referring to the distribution of long-term loans,
Minister L-imantour hinted at a project, evidently for some
time in his mind, which matured after the panic. Already
his warnings had been disregarded by the two banks of
Yucatan, with the result that they passed through a period
of serious difficulties. The use of a considerable portion
of their capital in operations capable of very slow reahza-
<'' Financial Documents, December, 1907, p. 16.
90
Banking System of Mexico
tion, and in which only a small group of persons were in-
terested, brought their business almost to a standstill and
necessitated the intervention under government auspices
of the National Bank of Mexico and the Banco Central.
The business of the two Yucatan banks was continued by
means of a merger under the name of the Peninsular Bank,
but it was found necessary to write off the reserve funds
of both establishments, amounting to $3,582,185 for the
Bank of Yucatan and $1,911,270 for the Mercantile Bank,
to offset losses."
It was not an encouraging sign that these reductions in
banking resources reduced the total reserve and emergency
funds of all the banks, in spite of some increases among
those which had been more prudent in their manner of
operation. It was a symptom of conditions which were
more acutely felt after the influx of capital from the United
States was checked in 1907. The manner in which these
conditions reacted upon Mexico was thus set forth by
Minister L.imantour in his annual report for 1908:''
" The first effects of the crisis were felt in the Republic in
the second half of December, 1907, on account of the heavy
remittances commonly made in that month by companies
which have to pay interest or dividends abroad. Concur-
rently, the general lack of confidence throughout the world
checked the flow of capital to Mexico, thus unsettling the
equilibrium of our economic balance. Next, money grew
scarce; collections became difficult; the volume of sales
was reduced; and the prices of the bonds and shares of
O' Financial Documents, December, 1908, p. 19.
^ Financial Documents , December, 1908, p. 27.
91
National Monetary Commission
almost all our corporations fell off. About the end of Feb-
ruary and beginning of March of the present year the yield
of internal taxes and of the custom-house revenue began
to show a decline, accompanied or preceded by a sympa-
thetic movement in other manifestations of the nation's
economic life.
" It must be said, however, that the crisis, as it affected
Mexico, was not a sharp and sudden catastrophe, as was
the case in the United States, where in the course of a few
days many powerful institutions of credit were wrecked
and thousands of people were ruined; nor was it a violent
shock of several weeks' duration, as in some of the nations
of Europe. Here it was a transition from prosperity to
liquidation, without panic and without upheavals, and,
after all, it is a source of congratulation that the country
has been enabled to give so signal a proof of the solidity of
its business conditions."
The effect of the monetary pressure upon the banks was
indicated by the decline of their specie holdings from
$69,818,349 on December 31, 1907, to $65,131,636 on Feb-
ruary 29, 1908. The Department of Finance sought to
impress upon them the desirability of strengthening their
stock of cash and of preparing to resist the pressure on
their resources which was obviously impending. The
action taken was thus explained by Minister Dimantour
in his annual report : "*
"The attention of the banks was also drawn to the fact
that some of their funds and the fimds intrusted to them
by others were tied up and unavailable, and that it was to
"•Financial Documents, December, 1908, p. 22.
92
Banking System of Mexico
be expected that a large portion of the deposits would be
withdrawn and that many check accounts would be closed
up. These and similar points were dwelt on in the cir-
cular of February lo, 1908, which pointed out certain
reforms that seemed called for in banking practice, and
even in banking legislation, as well as certain measures
believed by the Department of Finance to be calculated
to improve the situation of the banks; and it was pro-
posed that all these matters should be discussed early in
April at a conference to be attended by representatives of
all the establishments concerned.
"The circular in question was in reality an exposition,
supported by arguments, of the various questions as to
which it was desired to hear the views of persons who,
owing to their special knowledge and their experience,
were in a position to throw light on them ; and the confer-
ence was attended by over forty representatives of bank-
ing institutions, who discussed not only the questions
propounded in the circular but others as well which they
themselves broached."
Some of the banks promptly modified their practices
upon the receipt of the circular from the Minister of
Finance, but others persisted in these practices, pending
the conference or the further restrictions which were im-
posed by the banking law of June 19, 1908. Reviewing
the subject broadly, after the new legislation had taken
effect, in his annual budget statement of December, 1908,
the Minister of Finance declared : "
"There are persons who maintain, with some show of
reason, that it would have been preferable to allow the
"■ Financial Documents, December, 1908, p. 23.
93
National Monetary C ommis s io
n
methods of the banks of issue to remain unchanged until
numerous institutions, amply supplied with capital, had
been founded in the Republic for the purpose of making
loans on terms which are not proper for establishments
responsible for notes payable to bearer on demand; and
the Government has even been reproached by some for
not having sought to stimulate the creation of such
institutions in order to accommodate those borrowers
who, from necessity or habit, desire long-time loans.
Such arguments and charges are, in reality, unjust, for,
in the first place, the general banking law, promulgated
more than eleven years ago, granted to the mortgage
banks and banks of encouragement all the privileges,
inducements, and facilities which might have been ex-
pected to encourage the foundation of those institutions.
In the second place, though the Department of Finance
has earnestly endeavored to contribute toward the object
in question by helping to secure admittance in foreign
markets for the cash bonds and mortgage bonds issued by
such banks and in various other ways, its efforts have
been of little avail on account of the marked preference of
business men and the public generally for investments in
banks of issue and their indifference toward other kinds of
banks, owing to the special advantage which the issue
privilege carries in multiplying the capital wherewith to
operate; and, finally, to have allowed the errors of the
past to subsist until such time as changed public senti-
ment had come to regard the mortgage banks and banks
of encouragement with favor would have been to give time
for the evils complained of to strike deeper root, to the
94
Banking System of Mexico
detriment of sound economic principles which demanded
that a new direction be given to the tendencies of the com-
munity in this respect.
" Furthermore, some of the chief amendments of the
banking law, recently enacted, aimed precisely at divert-
ing some of the capital that seeks investment in banks of
issue to institutions whose specialty is to promote the
development of industrial, agricultural, and other cog-
nate interests. On the one hand, it was undoubtedly
desirable to allow longer time and otherwise to facilitate
the loans made by banks of encouragement and by the
mortgage banks, so as to enable those institutions to
enlarge the scope of their operations, and, on the other
hand, it was essential to confine the banks of issue to
their proper functions, for in no other way could their
complete soundness be assured and in no other way could
they be prevented from absorbing, to the detriment of
other institutions, the entire banking business of the
Republic."
The plan for a new credit organism, hinted at in these
preliminary warnings by Mr. Limantour, was put in
definite form after the first effects of the crisis had been
stayed and it had become apparent that even the banks
of issue had gone too far in making loans which could not
be turned promptly into cash. Among such loans were
many which were based upon the bonds and stock of
irrigation and agricultural development enterprises.
Many of these enterprises were considered by the Gov-
ernment essential to the opening of the great natural
resources of the coimtry and the ultimate development
95
National Monetary Commission
of its mineral wealth. The difficulty was not that they
would not prove ultimately sound, but that they were
not of a nature suitable for the assets of banks having
large liabilities payable on demand. With quick appre-
hension of the scientific solution of this problem, Mr.
Limantour enlisted capital in a new enterprise for loans
for the encouragement of irrigation works and the develop-
ment of agriculture.
The preliminary arrangements having been made with
leading American financiers, an act was passed by the
Federal Congress, approved by President Diaz on June 17,
1908, putting the credit of the Federal Government
behind the issue of securities for carrying on such works.
The Government was authorized to invest a sum not
exceeding $25,000,000 in works having for their object
the utilization of water for agriculture and stock raising,
either by direct government execution of such works or
by assistance to private enterprises by means of subven-
tions or other pecuniary aid. The Executive was au-
thorized to pledge the guaranty of the nation, under such
terms and conditions as he might consider proper, for the
principal and interest of bonds issued by special institu-
tions which might make loans for long terms and at
moderate rates of interest to agricultural, cattle raising,
combustible mineral, and metallurgical enterprises." In
order to give them a broad market, the securities of the
institutions making such loans were to be given sub-
stantially the character of debenture bonds, similar to
those issued in Europe by mortgage bond companies.
« Irrigation Law, Department of Finance, art. s.
96
Banking System of Mexico
The assets upon which they were based, however, were
the various enterprises to which the money was to be
loaned, and their value to the foreign investor depended
upon the guaranty of the Government.
Under this authority a new institution was formed,
known as the " Caja de Pristamos para Obras de Irrigacidn y
F omenta de la Agricultural of which the official English
translation was "Institution for Encouragement of Irri-
gation Works and Development of Agriculture." The
concession under which this institution was formed was
granted on September 3,* 1908, to the National Bank of
Mexico, the Bank of London and Mexico, the Banco
Central, and the Mexican Bank of Commerce and Indus-
try." The initial capital was limited to $10,000,000 and
was divided into three series of shares, one belonging
to the Government, one belonging to the four participat-
ing banks, and one to be sold to the public. These banks
were authorized to offer for subscription at least 50 per
cent of the share capital in shares of the third series.
The new company was authorized to make loans secured
by mortgage or pledge, or upon the guaranty of some bank
holding a federal concession, or of either of the banks to
whom this concession was granted. The company was
authorized to issue bonds, which should be a first lien
upon its assets, in the same manner as bank notes issued
by banks of issue. The Federal Government agreed to
guarantee unconditionally, as to principal and interest,
the obligations which might be issued and to place at the
o The text of the agreement was printed in Spanish and English by the
Ministry of Finance.
8648 — 10 7 97
National Monetary Commission
disposal of the company, whenever required to do so, the
amount needed to complete or to cover in full the amounts
necessary for the punctual service of the bonds or obliga-
tions.'* The new institution was to be managed by a
board of directors, composed of fifteen members, of whom
three were to be elected on behalf of the Government;
five by owners of shares of the second series; and the
remaining seven by owners of the shares of the last
series.
Stripped of technicalities, the project of Mr. Limantour
was to transfer from the loans of the banks of issue into a
permanent investment fund the securities of irrigation and
development companies with which some of the banks were
loaded down. He did not hesitate, in order to protect
the financial situation, to pledge the credit of the Govern-
ment in full for the new securities. The contract made
with the New York and foreign houses which took the
loan provided that the principal and interest of the bonds
should be payable without deduction for any tax which
the institution might be required to pay thereon under
any present or future law of the Republic or any State or
municipality therein. So rapidly did the plans of the
minister mature that a pubHc subscription for $20,000,000
of the new bonds was announced in New York and Frank-
fort on October 24, 1908, to close four days later.
By this resolute intervention in the financial situation
the Minister of Finance succeeded in disposing of securities
for long terms in exchange for liquid foreign capital to
the amount of the issue. He thereby improved the char-
» Article 8.
98
Banking System of Mexico
acter of the assets of the local banks and was able to
announce, in his annual report for 1908, that he had
saved the financial situation and that banking conditions
were greatly reUeved. Summing up the action taken, he
declared : "
"The local banking and monetary situation, since July
I, 1908, in other words, since the period covered by the
analysis thereof aheady given, has improved day by day
to a marked degree, so much so that it may now be
described, without exaggeration, as satisfactory. Dis-
count operations are larger, long-standing debts are in
the way of being paid off, overdrawn accounts have been
covered, and the rate of interest, which is an unfailing
index of the scarcity or abundance of money, has been
reduced by the metropolitan banks to 8 per cent per annum
for commercial transactions, properly so called, and to 9
per cent for other transactions, determining a proportion-
ate reduction in the rates of most of the state banks."
Chapter XVI. — Development of Mexican hanking under
the law of 1897.
The experience of Mexico under the banking law of
1897, although brief in point of time, has followed well-
defined lines. Mr. Limantour, the Minister of Finance,
who is largely responsible for the evolution of the new
system, was able under the conditions existing in Mexico
to carry out plans based upon sound banking principles
with a practically free hand. With the usual clearness
and precision of the Latin mind, he laid down in the report
"■Financial Documents, December, 1908, pp. 23, 32.
99
National Monetary Commission
of 1897 a definite programme, which involved the sepa-
ration of commercial banking from that of mortgage
banks and banks of finance and promotion. Under the
conditions existing in Mexico — a rather limited volume of
settled commercial business, with a great volume of capi-
tal seeking investment in mining and agricultural devel-
opment — the formulation of sound banking principles was
easier than strict adherence to them in practice.
The measure of the difficulty, however, in keeping the
banks of issue from locking up their assets in industrial
enterprises was in a sense the measure of the need for
emphasizing this distinction. From the beginning of
Mr. Limantour's service as Minister of Finance in 1893,
the development of Mexico was rapid. Inevitably, how-
ever, much of the capital required for this development
came from abroad — at first from French, Spanish, and
EngUsh bankers, but later from the United States. This
influx of capital was checked to a considerable degree by
the sharp fall in the value of silver in 1901 and 1902,
which introduced violent fluctuations in foreign exchange
and impaired the value of dividends remitted abroad.
When the losses caused to investors by this condition had
been corrected by the adoption of the gold-exchange
standard, the mass of capital which had been held in check
for several years again poured into the country with the
force of a stream which had broken through a dam. The
amount of this movement, which was readily ascertain-
able, without counting many obscure factors, was com-
puted by the Minister of Finance in 1906 as having reached
for that year alone $86,500,000.
Banking System of Mexico
The reorganization of the banking system by the law of
1897 first made it possible to distribute capital and carry-
on exchange operations with facility throughout the
Republic. Partly by the intended operation of the new
law and partly by the influence of circumstances, a bank-
ing hierarchy was developed with several distinct parts,
each fulfilling a definite function and contributing its share
toward the efficient operation of the whole. At the center
of this hierarchy stood the National Bank of Mexico,
deprived of monopoly of note issue, but still exercising
the functions of a central bank of rediscount and of col-
lector and custodian of the national revenue. By the
side of the National Bank in regulating the foreign ex-
changes stood the Bank of London and Mexico, with a
considerable note issue, but looking chiefly to the export
trade and to exchange operations for the employment of its
large resoiurces. For these two banks the business of the
capital city was largely reserved by the exclusion of other
banks of issue. To the state banks was ascribed the
power of issuing notes each in its own State, which were
not legal tender but were a first lien on the assets of the
bank and were protected by a 50 per cent metallic reserve.
With the purpose of knitting together these various
institutions in a system of mutual helpfulness had arisen
another institution in the capital, the Banco Central,
which sought no special privileges from the State, but
acted at once as clearing agent and support for the state
banks.
The state banks of issue which were the outgrowth of
the law of 1897 were peculiar in a measure to Mexico, but
National Monetary Commission
were brought into relations of cooperation through the
'National Bank of Mexico and the Banco Central. Stand-
ing alone, with their notes circulating only within limited
areas, their position bore some resemblance to that of the
French departmental banks prior to 1848, whose notes
were a legal tender only within the departments where
they were established. The inauguration of a clearing
system through the Banco Central tended to keep the
notes of the state banks at par in somewhat the same
manner as the redemption system of the Suffolk Bank in
the history of New England banking prior to the civil
war. The functions of the Banco Central, however, went
further than the mere machinery of clearings and gave a
support to the local banks which they would otherwise
have lacked.
The significant fact that the circulation and cash
resources of the National Bank of Mexico increased at the
expense of the local banks in the crisis of 1907, indicates
the powerful position which it occupies in the hierarchy
of Mexican banking. Its success in meeting the demand
for credit and currency in the autumn of 1907 and the
spring of 1908 may suggest the consideration whether the
function of a central bank in regulating the exchanges and
the movement of gold can not be successfully performed,
even though it does not control the entire circulation of
paper currency. The essential requirement for control of
the exchanges is control of the supply of capital or cur-
rency on the margin of supply. It is the sufficiency or
deficiency of this supply on the margin which practically
determines the course of the exchanges. This is indi-
Banking System of Mexico
cated by the fact that even the Eturopean banks, including
the- Bank of England, do not usually change their rate
of discount sharply at their branches when they change it
at the financial center in order to influence the movement
of gold.
The existence of competing banks with authority to
issue notes in large amounts would undoubtedly defeat
the efforts of the central bank to regulate the exchanges,
if such authority of issue on the part of the local -banks
were largely availed of. In Mexico several circumstances
have averted this danger. One of these circumstances
has been the direct influence of the Minister of Finance
upon the state banks, in restricting their circulation within
moderate limits and in requiring them to increase their
metallic reserves whenever they increased their circula-
tion. The limitation of the ntmiber of the banks to
practically one for each state has been an incident which
has permitted this exercise of direct influence more easily
than if the number of institutions were large and their
creation was only a matter of complying with the forms
of a general incorporation law. The large ratio of the as-
sets and note issues of the National Bank of Mexico to the
total banking assets of the cotintry has also been a factor
whose influence would probably have been greatly im-
paired if this measure of relative power had been mate-
rially less. Beginning in 1900, after the state banks had
been fairly established, with a ratio of note issues and
assets of about 35 per cent of the issues and assets of all the
banks of issue, the National Bank increased its relative
proportion after the crisis of 1907 to about 40 per cent.
103
National Monetary Commission
This ratio has not since been impaired and the ability of
the National Bank at that time to support credit and to
expand its issues, while those of the state banks were being
restricted, has added materially to the prestige and future
power of the National Bank.
An important factor in this ability of the National
Bank to control exchanges is found also in the prohibition
imposed upon the state banks to issue notes or to estab-
lish redemption agencies in the Federal District, which
includes the City of Mexico and adjacent territory. The
fact that the Banco Central clears notes as well as checks
for the state banks might seem to be an infraction or eva-
sion of these provisions. When it is considered, however,
that such redemptions of the notes of state banks as take
place through the Banco Central come from banks only,
and not from individuals, it is apparent that these con-
ditions do not encourage the circulation of the notes of
the state banks in large ataounts in competition with
those of the National Bank in the Federal District.
The fact, however, that these notes can be cleared at
the Banco Central undoubtedly adds to their accepta-
bility in all parts of the country. The fact that the fed-
eration of state banks through the Banco Central promises
assistance to any of the federated banks in case of diffi-
culty is also a powerful support for the notes of the state
banks, which offsets in some degree the absence of any
provision for specific security outside the custody of the
bank, a common safety fund, or a government guaranty
for the notes. As the notes are a first lien upon the assets,
it is doubtful if any failure which might occur would dis-
104
Banking System of Mexico
close assets insufficient to meet the demands of the note
holders; but, if one such failure should occur,, it would
have a tendency to impair the acceptability of the notes
of the state banks and to cause more careful scrutiny of
notes tendered in every-day transactions than appears
now to be the case.
That the monetary situation should have been kept so
well under control in 1907 and 1908 is apparently to the
credit of the Mexican financial system, in view of the fact
that both the banking system itself and the monetary
system, resting upon exchange funds abroad, were entities
of very recent creation. The fact that the Government
found itself under the necessity of creating a new institu-
tion to take over the obligations of industrial enterprises
which had found their way too largely into the assets of
the commercial banks was only a reflex of conditions in
the United States and elsewhere, where the same service
was performed by private initiative. The new finance
bank, openly supported by the Government, tended to
correct in a large measure the errors of the banks of issue
in allowing inconvertible securities to creep into their
assets and put the capstone upon a banking organization
adapted, as nearly as practicable, upon scientific principles
to the development of a new country.
105
Appendices.
107
Appendix A.
REPORT ON THE BANKING SYSTEM OE MEXICO.
By the Secretary of Finance to the Congress of the Union,
November 15, 1897.
Under the exceptionally difficult and dangerous circum-
stances which beset the Federal Treasury in 1892-93 and
1893-94, the chief object of the efforts of the department
under my charge was necessarily to avert, so far as pos-
sible, the disastrous consequences which the economic
crisis then affecting the Republic threatened to bring
upon the country in general and especially upon the
treasury.
The task was a double one: First, to meet the needs of
the budget by providing additional revenue; second, to
diminish the expenditures of the administration by sup-
pressing those that were not absolutely indispensable and
postponing those that were not of immediate tirgency.
Happily, the results of this policy were not long in mak-
ing themselves felt, and in the fiscal year 1894-95 the
federal budget was placed on a footing of complete
equilibrium.
At the same time it became necessary to imdertake
the task of putting the public debt in order. This work
was particularly urgent, as being the only means whereby
stability could be given to the national credit and without
which the rapid development of the country's wealth
109
National Monetary Commission
would have been delayed indefinitely. The task was a
thorny one, because the continual political upheavals and
the numerous economic vicissitudes which have charac-
terized our history as an independent nation had made
the public debt an administrative tangle which could only
be tmraveled by arduous labor.
Shortly after, the Department of Finance had to face
another grave problem, which had to be given precedence
in order that the other administrative reforms might
afterwards be undertaken with greater probability of suc-
cess. I refer to the absolute freedom of internal com-
merce, to which the authors of our fundamental charter
deservedly gave their foremost attention. In 1895 and
the beginning of 1896 the great fiscal reform of the sup-
pression of tolls on interstate traffic {alcabalas) and of the
offices that collected them was duly studied and pre-
pared, and it was carried out under the most satisfactory
conditions, despite the obstacles that had frustrated pre-
vious attempts and in the face of the profound disturb-
ance which the disappearance' of so ancient and deep-
rooted a system could not fail to produce in all the
branches of national activity.
As soon as these imperative needs had been attended
to and the three main objects of the financial policy of
the Government had been attained, there arose the ne-
cessity of entering without delay on the preparation of
laws' and regulations intended to serve as a complement
and corollary to the suppression of the tolls on interstate
traffic by facilitating the expansion of commerce, agri-
culture, and all branches of industry by a well-planned
Banking System of Mexico
and far-sighted development of institutions of credit.
This was the motive of the memorial presented to Con-
gress by the department under my charge on April 20 of
last year, requesting authority to prepare a general law
on the chartering, establishment, and operation of banks
of issue, mortgage banks, and banking institutions of
other kinds, and to modify the concessions granted to
existing banks in order to make them conform, so far as
possible, to the general law.
Our legislation on the subject of banks and the condi-
tion of our local institutions of credit were indeed in a
state which could no longer be tolerated. The Commer-
cial Code, promulgated on April 20, 1884, contained a
number of provisions on this subject which for the most
part were destined to remain a dead letter, especially as
regards banks of issue, because the temporary articles of
said code, conformably to article 8 of the charter issued
a few days later in favor of the National Bank of Mexico,
established a state of legislation under which the creation
of new banks and even the maintenance of those then in
operation was impossible.
The anomalous condition arising from the fact that pro-
visions of a general character affecting outsiders, which are
properly a matter of common law, had been embodied in a
charter which, even though sanctioned by Congress, still
retains the character of a contract entered into between
two parties; the fact that, despite the stipulations of said
contract, and the protests founded on that contract
which were made by the National Bank, charters were
granted for the establishment of banks of issue in various
National Monetary Commission
places in the Republic; lastly, the suppression, in the new
Commercial Code of 1889, of the provisions which the
earlier code contained on the subject of banks — all these
circumstances created a state of affairs replete with diffi-
culties, which compelled the Government to adopt a defi-
nite attitude, based on a system which, while respecting all
legitimate rights, should at the same time be adapted to the
needs of the country.
As a preliminary problem in the studies and negotiations
that were to be undertaken, it was necessary to ascertain
and decide whether the general interests of the country
required that the issue of bank notes be concentrated in
a single establishment, or whether, on the contrary, the law
should favor the multiplication of institutions enjoying
that privilege.
This is not the place to rehearse the time-honored dis-
cussion on the merits of the two opposite systems, that of
monopoly and that of liberty of banking; but it will cer-
tainly not be superfluous to set forth here some considera-
tions in favor of the system: to which the preference was
given in the memorial of April 20 of last year, and which
was later on embodied in the General Law on Institutions
of Credit, adopted in response to that memorial.
The system of monopoly was at once condemned by the
constitutional provision which had, in fact, been vehe-
mently urged against the charter granted to the National
Bank of Mexico, although that grant did not properly or
legally create any exclusive privilege of issuing bank notes.
Thus a radical solution of the difficulty, by attempting a
reform of the constitution, in the direction of monopoly,
Banking' System of Mexico
would have been dangerous on various accounts, because
the idea would not have received the support of public
opinion and would furthermore have wrought injury to the
interests already created in virtue of subsequent grants;
above all, because a monopoly can not be conceived with-
out a close connection between the institution which enjoys
it and the government which grants it; and the disastrous
consequences should not be obscured which might arise in
our country from any intimate connection, no matter how
well planned, which might be estabUshed between the
interests of an institution of credit and the policy of the
Government, never exempt from hazards and vicissitudes.
Aside from these somewhat theoretical considerations, if
we examine the subject from the standpoint of the devel-
opment of pubUc wealth, is it likely that the privilege
granted to a single bank of issuing notes for the entire
Republic would yield the best results? The examples of
monopoly which might be cited in support of an affirmative
reply are confined to nations of small territory, with
climates and natural resources of no great variety, and
whose population, generally dense, shows great homo-
geneity; or to countries with strong centralizing tenden-
cies, for the'most part absolute monarchies, a system which
readily and natvu-ally admits of the union of the two
supreme powers — the civil power and the power which
regulates credit.
In the Republic of Mexico, with its vast territory, its
sparse population, its imperfect means of communication,
and its immense variety of products, each locality has, as
it were, local interests, the development of which, so far as
8648 — 10 8 113
National Monetary C ommiss to
n
the use of credit is concerned, can not be confided to a
syagle banking institution, which, no matter how many
branches and dependencies it may estabUsh, could never
supply the needs nor remedy the ills of each part of the
national territory.
And it is not unreasonable to declare that branches of a
central bank are incapable of exercising satisfactorily, in
every corner of the country, the beneficent influence of
estabUshments of this kind, because a branch bank can
have neither the initiative nor the authority to provide
for the exigencies of every economic situation; and, on
the other hand, the general and permanent regulations to
which every administration must be subject, especially
one so complicated as that of a central bank, lack that
flexibility which is necessary to meet the inntunerable
and unforeseen emergencies arising from interests so diver-
gent as those of the various localities of the Republic.
From this point of view the creation of local banks
evidently presents undeniable advantages. Managed by
persons whose interests are centered in the same locality,
who are acquainted with the people and the affairs of the
community, and who are so situated as to be able to give
personal attention to the business and to understand the
pecuhar needs of a given district, its resources, and their
chances of development, such banks will imdoubtedly be
better able to reahze the objects of the credit circulation
confided to banking establishments.
Furthermore, the adoption of the system of a plurality
of banks will in the course of time permit the development
of speciaUzation, the sphere of action of local banks being
114
Banking System of Mexico
marked off from that of the great banks located in the
Federal District with their ramifications in the States.
There can be no doubt that, through the very nature of
both kinds of institutions, the general banks, which oper-
ate at many points in the Republic with large capital and
extensive connections, will develop into banks of redis-
count and, by that very fact, become true protectors of
the local banks, with which they neither should nor can
come into conflict, because they complement each other
and constitute distinct organs of a homogeneous and well-
balanced system.
In order to form an accurate judgment of all the aspects
of the problem, it was necessary, on the other hand, to
examine carefully the consequences that might arise from
liberty of banking, in order not to run the risk of incon-
veniences as grave of even graver, though of different
nature, than those that would have ensued from the sys-
tem sanctioned by the charter of the National Bank of
Mexico.
To permit banks of issue to organize anywhere within
the Republic without any restriction whatever would be
advised by no one; but to present a general law regulating
the power of issuing notes, requiring the necessary guar-
anties for them, and providing for the supervision to
which such establishments should submit, authorizing
them in return to begin their operations without pre-
vious permit from the public authorities, seemed to be a
solution worthy of consideration, in view of the fact that
other countries, especially one of our neighbors, had fol-
lowed that path to their advantage.
"5
National Monetary Commission
On comparing the political and economic conditions of
the nations whose legislation does not require banks to
apply for a concession to issue notes, it appears at once
that their citizens are familiar with the practice of indi-
vidual hberty and by that very fact know how to guard
against the grave consequences that might arise from the
abuse, and sometimes even from the normal exercise, of
that liberty. The degree of culture which the masses
have attained, and their experience in business, constitute
the most effective counterweight possible to the reckless
or even tortuous and mischievous tendencies of an ill-
administered establishment. Finally, the well-understood
interest of the banks themselves prompts them to enter
into close relations of mutual' support, whereby they are
almost always shielded against economic crises and ad-
verse incidents.
Can it reasonably be maintained that Mexico is in this
condition? The very recent introduction of banks prop-
erly so called; the lack of experience in the use of credit;
the distrust still prevailing, especially in districts outside
the great centers of population, of instruments of credit ;
and the pronounced spirit of imitation, which would
assuredly lead to a multiplication of banks out of all pro-
portion to the needs of the coimtry, are some of the reasons
that speak in favor of certain restrictions, until the coun-
try shall have become accustomed to those ideas and prac-
tices without which absolute liberty of banking involves
extreme danger.
If to these considerations we add the fear of a powerful
reaction against bank notes in case of the failure of any
ii6
Banking System of Mexico
establishment, no matter of how Httle importance, there
will be no disagreement with the conclusion that the Gov-
ernment has acted wisely in deciding that the number of
local banks to be established must not exceed certain
limits.
In following this plan, the new law will no doubt give
birth, at least in the early years of its operation, to a sort
of banking oligarchy, causing the distribution of institu-
tions of credit at all convenient points throughout the
Republic, while their number, nevertheless, will not be
so sniall as to give color to the statement that the issuing
power constitutes a privilege in favor of a few. In any
case, in a matter so delicate as that of credit, it is inore
prudent that the nation shall be in a position later on to
extend the scope of its legislation, in order to favor the
multiplication of banks on a larger scale, than to be driven
by the evil results of a first effort to the restriction of
their number and powers.
Such, in concrete form, and independent of other con-
siderations arising from the nature of the federal power,
are the principal reasons which led the Government ta
decide that the authorization to establish institutions of
credit should only be granted on special application and
also to adopt the plan relating to the so-called first banks
in the States.
The fundamental problem having been stated and solved
in a manner opposed to monopoly, the only honorable
policy that the Government could follow was to enter
into negotiations with the National Bank, with a view to
modifying its charter in such terms as would remove all
117
National Monetary Commission
doubt concerning the legality of the charters of local
banks already established, and would at the same time
permit new charters to be granted, without embarrassing
the Government or arousing the fears of the grantees.
The text of the charter of May 24, 1884, the text of the
provisions relating to the Commercial Code in force on
that date, the reasons brought forward in the form of a
protest by the National Bank, and, above all, the grave
inconvenience of leaving the local banks exposed to the
consequences which might hereafter result from an
antagonism of law and of practice between those estab-
lishments and the most powerful bank of the Republic,
were abtmdantly sufficient reasons why the situation
arising from the granting of powers objected to by that
bank should be definitively legaUzed and placed beyond
the reach of future conflicts arising from this cause.
Long and elaborate were the negotiations carried on for
this purpose with the National Bank in the midst of the
terrible crisis through which the country was then passing,
but the obstacles which tended to frustrate a definitive
arrangement were smoothed over, thanks to the attitude
of the National Bank, which, it is only just to acknowl-
edge, has always shown a disposition to follow the sugges-
tions of the Executive in behalf of the pubhc interest;
thanks also to other circumstances, favorable to the
Government; so that in the early months of 1896 a settle-
ment was arrived at, covering all the points that had been
under discussion and which were directly or indirectly
connected with the main subject. This settlement took
the shape of several agreements, which were signed, in
118
Banking System of Mexico
accordance with authority granted by Congress to the
Executive, and by the general assembly of stockholders
of the National Bank to its administrative council.
In virtue of said agreements, the National Bank made
the following concessions:
1. It declared its willingness to relinquish the rights
granted in its charter relative to the creation of other
banks, and it announced its unreserved assent to the
principles of the law of June 3, 1896, which authorizes the
establishment of banks of issue in the States and Terri-
tories of the RepubUc.
2. It agreed that the maximum of the standing credit
of the Government in current account which the bank
is obliged to maintain in favor of the General Treasury
of the Republic shall hereafter be 4,000,000 pesos, instead
of 2,000,000, which was the limit fixed by earlier agree-
ments.
3. It also agreed that the service of collection and
distribution of government funds, which it has to perform
in accordance with its charter, shall continue to be per-
formed for the coming ten years at a commission of i^
per cent, instead of the 2 per cent which it had been receiv-
ing, this commission including not only all expenses but
also the risks of said operations.
4. It agreed that the commission of 2 per cent which
the Government, in accordance with contract, was paying
it for the service of the consolidated debt, should be
reduced to i per cent.
5. It assumed the obligation to open a credit, not to
exceed 500,000 pesos, in current account, in favor of the
119
National Monetary Commission
National Loan Office (Monte de Piedad), without special
guaranty and with interest of only 3 per cent per annum.
In rettim for these concessions, the National Bank
obtained two advantages : An addition of fifteen years to
the term of its charter, and a guaranty that during ten
years the National Loan Office should not avail itself of
nor grant to third parties the authority which it received
from the Government to put in circulation certificates of
deposit or notes payable at sight and to bearer.
The mere enumeration of the points covered by said
agreements suffices to demonstrate the benefits which were
obtained by the two contracting parties.
The Government secured from the bank the recognition
of the legality of the system which it desired to establish,
leaving free from obstacles the creation of new banks and
the unhampered progress of those already in operation,
without other limitation than (as regards the Federal
District) the stipulation that paragraph A of article 8 of
the original charter of the National Bank should continue
in force.
The other advantages, although of a different nature,
are none the less of pectuiiary importance to the Govern-
ment. On the one hand, they mean a saving of expenses
which, expressed in figures, represents some tens of thou-
sands of pesos (over 50,000) ; and, on the other hand, they
mean a broadening of credit, which, while not needed
under present conditions, will be of unquestionable utility
in time of financial trouble. Indeed, without any such
compulsory enlargement of credit, the balance which the
current account showed in favor of the Government from
Banking System of Mexico
1892 to 1895 almost always exceeded, and greatly exceeded,
the agreed limit of 2,000,000 pesos. Hence it might be
inferred that the obligation recently assumed by the
National Bank, to make advances to the Government till
the balance reaches the sum of 4,000,000 pesos, is not as
important as might at first sight be apparent; but con-
sidering the diverse circumstances in which the Govern-
ment might be placed, and, above all, the fact that the
precedent created in no wise bound the National Bank for
the future, and that its consent might have to be obtained
through special agreements, in which diverse guaranties,
a high rate of interest, and other onerous conditions might
be stipulated, the importance becomes clear of the con-
cession thus obtained.
After the painful experience with the privilege granted
by the Government to the National Loan Office, to issue
notes payable at sight and to bearer, it would not have
been prudent to revive the authorization of which such
unfortunate use had been made; and it is thought that
the Government has adopted the most prudent course in
leaving things as they are for some time and advising the
National Loan Office to shape its action in accordance
with the important advantage accruing to it from the
fact that the National Bank offers to it an advance under
exceptionally favorable conditions, requiring in exchange
that the loan office shall for ten years postpone the
exercise of a privilege the legitimacy of which the bank
has constantly denied.
The negotiations carried on with the National Bank
were approaching their termination, when the represent-
atives of the Bank of London and Mexico (the only bank
National Monetary Commission
which shares with the National Bank the right to issue
notes payable at sight and to bearer in the Federal Dis-
trict) approached this department with a request for
modifications in their charter. It was proposed in con-
nection therewith to widen the scope of that institution
and to impart to it greater stability, enabling it to offer
to the public ampler facilities and more advantageous
conditions.
The Government was in full sympathy with the plan to
strengthen an establishment which till then had been of
comparatively modest dimensions, and which on every
ground deserved to be utilized as an element of equilibrium
in the powerful influence destined to be exercised on the
market by the great banks of issue ramified throughout the
Republic. This was the motive which led the Govern-
ment to grant to the Bank of London and Mexico an ex-
tension of the time of its charter, which was the surest
means to attract all the capital that it needed. The
result justified this forecast, and the Bank of London and
Mexico, whose legal duration was so extended by the
Executive as to make its charter terminate at about the
same time as that of the National Bank, was enabled,
without any difficulty, to raise its capital to 10,000,000
pesos, fully subscribed and paid.
On the same day on which the law of Congress was pro-
mulgated, authorizing the Executive to prepare the
general law on institutions of credit, a commission of ex-
perts was appointed to study the project. This commis-
sion, consisted of the managers of the three great banks
established in the capital — the National Bank of Mexico,
B an k in g^ System of Mexico
the Bank of London and Mexico, and the International
and Mortgage Bank, to wit, Messrs. Carlos de Varona,
H. C. Waters, and Joaquin de Trueba; one of the best
Teputed bankers, Mr. Hugo Scherer; and three lawyers
of recognized competency in economic and financial
studies — Messrs. Joaquin D. Casaslis, Jos^ Maria Gamboa,
and Miguel S- Macedo, licentiates. It was presided over
by Mr. Joaquin D. Casaslis, licentiate, who organized the
"work, presided over the numerous meetings held by the
commission, and was the author of the luminous and
interesting report which the commission adopted and
presented on November 30th last, with the bill formulated
as a result of its deliberations.
These labors were of great assistance to the present
writer in the preparation of the law brought in by the
^Executive and promulgated under date of March 19 last.
I take pleasure in stating this as a new mark of gratitude
to these gentlemen for their intelligent and disinterested
collaboration in the examination of one of the most
important problems of our economic and financial system.
The argumentative part of the project just referred to
presents with remarkable clearness the principal questions
which occasioned the most discussion and most prolonged
consideration, while at the same time it permits the
proportions of this report to be restricted to setting forth
the reasons which led the present writer to differ from the
opinion of the commission on some fiuidamental points
or which may render it desirable to give additional sup-
port to that opinion, when it relates to doubtful subjects
or much-debated questions.
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National Monetary Commission
By the decree of June 3, 1896, the Executive was
authorized to prepare a general law regulating the fran-
chises, establishment and operations of banks of issue in
the States of the Republic and in the federal territories,
and also to include in the same law, or to formulate in a
special law, the provisions which are to regulate other
institutions of credit. It was accordingly found neces-
sary to determine, in the draft of the new law, the class of
establishments whose functions were to be regulated, as
well as the classes of credit operations which were to be
the object of the same law.
There were weighty reasons for making the law apply
to all institutions whose essential aim is to seek the most
useful employment for their own capital and that of
others by carrying on operations based on the issue of
instruments of credit, which, being intended to circulate
readily among the public, create- rights in favor of third
parties who have made no direct or personal contract
with the" said institutions. With this view it was at one
time proposed to at least enumerate the diverse kinds of
banks for the creation of which the previous and formal
authorization by the Government was, for the above
'reasons, deemed indispensable.
This idea was, however, abandoned, first of all, because
the work would have been didactic rather than legisla-
tive in character; second, because in the case of many
kinds of banks, any regulations, or even the mere enu-
meration of such multiplied classes of establishments,
would for many years have remained a dead letter, in
view of the fact that neither the circumstances of the
124
Banking System of Mexico
country nor the practices or customs of the inhabitants in
general, require the legislator to busy himself with fixing
rules for operations of credit practiced only on a very
small scale, or perhaps even at one or two places abroad.
There was another potent reason for abandoning the
idea of enacting a law to embrace all the points just men-
tioned, namely, the time which would have been required
to examine it and to formulate it ill appropriate terms.
Inasmuch as all authorizations for the creation of banks
had been suspended since 1892, it was not wise to postpone
the law intended to facilitate the development of commer-
cial, agricultural and industrial credit until a code could be
adopted containing in condensed form all the legislation
on the subject of banks, because, as above set forth, it
would be a work of long duration.
For these reasons, the law of March 19 does not define
institutions of credit in general nor designate those which
are to be subject to the requirement of making preliminary
application to the government for a charter. The law con-
fines itself to the declaration that, for its purposes, only the
following are considered as institutions of credit, namely:
Banks of issue, mortgage banks, and credit banks (bancos
refaccionarios) ; that is, the provisions of the law are appli-
cable only to the three classes of banks enumerated, leav-
ing untouched the principles and rules which govern the
establishment, the mode of existence, and the operations
of the other classes of institutions not comprised within
said law.
In omitting to deal with the loan-pledge banks, savings
banks, and storage and warehouse institutions, treated by
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the commission in its draft of a bill, the guiding motive
was the convenience of dealing separately with operations-
sharply distinguished in their nature from those usually
carried on by the three classes of banks just mentioned.
As time goes on, profiting by the experience acquired, it is
proposed, at the most favorable opportunity, to complete
the work begun, by enacting the special laws required for
the regulation of the institutions of credit not included in
the law of March 19, which will in the meantime continue
to be governed by article 640 of the Commercial Code.
The programme of the Executive having thus been
reduced to the three classes of banks mentioned, it became
essential, first of all, to define as briefly and precisely as
possible the dominant and distinctive features of each, and
next to proceed to the systematic arrangement of the law.
At the same time, the object of articles 3, 4, and 5 was
not to give a precise definition of what is to be understood
by banks of issue, mortgage banks, and credit banks. The
sole object of these articles was to define, at the very start,
each class of said institutions, and to facilitate the exami-
nation and consideration of all the pertinent provisions by
taking as point of departure the definitions laid down by
the law.
In the order of the governing principles a system was
followed which differs somewhat from that of the commis-
sion. In the bill submitted by the commission, the provis-
ions applicable to all the banks form the first chapter,
without distinction of any sort, while in the law those pro-
visions which are so to speak preliminary, referring to the
granting of charters or to the constitution of companies
126
Banking' System of Mexico
that are to operate under these charters, are separated from
the other provisions. By this method, instead of combin-
ing, as was done in the bill, certain regulations with others
which have no visible connection with them, and which are
rather related to those contained in the following chapters,
the first chapter contains only the conditions which have to
be fulfilled in order to obtain the grant of the charter and
to organize the joint-stock companies to which the charter
is to be granted; and then, after the provisions peculiar
to each kind of banks, there have been inserted the provi-
sions common to all, some referring to their mode of opera-
tion, others to the exemptions and privileges that go with
the charters.
Great care has been taken to require in the creation of
banks those conditions that are deemed most essential and
effective, in order that these enterprises may be undertaken
only with adequate resources, and that the institutions
may be organized with that stability, strength, and pres-
tige which may assure to them a long and prosperous
existence.
Such is the aim of the provisions relating to a large
deposit of Mexican government bonds, as a guaranty that
the bank will be established within four months from the
date of the charter; of those which stipulate that only
joint-stock companies, and not private individuals, can
operate banks, and that, when the grantees are private
individuals, they shall never be more than three in num-
ber, nor shall they be holders of the grant for any longer
time than is necessary to organize the joint-stock company
to which the charter is to be granted; of those which forbid
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National Monetary Commission
that in one and the same establishment authorizations and
prerogatives be combined which by their nature ought to
belong to institutions of different character; and, finally, of
those relating to the organization of the joint-stock com-
panies which are to operate under the charters, these pro-
visions being in some points more severe in their condi-
tions and restrictions than those of the Commercial Code,
for the better protection of the interests of the public.
Article 1 2 of the law contains two important provisions
dictated by the same thought and which require special
explanation.
The dttration of the charters, according to said article,
shall not exceed thirty years for banks of issue and fifty
years for the others, said period beginning with the date of
the law. The nature of the operations and of the credit
instruments to be issued in accordance therewith justifies
sufficiently the difference established by the law between
the diuration of the two classes of establishments; but the
principal innovation consists in this, that the period of the
charter begins not with the date on which it is issued, but
with the date of the law, a circumstance which affords
opportunity to future governments to introduce into the
system and into banking legislation all the modifications
that may be deemed requisite, without being restrained by
the stipulations contained in existing charters. The bank-
ing history of many countries presents examples of the
innumerable difficulties in which governments have been
involved through banking privileges already granted,
when they tried to make any change in legislation or in the
existing order of things; and thus, when introducing, for
128
Banking System of Mexico
the first time in our country, a law on a matter in which
we have had so Uttle experience, it seemed advisable to fix
a period at the end of which all charters should terminate
on the same date, thus leaving the action of the Govern-
ment free and unembarrassed, to the end that, with all
franchises terminating simultaneously, it might follow the
line of action counseled by experience or circumstances.
Directed to the same end is the second provision of arti-
cle 12, according to which the charters granted under the
new law are nothing more than a mere authorization to
establish and operate the institution of credit in question,
the grantees being bound by the laws actually in force on
the subject.
It might seem at first sight that this provision makes the
preceding one superfluous, and that when it has been once
decreed that whatever laws may hereafter be in force on
the subject of banks shall apply to existing ones, the pro-
vision in regard to the uniform date at which the charters
terminate becomes useless, in view of the fact that this
date has been fixed in order to afford to the Government at
a given moment .complete liberty of action, the fact being
that, in virtue of the provision in question, it enjoys such
liberty of action. But it is not in this way that the
second part of Article 12 is to be understood.
The authorization to establish and operate a bank has
to be given under well-defined conditions, relating to the
nature of the establishment, the organization of the
proper joint-stock company, and the privileges and dura-
tion of the franchise, all of which elements go to form an
integral part of the contract between the Government
8648 — 10 9 129
National Monetary Commission
and the bank, and which a new law can not alter without
attacking, in its fundamental bases, the very existence of
the company which operates tmder the franchise. These
are rights and obligations which a new law can not alter
without the consent of the interested parties, and these
are precisely the rights and obligations whose extinction,
through the lapse of a fixed period, it was necessary to
provide for, in order not to create difficulties for future
generations which might be insuperable, in case a radical
change in the banking system should be deemed desirable.
In whatever relates to the existence of the grai^t, the
fundamental bases of the company holding it, and the
inducements in the form of exemptions or reduction of
taxes offered by the law, the banks need have no fear
that a subsequent law may create a condition less advan-
tageous for them, because that would be equivalent to
robbing them of a right which was fully vested. But the
same is not true of the provisions of a general character,
which are not the object of any stipulation in the charter
nor in the contract of the company, and which rather
form a part of the legislation which establishes and regu-
lates the rights and obHgations of the bank toward thcL
public or toward the Government in its character as the
representative of social interests; because this legislation,
like all other laws, can not remain immutable and should
not contain restrictions which might prevent the Govern-
ment from changing it at such time and in such manner
as it may deem requisite for the general well-being.
The series of special titles of the new law opens with
the one which deals with banks of issue; and indeed this
130
Banking System of Mexico
precedence in the order of exposition is properly given to
the provisions which regulate the operations of those
institutions of credit that are of greatest importance,
both by reason of the part which they play in modern
society and by reason of their great number and the
amount of capital which they employ.
This would be a proper place for the considerations set
forth in the beginning of the present report, in order to
make clear the motives which led to the adoption of the
system established by the decree of June 3, 1896, and
developed in the recent law on institutions of credit; but
as this was done elsewhere, I will merely say in this place,
by way of summary and record, that under the new
banking legislation there will be (i) two great banks of
issue in the Federal District, with authority to create
branches throughout the country, and (2) a number of
banks in the States and Territories, with special privileges
for the first bank established in any one of them, and
with authority to establish branches (under fixed condi-
tions) in any part of the Republic, except for the exchange
of notes in the Federal District.
Sufficient explanation and basis had already been given,
in my opinion, for the attitude taken by the Government
in this matter, as set forth in articles 15, 38, 128, and 129
of the law, an attitude which is further justified by the
necessity of guarding against the grave consequences that
might arise from the abrupt transition from a restrictive
system (like that of the past) to one of absolute liberty for
banks of issue.
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National Monetary Commission
The authority to issue instruments of credit payable at
par, at sight, and to bearer, constitutes the most potent
lever used in the present century to mobiUze capital and
put it in the hands of those who are able to most advan-
tageously utilize it; but it is at the same time the most
delicate instrument possessed by institutions of credit for
multiplying their operations, and therefore requires a set of
effective guaranties to insure the immediate and punctual
reimbursement of the notes to those who accept them in
full confidence in the fidelity and the solvency of the bank.
It is not an easy task to choose the right course in devising
this set of guarantees, and this very difficulty has led gov-
ernments and publicists to pursue a variety of methods in
striving to reach the same goal. As regards governments,
history teaches that some considerations of another order,
nearly always related to the needs of the Treasiu-y, have
had their influence and have at times been superimposed
on those properly belonging to the subject; but, fortu-
nately, in Mexico these extraneous considerations have
had no "vipeight in the preparation of the law which has been
presented to the chambers except that this law has been
inspired exclusively by the desire to reconcile the greatest
liberty and the greatest facility of operation by the banks
with the soUd assurance of the interests of the public.
As undeniable evidence of the motives of the Govern-
ment may be indicated the numerous exemptions and re-
ductions of taxes; the privileges in favor of the banks,
which constitute exceptions in civil and commercial legis-
lation; and, lastly, the absolute independence granted to
said establishments with regard to the Government, Which
132
Banking' System of Mexico
has, either in their administration or in their operations,
no right of intervention properly so called, but is limited,
in the function of its representatives, merely to the duty
of supervision.
So strong was the desire to guard the banks against all
outside influences, and especially against political influ-
ence, that, notwithstanding the precedents created by
earlier charters, requiring that the circulation be guaran-
teed in part by a deposit of government bonds, it was
deemed inadvisable to retain this requirement and to pro-
vide for a deposit, more or less substantial in amount, of
evidences of the public debt as guaranty for the redemp-
tion of the notes. What would be the influence of such a
deposit upon the credit of a bank in case that, in conse-
quence of the vicissitudes of foreign or domestic politics,
the securities of the state should precipitately decline?
Would not rather the intensity of the evil be enhanced by
the decline in the value of the guaranty at the very mo-
ment when business was paralyzed by the general crisis,
cash was hoarded, and payments were delayed?
It is hoped that no reproach will be cast on the Govern-
ment for having abstained from making such use of the
government bonds, since it is preferable, for the reasons
set forth, not to associate the credit of the banks in any
manner with that of the Government, but to leave these
establishments in condition to face periods of difficulty
with their own resources, free from any extraneous
influence and from any pecuniary connection with the
Government.
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National Monetary Commission
From this line of reasoning have arisen also the limitations
which the law imposes on banks, both as regards the right
to put notes in circulation and that of carrying on certain
operations more or less connected with that of issuing
notes. In these restrictions are found the guaranties in
behalf of the public, which, though not absolutely beyond
evasion (for what restrictions are so ?) , nevertheless con-
stitute a solid ground for inspiring confidence. I will
briefly discuss the two points to which I refer.
In the first place, there has been a departure from the
precedents created by most of the earlier charters as
regards the proportion between the amount of notes in
circulation and the cash on hand, either in coin or in bars of
precious metals.
It has been the rule to allow the credit circulation to
attain three times the amount of the metallic reserve,
while the law just referred to allows it to attain only
double the amount, and furthermore introduces a new
feature, providing that to the amount of the notes issued
there shall be added the amount of deposits payable at
sight or at most within three days, and that the resulting
sum be used as the basis for computing the maximum
limit of the note circulation.
The reason for this new feature is obvious. In any
banking system the first care must be to establish a strict
relation between the nature and period of the instruments
of credit issued by the bank, on the one hand, and the
obligations to the bank on the other. This rule can not
be disregarded without giving rise to a danger more or
less serious, according to the type of bank, but far more
134
Banking System of Mexico
serious in the case of banks of issue, where there is no ade-
quate measure of the amount of the obligations imme-
diately payable in favor of the bank against the amount
of obligations the payment of which may be demanded of
the bank at a given moment.
On this account it would be a grave error to think that
the only serious danger for banks of issue may arise from
the possibility of a simultaneous presentation for payment
of the larger part or all of its notes, since there exists an-
other danger of equal, sometimes even greater, magnitude
in the demand for payment of demand or short-time
deposits.
The special mission of banks is to serve as interme-
diaries between persons or firms having availble capital
and those who need funds to apply to production.
Strictly speaking, we might conceive of a bank without
capital of its own. If, in fact, the law requires that it shall
have capital, and that the amount thereof shall be com-
mensurate with the amount of paper issued, this is solely
for the greater security of the public; but even this pro-
vision does not alter the fact that the greater part of the
movement due to banking operations is carried on with
outside capital, subsequently deposited in the establish-
ment, some of it to obtain a return, the remainder for
safety.
The last-mentioned depositors constitute the class that
has most frequent recourse to banks. They make deposits
which at the pleasure of the depositor are payable either
through the medium of checks or on the mere presenta-
tion of the bank book. Thus, from the point of view of
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National Monetary Commission
immediate reimbursement, these deposits are upon an equal
plane with bank notes, being likely, in fact, under certain
conditions, to constitute a greater danger than the notes,
because they represent, as a rule, larger amounts and thus
are capable of exhausting more rapidly the metallic reserve
of the bank.
Hence it was natural, in fixing the conditions regulating
the issues of banks, to assimilate to each other the notes
and the deposits payable at sight or on short time. This
presented the most effective means of avoiding the abuses
and dangers of the note issue, since its limits are deter-
mined by double the amount of the cash reserve in con-
nection with the total amount of obligations payable on
demand.
This provision of the new law may seem too restrictive,
but in presence of the doubt which everyone feels regard-
ing the manner in which the right to issue notes will be
used in our coimtry, it is preferable to sin by an excess of
caution (seeing that there will always be time to enlarge
the scope of the right in question) , and not to expose the
bank note, which has with such difficulty begun to pene-
trate among the mass of our population, to a disaster
which would throw us back a long way on the road that
has led other nations to prosperity.
Moreover, the rigor of the provision is greatly modified
by the exception set forth in the law, according to which
in computing the maximum limit of issue, no account is
to be taken of interest-bearing deposits in current account,
an exception grounded not so much on the nature of the
deposit (since it is in the main just as capable of presen-
136
Banking System of Mexico
tation for redemption as those which bear no interest) as
on the necessity of inducing banks to remunerate the capi-
tal which the public brings to them, and on the desira-
bility of facilitating the creation of current accounts, so
beneficial for commerce and for all the branches of national
production.
Furthermore, the aim has been to give every possible
security to the bank note by the provisions relating to
the preference which it is to enjoy over other obligations
of the bank; those which give the right of summary suit
to the holder of a note against ' an establishment which
issued the note and refuses to pay it; those which prohibit
these establishments from carrying on ordinary banking
operations involving a period of more than six months
and from discounting commercial paper not indorsed by
two firms of known solvency or secured by some collateral ;
and, lastly, those provisions which aim to prevent the im-
mobilization of capital in loans of long terms and difficult
repayment. •*
It is proper to explain one of the provisions of a pre-
cautionary character just alluded to, namely, the prohi-
bition to make mortgage loans, a provision to which the
law makes two exceptions, one of which, at least, might
be considered as contrary to the principle laid down and
at the same time a possible cause of disorder.
The legislation of many countries expressly sanctions
the right of banks of issue to accept mortgage security
from their debtors when there is a decline in the credit
of some of the indorsers of, the obligations which the
bank holds in its assets, but very few countries grant to
137
National Monetary Commission
said banks the right to make mortgage loans, and it may-
even be said that the nations which authorize such op-
erations are in a situation very different from ours and
have established certain restrictions which diminish, if
they do not completely remove, the inconveniences of a
system which, in the light of the strict principles of eco-
nomic science, can not but meet with disapproval.
If the Executive has decided to follow the latter
method — that is to say, to allow the banks in certain
caseSj on previous authorization by the Minister of
Finance, to make mortgage loans — it was only after a
mature examination of the conditions of the country, and
especially of the practices and views prevailing among
those in Mexico engaged in the business of making loans.
It might justly be objected that the main object of
banks of issue should be the development of commercial
interests, properly so called, and incidentally of agricul-
tural and industrial wealth — an argument which becomes
all the stronger in view of the fact that the immemorial
practice of mortgage investment does not and did not
exist except for the purpose of making loans to persons
who are not properly merchants.
It is indisputable, nevertheless, that the mai .tenance
in all its rigor of the scientific principle of not confound-
ing the operations peculiar to banks of issue with those
that belong exclusively to mortgage banks (a principle
which the new law recognizes implicitly in its first articles
when it prohibits both the establishment of two different
institutions of credit under the same charter and the issue
by the same bank of different kinds of instruments of
138
Banking System of Mexico
credit which by their nature correspond to institutions of
different kinds) would be equivalent to depriving agricul-
turists and manufacturers of the immediate facilities
which institutions of credit are able to afford them for
the proper development of their lands and factories.
It is true that for this purpose the very law on institu-
tions of credit authorizes the creation of mortgage banks
and of credit banks (bancos refaccionarios), which are
intended to serve in a more direct manner the interests
of agriculturists and manufacturers; but we should not
delude ourselves with the belief that these institutions
will multiply rapidly, because such will not be the case
until the spirit of enterprise is suflfijciently developed
among us and the working of these banks and the bene-
fits to be derived from them become practically known.
Banks of issue are better known among us, and it is
almost certain that under the new law they will multiply
in the country rapidly enough until they attain the num-
ber and size corresponding to the genuine social needs
which they are intended to satisfy. Thus it may natu-
rally be expected that the good effect produced by these
establishments will promptly become known among many
classes of the community, and hence it has been deemed
wise to give legality to mortgage loans, stipulating, how-
ever, that the total amount of mortgages in favor of the
bank shall not exceed the fourth part of the capital actu-
ally paid up; that the mortgage shall become due within
not more than two years; and that, finally, the express
authorization of the Minister of Finance shall be sought,
who will take car not to grant it except in terms that shall
139
National Monetary Commission
well define its supplementary and transitional character.
In this way the bank will not be deprived of its true
character by diverting an important part of its capital
from the operations peculiar to banks of issue; the capital
invested in mortgage operations will not be long immob-
ilized; and, finally, this exceptional departure from one
of the fundamental principles of banking science will sig-
nify no more than the adoption of a means to supply an
important public need temporarily, and only while this
need is not supplied by other establishments more adapted
to the purpose. There can be no doubt that the authori-
zation here spoken of will cease to be granted and will
disappear from our legislation as soon as the mortgage
and credit banks shall be organized and multiply.
With the creation of banks which, besides conducting
all kinds of banking operations properly so called, shall
issue notes payable at sight and to bearer, the needs of
commerce will be satisfied so far as relates to the mobiliza-
tion of capital and short-time loans; but it has already
been pointed out that this kind of establishment can not
render the same degree of service to agriculture and
industry, which, while occasionally asking for temporary
aid, require for the most part loans on long term and
made under conditions more stable and less onerous as
regards payment.
The merchant buys and sells in a short time, and only
in exceptional cases does it take him many months to
realize on his merchandise. On an average, his operations
allow him to contract debts on short terms, and it is to his
interest to multiply and renew his operations as much as
140
Banking System of Mexico
possible; so that for his purpose the banks of issue suffice
and operate under exactly appropriate conditions. The
obligations which constitute the assets of said banks are
payable at sight or on very short time, just as is the case
with the notes and obligations of the liabilities, whence
function in perfect harmony the operations of these estab-
lishments with those of the commerce which they are
intended to promote and serve.
In industrial enterprises the case is different, because,
although such capital as is employed in the purchase of
raw material and fuel, as well as in the payment of wages,
can be recovered speedily enough, relatively speaking,
through the sale of manufactured goods, this is not the
case with money invested in buildings and machinery.
This distinction is still more perceptible in the case of
capital applied to agriculture, which is immobilized for a
longer time when devoted to the improvement of the soil
and to similar purposes.
Real estate in general, and especially country real estate,
makes but slow return on the capital invested in it, and
the increase of the product, due to the improvements
introduced, hardly leaves enough surplus for the amorti-
zation of the capital, after covering the interest. The
credit operations which furnish this capital must neces-
sarily cover long periods, proportionate to the great length
of time it takes the farmer to get returns for the expense
of improving his property, and the payment of the prin-
cipal, moreover, has to be made gradually in order that it
may be covered by the products of the farm.
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National Monetary Commission
As the loans repayable in the course of years are not, as
a rule, sufficiently secured by the personal guaranty of
the debtor, whose credit is exposed to unforeseen contin-
gencies, the said loans are almost always conditioned on
the giving of a guaranty in real estate, in the form either
of a pledge or of a mortgage, and this has suggested to the
legislators of different countries the idea of making the
mortgage loan payable in numerous annual payments,
comprising the installments on the principal and the
interest.
The mortgage banks which aim to accomplish this
object have assumed quite a variety of forms in different
countries, some aiming to associate the capital which fur-
nishes the funds; others to associate the farmers who may
need the funds, while in other cases these establishments
are made to bear the character of intermediaries between
the persons who have funds to invest and the owners of
rural or urban property who are looking for the means to
improve that property and increase its production. The
new law has adopted this last form, because it undoubtedly
conforms better to the customs of our country, the char-
acter of its inhabitants, and the general principles of the
national legislation, and also because it presents the best-
defined type of this sort of institutions of credit.
A preliminary question was presented to the consider-
ation of the Department by the terms of the charter
granted to the Mexican Mortgage Bank, estabhshed in
the capital of the Republic in 1882. Was it advisable or
not to include in the law the regulations to which mort-
gage banks are to be subject?
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Banking System of Mexico
According to the said terms, the Government bound
itself (art. i6) to make no grant to any other person,
company, or corporation for the estabUshment of mort-
gage banks in the Republic during the period of twenty
years, beginning with the date on which the Mexican
Mortgage Bank began operations. This obligation, how-
ever, was not absolute, but on the contrary was subject
to the express condition that during the said twenty years
the bank should completely supply the needs for such an
institution — a circumstance which by itself implied that
the Government might find itself compelled to consider
the possibility that, in case this condition was not
realized, it would be free to authorize the establishment
of other institutions of the same class. In regulating the
matter and treating of mortgage banks in the new law,
the Government did not in any manner prejudge its own
attitude for the future — ^indicating whether it would or
would not make use of its power to grant charters to other
mortgage banks.
Accordingly the Executive did not hesitate on this
point, but accepted the idea of a plurality of mortgage
banks, all the more because this was the logical conse-
quence of the attitude taken in regard to banks of issue.
In fact, if for the circulation of bank notes it was deemed
advisable to decentralize the establishments which issue
them, it was still more necessary, when dealing with real
estate, to promote the creation of local banks, which, by
the sale of securities adapted to the purpose, might fur-
nish sufficient resources for the improvement of agricultural
property.
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National Monetary Commission
The operations peculiar to mortgage banks are on the
one hand the investment of funds in loans repayable
within a period of greater or less length and guaranteed
by mortgage, and on the other hand the correlative opera-
tion of issuing interest-bearing bonds for amounts equal
to those of the loans, these bonds being payable within
periods and on conditions equivalent to those of the loans.
The principle that the total amount of the bonds in
circulation must correspond exactly to that of the mort-
gage loans which the bank holds among its assets presents
serious difficulties in practice. In fact it is not possible
that, in proportion as the bank advances funds to indi-
viduals or the latter repay their loans in whole or in part,
the circulation of the mortgage bonds shall be instantly
enlarged or restricted, adapting itself completely to the
exact amount of the outstanding loans. Moreover it is
often found, and in other countries it is the general rule,
that the issue of bonds precedes the loans, this being
usually the method of obtaining funds wherewith to
make such loans. Was it advisable to forbid this practice
in Mexico, or should some flexibility be given to the
principle we have just examined? The Executive decided
in favor of the second alternative, agreeing with the
arguments advanced by the commission, although depart-
ing from its recommendations as regards the wording
and scope of the respective articles.
The articles in question provide, first, that the banks
shall not issue mortgage bonds whose nominal value
exceeds in the aggregate the amount of the loans made on
mortgage security; second, that when the lots are drawn,
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Banking System of Mexico
which shall be done at least twice a year, such number of
bonds shall be called in for redemption as may be neces-
sary in order that the nominal value of those remaining
in circulation shall not exceed the amount of the mortgages
which the bank holds among its assets; third, that no
loan shall be made with money that has to be obtained
through an issue of bonds, unless the loan be conditional
and its completion subject to the results of the issue of
bonds to be made later; and, fourth, that between two
drawings of lots it be permissible, for the reasons set forth
above, to alter the proportion between the mortgage
bonds in circulation and the amount of outstanding loans
held by the bank, the equilibrium being restored at the
next drawing of lots.
The rigor of the above-mentioned principle having thus
been attenuated, care had next to be taken to insert the
provisions necessary to- avoid all abuses in practice, as
well as to assure the sufficiency and efficacy of the mort-
gage guarantees — ^the fundamental basis of the confidence
of the public in the securities which might be issued.
For this reason it was deemed desirable to state ex-
pressly that the mortgage bonds are issued on the strength
of the obligations which the bank holds among its assets
through its loan operations with riiortgage guarantee, and
that this guarantee is collective; in other words, that the
aggregate of the mortgage obUgations in favor of the bank
guarantees the aggregate of the mortgage bonds in circu-
lation.
Among the numerous provisions which tend to realize,
in the most equitable and effective manner, the objects
8648 — 10 10 14s
National Monetary Commission
indicated there is one that deserves special mention, be-
cause it is not commonly found in the banking legislation
of other countries. This is the provision relating to the
formation of a special fund in cash, intended to cover the
service of the mortgage bonds for at least six months — a
provision dictated by the desire to safeguard the banks
against an unforeseen stringency of money, which might
compromise the regular service of its bonds.
Of a similar nature is the article which creates in favor of
said bonds special inducements to investors, in order that
the public may receive them with favor. These induce-
ments are: The right of preference on the reserve and
guarantee funds of the issuing bank, as well as on its cap-
ital, whether paid-up or not; the prohibition to withhold
the payment of principal and interest, even upon order of
the court, except in case of loss or robbery of bonds, or in
accordance with previous laws ; aaid the option that, when-
ever the funds of corporations or of persons legally in-
capacitated are by law or contract to be invested in the
purchase of real estate or of mortgages, these fimds may
also be invested in mortgage bonds.
Owing to the conditions estabUshed, not only for the
issue and circulation of the mortgage bonds, but also for
the security of the capital which they represent and the
interest thereon, as well as for the ease, cheapness, and
ready means of making the guaranty effective, it is very
likely that these securities will find wide acceptance, pro-
vided the banks which issue them take care to accommo-
date themselves not only to the provisions of the law and
the counsels of prudence, but also to what their knowledge
146
Brafr%i n g System of ±M e x fc o
of the market in which they operate may indicate regard-
ing the interest on money, the habits of trade, the normal
period for the amortization of capital invested in the pro-
motion of enterprises, etc.
This knowledge will guide the banks in the drawing up
of the tables of annuities, so that the public may choose,
out of a variety, the kind of operations which is most suit-
able to the circumstances of each. The tact which it will
be necessary for the directors of these establishments to
show in this respect will heed to be even greater when the
loans are' not made in ready cash but in the very bonds
which have to be issued for the purpose of the operations,
because, unless the indispensable conditions of the bonds
are such that the debtor can realize on them without loss,
the public will have a strong motive to refrain from deal-
ing with the bank, no matter what may be its facilities for
the repayment of the debt. Hence it is supremely impor-
tant that the mortgage banks to be established shall com-
bine their operations in such way that the bonds put in
circulation shall find an easy market and a price approach-
ing their face value.
Besides the essential operations just spoken of, the mort-
gage banks may engage 'in all the others which are of a
purely banking character and do not constitute the exclu-
sive object of some of the other classes of institutions of
credit. The law, however, fixes some limitations and
imposes certain prohibitions which tend to strengthen the
confidence which these establishments should inspire, in
order to avoid the danger that, through operations of a
secondary character, the bank should find itself some day
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NlP^^^Tal Monetary Commission
compelled to give the preference to these dealings over the
primary objects for which it was established.
The loans with real estate guaranty, as the only resource
to which the owner of the real estate can have recourse in
order to obtain the means which he requires for the devel-
opment of his business, are capable of involving dangers of
a new order when these funds are sought, not in order to be
immobilized in the property, by being invested either in the
improvement of the soil or in buildings, or in the purchase
of machinery, but to be applied to the payment of wages,
the purchase of seed or raw material, or to other' expendi-
tures which may readily be covered in a short time by the
returns from one harvest or by the normal output of a
factory.
When a landowner (hacendado) needs fxmds for the pur-
poses last mentioned, he finds himself in this dilemma:
Either he has to apply to banks of issue, giving collateral
security or an indorsement by a responsible party, and in
that case he exposes himself to the possibiUty that, at the
end of the term of payment, which must necessarily be
brief, the loan may not be renewed, while he may still be
tmable to realize on the product of his estate in order to
cover the loan; or he may have* to apply to a mortgage
bank and encumber his property for a long time and for a
large sum, greater than he needs, because both these are
generally conditions required in mortgage loans ; and then,
having more money, he spends more than he intended, and
the property will be more highly encumbered, which later
on will render it difficult for him to obtain new loans, even
when he needs them more urgently.
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Banking System of Mexico
The fact is that the demand for capital for agricuhure
has two distinct objects, and hence must also be satisfied in
different ways. If the object is to incorporate the new
capital with that alrady represented by the property and
its immobilized accessories, then the loan can only be
repaid from the increased product of the estate, due to its
improvement, and hence only in the space of many years;
but if it is intended merely to cover the expense of working
the same property up to the time when the crop can be
realized on, then recourse must be had to operations the
period of which shall not be long, although long enough to
enable the return from the crop to be awaited without
anxiety.
Few problems have given rise to so many disappoint-
ments throughout the world as the one relating to agricul-
tural credit, a problem which, it may be said without exag-
geration, has never yet been solved in a manner completely
satisfactory. Hence I congratulate myself because the
work undertaken on this subject by the Banking Commis-
sion, which has greatly facilitated my task, relieves me of a
large part of the moral responsibility involved in the
paternity of a new idea in a field that has been much
explored by others, with little result.
The system devised by the Commission consists in the
creation of institutions of credit which shall fill the void
left between banks of issue and rtlortgage banks; in other
words, which shall make loans for a period not as short as
those fixed by banks of issue, but not as long as those
required by mortgage banks ; and, above all, without the
security of the estate.
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National Monetary Commission
In accordance with the project adopted by the Execu-
tive, these loans may extend over a period not to exceed
two years, which will suffice, in case the crops of the first
year are lost, to enable the farmer by means of the crops of
the second year to fulfill his obligations ; and, as a conse-
quence of these operations, the banks are to be empowered
to issue special securities repayable within fixed periods,
also not to exceed two years, and which, naturally, are to
draw interest.
In order that the banks in question may operate with the
requisite security it was necessary also to modify the civil
legislation, in such way that the guaranty might be estab-
lished readily and with due privileges on the products of
the estate, which privileges are all the more justified be-
cause, if such crop is harvested, it will be due in large part
to the resources placed by the loan at the command of the
owner of the estate. These facilities and privileges also
have their precedent in the civil and commercial law, in the
shape of the obligations called restitutional (ref accionarios) ,
a term which the Commission very appropriately adopted
to designate the establishments of credit above described.
The idea of creating credit banks (bancos refacciona-
rios) is not only fruitful as a means of solving the agri-
cultural problem, but also for satisfying the just claims
of another branch of industry, which is for us as important
as the other. I refer to mining.
The peculiar character of mining property and of min-
ing securities, and the exceptional dangers to which they
are exposed, have greatly hampered the use of credit for
the development of the mining industry. Where a real-
150
Banking System of Mexico
estate guaranty oflfers complete security, credit founded
on such guaranty is easily obtained; but when the
property offered as guaranty is exposed to so raany con-
tingencies, as is the case with mines, real-estate credit has
to struggle with serious impediments.
In the opinion of many people the mining business is
equivalent to a game of chance, and even among those
who have more confidence in this kind of business there
is a disposition to estimate the elements of security which
it offers in the immense majority of cases as of very brief
duration. It is to be hoped, however, that with the
application of scientific methods and the constant im-
provement of industrial processes many of the causes of
error and deception will be eliminated, and greater insight
and certainty will be attained in the anticipations regard-
ing the producing capacity of mines and the duration of
their output.
From this point of view there is some resemblance
between the loans made to farmers to enable them to
wait for the harvest and the loans made to miners whose
property is developed in such way as to permit the prob-
able return within a comparatively short period to be
calculated; and it is this analogy that inspires well-
grounded hopes that the credit banks may be of great
utility not only to agriculture but also to mining and
other industries, few of which are so unfavorably situated
as regards the confidence which they inspire as the mining
business, whose securities are not acceptable to the banks
of issue because not suited to them, nor to the mortgage
banks because the law forbids.
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National Monetary C ommis s io
n
Will these banks fulfill the object of their creation? If
they are established, will their work be successful and
will they improve the condition of industry, mining, and
agriculture? These are questions which the Commission
very justly asks at the close of that part of its report
which relates to these institutions. The Government
believes, in accord with the Commission, that the future
of these banks will depend on the acceptance given to
their bonds, and hence that no one will do more for their
development than by bringing these securities into favor
and creating for them an assured and extended market.
The last part of the law consists of the provisions
applicable to all banks, when once estabUshed, which for
greater clearness have been classified under two heads —
one which treats of those common to all banks, the other
of the privileges and taxes relating to the subject.
The first of these heads contains : The provisions relat-
ing to the establishment of branch banks and agencies;
the prohibition to carry on certain kinds of operations,
which, being dangerous or improper, can not be consid-
ered as included among the powers enjoyed by any insti-
tution of credit; certain provisions establishing special
privileges in the matter of procedure and of legal prefer-
ence in favor of banks ; and, finally, the means of surveil-
lance and control which have teen deemed effectual as
well as equitable, for protecting the public (so far as is
possible and so far as depends on the Government)
against the mismanagement to which these establish-
ments may be exposed.
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Banking System of Mexico
The surveillance over institutions of credit will be exer-
cised in two ways — on the one hand by the Department
of Finance, by the appointment of inspectors; on the
other by the general public, by virtue of the publicity
which the banks are required to give to certain data and
documents.
The inspectors may be appointed exclusively for each
bank or only for specific cases; and the aim has been to
give such precision to their duties as will avoid the diffi-
culties which are always to be feared in connection with
so delicate a function. For this purpose it was necessary
to steer between two sets of shoals of different character,
the one arising from the natural tendency of the inspected
to diminish the sum total of the powers of the inspectors,
the other arising from the very common propensity of
inspectors to carry their functions to excess.
Thus there remained no other way than to specify with
all possible clearness the principal duties and powers of
inspectors and to establish, as reciprocal guaranties in
favor of the banks and of the public, definite prohibitions
and severe penalties for inspectors who might abuse their
position, and, on the other hand, the power to extend
the inspection, in special cases, to the complete disclosure
of the facts involved, always provided that the Depart-
ment of Finance expressly so orders.
As regards indirect surveillance, provision has been
made for the publication of the monthly balance sheets
of the institutions of credit and of an annual report on
their condition. The monthly reports have been the
object of careful study as regards the data which they
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National M on et ar y Commission
are to contain, in order that the situation of the banks
may be made as clear as possible. Among other data,
they will hereafter contain, for the first time, on the credit
side, the investments in public securities and in stocks
or bonds on which it is possible to realize at once, as well
as the distinctions between securities held against discounts
and the amount held against loans on collateral and on
mortgages; and on the debit side distinct enumeration
will also be made, among the other debts, of the deposits
repayable at sight or on notice of three days or less —
a class of deposits which plays a great part in banks of
issue, in view of the provisions regulating the circulation,
which are elsewhere set forth.
As regards the provisions whose aim is to guarantee the
shareholders and the public in general against mismanage-
ment by the directors, it will be noticed that one of these
provisions prohibits members of the administrative council,
during the first year of the existence of the bank, from
becoming debtors to the bank; while another clause pro-
vides that, after the first year, they shall be permitted to
become debtors to the bank only when they are in a posi-
tion of joint liability, as regards indebtedness, with some
other firm of well-known solvency, or when they give a
collateral guaranty of double the amount of said indebted-
ness or responsibility.
Unfortunately, experience has shown that banks may
establish themselves with a fictitious capital, by their
organizers reserving to themselves the places in the
administrative coimcil and making loans to themselves
in account current for amounts equal to those which they
154
Banking System of Mexico
have brought together in order to estabUsh the bank.
There have also been cases where influential persons who
manage these establishments have absorbed for their own
operations a considerable part of the corporate capital,
without giving the same guaranties which they would
have required of outsiders. These illegal methods,
extremely dangerous to banks established with a modest
capital in unimportant centers, will be altogether impos-
sible under the new law, unless the directors are ready,
knowingly, to incur not only civil but also criminal
liability.
Lastly, to make sure that no omission in the law shall
fetter the action of the Government, it has been pro-
vided that any failure on the part of a bank to comply
with any of the requisites or conditions required by the
law for the security or benefit of the public, and which do
not constitute a sufficient reason for forfeiting the charter,
may furnish ground to the Department of Finance, after
due hearing given to the bank in question, to order the
suspension of all its operations imtil the legal require-,
ments and conditions shall be fulfilled.
The Executive is of opinion that, in order to facilitate
the creation of banks in the Republic, the legislation in the
matter of taxes ought to be exceedingly liberal, while on
the other hand there would be no risk of diminishing the
amount of the present revenue, seeing that the aim is to
promote operations which, in most cases, would not take
place without the existence of banks, and which, by
means of the banks, will be multiplied so as to produce,
directly or indirectly, important revenues for the treasury.
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National Monetary Commission
Of course the privileges which had been granted in this
respect in most of the cases of special charters had to be
respected, and on this account the law provided that the
capital of the banks, the shares which represent it, the
dividends paid by them, and the various instruments of
credit which they issue, should be exempt from all kinds
of taxes in the federation, in the states and municipalities
(with certain exceptions, set forth in the law itself). It
granted exemption from stamp tax for the documents
used by institutions of credit in their internal administra-
tion, for the contracts which they may make with the Fed-
eral Government or with the local governments, and for
the extracts from accounts and notes of payment or other
documents and operations which they carry on with said
governments in prescribed cases. Besides these exemp-
tions, the new law grants an additional one, namely, that
whatever be the value of the bank notes, mortgage bonds,
certificates of deposit, and cash certificates (bonos de caja)
which the institutions of credit may put in circulation,
the stamp by which said documents are to be legalized
shall never exceed 5 centavos. Similarly the law takes
care that the rather large expenditures generally attend-
ing contracts of loan, security, pledge, or mortgage, either
in the way of tax or of legal fees, shall be greatly reduced,
principally as regards taxes, the reduction of fees being
naturally left subject to such contracts as the interested
parties may make among themselves.
On the ground of the right belonging to the Federation
to legislate on everything relating to commercial matters,
and supported by the precedent which placed a limitation
156
Banking System of Mexico
on the right of States to impose taxes on mining, the
Executive decided to incorporate a similar provision in
the law on institutions of credit, to the effect that local
legislation can in no case hamper the operations of banks
by fiscal measures while the Federation is striving to free
them from most of the taxes imposed by the general laws.
The articles forming the last heading of the law close
with two sections which confirm the principle established
in the law of June 3, 1896, according to which the exemp-
tions or reductions of taxes can only be granted to the
first bank that is established in any one of the States of
the Republic or in any one of the Federal Territories ; the
other banks, established subsequently, having to pay all
the taxes imposed by the general laws, and, furthermore,
a special tax in behalf of the Federation of 2 per cent a
year on the amount of capital disclosed. In virtue of this
provision the banks that may be set up subsequently to
the first will be placed under such disadvantages in their
competition with the first bank that a plurality of banks
in one and the same State will only be possible where the
transactions are so active and the demands for credit so
great that they can not be satisfied by a single bank, no
matter how powerful.
It is to be noted that it has not been the spirit of the
law to invest with the character of first bank, and the
exemptions and privileges attached thereto, the branch
banks which may be established in some of the States or
Territories of the Republic, because that would lead to
the absorption of all the markets in the interior of the
country by a very small number of institutions of credit.
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National Monetary Commission
which, having estabUshed their head offices in three or
four States, would try to set up branches in all the rest
of the country in order to impede the creation of other
banks with equal rights and privileges. This view is borne
out by the considerations set forth in another part of this
report, with the purpose of demonstrating that branch
banks fall far short of fulfilling with the same degree of
efficiency the same ends as the bank on which they de-
pend. On this account the Executive deemed it proper
to promote the creation of local banks, notwithstanding
the existence of branches maintained by the great banks
of the capital at many points in the Republic, and was
influenced by similar reasoning in favor of the creation of
banks in all the States and Territories of the Federation,
notwithstanding the branches that may exist in each one
of them, whether of banks of the Federal District or of
local banks.
The transitional articles of the law contain two very
important principles — the recognition of the rights pre-
viously acquired by existing banks, either in the capital
or in the States, and the privilege granted to the latter,
whatever be their number, of acquiring the character of
first banks in the locality where the parent house is estab-
lished if they declare to the Department of Finance that
they submit their charters to the new law.
The article relating to obligations contracted naturally
served as a guide to the Government in preparing the
general law on institutions of credit, and I should not
touch on this point were it not that I wish to point out
that the present was deemed a favorable opportunity, by
158
B an k in g^ System of Mexico
means of law, to impart all the necessary authority to the
repeated decrees of the President of the Republic, by
which the meaning of an article contained in nearly all
the earlier charters was defined in the sense that all insti-
tutions of credit must be subject to the laws of the coun-
try and to the other provisions of a general character
which were afterwards promulgated in the matter of
banks when such laws and provisions are not opposed to
the charter or statutes of the bank.
It is within the scope of the executive power, when duly
authorized, to grant rights and privileges by means of a
charter or contract, but it can never renounce the right
or part with the obligation to legislate or issue regulations
on those points or questions which were not expressly
provided for in the charter or agreement in question.
Moreover, charters are special laws (leyes privativas) , and
the interpretation of a special law must be made in the
sense of restricting the privileges or exemptions that de-
part from the general law, rather than of enlarging them;
and hence the clause whose tenor might lead some banks
to think that they were subject to none but their own
special legislation, based on the charter and by-laws, must
not be understood in this exclusive sense, but in the sense
just pointed out — that is to say, admitting the application
of the general law in everything which does not impugn
their special legislation.
One of the aims of the decree of June 3, as already
noted, was to enable the Executive to introduce uniform-
ity into the heterogeneous legislation created by earlier
charters, so far as such reform might be compatible on
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National Monetary Commission
the one hand with the conditions of the business of exist-
ing banks and on the other with the respect due to rights
which their charters conferred.
This need was urgent in order to enable the Govern-
ment to enter on its task of reducing the charters, so far
as possible, to general types, inasmuch as the diversity
and dissimilarity of these charters made it impossible to
follow in the matter of banks a uniform and well-defined
policy, which would allow all the establishments to take
advantage, in the best possible manner and for the com-
mon benefit, of the admirable instrument of progress
which instruments of credit afford.
Seven banks were operating in the States when the
decree of June 3, 1896, was promulgated, and no two of
them had identical charters, but all differed in various
points, more or less essential. Thus, for example, one
charter terminated in 1904, the others at later dates up
to 1 939. The issue was regulated in the case of some banks
by the amount of capital; in the case of others by three
times the capital. To guarantee the circulation, sureties
were required of some banks, deposits of others, and of
yet others neither sureties nor deposits, but a different
kind of guaranty. The reserve funds differed greatly in
amount with the different establishments. The right to
establish branch banks was unlimited for some banks,
while for others it was subject to various restrictions. The
value of the notes which they were allowed to issue was
in some cases 25 centavos as a minimum, while in others
I peso was the smallest value authorized. There was one
bank which was authorized to make loans subject to
160
Banking System of M e x i c o
extension up to twelve months, while the operations of
the others were not to exceed six months. Similar differ-
ences existed in the guaranties for loans and discounts, as
well as in privileges and exemptions from taxation, and
in other fundamental requirements of the charter.
With a view to putting an end to this capricious diver-
sity in legislation, the second transitional article of the
law fixed a term within which the banks established in the
States were to submit to the provisions of this law, offer-
ing to them in exchange the character of first bank in each
of the respective States, with the full rights and privileges
granted to first banks.
This inducement proved insufficient to secure the desired
object. Most of the institutions of credit that were in
operation in the country when the law of March 19 last
was enacted agreed to subject their charters to the law;
but since, according to article 12 of that law, the said
charters bear only the character of a mere authorization,
and the banks are obliged to accept the modifications
which the law may undergo hereafter, they decided not
to exchange the rights and obligations of their original
contracts, which could not be altered (during the life of
the charter) except by the consent of both parties, for
other rights and obligations, which, though in their aggre-
gate more to their interest, yet presented the grave draw-
back of not being immutable to the same degree as the
former.
No definitive result could be obtained in the course
of the four months allowed for the existing banks to de-
clare their unqualified adhesion to the new law, surrendering
8648 — to II 161
National Monetary Commission
their earlier charters; but since, according to para-
graph III of article 2 of the law of June 3, 1896, the
Executive was authorized to conclude agreements with
the banks of the States during the six months following
the enactment of the general law on institutions of credit,
without further stipulation than that the banks should
surrender the rights granted to them by their respective
charters, it seemed advisable to take advantage of the
good will shown by most of the banks to conform to the
new law, leaving them free not to accept such modifica-
tions as the law might undergo hereafter, unless they
deemed it conducive to their interest.
This condition, by which the establishments antedating
the ^general banking law are safeguarded against any
change of legislation 'that might curtail the rights ex-
pressly conferred by the present law, is in the main the
same that they enjoy in virtue of their original charters;
and it may even be said that the very vague terms in
which one of the clauses contained in all the charters was
couched, and which led the said banks to think that they
were entitled to claim the benefit of any law, regulation,
or part thereof, which they thought advantageous to their
establishments, and to claim exemption from any law that
did not suit them, it may be said, I repeat, that this
vagueness left the banks in a better condition than they
now enjoy in virtue of the new arrangements with the
department under my charge.
In fact, the fundamental basis of these arrangements
was the surrender on the part of the banks of all the
rights conferred on them by their earlier charters, and
162
Banking System of Mexico
the acceptance of the general law of institutions of credit,
with the limitation just mentioned. According to this
limitation, any future legal enactments in the matter of
Jjanks will affect these establishments only in those mat-
ters which are not opposed to the provisions of the law
of March 19 and to the express stipulations of the said
agreements; but it was also agreed that, if the provisions
of a general character, or the stipulations contained in sub-
sequent charters, should grant greater privileges to the
banks, the establishments in question could claim the
benefit of them, provided they made express application
for the purpose to the Department of Finance; and that,
if said privileges were associated with certain obligations
or legal requirements, the benefit of the privileges should
accrue to the banks only in case they accepted at the
same time these obligations or legal requirements. This
arrangement cut the root of the claim of the old banks to
accept only such parts of future laws as were favorable to
them, and to insist on exemption from the rest.
The term for coming to an agreement with the local
banks was about to expire, when the agreements referred
to were signed, being subscribed by the representatives of
the Banco Minero of Chihuahua, the Banco Mercantil
of Yucatan, the Banco Yucateco, the Banco Comercial of
Chihuahua, and the Banco of Durango — that is to say,
five out of the seven banks which were in operation at the
time the general law of institutions of credit was enacted.
In these agreenfents, besides the clauses relating to the
point just mentioned and those relating to the capital, the
main office of the bank and the branch banks that may be
163
^National Monetary Commission
established, there were included the identical provisions
contained in these charters granted by the Government
for the establishment of new banks — provisions which were
in a manner complementary to the law, and which, after
its enactment, it was deemed advisable to impose on the
banks for the clearer understanding of the law and for
the better safeguarding of the public interest.
The term for which authority had been granted to the
Executive had just expired when the Banco de Zacatecas
sent in its adhesion to the bases accepted by the other
banks, and thus the agreement with this bank had to be
submitted to the sanction of the chambers. At the same
time the Banco de Nuevo I^eon petitioned anew, before
the Department of Finance, to be allowed to participate
in some of the prerogatives of the general law in return
for its abandonment of part of the rights secured to it by
its charter. The conferences held for this purpose resulted
in a special agreement which had to be submitted for
approval to the chambers, and which, in the opinion of
the Executive, conforms, so far as circumstances will
allow, with the policy of unification pursued by the Gov-
ernment in banking matters.
The terms in which this agreement was drawn up are
identical with those of the agreements with the five banks
above mentioned, differing from them only in one point,
which deserves explanation.
Like some others of the earlier banks, the Banco de
Nuevo Leon was authorized by its charter to issue notes
up to three times its cash on hand in coin or in silver and
gold barfe; but, unlike all the other credit establishments.
164
Banking System of Mexico
this bank had been the only one whose circulation had
approached the maximum fixed, and which for a long time
maintained it at more than double its metallic reserve.
Thus it had a powerful motive for decUning to part with
a right from which it had for a good while derived con-
siderable advantage, and which it was in a position to
continue to enjoy with the same degree of security and
benefit.
If the requirement that the bank should subject itself
to the provisions of article i6 of the law, establishing the
double proportion as the maximum, had been put for-
ward by the Government as a sine qua non, it could not
have induced the bank to surrender, like the others, all
the rights of its original charter, and accordingly the
Executive deemed it wise not to insist on this point so
long as the adhesion of the bank to the provisions of the
general law was secured, on the same terms on which they
had been accepted by the other establishments.
As a compromise, in order that the metallic reserve
guaranteeing the circulation should not descend belgw
the limit of one-third of the notes in the hands of the pub-
lic, it was agreed that said circulation should be computed
by adding to the value of the outstanding notes the amount
of deposits payable on sight or on notice not to exceed
three days, and that the sum of the two amounts should
not exceed three times the cash reserve, in coin or in gold
or silver bars. This was a virtual curtailment of the privi-
lege which the Banco de Nuevo Leon enjoyed, in virtue
of its old charter, to issue notes up to three times its
metallic reserve.
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National Monetary Commission
But in order to arrive at this solution, some supple-
mental guaranty for the notes had to be found, in order
to avoid an absolute departure from the rule laid down
by the government itself in this matter, in fixing the
limit of security which in its opinion should be accepted
in the new system. Accordingly it seemed natural to
retain the deposit of government bonds stipulated in the
old charter of that bank, since, although that practice
involves the inconvenience pointed out elsewhere, it must
still be regarded as adequate for the purpose, under the
circumstances, seeing that there was question of modify-
ing an earlier charter and not of granting a new one.
Furthermore, when the Banco de Nuevo Leon obtained
its charter, the 3 per cent bonds of the consolidated debt
were quoted at 33 per cent, more or less, of their value,
at which price they were computed in making the deposit
of said bonds, in accordance with the respective clause;
whereas, according to the new arrangement, in making
the deposit, the 3 per cent bonds are to be computed at
40 per cent, and the 5 per cent bonds of the redeemable
debt at 65 per cent, although the market price of the two
sets of bonds has for some time maintained itself above
54 per cent and 78 per cent, respectively.
Lastly, according to the agreement made with the
Department of Finance, the Banco de Nuevo Leon acquires
the character of first bank only in order to enjoy the
exemptions and reductions of taxes, but not to prevent any
other bank which may be established in the same State
from enjoying the same privileges and exemptions.
166
Banking System of . Mexico
In a word, the Banco de Nuevo Leon, under date of
September i8 last, accepted the bases of the agreement
contracted with the other banks, and on the same terms
as they, with only this difference, that it retains its right
to issue notes up to three times its cash reserve, that right
being limited by the stipulation of computing the deposits
payable at sight or on short term together with the notes
it has in circulation; and in exchange, it will continue to
guarantee its circulation with Government bonds, to the
amount of one-third of its capital on hand, computing said
bonds at a value considerably lower than the market
value; and furthermore the bank will remain subject to
the possibility of the competition of some other establish-
ment of the same kind that may be founded in that State,
which would enjoy all the rights and privileges granted by
the general law on the subject.
The work undertaken by the Executive since the neces-
sary authorization was requested and obtained from Con-
gress may be summarized as follows: The general law of
institutions of credit, the principal object of said authori-
zations, was carefully considered and enacted; an agree-
ment was arrived at with the National Bank of Mexico,
which fmnishes solid ground for the existence of the
earlier local banks, and inspires the hope of rich fruit to be
garnered from the new banking legislation ; facilities have
been obtained for the development of the other establish-
ment of credit at the capital, the only one, aside from the
National Bank of Mexico, that can issue notes in the Fed-
eral District; six banks out of the seven that existed
before the promulgation of said law were induced to adhere
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National Monetary Commission
to the new law by an identical type of agreement; the
seventh bank also was induced to give its adhesion, in
terms not differing greatly from those of the others ; and
lastly, six new charters have been granted in a short time,
in entire conformity to the new law, for the establishment
of banks of issue in the States of Mexico, San Luis Potosi,
Coahuila, Sonora, Sinaloa, and Veracruz.
The Executive does not flatter himself with the belief
that he has accomplished a work approaching perfection,
and which will not before long require more or less impor-
tant alterations. He simply tried to attain, and he hopes
to have attained, a solution which at one and the same
time respects rights previously created by heterogeneous
charters, and establishes a liberal and uniform system,
adapted to the ideas and the present needs of the country.
He is also persuaded that the new legislation, the fruit of
mature study, careful observation, and the most earnest
desire to diffuse the sane and prudent use of credit among
our people, will lend itself to a profitable trial, which offers
not a shadow of danger, and which will, probably, in the
course of some years lead to the establishment of a more
stable system, lending still greater stimulus to the develop-
ment of the national wealth and corresponding still more
closely to its needs. It would give me pleasure to learn
that this is also the opinion of the distinguished mem-
bers of the legislative chambers, to whom this report is
addressed.
I beg you to accept once more the assurance of my most
distinguished consideration.
1 68
Appendix B.
THE BANKING 4vAWS OF MEXICO.
The Preuminary Law of 1896.
The Congress of the United States of Mexico decrees;
Article i. The Executive of the Union is hereby au-
thorized to prepare the general laws which are to govern
the concessions, establishment, and operations of banks
of issue in the States of the Republic and federal terri-
tories, in accordance with the following conditions:
I. No concession shall be granted unless the bene-
ficiaries thereof shall make a deposit in bonds of the
national public debt, whose nominal par value shall be
equal at least to 20 per cent of the sum which the banks
are required to have in cash before commencing operations.
II. The minimum subscribed capital shall be $500,000,
of which at least half must be paid up in cash before the
bank commences operations.
III. The cash balance in each bank must never fall
below half of the value of its notes in circulation, added
to the amount of deposits payable on demand or on not
more than three days' notice.
IV. No bank shall be authorized to issue notes for a
greater amount than three times its paid-up capital.
V. The notes shall have a voluntary circulation, and
their minimum value shall be five pesos.
VI. Only the first bank that may be established in any
State of the Republic or in any of the federal territories,
shall be granted exemption from or rebate on the pay-
ment of taxes.
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National Monetary Commission
The other banks shall pay all the taxes as provided by
the general laws, and they shall also pay a special tax
to the federation of 2 per cent per annum on the amount
of their paid-up capital.
For the purposes of this section, those banks which are
already established shall be considered as the first banks,
always provided that they subject themselves to the
provisions of the general laws.
VII. The banks which may be established in any
State will not be allowed to open branches outside of
the territory of that State for the purpose of redeeming
their notes without special permission from the Execu-
tive, which permission will only be granted when there
is a strong connection in commercial interest between
different States, and will not be granted in any case for
the opening of such branches in the City of Mexico or in
the Federal District.
VIII. The Federal Executive shall appoint an inspect-
or, whose functions shall be defined, and who will have
the same authority in regard to the revision of annual
balance sheets that the laws grant to the auditors of
joint-stock compknies.
IX. The banks shall publish monthly a cash statement,
which, besides showing the balances of accounts as
required by law, shall also set forth the amount of coin
on hand, the amount of notes in circulation, and also the
amount of the deposits payable on demand, or on previous
notice of not more than three days.
X. The Executive of the Union shall not grant any con-
cession whatever until after the issue of the General Bank-
ing Law and in accordance with its provisions.
170
Banking System of Mexico
Art. 2. The Executive is likewise authorized:
I. To make arrangements with the National Bank of
Mexico, by virtue of which and on payment of the com-
pensation that may be considered equitable, all conflict
shall be terminated between the privileges of that bank
and the provisions of the general law referred to in the pre-
ceding article.
II. To come to an agreement with the banks that al-
ready exist under special concessions, on the understand-
ing that in order to enjoy the benefits of the general law,
the banks of the States shall be obliged to waive the con-
cessions under which they have been created.
III. The powers granted to the Executive under the
present article shall expire, as regards the making of agree-
ments with the banks of the States, six months after the
publication of the general law, and as regards the others,
on the 1 5th of September next.
Art. 3. The provisions to be made for the regulation
of institutions of credit may be treated in the same law or
in another special law which the Executive shall issue, as
he, may consider most desirable.
Art. 4. Within the period of the session immediately
following the publication of the decree or decrees relating
to the subject, the Executive shall report to Congress on
the use that he may have made of the powers granted to
him under the present law.
Given in the Palace of the Executive, in Mexico, on the
third day of June, one thousand eight hundred and ninety-
six.
PoRFiRio Diaz.
To Lie. Jos^S Yves Ivimantour,
Secretary of State and of the Department of the Treasury
and Public Credit.
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National Monetary Commission
The GeneraIv Law on Institutions ok Credit.
[Law of March 19, 1897, as amended to June 19, 1908.]
Chapter I. — Of institutions of credit and their organization.
Article i. For the purposes of this law the following
only shall be considered as institutions of credit:
I. Banks of issue.
II. Mortgage banks.
III. Banks of promotion.
Other institutions doing a banking business shall con-
tinue to be governed by general laws or by concessions
granted by the Executive, until such time as special laws
are issued for their government.
Art. 2. Institutions of credit have in common the char-
acter of intermediaries in the negotiation of credit, and are
distinguished from one another by the character of the
particular securities which they place in circulation.
Art. 3. Banks of issue are those which issue notes of
fixed denominations, payable at par, on demand and to
bearer.
Art. 4. Mortgage banks are those which make loans
secured by urban or rural estates and issue bonds which
are secured by the same guaranty, which bear interest,
and are redeemable under fixed circumstances and at fixed
times.
Art. 5. Banks of promotion are those which are spe-
cially designed to encourage mining, agricultural, and in-
dustrial enterprise, which make preferred loans, unsecured
by mortgage, which guarantee given undertakings, and
172
B an k in g^ System of Mexico
which issue short time bonds or certificates running for a
fixed time and payable on given dates.
Art. 6. Institutions of credit can only be established in
the Republic under a concession granted by the Executive,
subject to the requirements and conditions of the present
law.
Art. 7. The establishment of two separate institutions
of credit shall not be authorized by one and the same con-
cession, nor shall any institution be empowered to issue
securities other than those which, according to the forego-
ing articles, appertain to each of the several classes of
banks.
Art. 8. On no account shall a concession be granted for
the establishment of an institution of credit until the appli-
cants have deposited, in the national treasury or in the
National Bank of Mexico, government bonds of a nominal
value equivalent at least to 20 per cent of the sum which
the bank must have on hand in order to be incorporated.
This deposit shall be returned as soon as the bank is
opened foi.- business.
Art. 9. Concessions for the estabUshment of institutions
of credit may be granted to private individuals Or to lim-
ited liability companies ; but the operation of such institu-
tions shall be carried on only by limited liability companies
duly organized according to the laws of the Republic.
Art. 10. Concessions to private individuals shall not be
granted to less than three persons, who must, within four
months, show that they have organized a limited liability
company to operate the concession and that they have
transferred the concession to said company.
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National Monetary Commission
Art. 1 1 . Ivimited liability companies, organized to oper-
ate banking concessions, shall be subject to the general
provisions of the Code of Commerce, except as provided in
the following paragraphs :
I. The number of members shall be at least seven.
II. The capital stock shall in no case be less than
$1,000,000."
III. The express authorization of the Department of
Finance shall be necessary for the increase or diminution of
the capital of a bank.
IV. No banking corporation can be organized until the
capital is fully subscribed and at least 50 per cent has been
paid up in cash.
V. The legal domicile of a banking corporation in the
Republic shall be at the place where it has established its
head office.
VI. Shares shall be registered in the name of their
holder until their value is fully paid up.
VII. Ten per cent of the net profit shall annually be set
aside to form a reserve until said reserve amounts to one-
third or more of the capital stock.
Art. 12. The duration of concessions shall in no case
exceed thirty years, counted from the date of this law,
for banks of issue, and fifty years for mortgage banks and
banks of promotion. The concessions shall have no
other character than a mere authorization to establish
and operate an institution of credit in accordance with
the laws which may be in force on the subject.
a This limit was fixed by the law of 1908. The requirement of the law
of 1897 was a minimum capital of $500,000 for banks of issue and mort-
gage banks and $300,000 for banks of promotion.
174
Banking System of Mexico
Art. 13. Foreign institutions of credit issuing notes to
bearer shall not be allowed to open in the Republic agen-
cies or branches for the issue or redemption of such notes.
Art. 14.'' The articles of association and the statutes
of any company organized for the operation of an insti-
tution of credit shall be submitted for approval to the
Department of Finance before the bank opens for busi-
ness, in order that said articles and statutes may con-
form to the provisions of the Code of Commerce, to the
special provisions of this law, and to the general adminis-
trative enactments in force in regard to banking.
The obligation imposed by this article extends to all
subsequent modifications of the constitution and by-
laws.
■ Chapter II. — Of banks of issiie.
Art. 15. Banks of issue may be established and do
business in the States and Federal Territories of the Re-
public under no other requirements than those contained
in the present law. The foundation of banks of issue in
the Federal District shall continue subject to existing
contracts and regulations.
Art. 16.* The issue of notes shall not exceed three
times the paid-up capital, nor shall it, together with
1 The second paragraph was first enacted by the law of June 19, 1908.
6 The provisions of articles 16 and. 17 were modified by the law of May
13, 1905, which provided that the fact of drawing interest should not
acquit an account of the character of a deposit for the purposes of the law,
but that current accounts growing out of loan operations should continue
to be excluded from classification as deposits. It was also provided by the
law of 1905 that silver bars should no longer be counted as a part of the
metallic reserve and that gold bars could be counted only when the free
coinage of gold should be resumed. — InstUuciones de Cridito: Leyes y Circu-
lares Relaivuas, p. 1 1 .
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National Monetary Commission
deposits payable on demand or subject to withdrawal at
not more than three days' notice, exceed twice the hold-
ings of the bank in cash and gold and silver bullion.
Art. 17. Deposits in current account and at reciprocal
or differential interest, even though subject to check,
shall not be regarded, for the purposes of the foregoing
article, as payable on demand or subject to withdrawal
at three days' notice.
Art. 18. Whenever the note circulation exceeds either
of the limits fixed by article 16, the bank shall communi-
cate the fact in writing immediately to the government
inspector and shall abstain from making new loans until
the circulation has been reduced within the limits fixed
by the law.
If such reduction has not been effected within fifteen
days, the Department of Finance shall allow the bank a
reasonable period, which shall in no event exceed one
month, to adjust its circulation to legal limits, on pain
of the forfeiture of its concession and enforced liquidation.
Art. 19. The circulation of bank notes shall be entirely
voluntary on the part of the public, and on no account
shall they be considered as legal tender.
Art. 20. Only notes of the following denominations
shall be put in circulation, viz, $5, $10, $20, $50, $100,
$500, and $1,000.
Art. 21. Bank notes must contain, in Spanish, a
promise on the part of the bank to pay to bearer in cash
at par and on demand the amoimt of the note. They
must also state the date of their issue, together with the
176
Banking System of Mexico
series and number to which the note belongs, and must
bear the signatures of the government inspector, of one
of the directors of the bank, and of its manager or cashier.
Art. 22. Bank notes bear no interest and do not lapse
as long as the issuing institution exists. They shall only
lapse, and that after five years, when the bank is declared
bankrupt or goes into liquidation.
Art. 23." Banks of issue are obliged in the manner
stated in article 2 1 to redeem their notes put in circulation.
Notes must be redeemed either at the head office of the
bank or at its branches- immediately on their being pre-
sented; but the branches shall be required to redeem only
the notes which they may have put in circulation.
Banks of issue shall periodically exchange the notes of
other banks in their possession and shall, in the absence
of express agreement between the parties, pay the balances
in cash. The Government shall prescribe by means of a
regulation the basis of the exchange and settlement,
prescribing at the same time the corresponding safeguards.
Art. 24. The failure of a bank to redeem a note which
it has issued gives to the bearer the right of summary
action against the issuing institution, after summons to
pay has been formulated by a notary, and places the bank
in a state of bankruptcy, unless payment has been refused
on account of the note being counterfeit, in which case
the bank must notify the government inspector and refer
the matter to the proper authority.
a The second paragraph was first enacted in the law of June 19, 1908.
8648 — 10 12 177
National Monetary Commission
Art. 25. Bank notes represent debts of the issuing bank
and enjoy preference over all other debts with the follow-
ing exceptions:
I. Claims to the ownership of property pledged to the
bank, under the terms of the Civil Code and the Code of
Commerce.
II. Mortgage debts, when such mortgage has been
registered previous to the transaction whereby the
bank acquires the mortgaged property.
III. Debts referred to in article 106 of the present law.
Art. 26. No note shall be put in circulation without
the proper stamp, which shall be engraved on the note by
the stamp-printing department. Permission to engrave
the stamp on the proposed issue must be obtained from
the Finance Department and shall only be granted when
it has been proved to the satisfaction of the department
that the amount involved does not exceed the limits of
issue fixed by the first part of article 116.
Art. 27. Banks are obliged to redeem worn notes
presented for collection, even though they be divided,
provided the number, series, value, and signatures con-
tinue distinguishable.
Art. 28. The worn notes which a bank may desire to
withdraw from circulation shall be destroyed by fire
under requirements to be established by regulation.
Art. 29." It is prohibited to banks of issue:
I. To make loans or to discount notes or other paper
rimning for more than six months.
a From Clause IV, all these requirements were first enacted in the law
of 1908, except that those which now appear as Clauses V and VI appeared
in the law of 1897 as Clauses V and IV.
178
Banking System of Mexico
II. To discount notes or other commercial paper with-
out at least two signatures of well-known solvency, unless
collateral security is given.
III. To make loans. secured by mortgage except in the
cases set forth in the following article.
IV. To make loans without sufficient collateral to per-
sons or associations not domiciled nor having business of
importance in the States or Territories wherein the home
office, branches, or agencies expressly authorized by the
Treasury Department may be located. From this pro-
vision are excepted operations between banks.
V. To mortgage their real property or borrow on their
credits.
VI. To pledge or pawn their bank notes or to contract
obligations respecting them.
VII. " To accept uncovered bills of exchange or drafts,
or to open credits not revocable at discretion by the bank.
VIII. To hold corporation stocks or bonds exceeding lo
per cent of the amount of paid-up capital and reserve at
the time. Securities representing the federal debt and
others where the capital or revenues are guaranteed by the
Government are not included in this limitation.
IX. To operate on their own account mines, metallur-
gical offices, mercantile establishments, industrial or
agricultural enterprises, or to take part, either by general
or silent partnership, in associations, except under cir-
cumstances analogous to those set forth in article loo, in
o It became necessary to issue a circular regarding this clause, setting
forth that the right to revoke credit, therein referred to, meant only that
portion of a credit granted to a client which was still unused and did not
impair the contracts usual in banking practice. — Circular of August 20,
igo8. Department of Credit and Commerce, No. 12.
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National Monetary Commission
which case the provisions of article loi shall be complied
with.
X. To engage in insurance operations.
XI. To accept responsibilities, whether direct, indirect,
or associate, from any single person or association, which
in the aggregate exceed -lo per cent of the paid-up capital
of the establishment. Rediscounts between banks are
excepted.
Art. 30." Banks of issue may accept mortgage security
only in the following cases:
I. When the credit has become impaired of any of the
signers of an obligation held by the bank.
II. When express authority has been given by the
Etepartment of Finance. This authority shall be granted
only on condition that the total amount of mortgages in
favor of the bank shall not exceed one-fourth of the paid-
up capital and provided that the debts so secured mature
within a period of not more than two years.
Banks shall in no case make new extensions in favor of
debtors when the time has expired of the hypothecary
credits arising under the two previous sections, and they
shall have the power, at the expiration of one year from
the date of maturity of the loan, to exercise their rights
to proceed to the foreclosureof the security.
Art. 31.* Upon the maturity of a loan made on col-
lateral consisting of bonds of the national pubUc debt or
of the States or municipalities, of stock or obligations of
a Clause I of this article differed slightly in language in the law of 1897
and the second paragraph of Clause II first appeared in the law of 1908.
6 The second paragraph first appears in the law of 1908.
180
Banking System of Mexico
commercial or general associations or of personal property,
the bank may sell such collateral through two brokers, or,
lacking these, through two merchants in trade, the sale
being at the current price for the day. The bank shall
have the right to acquire such collateral at this price, the
brokers or merchants intervening in the operation certi-
fying the price upon their responsibility.
In order that banks shall have the preferential right
that hypothecation gives to the creditor in respect to
other creditors, it shall be sufficient that the securities
representing the collateral be set out in the same document
which constitutes the evidence of the debt.
Art. 32. If the collateral security consists of invoices
of goods for collection, the bank shall collect such invoices
on its own account, and if it consist of invoices of goods
receivable, it shall receive the goods and sell them at public
auction.
Art. 33. When the price of goods given as collateral
declines in such manner as not to cover the amount of the
debt and 10 per cent in addition, the debtor must rein-
force his collateral within three days after demand in
writing, when the bank accompanies its demand with a
certificate of two licensed brokers testifying to the depre-
ciation of the collateral. If the collateral is not reinforced,
the bank may proceed to sell the same at auction or other-
wise, in the same manner as if the term of the loan had
matured.
Art. 34. If the collateral consists of shares of stock
standing in the name of the holder, they shall be trans-
ferred to the bank at the time of the contract which is the
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National Monetary Commission
object of the guaranty, but the holder shall be protected
by a certificate stating the specific object of the transfer.
Art. 35. When the proceeds of securities or goods of-
fered as collateral are not sufficient to cover fully the debt
to the bank, and interest thereon, the bank may sue the
debtor for the difference, but when, on the contrary, the
proceeds are more than sufficient, the bank must pay the
difference to the borrower, after deduction of the expenses
of the sale or auction.
Art. 36. When banks of issue are under the necessity
of foreclosing on mortgages executed in their favor, in
the cases permitted by this law, they shall enjoy all the
rights and privileges conveyed by article 78 and those
following.
Art. zy. No private individual or corporation not au-
thorized by the terms of this law shall issue notes or any
other document containing a promise to pay cash to bearer
on demand. Documents issued in violation of this clause
carry with them no civil rights and are not enforceable in
the tribunals.
Art. 38. Banks established in the States and federal
Territories shall not open branches or agencies for the re-
demption of their notes outside of the State or Territory
where they are authorized to operate, save with the special
permission of the Executive, which shall only be granted
when there is close community of commercial interests
among the States covered by the permission. On no ac-
count shall permission be granted for the establishment
of such agencies or branches in the federal district.
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Banking System of Mexico
Art. 38 " (bis) . Banks of issue may at any time be con-
verted into banks of promotion by renouncing the special
rights conferred on them by the law, provided they are so
authorized to do by the Department of Finance, which
shall take care that the charter shall be modified in the
terms required by the new character of the bank and shall
make proper regulations for the retirement or guaranty
of the notes in circulation.
Chapter III. — Of mortgage banks.
Art. 39. The loans on mortgage authorized to be made
by the banks dealt with in this chapter are of the follow-
ing two kinds:
I. Loans at simple interest payable on fixed dates, with
principal reimbursable within short periods.
II. Loans reimbursable in long periods by means of
annual installments comprising interest, part of the prin-
cipal, and the commission of the bank.
Art. 40. Short-time mortgage loans are those which are
payable in one or more installments, but in all cases in
less than ten years.
Art. 41. In the case of loans payable in annual install-
ments the number of such installments shall not be less
than ten nor more than forty, whether the payments be
quarterly, semiannual, or annual.
Art. 42. Mortgage banks shall prepare for the informa-
tion of the public a series of tables showing the payments
to be made on the several classes of loans, and copy of
said tables shall be attached to the mortgage deeds.
" This article first appeared in the law of 1908.
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National Monetary Commission
Art. 43. Mortgages executed in favor of these banks
must always have a first Hen, either on account of the
property being previously unincumbered or because exist-
ing mortgages are subordinated to the claims of the
bank, either by transfer with the express consent of the
earlier creditors or by any other of the methods provided
by law.
Art. 44. A mortgage loan shall never exceed one-half
the value of the property mortgaged, nor shall an annual
installment payable under the terms of the loan, accord-
ing to clause II of article 39, be larger than the pro-
ceeds of the capital represented by the property, esti-
mated at stated rates of interest as provided by the
statutes.
Art. 45. For the purposes of the foregoing article the
value of the property which it is desired to mortgage
shall be appraised by experts appointed by the bank,
unless there be a fiscal valuation and the Department of
Finance authorizes the bank to operate on said valuation.
Art. 46. Mortgages can only be taken on estates situ-
ated in the district. State, or territory where the bank
has its head office or branches and on estates entered at
the property registration office in the name of the
mortgagor.
Art. 47. Mortgages shall not be taken on estates held
"pro indiviso" or on estates of which the reversion and
the usufruct belong to different persons, unless all the
coproprietors and the usufructuary, when there is one, give
their express consent to the mortgage. A similar require-
ment shall be made when the estate is divided up among
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Banking System of Mexico
several owners, and when there is an agreement for the
return of the estate to a vendor under stated circumstances.
Art. 48. Banks shall not accept mortgages on mines,
forests, fixtures, or churches, or on buildings specially in-
tended for federal, state, or municipal purposes.
Art. 49. The limit fixed for loans by article 44 shall be
reduced to 30 per cent of the value of the property when
buildings constitute more than half of such value, unless
the owner binds himself to insure the buildings for the
time that the loan is to run for a sum exceeding the
amount of the mortgage. In the latter case the bank, in
default of the policy holder, may pay the premiums and
renew the insurance for as long as may be necessary,
charging the sums so paid to the mortgagor.
The bank shall always hold a prior claim to that of any
other creditor on the amount of the security.
Art. 50. The aggregate amount of loans on mortgage
shall never at any one time exceed twenty times the paid-
up capital of the bank, nor shall the loans to a single person
or corporation exceed the fifth part of said capital.
Art. 51. Loans on mortgage may be repaid before the
stipulated time, provided that such payment be made in
the manner and form agreed upon and the terms of the
deed as to notification and settlement of interest be com-
plied with. Partial payment shall be subject to the rules
and limitations contained in the statutes of each bank.
Art. 52. When a mortgaged estate depreciates in value
in such manner that half, or in the special case above men-
tioned 30 per cent, of its value is insufficient to cover the
amount of the loan, the bank, acting on the report of two
National Monetary Commission
appraisers, one of whom is to be appointed by the bank and
the-other by the government inspector, may require the
debtor to give additional security or demand the imme-
diate payment of outstanding principal and interest.
After a notification has been served on the debtor the latter
has three months from the date of the notification within
which he must elect to either give supplementary security
or repay the loan.
Art. 53. Payments due to mortgage banks for principal
or interest are on no account to be subject to attachment,
even though application be made in due form of law to the
competent judicial authorities.
Art. 54. Default in the payment of principal or interest
on the dates and in the manner agreed upon confers on the
bank the right to foreclose at once and to enforce payment
of the outstanding principal and interest in conformity
with articles 78 and the following.
Art. 55. The nominal value of the mortgage bonds
which the banks are authorized to issue shall never exceed
the amount of the loans on mortgage made by said banks.
Art. 56. Said bonds shall bear interest, whose rate and
times of payment and other conditions shall be determined
by the banks themselves either in their statutes or by
the resolutions of their directors.
Art. 57. The denominations of the bonds shall be $100,
$500, and $1,000, and they shall be transferable by simple
transfer or by indorsement, according as they are to
bearer or in the name of the holder.
Art. 58. Mortgage bonds may be issued with or without
a fixed date for their redemption.
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Banking System of Mexico
Those issued without a fixed date for redemption shall be
paid off by means of drawings.
Art. 59. The express authorization of the Department
of Finance is necessary for the issue of bonds carrying a
right not only to the repayment of principal and interest,
but to money or other premiums.
Art. 60. The terms of the issue, the particulars for
identification, and the conditions as to interest and re-
demption shall be stated in Spanish on each bond. The
bonds shall be signed by the government inspector, by one
of the board of directors and the manager or cashier, and
on their back shall be printed the text of the articles deter-
mining the rights and obligations attached to the bonds.
Art. 61. The drawings shall take place at least twice
a year, and at each one of those drawings enough bonds
must be redeemed to keep the nominal value of those
outstanding at a figure not exceeding the net amount of
mortgage loans made by the bank.
Art. 62. The place, date, and hour on which the draw-
ings are to take place shall be advertised a week in ad-
vance in the official journal, or, if there be none, in one
of the newspapers of largest circulation in the place.
Art. 63. The drawing shall be public and shall be
presided over by the government inspector. A notary
public shall be present and shall draw up and certify a
statement as to the drawing.
Within a week after the drawing the numbers of the
bonds drawn for redemption shall be advertised in the
papers above mentioned and a date shall be fixed on and
after which the bonds are to be paid.
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National Monetary Commission
Art. 64. Bonds drawn for redemption shall cease to
bear interest from the date appointed for their collection,
but such date shall not be less than one month after the
drawing.
Art. 65. In addition to the ordinary drawings, the
banks may hold extraordinary drawings whenever they
think fit or whenever the statutes require, but subject in
all cases to the rules for ordinary drawings.
Art. 66. Bonds drawn for redemption shall be can-
celed immediately after they have been paid off, and at
stated intervals canceled bonds shall be destroyed in
presence of the government inspector and with proper
legal formalities.
Art. 67. When in payment of loans or in any other
way the banks come into possession of mortgage bonds
issued by them, said bonds shall not be considered as
withdrawn from circulation, for the purposes of article 61,
until they are redeemed in due form.
Art. 68. Mortgage bonds are issued as the token of
mortgages owned by the bank as a result of loans made
by such bank-, and, in consequence, said bonds with their
interest and premiums, when there are any, ^hall be
guaranteed by such mortgages to the fullest extent,
preferably to any claim of a third party.
Art. 69. The guaranty mentioned in the foregoing
article is collective; that is to say, the aggregate of prop-
erty mortgaged to the bank constitutes security for the
aggregate of bonds put in circulation by the same institu-
tion, save as provided by the closing part of article 76.
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Banking System of Mexico
The holders of bonds can enforce their claims only
against the issuing bank.
Art. 70. A special cash guarantee fund shall be formed
in all mortgage banks to secure the interest and redemp-
tion service of the mortgage bonds. This fund shall
always be larger than a half-yearly interest service on
the bonds outstanding.
Art. 71. Mortgage bonds also enjoy the following
privileges :
I. The right of priority to the reserve and guaranty
funds of the issuing bank,as also to its capital, whether paid
up or uncalled.
II. The principal, interest, and premiums of bonds, as
soon as payment is due, give the right of summary action
against the bank, after summons to pay has been served
on the bank by a notary.
III. The payment of principal and interest can not be
withheld even by judicial order, except when the securi-
ties have been lost or stolen, and then only in accordance
with law.
IV. In all cases in which by law or contract the funds
of corporations or of persons legally disqualified are to be
employed in the purchase of estates or in loans on mort-
gage, said funds may also be invested in the purchase of
mortgage bonds.
Art. 72. Notwithstanding their character, mortgage
bonds are to be considered as personal property in all that
relates to their transfer, and when they are issued in the
name of given individuals they shall be assimilated to
commercial paper subject to indorsement.
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National Monetary Commission
Art. 73. In addition to loans on mortgage and the
issue of mortgage bonds, mortgage banks are empowered
to carry on any of the following operations :
I." To invest their funds in the purchase of their own
mortgage bonds or of other classes of securities of the first
class, those being considered such which are described in
article 102 {bis) of the present law.
II. To make loans to run not more than six months on
collateral constituted by first-class securities.
III. To receive deposits on current account, whether
with or without interest.
IV. To draw, purchase, sell, and discount letters of
exchange, drafts, orders, or checks, payable in the Republic
or abroad, and maturing within not more than six months,
V. To sell, purchase, or collect on commissions, either
directly or through brokers, all kinds of securities.
VI. To loan their own mortgage bonds on suitable
collateral, so as to enable the borrower to offer them as
bail or as a pledge.
VII. To make loans for public works or improvements
by virtue of contracts entered into with the federal, state,
or municipal governments.
Art. 74. I^ order to have the right of investing money-
or making loans under Clauses I and II of the foregoing
article, it is indispensable that the securities accepted
shall be not mining stock; that they be quoted in some
one of the markets of the country or on the principal
O' In the law of 1897 this clause read: "To invest their funds in the pur-
chase of their own mortgage bonds or of other classes of securities of the
first class."
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Banking System of Mexico
foreign bourses; that they be dividend-paying or inter-
est-bearing, and that such dividend or interest has been
paid -with regularity for at least two years prior to the
date of the loan.
Art. 75." Mortgage banks may receive deposits only up
to twice the amount of the sum of their paid-up capital
and reserve. These banks shall always hold in cash one-
half at least of their deposits on sight or at three days'
call. The remaining 50 per cent may consist of sums
immediately reaUzable or negotiable and in paper dis-
counted for not longer than six months, the latter not to
exceed 25 per cent of the whole amount of the deposits.
The guaranty fund mentioned in article 70 of this law
shall not be considered as part of the cash reserve required
by this article for the guaranty of deposits.
Art. 76. The capital and interest of loans made to the
government of any of the States of the federation or to a
municipal corporation for the purposes mentioned in
Clause VII of article 73 must be suitably secured, either
by the mortgage of property not included in the excep-
tions mentioned in article 48 or by an assignment of taxes
or by securities issued on account of the works or improve-
ments in question. In all cases the contract must be sub-
mitted for approval to the Department of Finance, which
shall decide whether the mortgage bonds issued as a loan
"■ This article in the law of 1897 read thus: " Mortgage banks may receive
deposits only when the total amount of deposits already held is less than
five times the paid-up capital of the institution, and they shall always hold
in specie or gold or silver bullion or in immediately realizable securities of
the kinds referred to in clauses I and II of article 73, an amount equivalent
to two-thirds or more of the aggregate of such deposits."
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National Monetary Commission
for the improvements in question are to enjoy the same
privileges as all the other bonds or are only to be guar-
anteed by the property or securities offered as a pledge for
the particular loan in question, instead of by the aggregate
of the property mortgaged to the bank.
Art. 77. Mortgage banks are forbidden to issue bank
notes or any other document payable to bearer on demand.
Art. 78. When the banks are compelled to foreclose
a mortgage, owing to nonpayment of principal or interest,
on the terms agreed upon, they are entitled, after summons
to pay has been served by a notary not less than five days
in advance, to have recourse to a competent tribunal, and,
on the mere presentation of the mortgage deed duly
registered, to be placed in provisional possession of the
mortgaged property; or they may obtain an order for the
appointment of a receiver. In the latter case the receiver
shall be appointed by the bank and shall not be required
to give bond.
Art. 79. The order placing the bank in provisional
possession or appointing a receiver shall be published in
the official journal; shall be entered in the books of the
public registry office ; and shall have the same legal effects
as is given by the legislation of the federal district to
mortgage decrees. The powers and duties of the receiver
shall also be subject to the same legislation.
Art. 80. Within eight days from the date of the order
placing the bank in provisional possession or appointing
a receiver, the mortgagor shall be entitled to equity of
redemption or to the privilege of discharging all the
obligations of which the previous nonfulfillment gave rise
192
B an k in g^ System of Mexico
to the action against such mortgagor, but no proof of
such discharge shall be accepted except the receipt in
writing of the bank. After the lapse of the period of
eight days without such proof having been presented, the
judge shall give to the bank the necessary authorization
to proceed to sell the property at auction.
Art. 8i. The auctions shall always be held in the
ofl&ce of the bank, in presence of the government inspector
and with the assistance of a notary public. Such auctions
shall be advertised in the Official Gazette and in one of the
other papers of largest circulation in the place, at such
interval, in advance of the sale, as may be provided by
the statutes of the bank, but which shall in no case be
less than nine days.
Art. 82. At the sale any bid shall be admissible, which,
if paid cash down, shall suffice to cover two-thirds of the
valuation serving as the basis of the auction, provided
that said bid suffices also to meet the sum owing to the
bank for principal, interest, and costs. The expert
valuation of the property, which served as a basis for the
loan shall also serve as the basis for the auction, saving
an agreement to the contrary.
Art. 83. If there be no bidders, the bank may take over
the property at two-thirds of its price; but if a bid is
made which is rejected on account of its not sufficing to
meet the claim of the bank and the expenses, but which is
equivalent to two-thirds the price of the property, then the
bank may take over the property; and when there are no
bidders, the bank may hold new auctions, after adver-
tising them as in the case of the first auction and making
8648—10 13 193
National Monetary Commission
in each case a reduction of lo per cent on the valuation
adopted for the preceding auction. At any of the auctions
the bank has the right of taking over the property on the
terms above stated.
Art. 84. With a view to the execution of the deed of
sale following on an auction or on the taking over of the
property by the bank, the papers, accompanied by a
notarial attestation of the auction, shall be returned to
the judge who authorized the sale and said judge shall
deliver the documents to a notary designated by the pur-
chaser or the bank, in order that such notary may draw
up the deeds of transfer. At the same time notification
shall be served on the mortgagor requiring him to sign
such deeds within a fixed term which shall in no case exceed
ten days, and if he fails to sign within the time allowed,
the judge shall sign for him.
Art. 85. All judicial expenses, the expenses of the
receivership, and all other expenses arising from the fore-
closure, shall be borne by the mortgagor. If, at the time
of the auction he make no objection to the bill for expenses,
which shall be posted in a visible place and the amount of
which shall be stated in the notarial attestation, said bill
shall be regarded as approved and the mortgagor shall
forfeit all right to subsequent claim under this head. If
the mortgagor takes exception to the bill, such exception
shall be judicially decided and the bank must abide by
such decision, but the objection shall not be allowed to
delay the execution of the deed of sale.
Art. 86. Mortgage banks shall not be bound to give
bond in cases where a bond is exacted from other litigants
as a preUminary to litigation.
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Banking System of Mexico
Art. 87. No control of third parties or preferential
rights shall be recognized over property mortgaged to a
bank, unless, in support of such claims, deeds be forth-
coming antedating the deeds executed in favor of the
bank. Nor shall mortgage banks be obliged to associate
themselves with other creditors for the purpose of enforc-
ing their claims. Other creditors, whatever be their
claims, shall only be entitled to require the bank to pay
to them the surplus proceeds of property sold at auction
or taken over, after the sum owing to the bank has been
fully met.
Chapter IV. — Of banks of promotion.
Art. 88. Banks of promotion (bancos refaccionarios)
are authorized to engage in the following operations :
I."* To make cash loans for a period not exceeding three
years on agricultural, mining, and industrial transactions,
for the payment of wages, for the purchase of seeds, raw
materials, implements, or machinery, or for expenses of
administration or conservation. The time of these loans
shall not be extended.
II. To give their guaranty with a view to facilitating
the discount or negotiation of notes or other securities
running for not more than six months.
III.* To issue interest-bearing treasury bonds redeem-
able in periods which shall not be less than three months
nor more than three years.
o The language of this paragraph in the law of 1897 was: "To make loans
in cash for a period not exceeding two years to mining, industrial, and agri-
cultural undertakings."
6 The maximum limit fixed by this clause in the law of 1897 was two
years.
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National Monetary Commission
Art. 89." The loan contracts referred to in Clause I of
the preceding article shall set forth the purpose of the loan
in the form of a notarial contract, which shall be inscribed
in the registry of mortgages according to the location of
the properties involved. The amount of such loans shall
not exceed 1 5 per cent of the value of the properties bene-
fited, as fixed by appraisers named by the bank. Banks
of promotion which make the loans provided for in this
article shall take care that the sums advanced are em-
ployed for the objects set forth in the contract, imder
penalty of losing, with respect to prior mortgage creditors,
the preferences given by article 91 of this law.
Art. 90. When the loan is made for mining purposes the
following conditions shall also be enforced:
I. It must be proved that the title deed of the mining
property is recorded in the name of the contracting party
and that all legal taxes have been paid.
II. Experts appointed by the bank must give their
opinion to the effect that in view of the ore in sight and the
other conditions of the property, the loan, with interest
thereon, can hi paid within the time agreed upon.
III. In all cases the bank shall exercise a rigorous super-
vision at the mine to insure the employment of the loan
in the development of the property and to secure the pro-
ceeds of the work, out of which shall be paid the expenses
of the concern, with preference for the mining tax.
a This section of the law of 1897 simply declared that " the loans referred
to in section I of the foregoing article shall be effected by means of a notarial
contract, which shall be entered in the registry office of the locality where
the borrowing concern is situated."
196
Banking System of Mexico
Art. 91." In all cases the loan of the bank shall be con-
sidered as an expense incurred for the conservation and
management of the property for the purposes of article
1934, Clause II, of the Civil Code of the Federal District,
which in the matter of promotion loans shall be applicable
throughout the Republic.
Art. 92. The prior rights mentioned in the foregoing
article shall not be affected by the transfer of the property
on which money has been borrowed, to a third party,
whatever may be the nature of the transfer or conveyance.
Art. ^s.'' In addition to the loans referred to in the
preceding article, banks of promotion may make loans,
for a maximum of two years, to the owners of agricultural
or industrial enterprises, or to those conducting the same,
upon security of products, crops, raw material, live stock,
implements, machinery, or utensils. In this class of loans
it is not necessary that the secturity be turned over to
the bank, but the same may remain in possession of the
debtor, who shall be considered at all times a trustee,
without prejudice to the right which the bank may have
as fixed by statute law to establish a special intervention
in the transaction referred to.
"The language of this article in the law of 1897 was: "In all cases the
loan of the bank shall be considered as an expense incurred for the con-,
servation and management of the property for the purposes of article 1002,
Clause I, letter B, of the Code of Commerce, and article 1934, Clause II, of
the Civil Code of the Federal District, which, in this instance, shall be appli-
cable throughout the Republic."
i> Articles 93 and 94 in their present form were enacted in igo8. In the
law of 1897 articles 93 and 94 embodied substantially the same provisions,
but with somewhat less precision, that are now brought together in article
93, making the present article 94 a new provision.
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National Monetary Commission
Art. 94. The loans referred to in articles 89 and 93
shall not exceed two-thirds of the amount of the paid-up
capital of the bank and its treasury bonds in circulation.
Art. 95. The loans on collateral referred to in article
93 shall be registered in the mortgage registry office
within whose jurisdiction the property is situated, and
from the date of such registry the loan, as far as the
goods pledged are concerned, shall have preference over
any other subsequent claim, even when secured by
mortgage.
Art. 95 bis." In order to make effective this credit for
promotion in case of default in paying principal or inter-
est within the term stipulated, the provisions of articles
78 to 86j relating to mortgage banks, shall be applicable
to banks of promotion.
Art. 96. The rules governing loans on collateral made
by banks of issue shall be applicable to loans made by
banks of promotion.
Art. 97.'' The amount of treasury bonds in circulation
shall not exceed at any one time double the paid-up
capital stock. The principal and interest of said bonds
shall have, in respect to other creditors, the same prefer-
ence m redemption as is established for bank notes by
article 25 of this law.
Art. 97 bis. " Banks of promotion are required to keep
in cash on hand at least 40 per cent of the sum of depos-
o This article was first embodied in the law of 1908.
* In the law of 1897 this article was as follows: "The amount of treasury-
bonds issued by banks of promotion shall at no time exceed the holdings
of the bank in cash and bullion and immediately realizable securities."
cThis article first appeared in the law of 1908.
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Banking System of Mexico
its payable on demand or within not more than three
days, with the option, however, of substituting for cash,
up to one-half of said 40 per cent, securities immediately
convertible. The remaining 60 per cent shall be guaran-
teed by paper discounted for a period of not more than
six months.
Art. 98. Banks of promotion are prohibited to do the
following things:
I. To issue bank notes.
11." To give their treasury bonds in pledge or to con-
tract any obligation in respect thereto.
III. To engage in any of the operations set forth in
paragraphs I, II, III, IV, V, IX, X, and XI of article 29
of this law, except under the provisions of said paragraphs.
Chapter V. — Enactments common to all banks.
Art. 99. The establishment of branches and agencies
outside of the State, Federal District, or territory where
the bank has its headquarters shall be governed by the
bank's concession, with the limitation contained in article
38 of this law with respect to banks of issue.
Art. 100. Institutions of credit are forbidden to acquire
real estate on any account, except such as is necessary
for office purposes and such as they are obliged to take
O' In the law of 1897 the provisions of paragraphs II and III were as
follows:
"II. To make loans on real estate mortgages or to issue mortgage
bonds.
" III. To operate mines, metallurgical works, factories, or farms on their
own account or to enter into any kind of partnership with persons engaged
in those businesses."
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National Monetary Commission
over in settlement of claims or by virtue of any of the
rights pertinent to the business transacted by them.
Art. ioi. In the exceptional cases mentioned in the
foregoing article a mortgage bank must sell real estate
which it has been obliged to take over within three years
from the date of the acquisition, and a bank of issue or
promotion within two years from the same date. If the
property has not been sold within the periods above stated,
the Department of Finance shall cause it to be sold at
auction.
Art. 1 02. Institutions of credit are forbidden to pur-
chase their own shares or to do business on the security
of such shares.
Art. 102 bis." For the purposes of this law bonds or
obUgations immediately realizable or negotiable or first-
class securities shall be understood to be:
I. Bonds or certificates of the Mexican Government and
others whose principal or interest the said Government
may guarantee.
II. Bonds of foreign countries or corporations that capi-
talize at 4 per cent or a less rate on the official exchanges
where they are quoted.
III. Bonds of the States or municipalities of the federa-
tion that capitalize at 6 per cent or at a less rate.
IV. Bank notes, mortgage bonds, treasury bonds, and
collateral bonds, provided that all these be issued by in-
stitutions with federal charters.
V. Stock or obligations issued by national (Mexican)
companies, provided that these securities are quoted on
o This article first appeared in the law of igo8.
Banking System of Mexico
any of the markets of the country or of foreign countries,
and which, as to the first, have paid dividends, and as to
the second, have regularly paid interest, in both cases at
least for five years prior to acquisition by the bank.
Art. 103. The principal of securities issued by banks
shall become forfeited in favor of said banks when ten
years have elapsed from the date when payment was due,
except in the case mentioned in article 22. Interest on
said securities shall be forfeited when five years have
elapsed from its falling due; but if it has been capitahzed
it shall be treated in the same maimer as the principal.
Art. 103 bis."* The deposits received by the banks
without interest, referred to in this law, represent credits
against the banks proper and shall have preference over
any others except the credits enumerated in article 25 of
this law, outstanding notes of banks of issue, and treasury
bonds issued by banks of promotion, which shall enjoy
preference with respect to the said deposits.
Art. 104. The claims of the mass of creditors on the
assets of a bankrupt estate shall in no manner interfere
with the rights granted to banks by this law.
Art. 105. Theobjectionsof the debtors of a bank in case
of auctions shall only be taken into account when the bank
has been fully paid and shall be the subject of special pro-
ceedings, which shall not be allowed to stand in the way of
the auction or to affect its validity. In such cases the
bank shall be answerable for damages occasioned to the
debtor, when it shall be proved that there is ground for
damages according to law.
oThis article first appeared in the law of 1908.
National Monetary Commission
Art. io6. Debts to the federation and to state or munic-
ipal governments shall enjoy preference in the order named
over debts owing to banks, whatever be the nature of the
latter, but only when the former arise from taxes accrued
within the three preceding years. Claims of the public
treasury having any other origin shall rank as provided
by law.
Art. 107. The consolidation of two or more banks shall
not take place without the consent of the Department of
Finance, whether the consolidation involves the continued
existence of one of the banks and the disappearance of the
others or the creation of an entirely new institution.
Art. 108. When a bank fails to comply with any of the
requirements of this law looking to the protection or ad-
vantage of the public, and when such failure is not of a
nature to warrant the forfeiture of the bank's concession
under the next article, the Department of Finance, after
hearing to the bank, may order it to suspend any or all of
its business until the requirements or conditions of the law
are complied with.
Art. 109. The concession of an institution of credit shall
be forfeited for any of the following reasons :
I." For default in attestation, within the period pro-
vided in article 10, for the organization of the stock com-
pany in whose favor the charter should be assigned, when
such has been issued in behalf of private persons ; for not
submitting the by-laws to the Department of Finance
one month after organizing the company ; or on account
"This clause in the law of 1897 was as follows: "For failure to prove
within the term allowed by article 10 that a limited liability company has
been organized to take over the concession when such concession has been
granted to private individuals."
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Banking System of Mexico
of the bank not beginning operations for one month after
approval of the by-laws by the Department of Finance.
II. For the reason stated ill article i8.
III. For excess in the circulation of securities in viola-
tion of the provisions of articles 55, 61, 67, and 97.
IV. For consolidation with another banking company
without the previous consent of the Department of
Finance.
V. On account of the dissolution or liquidation of the
company operating the concession.
VI. Cases of bankruptcy- legally declared.
VII. In case the majority of the shares of a bank come
into the hands of a foreign government.
The declaration of forfeiture shall be made in executive
form by the Department of Finance after the bank has
been heard in its own defense. In the case contemplated
by Clause III the formalities set forth in article 18 shall
also be adhered to.
Art. 1 10. The members of the board of administration
shall be held civilly responsible for every infringement
of the provisions of this law sanctioned by them, and the
manager carrying out such infringements shall also be
held liable, unless he has acted under express orders from
the board of administration. The civil hability of the
board and manager shall not impair the criminal liabihty
they may incur in accordance with federal or local laws.
Art. III.'* Members of the council of administration
and companies in which in general or silent- partnership
o Under the law of 1897 this article did not apply to partnerships of
which members of the council of administration might be members. The
last three paragraphs appear for the first time in the law of 1908.
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National Monetary Commission
said members are interested shall not, during the first
year of the bank's establishment, engage in any transac-
tion by virtue of which it shall result or may result that
the said members or companies become indebted to the
bank, and after the first year such business may be en-
gaged in only when another firm of well-known solvency
is associated in the debt or responsibility or when an effect-
ive collateral guaranty for double the debt or responsibility
is given.
In every case it shall be necessary in any transaction in
which any of the persons referred to in the preceding par-
agraph become or may become indebted to the bank that
there be a unanimous agreement by the members of the
council present at the session in regard to accepting the
proposed firm or as to the value of the collateral offered,
provided always that the collateral be not among those
mentioned in article loabis of this law.
Managers and officers shall not on any account transact
private business in the bank nor obligate thereto their
private firms; neither shall they become sureties in any
transaction.
Violation of these provisions shall, without prejudice to
the responsibility established in the prior article, incapac-
itate a member of the council from continuing as a mem-
ber thereof and a manager or officer from exercising
fvinctions as such.
Art. 112. No member of the board of administration
shall enter on the discharge of his duties without giving
bond, for v/hich purpose he shall make a deposit in the
bank either in cash or in the shares of the institution for
an amount to be determined by its statutes.
204
Banking System of Mexico
Art. 113. The power of supervision of all institutions
of credit pertains to the Department of Finance, and shall
be exercised either through inspectors permanently ap-
pointed for each bank or through special inspectors
appointed for particular cases, to whom the Minister of
Finance shall give such instructions as he sees fit with a
view to the satisfactory discharge of their duties.
Art. 114. In addition to other obligations imposed on
them by this law and the instructions given to them by
the Department of Finance, the duties of the inspectors
are as follows :
I. To satisfy themselves of the total or partial subscrip-
tion to, and payment of, the capital of the bank.
II. To take part in drawing up and to sign the monthly
cash statement and general balance sheet showing the
actual position of each bank.
III. To see that the special balance sheets requested by
the Department of Fiiiance are duly drawn up.
IV. To demand proof, whenever they see fit, of the cash
holdings of the bank and of the number and value of the
securities which it has issued.
V. To sanction by their signature the notes or securities
about to be issued by banks after they have been stamped
by the Government and gone through the other official
requisites for validity.
VI. To see that the notes or securities put in circulation
do not exceed the amotmt which each bank is entitled to
issue in accordance with the provisions and restrictions of
this law.
VII. To be present at, and to certify to, the cancellation
of notes or securities and the destruction by fire or other-
205
National Monetary Commission
wise of such notes or securities, together with their
coupons, when there are such, and to sign the notarial
attestation along with the manager, cashier, or accountant
of the bank.
VIII. To keep a special account in a book of the number,
series, and value of the notes or securities put in circula-
tion with their sanction and of such as are canceled and
destroyed;
IX. To attend auctions and drawings which the banks
may hold in their ofl&ces.
X." To see to the strict fulfillment on the part of the bank
of the terms of the laws and mercantile code, and especially
the banking laws, and of the concession and the bank's
statutes, without interfering in its business, and to give
immediate notification to the Department of Finance of any
infringement they may observe, while at the same time
advising the board of administration of such infringement.
XL To submit in the months of January and July of
each year a detailed report of all that they have done in the
discharge of their duties during the preceding half year,
with statistical data as to the volume of cash handled, the
circulation in notes or securities, and other particulars to
be determined by regulation.
Art. 115. Inspectors are strictly prohibited from doing
the following things :
I.* To accept and discharge duties, employments, or
commissions from the State in which the bank has its head
office, branches, or agencies.
o The language of this clause, at it was amended by the law of May 13,
1905, amplifies somewhat the language of the original law of 1897.
6 This clause first appears in the law of 1908. Clause I of the law of
1897, now superseded, forbade inspectors " to interfere in the management
of the affairs of the bank."
206
Banking System of Mexico
II. To furnish to anyone whatsoever any kind of infor-
mation as to the bank's business, inasmuch as they are
limited to making written reports to the Department of
Finance as to matters coming within their sphere of action.
III. To hold shares in the bank of which they are in-
spectors.
IV. To apply for loans to the institution with which they
are connected or in any manner to become its debtors.
Art. 1 1 6. When inspectors fail to perform any of the
obligations to which they are subject under article 114, or
when they disobey any of the prohibitions of article 115,
they shall be liable to such executive penalties as may be
imposed on them by the Minister of Finance, including the
loss of their positions, which penalty shall invariably be
applied in case of infringement of Clauses III or IV of the
foregoing article. Moreover, all executive penalties are
without prejudice to the civil or criminal liability incurred
by inspectors.
Art. 117.'' The monthly balance sheets which institu-
tions of credit are required to publish monthly shall com-
prehend at least the following:
ASSETS.
I. Capital stock unpaid.
II. Cash on hand, setting out the kinds of which com-
posed.
III. Notes of other banks.
o This article was redrafted in the law of 1908 so as to extend the classi-
fications under assets from eight to thirteen and under liabilities from five
to eleven. The principal changes involved requirements that the cash
and various forms of current accounts be more carefully classified. The
final clause first appeared in the law of 1908.
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National Monetary Commission
IV. Bonds or obligations immediately realizable or
negotiable.
V. Discotmted paper.
VI. Loans upon collateral.
VII. Mortgage transactions.
VIII. Credits on current accounts.
IX. Stmdry debtors.
X. Value of real estate.
XI. Value of furniture, fixtures, etc. -
XII. Impersonal debtor accounts.
XIII. Ordinary accounts.
LIABILITIES.
I. Capital stock.
II. The obligatory reserve fund.
III. Other reserve or provisional funds.
IV. Deposits at sight or not longer than three days,
segregating such as bear interest and such as
do not.
V. Time deposits, for longer than three days.
VI. Bank notes in circulation.
VII. Treasury bonds in circulation.
VIII. Mortgage bon(Js in circulation.
IX. Sundry creditors.
X. Impersonal creditor accounts.
XI. Ordinary accounts.
The treasmry department may order that the items,
which by virtue of this article must appear in the balances,
be set out in detail.
208
Banking System of Mexico
Art. 1 1 8." The same powers shall belong to inspectors
which are granted by the statutes of the bank to auditors.
They shall revise the balances by proving the various
items and comparing them with the books. In general,
and always when they consider it necessary in order to
exercise proper vigilance, to verify the details of accounts
by the correspondence, minutes, and other papers of the
bank, they may apply in writing to the manager of the
bank to show them the necessary documents, and in case
they are refused they may apply to the Department of
Finance, setting forth what they desire to examine and
the object of the investigation, in order that the depart-
nient, if it is deemed advisable, may require the bank, on
condition of applying the suspension, total or partial, set
forth in article io8 of the law on institutions of credit, to
show to the inspector the accounts, books, and documents
involved.
Art. 119. In case of liquidation or dissolution of a
banking corporation, the inspectors shall represent the
owners of the outstanding notes or securities, in enforcing
the rights of such owners, excepting always when the
latter decide to protect their own rights in person or
through an attorney.
a This article was amended by the law of May 13, 1905, the law of 1897
having provided: "In the formation and revision of annual balance sheets
prepared by institutions of credit, the inspectors are to enjoy the same
powers as are granted by the law to the auditors of limited liability com-
panies and they shall proceed together with the auditors to verify the
items of the balance by comparing each account with the books of the
bank, but they can not demand to be shown the accounts in detail, or
the correspondence, minutes, contracts or other papers of the bank, unless
they obtain in each case a special order from the Minister of Finance, or
unless the bank voluntarily agrees to show the papers in question.
8648 — 10 14 209
National Monetary G ommis s ion
Art. 1 20. The Department of Finance shall publish
annually a report as to the condition of institutions of
credit operating in the Republic, and shall include in such
report the statistical information supplied by the
inspectors.
Chapter VI. — Franchises and taxes.
Art. 121. The capital of institutions of credit, the
shares by which it is represented, the dividends which
they distribute to their shareholders, and the several
kinds of securities which they issue, shall be exempt from
all classes of federal, state, and municipal taxation, with
the exception of the predial tax on the buildings occupied
by them for oflSce piurposes and of the taxes comprised in
the stamp law, both of which shall be paid in accordance
with the enactments in force relating thereto and the
provisions of the following articles :
Art. 122. No stamp tax shall be payable on docu-
ments of which institutions of credit make use for their
internal management or on documents passing between
the head institution and its agencies or branches, provided
such documents do not create rights either in favor of the '
bank or of third parties extraneous to the institution,
including its employees when in a personal capacity they
have dealings with the bank.
Art. 123. Stamp duties are not payable in the following
cases :
I. On contracts entered into by institutions of credit
with the Federal Government, with the governments of
States, and with mtmicipal corporations.
B an k in g^ System of Mexico
II. On summaries of accounts, advices of payment or
receipt, drafts, letters of exchange, promissory notes,
telegraphic or other forms of money transfer, when such
documents relate to business done with the Federal, State,
or mtmicipal governments of Mexico.
Art. 124. Bank notes, mortgage bonds, certificates of
deposits, and treasury bonds put in circulation by insti-
tutions of credit, as well as checks uttered by them or
drawn against them, shall be stamped according to law,
but with the limitation that, whatever be the amount
mentioned in them, the stamp shall never exceed 5
centavos.
Art. 125. Notarial contracts for loans, sureties, pledges,
or mortgages, executed either in favor of or against
institutions of credit, shall be subject to a stamp duty of
2 per thousand, unless the stamp laws fix a lower rate. The
same contracts, when they are drawn up in a private form,
shall be subject to a stamp duty of i per thousand.
Art. 126. The States of the Federation shall not impose
any tax on banking business, properly so called, when
transacted by institutions of credit, except on mort-
gage loans, and even in this case the tax shall not exceed
one-quarter of i per cent on the amount of the trans-
action. /
Art. 127. Saving an agreement to the contrary, the
fees of experts, notaries, and other persons whose remu-
neration is subject to schedule according to local legis-
lation shall, when their services are engaged by institu-
tions of credit, be reduced to two-thirds of the schedule
rates. In no case shall the enactment be observed which
National Monetary Commission
authorizes higher charges on the ground of one of the
contracting parties being a corporation.
Art. 128. The exemptions or reductions in taxation
mentioned in the foregoing articles shall continue for
twenty-five years from the date of this law; but with
respect to banks of issue they shall only be enjoyed
according to Clause VI, article i of the law of June 3, 1896,
by the first bank established in each of the States or
Federal territories.
Art. 129. Concessions which are applied for with a
view to the creation of other banks of issue in any State
or Territory of the Republic where a bank already exists
can only be granted with the requirement that the new
banks shall be subject to all the taxes imposed by general
laws, as well as to a special tax to the Federation of 2 per
cent per annum on the paid-up capital, as provided by
said Clause VI, article i, of the law of June 3, 1896.
This tax shall be collected at the end of each quarter in a
manner to be prescribed by regulations."
TRANSIENT ARTICLES.
Article i. The National Bank of Mexico, the Bank of
London and Mexico, and the International and Mortgage
Bank of Mexico, as well as the banks now operating in the
States of the Federation, which shall not make use of the
« It was provided by article 5 of the law of May 13, 1905, that no further
charters for banks of issue should be granted until after December 31,
1909, and that such banks incorporated after that date should enjoy no
exemptions from taxation. These limitations were extended by the law
of June 19, 1908, to March 19, 1922, when the special exemptions granted
to existing banks will expire. — Insiituciones de CrMiio: Leyes y Circulares
Relatival, p. 31.
Banking System of Mexico
right contained in the next article, shall continue to be
governed by their concessions and statutes, while sub-
jecting themselves, in all points in which it is not at
varience with said concessions and statutes, to this law,
as well as to all future enactments of a general cljaracter
in regard to banks.
Art. 2. For the purposes of the closing provision of
Art. 128 of this law, those banks already existing in any
of the States of the Federation shall be considered as first
banks of issue, whatever be their number, provided that,
within fotir months from this date they shall signify in
writing to the Department of Finance their readiness to
adjust their concessions to the provisions of this law. In
consequence, for the prescribed term of four months no
concessions shall be granted for the foundation, in States in
which banks of issue are already in operation, for new
banks of the same kind and with the franchises to which
first banks are entitled, unless the existing banks shall
declare to the Department of Finance their unwillingness
to adjust their concessions to the provisions of this law.
213
Appendix C.
REPORT OF THE EXCHANGE AND CURRENCY
COMMISSION,
MAY 1, 1905, TO JUNE 30, 1909.
The vice-president of the exchange and currency com-
mission, I,ic. Pablo Macedo, submitted, under date of Sep-
tember 25, 1909, to the minister of finance a report detailing
the operations of the commission from May i, 1905, to
June 30, 1909.
The report was accompanied by the following note:
" We have the honor of submitting to you, begging you
in turn to lay it before the President of the Republic, the
first report of the exchange and currency commission, cov-
ering the operations effected and the work done from May
1 , 1905, to June 30, 1909, said report having been approved
by the commission at a session held to-day.
"We avail ourselves of this occasion to reiterate to you
the assurances of our respect and consideration.
" (Signed) Pablo Macedo,
" Vice-President.
"(Signed) L. Uhink,
" Chief of the Office.
"Mexico, September 25, 1909.
"To the Minister of Finance and Pubuc Credit.
"Lie. JOS^ Y LiMANTOUR,
"Present."
215
National Monetary Commission
The text of Mr. Macedo's report was as follows :
The exchange and currency commission was created by
decree of April 3, 1905, issued in compliance with the
provisions of article 32 of the law of March 25 of the same
year, which established the new monetary regime of the
Republic, and it entered upon the exercise of its func-
tions on the 8th day of April, 1905, devoting itself forth-
with to the organization and regulation of its of&ces and
work, a task which occupied the remainder of the month.
In consequence, the actual operations of the commission,
including its accounts, date from May i, 1905.
Since then, when presenting to the general treasury of
the federation a statement of its accounts and a r^stune
of its operations at the close of each fiscal year, as with
all punctuality it has done, the commission ought also to
have submitted to the finance department a detailed re-
port of its labors dttfing each of those years ; but a variety
of circumstances, among which must be mentioned in
particular the attention which the undersigned vice-presi-
dent of the commission has been obliged to give to impor-
tant public business, on which he has twice had to absent
himself from the Republic, have prevented the prepara-
tion of the annual report^, so that the present report
embraces the entire period that elapsed between May i,
1905, and June 30, 1909, or a little more than four years.
Those four years have afforded occasions for the stabil-
ity of the new monetary regime to be put to the most
searching tests, by causes completely the opposite of one
another in their nature — first, the appreciation of silver
and then its decline accompanied by the effects of the
216
Banking System of M e x i c o
severe economic crisis which the whole world has suffered
since the beginning of 1908 and which has not yet alto-
gether come to an end, — effects which could not but be felt
in the Mexican Republic, not only in the restriction of
transactions of every kind, mercantile, mining, industrial,
and even agricultural, but in the complete paralysis of
many enterprises and in the necessity entailed on our
coimtry of repaying to foreign markets considerable sums
of money which under normal circumstances would have
been retained here, and even have been added to, in the
form either of loans or permanent investments. Thus
the history of the operations of the exchange and currency
commission during the period under review will be par-
ticularly interesting and instructive; and, related, as it will
be, with scrupulous veracity, without glossing over or with-
holding anything, it will serve to strengthen, let us hope,
the confidence already felt both at home and abroad in the
Stability of our currency reform.
I.
METHOD WHICH WIIvI. BE FOIvIvOWED IN THIS REPORT
Slight interest attaches to the operations of the commis-
sion during the months of May and June, 1905, considered
by themselves, for though the commission was not idle for
a single day during those two months, its work at that time
chiefly consisted in adopting measures and making ar-
rangements of a preparatory character of which the results
were perceptible later on; and for that reason the figures
and returns for those two months will be included in this
217
National Monetary Commission
report and in the accompanying tables and statements,
with the figures and returns for the fiscal year following,
so that the period embraced is from May i, 1905, to June
30, 1906.
For the rest, the operations of the commission may be
classified under four main heads: First, what has been
done to demonetize the old coins; secondly, the mintage
and distribution of the new coins; thirdly, the sale or other
disposal of the bulk of the country's stock of silver pesos;
fourthly, what has been done to influence the exchange
market in the direction of maintaining the rate of ex-
change on gold-standard cotmtries at the parity estab-
lished by our monetary laws, a parity based, as is known,
on the quantity of pure gold which each foreign coin con-
tains.
Naturally all these operations are intimately bound up
with one another, and, strictly speaking, constitute a
single subject-matter which is almost indivisible; but
the exigencies of method necessary for clearness indicate
the above division, and it will be followed in the present
report, which will conclude with certain considerations
and suggestions of a practical character and the exposi-
tion of some facts relating to the internal order or econ-
omy of the commission and its offices. In some passages,
too, allusion will be made to the enactment of laws and
the adoption of measures which, though not constituting,
properly speaking, acts of the exchange and currency
commission, are intimately connected with those acts and
with the subjects being discussed, so that it is absolutely
necessary to refer to the laws and measures in question.
218
Banking System of Mexico
II.
DEMONETIZATION OP OI^D COINS.
Under our former currency laws the subsidiary silver
coins were unlimited legal tender; and probably to that
circumstance, combined with the equally vicious and
mischievous system of the free coinage of silver, which
made the Mexican peso our staple export, was due the
fact that the subsidiary coins preferably sought our sea
ports, whence they could not be shipped abroad owing
to the considerable loss from wear which such coins
undergo and could not be returned to the interior of the
country because nobody would pay the freight. On
the other hand, the inconvenience of handling large
quantities of subsidiary coins had led to their agglomer-
ation in the banks of the Republic, which computed them
as part of their obligatory cash holdings; so that whereas
at the sea ports and in other places small change had
accumulated to an undue extent, most of the mercantile,
industrial, and agricultural centers of the Republic had
to complain of a scarcity of the cash tokens necessary
for minor transactions, which are the most frequent and
numerous.
On the other hand, though the law of March 25, 1905,
did not demonetize the old coins, it did introduce changes
in the style, size, denominations, fineness, and even the
constituent metal of the various subsidiary coins, so that
the commission addressed itself, first, to the retirement of
the old coins, endeavoring to remedy the uneven internal
distribution to which allusion has been made, and, above
219
N ation al Monetary Commission
all, obviating all occasion for alarm or inconvenience to
the public, for it was remembered that here, as every-
where else, the masses are the chief users of the subsidiary
coinage, and inasmuch as they are unable to grasp certain
economic phenomena, they do not lend themselves readily
to help or cooperate in innovations, even though these do
them no immediate harm and will in the long run be
advantageous to them.
In order to attain the desired object the commission,
not being able to acquire bar silver for mintage into new
coins, as this is prohibited by the law of March 25, 1905,
decided to melt down a portion of the 10,000,000 pesos
placed at its disposal as a fund for the regulation of the
currency, and to make arrangements with the banks,
especially with the National Bank of Mexico, for them to
turn in at this capital, on their own behalf or on behalf
of the Government, as the case might be, such quantities
of the old subsidiary coins as they already held or might
subsequently accumulate. Moreover, the commission
established at the capital, with the aid of certain public
offices, a money-exchange service, and in this way be-
tween May I, 1905, and June 30, 1909, $6,518,330 in silver
pesos and $11,732,511.01 in old subsidiary silver coins,
making a total of $18,250,841.01, have been consigned to
the melting pot. (See Annex No. i .)
At the same time efforts were made to retire from cir-
culation the old copper centavos; and though this has
been rather difficult and costly, owing to the great num-
ber of coins which it has been necessary to transport and
handle and owing to the low price at which copper has
Banking System of Mexico
been quoted, it has been possible to retire the not incon-
siderable sum of $332,668.07, of which $74,940.35 has been
melted down and $257,727.72 awaits similar treatment.
The losses in this connection, without including freight
charges, amotmt to $32,148.70, or nearly 43 per cent of
the coinage value of the copper centavos demonetized.
(See Annex No. 2.)
As the result of these various operations, together with
the mintage of new coins, which forms the subject-matter
of the following chapter, it is beginning to be observed
that few of the old subsidiary coins remain in circulation,
except in certain sections of the more populous States,
and to deal with these cases the commission has recently
adopted special measures from which good results are
expected. And this has been accomplished without occa-
sioning the least inconvenience, without giving rise to
complaints or abuses of any kind, and in strict accordance
with the provisions of the law of March 25, 1905, which
limit the powers of the commission in this particular so
as to obviate a glut of subsidiary coins which would nec-
essarily result in their depreciation, with its inevitable
train of serious evils and perturbations. In this context,
it seems worthy of special mention that nickel coinage in
5-cent pieces is now in circulation to the value of $904,308
and that the demand for these coins is incessant, so that
it will soon be necessary to coin larger quantities. These
facts are very significant, taking into consideration the
troubles and even the popular uprisings which occurred
in this capital in the year 1883 owing to the introduction
of nickel coins. The difference is that, whereas in 1883
National Monetary Commission
the coins were unloaded in a hurry, almost in a heap, it
may be said, in settlement of liabilities of the federal ex-
chequer and were made unlimited legal tender, the pres-
ent nickel coins are only legal tender to the amount of i
peso in each payment, and they have been issued in pro-
portion to the public demand and in every case for an
equivalent in other coins.
In regard to the old gold coins, article lo of the law of
March 25, 1905, fixed July i, 1906, as the date on which
they were to cease to be legal tender, and therefore the
commission established a service for the exchange of those
coins at the rates and for the values specified in article 2,
transient, of the law in question. Through the instrumen-
tality of this service, gold coins to the value of $737,674.85
were retired from circulation. (See Annex No. 3.)
Before leaving the subject-matter of the present chap-
ter, it is necessary to mention the anomalous and very
singular conditions in which some districts of the State
of Chiapas have been placed for years past, it may be said
from time immemorial, in the matter of monetary circu-
lation, conditions which, though modified to a great ex-
tent by the measures and efforts of the commission about
to be mentioned, can not be said to have disappeared and
can not be expected to disappear altogether, unless the
steps suggested in the closing portion of this report, or
other steps which the National Government considers
better or more expedient, be adopted.
Reference is here intended to the circulation, in the
districts of the State of Chiapas that border on the Repub-
lic of Guatemala, of the coins known by the name of
Banking System of M e x i c o
"cachuca," which include all silver coins, large and small,
from the mints of the Central and South American re-
publics. Whether it be due to the frequency of commer-
cial relations between the population along our southern
border and the RepubUc of Guatemala, where, it is said,
there is an abundant circulation of coins belonging to the
other Central and South American republics, or to the
lack of communication and intercourse with the rest of
the Republic and even with the other districts of the State
of Chiapas, or to both causes combined, as well, perhaps,
as to local circumstances of which the commission is un-
aware, the fact remains that the currency of that frontier
region has consisted of the "cachuca" coins, so much so
that not so long ago the peso and other Mexican coins were
almost unknown to a large portion of the common people
of that section. For this reason, and owing to the exi-
gencies of the case, the local authorities came to sanction
arrangements whereby the "cachuca" coins were received
in the public offices of certain districts of the State at a
given discount with respect to the native coins; and this
practice, while, as could not help being the case, it caused
the use of the "cachuca" coins to strike deeper root, also
gave rise to private speculations almost always advan-
tageous to the parties engaging in them, who thus became
interested in the maintenance of this abnormal state of
things, which the federal authorities have not yet been
able to do away with, in spite of repeated orders and rul-
ings made by them of late to the effect that no federal
office shall on any account receive any sum whatever in
the foreign money in question.
223
National Monetary Commission
The commission, having been informed of these cir-
cumstances, and avaiUng itself of the favorable con-
juncture offered by a rise in the gold price of silver,
resolved to bring about a change in so far as lay .in its
power, and in the first place forwarded considerable quan-
tities of subsidiary silver coins to the branches of the
National Bank at Tuxtla, Gutierrez, and Tapachula, and
also endeavored to encourage similar remittances by pri-
vate parties to their correspondents. At the same time
purchases were made of the "cachuca" coins in circula-
tion at their bullion value, and subject to the usual dis-
counts, for purposes of recoinage into Mexican money, and
by this means the commission retired $333,571 in silver
pesos and $533,452.05 in subsidiary silver coins, face value,
or a total of $867,023.05, face value, at an actual cost of
$736,257.74. Reminted, this silver produced $754,294.89,
thus yielding a net profit of $ 1 8 ,03 7 . 1 5 . (See Annex No . 4. )
The effect of these measures, according to information
received by the commission, has been favorable, inasmuch
as a material change has been brought about in monetary
conditions prevailing in the border districts of the State
of Chiapas; but unfortunately the evil has not been
altogether extirpated and the commission has suspended
the purchases of the coins in question, fearing that, owing
to the fluctuations in the gold price of silver, those pur-
chases may not be attended with practical results, by
reason of the refusal of the holders of "cachuca" to part
with it below its traditional current value, or that, far
from exhausting the stock thereof, they may even stimu-
late the importation of more coins of the kind alluded to ;
224
Banking System of M e x i c o
for, according to the custom-house tariff, all foreign coins
enter our territory duty free.
Toward the conclusion of this report, as has already
been stated, reference will again be made to this subject.
For the moment, it is proper here to declare that certain
measures are being matured which come within the powers
of the commission and which it is hoped will at least con-
tribute in no small degree to put an end to an anomalous
and mischievous monetary situation, though by themselves
alone they will assuredly not suffice to remedy it al-
together.
III.
MINTAGE OF NEW COINS — EXPORTATION OP SIIyVER PESOS —
PURCHASE OP GOLD BULLION.
Toward the close of the year 1905 an event took place
which nobody had looked for and which facilitated and
expedited in an extraordinary degree the practical con-
summation of our monetary reform. The white metal,
which in November, 1902, had reached its lowest point,
being quoted at 2 1 x|d. the standard ounce in the London
market, had been gradually though slowly rising; when
the monetary reform was decreed, in March, 1905, it was
worth between 25T|d. and ayHd. per ounce, and in the
following October the minimum price was 28^^. and the
maximum 28ffd. The commission at once bethought
itself of taking advantage of so favorable an opportunity
for demonetizing the Mexican peso by selling its silver
content for gold, which was feasible even if at a slight
loss, seeing that parity between the silver content of
8648 — 10 15 225
National Monetary Commission
our peso and 75 centigrams of pure gold, which is the
theoretical unit of our monetary system, is attained when
the standard ounce of silver is worth 28|fd. in gold.
In order to succeed in this object it was necessary to
act with great dispatch, for it was impossible to foresee
how long the higher prices of silver would last, and at the
same time with much caution ; for, as is known, the silver
market is extremely sensitive, and any excess, however
small, of the supply over the immediate demand suffices
to cause a heavy break in the prices. Without haste,
therefore, but with a thoroughly consistent purpose, and
following with close and anxious interest the fluctuations
of the market, the commission began to sell for gold the
stock of silver pesos which it held in the fund for the regula-
tion of the currency; and when it had disposed of that
stock at remunerative prices, which was soon, it began to
make arrangements with the banks that they should dis-
pose of their holdings in silver pesos and should be enabled
to sell them on the London market without loss, notwith-
standing the great diversity of their location, which, as
can readily be understood, entailed a considerable differ-
ence in the expenses and conditions of each transaction ;
for it is not the same thing to sell a commodity when it is
on the Pacific coast and needs months to arrive in Lon-
don as it is to sell that same commodity when it is on
the Gulf coast or near our northern border and can be
delivered within a few days after the adjustment of the
sale by wire.
It was tlie invariable policy of the commission, in the
numerous transactions of this nature in which it inter-
226
Banking System of Mexico
vened, to allow the banks which agreed to part with their
silver pesos for exportation to retain all or nearly all the
margin of profit obtained ; for it considered that in doing
so it was not only acting justly, but was also living up
to the object of its existence, which is not to earn
profits but to contribute to placing and maintaining the
currency of the Republic on a sound and solid basis.
The commission also had another object in view in ob-
serving the policy alluded to, viz, by making its services
practically free of charge, to eliminate any interest which
the banks and private parties might have in engaging
directly in the exportation of silver pesos, and thus to pre-
vent any unsettlement of the market, such as would un-
doubtedly have occurred if Mexico's offers of pesos for sale
had been multiplied unsystematically instead of being made
through a single channel having facilities for close obser-
vation of passing conditions, for prompt and efficient ac-
tion and for an economy in the matter of expenses such as
is possible to few private exporters.
Thus the commission succeeded in exporting from No-
vember 17, 1905, to September 24, 1907, the substantial
sum of $60,727,500 in silver pesos, of which only $2,710,000
remained unsold, owing to a sudden and rapid decline in
prices, said unsold balance having been reimported into
the Republic in February, 1908. (See Annex No. 5.)
Notwithstanding all the efforts of the commission, as
^ already mentioned, to retain control over the exportation
of silver pesos, it constantly feared that a moment might
arrive when it would lose that control, for it was unques-
tioned that, if the appreciation of silver continued, the
227
National Monetary Commission
love of gain and the speculative spirit would lead many
private persons to engage in such transactions on their
own account; and the danger in such case would not have
been confined to the perturbations occasioned in the pur-
chasing markets but would also have consisted in the fact
that, by reason of the rapid withdrawal from the country
of large amounts of silver pesos, a disastrous contraction
of the ciurency might first occur, succeeded by a perma-
nent curtailment of the monetary circulation, seeing that
private individuals might easily fail, having no direct in-
terest in the matter, to restore in gold what they had with-
drawn from that circulation in silver, a point which the
commission had not overlooked, as will be shown later on.
Fortunately, this evil did not assume serious propor-
tions, as shown by the daily telegraphic reports from the
maritime and frontier custom-houses, until toward the
close of 1906, when the commission had already exported
and converted into gold $45,108,500, and it then became
necessary to obviate the danger, as much as possible, in so
far as the permanent curtailment of the circulation was
concerned, which was done by means of the law of Novem-
ber 19, 1906, which the federal chambers passed with
commendable dispatch. That law respected, as was
proper, the unquestionable right of the owners of silver
pesos to export them if they found it expedient or profit-
able to do so; but it imposed an export duty of 10 per
cent ad valorem on silver pesos sent abroad, a duty which
was to be remitted if, within thirty days, the exporters
should deliver to the exchange and currency commission,
for free coinage, gold bullion or foreign gold coin to an
228
Banking System of M e x i c o
amount equivalent at legal parity to the value of the sil-
ver pesos exported. This law, which respected alike the
rights of the private citizen and the rights of the commu-
nity, was well received by public opinion and has been
carried out to the letter without encountering opposition,
so that under its provisions the exportations that have
been made of silver pesos have been the means of the
commission receiving for coinage gold bullion and foreign
gold coin to the value of $8,264,447.65. (See Annex
No. 6.)
Thus the exportations of silver pesos amounted to
5,991,947, as follows:
Exported by the commission $60, 727, 500
Exported by private persons 8, 264,447
Total 68, 991, 947
This figure is less by $15,856,073 than the actual expor-
tation of Mexican silver pesos as shown by fiscal statistics,
as appears from the following table :
Exportation of pesos according to fiscal statistics.
Exportation of Mexican silver pesos during the fiscal year
1905-6 ., $49,671,025
Exportation of Mexican silver pesos during the fiscal year
1906-7 24, 521, 921
Exportation of Mexican silver pesos during the fiscal year
1907-8 10,655,074
Total 84, 848,020
Exportation of Mexican silver pesos by the commission and
by private parties under the law of November 19, 1906 , • 68, 991, 947
Difference s 15, 856, 073
This sum, it may be presumed with high probability,
represents the exportations of pesos effected by private
parties before the law of November 19, 1906, went into
effect.
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National Monetary Commission
It is now time to take up the proper subject-matter of
this chapter, viz, the coinage of the new currency, for if
hitherto it has been sought merely to throw Ught on the
exportation of silver pesos, it is because that exportation
was the means of which the country availed itself in order
to secure the gold which it needed for the mintage of its
new money and to get, de facto, on the gold basis.
Many very weighty problems had to be solved in coin-
ing the new currency, owing to the celerity with which it
was necessary to act, not only in order to replace the
silver pesos exported but also in order to remedy the con-
traction which it was to be feared would occur, and which
did, in effect, occur in the circulating medium, as soon as
the bullion value of the peso came to exceed the coinage
value assigned to it under the new monetary regime.
Everyone, in fact, both banks and private parties, through-
out th^ Republic, began to accumulate silver pesos, some
for immediate profit and others infiuenced simply by their
knowledge that the coins in question were at a premium,
even though it was inconsiderable and though they had
no idea how or when to realize on it. What happens in
the case of social phenomena of this nature is well known.
The mere fact of many persons seeking to get hold of a
certain thing suflSces to make those who possess it reluc-
tant to part with it; and if the thing in question is money,
which everyone handles, the phenomenon spreads rapidly
and the contraction grows until it eventuates in absolute
depletion, everyone considering himself forttmate in the
possession of what everyone else wants to take away from
him, and on that account alone, without stopping to listen
230
Banking System of M e x i c o
to any other arguments or considerations. This is what
happened in the case of our silver pesos. A time came
(August, 1907) when the visible stock of pesos in the
banks and other institutions of credit throughout the
Republic barely amounted to $8,084,133; but when silver
began to decline and the demand for exportation ceased
that stock gradually increased until on June 30, 1909, it
amounted, with the quantity on hand in the general
treasury of the federation, to $30,099,472, and deducting
$10,105,000 newly coined, as will be shown later on, it
appears beyond all question that there remained a visible
stock of $19,994,472, coined prior to the monetary reform,
a sum which exceeded by $11,910,339 the visible stock in
August, 1907, which, as stated, was only $8,084,133.
In order to prevent a contraction of the currency it was
urgently necessary, as has been said, to make haste in
striking the new coins; and to this end the commission
considered that the most expeditious method was to secure
gold coins in the United States, seeing that they are of the
same fineness as Ota's and are very carefully minted, so
that only a slight loss is sustained in the process of recoin-
age. But it was not enough to coin gold, which, accord-
ing to law, is only turned out in pieces of 10 and 5 pesos;
it was necessary also to supply silver coins, chiefly 50-cent
pieces, in order to take the place of the peso, which day by
day was becoming scarcer, for the minor transactions of
commerce, and also to distribute the new coins all over the
national territory. On the other hand, the exportation of
pesos could not be suspended, for it was impossible to for-
see how long the appreciation of silver would continue.
231
National Monetary Commission
Then it was that two classes of measures were adopted in
order to meet the twofold exigency of the situation. The
only other expedient would have been to legalize the cir-
culation of foreign coins, a measure that would have been
attended with many drawbacks and would have exposed
us to the risk of having almost to renounce the hope of
having a circulation of our own, or at least to the risk of
having a hybrid and very unsettled circulation for a con-
sider'able time, for everyone knows how difficult it is to
eliminate from use a coin which once becomes current.
On the one hand, the decree of December 22, 1905,
authorized the commission to issue in favor of the banks
gold deposit certificates which might be computed as part
of their cash reserves and of which the equivalent in gold
bullion or native or foreign gold coin was to be held con-
stantly by the commission in order to redeem the certifi-
cates on presentation at any moment. This requirement
seemed necessary in order to prevent anyone thinking that
the commission and, back of the commission, the National
Government, were having recourse to a fiduciary token to
take the place of a metallic currency.
In the second place, at the same time that the Mexico
mint was set to work at its full capacity with improved
machinery, orders were placed for the mintage at Birming-
ham, England, subject to the vigilance and supervision
of Mexican officials, of the nickel 5-cent pieces and the
bronze i and 2 cent pieces, and the courteous permission
of the-Government of the United States was obtained that
the mints of that Government at Philadelphia, San Fran-
cisco, New Orleans, and Denver should coin at cost,
232
Banking System of M e x i c o
without charging any profit, and subject also to the super-
vision of Mexican officials, gold pieces of 5 and 10 pesos
and silver 50 and 20 cent pieces. In this way, in the
space of twenty-six months (from May i, 1905, to June
30, 1907), the new coins which were either in actual cir-
culation or were held by the commission ready to be
placed in circulation amounted to $95,561,570.70, as
follows :
In gold, $10 and $5 pieces $65,026,500.00
In silver, 50, 20, and lo cent pieces 28, 796, 923. 80
In nickel, 5-cent pieces 801, 728.00
In bronze, i and 2 cent pieces 936, 418. 90
Total 95.561,570-70
If we consider the number of pieces which the coinage
of the above sum represents, and bear in mind also the
necessity of acquiring and remitting to the mints, the pre-
cious metals from which the coins were struck, as well as
the intricacy and multiplicity of the operations incidental
to the distribution of the coins over the whole of the
national territory, we can form an idea of the foresight,
care^ and industry which the work involvedj especially as
it almost always synchronized with the manifold and com-
plicated labors connected with the acquisition and expor-
tation of pesos.
In the two subsequent fiscal years (July i, 1907, to
June 30, 1909) the work of coinage continued, though on
a lesser scale, as follows:
In gold, $10 and $5 pieces $18, 360, 000. 00
In silver, $1 pieces 10, 105, 000. 00
In silver, 50, 20, and 10 cent pieces 3, 826, 619. 50
In nickel, 5-cent pieces 102, 580. 00
32,394, 199.50
233
National Monetary Commission
In consequence, the total quantity of money coined and
in circulation, seeing that there has been no appreciable
exportation, from the time when the new monetary
regime was implanted until Jtme 30, 1909, is $127,955,-
770.20, a sum which, it may be mentioned, is considerably
in excess of the amount which, as the result of the esti-
mates and investigations of the monetary commission
appointed by the ministry of finance in 1903 to study our
currency problem, was assigned even on the most liberal
calculations as the volume of cash then in circulation, viz,
$120,000,000, especially bearing in mind that no pesos
have been imported, at any rate on a considerable scale;
and if to the amoimt of new coins struck be added the
sum of $19,994,472 in old silver pesos, which, as has been
said, formed part of the cash holdings of the banks and
the general treasury of the federation on June 30, 1909,
we get a total volume of $147,950,242.20 as the stock of
metallic money at present in circulation. (See Annex
No. 7.)
Before concluding this chapter it seems indispensable
to make special reference to two facts, one of which has
been already referred to, though incidentally, and it is
the coinage of $1 silver pieces.
The commission hesitated much as to whether, after
demonetizing successfully such considerable sums of the
old traditional peso, totaling nearly $85,000,000, it was
desirable again to mint the same coin. The principal
and most obvious argument against such action was that
it would be a step backward in the realization of the ideal
of all countries which are on the gold basis, viz, to use no
234
Banking System of Mexico
other money than gold as unUmited legal tender, and it
can not be denied that this argument was a weighty one.
Per contra, various facts and circumstancfes worthy of
consideration militated on the opposite side.
In the first place, it was quite certain that a considerable
number of silver pesos, how many was not known, still
remained in the Republic. The banks, first of all, though
they had parted with a considerable number of their
pesos, never disposed of their entire stock, the lowest
figure shown by their balance sheets being $8,084,133 on
August 31, 1907, as already stated. Again, it was un-
doubted that private parties were hoarding considerable
quantities of pesos, which, sooner or later, were bound to
come to light. Facts have fully corroborated the accu-
racy of this view, as has been shown, and thus the argu-
ment that to coin silver pesos would be to run counter to
the gold standard, with circulation consisting exclusively
of gold, lost much of its force, for since a goodly stock of
silver pesos still remained outstanding no great harm
would be done by adding to that stock, provided that
the addition were not very large.
But there was still another reason which seemed de-
cisive. Unless the new monetary regime were to be radi-
cally modified by the open demonetization of the peso,
through the purchase thereof in gold at the legal value —
and this could not have been done without manifest
imprudence, for, at the time when the problem presented
itself, coinciding with a decline in the price of silver, the
economic crisis, marked by alarming symptoms, was
already in sight — it was necessary to comply with the
235
National Monetary Commission
provisions of the law as they now stand, according to
which, and inasmuch as the coinage of gold is not yet free,
anyone holding that metal is entitled to present it to the
commission in refined bars or in the form of foreign specie
and to receive in exchange new silver coins at the rate of
75 centigrams of pure gold per peso. (Art. 1 1 of Law of
March 25, 1905.) Now the case was every day coming up
before the commission, owing to the fact that native pro-
ducers of refined gold, as will be explained fully later on,
find it convenient, in order to save expenses, to deliver
their gold to said commission in considerable amounts in-
stead of exporting it. Thus it became necessary to deliver
to them silver coins in exchange for the gold; and as the
country already had subsidiary silver coins to the value of
more than $31,000,000, as has been already explained, it
did not seem advisable, at any rate just then, to add to the
supply of such coins, under penalty of producing a pleth-
ora thereof. And as, on the other hand, it was not ex-
pedient to coin more gold, owing to the necessity of having
a stock of domestic gold bullion available, in order to
influence the exchange market, which was beginning to
show symptoms of an alarming scarcity of drafts on foreign
parts, there was no alternative but to coin silver pesos;
and this was the course finally adopted. There was
another advantage in such a course, though a subsidiary
one and not of great importance. The decline in the price
of silver was getting worse and worse, and it was desirable
to use as much as possible of the domestic output at home,
without allowing it to reach foreign markets, subject al-
ways to the limitations wisely laid down by the law of
236
Banking System of Mexico
1905. And thus it came about that in February, 1908,
the commission began to buy refined domestic silver in
bars, suspending those purchases in April, 1909, after
acquiring a little more than 185,564 kilograms at a cost
of $6,509,033.11. From the bars thus bought silver
pesos were coined to the value of $7,593,036.51; and
pesos to the value of $2,511,963.49, making a total of
$10,105,000, thus coined from the old subsidiary silver
money withdrawn from circulation. (See Annex No. 8.)
The ether point that must be referred to before closing
the present chapter is that which relates to the purchase
of domestic gold bullion.
One of the most urgent necessities incidental to the
new monetary regime was the acquisition of gold for
coinage purposes, for it had been foreseen, and facts later
on showed, that the gold obtained from melting down the
old Mexican and colonial gold coins would be of no great
amount. On the other hand, to acquire gold abroad by
selling silver pesos belonging to the fund for the regulation
of the currency, when the price of the latter metal was
rather far from the legal parity, would have been a vejry
costly operation. No other course, then, was open than to
endeavor to retain in the country the gold mined therein,
and for that ' purpose it was indispensable to encourage
the refinement of gold at home and to derive the fullest
possible benefits from the stability of exchange rates,
which, following on the official announcement of the es-
tablishment of the new regime, settled very near to the
legal parity, owing to the great confidence felt at once in
the soundness of the regime in question. In this manner,
237
National Monetary Commission
the domestic producers of refined gold, who, according to
the law of March 25, 1905, were to be entitled and
actually became entitled to receive silver money in ex-
change for gold, at the rate of 75 centigrams of pure gold
per peso, found that, in availing themselves of this privi-
lege, they saved freight charges, commissions, and other
expenses incidental to the exportation of their bars and
therefore had an inducement to offer them voluntarily to
the exchange and currency commission.
To this end, as well as with the laudable object, among
others, of affording reasonable and proper protection to
a native industry, was directed the decree of June 19,
1905, which reduced to i>^ per cent the former stamp tax
oi 2% per cent on the value of silver or gold bars when
refined to 0.999 ^^ over, a decree enacted by virtue of
the powers with which the Executive was clothed by the
law of taxation on and franchises to the mining indus-
try, promulgated at the same time as the law which
established the new monetary regime.
The measure was a wise one and proved efficacious, for
very soon gold began to flow into the offices of the com-
mission; and as before long a rise in the price of silver took
place, enabling silver pesos to be exported at a profit,
the problem of how to acquire bullion for the coinage of
gold was soon solved. Even if that rise had not taken
place, the problem would also have been solved but more
gradually ; for, as the rates of foreign exchange have been
stabilized, we can when we choose retain the gold which
we produce and refine. A document which is appended as
Annex No. 9 shows that the commission has acquired
238
Banking System of Mexico
pure gold to the value of $52,096,882.38 of which the
whole might have been coined, and if it has not, it is due
to reasons which will be set forth in the following chapter.
IV.
MEASURES. ADOPTED TO INFt-UENCE THE FOREIGN EX-
CHANGE MARKET.
In the latter part of the year 1907 some foreign markets,
especially those of the United States of America, began
to show alarming symptoms of perturbation, which
rapidly grew worse until eventuating in a positive business
crisis, involving all the branches of commerce and in-
dustry and producing most serious effects on the money
market, for it occasioned not only a scarcity, but the com-
plete disappearance of specie and other forms of currency,
so that for the settlement of banking debts it was neces-
sary to have recourse to the system of clearing-house cer-
tificates, which, as is known, constitute a sort of paper
money of purely private origin and which owe their exist-
ence and circulation to an agreement freely entered into
between individuals by virtue of a collective guaranty.
The intensity and suddenness of the crisis, caused in
the last analysis by an irrational and unprecedented
appreciation of all values, involved other markets and
important centers in Europe which made strenuous
efforts to retain their gold and other specie; so that not
only was there everywhere a formidable calling in of
debts, but all credit was completely withdrawn in all the
important centers of the world simultaneously.
239
National Monetary Commission
So profound a crisis could not but affect us, and affect
us it did, not only stopping the influx of foreign capital,
which still enters so largely into our economic life, but
closing almost wholly the doors of credit on us and oblig-
ing us to settle in haste our debts abroad. To the above
must be added the fact that for several years past our
crops have barely been even middling, and that last year
the cotton crop was lost and the corn and wheat crops were
very poor; that all our metals and other articles of ex-
port declined in price, especially silver, copper, lead, and
henequen; that in Yucatan a period of wild and feverish
speculation had ruined some of the most important firms
and even jeopardized the solidity of the local bank?; that
the establishment of new industries throughout the Re-
public and the construction in this capital of handsome
residence sections had locked up considerable sums of
money; and, finally, that importers, perhaps largely en-
couraged by the stability or fixity of the exchange rates,
had laid in excessive stocks of foreign merchandise which
had not been sold and yet had to be paid for.
In view of these causes, all of which tended to reduce
the amounts standing to our credit abroad and to oblige
us to settle, our debts to foreign countries, it is not to be
wondered at that the exchange market became seriously
affected, and the commission, if it was to fulfill the most
important of the functions which the law and the confi-
dence of the Government had intrusted to it, could not
fail to interest itself in this matter, and, in consequence,
it acted with decision.
240
Banking System of Mexico
Not only was the supply of foreign -exchange manifestly
insufficient to meet the demand, but our banks and bank-
ers, in spite of meritorious sacrifices, had reached the limit
of their individual credit. Moreover, the cash holdings
of the banks had fallen off considerably, and while it is
true that their discount operations had also largely in-
creased, they could not easily realize on them without
occasioning bankruptcies and suspensions of payments.
The Government sought to remedy these evils by means
of sundry provisions and other meastures which aimed at
preventing the banks of issue, particularly the banks of
issue in the States, from persisting in the mischievous prac-
tice of locking up their assets and resources in long-time
transactions, encouraging them, even in their own despite
and regardless of the clamor of mistaken public opinion, to
reduce their loans to within the limits marked by prudence
and to strengthen their holdings in cash. But none of
these precautions availed rapidly to ward off the crisis in
exchange, which called for measures of a totally different
character.
Rich and powerful nations, whose currency has from
time immemorial been based on the broad foundation of
an abimdant circulation in specie, have recourse, under
such circumstances, to the exportation of a portion of
their gold coin, which loses none of its value when going
abroad beyond the relatively inconsiderable cost of trans-
portation; and thus we very frequently observe gold sov-
ereigns arriving in America or American double eagles go-
ing to Europe, and alternately serving to settle the bal-
ances of the immense trade and transactions of every kind
8648 — 10 16 241
National Monetary Commission
of the Old World and the New. We shall be able to do the
same, no doubt, in time, if peace and public order, which
are the foundations of our business prosperity, are not dis-
ttu-bed, for the possibility of doing it is one of the many
advantages of our adoption of the gold standard; but to
export our gold money, at a time when there was not much
of it and we had just got hold of it, and that to the surprise
of not a few among us, would have been simply an act of
folly which public opinion both at home and abroad would
at once have stigmatized as ruinous and which alone might
have been capable of compromising not only the success
of the monetary reform but the material progress of the
Republic in all its branches. It was necessary, therefore,
at all costs to save our gold coins from exportation; and
after using up almost the whole of the fund for the regula-
tion of the currency and a portion of that part of its re-
serves which the National Exchequer with praiseworthy
foresight holds in gold in Europe (£900,000) the commis-
sion availed itself of its own credit, with exact and scrupu-
lous regard for the provisions of the law as to method, con-
ditions, and restrictions.
Thus, early in January, 1908, arrangements were made
with a group of French bankers, at whose head was the
powerful institution known as the " Banque de Paris et des
Pays-Bas, " whereby the commission was authorized to
draw on them at three months from date, to the order and
with the indorsement of the National Bank of Mexico, for
25,000,000 francs, the drafts to be renewable once only for
the same length of time. The conditions of this loan,
which in its form was quite usual and strictly adjusted to
242
Banking System of M e x i c o
mercantile practice, were the conditions that are custom-
ary in such cases, nay, rather more favorable; a commis-
sion of three-eights per cent on acceptance and one-fourth
per cent on payment was stipulated, and the drafts were
discounted at the current rate of the Bank of Prance.
Other measures had been devised and other prepara-
tions had been made in other markets in the possible
event of the 25,000,000 francs not being sufficient to tide
over the difficulty; but fortunately no further sum was
necessary, for conditions gradually improved, and the
only problem that demanded attention was how to meet
in July, 1908, the drafts made in January of that year
which had been renewed when maturing in April. The
conditions of the exchange market, as has been said, had
been improving and the supply of drafts sufficed for the
demand, even enabling the banks to cover the balances
standing against them; but beyond this the improvement
did not go. Arrangements were therefore concluded
at New York toward the close of May, 1908, for the com-
mission to issue six-month 4^ per cent notes at 99 X per
cent, also to the order of the National Bank of Mexico,
and indorsed by that bank, for $2,500,000 United States
currency, which was used to take up in the following July
13,000,000 francs of the drafts which had been renewed
in April, the remaining drafts — i.e., for 12,000,900 francs —
being again renewed so as to mature in the following
October. Even when this month arrived, the supply of
exchange was far from being plentiful, and it was necessary
to make another issue of six-month notes in New York
for $2,500,000 United States currency to pay off the
243
N atio nal Mo net ary Commission
balance of 12,000,000 francs of the Paris drafts, thus
winding up that transaction. But the object sought had
been attained; better times had come to foreign markets;
business had almost entirely become normal again; and
fresh capital, including the proceeds of the bond issue
successfully floated by the institution of loans for irri-
gation works and the encouragement of agriculture, was
again flowing into the Republic, as usual, enabling the
commission to meet its obligations at New York at, nay,
before, maturity. In like manner that portion of the
gold reserves of the federal treasury held in Europe of
which use had been made was refunded, and at the close
of the fiscal year 1908 the commission had placed once
more with its correspondents in London and New York
the portions of the fund for the regulation of the currency
which it is in the habit of keeping on hand in those cities
and which amounted on June 30 last to £16,945 i6s. iid.
and $3,666,664.18 United States currency, respectively.
To complete the information under this head it must
be stated that the commission created another fund
abroad on which to draw by shipping and selUng the
domestic gold bullion which, as already explained,
it is in the habit of acquiring at this capital. The detail
of these shipments (Annex No. 10) shows that the pro-
ceeds in Mexican currency, at the legal parity, of
11,469.120984 kilos of gold shipped, were $15,286,741.24
received by the commission, as against a cost, including
freight charges and other expenses, of $15,342,343.81,
resulting in a loss of $55,602.57, which is a little more
than 3.62 per mill or 36.2 cents per $100. This loss,
244
Banking' System of Mexico
calculated, as has been said, at the legal parity, was
ultimately reduced to $53,706.59, as part of it was re-
covered when the commission sold its drafts.
These facts afford, it is to be hoped, a clear view of
one phase of the question; but another and not less
interesting one remains to be referred to.
What use was to be made of the proceeds of the foreign
exchange when sold? It seems proper, in this context,
to remember that, according to article 30 of the law
of March 25, 1905, that part of the fund for the regulation
of the currency which is kept in the Republic and which
was the part in question, "must consist of specie, and, in
exceptional cases, of gold or silver bullion intended for coin-
age, to the exclusion of bank notes or any other security. ' '
According to this article, therefore, it would have been
absolutely necessary to withdraw from circulation sud-
denly, say within a week, large volumes of specie, ex-
ceeding probably at certain moments the sum of
$20,000,000. Now, the effect of such a contraction of
the currency would not only have been disastrous to busi-
ness in general, causing an abnormal rise in the rate
of discount, which already stood at 10 per cent, but
would also perhaps have injured the credit of our banks,
which, as it was, remained unimpaired, notwithstanding
the fact that their cash holdings, as already stated, had
been materially curtailed.
The commission therefore considered it expedient and
opportune to engage in certain banking operations, by
means of which it was enabled to maintain in circulation
in the country the proceeds of the foreign exchange sold
245
National M on et ary Commission
by it, acting in this respect in complete conformity with
section H, article 3 of the law of April 3, 1905, by which
the commission was created, and which permits it "to
make use of the regulating fund for all banking transac-
tions and for the exchange of coins in a manner tending to
promote st'ability in the rates of foreign exchange and to
meet interior currency requirements." The commission
might legally have taken this action on its own authority,
for the law above mentioned enables it to " exercise freely,
to the exclusion of any other authority," the attributions
which the article already quoted enumerates; but the
situation was a new one; it was possible that an error of
judgment might be committed in the operations contem-
plated; and the commission preferred to solicit the authori-
zation of the finance department, not only for the transac-
tions in general, but in each concrete case. The authori-
zation in question was secured, and the approval of the
department given for each separate loan.
In this way loans were made aggregating $1 1,000,000, at
various rates of interest not exceeding 9 per cent, to a num-
ber of companies and corporations; but these loans were
in all cases guaranteed unconditionally by one of the three
principal banks of the capital, and in one case by all three
banks jointly, while in another case the loan was secured
by first-class collateral. The commission also used some
of its funds in purchasing from the same banks certain
high-class securities, including bonds of the 3 per cent
interior consolidated debt and bonds of the International
and Mortgage Bank of Mexico. These purchases aggre-
gated $2,624,000.
246
Banking System of Mexico
The mercantile character of these transactions seems a
sufl&cient reason for not entering into the details thereof
in this report, which, by its very nature, is intended for
publication. Suffice it to say that all figure in full on the
books of the commission and that the several accounts
were liquidated in due course without any difficulty. As
for the securities purchased, they were realized as soon as
the conditions of the market made it possible.
As to the pecuniary results of these manifold transac-
tions, they were as follows, considered apart from other
operations in exchange during the course of last fiscal
year:
Discounts, commissions, and expenses on 62,000,000 francs,
viz, 714,617.70 francs, which at varying rates of exchange
amounted to $276, 354. 34
Interest, commissions, and expenses on $5,000,000 United
States currency, viz, $111,902.28 United States currency,
which at varying rates of exchange amounted to 224,688.34
Commissions paid to the National Bank of Mexico 5,022.82
Total of discounts, commissions, interest, and ex-
penses 506, 065 . 50
Loss in remitting 25,000,000 francs $90, 434. 03
Loss in remitting $5,000,000 United States cur-
rency 9, 069. 00
Loss in remittances 99, 503. 03
Gross loss 605, 568. 53
Less interest earned in Mexico and abroad 567, 476. 07
Net loss 38,092. 46
On the other hand, the operations in bonds and other
securities resulted in a profit, as follows :
Cost of bonds and other securities bought $2,624, 000. 00
Coupons collected and selling price realized 2, 700, 392 . 50
Profit 76,392.50
247
National Monetary Commission
On the whole, then, the various operations may be said
to have been wound up with an actual profit of $38,300.04;
but on the books of the commission, it is credited with the
full profit of $76,392.50, for the general treasury, by order
of the finance department, refunded the $38,092.46 lost on
the transactions in Paris and New York.
In conclusion, it seems proper to state that the dealings
of the commission in exchange have been effected not
directly by the sale of drafts to the pubHc, which, on
account of its being so unusual, would have attracted
attention and perhaps occasioned some alarm, but by
turning over the drafts for sale to the banks of the capital
or placing funds at their disposal in different foreign cen-
ters to be drawn against. Thus, as the public found that
its requirements in the matter of exchange were being
met in the usual form and through the usual channels, no
undue stimulus was applied to the demand, as would have
been the case if the ordinary practices had been departed
from and if the intervention of the commission had been
obtrusive, though, on the other hand, no mystery was
made of the matter.
V.
AGGREGATE RESULTS OF OPERATIONS FROM MAY I, I905,
TO JUNE 30, 1909.
With a view to the ready comprehension of the aggre-
gate results of operations from the creation of the exchange
and currency commission to Jime 30, 1909, profit and
loss accounts for each of the fiscal years embraced in the
period have been drawn up, as well as a general resum^,
and the following reflections seem in order :
248
Banking System of Mexico
The commission received $10,000,000 as a fund for the
regulation of the currency. Operating with that fund and
never going outside of the Umitations or the methods laid
down by the law under which the commission was created,
it has attained the following results :
1. It has retired from circulation and demonetized the
following amounts:
Old gold coins j!737i 674. 85
Old subsidiary silver coins 11, 732, 511. 01
Copper cents 332, 668. 07
Central and South American pesos circulating in the
State of Chiapas 333, 571. 00
Central and South American subsidiary coins circulating
in the State of Chiapas 533, 452. 05
Mexican silver pesos 72, 800, 277. 00
Total 86,470,153.98
2. It has coined and put into circulation the following:
Gold coins $83, 386, 500. 00
Silver pesos 10, 105, 000. 00
Silver 50, 20, and 10 cent pieces 32,623,543.30
Nickel 5-cent pieces 904,308.00
Bronze 2 and i cent pieces 936, 418. 90
Total 127, 955, 770. 20
3. It has purchased refined silver bars to the value of
$6,509,033.11.
4. It has purchased refined gold bullion to the value of
$52,096,882.38 and has exported same to the value of
$15,342,343-81.
5. It has realized for the federal exchequer a profit of
$8,102,091.15, which is more than 81 per cent in four years
and two months, increasing the fund for the regulation of
the currency to $18,102,091.15, which was its amount on
June 30, 1909.
249
National Monetary C ommis s io
n
6. Finally, the stability of foreign exchange, which is
the fundamental object of the commission's labors, has
been invariably maintained, not excepting one single day,
as everyone knows, and to present a table showing the
very slight oscillations that have occmred in the rates of
exchange, owing to the exigencies of dealings in arbi-
trages rather than to any other cause, would be quite
superfluous. Suffice it to say that the rates for sight
drafts were, respectively, as follows on the dates named:
May I,
1905-
June 30,
1909.
2-554
24-39
0.4944
:<-079
3-361
1.S62
"- 497S
2- 795
Marks- _
Pesetas
Finally the maximum and minimum rates during the
same period have been as follows :
Maximum.
Minimum.
Francs _
2. 55
24.3s
0. 4942
2.07
^•75
z 61
American dollars
Marks
Pesetas.
VI.
SOME CONSIDERATIONS AND OBSERVATIONS OF A GENERAI,
CHARACTER.
A careful observation of facts with which it has had to
do, or which it has witnessed at close range, has enabled
the commission to form opinions on some matters con-
250
Banking System of M e x i c o
nected with the monetary reform, and, therefore, it does
not seem out of place to include in this report certain con-
siderations of a general character.
In the first place, it is worth while noting that the domes-
tic production of refined gold shows a marked tendency
to increase. In the fiscal year 1905-6 the amount
bought was, in rbtmd numbers, only 3,538 kilograms; next
year it rose to 9,548 kilograms; the year following it was
10,239 kilograms, and in 1908-9 it reached 15,747 kilo-
grams, with a coinage value approximating $21,000,000.
These figures warrant the expectation that, as soon as
equilibrium shall have been thoroughly restored in ex-
change conditions, which assuredly will only be a matter
of a few months, it will be possible to resume the coinage
of gold, of which the supply is still inconsiderable, although
the $83,000,000 coined is not far short of the total quan-
tity of silver pesos withdrawn from circulation. But a
gold coin is ever)rwhere propitious to hoarding, and espe-
cially is this the case with us, so little accustomed to em-
ploy a gold ciu-rency or to turn our accumulations to profit-
able account, and it is to be observed that for some time
past very few gold coins circulate, and, as we shall see
more in detail later on, only about $50,000,000 of the
cash holdings of our banks consist of gold, the remainder
of the grand total of about $85,000,000 being silver.
It is true that the commission generally holds about
six or seven milhon pesos in gold, and the general treas-
ury of the federation another ten or eleven million, the
gold circulation held by the public being something like
$15,000,000. But this latter sum is doubtless hoarded,
251
National Monetary Commission
for it is the daily experience of the banks that the gold
which they pay out over their counters is very long in
returning to their coffers. Hence they now frequently
refuse to pay out gold, and this circumstance serves to
increase the demand, by virtue of the social phenomenon
alluded to elsewhere in this report. Now, the commission
is of the opinion that efforts should be made to increase
as much as possible our stock of gold money, so that when
foreign exchange becomes scarce our banks and bankers
may be enabled to ship gold specie abroad without caus-
ing alarm or producing any perceptible curtailment in
the volume of our circulating medium. Only then will
it be possible to declare the coinage of gold free and attain
to the plenitude of currency reform. It will be said that
the same result can be achieved by holding gold bulUon,
and to a certain extent this is true as long as the exchange
and currency commission remains in existence; but that
commission, owing to its very nature, is a temporary
organization, and, besides, in order that the monetary
reform may become a fully accomplished fact the cir-
culation must operate automatically, and to that end it
is necessary to accustom the public of all ranks to make
use of gold coin in their daily transactions and not to
regard it as a mere rare curiosity.
In regard to silver, nickel, and bronze subsidiary coins,
the supply seems to meet the requirements of circulation^
seeing that they do not accumulate in the banks, which
generally hold from 5,000,000 to 6,000,000 pesos in such
coins, while the remainder, or about 28,000,000 pesos, is
in the hands of the pubhc, completing the 34,500,000 pesos
252
Banking System of M e x i c o
of such coins struck. It is to be observed, nevertheless,
that certain agricultural centers, especially Toluca, Puebla,
Morelia, and Aguascalientes, frequently accumulate in
their local banks and in the local branches of the National
Bank of Mexico considerable quantities of the coins in
question which are needed elsewhere. The commission
has made every endeavor to obviate such accumulations,
which, among other drawbacks, entail an unnecessary out-
lay, sometimes on the Government and sometimes on the
banks and private persons, for transportation of these coins.
But so far it seems that the evil can not easily be eradicated.
The service of free exchange of subsidiary coins for
silver pesos, and vice versa, in amounts of $ioo or exact
multiples thereof, for which provision is made by article i6
of the law of March 25, 1905, has not yet been established,
for the order of the finance department of April 20, 1905,
deferred sine die the designation of the public offices having
charge of this service, as at that time the coinage of the
new currency had not begun. Later a difficulty arose in
the fact that article 16 speaks of the exchange of subsidiary
coins for silver pesos, and vice versa, without making any
mention of gold; and as the commission undertook, with-
out expense to private parties, to distribute the new cur-
rency all over the Republic, as well as to transport the
silver pesos exported, the necessity of such a service has
not been very urgently felt. Nevertheless, it is time that
it should be established, and the commission considers that
it would be well to confide the service in question not to
public offices, as it is hardly compatible with their proper
functions, but to the National Bank of Mexico and its
253
National Monetary Commission
numerous branches all over the Republic. The annual ex-
pense entailed by this service would be insignificant com-
pared with its utihty. Moreover, it should seem necessary
to amend article 16 in such manner as to provide that the
exchange offices shall for subsidiary coins pay out either
silver pesos or gold coins and subsidiary coins for gold coins
or silver pesos, whichever the public chooses to present,
and that it shall not be obligatory but optional to give gold
in exchange for silver pesos, or vice versa, in order to pre-
clude the danger of loss in the event of silver rising again
so as to realize the contingency mentioned in article 1 2 of
the monetary law as well as the danger of an immoderate
withdrawal of gold from the banks for speculative purposes.
The commission has followed closely month by month
the various phases presented by the transformation of our
monetary system and to this end has availed itself of the
balance sheets of the banks and other institutions of
credit, regularly published by the finance department as
well as of the tables courteously furnished by the National
Bank of Mexico showing holdings in cash at the head
office in this capital and in its several branches. And
since a substantial fund in cash has been created in the
general treasury of the federation, accoimt has also been
taken of it in determining the amount and kinds of our
visible metallic currency. The publication in connection
with this report of the monthly tables that have been
drawn up would not be without interest; but the more
important of those tables are the ones corresponding to
the period comprised between January 31, 1907, and June
30, 1 909, and based thereon three rdsumds have been formed.
254
Banking System of Mexico
including each kind of coin — gold, silver pesos, and sub-
sidiary coins of every kind. (See Annexes, Nos. 11,12,13.)
A comparative examination of these tables suggests some
interesting reflections, but to enter into them would swell
this report to undue proportions, and the only point that
will be referred to is the important question, as yet undeter-
mined, as to the amount of specie circulation in the Republic.
The new money of all kinds coined, as has been said, is
$127,955,770.20. Of this total, fiscal statistics show that
none has been exported except the truly insignificant sum
of $29,990, in gold (in the fiscal year 1906-7), which may
be left out of accotmt.
Now the banks, the general treasury, and the commission
on June 30, 1 909 , had cash holdings of the following amounts :
In gold $67, 889, 015. 00
In silver pesos 30, 099, 472 . 00
In subsidiary coins 6,293,370.99
Total 104, 281, 857. 99
Amount in the hands of the public or in
actual circulation:
In gold $15,497,485.00
In subsidiary coins 28, 170, 899. 21
43, 668, 384. 21
Total 147, 950, 242. 20
Amount coined 127, 955, 770. 20
Excess of circulation over coinage 19,994, 472.00
This difference is undoubtedly due to the fact that the
public has returned to the banks and to the general
treasury an equivalent sum at least in old sUver pesos,
for if we consider the total amount of silver pesos held
by the banks and the general treasury on June 30,
1909, viz 30,099,472.00
And even assuming that those holdings include all the
new silver pesos coined (a fact which it is impossible to
determine), viz 10, 105,000. 00
We get the above-named difference of ' 19,994, 472. 00
255
National Monetary Commission
On the other hand there must still be in circulation con-
siderable amounts of the old subsidiary coins, to judge by
the fact that the commission retired those coins during the
whole of the fiscal year ended June 30, last, at the rate of
$120,000 per month, in round figures, and moreover it is to
be observed that the holdings of the banks in silver pesos
have increased steadily from month to month since Sep-
tember, 1907.
What is the amount of these two unknown quantities
in the problem of determining the volume of specie in cir-
culation? This question it is impossible to answer; the
only thing quite certain is that on June 30, last, the amount
of old pesos, i. e., of pesos prior to the monetary reform, was
$19,994,472 which must be added to the $12^,955,770.20 of
new coinage.
Such is the conclusion attainable for the time being, but
in order to determine conclusively and definitively the
country's specie circulation-^a result which is important
on many accounts and not a mere ciorious statistical
datum — it would be necessary to adopt measures of an-
other sort, of which perhaps the most efficacious would be
to decree the demonetization of the old subsidiary silver
coins and the copper cent, fixing a suitable period of time
after which they would cease to be legal tender. These
coins, especially the silver 25 and 5 cent pieces and the
copper cent, are a stumbling block in our circulation and
give rise to confusion from which the humbler classes, par-
ticularly entitled to the protection of the law and the
authorities, are the chief sufferers. Yet, even the demone-
tization proposed might be detrimental to those same
256
Banking System of M e x i c o
classes if the outstanding amounts of the old coins are still
considerable, owing to the abuses frequently committed
by petty merchants in refusing prematurely to receive the
coins that are going to be demonetized; and so the best
course seems to be to expedite the retirement and recoinage
of the old subsidiary currency ; and to this object the com-
mission will address itself now that its other work leaves it
free to do so.
Connected with the above subject is the question of the
striking of a new silver peso, and it will not be out of place
to say a few words on this topic.
In connection with the first centennial of our Independ-
ence, which will be celebrated next year, the finance de-
partment has ordered the preparation of a new die for the
silver peso, which, while departing from the traditional de-
sign of our historical coin, is much more artistic, being the
work of one of the most famous engravers in Europe. This
die might well be adopted, not only for the peso of 1910 but
for all time, serving for the remintage of the old pesos, for,
as specialists are well aware, and as an experience of more
than four years has fully proved, the old Mexican peso is no
longer particularly sought for on account of its time-hon-
ored emblems or for use as money in certain parts of the
Far East, but exclusively on accoimt of the quantity of
refined silver which it contains. Of the many millions of
pesos exported since November, 1905, not a single one,
though many of them were completely new, was sold other-
wise than for its bullion value, and it appears that all of
them went to the melting pot. Those communities in the
Far East which formerly used our peso for currency pur-
8648 — 10 17 257
National Monetary Commission
poses have now a currency of their own or use the money
minted for them by the BngUsh, of the same fineness as our
peso and superior in design; and the advantage which
many persons supposed Mexico might derive from the re-
tention of the traditional design of her peso belongs to con-
ditions that are now long since past and are never likely
to prevail again.
Again, as the finance department is aware, there are
strong grotmds for believing that at certain points on
our northern border silver pesos are smuggled into the
covmtry, in defiance of the law, and though these impor-
tations, made chiefly by laborers having their homes on
this side of the line who are paid in Mexican pesos for
work done on the other side, may not be considerable,
they nevertheless constitute a proof that contraband opera-
tions of this nature are possible, and whether the pesos
thus introduced have only been recently exported or
whether considerable quantities of the coin are held in
American border towns — it is not known which is the
case — the fact remains that the clandestine introduction
of pesos is illegal, and to a greater or less extent detri-
mental, all of which would be radically avoided by recoin-
ing the present peso and later on demonetizing all pesos
bearing the old design.
By this means, also, it would be possible to find out the
volume of the Republic's specie circulation, provided
that the copper cent and the old subsidiary silver coins
were Ukewise demonetized. But it must be borne in
mind that the operation would be an expensive one, on
which account it would perhaps be advisable to distribute
258
Banking System of M e x i c o
it over several years, fof the cost of mintage, freight
charges, wear and loss in minting are considerable, espe-
cially when millions of coin have to be handled.
There seems to be no question as to the desirability of
putting a stop to the circulation of "cachuca" coins in
the State of Chiapas, and if the importation of Central
and South American coins is not absolutely prohibited,
under penalty of their being melted down into bars at
the cost of the importer, it is at least obviously expedient
that the federal and local authorities of the State in ques-
tion, especially the local authorities, should be reminded
that they are not allowed to receive in payment of taxes
and other pecuniary liabilities any other than national
currency; and the attention of private parties should in
particular be drawn to the terms of article 26 of the
monetary law, whereby they are forbidden, under penalty
of a fine of the second class, to make payments by means
of any instrumentality other than the legal coin of the
Republic. At the same time the commission will take
steps to increase the supply of subsidiary coins in that
region and will buy up the "cachuca" coins purely at
their bullion value, in order not to cause loss to the per-
sons who in good faith have come into possession of them,
and by these concurrent meastires it is to be hoped that
this anomaly in our currency system, which is unique,
will soon disappear.
It would be very interesting to learn and to be able to
state in figures the saving which the nation has realized in
its payments abroad as a consequence of the monetary
reform, of which the irnmediate and chief effect has been
259
National Monetary Commission
to dissociate the rates of foreign exchange from the price
of silver. Some efforts have been made to arrive at nu-
merical results, even though approximate, in so important
a matter, but, unfortunately, complete data are lacking,
owing to the absolute impossibility of finding out exactly,
or even approximately, the amount of our economic bal-
ance, if among the factors thereof are to be included, as
they would have to be included, all our liabiUties abroad
for premiums, interest, dividends, repayment of capital,
aiid other accounts, in connection both with the national
debt and the debts of private parties. So multifarious and
complex are our business relations with foreign parts, and
so varied are the conditions under which they are con-
ducted that it is no exaggeration to say that it is almost
impossible to determine the amount which we have to
remit abroad year by year. It will be remembered that
the monetary commission which met under the auspices
of the finance department in 1903, in order to study our
currency problems, was unable, in spite of its manifold
investigations, to reach any definite result on the subject.
The treasury statistics, for example, to take a very clear
case, give us the figures of imports and exports; but they
do not and can not tell us what portion of the imports,
such as machinery and other articles, represents new per-
manent investments in the coimtry and has not to be
paid for, at any rate, at once, nor what portion of the values
exported remains abroad , being spent by Mexicans for travel-
ing or living expenses . And so on, in regard to all ascertain-
able figures. In regard to each, observations suggest them-
selves which show that it would be a gross error to take them
260
Banking System of Mexico
lightly as a sure basis for calculations as to the balahce of lia-
bilities which we are called on to settle abroad. Moreover,
circumstances have changed radically since that date, and
it is quite certain that the figures of 1903 would be as unre-
liable now as the present figures will be in six years' time.
It is, in consequence, necessary to give up the hope of
arriving at a complete solution of the problem; but what
can be done is to determine, with close approximation to
accuracy, the amount which the country, owing to the
stability of exchange rates, has saved on certain obligatory
remittances representing interest and sinking-fund service
on gold debts contracted by the Government and some of
our more important corporations.
Now, under the budget for last fiscal year, 1908-9, the
Government had to remit abroad the following sums :
U. S. currency.
For the service of the public debt £1,505,000 $1,860,000.00
For salaries and expenses of legations and
consulates 70,500 325,000.00
1.575.500 2,185,000.00
Furthermore, from reports officially secured
from the managements of some of our chief
railways, the latter remitted abroad during
the fiscal year 1908-9 the following sums :
Mexican International 1,370,000.00
Interoceanic 226,980 372,864.90
Mexican Central 3, 564, 131.08
National Railroad of Mexico 1, 255,000.00
National Railways of Mexico 5, 905,000. 00
Mexican Railway 280,400 244,152.69
United Railways of Yucatan 285, 761. 16
Mexican Tramways Company 2,008 519,461.88
Total - 2,084,888 15,701,371.71
These sums, at the average exchange rate which was in
force, viz, 24.5od. and $0.4975 United States currency,
respectively, entailed a disbursement in Mexican currency
261
National M on et ary Commission
of $51,983,897.99, whereas if the same sums had been re-
mitted at the average rate of exchange that would have
prevailed if depending on the average price of silver, viz,
i9.85d. on London and $0.3980 (golci) on New York, the
disbursement in Mexican currency would have been
$64,658,396.54, or a gain of $12,674,498.55.
Examples might be multiplied almost indefinitely;
but this seems useless, when all are convinced of the pri-
mary truth that imfortunately the financial balance is
still against us and, like all young nations in the early
stages of their development, we are permanently in debt
to foreign countries and can only wipe out that liability
definitively by increased productiveness, while meeting it
provisionally through the investment of foreign capital
which older nations send here for the cultivation of our
soil and the exploitation of our other natural resources.
For the rest, the Government of the nation well knows,
and has long known, while the immense majority of the
inhabitants of the Republic, ^giving proof of their sound
sense, have also become convinced of the fact, that what
the Republic needs for its aggrandizement is the construc-
tion of more railways, the opening up of new routes of
communication, the carrying out of extensive irrigation
works, the encouragement, on a liberal and ample scale, of
agriculture, industrial enterprises, and immigration, so that
opportimities for lucrative endeavor may be multiplied
and, like our northern neighbors, we may be enabled to pay
back the borrowed capital of which we now stand in need
and may come to have an economic life of our own.
The silver-mining interest still complains, it is true,
of the aboUtion of its time-honored right of free coinage,
262
Banking System of Mexico
which was nothmg but a privilege by virtue of which
all the inhabitants of the nation had to buy the product
at a fixed price, and at the cost of an actual decline
in salaries and wages, though in appearance they might
seem to rise, and of a depreciation, as unjust as it was
general, in every branch of public and private wealth.
The mining interest, in thus complaining, forgets that
tinder the new regime, it alone profited, as, indeed, was
only fair, when the price of silver rose, selling it not at
the old coinage value of that metal, which was $40.91
per kilogram, but at $43 and even more; it also forgets
the permanent reduction in taxes decreed in its favor
when the monetary reform came into force, and that it
also derives advantages from the fixity of exchange
when it makes purchases abroad of machinery, tools,
apparatus, and many other articles which it needs in
the development of its industry, an industry which is
important, very important indeed, and one in whose for-
times we ought all to feel a concern, but which, after all,
is, fortunately, not the nation's only industry.
The department of finance, to which this report is
addressed, will, no doubt, pardon the commission for
thus examining the monetary question in its general
aspect, when the object of such report is more immediate
and modest and when the commission ought, perhaps,
to confine itself to considerations of a more specific
character. The commission can only plead in excuse
the motive under which it has acted, viz, that having
been created to cooperate in the realization of an object
set before itself by the Government of the nation, it
263
National Monetary Commission
should not be charged with irrelevancy when it affirms
and seeks to prove once more that the object in question
is sound, just, patriotic, and praiseworthy.
It seems desirable to make another observation which
also perhaps does not come directly within the scope of
the commission, but which is necessary for the complete-
ness of the present report.
It has been said that the ftmd for the regulation of
the currency has increased from ten to more than eighteen
million pesos; and this statement, without explanation,
might create the impression that the difference between
the two sums mentioned constitutes a net profit to the
federal exchequer, giving rise to unfavorable comment
on the part of the public, as the privilege of coining
money ought not, according to the principles of a sound
and careful administration, to be a source of revenue to
the state, for it seems like taking advantage of the com-
numity to oblige it to accept for currency purposes a
piece of metal of which the nominal value is higher than
its intrinsic value. Incidentally, it may be remarked
that this evil bears an inverse ratio to the value of the
coin, and that in many cases, in order to satisfy certain
requirements as to hardness, etc., the currency has to
be alloyed with certain inferior metals. In any case,
it might be supposed that the commission was taking
credit to itself, a credit to which it acknowledges it is
not entitled, for having earned for the exchequer a net
profit of more than IP 2, 000,000 per annum during the
four years of its existence.
The finance department and all persons acquainted with
our monetary legislation know very well that this is not
264
Banking System of Mexico
the case. The law of March 25, 1905, to which reference
has been so often made, lays down (art. 29) that "the only
expenses or losses that will be charged to the fund are
those that may be incurred strictly in connection with the
deposit of said fund, the handling or remittance of specie
or bars of the precious metals constituting it, and the
transactions in foreign exchange effected with it." Article
29 goes on to state that "all other expenses that may be
incurred, either in the form of salaries to employees, coinage
of money, or any other purpose, will be met out of the
appropriations provided by the budget of expenditure."
Under this clause, of which the object is to bring about
the gradual and insensible increase of the fund for the regu-
lation of the currency, the disbursements for the above-
named purposes, as far as the commission has been able
to ascertain from its own accounts, and the statements of
the federal treasury presented every year to Congress, were
as follows from May i, 1905, to June 30, 1909:
Salaries and expenses of the commission $119, 248. 74
Salaries and expenses of the Mexico City mint, including the
wear of money recoined and loss in the process of coinage:
Fiscal year 1904-5 (two months), approximately 89, 125.56
Fiscal year 1905-6 461,786.23
Fiscal year 1906-7 500,448.91
Fiscal year 1907-8 397, 044. 86
Fiscal year 1908-9 (subject to revision, the accounts for
the year not having been fully made up) 383, 185. 22
Expenses of mintage of money abroad (not including
cost of metal) 527, 856. 71
Freight charges paid by the general treasury of the
federation and the Mexico City mint 271,073. 96
Total . 2, 749, 770. 19
Deducting the above sum from the increase which there has
been in the fund for the regulation of the currency, viz.. 8, 102, 091 . 15
The actual profit is reduced to 5, 352, 320. 96
265
National Monetary Commission
Perhaps even this figure is not quite correct, and it may-
still be necessary to make further deductions from the
amount of profits realized; but even as it is, it will be seen
that the net profit to the federal exchequer is substantially
smaller than the total increase in the fund for the regula-
tion of the currency.
By the express desire of the members of the commission
and as an act of strict justice, the xmdersigned places on
record that in the discharge of their functions they have
been aided by the good will and eificient cooperation of all
the authorities, of many banking firms of this capital, of
almost all the chartered banks of the Republic, and par-
ticularly of the National Bank of Mexico, which, in a man-
ner befitting its position as the foremost of our institutions
of credit, has contributed, with all the manifold elements
at its disposal, to facilitate in every way the labors of the
commission, not only furnishing it with data and informa-
tion of special interest, but affording it aid and material
assistance, whenever necessary, with the unwavering de-
termination of uniting its efforts with those of the Federal
Government to maintain the fixity of foreign exchange
rates, an object in whose attainment both the board and
higher officials of the bank always expressed the utmost
confidence.
VII.
PERSONNEI/ OP THE COMMISSION.
According to the law whereby the commission was iristi-
tuted, its ex officio chairman is the minister of finance and
public credit, and in that capacity Sr. Lie. Jos^ Yves Li-
mantour has always done it the honor of presiding at its
266
Banking System of Mexico
sessions, following very closely and with untiring interest
the commission's debates and allowing the subcommission
or executive committee to address to him all the frequent
queries that were involved in its daily work- — ^the work of
which it has charge by virtue of its internal regulations —
when the matter at issue was too urgent to brook delay.
Diiring the few months in 1906 when Sr. Limantour was
absent, Sr. Lie. Don Roberto Nunez, subsecretary of
finance and acting minister, perfornled like functions with
the same painstaking assiduity.
Furthermore, and also according to the law by which
it was instituted, the commission consists of nine members,
two of whom are members ex officio, viz, the general
treasurer of the federation and the director-general of
the mints; three are appointed, severally by the National
Bank of Mexico, the Bank of Ivondon and Mexico, and
the Mexican Central Bank from among their directors or
higher officials, and four are appointed by the Federal
Government.
The following have belonged or still belong to the com-
mission through the above-named appointments:
As .treasurer-general of the federation, Don Manuel de
:^amacona € Inclan, and since his resignation in April, 1906,
Don Javier Arrangoiz.
As director-general of the mints, Eng. Manuel Fernandez
Leal, until his lamented death on July 2 last, and later
his successor in that office, Don Miguel de Mendizabal.
By appointment of the National Bknk of Mexico, Don
Gustavo Struck, until February, 1906, when his regretted
demise occurred; after him, Don Luis G. Lavie until June
267
National Monetary Commission
21, 1908, when, unhappily, he too died; and subsequently
Don Bmesto Otto, all directors of the bank.
By appointment of the Bank of London and Mexico,
Don Enrique Tron, one of its directors.
By appointment of the Mexican Central Bank, Don
Federico Kladt, assistant manager.
The members appointed by the Federal Government,
such appointments being renewed at the close of each
fiscal year, have been Don Andres Bermejillo, head of the
old and well-known firm of Bermejillo & Co., of this capital;
Don Hugo Scherer, jr., head of the banking firm which
bears his name; James Walker, manager of the Mexican
Bank of Commerce and Industry, established in this city,
and the undersigned. During a brief absence of Messrs.
Scherer, jr., and Walker, in the year 1905, their places
were taken, respectively, by Don Ernesto Otto, of the
firm of Sommer, Herrmann 8c Co. (successors), and by
Don H. M. Dieffenbach, manager of the Penoles Mining
Company. Although Mr. Scherer, jr., is now again absent,
the temporary vacancy has not yet been filled.
In accordance both with the law by which it was insti-
tuted and its internal regulations, the commission has
elected from among its members a vice-president, and the
undersigned has. on each occasion been honored by his col-
leagues in being clothed with that office. In addition three
subcommittees, each consisting of three members, have been
appointed, viz, the executive committee having charge of
current business and business not admitting of delay, the
second having charge of cash and bookkeeping, and the
third having charge of office matters and office personnel.
268
Banking System of Mexico
The first or executive committee consists of the under-
signed vice-president, ex officio, Don Hugo Scherer, jr.,
and Don Federico Kladt, the second of whom has been re-
placed, when absent, on this subcommittee by Don En-
rique Tron; the second subcommittee consists of Don Er-
nesto Otto, Don Enrique Tron, and Don Javier Arrangoiz;
and' the third subcommittee consists of Messrs. James
Walker, Andrfe Bermejillo, and Miguel de Mendizabal.
The executive committee has naturally had most to do
with the matters coming within the commission's prov-
ince, and the undersigned takes this occasion of discharg-
ing the pleasant duty of thanking his colleagues for their
important and valued aid and the unremitting attention
which they have devoted to the work of this committee.
The law lays down that membership in the exchange and
cvirrency commission is purely honorary, and by virtue of
this precept the members, whose names have been given,
have received no remimeration. All of them have ex-
pressly charged the undersigned to declare that they con-
sider themselves amply recompensed by the honor which
they feel in having their names associated with the illus-
trious name of the President of the Republic and with that
of his distinguished finance minister in the important task
of reducing to practice, so far without a single drawback,
the cmrency reform laws enacted in 1905, one of the main
factors in the economic progress and futtire of this coim-
try, to which all the members of the commission are at-
tached, some because it is the coimtry of their birth and
others because they are indebted to it for a generous and
liberal hospitality.
269
National Monetary Commission
VIII.
PERSONNEL AND EXPENSES OF THE COMMISSION'S OFFICE.
On account of the simple and wholly businesslike
methods followed in systematizing the work of the com-
mission, that work has been performed by a very small
personnel, which, even at times when the press of mat-
ters demanding attention was greatest, has consisted
only of a chief, Don Luis Uhink ; of a cashier, Don Rafael
Arrillaga; of an accountant, Don Juan Boy Munoz; a
clerk for correspondence, Don Adolfo Graue; two assist-
ants, Don Manuel Rodriguez and Don Fiacro Arrangoiz
(the latter succeeding Don Juan Manual Carrillo, who
resigned) ; and an office boy. Moreover, from March i ,
1906, to June 30, 1908, Don Rosendo Esparza was en-
gaged in the laborious task of sorting the vouchers for
the statement of accounts that had to be rendered and
was, in effect, punctually rendered to the general treasury
of the federation as to all the business transacted.
Thus the work of the office has been done by a chief
and two higher employees, a clerk, two or three assist-
ants and an office boy, and it is not, therefore, to be
wondered at that in no fiscal year has the whole of the
appropriation of 50,000 pesos assigned in the budget
to the commission for its expenses been used.
In fact, including the purchase of office fumitiure and
office suppUes, rent, cost of books, printing, lighting,
and salaries, the expenses have been as follows:
May I, 1905, to June 30, 1906 $30,432.78
July I, 1906, to June 30, 1907 21,927.49
July I, 1907, to June 30, 1908 33,234.75
July I, 1908, to June 30, 1909 . 33,653.72
Total in four years and two months, no^ 248. 74
270
Banking System of Mexico
or an average of $2,384.98 per month, including the value
of office furniture and equipment, the most valuable of
which, viz, the safe and sample scales, costing $2,632.88,
are as good as new.
It should be observed that the correspondence, book-
keeping, cash, and other departments of the office work
have been kept scrupulously up to date ; that the differ-
ences in the cash account, notwithstanding the immense
sums of specie of all kinds that have been handled, have
amounted only to $1,140; that in the shipments of silver
pesos abroad the claims for losses have aggregated only
$1,682; and finally, that all the work of the office has been
conducted in such manner that neither the public nor the
members of the commission have had a single ground for
complaint.
The accounts for the general treasury of the federation
(for each fiscal year ending June 30) have always been
presented before August 31, and the audit office of the
federation has already approved the accounts for the fiscal
years 1905 and 1906-7.
For these reasons the commission has charged the tmder-
signed to thank the staff of the o5fice without distinction
of persons, for each in his sphere has rendered services
which without exaggeration may be described as highly
meritorious.
IX.
CONCLUSION.
It is now time, perhaps more than time, to conclude the
present report.
But, before concluding, the commission begs to express
the hope that the foregoing acctirate statement will con-
271
National Monetary Commis s ion
tribute to strengthen more and more the confidence which
has been felt both at home and abroad in the success of
the monetary reform of 1905 ever since its fundamental
features were known. Severe are the tests to which it
has been put, especially in the last two years, and yet it
emerged from them unimpaired, its maintenance not
having entailed any sacrifice of any kind on the Republic.
If, in addition, we compare the resources that were
available in 1905 with those now available to stumount
any temporary perturbation in foreign exchange, the con-
fidence in final success will be still further strengthened.
In 1905 we had no other funds in gold but those which
the finance department has been accustomed to hold
abroad since the treasury reserves began to accumulate
as a consequence of the annual budget surpluses, whereas
at the present time those funds have not only not dimin-
ished, but amount to £1,500,000 approximately. At
home we had no gold currency at all in 1905 and at present
we have more than $83,000,000 in gold coins, of which, on
June 30 last, the exchange and currency commission held
five millions and the general treasury more than eleven mil-
lions, while the remainder of the fund for the regulation of
the currency, some thirteen million?, was held on the same
date, partly at home and partly abroad, almost exclu-
sively in gold, and the domestic production of refined gold
has increased from $4,718,104.87 in 1905-6 to nearly
$21,000,000 in 1908-9. Furthermore, the experience
acquired during the late crisis shows that the exchange
and currency commission constitutes an efficient instru-
mentality for the regulation of exchange, when neces-
272
Banking System of M e x i c o
sary, without producing alarm or occasioning upheavals.
And, finally, the credit of the nation has daily grown
stronger, for from 1905 to date the Republic has shown
that under the aegis of peace, internal and external, its
resources have steadily expanded and every confidence
may be felt that the sound sense of its people will preserve
intact that essential factor of their economic, intellectual,
and moral progress.
(Signed) Pablo Macedo,
Vice-President.
Mexico, September 2, 1909.
8648—10 18 273
ANNEXES.
Annex i. — Statement of old silver coins withdrawn from circulation and sent
to the mint for recoinage.
Silver pesos.
Subsidiary,
silver coins.
1905. to
Withdrawn from circulation from May j
June 30, 1906
Withdrawn from circulation in fiscal year 1906-7
Withdrawn from circulation in fiscal year 1907-8
Withdrawn from circulation in fiscal year 1 908-9
$800, 000. 00
S. 718,330.00
$4,584,593-87
3,212,347.39
^.477.506.15
I, 458, 063.60
6, 518,330. 00
".732.S11-01
Retired in silver pesos $6, 51' • 330.0^
Retired in subsidiary silver coins 11, 732, 511. ox
Total of old silver coins retired June 30, 1909 18, 250, 841.01
Annex 2.-:-Statem£nt of copper coins withdrawn from circulation and sent to
the mini to be melted down.
Withdrawn from circulation between May i, 1905, and June 30, 1906 $57, 577. 85
Withdrawn from circulation in fiscal year 1906-7 84,074.06
Withdrawn from circulation in fiscal year 1907-8 109,002.60
Withdrawn from circulation in fiscal year 1908-9 82,013.56
Total of copper coins withdrawn from circulation 332,668. 07
LIQUIDATION.
Total of copper coins retired between May i, 1905. and June 30, 1909.- $332, 668. 07
Deduct coins melted:
Fiscal year 1906-7 $28, 482.32
Fiscal year 1907-8 30,511.55
Fiscal year 1908-9 IS. 946. 48
Not yet melted-
74,
257.
940.35
727.72
Profit and lo^s account of copper coins melted.
X906-7: Amount realized from sale of 21,344.465 kilos of cop-
per obtained by melting down $28,482.32 of copper
coins _ - $21,344.47
1907-8: Amount realized from sale of 22,790.878 kilos of cop-
per obtained by melting down $so,sii.5S 13, 674. 53
1908-9: Amount realized from sale of 11,957.923 kilos of cop-
per obtained by melting down $15,946.48 7. 772. 65
Loss owing to difference between amounts realized from sales
of copper and the coinage value of the coins:
Fiscal year 1906-7 __ 7, 137.85
Fiscal year 1907-8 _ 16,837.02
Fiscal year 1908-9 8, 173, g^
333.*S^. 07
»42. 791.65
32. 148.70
Total equal to amount melted down m.
Mbxico, June 30, zgoQ-
274
940.35
Banking' System of M e x i c o
Annex 3. — Statement of old gold coins withdrawn from circulation and sent
to the mint for recoinage.
Face value.
Value at legal
parity.
Withdrawn from circulation during the fiscal year
1905-6 __
Withdrawn from circulation during the fiscal year
1906—7 :
$217, 149. 00
156. 565. so
$428,642.85
309,032.00
373.714.50
737,674.85
Mexico, June jo, igOQ,
Annex 4. — Statement of Central and South American coins withdrawn from
circulation in the State of Chiapas and sent to the mint in this capital to be
melted down and recoined into Mexican money.
, Pesos.
Subsidiary
coins.
Withdrawn from circulation during the fiscal year
1907—8 _
$96,605.00
236,966.00
$287,977.49
245,474.56
Withdrawn from circulation during the fiscal year
1908—9 _ _
333.S7IOO
533. 452. OS
LIQUIDATION.
Cost of coins withdrawn from circulation dur-
ing fiscal year 1907—8:
$287,977.49 at 83 percent $239,021.31
$96,605 at 88 per cent 85,012. 40
Cost of coins withdrawn from circulation dur-
ing fiscal year 1908-9:
$231,967.50 at 88 per cent_^ 204, 131. 40
$5,000 at 87 percent 4,350.00
$245,473.06 at 83 per cent__ 203, 742.63
Obtained by melting and recoinage into Mexi-
can money:
Fiscal year 1907-8
Fiscal year 1908-9
Profit:
Fiscal year 1907-8 6, 177.39
Fiscal year 1908-9 11, 859. 76
$324,033. 71
412,224.03
$330,211. 10
424.083. 79
18,037. IS
754.294.89
Mexico, Jwne 30, Tgog.
754, 294.89
275
Nation a I Mon et ary Commission
Annex 5. — Exportation of silver pesos.
Pesos exported:
From November, 1905. to June, 1906 $39. 253, Soo-°°
During fiscal year 1906-7 13-439. 000.00
During fiscal year 1907-8 8, 035, 000. 00
Total exported 60, 727, 5 00-00
Pesos sold:
Proceeds of sales from November, i9os,toJune, 1906 36,732,500.00
Proceeds of sales during fiscal year 1906-7 14, 7 76, 000. 00
Proceeds of sales during fiscal year 1907—8 6, 509, 000. 00
Total sales 58, 017, 500. 00
Total reimported 2, 7 10, 000. 00
60, 727, 500, 00
Mexico, JuTie 30, ipop.
Ani^^x 6. — Statement of amounts received in gold bullion and foreign gold
coins as the equivalent of silver pesos exported under the law of November
19, igo6.
Total value received at the legal parity:
Fiscal year 1906-7 $$, 750, 740.37
Fiscal year 1907-B 2, 513, 707. 28
8, 264. 447-65
Fiscal year 1906-7:
Net proceeds of liquidation 5,696, 623.83
Loss in melting ^ 3, 966.54
Fiscal year 1907-8:
Net proceeds of liquidation , z. 561, 529-38
Loss in melting 2, 327. 90
8, 264. 447-65
Mexico, June 30, iQog.
Annex 7. — Statement of money coined from May i, 190,5, to June 50, 1909,
under the law of March 25, 1905, establishing the new monetary rigime.
Gold:
In $ro pieces $54. 666, 120. 00
In $s pieces 28, 720,380. 00
$83,386,500.00
Silver:
In $1 pieces (pesos) 10, 105, 000. 00
In 50-cent pieces 26, 830, 619. 50
In 20-cent pieces 3, 846, 923. 80
In lo-cent pieces i, 946, 000. 00
42.728,543.30
Nickel, in s-cent pieces __ 904. 308. 00
Bronze:
In 2-cent pieces $ 200 , 968 . 00
In i-cent pieces. _ 735,450.90
— ' 936.4 18. 90
Total coined - _ 127. 955. 77^^
276
Banking System of Mexico
R^SUMlS OF COINAGE BY FISCAL YEARS.
Fiscal year 1904-5:
Silver $350,000.00
Bronze 3, 300. 00
^. , , $353,300.00
Fiscal year 1905-6:
Gold 41, 776, 500. 00
Silver 51079, 000. 00
Nickel 23 s. 000. 00
Bronze 182, 100. 00
47, 272, 600 . 00
Fiscal year 1906—7:
Gold 23, 250, 000. 00
Silver 23,367,923.80
Nickel 566, 728.00
Bronze 751.018.90
^. , „ 47.935.670.70
Fiscal year 1907-8:
Gold 16, 600, 000. 00
Silver 7, 403, 619. 50
24. 003, 619. so
Fiscal year 1908-9:
Gold I, 760, 000. 00
Silver 6,528,000.00
Nickel 102,580.00
8. 390, 580. 00
Total coinage 127, 955, 770. 20
This money was coined at the following mints :
Mexico City mint:
In gold $53,386,500.00
In silver 32.321, 000 . 00
In nickel __ 301, 728.00
In bronze 336,418.90
„ 86,345.646.90
Philadelphia mint:
In gold 30, 000, 000. 00
San Francisco mint:
In silver 6, 221, 000. 00
New Orleans mint:
In silver 1,086, 923. 80
Denver mint:
In silver 3, 099 ,619.50
Birmingham (England) mint:
In nickel $602, 580. 00
In bronze 600 , 000 . 00
1,202,580.00
Total _ _ __ 127,955, 77o. 20
Mexico, June 30 iqoq.
277
National Monetary Commis s ion
Annex 8. — Statement of domestic silver bars bought by the exchange and cur-
rency commission and sent to the mint for coinage.
Number
of bars.
Pure silver con-
tents in kilos.
Cost.
Coinage value.
Bought in fiscal year
3. 037
85.503-982599
100,060. 719158
$3,174,248.83
3,334,784.28
$3,498,698.07
4,094.338.44
Bought in fiscal year
Total
S.61S
185,564. 701757
6,509,033. II
7,593.036.51
LIQUIDATION.
Cost of 85,503.982599 kilos of pure silver bought in tlie
fiscal year 1907-8 — ._. $3, 174, 248.83
Coinage value of same $3, 498,698.07
Cost of 100,060,719158 kilos of pure silver bought in the
fiscal year 1908-9--- 3,334.784.28
Coinage value of same 4.094,338.44
Profit realized:
In 1907-8 _ $324,449. 24
In 1908-9 759,554- 16
1,084,003.40
7,593.036.51 7.593,036.51
Mbxico, June 30, rgog.
Annex 9; — Statement of domestic gold bullion bought.
Pure gold.
Coinage value.
Fiscal year — -
190S-6--.
1906-7 —
1907-8 - - .
1908-9 —
Kilos.
3,538.590788
9.547.707190
10, 239. 385606
15.747.079395
$4,7lS. 104.87
12, 730. 244.30
13,652,479.97
20.996,053.24
Total.
39,072.768979
52,096,882.38
DISPOSAL.
Sent to the mint for coinage:
Fiscal year —
1905-6 -
1906-7
1907-8
1908-9
Exported, fiscal year 1908-9.
On hand June 30. 1909
Total.
Pure gold.
Kilos.
3,538.596788
9.547- 707190
10. 239.385606
716.693576
24.042.383160
11.469. 120984
3,561. 264835
39,072. 768979
Coinage value.
$4, 7l8, 104.87
12,730,244.30
13, 652, 479. 9y
955,589.05
32,056,418.19
IS. 292, 122.96
4, 748,341.23
52.096,882.38
Mbxico, June 30, jgog.
278
Banking System of Mexico
Annex io. — Statement of domestic gold bullion exported.
DEBIT.
190S.
July
August
September.
October
November. ,
December . .
January..
February.
March
April
Pure gold.
Kilos.
346.602849
I, 185.817242
972.485870
1,408. 569352
8S4. 196145
A, 167. 471207
1,808. 135405
1,543.709337
1.751-385196
500. 74838r
zi, 469. 120984
Value,
$328,802.98
1,581,085.69
I, 296,644. 58
1,878,087.79
I, 178,925. 19
1.536.624.36
2,410,841. 14
2.058,273.97
2.335.174.43
667,662.83
15, 292, 122. 96
Expenses
of remit-
tance.
$1,078.07
5,193-91
4,256.43
6,178.80
3,871.61
5. no. 39
7, 9x0. 48
6, 76X. 92
7.655.09
J, 204. 15
SO, 220.85
Totals.
$329,881.05
1, 586, 279. 60
1, 300, 901. 01
1,884, 266. 59
I, 182, 796. So
1,561.734.75
2,418, 751. 62
2.065,035.89
2,342,829.52
669,866.98
15.342,343-81
CREDIT.
Proceeds in Mexi-
can currency.
Totals.
1908
July
August
September
October
November
December
1909
January
February
March
April
$328,706.49
1,580,444-93
1. 296, 560. 18'
1.877,33309
1,178,558-82
1.556,088- 14
2,410,067. 67
2,057,545.61
2,334.065.63
667,370. 68
$1,174-56
5,834-67
4,340-83
6, 933- SO
4.237.98
5,646.61
8,683.95
7, 490. 28
8,763.89
^. 496. 30
$329,881.05
1,586, 279, 60
1, 300, 901. 01
1,884, 266. 59
1, 182, 796. 80
1,561,734.75
2,418,751.62
2,065,035.89
^,342,829. 52
669,866.98
IS, 286, 741. 24
55. 602. 57
15.342.343-81
Mexico, Jwne 30, igog
279
N ation al Mon et ary Cotnmis s ion
Annex i i . — Specie circulation — Gold.
1907
January __
February _
March
April
May
June
July
August
September
October _ _ .
November.
December.
1908.
January „ _
February _
March
April
May
June
July
August
September
October
November.
December.
1909.
January _ _
February _
March
April
May
June
Held by the
banks.
$40.
42,
44.
45.
46,
46.
48.
51.
52.
Si,
S3'
SS,
49,
48,
49.
SO,
51.
52,
49.
47.
47.
46.
47.
46,
46.
46.
47.
47.
49.
51.
S9S.495
884,425
266.585
062, 730
664.29s
706, 240
620, 100
677, 205
992,550
352.980
394. 160
400, 150
980,23s
631, 920
123. 455
962, 940
763,215
730,470
776.310
064, 760
191,580
898,330
702, 670
873.680
997, 060
499. 130
184. 460
710,74s
697.540
549. ois
Held by gen
eral treasury.
$247,530
372, 250
413.890
993,325
2. 017. 515
3, 019, 60s
4, 825, 000
5, 870, 000
6, 032, 000
6, 070, 000
7, 420, 000
9, 170, 000
10, 170, 000
10, 210, 000
10, 210, 000
10, 240, 000
11;^, 275,000
II, 290, 000
II , 300, 000
II, 320, 000
II, 320, 000
1 1, 340, 000
II, 340, 000
Held by com
mission.
$700, 000
550,000
450, 000
900, 000
2, 400, 000
i.. 155,000
200, 000
J., 080, 000
I, 100, 000
920, 000
4, 000, 000
4, 840, 000
4, 200, 000
3, 760, 000
5, 000, 000
6, 100, 000
7, 520, 000
9, 740, 000
9, 740, 000
10, 000. 000
9, 300, 000
9, 300, 000
9. 300, 000
9, 680, 000
9, 000, 000
8, soo, 000
6, soo, 000
S. 000. 000
In hands of
public.
S13.Si1.005
14.042,075
15.049. 91S
16,833,770
15,982, 205
15. 920, 260
16, 971, 400
16, 621 , 765
16, 781, 700
17.319.630
17.879,015
18,148,835
18, 646, 660
18, 189.580
17.893.045
17.331.560
17. 173,285
IS. 376,030
16, 580, 190
16, 411, 740
16, 244. 920
16. 278, 170
16, 143.830
IS. 937. 820
IS. 799.440
IS. 907.370
15, 882, 040
15.85s. 755
15. 848, 960
15.497.485
Total
coined.
$54,806,500
56, 926, 500
59,866,500
62,346, 500
63,546.500
65, 026, 500
66, 746, 500
68,546,500
70,346, 500
72, 166, 500
73,366, 500
74.486, 500
75,646,500
76,486,500
77,086, 500
78,086, 500
80, 006, 500
81, 626, 500
83. 046, SOO
83,386,500
83,386,500
83,386,500
83,386,500
83.386,500
83,386,500
83.386,500
83,386,500
83.386,500
83.386,500
83.386,500
Mexico. June 30, igog.
280
Banking System of M e x i c
Annex 12. — Specie circulation — Silver pesos.
1907
January
February
March
April
May
June
July. _
August
September
October
November
December
1908
January
February
March
April
May
June
July
August
September
October
November
December
1909
January
February
March
April
May
June
Held by the
banks.
$16,444,017
13,944,885
12,596,68s
12,328,557
13,428.33s
14,379,036
12,576.527
8,084, 133
8,330, 741
9,086, 235
9. 965. on
io,86i, 485
11,473.129
11.958,516
13,079, 247
13,985,462
15, 612, 029
17,763,545
20,523,594
21, 857, 162
23,356,872
24, 488, 924
25-605, 708
26,449,445
27, 224, lis
27,754.347
28, 326, 616
28, 820, 917
'29.S3ir-549
29. 869, 472
Held by -
general
treasury.
$5,812
5,868
5,890
5,910
6,340
8,810
14, 850
28, 750
43.000
53.000
74, 000
80, 000
90, 000
113, 000
130, 000
158, 000
164, 000
289, 000
190, 000
206, 000
216, 000
220, 000
230, 000
Held by
commission.
Si, 400,
1. , 400,
1 , 400,
I, 140,
850.
850,
850,
850,
850.
850,
863.
S63,
000
000
000
000
000
000
000
000
000
000
000
000
863 , 000
1, 193, 000
i!, 050, 000
z, 770, 000
3, 880, 000
3, 000, 000
I, 000, 000
i, 000, 000
500, 000
200, 000
Total.
$17,844,017
15,344,885
13.996,685
13.468,557
14,278,335
15, 229,036
13,426.527
8,939,945
9, 1S6, 609
9,942, 125
10,833,921
11.730.825
12,344,939
13, 166,366
15,157.997
16, 798, 462
19.545,029
20,837,545
21,603,594
22, 947, 162
23. 969,872
24, 818, 924
25. 763. 708
26,613,445
27.S13. 115
27.944.347
28,532,616
29,036,917
29,751.549
30,099,472
Mexico, June 30, igog.
281
National Monetary Commis sioi^
Annex 13. — Specie circulation — Subsidiary coins.
igor.
January _ „
February,.
March
April
May
June
July
August
September .
October
November-
December. .
1908.
January
February...
March
April
May
June
July.
August
September .
October
November..
December- .
1909.
January . . ,
February...
March
April
May
June
Held by
the
banks.
$3,898,
4.737.
^, 908,
S.283.
6,167,
6,68s,
7., 1 06.
6;'662,
6, 100,
5,313.
4.963.
S.09S.
S.299.
4, 202,
4,336,
S,OI2,
5. 230.
6.I4S.
6,8z6,
7.099.
7,399,
7.421,
7,306.
6.991,
397-65
220. 95
748.89
706. 66
694- S3
180.84
389.46
689. 82
319.08
692. 44
968. 74
850.67
332.62
742.33
ISS.56
741. 24
242.31
203.68
026. 10
655.97
639. 13
075.27
739. 26
2 21. 48
6,368, 795.00
5.855.973.42
6, 331, 216. 72
5,680,491. 73
5. 709,360. 28
6, 063, 919. 48
Held by
the
treasury.
$6,030.95
6, 743- 52
i, 606, 34
2,526.64
838.73
2,527.32
5.345-74
12,673. 15
19,946.07
6, 144. 61
5,814-27
841- 12
1, 217. 69
23,358-33
9,836-86
20,914- 79
15,466-87
14.358.36
2, 647. 01
3.531-68
3. 101. 79
2.955-87
J. 371. 51
Held by
com-
mission.
$64,500
90. 700
52, 000
43 , 000
41, 000
628, 000
568, 000
245, 000
104, 000
66, 000
28, 000
145. 000
102, 000
50,500
71, 500
47. 000
25, 000
19, 000
125, 000
164, 000
206, 500
126, 000
121, 500
120, 500
119,500
182, 500
232, 000
195,000
184, soo
226,080
In hands of
public.
Sr3.4i2.
16, 414,
l8,Si7,
20, 03S,
21,556.
23. 221,
24.340.
25. 660,
26,753.
27.843.
28, 470.
28.683,
28, 600,
29,846,
29.774.
29.115.
28,933,
28,024,
27.286,
26,973.
26. 609,
26.681,
26, 789,
27, in.
249-25
225-95
398. 01
364- 04
376- 17
889. 86
300. 74
969.43
627. 60
391.42
194. 82
000. 80
830. 26
102. 13
361.49
002. 89
303.28
672. 25
822.98
816.54
192.74
778.07
536. 15
501.85
27,736,036.84
28, 267,569. 77
27.794.941.80
28,483,096.68
28,464,874. OS
28, 170,899. 21
Total coined.
$17,375.
21, 242,
23.478,
25,365,
27,765.
30,535.
32,014.
32,574.
32.964.
33.224,
33.464.
33,924,
34,004,
34, 104,
34.194,
34.194.
34, 194,
34, 194.
34.238,
34.238,
34,238,
34,238,
34.238,
34,238,
146.90
146.90
146.90
070. 70
070. 70
070. 70
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
690. 20
34. 238,690. 20
34,308,690. 20
34.361,690. 20
34.361, 690. 20
34,361.690. 20
34.464, 270. 20
282
Banking System of M e x i c
Annex 14. — Statement showing increase of fund for the regulation of the
currency.
[Condensed table.]
Profit:
On coinage of gold $3,302. 26
On coinage of silver 6, 1 11, 973- os
On coinage of nickel 548, 963- 25
On coinage of bronze S48, 223.48
On dealings in exchange. 369. 190. 85
Interest _ _ --- - 469. 863 . 21
Sundry 86,219.89
Total profit _ _-_ 8, 137, 735-99
Loss:
On copper coins withdrawn from circulation and melted down to
date - - - 32.148.70
Expenses of refining 3. 496 . 14
Total loss - - 35. 644. 84
RfiSUMfi.
Total profit _ $8, 13 7.735-99
Totalloss - 35.644.84
Net profit -- 8, 102,091. 15
Original fund for the regulation of the currency 10, 000. 000. 00
Amount of fund for regulation of the currency on June 30, 1909. _ 18, 102, 091. 15
Net profit of $8,102,091.15 earned was —
From May i, 1905, to June 30, 1906 i, 747. 573-62
Fiscal year —
1906-7 - - - 4.064,203.71
1907-8 1,288,563.02
1908—9 r.oor, 750. 80
S, I02, 091. 15
Mexico, June 30, iqoq.
Annex 15. — Statement of cash handled by office of exchange and currency
commission from May i, I'goSy to June 30, igog.
May I, 1904, to June 30, 190S
Fiscal year 1905-6:
July -
August
September
October
November
December
January
February
March
April
May
June -
283
Received.
Paid out.
$11, 891. 06
$11, 891. 06
12,93352
10,678. 92
213.395-23
214.429-21
163.629.07
124,789.91
147,882.06
178,836.40
271,129.45
263, 281.89
4,023,576.94
4
012,824. 40
3,996, 164. 28
4
007, 259.80
4, 144,210.40
4
138,396.30
4, 200, 982. 99
4
217,452.3.-
3, 621, 466. 52
3
623,384.07
5.946,315-03
5
945,520.69
6,977,469.77
6
979,923,46
National Monetary Commission
Annex 15. — Statement of cash handled by office of exchange and currency
commission from May i, 1903, to June 30, igog — Continued.
Fiscal year 1906-7:
July
August
September
October
November
December--^..
January
February
March
April
May
June__
Fiscal year 1907-8;
July
August
September
October
November
December
January
February
March
April
May
June
Fiscal year 1908-g:
July
August
September
October
November
December
January
February
March
April _- _
May
June
Total.
Received.
009,372.93
024, S94. 28
215,753-95
337,228.95
230,014.83
737,022. 75
980, 619. 09
793,046.84
295. 173.56
959. 147- 08
746,357- 78
762, 213. 89
524, 811. 28
904,388. 74
798, 496. 82
057,421. 77
605,099.33
.617,179.53
,066,812.82
,962,094.45
.245.457-52
.959.335.42
. 702,476. 50
. 941,048. SI
627, 026. 98
771. 791. 16
602,331. 13
162, 361. 8t
834,570.07
654.070. 54
31S, 246. 66
213, 202. 66
767.844-64
784,765- 71
759,441-93
611, 433-83
285,350, 602. 06
Paid out.
$3,002,
4.025,
4.217,
5.356.
6,235,
8,738,
12, 980,
16,793.
14, 293.
13,961,
7. 746.
7, 761,
13.524.
1 2 , 906 ,
8,797.
7,057,
4,605,
4. 616,
7,066,
2. 962,
5,244,
5,958,
5.702,
6,942,
7, 621,
6, 769,
4,611,
5, 162,
3,8S4.
2,654,
5.313,
5.213,
7,767,
3.783,
4.757.
3.599.
122. 85
791-52
927.17
008. 8r
557.08
040. 56
171.68
201. 44
230.09
345.98
126. 20
469. 01
595- 90
553- 19
433-49
660- 13
019. 08
243.23
317-95
785.28
197. 76
260. 25
995-36
414- 21
820.61
086. 26
791.23
223. 12
352.93
223. 78
197.03
639. 79
716. 72
049. 46
935- 87
972-88
285.333. 146.33
Mexico, June 30, igog.
284
)09.
LIABILITIES.
Authorized
capital.
>3 2 , ooo ,
21, 500,
S-ooo,
16, 500,
2, 000,
I, 000,
2, 000,
3. 000,
I, 600,
I, 100,
i.Soo,
1,500.
3.000,
6, 000,
2,500,
8, 000,
3.000,
1 , 000,
I , 000,
2, 500,
600,
I, 000,
I, 000,
500,
000. 00
000. 00
000. 00
ooo. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. CO
000. 00
000. 00
000. 00
000. 00
000. GO
000. GO
000. 00
000. GO
000. GO
GOO. 00
000. 00
OOG. 00
000. 00
000. GO
I 18, 800 000. OG
5, GOO, 000. GO
5, 000, OGO. GO
10, 000, OOG. GO
30, 000, OGG. OG
200, 000. 00
10, 000, 000. GO
6, OGO, GGO. 00
I , 000, 000. 00
6gO, GGO. 00
Reserve funds.
$16, 000,
10, 750,
I. 413.
73.
23 r,
267.
365.
20s,
2IG,
211 ,
472.
160,
645.
6S.
222,
610,
133.
70,
Z29,
228,
16,
47.
000. 00
000. 00
077. 15
457-37
154.31
000. 00
649. 19
579. 75
402.97
183.98
651.88
393.82
734.98
780.01
083.88
313.78
996. 76
717.74
95 1 04
404. 82
893.43
624, 28
374. 46
32. 584. 425. 60
535,000.00
128, 030. 00
663, 030. 00
1,625,636.37
14, 738. 66
108,544.89
23,896.40
44,451. 17
29. 752. IS
Special guaranty
funds.
»ii
00, ooo. 00
4, 350, 000. 00
375,000. 00
133, 000. GO
333.410.96
43,
SI.
S33.
215.
315.
17.
40,
433.
4.
34.
6,
24.
287.94
580.68
853. 29
000. 00
596.33
529. SS
000. 00
000. 00
864. S9
000. 00
SCO. 00
3S7.18
658. 00
18, 723,668.52
S4,SSK. 79
DBPOSITS AT SIGHT OR AT NO MORE
THAN THREE DAYS.
Without in-
terest.
59. 292.39
117, 764.65
6, 912. 56
IS . Sio. 19
48, 2SS. 24
IS. 911. 90
10, 030. 01
59, 299.69
289, 783.39
l8i,so3.44
1.570. IS
12,339. 64
18. 318.45
10, 810. 29
656. 06
2, 250, 566. 60
4, 950, 000. 00
5. 004. 87
75, 000. 00
1 1 , 092. 22
I. 341. 67
At interest.
40,416, 731. 56
27. 053, 816. 14
143, OS7. 83
29,425.32
84, 140. 79
439. 702. 74
26, 220. 31
156. 546. 75
306, 308. 14
223.091. 77
II , 029. 51
81, 147. 4S
68,378.90
346, 139.92
136, 408. 90
40, 052. II
.■!i5,86i.37
92, 159, 26
S. 500. 02
69 87s, 718. 79
, 461 , 663. 10
220, 782. 48
,682,445.58
8, 692. 940. 09
27.568.85
255,5S4.98
76,526.97
47 800, 000. 00
1 , 847, 019. 64
S, 041, 097. 09
13, 841. 67
9,052, 590.89
Deposits for more
than three days.
816,675,
1.372,
2.8s9,
604,
2, 402,
1.930,
1.936.
1.8S1,
1.263.
4.950,
3. 134.
2. 145.
3.187.
1.78s.
1.637.
S.311.
2. 241,
73,
329.
G61,
906,
41,
593. 41
255. 54
500. 07
842.36
593.64
S70.80
093. 06
155. 24
32S. 20
092.31
272. 79
644. 62
076.51
398. 13
011.82
908. 42
072. 90
655. 23
032. 05
7SO. 92
879.36
818.73
423.60
58, 125,969. 71
I. 233.350.32
143. 900. 92
1.377. 251. 24
6,392, 411.
Notes in circu-
lation.
, 214,
. I7S.
. 070,
, 291,
837.
751.
, 023,
,080,
.3S4.
.549.
.434.
.109,
,596,
. 740,
, 148,
, 600,
.ois,
962,
807,
S82,
686,
625,
.049,
212,
S74.C
096. c
805. c
178. c
204. c
959. c
756. c
9IS.C
S7S.<:
iiS.c
275. c
725. c
60s. c
03S-C
675. c
690. c
410. c
7SS.C
470. c
215. c
685. c
980. c
240. c
240. c
Cash bonds in
circulation.
Mortgage bonds
in circulation.
Various debits.
$13
92, 221 , 477. CO
!?5,555,90o. 00
66, 000 00
541,397
I , 261 , 125
7,068
574.987
$16, 066. 400. DO
16, 769, 800. 00
32, 836, 200. 00
,776,990.48 j 5,621,900.00
421
, 243
. 549
, 914
781
S27
479
25S
.396
, 261
. 226
I2S
5 73
,330
612
,077
796
53
348
, S_'2
347
264
218
, 189
.804
.613
.483
.538
.481
.037
. 244
419
,946
,454
.929
487
869
046
474
817,
022
102
500
205
8S3
027
278,41*
60, 208, 970. 37
46
2, 027, 990. 04
2,515.423. 73
4.543.413. 77
11.892, 177.33
902, 73S. 43
4.865, 143. 73
307.447.64
507.690. 52
509, 120. 86
18.984,318. SI
Impersonal
debtor accounts.
ACCOUNTS IN TRUST.
$26,022, 725.35
3. 669, 070. 08
5.276,
309.
98,
sSs,
30s.
169,
418,
553.
80,
351,
393,
168,
711,
252,
295.
24.
151.
74.
74.
59.
361.54
718.92
6S3.2S
63s. 75
371. 01
875.57
692.50
827.67
985.85
999. 66
668.30
036. 49
722.4s
842. 79
338. 99
812.31
873.58
356.33
63768
990. 82
40, 050, 226. 92
200. 9S8,
575.884.
776.872.46
5. S04. 225. 41
I. 134. 88
959.059.62
172,321. 10
307,422.56
128, 141. 68
Securities.
iioi, 3S8, 6S1. 44
78, 614, 382. 00
4. 975. 792. i
I, 391, 807. 62
Current ac-
counts.
Other accounts.
$1 , 117, 209. 96
10, 414. 932, 22
107, 144. 63
13,375. 248. 71
1,690,845. 31
I, 530, 971. 20
4,694, 239.00
3.947.695.35
I. 341. 735.0c
2,357.350. 26
5,519, 000. 00
6,903,878.84
260, 000. 00
,554, 722. 74
186,370,663.94
7,072,305. 25
56.303,557. 29
14,398,570. 43
^. 003 , 7sa. 00
I. 740, 300. 00
22, 340. 16
Total.
CLASS AND NAME OF INSTITUTION.
S676, 153.65
676, 153.65
24, 164,968. 59
S3 00
180,
18,
46,
13.
6.
455
143
434
178:
346
576,
517,
611,
027,
709,
914,
275.
209,
556.
538,
730,
70s,
559,
004,
980,
695.
765,
261 ,
996,
221. 00
356. 76
433.04
629.39
612.48
003.95
772. 74
031.44
716. 25
187. 97
634. 79
505.33
353. 19
372. 70
130. 13
I3S.07
004. 58
438.32
347.58
581.85
540. 00
015. 41
215.94
158.48
736, 191,398. 39
26. 580, 280. 43
25,353,821. 41
51,934. 101.84
09, 01 1, 861. 50
1.217, 185.69
24,820, 958.36
9, 592, 709. 86
1,888,972.56
1.843,344. IS
BANKS OF ISSUE.
Banco Nacional de Mexico.
Banco de Loudres y M^ico.
Banco Minero de Chihuahua.
Banco Peninsular Mexicano.
Banco de Durango.
Banco de Zacatecas.
Banco de Nuevo Le6n.
Banco del Estado de Mexico.
Banco de Coahuila.
Banco de San Luis Potosi.
Banco de Sonora.
Banco Occidental de Mexico.
Banco Mercantil de Veracruz.
Banco de Jalisco.
Banco Mercantil de Monterrey'.
Banco Oriental de Mexico.
Banco de Guanajuato.
Banco de Tabasco.
Banco de Hidalgo.
Banco de Taniaulipas.
Banco de Aguascalientes.
Banco de Morelos.
Banco de Querctaro.
Banco de Guerrero.
Total.
MORTGAGE BANKS.
Banco Internacional ^ Hipotecario de Mexico.
Banco Hipotecario de Credito Territorial Mexicano.
Total.
BANKS OP PROMOTION.
s. 375. 032. 12
Banco Central Mexicano.
Banco Comercial Refaccionario de Chihuahua.
Banco Mexicano de Comercio e Industria.
Banco de "LaLaguna*' (Refaccionario).
Banco de Campeche.
Banco de Michoacdn.
Total.
^FFENDIX D.-Table ISJ^o. 1.
Reports of Condition of IVEexican Institutions of Credit, June SO, 1909.
ASSETS.
Notes of other
banks.
Sr
S78,
304.
84.
ss.
32,
35.
23.
38.
32.
S8,
loS.
76.
168,
75.
93.
264,
55,
5.
109,
31.
220. 00
530.00
675.50
800. 00
735- 00
965.00
375-00
941. 00
800. 00
165. 00
635. 00
193. 00
235. 00
085. 00
375- 00
485. 00
800. 00
940. 00
760. 00
520. 00
895.00
135- 00
045. 00
485.00
4, 273, 794- SO
498, 765. 00
17, 825. 00
S16, S90.00
1 . 710, 766. 00
52, 630. 00
610, 275. 00
16. 645. 00
12. 055. 00
49, 720. 00
Total cash.
S51.637.
12, 602,
I, 781.
2,388,
574,
482,
918,
I . 626,
736,
I , 008,
I, 432,
1,571.
2,354.
I, 247.
843.
3, 145.
674.
534.
726,
735.
378.
393,
654,
175.
905.82
572.47
583 -49
737- 76
295-41
523. 12
229. 90
619. 25
295- 08
770.81
898.58
569-43
781. 27
727-25
778.28
753- 08
052. 43
016. 64
694.63
928.30
901. 91
614.56
074-31
012. 64
, 626,336.42
881,917.54
577.259.64
,459, 177- 10
3, 590, 006. 92
102, 706. 16
738,482.78
80, 562. 21
54, 020. 90
73. 589. 41
87.277-38 2.452,09
4.639,368.38
Stocks and
bonds.
flo, 278.
10,856,
2, 005,
4. 700.
465,
150,
782,
433,
240,
S18,
no,
658,
I. 170.
669,
753,
S.07S.
646,
154,
183,
401,
95.
150,
468,
183.
576.05
486. 97
736. 00
145-94
OCO. GO
000. 00
900. 00
778.50
000. 00
125. 00
856. 00
225. 00
004. 00
169.75
298. 30
123.91
953- 75
942. 75
910. 00
876. 00
425.00
000. 00
505. 00
175.00
41,152,213.92
2, 675, 248. 00
297, 936. 80
2,973. 184-80
3.885,577.49
83.039-53
2, 034, 690. 07
86,419.63
147. 156.63
92, 400. 00
Discounts.
iS22,979
30.795
4.029
3.223
1,446
898
I, 115
1.S15
830
r.765
I. 913
958
3.667
4.375
809
2.653
1.634
778
476
■ 52
S3
907
877-46
5I4-SO
325- IS
774. 49
647. 86
051-03
541-04
644-94
965-53
452-89
410. 82
390- 00
815-75
56s- 74
186. 79
327.95
925. 98
953-35
829. 76
225.30
042. 92
634- 73
76, loi . 29
87. Q58, 205. 27
243.638.42
243.638.42
13.049, 884. 12
395.503- II
3.447.945- 24
368,685.93
112,973-94
800,935.89
6,329. 283. 35
18, 775,928. 23
Loans on col-
lateral.
*I9. 188,
21, los,
I. 944.
434.
165.
179.
740,
71S.
129,
377.
916.
431.
976,
199.
475.
2, 220,
I. 178,
13
997.
346,
68,
ISS.
100,
160,
304. SO
183. 00
160. 63
168.01
no. 76
733-94
211. 99
879. 20
830. 09
044. 20
713- 17
462.37
693. 64
335- 72
180.52
532.96
214. 97
170. 19
859.31
643. 45
578.78
254.00
054. 08
023. 13
53. 219.342. 61
475.636.35
2S7.4SS- 17
733.091-52
22, 476, 887. 16
6, 360. 00
3. 113.857-35
1.955.090.05
4, 250. 00
22, 606. 12
27. 579.050. 68
Creditor current
accounts.
$45,934,
8, 030,
7,086,
1.025,
3.088,
1.739.
2.963.
2, 760,
2,380.
3.921.
3.065,
1.343.
58.
2, 660,
2,519.
3,758,
976,
395.
706. 27
686.51
254. 43
733- 07
061. 59
824.67
855.06
166. 09
825.05
299- 38
150. 00
692. 12
501.45
456. 04
000. 00
250. 78
603.84
708. 16
1 , 64s, 586. 64
980, 249. 25
104,774.3s
327,640. 96
96, 767.025. 71
I , 049, 626. 12
50.33S-90
I. 099. 962. 02
II. 279, 234. 28
S18.940. 91
1.893,929. 70
356, 060. 67
955.306.02
15.003,471- 58
Various credits.
$2S, 694, 681. 15
4, 053, 281. 46
10, 076,
437,
559,
892,
360,
2, 267,
I, 312,
3, 705.
I. 773,
2, 466,
2, 026,
689,
II, 729.
I, 127,
334.
35.
2.495.
852.
267.
1.388,
6,
134- 25
321.94
704. 15
727.81
949.33
930.47
017. 51
094. 70
473. 04
772. 10
164-51
800. 41
364. 80
723. 97
839.46
211. 81
448. 56
016. 54
342.42
318.54
297. 50
74,552,616. 43
2. 526, 728. 52
633.809.36
3.160,537.
8,872, 256. 76
24, 248. 25
2,315, 270. 71
148, 790. 29
86, 206. 93
428, 428. 92
II, 875 , 201 . 86
Participations.
.274, 291. 06
3, 274, 291. 06
Real estate.
\2, 206.
I. 006.
202,
202.
202.
70,
225.
124.
326.
146,
178,
155.
245.
349.
300,
409.
101 ,
25.
241.
87.
37.
10,
8S.
46,
875-28
406. 20
665. 70
500. 00
089. 96
321.47
000. 00
053- 78
758.46
096. 76
947- 25
000 . 00
134.65
649. 67
000. 00
818. 71
160. 74
253-39
022. 65
323- 01
848. 18
180. 24
000. 00
040. 28
6, 985 , 146. 38
411. 155-79
300. coo. 00
S9I.S9SSO
402.045-57
30.360.00
39.859.49
95. 000. 00
I. 158,860. 56
Fixtures.
328,862.71
34. 749-65
68, 491. 41
32.546.6s
29.353-34
20. 947. 06
17. 000. 00
20. 892. 31
28, 762. 28
40,384. 23
34.059.47
14.435-87
18,971.89
23. 243- OS
l8, 224.3s
74, 166. 40
27,499-31
7.423-43
23, 862. 71
15,982. 50
15. 773-09
6.431- 20
I9.94S-68
3.917-78
925,926.37
35.255-56
2.497. IS
10. 000. 00
3.267.23
6, 000. 00
13,315-83
5. 146-45
10. 706. 53
48,436.04
tm personal
credits.
i!i6,oS5,
913.
202,
2, 072,
119,
S8.
72,
45,
90,
188,
141,
27.
109,
75.
120,
393.
588,
25s.
54.
321.
144.
42.
42,
51.
949-30
224. 02
044-85
102. 42
739- 14
959- 72
OQO. 00
952.52
541-43
610. 06
928. 28
522.50
670. 70
148. 69
072. 81
739-31
607.37
024. 24
348.68
755- 76
658.98
638.84
461.93
000. 86
22, 187, 7C2. 41
422, 265. 41
1 , 926, 628. 37
2,348,893.78
I. 920. 736. 12
311. 12
2. 081. 198. 67
74.382.67
50.396.34
80.559. 28
4. 207.584. 20
ACCOUNTS IN TRUST.
,101 . 388. 681 . 44
78. 614. 382. 00
4.975,792.
I. 391. 807. 62
186,370. 663. 94
Other accounts.
Si . 117. 209. 96
10, 414. 932. 22
107. 144.63
13.375.248. 71
1,690.845.31
I. 530. 971. 20
4.694. 239. 00
3.947.695-35
I. 341. 735-00
2.357.350- 26
5.519, 000. 00
6,903,878.84
260. 000. 00
2.554. 722. 74
488. 584. 07
56.303.557.29
14.398.570. 43
8, 003, 758. 00
1 . 740. 300. 00
22. 340. 16
24. 164.968.59
Mortgage loans.
fi. 715. 937- 76
627. 626. 75
4. 142. 172.92
51,524. 94
5, 000. 00
96, 067. 94
186. 584. 90
48. 112. SI
219. 709. 63
159. 400. 00
372.
929.
365.
366.
489.
60,
21 ,
223.
69.
63.
175.
44.
576.43
912. 28
631. 67
178.33
262. 22
106. 71
858.03
089.59
045-35
000. 00
215-44
S90. 00
10.432, 603. 40
16, 090, 528. 72
21. 302. 598. 02
37.393. 126.74
207.075.53
201. 134. 57
410. 700. 00
122. 277.33
941. 187.43
Promotion
loans.
».2, 245.989.30
82.809.38
300. 825. 68
51. 747-95
2.681,372.31
Other securi-
ties.
$379,400.00
100.829.35
231, 222. 50
42S, 703. 00
211.677. 50
256. 176. 52
411 . 081. 05
124.957-00
242. 750. 00
17S.561.00
2.562,357.92
268, 280.00
S. 301. 00
273. 581. 00
5,884, 047. 89
20, 006. 83
615. 70
116. 840. 67
6. 021 , 51 1 . 09
Property in
process of sale.
$4,505,365- 17
4.505.365- 17
Deposits in
different banks.
248. 745- 09
Total.
455,221.00
143.356.76
434.433-04
178,629.39
346, 612. 48
576.003.95
517, 772.74
611.031.44
027. 716. 25
709. 1S7.97
914,634. 79
275.505-33
209,353. 19
556,372. 70
538, 130. 13
730, 135-07
705.004.58
559.438-32
004.347. 58
980. 581.8s
695.540.00
765.015.41
261. 215.94
996, 158.48
736.191.398.39
26. 580. 280. 43
25,353,821.41
51.934. 101.84
281, 820. 02
1,666.987.80
89, on. 861. 50
I. 217. 185.69
24. 820. 958. 36
9.592, 709.86
1.888.972.56
1,843,344. 15
Authorized
capital.
S32. 000.
21 . 500,
S.ooo,
16. 500,
2. 000,
1. 000.
2. 000,
3,000,
I , 600,
I. 100,
i.Soo.
1,500.
3,000.
6. 000.
2,500.
8. 000,
3.000,
I. 000,
1. 000.
2.S00.
600,
I, 000,
1, 000.
500,
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
118, 800. 000. 00
5. 000. 000. 00
S. 000. 000. 00
10. 000. 000. 00
30. 000. 000. 00
200. 000. 00
10. 000, 000. 00
6. 000. 000. 00
I. 000. 000. 00
600. 000. 00
1.948,807.82 1 128.375.032.12
47 800,000.00
Reports of Condi-
ASSETS.
CLASS AND NAME OF INSTITUTION.
Capital not
paid.
CASH HOLDINGS.
Stocks and
bonds.
Discounts.
Loans on col-
lateral.
Creditor current
accounts.
Various credits.
Participations.
Real estate.
Fixtures.
Impersonal
credits.
ACCOUNTS
IN
Securities.
Gold.
Silver.
Fractional
money.
Total metal.
Notes of other
banks.
Total cash.
BANKS OF ISSUE.
$369. 300. 00
S29.330.465.00
8. 193, 200. 00
1.058.310.00
I. 988. 230.00
234, 260. 00
179. 46s. 00
567. 160. 00
634. 760. 00
574 470.00
379.835. 00
550, 420. 00
501.40s- 00
I. 154. 730.00
539, 210. 00
519.875.00
538.515.00
233. 120. 00
288.855. 00
318. 245. 00
508. 785. 00
215, 500. 00
35,56500
419. 360. 00
86. 685. 00
$16. 512.986. 00
2. 723.477.00
521.899. 00
321, 900. 00
296.887.00
249.792. 00
260. 894. 00
805. sio. 00
1 14. 602. 00
540.903.00
676. 898. 00
886. 175.00
873.986. 00
611.328. 00
163.047. 00
2, 078. 566. 00
373.801.00
230. 536- 00
248. c68. 00
175. 212. 00
159.422. 00
317,879. 00
200, 277. 00
71.098.00
$4. 216, 234. 82
381.365.47
116. 698. 99
21. 807. 76
10. 413. 41
17. 301. 12
66. 800. 90
147.408. 25
14.423.08
29.867. 81
99.945.58
107. 796. 43
157.830.27
22. 104. 25
67.481. 28
264. 187-08
11.331-43
8.685.64
SO. 621. 63
20. 411. 30
2. 084. 91
26.035.56
11,392.31
14.744.64
$50,059,685.82
11, 298. 042. 47
1.696. 907. 99
2.331,937. 76
541.560. 41
446. 558. 12
894.854.90
1.587,678.25
703,495.08
950.605.81
1.327. 263.58
1.495.376.43
2. 186. 546. 27
1. 172.642- 25
750.403. 28
2.881. 268.08
618. 252. 43
528. 076. 64
6t6. 934. 63
704. 408. 30
377.006.91
379.479. 56
631.029. 31
172.527.64
$1. 578. 220. 00
1. 304. 530.00
84.675. 50
56. 800. 00
32.735.00
35.965.00
23.375.00
38. 941. 00
32. 800. 00
58. 165. 00
105.635.00
76. 193. 00
168. 235. 00
75.085. 00
93. 375. 00
264. 485.00
55. 800- 00
5. 940- 00
109. 760- 00
31. 520- 00
1 . 895. 00
14, 135. 00
23.045. 00
2.485.00
$51,637,905.82
12. 602. 572. 47
1.781.583.49
2.388, 737. 76
574. 295. 41
482.523. 12
918, 229. 90
I , 626. 619. 25
736. 295.08
I. 008. 770. 81
1.432.898.58
1.571,569.43
2.354. 781. 27
1. 247.727. 25
843.778.28
3. 145.753-08
674.052.43
534, 016. 64
726.694.63
735.928.30
378.901.91
393,614.56
654,074.31
175,012. 64
$10, 278, 576.05
10,856.486.97
2. 005. 736. 00
4, 700, 145.94
465. 000. 00
150. 000. 00
782. 900. 00
433. 778. 50
240. 000. 00
518. 125. 00
110, 856. 00
658. 225. 00
1 . 170. 004. 00
669. 169. 75
753.298.30
5.075, 123.91
646.953. 75
154.942. 75
183. 910- 00
401. 876. 00
95.425.00
150. 000. 00
468. 505. 00
183. 175. 00
$22,979,877.46
30,795,514.50
4,039.325. 15
3. 223. 774. 49
1. 446, 647. 86
898.051. 03
I. 115. 541.04
1.S15.644.94
830.965. 53
1. 765.452.89
1. 913.410. 82
958.390.00
3.667.815. 75
4.375.565. 74
809. 186. 79
2.653.327.9s
1.634.925.98
778.953.35
476.829. 76
152. 225.30
53.042. 92
907.634. 73
$19, 188,304. so
21. 10s. 183. 00
I. 944. 160. 63
434. 168.01
165. 110- 76
179. 733- 94
740. 211- 99
715,879. 20
129. 830. 09
377.044. 20
916. 713 17
431,462. 37
976.693.64
199.335. 72
475. 180. 52
2. 220.532. 96
1. 178. 214. 97
13 170. 19
997.859.31
346.643-45
68. 578. 78
155, 254.00
100. 054. 08
160. 023. 13
$45,934,706. 27
8, 030. 686. 51
7.086, 254. 43
1.025. 733.07
3. 088. 061. 59
I. 739.824. 67
2.963.855.06
2. 760. 166. 09
2.380.825.05
3.921. 299.38
3. 065. 150. 00
1.343.692. 12
58. 501. 45
2. 660. 456- 04
2. 519.000- 00
3.758.250.78
976.603- 84
395. 708. 16
S25.694.681. IS
4.053.281. 46
S3. 274. 291.06
$2,206,875.28
1.006,406. 20
202.665. 70
202, 500. 00
202,089. 96
70,321.47
225. 000. 00
124.053. 78
326.758.46
146, 096. 76
178.947. 25
155.000.00
245, 134.65
349.649.67
300.000. 00
409. 818. 71
loi. 160. 74
25.253.39
241. 022. 65
87,323.01
37,848. iS
10, 180. 24
85. 000. 00
46, 040. 28
$328.862. 71
34,749.6s
68, 491. 41
32. 346.65
29. 353. 34
20, 947.06
17,000.00
20,892.31
28, 762.28
40,384. 23
34.059.47
14.435.87
18.971.89
23.243.05
18. 224.35
74. 166. 40
27,499.31
7,423.43
23,862, 71
IS. 982. so
15, 773.09
6,431. 20
19,945.68
3,917.78
$16,055,949.30
913,224.02
202,044. 85
2. 072. 102. 42
119.739. 14
58,959. 72
72. 000. 00
45,952.52
90,541.43
188,610.06
141, 928. 28
27,522.50
109, 670. 70
75, 148.69
120, 072. 8i
393,739-31
588,607.37
255,024. 24
54,348.68
321,755.76
144,658.98
42.638.84
42.461.93
SI . 000. 86
$101,388,681. 44
78,614.382. 00
Banco de Londres y Mexico
10.076, 134. 25
437.321.94
559. 704. 15
892. 727. 81
360, 949.33
2.267.930.47
1.312.017.51
3. 705.094. 70
1. 773,473.04
2. 466. 772. 10
2. 026, 164. 51
689. 800. 41
II. 729,364.80
1. 127, 723. 97
334.839.46
35, 211. 8i
2.495.448.56
852.016.54
267,342.42
1,388,318.54
6.297.50
4.975,792.88
400, 000. 00
1.391,807.62
I. 645.586. 64
980. 249. 25
104. 774.35
327.640.96
76. 101. 29
250. 000. 00
Banco de Guerrero
Total
1, 019.300. 00
49.050.425.00
29.415 143-00
5.886,973.92
84.352.541.92
4,273,794.50
88,626,336.42
41. 152, 212.92
87.058,205.27
53, 219,342.61
96.767.025.71
74.552,616.43
3.274. 291.06
6.985.146.38
925,926.37
22. 187. 702.41
186,370,663. 94
MORTGAGE BANKS.
Banco Internacional ^ Hipotecario de Mexico
I . 500. 000, 00
281 . 690. 00
519. 460. 00
69. 200. 00
20, 020- 00
32, 262.54
19,954.64
383, 152.54
559,434.64
498. 765. 00
17. 825. 00
881,917. 54
577. 259.64
2. 67s, 248. 00
297,936.80
243.638.42
475,636.35
257,455. 17
I. 049.626. 12
50.335.90
2. 526, 728. 52
633.809. 36
411. 155-79
300.000. 00
35. 255. 56
2.497. IS
422.265.41
1.926,628. 37
--
1. 500.000. 00
801. 150. 00
89. 220.00
52, 217. 18
942, 587. 18
516. 590- 00
1,459, 177. 18
2.973, 184.80
243.638.42
733,091. 52
1.099.962. 02
3. 160, 537.88
711.155.79
37,7S2.7i
2.348,893.78
Total
BANKS OF PROMOTION.
1, 500. 710. 00
49. 010. 00
107. 215. 00
36.515.00
2. 420. 00
1. 570.00
305.477.00
503. 00
5. 111. 00
7. 089. 00
3s.385.00
11, 544. 00
73,053.92
563. 16
15,881. 78
20,313. 21
4. 160. 90
10. 755. 41
1, 879. 240. 92
50. 076. l6
128. 207. 78
63,917. 21
41.965.90
23.869. 41
I. 7IO. 766- 00
52. 630. 00
610. 275. 00
16. 645. 00
12, 055. 00
49. 720. 00
3. 590. 006. 92
102. 706. 16
738.482.78
80. 562. 21
54.020. 90
73.5S9. 41
3,885,577.49
83,039. 53
2,034,690.07
86, 419. 63
147, 156.63
92, 400. 00
13.1549.884. 12
395.503. II
3,447,945. 24
368.685.93
112.973.94
800.935.89
22.476.887. 16
6. 360. 00
3. 113.857.35
1.955.090.05
4. 250. 00
22. 606. 12
11. 279. 234. 28
Si8.940.91
1.893.929. 70
356.060. 67
955.306.02
8.872.256. 76
24. 248. 25
2.315,270. 71
148, 790. 29
86, 206. 93
428, 428. 92
591.595.50
10. 000. 00
3. 267. 23
6, 000. 00
13,315.83
5, 146.4s
10, 706. S3
1,920, 736. 12
311,12
2. 081. 198.67
74,382.67
50.396.34
80.559. 28
402.045.57
30.360. 00
39,859.49
95, 000. 00
3. 000. 000. 00
Banco de Michoac4n
3 . 000. 000. 00
1.697.440.00
365. 109. 00
124.728.38
2, 187.277.38
2. 452.091. 00
4.639,368.38
6.329,283.35
18, 775,928. 23
27. 579. 050. 68
15.003.471.58
II, 87s. 201. 86
I. 158.860. 56
48.436.04
4. 207.584. 20
Xotal -
—
8648-
(To follow page 284.) No. i.
APPENDIX D.-Table No. 2.
Balance Sheet of B^IsTKS OF PROMiOTION" at End of Each ECalf Year, 1898-1909.
DATE.
ASSETS.
LIAB
CASH HOLDINGS.
Stocks and
bonds.
Discounts.
Loans on
collateral.
Mortgage
loans.
Promotion
loans.
Various
credits.
Real estate,
etc.
Total.
Authorized
capital.
Reserve
fund.
Special guar-
anty fund.
Deposits at
sight or at no
more than
three days.
Capital
unpaid.
Gold.
Silver pesos.
Fractional
money.
Total metal.
Bank notes.
Total cash.
December 31 —
$3 , 000, 000. 00
105,000. 00
163, 800. 00
100, 000. 00
100. 000. 00
100. 000. 00
$1.825.907. 59
I. 464. 089. 25
2. si8. 726. 82
2, 390. 264. 21
3. 404,857-62
3,646. 261. 59
3, 785.964-39
3.371. 739-09
3.288.424-38
4,587.359-51
I, 244,603- 89
2, 546.304- 66
5.668, 747- J8
3.665, 138.80
4,937, 174- 87
3,368.899. 27
4, 126, 248. 53
2.987,131.93
3, 147, 766.63
3.617. 785. 63
4.639,368.38
$3,460, 295. 09
3,530,497-07
7,042. 70s. 00
8.327.342- 91
5.437. 781. 20
4. 800, 219. 66
7.556, 158.99
II. 571. 381. 62
13. 270.479.46
13.847.930. 27
2. 210. 326. 00
4.057,661. 59
4. 783,000. 76
7. 229,945. 17
6.331.495-39
5.050,327- 26
6,40s, 215.34
8.443,751-42
11.872,595. 19
13.989. 584. 23
18. 775.928. 23
$1,016,858.51
I, 299,568. so
2,914,992. 04
3.568.473- 12
3, 248, 436-60
2,694, 285. 38
3, 743, in. 26
4. 778.599- 54
9. 406.394-60
25.073. 751-37
289,693- 75
1,327.313- S8
I, 514,060.94
2,9IS, 768. 72
3,278.687.73
3,051, 740. 22
2,658,911. 13
3. 200. 589- 98
6, 287, 796. 63
21,896, 790. 47
27. 579, 050. 68
Si. 553. 020. 39
4, 056, 741. 02
3.244.731-38
8,594.817.86
13, 858, 946. 61
14. 543.651. 40
25.399. 842.64
42,688,487.92
52.252.635-07
56, 685, 481. 01
1 , 552, 667. 06
2.858,083.50
I, 180,541.37
3.515.855-23
14. 149, 266. 10
14, 119, 226. 08
21.382,407. 66
27, 512,498. 57
51,924.946.03
45.858,881. 28
63, 221,545. 14
Sio. 856,081. 58
u, 546. 396. 12
17.656,647. 19
26,825,633- 78
30, 282, 758.06
30.396,557-68
51. 466, 903. 27
77.009,663. 29
100, 424. 266. 36
121, 778, 158. 69
8, 297, 290. 70
II, 766,892. 89
14.361.037- 67
18, 788, 176. 18
33.438,897-90
30,442, 777-8i
43.955.809.85
50,488.864.47
88,058. 792.43
104. 695. 377.3s
128, 375.032. 12
S6. 000.000. 00
6, 300, 000. 00
7, 600, 000. 00
7, Soo, 000. 00
10, 200, 000. 00
10, 200, 000. 00
21, 200, 000. 00
31, 200, 000. 00
40. 200, 000. 00
46, 200, 000. 00
6, 000, 000. 00
6, 000, 000. 00
7, 600, 000. 00
7, 600, 000. 00
10, 500, 000. 00
ID, 200, 000. 00
21, 200, 000. 00
21, 200. 000. 00
31, 200, 000. 00
46. 200, 000. 00
47. Soo, 000. 00
S750.820. 70
I, 384, 796. 06
2. 933. 004. 96
2.868, 236.03
3. loi. 765. 50
7. 743,853- 26
6,095,031- S3
6,889. 160. 87
9. 604. 323. 01
$339.679. 58
386,89589
391. 730. 72
410, 000. 00
400, 000. 00
390. 000. 00
651.028. 63
652,392. 74
895. 249-29
$19,443-69
168, 496. OS
233. 133-93
I, 626. 93
1,041, 200. 19
2.048, 389. 63
2, 178, 631. 16
5,924.008.37
I. 310, 592.96
$2, 770,330. 73
5,063,924.48
7. 21S. 774-93
6,997.844-31
4.489.412.38
6, 819. 614- 91
9, 461, 410. 84
7.220,473-79
7. 179. 586. 80
''
$1,668,859-82
I. 476. 391- 21
I. 275.253-62
I. 257.410. 59
1,284.579-39
I. 221.097. 09
I. 283,665.38
I. 769.439- SI
$849. 867. 00
913,873-00
2. 129. 604. 00
2.388,851.00
2, 501, 385. 00
2, 150, 642. 00
2. 004. 759. 00
2.817, 920. 00
'^°'
$520, 000. 00
954, 500. 00
1 , 040, 246. 25
2, 774.438- 71
2, 810, 427. 77
2, 670, 717. iS
5. 169.955- 56
s
5
1902
3916,326.34
2, 000. 00
2, 000. 00
3. 004. 87
4.004.87
5,030. 004. 87
S70. 127. 90
73.534.02
42. 967. 19
78. 117. 06
414. 108. 67
7
8
5 , 000. 000. 00
II. 915. 945. 00
5. 500. 000. 00
3, 000, 000. 00
$1. 029. 465. 00
1,039, 615. 00
I. 606. 290. 00
Si 68. 008. 00
169. 925.00
55, 681- 00
S23.624.09
74. 125- 38
107.468. 51
9
June 30 —
1S98-99
695. 794- 41
590, 904- 25
968. 842. 54
2.383.238.76
3.086. 709. 75
7.509.734.98
5, 108. 190. 66
6. 178. 791. 96
6.870. 301. 68
6,329. 283. 35
281,735- 15
383.783-17
388.325.72
409. 135-05
408,375. 23
395.000.00
390,000. 00
651, 224.34
687, 425. 06
I , 207. 296. 60
19.443-69
168, 496. OS
233. 133-93
925.013. 73
1.039. 529-66
958. 082. 03
2, 178. 631. 16
2,474,008.37
1,308, 085. 61
1.S47. 019- 64
2,667, 712. 73
1900-1901
240, 000- 00
104, 300. 00
I , 429, 900. 00
lOO, 000- 00
70, 800. 00
3, 120, 827. 18
I, 662, 260. 80
I, 708, 790- 87
1,349.825. 27
1.493.398- 53
I, 179,486-93
I. 361, 991. 63
1,330.305- 63
2, 187,277.36
2. 547. 920.00
2. 002. 878. 00
3, 228, 384- 00
2, 019,074. 00
2, 632, 850. 00
I, 807, 645- 00
I, 78s, 77S-00
2, 287, 480. 00
2, 452, 091. 00
3.391.396. 22
6,071. 671-92
520,000. 00
r , 257, 500. 00
1 , 329, oSo. 16
2, 780, 8oi. 29
2,947. 770. ro
3.695.933- 23
2, 681, 372-31
7,666,575. 52
6
7
8
I, 000. 00
2. 000. 00
3,004.87
4,004. 87
5, 030. 004. 87
5. 041. 097. 09
4. 634. 899. 58
934. 885. 00
I . 083 . 600- 00
I. 196. 840. 00
I. 697. 440. 00
217, 934- 00
164, 724- 00
28. 296. 00
36s. 109- 00
26.667. 93
113. 667. 63
105, 169.63
124. 728.38
78, 412. 05
65, 900. 62
47.901. 55
78.675- 77
941. 187. 43
5. 771.970. 10
5. 914.316. 13
9
S, 000, 000. 00
8, 000, 000. 00
3, 000, 000. 00
9.695.925- 42
7. 711. 185. 12
9.066,432. 56
8648 — 10. (To follow page 284.) No. 2.
APPENDIX D -Table No. 2.
Balance Sheet of B^]N"KS OF I*R0]N10TI0]Sr at End of Each. Half Year, 1898-1909.
LIABILITIES.
CASH HOLDINGS.
Fractional
money.
$23,624.09
74. 125.38
107, 468. 51
26,667.93
113,667.63
IDS, 169.63
124. 728.38
Total metal.
$1,668,859.82
1.476,391. 21
I, 27s. 253. 62
I, 2S7.4IO. 59
1,284,579.39
1, 221 , 097. 09
1,283,665.38
I. 769.439. SI
3, 120, 827. 18
I. 662, 260. 80
1. 708, 790. 87
1.349,825. 27
1,493.398. S3
I, 179,486. 93
1.361.991.63
1.330.305.63
2, 187,277.36
Bank notes.
8849,867. 00
913,873.00
2. 129. 604. 00
2.388,851.00
2.501,385.00
2, 150, 642. 00
2, 004, 759. 00
2.817, 920. 00
2, 547, 920. 00
2, 002, 878. 00
3, 228,384.00
2,019, 074. 00
2, 632, 850. 00
I , 807, 645. 00
1.785.775.00
2, 287, 480. 00
2, 452, 091 . 00
Total cash.
$1,825,907. S9
I. 464, 089. 25
2,518. 726.82
2, 390, 264. 21
3,404,857. 62
3,646, 261. 59
3. 785.964.39
3.371.739.09
3,288,424.38
4, 587,359. 51
I. 244,
2.546,
5.668,
3,66s,
4,937,
3,368,
4. 126.
2.987.
3, 147.
3,6l7,
4.639,
603. 89
304. 66
747. 18
138.80
174.87
899. 27
248.53
131.93
766.63
785.63
368.38
Stocks and
bonds.
$750,820. 70
I, 384, 796. 06
2.933,004.96
2,868, 236.03
3. 101, 765. 50
7. 743,853. 26
6.095,031. 53
6,889, 160.87
9.604,323.01
695. 794. 4t
590.904. 25
968.842. 54
2,383. 238. 76
3,086, 709. 75
7, 509, 734. 98
5, lo8, 190. 66
6, 178, 791. 96
6, 870, 3or . 68
6,329.283.3s
Discounts.
$3. 460. 295. 09
3. 530, 497.07
7, 042, 705. 00
8,327,342. 91
5,437, 781. 20
4, 800, 219. 66
7,556, 158.99
u, 571,381. 62
13, 270, 479. 46
13.847.930. 27
2, 210. 326. 00
4.057,661. 59
4. 783 , 000. 76
7. 229, 945. 17
6.331.495.39
5. 050, 327. 26
6, 405, 215.34
8. 443, 751. 42
11,872, 595. 19
13,989,584. 23
18. 775,928. 23
Loans on
collateral.
Ji. 016. 858. 51
I. 299. 56S. 50
2, 914, 992. 04
3. 568.473. 12
3, 248, 436.60
2,694, 285.38
3, 743, III. 26
4, 778,599.54
9, 406.394. 60
25,073. 75137
289,693. 75
1.327.313.58
I . 514, 060. 94
2,915, 768. 72
3, 278,687. 73
3.051. 740. 22
2.658.911. 13
3 , 200, 589. 98
6. 287, 796. 63
21 . 896, 790. 47
27, 579,050.68
Mortgage
loans.
$70, 127. 90
73. 534.02
42.967. 19
78. 1 1 7. 06
414. 108. 67
78, 412.05
65 , 900. 62
47,901.55
78,675. 77
941, 187.43
Promotion
loans.
$520. 000. 00
954, 500. 00
I , 040. 246. 25
2. 774.438. 71
2.810, 427. 77
2. 670, 717. 18
5. 169. 955. 56
520, 000. 00
I , 257, 500, 00
1 , 329, 080. 16
2, 780, 801 . 29
2,947. 770. 10
3,695.933. 23
2,681,372.31
Various
credits.
?i. 553. 020. 39
4, 056, 741. 02
3, 244. 731. 38
8, 594,817. 86
13 , 858, 946. 61
14.543.651. 40
25.399, 842. 64
42.688,487.92
52. 252.635. 07
56, 68s, 481 . 01
1,552
2,858
I, 180
3,515
14, 149
14, 119
21.382
27. 512
51.924
45.858
63 , 221
667. 06
083. 50
541.37
8SS.23
266. 10
226. o3
407. 66
498. 57
946.03
Real estate,
etc.
8339,679. 58
386.895.89
391. 730. 72
410. 000. 00
400, 000. 00
390. 000. 00
651 . 02S. 63
652.392. 74
895, 249. 29
2«i, 735-
383.783.
388.325.
409, 135-
408.375.
395.000.
390, 000.
651. 224.
687.42s.
I . 207. 296.
Total.
Authorized
capital.
Sio.856,081, 58
11,546,396. 12
17. 656, 647. 19
26.825,633. 78
30. 282. 758. 06
30.396. SS7. 68
SI. 466, 903. 27
77. 009. 663. 29
100, 424, 266. 36
121 , 778, 158. 69
104,
128.
297, 290.
766,892.
361,037.
788,176.
438,897.
442. 777.
955,809.
488.864.
058, 792.
69s, 377.
375.032.
$6, 000,
6, 300,
7, 600,
7, Soo,
10, 200,
10, 200,
21 . 200.
31. 200,
40. 200,
46. 200.
6, 000.
6, 000,
7, 600,
7, 600,
10. 500,
10, 200,
21 , 200,
21 , 200,
31, 200,
46, 200,
47, 800,
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
Reserve
fund.
S19.443.69
168, 496. OS
233. 13393
1 , 626. 93
I. 041, 200. 19
2,048,389.63
2, 178, 631. 16
5,924, 008. 37
1,310, 592.96
19, 443- 69
168, 496. 05
233, 133- 93
925,013. 73
1 , 039, 529. 66
958,082.03
2, 178, 631. 16
2,474,008.37
1,308, 085. 61
I, 847, 019. 64
Special guar-
anty fund.
S916, 526,34
2. 000. 00
2. 000. 00
3,004. 87
4, 004. 87
5. 030, 004. 87
1 , 000. 00
2. 000. 00
3,004.87
4, 004. 87
5,030, 004. 87
5, 041. 097. 09
Deposits at
sight or at no
more than
three days.
S2. 770.330
5,063,924
7,215.774
6,997.844
4,489.412
6,819,614
9, 461 , 410
7, 220,473
7, 179, 586
2, 667, 712. 73
3,391,396. 22
6,071,671.92
7,666,575.52
4.634.899. 58
s. 771.970. 10
S, 914,316. 13
9.695.925.42
7, 711, 185 . 12
9, 066. 432. 56
Deposits for
more than
three days
$185,023. 23
691. S13. 72
I, 002, 510. 62
1.251.484. 27
I. 751,405.81
2,635,685. 24
5,337,078. II
6, 238,391. 62
7, 215,346. IS
422,024.54
344,042. 01
922, 741.65
1,035. 148. 78
1. 165,836. 76
922, 632. 17
3 , 211 , 864. 90
5. 173. 622. 01
6.033,379. 49
S. 776, 990. 48
Cash bonds in
circulation.
Various
debits.
5801,
1,802,
3.395.
2.1SS.
1,769.
3,182,
2.392.
809.
2,562.
600. 00
300. 00
100. 00
600. 00
600. 00
100. 00
400. 00
000. 00
900. 00
438. 400. 00
748, 200. 00
. 787. 300. 00
. 797. 800. 00
. 932, 000. 00
, 700, 600. 00
. 596, 900. 00
, 590, 500.00
624. 400. 00
. 621. 500. 00
$4.856. 081. 58
1.469.998.47
2,330, 412.94
7, 179. 114.30
8. 759.676. 21
11.322. 939. 30
15.579. 113.49
26.437. 138.31
40. 028,387. 71
52. 279,727.91
2. 297. 290. 70
2, 229,311. 93
2. 108.903,39
1,173.328.68
9. 514.359.87
II, 469, 511. 81
12,400,525.55
15,384. 147-41
37.920. 731. 76
37, 788, 122. 26
50, 221. 592. 35
Sio, 856,081. 58
11,546,396. 12
17,656.647. 19
26.825,633. 78
30. 282, 758. 06
30.396, 557-68
51,466.903. 27
77, 009, 663. 29
100, 424, 266. 36
121, 778, 158. 69
8,297,
11, 766,
14.361.
18,788.
33.438,
30.442.
43.955.
50.488,
88,058,
104.695.
ia8,37S,
290. 70
892.89
037.67
176. 18
897.90
777.81
809.85
864.47
792. 43
377-35
032. 12
DATE.
A.PPENDIX D.-Table N"o. 3.
Balance Sheet of M:0RTG-A-GE B^NKS at End of Each ECalf ^^ear, 1898-1909.
December 31 —
1898
1899
1900
1 90 1
1902
1903
1904
1905
1906
1907
1908
June ,io —
1898-99
1899-1900.
1900-1901.
1901-2
1902-3
1903-4
1904-S
1905-6
1906-7
1907-8
1908-9
ASSETS.
Capital unpaid.
iSi.SOO.
I, S°°.
l.Soo.
2. 500.
i,S°°.
1,500.
1,500,
I, soo,
I, 500,
1,500,
1.500,
I, 500,
I, 500,
2, 500,
I , soo,
1,500,
I, soo.
I. SOO,
I, SOO.
1.500,
I, SOO,
I. soo.
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000, 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
CASH HOLDINGS.
Gold.
S203, 745. 00
323 , 400. 00
730, 125. 00
383,925. 00
iSi, 640. 00
442, 200. 00
801. 150. 00
silver pesos.
Fractional
money.
MO, 925. 00
13, 53600
29. 050. 00
37. 723.00
ISO, 210. 00
38, 139. 00
89. 220. 00
Total metal.
$26.355. 71
35, 601. 00
16,543. 04
2.370. 12
69, 1 10. 67
40, 753- 03
S2, 217. 18
$206, 276. 41
131,671. 45
234,976. 55
278, 434. 21
340,387. 17
271,023. 71
372.537. 00
775, 718.04
241 , 721. 10
218,608.61
130,354. 91
213. 803. 52
231 , 610. 26
424, 018. 12
400. 960. 67
S2I, 092. 03
942. 587. 18
Notes of other
banks.
^576,835. 00
336, 045. 00
267, 703.00
338.035. 00
428, 830. 00
860, 200. 00
412, 055. 00
I, 175, 390. 00
287, 072. 00
650, 740. 00
501, 235. 00
361 , 270. 00
362, 045. 00
353.381. 00
450.995, 00
502, 960. 00
S16, 590. 00
Total cash.
S824, 73S.03
684, 102. 70
970,255.75
783, 111. 41
467,716.45
502,679. 55
636, 469. 21
769. 217. 17
I, 131. 225. 71
784, S92. 00
I, 9SI , 108. 04
783,316.45
ft
576,633. 72
528, 793- 10
869,348.61
631.589.91
575,073.52
593.655- 26
777,399- 12
851,955.67
1,024, 052. 03
1,459, 177. i8
Stocks and
bonds.
S177, 189. 47
21 . 75 1 . 62
35.327-So
3, 652, 003. 26
3 265,936.36
3. 227,003. 94
2. 984, 604. 79
Loans on col-
lateral.
1 1 , 602. 50
4,984.33
I, 134, 404.31
2. 266, 179. 03
3, 192.680.83
2,810, 210. 31
2,973. 184. 80
{1,084,354.48
848, 961. 51
901.444.31
799.308. 63
I, 428, 516. 14
703, 945-12
529, 860. 70
302.017. 74
341.663. 24
334,960.03
229,871.85
919.
989,
1.023,
774,
779,
46s.
478,
340,
3S8,
258,
243,
402. 25
734.01
973- 24
749-53
934-91
214-35
456.65
497-00
192. 80
200. 43
638.42
$258,900,37
116, 898. 47
230, 896. 01
307. 036. 00
496, 138. 24
798, 217. 7s
I , 162, 706. 16
I , 827. 914. 19
1.033,572.62
887, 629. 94
700, 321. 20
185,644. 70
127,512.97
298, 219. 67
293,315-76
631. 181. 44
I, 137, 680. 66
886,295. 76
1. 129, 506. 13
1,434, 725.36
797,570.46
733.091. 52
Mortgage loans.
$4,933,807. 57
7, 176, 750- 54
7, 808, 445. 42
10, 633. 492. 88
12, 138, s6i. 21
12. 844, 942. 22
13.803.421. 64
15, 131, 726.97
18.350,906. 6s
21, 692, 887. 52
30. 247, 603. s8
6, 733.680.37
6, 530,691. 6s
10, 154, 750.85
II, 155, 261. 78
12, 271, 150.95
13,694,830.40
14, 014, 328. 90
16,368, 130. 51
19,361,939. 57
26, 041, 925. 8s
37,393. 126. 74
Various credits.
$3.096,055. 48
S291
500. 00
3.313,379.07
281
47S-00
3,056. 216. 11
270
000. 00
4, 237.089. 23
273
124. 65
3, 134.279-87
273
124. 65
2,937,053-79
521
189.33
3.912,405.39
731
387-06
2,454,657.65
750
924.45
3,338, 2S8.89
741
155- 79
3, 666, 312. 44
743
801.65
6, 624, 892. 97
711
15s- 79
3, 142, 852. 70
287
500. 00
3,333, 128.57
272
500. 00
3,945, 152.63
270
000. 00
4, 447. 116. 10
273
124. 65
3, 460, 956. 04
414
045. 80
2, 926, 294. 13
621
38S.51
4, 001, 464. 49
743
217, 29
4,334.597.64
737
383.31
5,403,087. 13
741
723. 29
5.339, 170.64
743
958.85
6,882,974.68
748
908. so
Real estate,
etc.
Total.
Sii, 989.352.93
13.921, 567. 29
14. 737. 258.50
19. 533. 162.80
19.615,526.03
19. 829, 779.38
22, 311, 577. 66
26,388.461. 43
29, 702, 749. 26
32.837. 187.52
44.949. 558. 22
13.552.476. 47
13. 329. 200. 92
18. 720, 889. 49
19.312. 9i6. 43
19. 700, 461.5s
20,925, 465. 90
23.351.822. 66
27.453.692. 74
32,844.304- 85
38.515.088.57
51, 934, loi. 84
8648 — 10. (To follow page 284.) No. 3.
Authorized
capital.
Ss, 000.
5.000,
5,000,
7. 000,
7. 000,
7, 000.
7, 000.
7. 000,
7. 000
10, 000.
10. 000,
5.000.
5, 000.
7. ooo.
7. 000,
7, 000.
7, 000,
7. 000,
7. 000,
10, 000.
10. 000,
10. 000,
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. GO
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
Reser\'e fund.
$68. 600. 00
78, 000. 00
90. 000. 00
103, 500. 00
122, 085. 81
143. 660.36
252.599-47
344.511. 06
412.483.36
497.972.34
578,334.38
78.
90.
103,
116.
143.
252,
344.
412,
505.
579.
663.
000. 00
000. 00
500. 00
500. 00
660. 36
599-47
S 1 1 . 06
483.36
622.34
084.38
030. 00
Special guaranty
fund.
S19. 73S-00
30, 700. 00
30, 688. 00
143,021. 24
170. 001. 29
459.777-47
Deposits at sigh
or at no more
than three days
8, 065. 00
28, 79S-00
30, 880. 00
129, 094. 24
171. 850. 29
321, 277.47
54.888.79
^PI>E]SrDIX D.-Table IS"©. 3.
Balance Sheet of ]>d:ORTG-A.GE B^ISTKS at End of Each Half Year, 1898-1909.
ASSETS.
Total metal.
S206, 276-41
131,671. 45
234.976.55
278, 434. 21
340,387. 17
271,025. 71
372. 537-00
775. 718. 04
241, 721. 10
218,608.61
130,354. 91
213,803. 52
231 , 610. 26
424, 018. 12
400, 960. 67
521,092. 03
942. 587. 18
Notes of other
banks.
8576,835.00
336, 045. 00
267, 703. 00
358,035. 00
428, 830. 00
860, 200. 00
412,055.00
I, 175, 390. 00
257, 072. 00
650, 740. 00
501, 235.00
361, 270. 00
362, 045. 00
353,381.00
450,995.00
502, 960. 00
516, 590. 00
Total cash.
»»24,735-03
684, 102. 70
970, 255. 75
783, III. 41
467, 716.45
502, 679. 55
636, 469. 21
769,217. 17
I, 131, 225. 71
784,592.00
I, 951 , 108. 04
783,316.45
576,633. 72
528,793. 10
869,348.61
631,589. 91
575.073.52
593,655- 26
777,399. 12
851,955-67
1,024,052.03
1,459. 177- 18
Stocks and
bonds.
S177. 189- 47
21,751.62
35.327.50
3, 652, 003. 26
3 265,936.36
3, 227,003. 94
2, 984, 604. 79
Loans on col-
lateral.
1 1 , 602. 50
4,984.33
I, 134. 404.31
2, 266, 179. 03
3. 192, 680.83
2, 810. 210. 31
2,973, 184.80
81,084,354. 48
848, 961. 51
901.444.31
799.308. 63
I . 428. 516. 14
703.945- 12
529. 860. 70
302, 017. 74
341,663. 24
334,960. 03
229, 871. 85
919,
989,
.023,
774.
779,
465,
478,
340,
358,
258,
243,
4S2.25
73401
973- 24
749-53
934-91
214-35
456-65
497.00
192. 80
200. 43
638.42
$258,900.37
116, 898. 47
230, 896. 01
307,036.00
496. 138. 24
798. 217. 75
r , 162, 706. 16
1,827, 914. 19
1,033,572.62
887, 629. 94
700, 321. 20
185,644. 70
127,512-97
298, 219. 67
293.315. 76
631, 181. 44
t , 137, 6S0. 66
886,295. 76
I, 129.506. 13
1,434,725-56
797,570-46
733.091- 52
Mortgage loans.
12,
13.
15,
18,
21,
30,
933,
176,
808,
633.
138,
844,
803,
131,
350,
692,
247.
807- 57
7SO- 54
445- 42
492-88
561. 21
942. 22
421. 64
726.97
906. 65
887.52
603.58
6. 733.680.37
6. 530.691. 65
10, 154. 750. 85
n. 155, 261. 78
12, 271. 150.95
13,694.830. 40
14, 014. 328. 90
16.368. 130. 51
19,361, 939. 57
26, 041 , 925. 85
37,393, 126. 74
Vaiious credits.
$3,096,055. 48
3,313,379- 07
3 , 056, 216. 1 1
4, 237.089. 23
3. 134, 279. 87
2,937,053. 79
3,912,405. 39
2,454,657.65
3,338, 2S8.89
3. 666, 312. 44
6. 624, 892. 97
3, 142
3.332
3,945
4,447
3, 460
2. 926
4, 001
4,334
5,403
5,339
6.882
852. 70
128. 57
152.63
116. 10
956.04
294. 13
464. 49
597. 64
087. 13
170. 64
974-68
Real estate,
etc.
S29r . 500. 00
281 . 475 . CO
270, 000. 00
273. 124.65
273, 124. 65
521, 189.33
731,387.06
750, 924. 45
741, 155- 79
743, Sot. 65
711, 15s- 79
287, 500. 00
272. 500. 00
270, 000. 00
273. 124.65
414.045. 80
621, 38S. 51
743. 217. 29
737,383- 31
741, 723 29
743,958-85
748,908. 50
511,989,352.93
13,921, 567. 29
14,737,258. 50
19, 533, 162. 80
19,615, 526.03
19.829. 779.38
22. 311, 577- 66
26,388, 461. 43
29, 702, 749. 26
32,837, 187.52
44,949,558. 22
13,552,476.47
13, 329, 200. 92
18, 720, 889. 49
19,312, 9i6. 43
19, 700,461. 55
20,925,465. 90
23, 351, 822. 66
27,453,692. 74
32,844,304- 8s
38,515,088.57
51, 934, loi- 84
LIABILITIES.
Authoiized
capital.
Ss.ooo,
5,000,
5, 000,
7. 000,
7. 000.
7. 000.
7. 000,
7, 000.
7. 000
10, 000,
10. 000.
5 . 000.
S, 000.
7. 000.
7, 000,
7. 000.
7 . 000,
7 . GOO.
7. 000,
10. 000.
10. 000.
10. 000,
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000 . 00
000. 00
000. 00
Reser\-e fund.
$68, 600. 00
78, 000. 00
90, 000. 00
103, 500. 00
122, 085. 81
143, 660. 36
252, 599- 47
344,511-06
412,483.36
497,972.34
578,334.38
78,
90,
103,
116.
143,
252,
344.
412,
50s.
579,
663,
000. 00
000. 00
500. 00
500. 00
660. 36
599. 47
51 1 . 06
483.36
622.34
084.38
030. 00
Special guaranty
fund.
S19, 735.00
30, 700. 00
30, 688. 00
143,021. 24
170. 001 . 29
459,777-47
8, 065. 00
28, 795- 00
30. 880. 00
129, 094. 24
171, 850. 29
321. 277. 47
54,888.79
Deposits at sight
or at no more
than three days.
S672. 960. 75
388.596. 72
204, 082. 41
342.815.96
2S2, 048. 79
662,689. 25
454, 16S. 14
I. 061.363. 44
1, 560,020.34
1, 495, 170. 58
1,083,964. 79
45S, 227. 22
408,999.39
239, 216. 01
253.483.82
172. 186. 28
477,636. 73
621,966.68
I. 133.362.39
I . loS. 106. 96
I , 263 , 820. 09
1,682.445. 58
Deposits for
more than three
days.
S711.689. 77
326.823.34
1,377, 251. 24
Mortgage bonds
in circulation.
Various debits.
Total.
»4, 797
6,962
7.679
9, 616
9,851
10,387
11.636
12.541
16,474
17.075
29, 000,
6,546,
6,381,
9, 164,
9,947.
10, loi ,
II, 164,
11,782,
15,047,
17,276,
23, 212.
32,836,
600. 00
800. 00
000. 00
700. 00
200. 00
900. 00
500. 00
300. 00
600. 00
800. 00
500. 00
400. 00
516. 00
700. 00
000. 00
000. 00
900. 00
400. 00
100. 00
000. 00
600. 00
200. 00
Si, 450, 192. 18
I, 492, 170.57
I , 764, 176. 09
2, 470, 146. 84
2,360, 191. 43
1,615,794. 77
2,937,610.0s
5,410, 598.93
4, 112,624.32
3,598,243.31
3. 115, 29;. 81
1. 469.849. 25
I, 448, 685. S3
2, 213, 473- 48
I, 995,932.61
2. 275. 549. 91
2,001, 534. 70
3. 572. 064. 92
3.731, 652. 75
3. 782. 725. 26
2,811, 483. 29
5,320, 286. 23
511,989.352. 93
13,921,567. 29
14, 737, 258. 50
19. 533, 162. 80
19,615, 526.03
19,829, 779.38
22,311,577.66
26,388, 461. 43
29, 702, 749. 26
32,837, 187.52
44.949, 558. 22
13,552,476.47
13. 329. 200. 92
18, 720, 889. 49
19,312, 916.43
19, 700, 461. 55
20.925, 465. 90
23.351,822.66
27.453.692. 74
32,844, 304. 85
38,515,088.57
51,934 101.84
^I'PEN^DIX D.-Table INo. 4.
Balance Sheet of B^NKS OF ISSUE at End of Each ECalf Year, 1898-1909.
DATE.
ASSETS.
Capital unpaid.
CASH HOLDINGS.
Stocks and bonds.
Discounts.
Loans on
collateral.
Mortgage loans.
Various credits.
Real estate,
etc.
Total.
Authorized
capital.
Reserve fund.
Special guaranty
fund.
Increase of
tal and rese
Gold.
Silver pesos -
Fractional
money.
Total metal.
Notes of other
banks.
Total cash.
December 31 —
1898
$14, 705, 000. 00
8.355. 7S5-00
6, 670, 900. 00
2, 550, 000. 00
5. 129. 320. 00
5.316. 250. 00
5. 002, 409. 00
3,017, 607. 00
2, 430, 056. 00
I, 803, 152. 00
I, 026, 500. 00
II, 790, 000. 00
8. 757. soo.oo
2, 300, 000. 00
3, 245, 700. 00
3,345.000.00
6. 100, 658. 00
4. 575.382. 00
3.404.483.00
2. loi, 432. 00
I. 738, 451. 00
I, 019, 300. 00
$38,654,813.57
51.357. 730. 76
49.394.761.03
56. 213, 408. 73
54. 663. 029. 82
63.668.973-96
80, 599.993-93
69, 862, 390. 38
68. OSS. 572- 23
74.814. 922. 25
83. 962. 041. 41
46.333. 293- 21
53.955.489-43
55. 894. 031. 18
64. 993. 066. 18
62. 227.053.99
66. 373. 183. 00
75.895. 624.30
74. 578. 871.51
71. 247,477. 75
80, 928, 310. 02
88, 626,336. 42
$694,436.35
1.053.628.37
2. 122. 160. 09
3. 620. 151. 28
6. 955.639. 70
II. 107. 891. 53
12, 012. 728. 82
IS. 157.896. 13
16. 141. 123.32
23, 802, 304. 66
46. 239. 834.81
464. 240. 00
I. 526.302. 15
2, 424.833.32
4.480.430.99
8. 783. 724.09
11. 501. 239. 33
12,351. 573. 88
15.045. 242. 19
17, 652, 090. 15
31,350,004. 47
41. 152.212.92
$56,588,275-24
78,909. 412-59
89,868,042. II
92,254,035-67
116, 174, 127. 43
124, 859, 061. 67
140,03s, 239.04
160, 472, 904. 56
182, 571, S19. 36
172,301.933. 77
91. 106.399. 61
66, 103, 905. 96
93, 119, 869. 66
86,058.663.35
100, 789, 717. 00
IIS. 7S4. 809. 19
126. 588. 715. 75
148. 199, 269. 90
167, 621 , 625. 49
189,063,935-56
123, 137, 910- 00
87. 058. 205. 27
$22. 440. 691. 65
34, 048, 160. 73
35. 178.814.57
39.338. 594.07
49.S13. 139-27
62,818,661.65
62,309. 686.55
86,098, 254.86
102, 240. 713.97
107,393.517.41
56, 012. 818. 95
24, 92s, 221 . 04
33.723. 17360
37. 120. 889. 58
43. 555.465- 77
51.904,034- 71
64.844,950-03
67.701.307-25
91. 706.387. 69
no. 244. 160. 92
64, 609. 118. 75
53. 219,342.61
S418. 268. 17
492.097. 18
462.270.34
775. 199-00
926.814-43
I. 237. 944-80
1.548.843. 42
I, 704.427. 74
I. 903. 860. 70
6. 240. 828. 44
10. 504. 677. 66
436.836. 17
460.425.76
437.618. 70
902, 423. 28
977, 538.60
I, 264, 986. 30
I, 630, 423. 06
I, 680, 224. 57
2.910. 744. 40
7. 773.865.45
10. 432. 603. 40
$36,380,843-54
33,886,935-48
41, 800, 565.88
55.883.188.95
70. 878, 941. 50
88, 251, 775. 21
112, 398, 004. 57
169, 826. 092. 07
192. 334. 672. 66
233,841, 270. 21
40s, 739, 981. 78
38.265,388.87
41,447.984.00
45.370,549-35
58. 959. 549- 57
80. 972, 940- 88
103, 863, 143. 71
152.957. 155- 29
191,914,888-82
203, 628, 149- 70
296, 144,073.38
446, 772, 325. 02
$768,447.52
772. 479.38
I, 113, 830.85
1, 556, 809. 15
2.036.359.39
2,883,586.89
3, 574, S44.31
4,561,593- 27
5, 785.854- 70
7, 289. 268. 09
9, 929,989.98
796,332- II
887.995-87
I. 371. 523-64
1.682,022.88
2. 420, 746.50
3, 239, 910- 61
3.989.593-00
4.987.554-36
6,012, 497- 20
7, 630, no. SI
7,911, 072. 75
$170, 650, 776. 04
208, 876, 199. 49
226, 611, 344. 87
252, 191. 386. 85
306, 277,371. 54
360, 144, 145. 71
417, 481,449. 64
Sio, 701 , 166. 01
571, 463, 672. 94
627,487, 196. 83
704, 522, 244. 20
189, 115, 217. 36
233. 878. 740. 47
230. 978, 109. 12
278,608,375.67
326,385,847.96
383. 776.786. 73
467, 300, 328. 68
550,939, 277.63
602,860, 487.68
613,311, 843. 58
736, 191.398.39
$44. 000. 000. 00
47. 710. 000. 00
62. 200. 000. 00
65 , 700, 000. 00
74.550.000.00
88. 650. 000. 00
92. 400. 000. 00
113.859.350.00
1 19. 900. 000. 00
121 , 400. 000. 00
119, 900, 000. 00
44. 360. 000. 00
58. 600. 000. 00
63, 700, 000. 00
68, 700, 000. 00
80. 650. 000. 00
92. 150. 000. 00
92, 400, 000. 00
1 18. 400, 000. 00
121. 400. 000. 00
119, 900, 000. 00
1 18. 800. 000. 00
$3,757,864.79
4. 735. 907- 44
8, 730,902- 74
10, 353. 906.66
12.413,252.39
14.377. 825. 16
16.069. 886.34
21, 727. 810. 19
41. 244. 161. 24
45.476. 880. 72
32, 129, 471. 86
4.634.61S-00
8.058.475-99
10. 115, 986.83
12, 130, 659. 26
14. 283. 792. 16
15.964. 832. 70
20. 918. 948. 80
41. 462, 665. 38
45.353. 842. 25
32.001. 133. 26
32. 584. 425. 60
$3. 212.379. 13
3.316, 716. 88
3.371. 698. 15
3. 613. 391 28
4.029, 719. 20
4, 509. 257. 07
4. 777. 539. 70
5.869,330. 06
10. 07S. 455-33
7.663.329- 71
17. 973. Sll. 90
3- 193-332-63
3- 477. 180. 47
3.452. 516. 66
3.891, 042.87
4. 480, 489. 02
4. 726. 067. 04
S. 209. 330. 24
9.316.373. IS
7. 485. 029. 71
17.953.248.38
iS. 723.668.52
$7. 500. 00
3
4
S
'
'
$52.023. 746. 73
51. 400. 669. 82
60. 054. 751. 96
76. 797.865.43
66.687.038.38
63,417. 222.23
68. 162, 147. 25
77. 753. 503- 41
$4. 189. 662. 00
3. 262, 360. 00
3, 614, 222. 00
3. 802. 128. 50
3. 175. 352. 00
4. 638.350. 00
6. 652. 775. 00
6. 208. 538. 00
7
9 4
9
lO
II
I
1906
S4I.09S. 293. 61
52, 491, 881- 96
44. 431.390- 00
$19, 169, 464- 00
10, 684, 141. 00
26. 441. 935. 00
S3, 152,464.62
4.986. 124. 29
6.880. 178. 41
1908
June 30 —
1898-99
1899—1900
2, 503.81
3
4
5
6
7
8
52. 756. 121 . 18
61, 039. 245. 18
56. 176, 726.99
62, 357, 816. 00
70. 486, 137.30
70, 628, 008. SI
66,884, 908. 75
74.845.496.02
84, 352. 541. 92
3, 137. 910. 00
3. 953. 821.00
6, 050. 327. 00
4.015.367.00
5. 409. 487.00
3,950.863.00
4, 362, 569. 00
6, 082, 814. 00
4,273. 794. 50
'
'
41. 063. 027. 71
46,318, 204- 01
SI, 149, 105.00
49, 050, 425. 00
27. 872,331. 00
14, 064, 302. 00
17, 697, no. 00
29.415, 143.00
I. 692, 649. 80
6. 502. 402. 74
5, 999, 281. 02
5,886,973.92
lo
1907-8
8648 — 10. (To follow page 284.) No. 4.
36 Sheet of B^ISTKS OF ISSUE at End of Each Half Year, 1898-1909.
ASSETS.
■ 3-57
JO. 76
5 1. 03
38-73
29.82
73.96
S3. 93
JO. 38
?2.23
22. 25
41. 41
)3. 21
is- 43
il. 18
56. 18
)3.99
i3.oo
M.30
(I. SI
n- 75
:o. 02
;6. 42
Stocks and bonds.
S694.436.3s
1,053,628.37
2, 122, 160. 09
3, 620, 15 I. 28
6, 955, 639. 70
II, 107,891. S3
12,012, 728. 82
15, 157, 896. 13
16. 141. 123.32
23, 802, 304. 66
46, 239,834.81
464, 240. 00
I. 526.302. IS
2,424,833.32
4, 480, 430.99
8.783,724.09
11. 501. 239.33
12.351.573-88
IS. 04s, 242. 19
17, 652, 090. 15
31,350.004.47
41.152,212.92
Discounts.
$56,588,
78,909,
89,868,
92, 254,
116, 174,
124,859,
140,035,
160, 472,
182, 571,
172, 301,
91, 106,
66, 103,
93, 119,
86,058.
100, 789,
IIS. 754,
126, 588,
148, 199,
167, 621,
189, 063,
123. 137.
87.058,
275.24
412. 59
042. II
035.67
127-43
061. 67
239-04
904- 56
819.36
933- 77
399-61
905.96
869.66
663.3s
717.00
809. 19
71S- 75
269- 90
625. 49
935.56
910. 00
205. 27
Loans on
collateral.
$22, 440.
34,048,
35,178,
39,338,
49,513,
62,818,
62, 309,
86,098,
102, 240,
107,393.
56,012,
691-65
160. 73
814.57
594. 07
139- 27
661.65
686.55
254-86
713-97
S17-41
818.95
24, 925, 221. 04
33.723. 173-60
37, 120, 889. 58
43. 555. 465- 77
51, 904,034- 71
64,844, 950-03
67. 701,307- 25
91, 706,387.69
no, 244, 160. 92
64, 609, 118. 75
S3. 219,342. 61
Mortgage loans.
$418,268. 17
492, 097. 18
462, 270. 34
775. 199-00
926.814. 43
I. 237. 944-80
1. S48. 843.42
I. 704, 427. 74
I, 903, 860. 70
6, 240, 828. 44
10, 504, 677. 66
436,836. 17
460, 425. 76
437,618. 70
902, 423. 28
977. S38-60
I , 264, 986. 30
1,630,423.06
I, 680, 224. 57
2, 910, 744. 40
7. 773.865.4s
10, 432, 603.40
Various credits.
$36,380, 843. 54
33,886,935-48
41,800, 565. 88
55,883, 188.95
70, 878.941. 50
88, 251, 775. 21
112,398, 004. 57
169, 826, 092. 07
192, 334, 672. 66
233, 841, 270. 21
405. 739.981. 78
38,265,388.87
41, 447, 984. 00
45. 370. 549.3s
58.959.549.57
80, 972, 940. 88
103,863, 143. 71
152.957. 155. 29
191, 914,888.82
203, 628, 149. 70
296, 144, 073.38
446, 772. 325. 02
Real estate,
etc.
$768,447. 52
772,479.38
I, 113, 830.85
I, 556, 809. IS
2,036,359.39
2,883, 586.89
3. 574. 544-31
4. 561. 593- 27
5.785.854-70
7, 289, 268. 09
9,929,989-98
796, 332. II
887,995-87
I. 371. 523- 64
I, 682,022. 88
2, 420, 746. 50
3, 239, 910. 61
3,989, S93-00
4.987. 554-36
6,012, 497. 20
7, 630, no. 51
7. 911.072. 75
Total.
5170,650,
208, 876,
226, 61 1,
252, 191 ,
306, 277.
360, 144,
417. 481,
510, 701,
571,463.
627,487,
704, 522,
189, 115
233.878
230. 978
278,608
326, 385
383, 776
467, 300
550,939
602, 860
613,311
736, 191
776. 04
199. 49
344- 87
386.85
371.54
I4S- 71
449- 64
166. 01
672-94
196.83
244. 20
217. 36
740. 47
109. 12
375.67
847-96
786.73
328.68
277-63
487.68
843-58
398-39
LIABILITIES.
Authorized
capital.
$44,
47,
62,
6S.
74,
88,
92,
113.
119,
121,
H9,
000,
7IO,
200,
700.
SSO.
650,
400.
859.
900,
400,
900,
44.360.
58. 600,
63, 700,
68. 700,
80, 650,
92, 150,
92, 400,
irS, 400,
121, 400,
1 19, 900,
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
350- 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
000. 00
Reserve fund.
S3. 757,
4.735.
8.730.
10. 353.
12,413,
14.377.
16, 069,
21,727,
41. 244.
45.476,
32, 129,
864. 79
907.44
902. 74
906.66
252.39
825. 16
886.34
810. 19
161. 24
880. 72
471.86
4. 634. 615. 00
8,058, 475-99
10, 115, 986. 83
12, 130, 659. 26
14, 283, 792. 16
15,964, S32. 70
20. 918, 94S. 80
41,462. 665.38
45.353. 542. 25
32.001. 133. 26
32, 584, 425. 60
Special guaranty
fund.
$3,212,379. 13
3.316. 716.88
3.371.698. 15
3.613.391- 28
4. 029, 719. 20
4.509, 257 07
4. 777. 839- 70
5. 869, 330. 06
10.075,455-33
7,663,329. 71
17,973. 811. 90
3, 193-332-63
3,477, 180. 47
3. 452, 516. 66
3. 891. 042. 87
4, 480, 489. 02
4, 726, 067. 04
5,209.330. 24
9,316.373- IS
7. 488, 029. 71
17,953. 248.38
18.723.668.52
Increase of capi-
tal and reserves.
Deposits at sight
or at no more
than three days.
$7. 500, 000. 00
2. 503. 812. 50 I
Si. 143, 623.09
994. S40. 30
809. 726. 20
928,534. 27
I, 079, 321. 61
599, 220. 09
616, 309. 85
20, 781, 084. 03
25,433,674- 26
29, IS7. 575-05
64, 162, 230- 89
1,094.045- 27
I, 281, 734. 69
1,053, 454-33
1, 134, 949. 88
816. 627. 21
528. 107. 42
21, 172. 553- 94
27,666, 159. 30
25 . 464, 882. 90
23,955,303-30
72. 126, 285. 39
Deposits for more
than three days.
Notes in
circulation.
Various debits.
$2. 199,886. 64
6,361,357-43
6,636, 379-37
6, 715, 866. 02
5.324.048.58
4. 773. 182. 86
5. 107, 750. 25
20. 012. 249. 95
18.353,957- 14
21.335.523-04
48, 097, 893. 00
3. 122. 549.46
7,364.632. 22
6. 37S. S96. 29
6,498, 793-96
4-575. 730. 99
S. 176. 766. S'8
6,018, 757-65
17, 640, 631. 68
22,451, 704. 54
25.643,649- 18
58. 125.969. 71
$54,375
63, 196,
64, 012,
71.257,
86,145.
84, 202,
83,525,
94, 141,
97. 787.
91.475.
87.504.
769. 25
832.50
464. 75
626. 50
227. 00
709- 75
876. 00
407. SO
S78.00
982. 00
630- 00
58, 208,340. 75
65.937,617. 25
63 , 629, 245. 00
77, 466, 988. 25
88.033.539. 75
82, 989. 221 . 00
89.454, 255. 75
97, 134.976. 75
98. 470, 528. 00
92. 253, 293. SO
92. 221 , 477. 00
$61.961. 253. 14
75. 060. 844. 94
80. 850, 173. 66
93 , 622, 062. 12
122. 735, 802. 76
163,031, 950. 78
214. 9S3, 7S7- 50
234.309, 934- 28
258.668. 546. 97
310,977, 906. 31
334, 754. 206. 55
71,
89.
82,
108.
133,
182.
232.
239,
282,
301,
343
990. 521. 75
159.099- 85
648, 010. 01
785.941.45
545,668.83
241, 791.69
126. 482. 30
318,471.37
231 , 500. 28
605, 215.96
609. 572.19
Total.
S170.
208,
226.
252.
306,
360,
417,
I 510.
571,
627,
704.
189,
233,
230,
278,
326,
383.
467.
550.
602,
613,
736.
650, 776. 04
876, 199- 49
611.344. 87
191,386.85
277. 371-54
144. 145- 71
4S1 , 449. 64
701 , r66. 01
463. 672.94
487, 196.83
522, 244. 20
IIS. 217.36
878. 740.47
978. 109. 12
608,375.67
385.847-96
776, 786. 73
300, 328. 68
939. 277.63
860, 487.68
311.843.58
191, 398. 39
61ST Congress t oT?-Nra'nc (Document
2d Session | SENATE j No. 494
NATIONAL MONETARY COMMISSION
The Bank of France in Its
Relation to National and
International Credit
By MAURICE PATRON
Barrister
And an Article upon French Savings
By ALFRED NEYMARCK
Editor of the "Rentier"
Washington : Government Printing Office : 1910
NATIONAL MONETARY COMMISSION.
Nbi«son W. Aldrich, Rhode Island, Chairrruin.
Edward B. Vrbbland, New York, Vice-Chairman.
jTn.ius C. Burrows, Michigan. Jssss Overstrbet, Indiana.
Eugene Hai,e, Maine. John W. Weeks, Massachusetts.
Philander C. Knox, Pennsylvania. Robert W. Bonyngb, Colorado.
Theodore E. Burton, Ohio. Sylvestbr C. Smith, California.
John W. Danibl, Virginia. LsucBi. P. Padgett, Tennessee.
Hbnrv M. Teller, Colorado. Georgb P. Burgess, Texas.
Hernando D. Money, Mississippi. Ars]^nb P. Fujo, Louisiana.
Joseph W. Bailey, Texas. Arthur B. Shelton, Secretary.
A. Piatt Andrew, Special Assistant to Commission.
TABLE OF CONTENTS.
THE BANK OF FRANCE IN ITS RELATIONS TO NATIONAL ANB
INTERNATIONAL CREDIT.
By Maurice Patron.
Page.
Introduction 7
PRELIMINARY CHAPTER.
The Bank of France and its metal holdings:
Section I. — Cash holdings of the Bank ii
Section II. — Immediate results of the dominating position of
the Bank 27
PART I.
Place op the Bank of France in the Development op the
National Credit 38
Chapter I.
Place of the Bank of France in the distribution of credit 40
Section I. — Local banks and the financial institutions 40
Section II. — In what manner the Bank of France promotes the
free distribution of credit in France 46
Section III. — In what measure the Bank must control credit-. 50
Conclusion 57
Chapter II.
Evidences of the activity of the Bank of France in connection with
the national credit:
Section I. — Development of instruments of credit in the Bank
of France 60
Checks 63
Transfers 69
Section II.— Popularization of instruments of credit 75
Section III. — ^Territorial expansion of the Bank of France 86
Section IV. — ^The Bank of France and agricultural credit 89
National Monetary C ommis s to
n
PART II.
The Bank of France and International Credit 95
Chapter I.
International markets: Page.
Section I. — International financial solidarity 98
Section II. — Place of the Bank of France in the international
market 105
Chapter II.
The Bank of France and crises 113
Section I. — Monetary crises 113
Section II. — Customary measures of defense against crises 122
Section III. — Present policy of the Bank of France 138
Appendix to Section III: Project for an international bank. 146
Chapter III.
The Bank and war 149
Conclusion 155
Bibliography 160
FRENCH SAVINGS AND THEIR INFLUENCE UPON THE BANK
OF FRANCE AND UPON FRENCH BANKS.
By Alfred Neymarck.
Page.
1. Some facts and figures 165
2. Formation and development of French savings 166
3. Savings institutions 167
4. French rentes 168
5. Lottery bonds 169
6. Railroad bonds '- 170
7. Total of securities belonging to French capitalists 171
8. Annual savings 172
9. Improved and unimproved property 173
10. Inheritance statistics 173
1 1 . Importance of French savings and their consequences .. 174
1 2. The supremacy of the French banks lyg
13. The Bank of France 180
The Bank of France in Its Relation to
National and International Credit
By
MAURICE PATRON
Barrister
THE BANK OF FRANCE IN ITS RELA-
TION TO NATIONAL AND INTERNA-
TIONAL CREDIT.
INTRODUCTION.
The interesting evolution of means of exchange which
we are witnessing and which is famiUar to everybody
seems to be leading us, after the well-defined periods of
barter and money, to a system of mere clearing of bal-
ances. All exchange operations would then be settled
by simple book transfers. Coin, thus reduced to the
condition of money of account, would cease to play any
real part. Economists are even thinking of a return to
barter, which would complete the cycle, bringing us back
to the original state after thousands of years and combi-
nations of all kinds. Such would be the course of this
evolution.
At any rate, the undeniable characteristic of our present
system is that it presents a transition between the money
system and the clearing system, the ultimate form of
which we are unable accurately to define. This period
of transition, which began when the idea of genuine
credit was conceived, will last for centuries before we
can rid ourselves of money as a medium. The system of
purely fiduciary currency, which is in process of becoming
firmly established, is not yet sufficiently stable to prevent
us from being thrust rudely back into the old ways when-
ever we exceed the limits of our resources.
Crises afford a striking proof of this fact. The initial
period, the precursor of the crisis, is nothing but an ab-
7
National Monetary Commission
normal extension of credit and of speculation. At such
times the need of leaning upon the solid foundation of
metallic currency is felt with a new intensity; and when,
with the blindness resulting from overconfidence, this need
has been neglected, when, from a disregard of the func-
tions of money, a crisis is brought about by the violent
rupture of the equilibrium of credit, gold at once resumes
its rights, is sought for on all sides, and, according to the
seriousness of the o£fense, exacts complete amends, with
the honors of a premium as high as it may choose to
make it.
It clearly appears, therefore, that this quest for sim-
plification in the means of credit, which each nation ar-
dently pursues in the interest of its own industrial and
commercial development, demands the greatest circum-
spection. In developing credit, metallic currency must
not be too much overlooked. We must not lose sight of
the fact that "credit, in order to be solid and permanent,
must have a solid and permanent foundation.""
It devolves upon the bank of issue to watch over this
solidity and permanence. It can do so by means of its
note — ^that hybrid document, the offspring of both
money and credit* — which is subjected to a more and
more close dependence on money, in proportion as credit
increases, and which constitutes a valuable means of tran-
sition in our time of transition."
"Sir Edward Fitzgerald Law, in the National Review, cited by A. Raffa-
lovich, Economiste Europien of November i6, 1906, p. 617.
SL^on Say and Chailley, "Nouveau dictionnaire d'&conomie politique,"
under the word "billet de banque." "The bank note is at the same time
an instrument of credit and a substitute for metallic currency."
eLet us for a moment consider these instruments of credit which justly
do honor to our modern civilization; their number increases constantly;
in addition to bank notes, checks, transfer orders, certificates of deposit.
T h
B
a n
k
f F r a
nee
One hundred years ago the bank note, secured almost
solely by discounts, was the chief element of a credit
which was then little developed." But nowadays, the
tremendous growth of credit and the necessity of a large
metallic basis compel us to provide a heavy gold counter-
part for the bank note. It tends to become nothing
more than a token representing money. Its issue is
no longer a credit operation, but essentially a mone-
tary operation which, it seems, should secure for the bank
note its maximum development. By means of its notes,
the Bank is in a position, under all circumstances, to
bills of exchange, bills payable to order, drafts, storage certificates, we have
stock-market securities, treasury bonds, mortgages, warehouse receipts
coupons; in short, obligations of the most varied nature which are to-day
in use for credit transactions.
All these instruments are employed in making settlements; they sup-
plement advantageously the use of coin, or multiply it, and they gradually
lead toward that period of simple clearing which some economists believe
is already in sight. There would be cause for unmixed gratification in
their great number and the frequent use made of them, if we were not
aware of the serious disturbances resulting from the excessive and careless
use of credit. We do not deny the unquestionable advantages of these
instruments; on the contrary, we believe the time has come to give them
greater extension; but we lay down as a principle that the importance
of the bank note in a fiduciary currency should not be belittled, as some
people are inclined to do. To give to the credit structure any other foun-
dation would, in our opinion, be equivalent to building on sand. The bank
note alone permits the creation of a metal reserve strong enough to become,
in case of need, a valuable war chest and a sinking fund for crises.
" This is shown by the following table (Cf. Pantel, " Les jonctions de la
Banque de France," Montpellier, 1903, pp. 26 and 27):
[In millions of francs.]
Year.
Circulation.
Discounts.
Cash.
Deposits and
current accoimts.
Maxi-
mum.
Mini-
mum.
Maxi-
mum.
Mini-
mum
Maxi-
mum.
Mini-
mum
Maxi-
mum.
Mini-
mum.
1800
1801
1802
33
45
8
24
45
83
ri
36
II
10
IS
4
S
4
6
J
I
3
S
National Monetary C ommis s to
n
maintain an exact proportion between money and credit
and to help develop the latter in precise proportion to its
holdings.
Such, then, are the aims of the Bank when it extends
credit under the most varied forms and over a steadily
increasing area, adapting it to wider and more democratic
social conditions, and when, supported by its metallic
reserve, it removes the threat of war to which financial
questions are so closely related, or at least dispels finan-
cial storms by some action based on world-wide solidarity.
We shall study the part taken by the Bank of France
in the building up of the country's metallic reserves.
We shall see the immediate and beneficial results of this
extensive operation. Then we shall show how this great
institution, thanks to its enormous power, is able to in-
fluence, first, national credit, and, second, international
credit.
Preliminary Chapter.
THE BANK OF FRANCE AND ITS METAL HOIvDINGS,
Section I. Cash holdings of the Bank.
The first care of the architect who is about to erect a
great building is to secure for it a broad and firm founda-
tion. Likewise, in the vast and continuous upbuilding
of a nation's credit, the metallic base requires the most
attentive and enlightened consideration. To provide for
it, the entire resources of the State are not too great. It is
difficult to understand how, in certain countries, an under-
taking of such universal interest should be left to private
enterprise. How can the latter be powerful enough to
accumulate holdings of currency which may have to remain
idle for long periods, and which can unflinchingly resist all
assaults and all storms?
"The maintenance of a country's gold reserve may be
considered a public function."" This function, however,
can not be performed by the State itself, but by the very
force of things it naturally devolves upon the banks of
issue. * In France a system which has already passed the
hundred-year mark and has been particularly fortunate as
to results, intrusts the Bank of France with the duty of
building up and preserving the metal holdings, and this
great organization shows itself fully worthy of the confi-
dence which the Government has always reposed in it.
o Villefredo Pareto, " Cours d'iconomie politique," Vol. I, p. 390.
6 In the United States, to be sure, this burden falls upon the Treasury, but
it is unnecessary to lay stress on the fact that at the present time the Ameri-
can financial system does not deserve to be taken as a model.
National Monetary Commission
Dtiring its long career the Bank has never ceased to control
credit with rare foresight and a remarkably steady hand.
We wish, at the outset, to call attention to the fact that
the Bank of France is not, as might be supposed, directly
or personally interested in the possession of enormous cash
holdings. The note issues which contribute to the forma-
tion of these cash holdings do not represent clear profits;
far from it. In increasing its gold reserve the Bank is
working against the interests of its shareholders, and con-
sequently against its own interests. There are two reasons
for this: first, the expense of maintaining an additional
reserve, and the cost of issuing notes against the same,
represent a clear loss for the shareholders. If the holdings
were smaller, the amounts of assets and liabilities would
decrease evenly in the accounts of coin and bars, and notes
to bearer, without interfering with the profit and loss
account. In other words, the circulation which alone can
yield a profit has nothing to gain from the increase in the
circulation which is covered by a metallic reserve. In the
second place, smaller holdings would lead, for the very
safety of the country, to frequent rises in the discount rate,
which are the main source of profit for banks of issue."
Thus, considering its own interest only, it matters little to
the Bank if its holdings fall from 3,000,000,000 or 3,500,-
000,000 francs to 1,000,000,000 or 1,500,000,000 francs —
the point at which they stood only twenty-five years ago.
The Bank's credit would not suffer, its profit-yielding
circulation would not be decreased, and it would be relieved
o Indeed, the tolls can only apply to operations made in normal times,
when the discount rate yields just about enough to cover the expenses of
management. When the rate rises the expenses remain about the same,
and the profits increase considerably.
The Bank of France
of very heavy " stamp duties, of the expense of manufac-
turing the notes which it would not be called upon to issue,
and of the charges for safekeeping the corresponding
metallic currency.
From 1870 up to the present time the cash holdings of
the Bank of France have not ceased to grow, as shown
below by the table of quinquennial averages. Moreover,
the Bank, of its own volition, could not have made such an
accumulation. The exchanges are usually in our favor,
owing to our position as lenders to foreign countries ^ and
« One-fifth of i per cent.
6 The amounts of French investments known to be made abroad, esti-
mated in 1903 by the Administration des Domaines, and published in the
Ofjioiel, are as follows:
Francs.
Europe 21,012, 000, 000
Asia I, 121, 000, 000
Africa 3, 693, 000, 000
America 3, 972, 000, 000
Oceania 57, 000, 000
Total 29, 855,000, 000
Very nearly 30,000,000,000 francs, which make us each year creditors
for an income of 1,000,000,000 to 1,500,000,000 francs.
Since the balance remains in our favor, many of these settlements are
made in gold. After deducting the sums which are deposited or circulated
in France there remains a sufficient amount for reinvestment in numerous
foreign securities, thus again increasing our national capital. This is the
reason for the saying that France is the greatest gold producer in the world.
These figures could but increase since 1903. M. Lajusan {"La crise
frangaise; essai de solution," Paris, Giard & Brifere, 1906) estimates that
on the average we save 3,000,000,000 francs yearly, and M. Neymarck, at
the meeting of the Soci6t6 d' Economic Politique de Paris on November 4,
1905 (Journal des Economistes, 1905, p. 248), estimated the amount, due
us yearly by foreigners, on account of coupons or redeemable bonds, at
1,500,000,000 to 2,000,000,000 francs. This condition is the prerogative of
the oldest nations of the old continent. England owns 55,000,000,000
francs of foreign securities.
We shall not join M. Lajusan (op. cit.) in saying that this taste for sav-
ing is the evil of our French society; neither shall we unduly lament with
13
National Monetary Commission
to the extent of our exports, and this for many years past
has resulted in the continual flowing of the precious metal
into the vaults of the Bank of France. '
M. D. Aubry {"La Banque et le commerce,'' Riforme Economique, July
10, 1904) as to the stand taken by bankers in favoring foreign investments,
but we shall more readily conclude with M. Aupetit {Reime Econ. Intern.,
1904, Vol. Ill, p. 707) that there must be and that in fact there is an har-
monious relation between investments at home and investments abroad.
Of course, the development of the national industry must not be paralyzed
by withholding from it the indispensable capital. Still, we must unre-
servedly congratulate ourselves on the fact that to such a large extent we
are able to participate in foreign enterprises. Far from creating competi-
tion for us, we succeed in stimulating our own production, and no one will
deny that it is more advantageous for a nation to cause other nations to
work and to draw from them 2,000,000,000 francs yearly than to procure
similar results by work at home. (Cf. Rev. d'Econ. Pol., Vol. XIII, p.
154; Revue Econ. Intern., 1906, Vol. II, p. 223.)
" Imports and exports of gold.
[Bureau of Customs, Statistical Documents on French Commerce.]
[In millions of francs.]
1880.
1881
1882
1883
1884
i88s
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
Coin and bars.
Imports.
194
234
284
64
127
243
261
93
102
338
117
362
387
30s
461
>S3
Exports.
408
223
192
134
82
201
199
258
193
129
251
23s
111
117
108
244
Excess of—
Exports
over
imports.
1 6s
91
Imports
over
exports.
45
42
62
127
276
188
353
9
14
T h
Bank of France
In thirty-five years the amount of our metalUc reserves
has increased almost threefold.
Imports and exports of gold — Continued.
Year.
Com and bars.
Imports.
Exports.
Excess of—
Exports
over
imports.
Imports
over
exports.
1896
1897
1898
1899
1900
1901
1902
1903
1904
Total
301
291
200
319
45 9
429
441
314
6s6
311
132
313
162
Z26
I4S
127
130
124
4,6ss
IS7
333
284
314
184
532
The above table gives the figures for gold imports and exports during the
' last few years. They show that gold flows rapidly into France, and that in
spite of numerous cases of export the holdings keep on increasing.
We give also for reference the amount of gold used yearly in the arts.
The information, however, is not sufficient to permit of ascertaining the
yearly increase in coined gold and gold bars, or what may be called interna-
tional money; other particulars should be taken into account, such as
recoinage, which the custom-house can not estimate.
Gold used in the arts.
Kilograms.
1882 20,859
1883 18,585
1884 16,131
1885 13.729
1886 14,226
1887 16,395
1888 17.639
1889 22,148
1890 21,851
1891.-- 21,253
1892 -- 18, 190
Kilograms.
1893--- 17.254
1894 18,935
1895 20,829
1896 20,246
1897 20,368
1898 23,629
1899 ._ 27,671
1900 27,359
1901 28,446
1902 25,600
'5
National Monetary Commission
Statement of the Bank of France for the last week of each year.
[In millions of francs.]
Specie.
Circula-
tion.
Dis-
counts.
Loans.
Current accounts.
Ratio of
cash to
circula-
tion.
Year.
Gold.
Silver.
Total.
Indi-
vidual.
Treas-
ury.
iSgo-j
1, IZO
A. 241
2,361
3,186
670
249
402
177
0.741
tSgi.-
i. 137
1.2S3
i=,390
3. 194
761
298
433
244
.748
1892..
i,70S
I, 267
2,9J2
3.298
550
297
419
291
.901
1S93--
I, 702
I, 261
2,963
3.581
579
303
40s
128
.827
1894--
.,821
..263
3,084
3.476
573
297
445
160
.887
1895-
:i,048
1,244
3,292
3.527
544
312
547
202
.933
1896-
1.978
I, 244
3, 222
3.607
693
364
S66
237
.893
1897--
1.963
I, 222
3.18s
3.689
730
358
492
221
.863
1898--
',875
1,225
3, 100
3.094
798
491
491
252
1.002
1899--
.,866
JL, 196
3,062
3.820
828
344
477
307
.802
1900--
2.399
I, 108
3,507
4.187
848
510
S07
369
.834
I9oi__
2,449
1, 096
3,545
4.287
846
523
560
167
.826
1902. _
2,519
1,098
3,617
4.494
826
483
462
104
.806
1903--
2,361
1, XOI
3.462
4.491
1, 040
S08
447
236
-770
1904--
2, 659
1, 102
3.761
4.325
765
S02
604
238
.869
190S--
2.878
1.075
3.953
4.566
1,098
503
716
390
.865
1906- .
2, 706
997
3.703
4.714
i,2SS
578
608
337
.791
1907--
V. 691
924
3.61S
4, 801
1,2IS
S78
489
258
■ 752
Average of specie holdings.
Francs.
1873-1877 1,520, OCK), 000
1878-1882 . 2,010,000,000
1883-1887 2, 200, 000, 000
1888-189 2 2, 520, ooti, 000
1893-1897 3, 150,000,000
1898-1902 3, 320, 000, 000
1903-1907 3, 770,000, 000
The above table shows the condition of the most inter-
esting accounts of the Bank of France at the last weekly-
statement of eafch year since 1890. It appears therefrom
that while the amount of circulation increases together
with that of discounts, loans, and current accounts, the
fact is nevertheless estabUshed that the bank note tends
to be more and more exclusively represented by cash
holdings.
16
The Bank of France
We have said that the Bank, while increasing the total
of its specie, had given especial attention to its quality.
The single gold standard has now been adopted in most
countries." There remain but Mexico, the European
populations of the Far East, and China, which compulso-
rily, if we may so express it, maintain the silver standard,
though China has, properly speaking, no national mone-
tary system. From the standpoint of international rela-
tions gold is therefore the only metal which can be
exported. It was the duty of the Bank of France to see
to it that our bimetallic system should not place us at
a disadvantage in our relations with foreign countries.
This bimetallic system has remained incomplete since
1878, when the coinage of 5 -franc pieces was definitely
suspended. The former order of things left on our hands
considerable holdings of coin, the real value of which
was much inferior to the nominal value. But at present
in our holdings of 5-franc pieces many are found to be of
countries,, which belong to the Latin Union. We have
withdrawn from their market such a quantity of these
coins that, if the Union were dissolved and an accounting
made, we would probably have to return to them more
pieces than they would have to return to us, and the bal-
ance would have to be settled in gold. It is quite evident
that this formidable quantity of 5-franc pieces of inferior
quality might materially reduce the exact value of the
circulating medium. The aim of the Bank was to dispose
of as much of this silver as possible, in order, if not to
» England was the first to teach the v^lue of gold and to declare that
this metal alone was fit to form the bapis of a sound monetary system.
Germany made use of the 5,000,000,000 francs indemnity to adopt mono-
metallism in 1872. A law of March 14, 1900, established it in the United
States.
83704 — 10 2 17
National Monetary Commission
get rid of it altogether, at least to reduce the amount to a
point where it would cease to be a cause of inconvenience
and obstruction."
It appears from a scrutiny of the preceding table that
the silver holdings are continually diminishing, while the
total holdings have increased. Indeed, the Bank of
France avails itself of every opportunity to relieve its
coffers of this depreciated currency.* Since 1898 a
«■ M. de Molinari thinks that in order to bring back the silver holdings
to the condition they were in before 1850^ — that is, before the creation of
the lo-franc gold piece which was intended to take the place of the disap-
pearing silver — it would be necessary to call in these pieces. The value
of those outstanding is 600,000,000 francs. This woidd cause the same
amount in silver pieces or thereabouts to come out of the Bank. (Cf.
Journal des Economistes, 1903, Vol. II, p. 12.) In our opinion this sys-
tem, among other disadvantages, would overburden the circulation with
a heavy and depreciated money.
i> The following table of exports and imports of silver coins demon-
strates that the French holdings have always shown an excess of exports.
[Bureau of Customs, Statistical Documents on French Commerce, pp. 84 and 144.]
[In thousands of francs.]
Exports. Imports. ^^^^^
1901 —
1902 _ _
1903 - -
1904- -
190S--
1906'*-
128,637
106, 006
91. SIS
78.028
41,816
79.S74
57.475
60, 807
68, 696
41.918
40. 145
71.034
71, 162
45.199
32, 8X9
36. no
1,671
8,540
o Amounts for 1906 are provisional.
This has led certain foreign authors, especially Austrians, to claim that
we have a compulsory tender. Their reasoning is, in brief, that since
the 5-franc piece has only a fiduciary value, and the notes of the Bank
of France may be redeemed exclusively in 5-franc pieces, there is, there-
fore, a condition of compulsory tender.
There is hardly need to show the error of this reasoning. Compulsory
currency in itself implies no redemption, and what we are reproached with
simply amounts to stating that the 5-franc piece is legal tender and that
its intrinsic value is not equal to its face value. Everybody knows it;
nobody complains about it. Can it be said analogously that there is
compulsory tender in all countries where subsidiary coins and copper are
legal tender within certain limits and within these limits may be paid in
redemption of notes?
18
The Bank of France
portion of the holdings has been absorbed by the recoin-
age of a certain number of 5 -franc pieces into subsidiary
coins, an operation which, according to the terms of the
agreement of May 15, 1898, must be carried out up to
the amount of 127,000,000 francs.
Our colonies also provide a large outlet for our silver
reserves. In many of them, especially in regions some-
what remote from the coast, the custom of barter still
exists. It is only recently, and in some countries, as
in the upper Congo, only since a few months, that the
natives journeying to the river with ivory, rubber, or
other produce have begun willingly to accept coin in
place of bags of salt or rice. For them the monetary
unit is the 5-franc piece. The subsidiary coins of i franc
and 50 centimes are doubtless known to them, and some
of them even have seen gold coins ; but these pieces are
rarely in use. On several occasions, we are told, barrels of
subsidiary coins, after remaining for a long time in the
stores of the exporters who had secured them as a medium
for their purchases, had to be sent back unopened because
they could not be used.
It is, therefore, the 5-franc piece which is in greatest
demand in these countries, and this demand appears
strong enough to last for a considerable period." On the
^ In this connection it may be interesting to note that in countries where
commercial enterprise is least developed silver is taken in preference to gold;
then, as economic knowledge increases, gold gives way to bank notes and
bank notes to checks.
This is shown by the tables resulting from the inquiry of October 15
1903, on the circulation of coins and paper. It is shown that the pro-
portion of bank notes in circulation is only 63.08 in the Department of
Ain, 65.75 i° the Department of Haute Savoie, 66.45 i° the Department of
Lozfere, 68.82 in the Department of Lot, 68.96 in the Department of Var; it
reaches 90 to 91 per cent in the departments of Aude, Rh6ne, and the
19
National Monetary Commission
other hand, the members of the Latm Union, especially
Belgium and Switzerland," owing to their demands for
Bouches du Rh6ne, and exceeds 92 per cent in the departments of the
Seine and the Gironde.
The average percentage of the various mediums of exchange was:
Bank notes 85. 56
Gold 9. 13
5-franc silver pieces ' 3.62
Fractional silver currency i. 58
Copper . n
At the same time a perceptible progress in general economic knowledge
is evident, since the figures of the year 1897 indicate a larger use of metal:
Bank notes -
Gold
82.91
II. 10
5-franc silver pieces 4-45
Fractional silver currency 1.42
Copper . 12
Concerning the evolution in money types and the struggle of the stand-
ards (Cf. Nicholson, "Bankers Money," London, Black, 1902, p. 4 and fol-
lowing) , it may be added that there seems to be a constant progression toward
a money of lighter weight. The French bank note, value for value, weighs
two hundred times less than the equivalent in gold and three thousand
times less than the equivalent in silver. (Cf. E. Th6ry, "Les arrivages
d'or," Econ. Europ., May 8, 1892.)
1 There is between Belgium and Switzerland on the one side, and France
on the other, an important and continuous movement of 5 franc pieces.
The restocking of these two countries requires at times large amounts, as
may be seen from the figures taken from M. Ansiaux {"Les probUmes de la
circulation," Revue Economique Internationale, 1907, Vol. IV, p. 260; cf.
Meyer, "Les banques suisses d'4mission et le drainage des icus," Lille, Le
Bigot frferes, 1903):
[In millions of francs.]
Year.
Belgium.
Switzer-
land.
Year.
Belgium.
Switzer-
land.
1898.-
38. „
60. u
3S-S
14. S
II. u
68
I03
7S
1903
25.0
12.0
24.0
8i.5
1904
1900
190S-
1906 .__
190
The Bank of France
5-franc silver pieces, give us a considerable market for our
embarrassing stock. And even if all these outlets were not
open for our silver, the fact alone that our gold reserve
keeps on growing would produce a steady decrease in the
proportion of the silver holdings. The amount would be
still smaller than appears from the above figures if the
Bank, acting in the public interest, had not endeavored,
during the last few years, to relieve the circulation by
disbursing more and more gold and drawing silver to its
vaults.
Now, neglecting our coined silver which can only be
used in the home trade, if otu gold holdings are compared
with those of other nations, it will be seen that they are in
no wise inferior :
Holdings of gold at the end of June, igo4fl
Francs.
United States !> 3, 391,000, 000
France 2, 776, 500, 000
Russia 2, 222, 700, 000
Bank of Austria-Hungary 1, 189, 700, 000
England 883, 500, 000
Italy 469, 200, 000
Spain 367, 900, 000
Netherlands 138, 000, 000
Denmark 118, 600, 000
Switzerland 116, 700, 000
Naples 101,400, 000
Sweden 82, 600, 000
Roumania 68, 500, 000
Sicily^ 40, 900, 000
Portugal 27,000,000
Finland 21, 300, 000
Servia 18, 000, 000
o If the latest figures had been taken, it might be thought that they were
influenced by the crises of 1907-8. It therefore seems preferable to select
a year which was free from disturbances, and a time of the year when the
calls for money are least, aiming thus to find a more correct level than during
a period of agitation.
6 Holdings of gold of the Treasury on October i, 1903.
21
National Monetary C ommis s io
n
The four countries whose holdings exceed 1,000,000,000
francs each are, as may be seen, the United States, Franqe,
Russia, and Austria-Hungary. The United States, owing
to its precarious banking system, far from being able to
derive any advantage from holding the largest reserve,
has recently tmdergone a financial crisis of the severest
kind, and has withdrawn much metal from Europe."
Moreover, the United States Treasury is only a department
of the Government, and not a commercial institution.
Russia has of late experienced some violent commotions.
That country, however, somewhat like Austria-Hungary,
is just enough outside the lines of international commerce
to find but little use for its heavy reserve. This reserve is
an appendage of the Russian Treasury, and a large per-
centage of the gold does not actually repose in its vaults,
but is deposited abroad to the credit of the Bank or to the
credit of the State.
France is, therefore, the richest country of the world in
gold, thanks to its Bank, which has skillfully watched
over and centralized arrivals of the precious metal.
Owing to the uses the Bank can make of this gold, and
to the shipments it sends abroad, Paris has become the
most important gold market. It is thus with justice
that France has repeatedly been called the greatest gold
producer of the world, and at any rate, it is the great store-
house of that metal. It is therefore easy to imderstand
how holdings as considerable as ours can withstand many
shocks. It is not, however, in the public interest that
these holdings should be indefinitely enlarged, and thus a
o The amount of gold exported from Europe to the United States during
the recent crisis is estimated at about 400,000,000 or 500,000,000 francs
at least.
The Bank of France
pause in the movement seems to be, if not probable, at
least possible.
After these remarks on the holdings of the Bank, from
the point of view of their nominal importance and their
quality, we now come to an examination of the function
of the ' Bank in preserving what has been called the
holdings of individuals." The Bank properly considers
that the very quality of the metal in circulation is a
corollary of the considerable and judiciously constituted
reserve in its keeping; this is simply an application of
Gresham's law. In case of a panic, the duties of the
Bank would be distinctly more serious, if it had not
only to watch over its own reserve but also to repair
the damage caused by a diminution or depreciation of
the specie in circulation.
When, on March 21, 1907, the board of regents raised
the rate of discount from 3 to 3>^ per cent, that step
was taken not for the purpose of safeguarding the reserve —
which was enormous, consisting of 2,600,000,000 francs
in gold, and which for a year, during periods much more
favorable for exportation, had diminished only 400 to
500 million francs — but in order, by raising the discount
rate, to avoid a decrease of the money in circulation,
which would have resulted from the tempting and per-
sistent offers from abroad, where discount rates ruled
much higher. The incentive to export was too high, a
counteraction was needed, and the Bank accomplished it
by the means above described. During the week when
the discount rate was raised, the monetary situation
" Cf. Pour & Contre of March 24, 1907; "Revue du marchi."
23
National Monetary Commission
was not strained, because the gold reserve decreased only
3,000,000 francs, while discounts and loans decreased
4,000,000 francs; there was no inflation. Probably this
rise was also intended to obstruct the outflow of capital,
which, fearing the creation of an income tax, was ready
to take shelter abroad." This is a remarkable instance
of the vigorous measures taken by the Bank to protect
the money of individuals. It is equally certain that the
same reasons had a great influence on the decision which,
on November 7, 1907, raised the rate from 3X to 4
per cent.
On the other hand, and especially in 1904, the financial
policy of the Bank was to flood the French market with
gold and to withdraw all silver that was not required for
circulation. That silver, as we saw, was shipped abroad;
the aim was to get rid of all that which, not being needed
for circulation, was only depreciated money. Does this
mean that we should reduce the holdings of silver in
order to reach gold monometallism as quickly and as
" According to M. de Foville's calculations, the amount of gold circu-
lating in France reaches the sum of 4,000,000,000 francs. In England
the coined gold outside the Bank would not exceed 2,000,000,000 francs,
while in Germany it would reach the sum of 5,000,000,000 francs. (Raffa-
lovich, Economiste Fran^ais, Nov. 23, 1907, p. 727.) But if it is possi-
ble, when speaking of the gold reserve of a country, to base calculations
upon a concrete figure and to draw conclusions as to the amount of re-
sistance, it is necessary, when considering the money in circulation, to
bear in mind the extent of the territory and the density of the population.
The latter is far from being alike in these three countries. In France
there are 73 inhabitants per square kilometer, against 112 in Germany
and 215 in England. If this factor is considered, the quantity of money
per inhabitant will be seen to be greater with us than with our neighbors.
The conclusion necessarily follows that, if the channels of circulation in
England and Germany contain more metal than in France, nevertheless
every Frenchman has a greater amount of circulating medium at his
disposal.
24
The Bank of France
easily as possible?" We think not. We remember that
between i860 and 1870 the question of a single metal was
raised, as it is to-day, but in a contrary direction. The
question then was how to get rid of the debased gold,
and it was silver which was used as shield for the yellow
metal. It is possible that new discoveries may result in
a considerable reduction in the price of that metal. A
general lowering of prices would result, which would
give silver an increased value, and gold being depreciated
in turn, would once more be safeguarded by silver. Thus
we believe that, provided silver does not form a major part
of the reserve, and provided the holdings of gold are able
by themselves to meet the requirements of international
trade, silver should not be entirely displaced. In our
opinion the principle could be advanced that a strongly
and wisely constituted reserve must aim to maintain
between the gold holdings and the silver holdings about
the same proportion as that between the value of the two
metals. *
Now that a smaller production of silver and an increased
production of gold is anticipated, the time would probably
not be very favorable for putting this principle into prac-
tice. But when bimetallism was general there could have
been established, and if in the future, as is quite possible,
it again prevails, there might in our opinion again be
established a ratio between the amount of gold holdings
" "Our silver money is our militia; it guards our forts and frontiers at
home, while gold is our regular army, which goes abroad and returns
after profitable campaigns." (A Neymarck, Meeting of the Soci6t6
d'Economie Politique of November 4, 1905, reported in the Journal des
Economistes, 1905, p. 248.)
6 See in the Officiel, in the report of the Senate session of February 5,
1877, the discussion of the question of bimetallism.
25
National Monetary Commission
and the amount of silver holdings inversely proportionate
to that existing between (i) the official ratio of values of
the two metals, (2) the actual ratio of the same values; for
-'-«^i^^F^iSfs=d||- ^nd=. the hypothetical
conditions which we have assumed, this equation would
have offered and would offer the best means of counter-
balancing the inconveniences of an ever-changing ratio of
values. But as monometallism tends to become the rule
and, moreover, as in all international commercial relations,
settlements are made by taking as basis of value the
ratio to gold bullion, which alone at the present time
remains unchangeable, we are led to make large reduc-
tions in the holdings of silver. It is a delicate matter,
however, to decide what limit should be placed to this
reduction.
A thorough examination of the question of monometal-
lism and bimetallism does not enter into the scope of our
study, and we shall therefore add nothing to the above.
In any case, if we confine ourselves to a view of the pres-
ent situation and of the resistance which the unloading of
the declining metal is able to offer to the fluctuation of
values, we are led to be content with the incomplete
bimetallism which now governs us, and once more to
acknowledge the wisdom of the Bank of France, which
preserves for us the statu quo.
26
The Bank of France
Section II. Immediate results of the dominating position
of the Bank.
The utility of a low discount rate for the commercial
welfare of a country is well known."* Now, the rate tends
to fall when the cash holdings increase and to rise when
they decrease. In short, it is completely controlled by the
holdings. On the other hand, it would not be correct to
say that the amount of cash on hand follows the move-
ments of the discount rate. Thus, of the two conditions
we have under examination— low rate of discount, strength
of holdings — the latter is the more useful. If it is advan-
tageous to have a moderate discount rate, it is still more
so to possess large cash holdings. This is the case in
France, and as a natural result of our strong holdings,
both as to quantity and quality, we enjoy a moderate
rate of discount. This situation is so generally known,
even in its details, that we shall recall its fortunate conse-
quences as briefly as possible and only as far as is required
for the unity of this investigation.
The normal rate of discount fixed by the bank of issue is
imposed within rather narrow limits upon holders of ftmds.
To raise it artificially for the greater contentment of a few
" In this connection we cite the authoritative opinion of two English
economists, Cairnes and Bastable: " What a nation is interested in is not
in having its prices high or low, but in having its gold cheap — understanding
by cheapness not low value, but low cost" (Cairnes, " Leading Principles,"
p. 494, cited by Bastable, p. 97 of the translation by Sauvaire-Jourdan, Paris,
1900); that is to say, not a. gold value intrinsically low, but a small cost
price, due to the inexpensive means used to obtain it. The idea, however,
is not new. Napoleon said: "I have created the Bank in order to allow
discount at 4 per cent." This was a very low rate one hundred years ago,
and these few words show that the founder of the Bank meant, also, that it
should remain stable. 'Cf. Camille Pelletan in the Chamber of Deputies,
session of January 17, 1907, Journal Ofpciel of the i8th, p. 71.)
27
National Monetary Commission
ardent capitalists must not be thought of any more than
to reduce it to naught, as Proudhon" dreamed, and as
despairingly wished for by the most fervent coUectivists. *
The cost of manufacturing the notes, the taxes, and the
general expenses of a bank of issue set a limit for the dis-
count rate toward which the normal rate constantly tends. '
But that minimum itself may be raised owing to the in-
fluence of the minima existing in other countries.'*''
In the table below are found grouped the average rates
of official discount in the principal markets of the world.
It will be seen that the French rate, with remarkable steadi-
ness, rules perceptibly lower than that of other countries.
o Proudhon had created a people's bank with the aim of making capital
available free of charge. It failed wretchedly.
^ To those who may find the present rate of discount too high, let us
recall tiiat, like ethics, political economy has laws which vary somewhat
according to time and place. The Chinese, for instance, surprise us with
the peculiarities of their civilization, however far advanced it may be in
certain respects. Their conception of ancestor worship and of family ties
is entirely different from ours; their music sounds queer to us; and, to keep
to our topic, some time ago they were quite pleased to see their discount rate
ruling at only 30 per cent. Their economists asserted that a lower rate
would be dangerous. Cf. Joiornal des Economistes, 1879, I, p. 79.
« These taxes must not be indefinitely increased. If they should rise
above certain limits, it would become necessary for the bank to transfer the
burden to those who bring in bills for discount. In some cases the bank
may cut down the profits; but when these are brought down to the ordinary
level it is not possible to reduce them further without endangering the
concern.
i Cf. Revue d'Economie Politique, Vol. XIII, p. 307.
« It is obviously impossible to determine a priori upon a fixed rate which
would at once be sufficiently low and sufficiently high and which could be
kept invariable. The problem of cheap money is far from so easy a solution.
The rate would lack stability if it were not kept in close dependence on a
certain number of economic conditions — such, for instance, as abundance of
money in the home market or even in the world's market, money rates abroad,
etc. On the other hand, a plethora of money is known to be one of the
causes of crises, because excessively low rates for loans and discounts during
a period of overconfidence permit enterprises which are often hazardous.
28
T h
Bank of
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29
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30
The Bank of France
Some great nations, England, Germany, and even the
United States, enjoy, as is well known, a commercial
expansion vastly superior to ours in its intensity. Never-
theless, they pay higher for money than we do. Does
this mean that a low discount rate has no influence on
that expansion? We do not think so; indeed, we consider
that there is here a grave mistake. Even admitting that
a low rate, because it demonstrates a limited demand
for money, also discloses only a moderate degree of
prosperity — ^which is debatable — that low rate is never-
theless an element of impulse toward a period of greater
activity, in that it allows money to be obtained on favor-
able terms. Should it be objected, however, that France,
the land of cheap money, has permitted herself to be
outdistanced by the commerce of her rivals, we would
take this opportunity to show that from a financial
standpoint France for the last thirty years has been ready
for an onward movement which is only awaiting an im-
pulse similar to that of which our neighbors have given
us an example. In this question, moreover, we must care-
fully distinguish between the monetary factor and the
economic point of view, and we must avoid attributing,
tmder pretext of relationship, to the one the defects of
the other. We shall have occasion again to return to this
subject.
"There is something more important for a country than
the figure of the discount rate, and that is the uniformity
of this rate in space and in time. While it is not possible
to reach absolutely fixed and uniform rates of discount
and credit conditions, the nearer they are approached
31
National Monetary Commission
the nearer we are to perfection. " " A discount rate subject
to constant chaaige would cause, at e£«:h variation, the
gravest disturbances in commercial relations. On the
other hand, a stable rate allows a certain prevision of the
future and is highly advantageous to serious men of
business. *
The advantages of as stable a rate as possible appear
unquestionable. Let us recall, however, the classical
controversy over the system of invariable discount as
opposed to that of variable discount," which ended by
reducing the rate when money is abundant and raising
it when money is scarce. It appears that here also, as
in regard to low rates, it is necessary to discriminate.
If the general welfare of commerce is at stake, the rate
must remain as steady as possible; if the more complex
problem of the elements composing the cash holdings is
to be solved, then the question as to a change of rate may
be raised. That question is then so related to the problem
o Courcelle-Seneuil, "Les operations de banque. Traits thiorigue et
pratique," ninth ed., Paris, Alcan, 1905, p. 39.
5 This is so true that among the plans for reorganization of the banks of
issue in the United States there is one suggesting the adoption of certain
measures, the chief merit of which would be the establishment of a sure
guaranty against variations in the rate of discount. This plan was
developed on September 3, 1903, by Mr. Shaw, Secretary of the United
States Treasury (cf. Econ. Ewrop., Sept. ii, 1903, p. 349). It has behind
it the authority of a Cabinet officer who is also a distinguished economist.
It is well known that in the United States there are many banks of
issue. The notes are very strictly secured by deposits of government
bonds. The result is a lack of elasticity which is disastrous to public
credit. On many occasions the defective organization of its banks has
caused monetary crises in that country, though it is the richest in the
world in metallic currency. A reform of its financial system has long
been needed.
This discussion is brought out in a dear and thorough manner, with ref-
erence to present conditions, by M. I^on Faucher (Journal des Econo-
misles, 1847, I, pp. 206 and following).
32
JCOUNT RATE IN FRANCE, ENGLAND, AND GERMANX FROM JANUARY. 1898
1902 1
1903
1904-
1905
1906
1907
1908
t
1
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duly
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1
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August
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^"'^^^^^/^r.^a^A^rXf""''''^'""'''^ VARIATIONS IN THE OFFICIAL DISCOUNT RATE IN FRAN
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1903
DISCOUNT .
RATES ^
Feb.
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83704—10. (To face page 33.)
The Bank of France
of the choice between the policies of "premiums" and
of "discount," that we shall later make a special study
of it when considering the gold premium and the rise in
the discount rate. No doubt countries can be mentioned
where the rate varies even less than in ours, but it ap-
pears, at the same time, that their position is not a leading
one from the standpoint of international commerce; they
deserve no credit for this relative stability, nor do they
derive any benefit from it. "Countries lying outside the
great international currents are as if in stagnant water,
and they are able to preserve longer the same discount
rates. ""
The table we present a little further on for the purpose
of showing how often the discount rate has changed in
different countries points out in a striking mannerhow
steady our market is as against the two greatest markets
with which it can be compared, those of Germany and
England.'' This table reaches from January i, 1870, to
December 31, 1907. It is unnecessary to give eariier
figures. This long period is amply sufficient to prove
that the stability of the French rate is not the result of
circumstances created by mere chance or peculiar to our
time. " <*
<» V. Pareto, "Cours d'6conomie politique'', p. 386.
6 On this point there is an English saying: "John Bull can stand most
things, but he can not stand 2 per cent."
" On January 1, 1908, the principal rates of discount were as follows:
Germany and Russia, 7}4 per cent; England and Denmark, 7; Austria and
Belgium, 6; Switzerland and Italy, 5)4; Holland, 5; France, 4.
<* Up to 1867 the changes in the bank rate were quite frequent. Since
our reserve rose to 1,000,000,000 francs, the fluctuations have always been
important and of long duration. (Cf. Nitti, Essai sur les variations du
taux de Vescompte". Revue d'Economie Po/., 1898, p. 384.)
83704—10 3 33
National Monetary Commission
Number of changes in the rate of discount per year.
Bank of
France.
Bank of
England.
Bank of
Prussia.
1870.
1871.
1873.
1873.
1874.
1875-
1876.
1877
1878.
1879
1880.
1881
1882
1883
18S4
i88s
1886
1887
1888
1889
1890
1891
1893
1893
1894
189s
1896
1897
1898
1899
1900.
1901.
1902.
1903
1904
1905
Z906.
1907
138
If the fluctuations of the official discount rate in the
three great markets of the world be presented in chart-
form, a striking demonstration is obtained of the fact
34
The Bank of France
that we enjoy the greatest stability in the best money
market.
We can further draw the following conclusions, which
will be useful in the course of this study. The end of the
year is regularly a period of important settlements ; money
is then in greater demand and rates rise. With the ap-
pearance of the crises of 1900 and 1907, the rates of dis-
count reach their maximum. There are also periods of
liquidation, of stagnation, and of that too rapid pros-
perity which by undue credit expansion prepares the way
for the crisis. Finally, we may trace the sensitiveness of
foreign markets, and in the midst of their movements the
comparative immobility of ours.
So far we have dealt only with the official rate. But
everybody knows that, besides this rate, there exists
another called the outside market rate, which is, perhaps,
in greater use than the former.* One might be led to
believe that the differences noted above between our
ssituation and that abroad are, in part at least, the result
of our having omitted this factor, and that the general
average rate would materially differ from the official rate.
Such, however, is not the case.
It is true that in foreign countries — in England espe-
cially and in Germany * — ^the officially published rate is in
reality a maximum, and the banks of issue, through their
commercial departments, may discount at lower rates.
a The outside rates indicate as accurately as possible the relations
between the supply and demand of metallic currency. They tend every-
where to vary in the same direction. When they are too high or too low
they force the bank rate to be raised or lowered. In this sense it has
sometimes been said that the official rate was in a manner artificial.
6 This system has been used by the German Imperial Bank only between
1880 and April, 1896.
35
National Monet ary Commission
They avail themselves of that privilege for the discount-
ing of prime paper." Certain it is that in this respect a
difference may be noted. But, on the other hand, the
great French banks of deposit, and in the first rank,, the
Credit Lyonnais, the Comptoir National d'Escompte de
Paris, and the Soci^t6 G^n^rale, owing to the powerful
resources at their disposal for keeping their cash boxes
replenished at low cost, are in a position to discount prime
bills at a rate often lower than that of the Bank of France.
If it happens that these concerns depart from the
ofhcial rate by a considerable excess, it is merely that to
a steady rate is added a premium justified by the risks of
insolvency. It should be observed, moreover, that in
England and Germany the exceptional rates granted by
the banks of issue to especially prosperous concerns are
not so generally used as notably to affect the average rate,
and the private banks can not compete with our great
financial institutions when it comes to offering very cheap
money in the open market.
This indicates sufficiently for our purpose that any list
which might be made of outside market rates, either
abroad or in France, would necessarily be incorrect, and
would furnish only an inexact average rate, the causes
of which would still have to be analyzed. Besides,
should the comparison be made, it would again show
the favorable position of our commerce.
" This system of plural rates applied, even by banks of issue, in their
commercial departments has been greatly admired by some economists,
who regret that the Bank of France does not pursue this policy. They
seem to believe that ultimately the Bank may adopt it. On this subject
see Pour & Centre, of March 5, 1905, "Chroniqtie financi&re du temps," 1905.
36
T h
Bank of
ranee
Yearly averages of private discount rates."'
Year.
Berlin.
I^ondon.
a. 30
= .S8
».63
3-zS
3-02
I. SO
3.17
..67
2.01
.81
309
1.87
•Q.4S
3-29
4.41
3-70
3.06
3-20
^.19
■'■99
3. 00
3- 40
3- 13
2.70
Paris.
1887.
1889.
1891.
1893-
1895-
1897-
1899.
I900_
I90l_
X902_
1903-
1904.
3-53
^.60
2.63
3. 3S
i.63
1. 96
2.96
3-17
2. 48
i!.43
2.78
2. 19
oFrom Thorwart; " Le marchi finaticier alle^mand," Re-vue Fi-nwncikre Internar
tionale, 1905, Vol. IV, p. 119.
So far we have seen the astonishing strength of France
from a monetary point of view. The Bank of France has
made it its duty to constitute for the country the largest
metalHc reserve in the world. This was necessary for the
upbuilding of credit, and mathematically, as the reserve
grew, the discount rate acquired a conspicuous steadiness
and moderation. Local crises, whether monetary or of
credit, are not to be feared when such powerful resistance
can be brought to bear, and if they occur, it can only be
in a world-wide disturbance. We shall, therefore, discuss
this point only in connection with international credit.
Thus perfectly secure in its foundation, the Bank of
France is enabled constantly to promote the development
of credit. In this difficult undertaking we shall see the
manifestations of its eminent wisdom as well as of its
boldness. In spite of the comphcations of its task, we
shall find the Bank always the leader in matters of credit
as well as of money, unremittingly faithful to the great
mission which the State intrusts to it, and its mastery of
which we all acknowledge.
37
Part I.
PLACE OF THE BANK OF FRANCE IN THE
DEVELOPMENT OF THE NATIONAL CREDIT.
We have seen what especial care the Bank of France
has given to the building up, for itself and for the country,
of a large and sound reserve and what were the immedi-
ate and fortunate results of this favorable situation.
With such a cash reserve as basis, credit rests on solid
and irreproachable foundations. We have assured our-
selves of its power of resistance in our study of its most
interesting aspects. On this basis the Bank can now
^ect and develop the structure of credit. If it controls
the monetary situation, it must equally control credit or
fail in its duty. There exists, indeed, between these two
forces a close relationship, which, from the outset, we have
endeavored to emphasize. The Bank, however, seems
occasionally to lose this supremacy during the most
prosperous periods, when confidence is imlimited and
credit expands with excessive intensity. Money in the
open market then often falls below the very low official
minimum permitted by the expense of issuing bank
notes. Other financial institutions, owing to their pow-
erful resources in cash, become temporarily more promi-
nent than the regulating bank, which sometimes shifts
upon these more zealous auxiliaries the task of develop-
ing credit. But, if the least disturbance unexpectedly
arises in the business world, the Bank immediately in-
creases the discounts, and takes up again the reins which
38
The Bank of France
for a moment it had permitted to slacken. Would it be
possible for the Bank to do this if it did not have the com-
mand of credit? By intrusting to it the care of Treasury
funds the State acknowledges that the Bank has the
power of regulating the money market and, as a conse-
quence, of controlling credit." The Bank ought to per-
mit the extension of credit outside its control only so far
as it is able to recover the leadership of the market as
soon as this is threatened.
We shall see in this first part what is its exact place
as a distributor by studying its relations with the great
financial institutions. We shall then examine the man-
ner in which the Bank develops credit, by increasing the
number of instruments of credit, by making them avail-
able to the greatest number, by extending the area of its
operations, and, finally, by fostering agricultural credit.
o It has often been said that the Bank derives its strength from the fact
that the administration displays extraordinary confidence in it. On the
contrary, it would be truer to say that if the Bank is intrusted with duties
such as the care of government funds, if there is a disposition to intrust it
with ever new duties, it is on account of its strength, and because it is
recognized as worthy of absolute confidence, the past being a sure guaranty
for the future.
39
Chapter I.
PLACE OF THE BANK OF FRANCE IN THE
DISTRIBUTION OF CREDIT.
We purpose to investigate the organs of French credit,
and to assign to each of these organs its function, in order
then to ascertain what operations the Bank of France can
perform and within what Umitations. We have therefore
to examine (i) the function of local banks and of financial
institutions; (2) in what manner the Bank of France
promotes the free distribution of • credit ; (3) in what
measure the Bank must control credit.
Section I. Local banks and the financial institutions.
The natural organs for the distribution of credit are the
banks," * but not all are able to spread it or popularize it
in the same degree. Thus the "Haute Banque" (the
great banking interests of Paris), solely engaged in
operations of higher speculation or in international finan-
" " A bank is a reservoir from which commerce must always be able to
draw the metallic currency, of which, at a given time, it may have need in
order to provide the community with products or services which can only
be paid for in cash." (H. Leffevre, ' Le change et la Banque," Paris,
Ch. Delagrave, 1880, p. 396.)
6 In beginning this chapter it seems to us interesting to draw attention
to the fact that the capital employed in France ii) the operating of banks is
notably less than that which is used in England or in Germany. The fol-
lowing figures, borrowed from the journal Le Rentier of March 7, 1905,
demonstrate this sufficiently.
40
The B a
n
of France
cial relations, does not interest us. The function of dis-
tribution is reserved for the local banks and the financial
Subscribed and paid-in capital of the large banks of France, England, and
FRANCE.
Name of bank.
Subscribed.
Paid in.
Francs,
182, 500, 000
250, 000, 000
200, 000, 000
150, 000, 000
80, 000, 000
62, 500, 000
60,000', 000
40, 000, 000
Francs.
182, 500,000
250, 000, 000
Soci^tfi G^n^ale _
Comptoir National d'Escompte de Paris.
Credit Industriel et Commercial
150,000, 000
BEinque de Paris et des Pays-Bas
62, 500, 000
BanQue Frangaise pour le Commerce et I'lndus-
trie_
■RanqiiR t\f I'XTninn PnripiVnn**
X, 02s, 000, 000
815, 000, 000
ENGLAND.
Bank of England
Union of London and Smiths Bank_ _
Lloyds Bank
National Provincial Bank of England
London City and Midland Bank
London and Westminster Bank
London Joint Stock B ank __.
Parr's Bank
London and County Bank
Bank of Liverpool
National Bank
Capital and Counties B ank
Williams Deacon's Bank
Manchester and County Bank
Union Bank of Scotland
Metropolitan Bank
National B ank of Scotland
;£l4.SS3.ooo
22, 934, 000
22, 175, 000
IS. 900. 000
14, 400, 000
14, GOO, 000
12, 000, 000
8, 542,000
8, 000, 000
8, 000, 000
7, 500, 000
6, 700, 000
6, 250, 000
5, 460, 000
5, 000, 000
5, 000, 000
5, 000, 000
z8x, 414, 000
;£i4.5S3.
3.554,
3,548,
3,000,
3,000,
2, Soo,
..,800,
1.708,
2, 000,
i, 000,
i.500.
1,340,
i, 000,
928,
.1, 000,
500,
1,000,
000
000
000
coo
000
000
000
000
000
000
000
000
000
000
000
000
000
44. 231, 000
41
National Monetary Commission
institutions, while the function of the Bank of France is
to preside over this distribution."
Local banks, preeminent less than one hundred years
ago, have gradually seen their field of activity growing
smaller, and a large number of them have been amalga-
mated with great institutions, possessed of much greater
resotu-ces, with branches over the entire country, and, it
must be said, free from the routine which caused the
downfall of many provincial houses. With. their decline
o "The Bank constitutes to-day such an inherent part of the economic
organization of France that the country can hardly be thought of without
this mechanism." (Flour de Saint-Genis, "La Banque de France A traTiers
k siicle," Paris, GuiMaumin, 1896, p. 123.)
Subscribed and paid-in capital of the large banks of France, England, and
Germany — Continued.
GERMANY.
Name of bank.
Subscribed.
Paid in.
Marks.
180,000,000
170, 000, 000
160, 000, 000
133.000.000
130,000,000
100, 000, 000
100, 000, 000
75. 000, 000
61, 000, 000
60, 000, 000
54, 250,000
50,000,000
50,000,000
SO, 000, 000
SO, 000, 000
45.000, 000
42, 000,000
Marks.
■ni Rponto-fip«!pl1sr»inf t
170,000.000
132, 000, 000
130,000, 000
92.596, 000
100, 000, 000
75.000,000
61,000, 000
60, 000, 000
54, 250,000
25.000.000
50,000,000
50,000, 000
50,000, 000
45. 000, 000
42, 000, 000
Dresdner Bank
"Rprlitipr TTnTiHplspp«spl1<!phsifi-
Schaffhausenscher Bankverein
Rheinische Credit Bank
National B ank f iir Deutschland __
Breslauer Disconto Bank
Pfalzische Bank
Mitteldeutsche Creditbank
1.509. 250,000
1,476,846.000
42
The Bank of France
we greatly regret to see the disappearance of personal
credit, which it is more and more difficult to make avail-
able. The "intuitus personae" (the judgment of char-
acter) , which may serve as a basis for credit granted to a
neighbor by a neighbor, can not be considered by a cor-
poration official who has almost no means of estimating
the solvency of individuals except from the material and
tangible side.
The local banks, as far as they have survived, have
adopted methods which do not bring them into competi-
tion with their powerful rivals. They have been obliged
to grant long-term credits or content themselves with
being intermediaries for the Bank of France in granting
credits to parties known to them, generally farmers or
small landed proprietors, with a view to rediscounting
the paper. On this point again there is cause to regret,
if not their disappearance, at least their effacement. We
shall see, indeed, that the institutions for agricultural
credit, in spite of all the attention they have received,
have not yet been able to replace the local banks in the
distribution of personal credit applied to agriculture.
The great financial institutions, of which the four most
important are the Credit Lyonnais, the Comptoir National
d'Escompte de Paris, the So,ci6t6 G^n^rale, and the
The disproportion between Germany, England, and France would be
still greater if, as in France, all banks having a subscribed capital equal to
40,000,000 francs at least had been mentioned. However, if we figure the
pound sterling and the mark at par, the pound sterling at 25.22 francs, and
the mark at 1.2345 francs, we shall find as subscribed capital in France
1,025,000,000 francs, in England 4,575,000,000 francs, and in Germany
1,863,000,000 francs. And as capital paid in: France 815,000,000 francs,
England 1,115,000,000 francs, Germany 1,823,000,000 francs.
43
National Monetary Commission
Credit Industriel et Commercial, have a much more
important part in the distribution of credit. Thanks
to their numerous agencies, to their attractive conduct
of business, with the service of a courteous and attentive
staff, they have gradually taught the people new habits
in investment and confidence in credit, to such a degree
that he who but yesterday hoarded in a stocking prefers
to-day, if not to speculate on the Bourse, at least to make
deposits in the savings banks. The great financial insti-
tutions have done much to give even the lowest classes
confidence in credit, and to introduce a system of clearing.
In closer cpntact with the public than the Bank of
France, which is restricted by having to protect the reserve
of which we have spoken, these institutions are able more
readily and effectually to reach and to mold the public.
But that is not their only service nor the only reason for
their existence. There are transactions which they alone
undertake, which they alone can undertake, and which
must be performed because they are in the line of progress.
These operations are sources of profit in the same way as
are discounts and loans for the Bank of France. Such
are deposits, stock-market orders, and the flotation of
securities. These operations can not be undertaken by
the local banks. Occupied for the most part with long-
term dealings, they have no use for deposits payable on
demand. If they should have such deposits, their total
would never reach a sufficient proportion safely to permit
the investing of an important amount.
On the other hand, the Bank of France does not and,
even if it wished, can not compete with the financial insti-
tutions in undertaking such operations. Neither the
44
The Bank of France
acceptance of interest-paying deposits nor the flotation of
securities can come within the province of a bank of issue."
The flotation of securities necessitates a certain contingent
responsibility, and the institutions which place securities
on the market sometimes engage their credit for very large
sums, which are sufficiently guaranteed by their capital,
but the credit which is intended to safeguard the stability
of the bank note* can not be pledged for that purpose.
At most, the Bank may handle over its counters an issue
of government and treasury bonds, as it bound itself to do
when it accepted the terms of the last renewal of its charter.
It happens that the Bank of France sometimes transmits
subscriptions, but this is a gratuitous and entirely volun-
tary service. In no case can the Bank take for its own ac-
count bundles of securities in order to dispose of them to
the public. Even the purchase and sale of securities,
which is so profitable a business in all financial institu-
tions, could never, it is clear, be a successful undertak-
ing in the Bank of France. The staff of the Bank has
no special information as to the various securities dealt in
on the Bourse, and can not, therefore, give valuable advice.
Its r61e would apparently be confined to handing out the
financial journals and passively awaiting orders. If it
should act otherwise, the staff would engage the moral
responsibility of the Bank of France; but the Bank, evi-
1 " Evolution tends less and less to make banks of issue institutions of
credit in the true sense of the word, and more and more to make of them
accurate, watchful, and skillful clearing cashiers." (P. Leroy-Beaulieu,
" TraiU thiorique et pratique d'iconomie politique," Paris, Guillaumin, 1896,
Vol. Ill, p. 666.)
b The reason why the Bank of France requires capital is that it is impos-
sible to secure an absolutely infallible discount board and to discount only
paper that is absolutely safe. (Cf. Journal Officiel of June 30, 1892, report
of M. Burdeau.)
45
National Monetary Commission
dently reluctant to undertake such operations, prefers
to leave that field to its auxiliaries, the financial institu-
tions.
However, at the present time, as we shall see, the Bank
of France tends to compete with these institutions for
the purpose of maintaining sound conditions of credit
which inclines more and more to speculation. Thus it is
extending its department for the purchase and sale of
securities in order to safeguard a poorly informed public
against the excesses of speculation which dazzle with the
hope of an always illusive gain.
Section II. In what manner the Bank of France promotes
the free distribution of credit in France.
Thus the Bank of France must leave entire freedom of
action to the financial institutions and must not encroach,
theoretically at least, on their functions, which, as has been
shown, differ materially from its own. The Bank even
owes them its protection, since they are valuable auxil-
iaries in pursuing its aim of extending credit as liberally
as our metallic base permits. In the interest of the public
the cash holdings are daily at their disposal. " The banks
of issue, as well as the treasuries of the State, are treasuries
for private banks. Thus the national credit rests entirely
upon them. "" The help and protection of which we speak
are not mere passive professions. Unfortunately, there
have already been numerous cases where the Bank has had
to interfere in order to bring effective assistance to private
banks. The Bank has, of course, acted thus for the wel-
fare of the entire community, but also for the satisfaction
<* M. Cldment, " Des variations du taux de I'escompte," NJmes, 1902, p.
I54.
46
The Bank of France
of protecting its auxiliaries with all its power in the fulfill-
ment of a difficult task.
Let us recall, in the first place, the terrible crash of the
Union G^n^rale, in January, 1882. The manager and M.
Bontoux, the president of the board of directors, were
both arrested on the ist of February. The Union Gener-
ale was so powerful that the French market, as a whole,
was considerably influenced by this disaster. The finan-
cial institutions, heavily engaged, had serious fears for
their own credit, as many Frenchmen may still sadly
remember. Then the Bank of France intervened. "It
contributed greatly to the restoration of confidence; it
came to the rescue of the compromised institutions by
rediscounting a part of their commercial paper ; it helped
individuals by receiving as current accounts the sums
they had withdrawn from the banks, and brought general
relief by making the discount rate 3^^ percent."" Front
this period dates the prosperity of the better managed
banks, which, having remained unharmed, gathered in the
customers of the discredited institutions.
In April, 1889, the Comptoir d'Escompte calamity
nearly compromised the condition of the banks of deposit,
which, however, had acquired stability, were engaged at
the time in short-term transactions, easily convertible
into cash, and appeared, therefore, less vulnerable than
ever. "A heavy speculation in copper had been organ-
ized in 1888 with the help of the old Comptoir d'Escompte.
In the beginning of 1889, owing to various circumstances,
the copper market gave way, involving the Comptoir
d'Escompte. M. Rouvier, the minister of finance, called
o E. Thdry, " La France 4conomique & financiire pendant le dernier quart
de sihcle," p. 231.
47
National Monetary Commission
upon the Bank of France for help. The authorities of the
Bank felt that in the face of such events they could not
afford to remain passive, and they placed at the disposal
of the Comptoir d'Escompte a sum of 140,000,000 francs,
thus permitting the repayment of all its deposits, and a
liquidation, which, for want of that help, might have
proved disastrous. The liquidation was effected on favor-
able terms and caused no loss to the Bank or to the firms
which had given their guaranty.""
The Comptoir d'Escompte was then the only French
financial concern having important branches in the Far
East and abroad. Its disappearance, in addition to caus-
ing confusion in the home market, would have cast an
unfavorable shadow on our credit abroad. The same
syndicate of bankers, which rallied around the Bank of
France to facilitate the liquidation of the old concern,
furthered the subscription to the securities issued by the
new company, the Comptoir National d'Escompte de
Paris, which took over the business and the various
agencies of the old company. *
Later we shall take occasion to speak of the failure of the
house of Baring Bros., London, and of the part played
by the Bank of France in the task of relieving the de-
pressed London market. We shall concern ourselves, for
the present, only with those incidents which could affect
the French market, and we come now to the failure of the
Soci^te des Ddp6ts et Comptes Courants, in the beginning
of 1891.
a E. Th6ry, op. cit., p. 277.
6 Cf. Germain- Martin & Leo Polier, "Cours d'iconomie politique, II, Le
cridit," p. 260.
48
The Bank of France
"The Bank of France, after exacting such security as
the concern could still offer and, furthermore, the guar-
anty of several large banking institutions, for the purpose
of limiting possible losses, authorized discounts to the
amount of 49,228,206.87 francs. Thanks to this assist-
ance, all deposits were paid off, and the dreaded effects of
a panic were once more averted."" In spite of the pre-
cautions that had been taken, the liquidation was slow.
In 1894 there still remained 16,000,000 francs which the
Bank had been unable to recover, and in 1895 7,500,000
francs. It was only in the following year that this ac-
count disappeared entirely from the balance sheet of the
Bank. 6
In the midst of the most perfect confidence and the
greatest prosperity, it is again the Bank of France which
renders it possible to secure an economical management
of the cash reserve so important for the financial institu-
tions. Indeed, by the rediscounting of some of their paper,
they may at any moment readjust the proper balance
between their receipts and disbursements, thus keeping on
hand but a slender cash balance. Their payments can not
exactly correspond to their collections, as neither can be
accurately gauged in advance.
While it is possible for the public treasury to remedy
this discrepancy, as far as its own transactions are con-
cerned, by issuing short-term treasury bonds, in the case
of the financial institutions the cashier's certificates can
o "Compte rendft de V assembUe gindrale des actionnaires de la Banque de
France," 1891.
6 Cf . also for this episode, Juglar, " Des crises commerciales et de lew reicmr
pModique en France, en Angleterre et aux Etats-Unis," Paris, Guillaumin,
1889, and speech of M. Rouvier in the Chamber of Deputies in 1891.
83704— >o 4 49
National Monetary Commission
not fulfill the same purpose as surely, and resort is had to
rediscounting. Therefore, a wise rule of internal regula-
tion exacts that a fixed portion, usually one-third or one-
half, of the paper they discount shall consist of bills
acceptable to the Bank of France. It may be said, there-
fore, that in rediscounting such paper the Bank permits
the financial institutions to discount paper that does not
come up to its own requirement (not bankable) and to
transact any other operation such as financing commercial
undertakings.
Thus, whenever the financial institutions have foimd
themselves in need of effective pecuniary assistance, the
Bank of France has regarded it a duty to help them,
and in normal times, by assisting them with its resotuces,
it facilitates liberal credits.
Section III. In what measure the Bank must control
credit.
It may happen, on the other hand, that the great
financial institutions expand too rapidly or unwisely
this or that branch of credit. Mindful, above all, of
their own interest, which is but natural, they have no
especial regard for the public welfare, their only aim
being to make their capital bear fruit and to pay large
dividends to their shareholders.
We have already seen that the Bank of France aspires
to a nobler ideal, and we remember some of its policies
adopted primarily for the public good." The development
of credit is an extremely delicate matter; there are many
instances where the application of this agency has led
<» Cf. supra, p. lo.
50
The Bank of France
to great catastrophes. It is undoubtedly impossible to
exercise a strict supervision over the financial institu-
tions; any such measure would soon appear vexatious
and would be, moreover, contrary to our spirit of liberty
and independence. But we can quite justly ask whether
these concerns are fully sheltered against disasters ; whether
nothing can happen to them of a nature to shake their
credit; and in such a contingency what should be the
attitude of the Bank of France.
The preceding instances, briefly noticed above, inform
us sufficiently as to the possibility of failures. The house
of Baring Bros., the Union G^ndrale, and others enjoyed an
immense credit, thought to be unshakable, and the events
of a day flatly contradicted that opinion. The various
newspaper campaigns during a number of years against
the financial oligarchy, of which the controversy of Lysis
and Testis'^ is but an episode among many others, could
have jeopardized, at least in a measure, the credit of the
great banking establishments. Public opinion, however,
has passed upon it.
But in considering matters more closely, we shall recall
that deposits, stock-market orders, and the flotation
of securities are the three branches which bring pros-
perity and profits to the great financial institutions.
The steady expansion of these departments is the surest
cause of their success. We may, however, ask whether
this considerable increase, as shown by the statistics,
may not some time be checked. Will the public continue
o Lysis, "Conire I'oligarchie financiSre en France," La Revue {one. Revue
des Revues), 1907. Testis, "La v4rM sur les propos de Lysis, le rdle des
etablissements de credit en France," Revue Politique et Parlementaire, 1907,
Vol. 52, P- 456; Vol. 53, pp. 5, 241, 449; Vol. 54, pp. 25 and 229.
51
National Monetary Commission
every year to deposit new amounts, which, added to the
previous deposits, would constantly augment them with-
out any conceivable limitation? Will the public long
submit to the system of speculation, the results of which
can only be doubtful? Will its love of gain push it to
multiply these operations indefinitely, in the hope of
ultimate riches? And will the French market always
continue to remain the great producer of capital as we
know it, the land of constant thrift, inexhaustible, sup-
plying all who come, while issues of securities increase
and are indefinitely renewed, thus absorbing the national
savings?
On these various points there would be matter for a
long and interesting discussion, in which we shall not
engage. But whatever others may think, to us it
does not seem rash to state that the three sources of
profit mentioned above will not continue to expand
indefinitely in the proportions we now witness. How-
ever, what does not go forward goes backward. Since
restriction is impossible, a change is sooner or later inevi-
table. Just like individuals accustomed to live beyond
tteir means, the financial institutions, engaged in a move-
ment of ever-growing operations, will not readily slacken
their pace, and perhaps in the end they will let themselves
be drawn into more or less hazardous transactions. Even
if we suppose that each one of them is able to develop
satisfactorily, it would still be necessary that the trans-
formed banking methods should present opportunities for
profits comparable to those hitherto enjoyed. Perhaps
such opportunities may then arise, but we greatly fear
that they may be sought amidst the risks of unrestrained
S2
The Bank of France
speculation, as has just happened in the United States,
which, in this respect, is unhappily preeminent."
In any case, we may ask whether in the future the
actual monopoly enjoyed by the financial institutions
could not be checked by competition. Without speaking
of stock market orders and the flotation of securities,
transactions which are essentially vulnerable, let us
consider only the deposits, that part most vital and
sensitive in that it supplies the cash which is obviously
so important for a bank. In regard to their deposits the
financial institutions have especial reasons for fear. What
is called in banking parlance the deposit account is noth-
ing but a current account and carries no privileges for
the client. The common belief which tends to consider
such deposits as preferred claims is absolutely errone-
ous. There is no analogy between the special kind of
deposit we are speaking of and the one aimed at in
articles 191 5 and following of the Civil Code. ^
«■ The United States offers an exathpie of speculation of which we can
hardly form an idea in France.
The New York Stock Exchange has over 1,350 members. In each mem-
ber's office all operations of the Stock Exchange are recorded by tele-
graph, which allows the numerous customers to follow the prices at any
moment and to buy and sell incessantly, thus facilitating frantic specu-
lation. The American spirit is so intent at the game that few among
the rich speculators know the extent of their fortune; some even do not
know if they are really rich. Such a one, after having purchased sufficient
shares to control the stock of a certain concern, and especially to govern
its quotations, will pledge his holdings and with the amount raised will
buy the shares of some other great company of which he will gain control
ill the same way and the securities of which he w'iil pledge again.
With a comparatively small capital the American speculator can man-
age thus to expand considerably his credit and to rule the market at many
points at the same time. But how gravely the least oscillation of this
unstable edifice threatens the entire business world!
6Cf. M. & A. M61iot, " DicHonnaire financier international, thiorique el
pratique," under the word " Banque." Paris, Berger-Levrault & Cie., 1904.
53
National Monetary Commission
The internal organization of financial institutions is so
well known that a few words concerning it will suffice.
Their numerous accounts, nearly all showing credit
balances, assure them large sums which they hold without
charge, even allowing depositors a moderate interest,
varying, however, according to the cash requirements of
the depositary, and according to the length of time the
depositors agree to leave their funds in the bank. The
same institutions also issue certificates of deposit similar
to treasury bonds, which pay a small interest. The
maximum of interest paid to depositors rarely exceeds 2
per cent per annum in the most favorable cases. But
most deposits, especially those subject to check, which
are in a majority, generally draw interest at one-half
of I per cent. Thus we see at what low rate the banks
of deposit procure their floating capital. They make use
of it to provide for their various departments, loans,
discounts, stock-market loans, credit accounts, which
bring higher rates of interest, close to the official rate for
certain operations, still higher for others, and often close
to the outside rate. The banks of deposit are therefore
greatly interested in the figure of the discount rate of the
Bank of France. Here also we find a limit to the indefinite
lowering of the official rate, because a decrease, even
though imperceptible to commerce, might in certain cases
endanger the vitality of the banks of deposit. With
this in view M. E. Thdry could say: "When the out-
side rate for money has fallen below i }4 per cent, what
would become of the banks of deposit if the Bank of
France, mindful only of its own interests and not of the
54
The Bank of France
superior interests of our public credit, should suddenly
lower its discount rate to 2 per cent?" °
This new limit to a reduction of the official rate should
be noted, because we have seen how important is the
prosperity of our financial institutions for the national
credit. * This consideration should suffice for the rejection
of the system of multiple rates which consists in allowing
the bank of issue, when it is thought expedient, to discount
below the official rate for the benefit of certain customers.
There appears to be in this an act of hidden competition
which, in the interest of the country, the Bank could not
possibly countenance. We shall see, in addition, that
if the Bank wishes to recapture the market it has many
other means at its disposal.
In the course of the discussion concerning the last re-
newal of the charter of the Bank of France, much was said
as to the possibility of allowing a certain interest to de-
o Edmond Th6ry, "Trap de prudence," Econ. Europ., April 17, 1892.
6 We are of course aware that there are other limits to the lowering of
the discount rate. In the first place, if it is not indispensable to follow
the rates of foreign markets, it is nevertheless not possible to maintain,
artificially or arbitrarily, an independent rate. There is, in the next place,
a minimum fixed by the cost of manufacturing bank notes, the safe-keeping
of the metallic reserve, and the expenses of management. These rather high
expenses amount to a rate of about i}i per cent. If the various taxes and
stamps are added, we reach a figure for general expenses so considerable
that it alone would prevent an indefinite reduction. Moreover, it should
be noticed that the rate of 3 per cent, which tends to be stable, yields to
the shareholders but a very small dividend, if we take into consideration
that the market value of a share of the Bank of France fluctuates about
4,000 francs, having quadrupled in one hundred years. This, indeed,
appears normal enough, since money was scarcer at the beginning of the
nineteenth century than now, and values have probably increased fourfold.
The big dividends paid were earned in times when discounts were high,
not arbitrarily, as is well known, but quite naturally, since elementary
caution requires that a corporation shall manage to operate without having
to rely upon the exceptionally favorable periods.
55
National Monetary Commission
positbirs in the Bank." After what has gone before,
it does not seem necessary to dwell at length on this
point. M. Burdeau'' has shown that it is impossible
for the Bank of France to become a bank of deposit.
The issue of bank notes and the receipt of interest-bearing
deposits are absolutely incompatible services. Their
union in a single hand "would replace the present organi-
zation by an entirely new one, which, in case of a crisis,
would offer much less vitality and power of resistance."
For us it is sufficient to know that the payment to de-
positors of I per cent on deposits subject to chfeck would
attract to the Bank nearly all inactive funds, and that a
sum in the neighborhood of 1,000,000,000 francs wotjld
leave the private banks. This would be their death-
blow — a result which we are unwilling to contemplate.
On the other hand, the future of the banks of deposit
depends upon the interest paid by the Caisse des Dep6ts
et Consignations to its depositors. It is for their interest
that the Caisse should not raise its rate. If, for instance,
the Caisse should pay over 2 per cent, the banks of de-
posit, which can allow such a rate only in very excep-
tional cases, would for this reason receive much less, and
their means of action would be correspondingly de-
creased. '
"■ This idea is not new. Before 1869 M. Horn had demanded that in-
terest be allowed on deposits in banks of issue. (Cf. Wolowski, " Le
change et la circulation," Paris, 1869, pp. 12, 26, 33.) And it is found
again in M. L6on Say's book, "Dix jours dans la Haute Italie,"- p. 63.
The arguments pro and con are, however, always the same.
6 Burdeau, " Discours sur le renouvellement du privilege de la Banque de
France," June 29 and July 6, 1892, in the Officiel of June 30 and July 7.
c A. Moireau, "La Banque de France, prorogation du privilege, le Credit
Fohcier, La Caisse des Dtp6ts & Consignations," Paris, Perrin & Cie, iS'gi,
p. 183.
56
The Bank of France
To sum up, we may say that by their very natute the
financial institutions are liable to weakness, and for the
public good there must be sonae means of supporting
them. For this reason the Bank of France, which pre-
sides over the distribution of credit, can perinit the ex-
pansion of its auxiliaries only up to the point where its
help would suffice to prevent the collapse of the market.
Such a measure appears imperative in a countty wherie
the protecting wisdom of the Bank of France has always
been relied upon. Fortunate land, fortunate institution,
which excites the envy of foreigners, especially of England,
where, as we shall soon have occasion to see, the least
failture may result in disastrous consequences."
CONCLUSION.
Thus the banks of deposit have contributed to progress
"by gathering and givin;g life to sums until then lying
scattered and idle."* They are valuable auxiharies in
the distribution of credit. For this reason they deserve
help and protection. The Bank, the mission of which is
of a widfer and loftier scope," has shown on many occa-
sions that its helpfulness is not a pretense; daily, in fact,
« It should be noticed that the strongest defense of the system of the
Bank of France is found ill Eiiglish books and papers, notably the Statist.
{Statist of December i, 1906, mentioned in the Economiste Eiirop^en of
December 7, 1907, and Statist of February 15, 1908, mentioned in the
Messager de Paris of February 20, 1908.)
6 Burdeau, June 29 and July 6, 1892, in the Officiel of June 30 and July 7.
c " The Bank of France, during periods of quiet and prosperity, aims at
a gradual effacement, at a more complete retreat toward a. very high but
very restricted sphere of economic activity. But as soon as the least
trouble appears * * * the Bank assumes again its place at the head
of our great financial institutions." (Brouilhet, "Le nouveau rSgime de la
Banque'de France," Revue d'Economie Politique, 1899.)
57
National Monetary Commission
it assists them by rediscounting their bills. We have
also seen that the prosperity of the financial institutions
has continually increased. It is associated with the con-
fidence and growing security of our times." But should
a war or other calamity occur, quiet and security would
disappear, and deposits would correspondingly decrease.
At such a time, these banks might give way. Or again,
should a lively competition develop, should the direction of
opinion or of affairs be changed, that alone might suffice to
arouse fear of defection among these auxiliaries of credit.
Such a possibility is enough to impose upon the Bank of
France the duty of foreseeing and of providing for it.
The Bank must be ready to meet even improbable con-
tingencies in order to be in a position to recapture the
market with a sure hand as soon as danger threatens it.
Under these circumstances, what can the Bank do?
In the first place, it can utilize its powerful reserve which
has been accumulated for this purpose. It can, in the
next place, curb the action of the banks by competing
with them when they appear to enter upon a dangerous
course, and by showing them what steps to take. *
<• The discounts and loans of the financial institutions are growing in
importance, and are steadily increasing in proportion to those of the Bank.
This condition, revealed by statistics, is in itself not alarming, but it once
more justifies that intervention, so many motives for which we have
brought out in the course of this chapter.
6 It seems that this protective mission especially applies to the depart-
ment for stock market orders, originally reserved for the customers of the
Bank, and later opened to everybody. Thus it prevents the financial
institutions from driving us toward excessive speculation. This purpose
explains, according to our notion, the growth and broadening of the busi-
ness of stock market orders at the Bank of France. The same may be
said of the relatively recent measures which permit deposit accounts with-
out interest, and give the loan accounts the privilege of having a credit
balance.
58
The Bank of France
On the other hand, there is a whole series of operations
which private banks do not undertake, or do not tend to
develop as they deserve. The reason for this we have
seen; directed by self-interest toward the more profitable
transactions, they somewhat neglect the others. The
Bank of France finds no one engaged in these less re-
munerative operations, and is, moreover, the better able
to undertake them itself, because they are not incom-
patible with the duties of a bank of issue.
In this short essay on the physiology of the distribu-
tors of credit, we have endeavored to ascertain theo-
retically in what measure the Bank of France could and
should intervene. We have noticed that on many occa-
sions credit has had the greatest need of being purified,
that the colossal expansion of the great financial institu-
tions has demanded the intervention of the Bank, only
possible in case of failure. We have said, moreover, that
not all credit operations can be carried out by the finan-
cial institutions.
It remains for us to show, and this will be the subject
of Chapter II, with what activity the Bank of France has
developed the credit operations of which it may or should
take charge.
59
Chapter II.
EVIDENCES OE THE ACTIVITY OF THE BANK OF
FRANCE IN CONNECTION WITH THE NATIONAL
CREDIT.
Section i. Development of instruments of credit in the Bank of
France.
The instruments of credit which we have previously
enumerated" comprise almost exclusively those transac-
tions which the Bank of France is not able to undertake.
To increase the number of commercial bills, bills of
exchange, bills payable to order, negotiable warehouse
receipts, drafts, etc., is altogether beyond its control.
Its mission merely consists in being always prepared to
receive and welcome them. The case is different when
it comes to instruments for simplifying accounting, such
as checks, transfers, letters of credit, bills payable to
order, and even bank notes, the aim of which is to abol-
ish or reduce the transportation of specie.'' As far as
these are concerned, the Bank can advantageously in-
tervene in developing their use.
Concerning the bank note, which is mentioned among
the instruments of credit because its equivalent is not
represented in full by cash, we have said enough, so that
o Cf. supra, p. 6, note c.
6 This increase of monetary instruments leads, if not to a sure and
universal rise in prices — because, as economic wants become more numer-
ous, consumption goods also tend to increase — then certainly to a general
stability of prices, for it will be more difficult to realize a relative increase
or decrease in a commodity, the greater the quantity in which the latter
exists.
60
The Bank of France
we shall not need to recur to it." Moreover, if there is
need for its development, it is because upon this very
development depends that of the other instruments.
Upon it alone falls the duty of assuring the metallic
reserve for credit as a whole. We are well aware — and
this, perhaps, is the only objection that might be raised
against the conception — ^that the ideal mission of instru-
ments of credit is always to avoid the use of metallic cur-
rency, even in times of panic. Unfortunately not all of
these instruments come up to this ideal. The clearing
vouchers of the Bank are alone perfect from this point of
view, and these are the real precursors of the system
toward wjiich we are nowadays tending. Therefore the
Bank applies itself especially to their development. We
shall presently study them.
In order that we may devote our attention to checks
and transfers, the two really interesting instruments, let
us first say a word on the bill payable to order and the
letter of credit, instruments which are not as perfect,
«■ It is known that more than four-iifths of the bank notes are represented
by the metal holdings, the other fifth resting on the discounts, capital,
reserves, and credit of the Bank. Nearly all the notes can therefore be
considered as deposit receipts, which, in order to be absolutely legal, only
require to have a counterpart "in specie" instead of "in genere." They
may be said to be checks of deposit according to the civil law, always to
bearer, imprescriptable, the taxes on which are borne by the depositary and
not by the depositor.
On 'the other hand, checks against deposit accounts, which financial
exigencies have permitted to deviate from the common law, are not sub-
jected to the obligation of holding a counterpart. It is a curious circum-
stance, all the inconveniences of which have not yet been revealed by
events, that the deposit most legal in form is the object of all the atten-
tion, caution, and regulations of the lawmaker, while the other — probably
because it is less classical and less legal than it is imposing, owing to its
modeifn and impressive development — enjoys general and unlimited con-
fidence.
6i
National Monetary Commission
but are worthy of mention, because they render useful
service to the pubUc.
The bill payable to order here referred to is a special
form of the commercial bill. It is used for transfers of
funds. This instrument is within the reach of all and does
not require either for the sender or for the recipient that
an account be kept with the Bank. Whoever wishes to
transfer fimds from a city where the Bank has a branch
or an auxiliary office to another city similarly provided,
has only to deposit the money. There is then handed to
him a bill payable to order, worded like all such bills, by
which the Bank binds itself to pay to the beneficiary the
sum mentioned. The sender has the advantage that his
name can remain unknown to all except the office by which
the bill was issued. If he prefers, he can let the name of
the recipient remain unknown to all except the office on
which it is drawn, by having the bill made to his own order
instead of to the order of a third party. The charge of 25
centimes allows in many cases a considerable saving as
compared with other means of transfer. This bill may be
regarded indeed, from a legal point of view, as a check,
because by the very fact of its creation an account is opened
and payment made to meet it. On that account it is not
subject to the graduated stamp tax, and bears only the
fixed tax of 20 centimes, like out-of-town checks.
The letter of credit" is very useful to business men and
to all travelers who do not wish to carry large sums with
them. It enables them to obtain cash in all the offices of
the Bank of France up to the amount indicated. It is
o Letters of credit form, in the Bank of France, a new department, which
dates only from 1902.
62
The Bank of France
valid for six months. Payments are made on it without
commission, and if the traveler has an account with the
Bank, that account is debited on the day he draws the
money.
CHECKS."
The check is the instrument of the current account.
The first condition for rendering its use general is to facili-
tate the working of that account. The Bank permits three
kinds, current account with discount privilege, current
account for deposits, current account for loans. Article
33 of the Law of 24 Germinal, Year XI (April 14, 1803),
which is still in force, declares that amounts deposited in
current account can not be attached.
The growing number of these different accounts facili-
tates and teaches the wider use of the check. There is
one variety of check on which emphasis should be laid,
that is, the check against a current account based on a loan.
This appears to be the latest improvement in instruments
of credit, and is the one which is the most useful to domes-
tic economy. Such advances, indeed, appear to be devel-
oping in a new direction. Originally they were especially
intended to assist, or, at least, to allow stock market trans-
fers. It is for this reason that the rate for advances must
follow the rate for call money * and not the discount rates.
This was evidently the original purpose of the loans.
o " The complaint is sometimes made that the check is used less in France
than in England. But it is not sufficiently understood that the Bank of
France note is the check par excellence. * * * It is certainly cheaper
than the personal check which does not circulate, or at least disappears as
soon as it is cashed." (E. Th^ry "Circulation fduciaire de la Banque de
France " Econ. Europ., January 19, 1906.)
6 Of. infra, p. 129.
63
National Monetary Commission
In Paris, especially, many loan accounts are opened, with
a view to operations on the Stock Exchange. But this is
not the case in the country; the account based on loans
has there become an instrument of domestic economy.
Whoever possesses a certain competence, down to the
smallest "rentier," makes use of this account. The old
prejudice has disappeared, which considered the open-
ing of such a loan account as the sign of an embarrassed
condition, as if it were no different from borrowing on a
mortgage. Nowadays, in some towns, there is not a
"rentier" who has not a loan account, or at any rate it
would be easier to name those who have no such account.
Let us briefly explain the operation of this system. The
Bank accepts as pledge many kinds of securities, State
rentes, bonds of the Credit Fonder, of cities, railroads — in
short, those securities which are considered absolutely safe
and which are found in the hands of every capitalist. In
order to open a loan account a certain number of these
securities are deposited, on which the Bank allows a
credit of 75 to 80 per cent of the market value on the
day of deposit. If the borrower is not in present need
of funds, he may advantageously withdraw a certain
amount, which he may apply, for instance, to the pur-
chase of securities. He will pay interest on the suin
borrowed from day to day at the official rate, which varies,
but generally holds at 3^^ per cent. The use of these bor-
rowed funds may bring him a net interest, which can
easily be estimated, and which we may suppose to be 3 per
cent. For the moment, the operation will have been a
losing one, because he will still have to pay i per cent or
one-half of i per cent on the sum borrowed.
64
The Bank of France
But this disadvantage disappears or is largely compen-
sated, even from a pecuniary standpoint, in this way.
Everyone, however modest his mode of living, will at
times experience heavy drafts on his income, for which it
is necessary to be prepared long in advance, or again it
may happen that the dates for his collections do not
correspond to the dates of his payments. He must,
therefore, keep unemployed, for some days at least, sums
which, however small, might be usefully invested. But
if he has a loan account, he can keep just enough funds
for current expenses and deposit the surplus in the Bank
as it may accrue. In the same way, he can draw out
sums to meet his expenditures just when necessary instead
of keeping them idle at home while waiting for payment
to fall due.
The advantage of this kind of an account is that it
never suffers the smallest sums to remain unproductive.
It is not too much to say that one of the chief reasons why
so many households are wrecked is the lack of foresight
and the discrepancy between the dates of receipts and the
dates of outlays; it is this condition of disorder which
unduly fills the purse one day and carelessly empties it
the next.
It is evident that the economic management of a loan
account demands from the holder sufficient force of
character to guard against the temptation of rapidly
squandering the available sums, which he knows require
but his signature to enter his purse; so that, after all,
it may be asked whether the opening of such an account
is a safe economic device. This is, we acknowledge, a
most serious objection, though it does not appear to us
83704 — .10 5 65
National Monetary Commission
conclusive. The very act of opening a loan account
implies a certain amount of self-control and an earnest
leaning toward order and thrift. It is a first step in the
right direction, and there is reason to hope that the
beneficiary will persevere. To withdraw money but a
sign is needed; still, the sign must be given, and he may
hesitate to give it without sufficient cause. And besides,
the means of dissipating a fortune are not wanting; the
holder of a loan account who will squander his means
in spite of this account would doubtless have done just
as much, if not worse, if he had his securities in his own
keeping, since securities nowadays are money, whether
they are in the bank or at home.
Moreover, the man who can not control his own impulses
need not open an account. This device promotes the
sense of order and thrift, but does not create it. No
doubt tradespeople are little accustomed to this mode
of payment; however, the holder of a loan account, in
order to pay his large bills or those that may be settled
by check, has only to detach a form from his check book,
after having filled it out and signed it. This paper,
handed to the creditor in settlement, will probably remain
in his hands for several days before being paid. The
account will be debited only on the day when the amount
is actually withdrawn. Owing to this now common
device, all sums which hitherto lay idle in private coffers
are thus rendered active, and for a time, at least as long
as the period they would have remained unused at home,
they earn a considerable interest, equal to the rate for
loans. If the rate is 3>^ per cent, the result will be equal
to that of a savings bank, opened every day for deposits
66
The Bank of France
and withdrawals, paying 3>^ per cent figured from day to
day. It is seen that if the holder had to pay 3>^ per cent
on the amount borrowed in the first place, as the sums
even only temporarily deposited are deducted from the
original loan, it is exactly as if they earned 3X per cent.
Moreover, one perceives how much is saved when collec-
tions do not at all coincide with disbursements, or follow
them, only to be much later renewed, while, in the mean-
time, expenditures are unceasing and irregular.
The same applies to liquidations, settlements of estates,
or any other cases which may necessitate the advancing
or the holding available of rather large sums. For this
reason we have taken care from the start to suppose the
account a debtor one; otherwise it would usually have
a credit balance, and as the Bank allows no interest on the
balances of its credit accounts the operation would have
no significance.
On the other hand, it is seen that the interest, which
we have estimated at one-half of i per cent to i per cent
on the amount originally borrowed, would be soon
recovered. Such, from the individual standpoint, is the
pecuniary aspect of this system. But it is not the only
one. As seen from a social standpoint, it tends to spread
a spirit of order and thrift by forcing everyone to keep
track of his affairs, and even to do a little bookkeeping,
for which the half yearly statements of the account will
form a sufficient basis. From an economic standpoint
this system allows the withdrawing of the unused portion
of the circulating medium. It is a powerful economic
lesson; it renders credit generally available, and is a
step toward the clearing system.
67
National Monetary Commission
The check drawn against a loan account is only the
instrument of that account, and in order to know what
it is, we have been obliged to study its workings in detail.
In our opinion this check is the most perfect and generally
available instrument of credit. It needs only to be used
by certain people in order soon to become so well known
that it would reach the humblest classes through the
intermediary of tradespeople, who would be the first to
receive it; it would then develop that "habit of bank-
ing" which is the most wholesome and useful in respect
to household economy, and the most desirable with regard
to the clearing system.
It is interesting to notice that a party has been formed
in the Chamber of Deputies to protest against the extension
of loans at the Bank of France, on the ground that the
reserve for the bank notes was no longer secure. The same
men reproached the Bank for having antidemocratic ten-
dencies. This is evidently inconsistent. Either we must
leave to the Bank the task of developing a democratic loan
policy, or demand an indefinite increase of its gold reserve,
and release it from being democratic. It can not at the
same time do two things which are so absolutely antago-
nistic. But what it can do, and what it does, is to con-
ciliate both by undertaking the expansion of both money
and credit, without seeking to suppress the one for the
benefit of the other.
This complex task is precisely the subject of our study.
We shall endeavor to show in the course of the following
section that the term " antidemocratic " can not rightly be
applied to the Bank. This error is the more difficult to
explain since it does not stand alone. It is hard to under-
68
The Bank of France
stand why the SociaUst party should oppose the monopoly
of the Bank of France, which is but a sure step toward
social equality. If it is the word "monopoly " which gives
offense, let us drop the word, and consider the thing itself.
It will be remembered that the democratic Labor party,
after having fought for centuries " to obtain salaries for
representatives in Parliament, is the very one in whose
midst are voiced the sharpest protests against this emi-
nently democratic reform.
TRANSFERS.
The operation of transfers from one account to another,
especially bank transfers, has not ceased to attract at-
tention, because of the greater simplicity which it has
introduced. The operation consists in causing a sum to
pass from the credit of one account to the credit of another.
From the standpoint of bookkeeping nothing is easier.
The simplicity is just as great for the holder of the account.
He gives the order to debit his account and to credit such
other as he may designate, existing in France. This is
done with no other cost than the lo centimes for the stamp
on the receipt which is handed to him.* He sends this
receipt to the recipient, who is thus notified. If, however,
he prefers, he need not take a receipt, the amount being
immediately transferred to the new account, which is
credited on the day of the transfer. It is clear what
"Witness English history, witness France itself, where the immense effort
of the revolution was required to attain this end.
6 The only condition for this free service is that the sender shall have
discounted with the Bank, within ten days, a sum equal to the amount he
is sending, or that the recipient be a debtor for a similar amount. If one
of these conditions is not fulfilled, a commission of 25 centimes per 1,000
francs is charged. But in practice the cases are very rare where com-
mission is charged.
69
National Monetary Commission
economy results from the use of this system for banks with
a considerable volume of business.
It is especially advantageous for private bankers who
must frequently cover themselves, sometimes at the short-
est notice. Many banks, however, owing to an inexpli-
cable routine, overlook, or feign to overlook, this system
because it would oblige them to make certain bookings to
which they are not accustomed. Many therefore settle
with their correspondents in other ways, either by mail
or by direct shipments of specie — obviously a very ex-
pensive method — or by remittance of bills of exchange.
And then they must keep open an account, often for a
long time and without profit, with correspondents with
whom they have had, perhaps, but a single transaction.
They recoup themselves, though inadequately, by in-
creased charges on bills that come back unpaid.
Another mode of making use of the Bank, consists in
remitting a check to the correspondent. This system
may do when the correspondent has no account with the
Bank, but it is inconceivable if he has an account. First
of all, the check must be stamped with 20 centimes, and
it is generally sent by registered mail. Moreover, the
beneficiary does not receive a book credit at once, but
only when the check is presented, since it is impossible
to credit his account from the day the check was sent.
Undoubtedly these are petty expenses, but we know, in
banking matters, small savings here and there make big
profits. Many private bankers, as we have said, neglect
this system. On the other hand, those who use it make
transfers on a large scale, and most of them even make it a
practice to settle with their correspondents almost daily.
70
The Bank of France
As to the financial institutions, it is understood that,
at least in the provinces, they do not, as a rule, have
recourse to the transfers of the Bank of France. They
have their own transfer system, which is also at the
disposal of the public. They may, however, make use of
the Bank transfers for everything relating to their cash
and the replenishing of their cash holdings. Here again
business customs are found to vary according to institu-
tions and locations, and even according to managers.
Sometimes the cash is replenished by means of transfers,
sometimes by checks, sometimes by remittances of very
large bankable bills, which financial institutions can
immediately rediscount in order to obtain the cash they
require." Moreover, the total of transfers effected in
the provinces is a great deal smaller than that of the
transfers effected in Paris — a result of financial centrali-
zation. The amount, which is nearly 4,000,000,000 francs
in the provinces, is not far from 200,000,000,000 francs
in Paris.
The amount of the balances thus cleared through the
Bank of France reaches annually a colossal sum, which,
"• In this connection there may be noted a similar mode of settling with
correspondents, frequently used by large commercial houses, which alone,
moreover, can advantageously use it. These houses are accustomed to
do banking of a sort for themselves, and to pay one another by drafts
which are only handed in at the Bank for collection at maturity, or are
even collected by the last indorser himself.
This method saves the commission charged by the banks, and even
the discounts which would have to be paid when remitting the drafts.
These bills circulate like money, and their time of maturity usually cor-
responds approximately to the period of thirty or ninety days customary
in business for the payment of purchases. Something may be saved in
this manner. In any case, if there is reciprocity of situation between buyer
and seller, the differences in the discount rate become immaterial.
71
National Monetary Commission
moreover, grows with industrial and commercial progress,
and with the increased popularity of that great institution.
Total of credit balances cleared by transfers through the Bank of France.
[In thousands of francs.]
1896. 85,258,288
1897 86,275,994
1898 93.594.205
1899 102,620,960
1900 102,447,026
1901 111,827,905
1902 120,233,500
1903 -- 124,963,172
1904 152,822,496
1905 171,227,727
1906 189,233,491
1907 179.399.452
It has often been said that the clearing of these large
sums directly through the Bank reUeves our Clearing
House of the burden of this operation. In this fact has
been found the explanation of the relative unimportance
of our Clearing House as compared with others. Indeed,
the London Clearing House yearly effects clearings for a
formidable sum, exceeding 300,000,000,000 francs.
Operations of the London Clearing House. <^
[In millions of pounds,]
1871 £4,826
1876.
1880.
1881.
1882-
1883.
1884.
1885.
1886-
1887-
1888-
1889.
189O-
1891-
1892-
4.963
5.79'^
6.357
6, 221
5.929
5,798
5. 511
5.902
6.077
6.942
7,618
7,801
6,847
6,481
1893 £6,478
1894.
1895-
1896-
1897-
1898-
1899.
1900.
1901.
6,337
7,593
7,575
7,491
8,097
9,150
8,960
9,561
1902 10,029
1903 10,120
1904 10,564
1905 12,288
1906 12,711
aBulletin de Statistique et de Legislation Comparie, March, 1907, p. 377.
72
T h
B
a n
k f
ranee
In the United States the amounts -cleared reach a
much higher total. In 1906 the 112 clearing houses in
the United States had cleared £32,028,000,000, and New
York alone £11,092,000,000.°
Compared to these figures, those of our Clearing House
are very small. Established in 1872, bn the model of
the English and American clearing houses, the French
Gearing House comprises the Bank of France, the Credit
Fonder, the Credit Lyonnais, the Comptoir d'Escompte,
the Banque de Paris et des Pays-Bas, the Societe G^nerale,
the Credit Industriel and Commercial, the Banque Inter-
nationale, and others.
operations of the Paris Clearing House from April i to March 31.
Iln millions of francs.]
Presented. Cleared.
1891
1892
1893
1894
189S
1896
1897
1898
1899
1900
1 90 1
1902
1903
1904
1 90s
1906
6,003
,,868
4,71s
S.379
6, 143
7.3SI
7.S49
8,S4S
9,S67
10,65s
10, 663
9.964
10,816
11.833
13,887
I7,8SS
4. 721
3,889
3.823
4,360
S,S27
4,916
4.874
S.S7I
6, 24s
6,948
7. 201
7.353
8.023
8.S85
10, 326
13.S07
As may be seen, these figures are almost insignificant
when compared to the hundreds of billions in England.
o Bulletin de Statistiqv^e et de Legislation Comparie, May, 1907, p. 607.
7,3
National Monetary Commission
But if there be added the amounts cleared by the Bank of
France, the two results may stand comparison. Several
authors, however, claim that the transfers of the Bank of
France can not be compared to clearing-house operations,
and for this view they give three reasons.'* In the first
place, foreign clearing houses, like the French Clearing
House, are available for bankers only, and not for others.
But bank transfers represent transactions effected by all
holders of accounts, whether bankers or not. Moreover,
the clearings made at the clearing houses are gratuitous,
while those of the Bank are subject to a heavy charge.*
Finally, the former are made uncovered; the latter require
a deposit on which interest must of course be paid.
We do not wish to tarry over the discussion of these
three considerations. It is quite certain that bank trans-
fers and clearing-house operations are not identical,
but it is also certain, on the one hand, that if the
200,000,000,000 francs cleared by the Bank could not
pass through that channel they would, for the most part,
pass through the Clearing House. If, on the other hand,
between the two means of extinguishing balances, it is
preferred to clear such large amounts at the Bank, it is
because this offers the advantage of rapidity and economy.
Moreover, we do not pretend that the relatively insig-
nificant position of our own Clearing House, as compared
oThe works in which we have found this opinion sustained with the
greatest emphasis are: M. & A Meliot, " Dictionnaire financier international
tMorique et pratiqiie," Paris, Berger-Levrault & Cie., 1904, under the word
"Virement;" and E. Grillon, " Une nouvelle institution financiire," Paris,
GuiUaumin, 1895.
6 We fail to see the force of this objection. We have explained under
what conditions the bank transfers are gratuitous. We repeat that the
cases where there is cause for charging one-fourth of 1 per cent are very-
rare. (Cf. supra, p. 67, note 6.)
74
The Bank of France
with foreign clearing houses, is explained by this single
reason. There are, in our opinion, several others. It
must be considered, in the first place, that in France the
bank note, owing to its wide diffusion, automatically does
the clearing for a large number of balances. In the second
place, the still rather restricted use of checks and our
practical ignorance of the " crossed check " give the banks
less occasion to clear than in England."* Finally, France
has few international debts to settle, since most of these
pass through the London money market. We shall then
admit that the Bank transfers, which absorb a consider-
able part of the clearings, explain the rest.
Thus, in apportioning a share to each of these various
factors, it is seen that, even from the standpoint of the
clearing system and of the economy in the cost of trans-
porting specie for settlement of balances — which is the
useful result aimed at — we need not be envious of Eng-
land. This situation, again, is due to the Bank of France,
which has to such an astonishing degree developed the
service of free transfers from one accoimt to another.
Section II. Popularization of instruments of credit.
The Bank of France has often been reproached with
being a closed institution, accessible only to a few per-
sons, to rich people and great industries, multiplying and
complicating formalities, in order to keep the great public
away and to confine itself to the profitable business fur-
nished only by rediscoimting, by the large manufacttu-ers,
tt In France almost all transactions are subject to a time settlement,
while in England they are almost all settled for cash — that is, by checks
Cf. G. Franfois, "Circulation et •virements en Banque," Journal des Econa-
mistes, June, 1906, p. 384.
75
National Monetary Commission
and by the business men who hold large loan accounts.
We see that a certain class of customers prefers to the
Bank of France the luxurious quarters of the financial
institutions, where a courteous sta£f, with engaging
familiarity, places at the disposal of visitors numerous
newspapers, exhibits tempting statistical charts, and to
all offeis the help of shrewd experience. Between the
staff of these- banks and the customer there is frequently
established a kind of intimacy which is flattering and is
cleverly kept up by visits as interesting as they are in-
terested. Sometimes the call is from the submanager of
the bond department or some higher official of the bank.
As. compared with these allurements, what attraction is
there in the somewhat austere premises of the Bank of
France, its staff gravely poring over figures, or busy
weighing and packing gold into bags, which at once disap-
pear into the depths of its vaults? Some people see there
only a kind of prison for gold or a bank-note factory,
having little to do with the usual business of bankers.
How can such a state of mind be met? As the public
acquires the habit of frequenting the Bank, it becomes
better acquainted with that institution, and personal in-
terest becomes its best educator. This is but natural and
right. It is often stated, and not without reason, that
certain practices of the Bank keep away a class of people
who would be greatly benefited by its services. The
practice of requiring three names on paper, of allow-
ing no interest on deposits, etc., is criticized. Now, the
Bank would like nothing better than to grant greater
facilities for the discounting of commercial paper, to
pay interest on deposits, and the rest; but it must be
76
The Bank of France
remembered that certain difficulties stand in the way,
A credit too widely extended is incompatible with the
necessity of preserving the metallic reserve. We have
been careful, furthermore, to define and delimit the
operations which the Bank of France may allow itself
to undertake in the distribution of credit without injury
to its monetary ftmction. It must, in general, con-
fine itself to those operations which bring no profit,
because they do not necessitate the locking up of large
amounts, and do not make any demand upon the cash
holdings. But without emerging from this sphere of
activity, it has many opportunities for abundantly
supplying the wants of the public.
It must be admitted that this popularization of credit
by the Bank of France meets with little appreciation
at home. Derisive laughter often greets him who
speaks of the democratic tendencies of this great estab-
lishment. It must be acknowledged with regret that
our countrymen are almost the last to recognize such
benefits, but must listen to foreigners in order to hear
them appreciated at their true value. The English,
especially, who are very well informed in financial mat-
ters, profess the most lively admiration for our great
institution of credit, and call attention to the gradual
democratization of its services as an astonishing as
well as fortunate phenomenon."
But it will be asked how the Bank of France which,
owing to the very nature of its constitution, can not
fflCf. especially an article in the Statist of February 15, 1908, already
mentioned, a translation of which is given by the Messager de Paris in
its number of February 20; and another article in the same paper of
December i, 1906, translated in the Economiste Europ&en of December
7, 1906.
77
National Monetary Commission
easily popularize credit has been able to win such praise?
We have already seen how the Bank helps its customers
to make considerable domestic economies by means
of the check against a loan account, a popular method
which is perfectly accessible to every one. To this sub-
ject we shall not revert. Let us recall, however, that
the number of small loans, from 250 to 500 francs, was
4,534 on January i, 1908.
Small loans (250 to 500 francs).
On January i —
1900-
i9oi_
1902-.
1903-
1904-
190S-
X9o6_
1907-
I9o8.
Paris.
Provinces.
3,721
2,861
3.491
3, 163
3,063
2,302
2,827
2,074
vi.aig
1,883
2,135
3,512
2,552
2.922
^,389
ii,777
1,987
2.547
Total.
6.58a
6,6S4
5,365
4.901
4, 163
5,947
5,474
S,i66
4,534
If there are considerable differences from one year to
another, the reason is that these small accotmts, unlike
the large accounts, are mostly opened for a short period,
and that their numbers vary with periods of more or
less general prosperity and more or less money stringency.
For the small rentier the Bank, as we have seen, offers
not only loan accounts, deposit accounts, facilities for
transfers, and letters of credit, but also a department
for stock market orders, which transmits all orders
received, and even attends to all operations in which
securities are concerned. Furthermore, in some of the
branches safety deposit vaults have been installed,
and boxes may be rented by the month or the year
78
The Bank of France
for a small sum. These vaults are very interesting
to inspect, owing to the security they offer against
theft or carelessness. For people availing themselves
of this accommodation the Bank collects all coupons,
a useful service which the public little appreciates,
accustomed as it is to collect its coupons without cost
in the financial institutions often before they are due.
This constitutes, nevertheless, on the part of the Bank,
an earnest and gratuitous effort to serve the public;
the Bank, indeed, is not adapted to these operations,
nor is its staff.
There is a more important point — that is, the safe-
keeping of securities. In consideration of a fee of 20
centimes per year for each share or bond, the Bank
of France will hold all securities entrusted to it, and
collect the coupons without cost to the holder of the
receipt. Watching for drawn numbers of bond issues
is another special service performed free of charge.
A department, only recently made self-supporting, for
insuring against the risk of the repayment of bonds at
par, distributes the risks according to a calculation of
probabilities and on a mutual basis as between the de-
positors who desire to avail themselves of this accommo-
dation. Russian bonds, which were held in France in
such great numbers and had flowed into the Bank, enjoy
a special privilege. Owing to an agreement between the
Russian Government and the Bank of France in 1895,
Russian bonds are kept in safe deposit free of charge." All
O' These bonds, the number of which steadily increases in the vaults of the
Bank, were represented on December 24, 1907, by 97,567 certificates. For
this safekeeping, free to the public, the Russian Government pays 10 cen-
times yearly for each bond, on the yearly average of deposited bonds.
79
National Monetary Commission
securities deposited are centralized in Paris and kept in the
annex at the Place Ventadour." There, in a remarkable
manner, the greatest safety is guaranteed, and the special
staff alone is allowed within the gratings. The numbers
of the bonds are kept on separate lists for each customer
and each kind of security; these lists are signed by the de-
positors and by the Bank. The originals are kept in Paris,
and the duplicates in Havre. Thus the risk of fire is
guarded against as far as possible. This department is as
interesting as it is important. At the end of the year 1906
the value of the securities thus deposited was 7,233,000,000
francs, distributed among 11,439,839 certificates and
92,508 depositors.
It is still more interesting to see in what measure the
small rentiers have been able to benefit by this service.
We can not readily obtain an idea of this without taking
the average of the entries for safe deposits, as given in
the following table:
1897-
1898.
1899-
1900-
1901 _
1902 _
1903-
1904-
190S-
1906-
1907-
Deppsitors.
53.
67,
70,
73.
77.
82,
8s.
88,
89.
92,
93.
249
III
no
620
348
377
354
100
979
508
646
Average holdings of de-
positors.
Paris.
Francs.
67.470
69.579
67, 096
63.899
62,352
60, 168
58,568
58,031
58,480
Provinces.
Francs.
67,948
64, 791
64. 463
62, 604
62,834
61, 047
64, 280
57,427
56,454
oAt the present time the branches at Lyons, Lille, Bordeaux, Marseilles, and Orleans
relieve somewhat the congested condition of the Paris office.
80
The Bank of France
The table shows that the average amount of the holdings
in safe deposit is decreasing, while the number of de-
positors is increasing. As each year the number of with-
drawals is very small, it must be admitted that new deposi-
tors bring to the Bank smaller and smaller deposits, hence
the lowering of the average.
The small business man, much more than the small
rentier, reaps continually greater benefit from the advan-
tages offered to the public by the Bank of France. With-
out touching again upon the advantages of the loan
account to the small trader, or upon the benefit derived
from the low and stable discount rate — all matters well
known and mentioned before — we shall simply call to
mind the dates of some innovations favorable to the
democratization of credit.
January 15, 1824. — Creation of transfer drafts.
April 29, 1824. — Creation of transferable certificates of
deposit.
January 13, 1820. — Reduction of interest on loans
against bars and coin from 4 per cent to i per cent.
1834. — Loans against rentes and public securities.
1837. — Daily discounting of paper except on holidays.
Law of June 30, 1840, article 2. — Option of replacing the
third signature, exacted for discount, by deposit of any
French public securities.
Decree of March 26, 1848. — Similar option of replacing
by warehouse receipts.
Law of November 17, 1897. — Admission of bills for dis-
count carrying the signature of an agricultural syndicate.
The minimum for bills discounted is reduced to 5 francs.
There is here a whole series of measures, which, with the
assurance of a cordial welcome, should induce the small
83704 — 10 6 81
National Monetary Commission
business man to trade with the Bank. Furthermore, the
recent law of December 20, 1906, which modifies Article I
of the law of July 13, 1905, favors, if not the small business
man, at least the short-time bills, by delaying their matur-
ity by one and even by two, three, or fotur days, when it
falls on the morrow of holidays occurring on Friday, or the
day before holidays occurring on Tuesday. That is an
advantage proportionately more important on short-time
than on long-time bills."
It remains for us to furnish positive proof of the service
rendered to the small business man. This can be done by
means of the following tables which show the increasing
number of bills discounted, the decreasing average value
of the notes and the shorter average time they run, the
increasing proportion of small bills and the constant
growth in the number of collections.
Let us add that if the Bank accepts large quantities of
small paper with small signatures, it finds itself, on the
other hand, in normal times deprived of first-rate paper,
of that which, as we shall see, is as good as gold in inter-
national commerce. Gilt-edged paper always finds its
market at lower rates than in the Bank, and M. d'Eichthal,
a regent of the Bank, wrote as far back as fifty years ago:
" Whatever may be the discount rate, among the bills dis-
counted there will be found but few with the signatures of
the Rothschilds, the Hottinguers, and other houses of the
a There is another respect in which short-time bills are favored. Bank dis-
count being always figured in full (not true discount) the party discounting,
when handing in paper tardily, profits in the end by the interest on the in-
terest he would have had to pay. That is, of course, a petty profit, but
this reason added to the above may explain why bankers rediscount, by
preference, short-time bills and items on which the collection charge would
often amount to more than the discount deducted by the Bank.
82
T h
B
a n
f
ranee
same rank. Those are delicacies which always command
a premium.""
Bills discounted by the Bank of France.
Year.
Number.
Amounts.
Average.
Value. Term.
1890- .
1891..
1892-
1893-
1894-
189s-
1896-
1897-
1898-
1899.
1900-
1901-
1902-
1903 •
1904-
190S-
1906-
1907-
16, 172, 162
16.784,993
16,866,855
17,454,223
18,435,938
19,115.498
19, 149,506
20,464,594
21,540,925
Francs.
9, 609, 788,
10, 018, 070,
8,415, 769.
8, 922, 244,
8, 725,047,
8,621.954,
9, 924, 672,
10,364,834,
II, 032, 083,
11,745,984.
12, 247, 155,
9,936,321,
9,555,893,
II, 684, 936,
10,834,338,
10,967.589.
13,980.874,
IS, 769, 106,
000
700
400
100
400
500
000
800
200
100
500
500
300
900
500
000
900
100
Francs.
757
754
643
662
647
644
679
70s
721
726
729
588
547
633
S66
573
683
732
Days*
27. 00
27.80
25.00
24.50
24.84
25.00
27. 20
27.33
27. so
27.60
26. 96
21.47
31. 00
21. 64
23.61
20. 92
24.03
26. 06
Bills for collection.
Number.
Amounts.
1890-
1891.
1892.
1893-
1894-
189s-
1896-
1897-
1898-
1899-
i9oo_
I90l_,
190 2_
1903-
1904-
190S-
1906- .
1907-.
I. 181.893
I, 293,032
1,488,804
I, 606. 021
i. 637, 870
I, 801. 241
I. 804. 478
'.054,853
2, 151, 271
2, 416. 046
-.i, 480. 972
2,450.673
2,576, 137
.i, 734. 268
2,867.304
2,621,556
", 725,929
2,914,980
Francs.
552,939,900
606, 701. 800
665,847,90a
614, 153,600
599.617,367
576,923,400
553,253,000
570,343,600
557,314,400
593,452, 100
625,344,800
544,917, 200
531,624, 100
508,588,700
552,925,500
570,619,500
561,088, 400
555,997,200
op. Coq, **Les circvlations en Banque," Paris, Guillaumin, 1865, p. 38.
83
National Monetary Commission
Small bills discounted by the Bank {for Paris).
From
S to lo
francs.
From
II to so
francs.
From
SI to loo
francs.
Total of
small bills.
Over loo
francs.
1881.
i882_
1883.
i884_
1885.
1886.
i887_
1888.
1889-
1890.
1891,
1892.
1893-
1894-
189s-
189S.
1897-
1899-I-
I900_
igoi_
1902-
1903-
1904.
190S-
1906-
1907-
19.350
26, 136
26, 183
31.783
23.474
24.130
22. 910
190, 020
208, 600
69, 400
89,674
90. 606
99.974
l6s. 728
167, 862
232,074
236.401
74S,Soo
886, 149
931, 002
984, 496
826. S9S
914,093
868,850
792, 210
822,780
I, 153,500
1,409, 021
i. 434, 394
i,SS9.S09
I. 710. 103
■.776.S19
1, 893,087
z. 010, 536
1,013,751
i, 155, 792
I, 168, 292
I, 172, 678
1, 016, 485
1, 136,318
966, 656
966,570
1,070,450
I, los, 400
x, 181, 229
A, 169, S32
I, 241.590
1,299.854
1.336.564
1.389.386
1,399,292
, 160, 94S
, 224, 326
,349, 270
,581,515
,590,839
,592,675
,668,800
.820,473
,931,589
,943,688
, 778, 601
,068, 077
i 125.477
-I88.9S7
,866,554
.074,541
.858.416
948, 800
loi, 830
328,300
679,924
694,832
901,073
175,685
280.945
S14.547
646, 229
917.320
506,834
743.295
616.817
726. 052
790.560
S29. S92
871,986
864.391
3, 701, 200
3.448,849
3,568,289
3.646,957
3,707,135
3,737,024
3.833.743
3,856.898
84
T h
Bank of
ranee
Proportion of small bills to total bills discounted.
Total bills
discounted.
Per cent of
small bills
to total.
1891-
1892.
1893-
1894.
1895-
1896.
1897.
1898
1899
1900.
1901.
Z902.
1903
2904.
1905-
1906.
1907.
5.695.921
f .574.911
5.868,772
5. 805, 774
5.592,606
5,865, loi
5,688,308
5,820,786
5, 966, 221
6, 029, 500
6, 128, 773
6, 263, 121
6,548,030
6,882,820
7,017,969
7,348,290
7,503. 127
31
36
36
38
33
35
33
34
35
38
44
43
44
46
47
48
48
The Bank has always resolutely undertaken to carry
through a whole series of operations which could not
show great profit; above all, it has unremittingly aimed
to be of service to the greatest number. The preceding
tables show that the number of bills discounted grows
continuously, while the total amounts, smaller during
the most prosperous periods, invariably increase in peri-
ods of tight money. The average amount and term of
bills is 600 francs for twenty days. This result would be
considerably modified, if we were to take into account the
bills handed in for collection only, the average value of
which hardly exceeds 200 to 250 francs.
For Paris, it is possible to be a little more precise.
The table shows that the totals of the smallest bills, from 5
to 10 francs, have steadily grown at a considerable rate,
reaching in 1907 the number of 236,401. A similar
85
National Monetary C ommis s to
n
increase has taken place for the total of small bills not
exceeding loo francs in value. The proportionate impor-
tance of these bills in the general total is constantly de-
veloping; in 1907 it was nearly 50 per cent.
After the testimony of these figm-es, it appears super-
fluous to draw any other conclusion than that, by the
help which the Bank of France offers to all with in-
creasing success, its solicitude is shown for the interests
of the democracy, of which it has become an essential
factor.
Section III. Territorial expansion of the Bank of France.
With its growth in extent the Bank has not only de-
veloped its services to meet new business needs, by pro-
viding an increased staff, and larger, more attractive, and
better conducted offices, but it has also endeavored to
reach a more and more widely extended territory. In-
deed, the mere fact that the Bank has entered a place, if
only to make collections there, gives a favorable turn to
credit conditions; credit becomes cheaper, in that the
basis for money rates becomes the official discount rate,
because the financial institutions have then a more eco-
nomical method of replenishing their cash. The smallest
provincial town where the Bank has entered is, there-
fore, in regard to low money rates, as favored as Paris.
Exchange between cities, particularly when joined with
a special commission, reaches sometimes a considerable
sum. As soon as the Bank opens its branch, exchange is
no longer possible. Therefore, whenever the charter of
the Bank has been renewed, the legislator, in response to
the wishes of the pubUc, has wisely required new territo-
86
The Bank of France
rial expansion of the Bank. , If the Bank has not always
taken the initiative in this mode of expansion, it is be-
cause it has been restrained by several motives. In the
first place, the opening of new offices entails considerable
expense. It is necessary to count upon several years of
deficit, during which the running expenses, including sal-
aries of staff, are just as high as if the profits were large.
We could name several cities which for years have shown
constant deficits. It can therefore be understood that
the Bank of France, which is already established in the
200 towns'* most important from a commercial stand-
point, and which, by means of its collecting depart-
ment, touches 265 towns of less importance, extends its
service only with caution to new localities, since each new
branch must necessarily produce a larger and more per-
sistent deficit. Thus territorial expansion is for the Bank
an ever-increasing burden; it is equivalent to an addi-
tional tax imposed by the legislature at every renewal of
the charter. The Bank submits to this with ggod grace
for the benefit of the public.
In the second place, there is a limit to that expansion,
as shown in one of the preceding chapters. Where the
Bank has no branches, the financial institutions may
take root and develop among a population which appre-
ciates their services. Their profits come largely, it ap-
pears, from small towns, where competition is less keen.
We have already said enough concerning the service
of these institutions in the development of French credit,
» In round numbers. On January i, 1908, there was the central Bank in
Paris; and in the provinces, 127 branches, 55 auxiliary ofBces, 284 con-
nected towns, which gives a total of 467 banking places, 20 more than on
January i, 1907.
87
National Monetary Commission
to show the danger of inflicting upon them fresh injury.
On whatever side the Bank desires to expand it finds
this limit. If the Bank encroaches a little on all sides,
the result may be very appreciable.
The territorial expansion is further perceptibly increased
by what is known in the Bank as the exterior accounts.
This system, of quite recent origin, allows any person not
residing in the town where the branch is established to
enjoy the same privileges as residents. Business may be
transacted by mail with the aid of certain accounting
forms, which often differ from those used for ordinary
accounts. Each transaction is the subject of a special
report, addressed to the customer by the branch. Not
only is the transaction itself reported, but useful infor-
mation as to the position of the account is also given,
thus permitting the customer to follow the movement
of the account until the half-yearly statement is sent.
This department is highly esteemed by the suburban
public, and renders many services to landed proprietors
and to farmers, especially in the cattle-raising trade.
Since this trade is confined to a certain time of the year,
and with its large initial outlays requires a considerable
movement of capital for several months, frequent and
important transactions are thereby necessitated.
Thus the direct expansion, which, as has been seen,
meets with serious obstacles, is assisted by this indirect
expansion."
oThe indirect expansion raiglit be increased by wider use of the "crossed
check." It will be long before we may expect good results from this
practice, since we are as yet too far from the time when this check, almost
unknown in France, will be currently used.
88
The Bank of France
Evidently we are far from realizing the attractive
dream of a France no longer deprived in part of banking
facilities, but with all bills taken at par because the Bank
would reach everywhere. But for the sake of this end,
no doubt desirable in itself, is it worth while to go to
extremes for a scarcely perceptible advantage, to disturb
an institution in other respects strong and useful, and
thus perhaps to risk disorganizing the general credit
system of France? On the contrary, we should be con-
tent with and even congratulate ourselves upon a prog-
ress which leads us, slowly perhaps, but surely, toward
the realization of credit on low terms everywhere and
for all.
Section IV. The Bank of France and agricultural credit.
"There is no such thing as agricultural credit, there is
only credit," said M. Dupin in 1845.'' Matters have not
changed since. It is certain, for instance, that Scotland,
which for a long time was the classical land of pauperism,
owes its prosperity to the banks, which, by developing
credit in favor of agriculture, have entirely transformed
the soil and the country. Indeed, more than any other, the
Scotch farmer needed credit, and more than any other
he has benefited by it. It may be said that personal
credit is peculiar to agriculture. Thus it suffered as a
result of the evolution already mentioned,* which, by
causing the disappearance of local banks or by giving
them a new direction, struck a fatal blow to personal
credit.
In order to palliate the socially .disastrous results of this
defect what is known as agricultural credit was devised.
^Journal Offlciel, 1845, p. 2471. ^Cf. supra, p. 40.
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National Monetary Commission
But is this not the more or less exact appUcation to agricul-
ture of the idea of credit pure and simple — that is, real
credit? Although, in our opinion, with much effort some
good results may be obtained, this branch of industry, so
important to the wealth of France, can not be truly de-
veloped tmtil it shall have gained to its fullest extent the
use of personal credit, until everywhere a cotmtry money-
lender will be able, upon his estimation of the individual
qualities of the husbandman, to place at his disposal the
money he needs, and thus animate the labor, activity,
thrift, and intelligence so widely diffused in France, even
to the humblest cottage. Such business relations, loyally
maintained, do not exclude caution and tact. Unfortu-
nately, it appears to us difficult at the present moment to
reconcile personal credit with the evolution of banking,
which is moving in an entirely different direction, and we
doubt whether, until a long time has passed, the efforts of
legislation can produce, by means of this form of credit,
any very striking improvement in agriculture. Let this
suffice to indicate the limits of results that may be ex-
pected of new institutions favorable to popular credit.
The Bank of France in particular must measure its devo-
tion to this task by the limits of real credit and of its
own statutes. But an evident proof of its good will and
interest is that in every branch office there must be
among the directors a representative of the agricultural
interests.
We know that " agricultural credit " includes loans from
seed-time to harvest. The first labor done, the first loan
made to the land, can only be repaid much later. The
average time necessary for agricultural loans is five or
90
The Bank of France
six months at least. Now, for other reasons the by-laws
of the Bank prohibit the discounting of paper having
more than ninety days to run. By a special favor
which would not be accorded in business, where each
loan has a different object, the Bank allows the renewals
necessary for agricultural loans, which almost exclusively
take the form of bills payable to order. The bill returned
to the maker on the day of maturity is renewed the
following day. The date of maturity alone is changed.
A very important agricultural industry, which we
have already mentioned, is that of cattle-raising. The
cattlemen are, for the most part, customers of the Bank
wherever it has a branch. This customer of a somewhat
special kind appears, by the very nature of his trade, to
be indicated as a suitable client for the Bank and not for
the financial institutions. His only business with the
Bank is discounting, and his only mode of withdrawal is
shipping of money, nearly always in the form .of bills.
The Bank requires the cattlemen to indorse each other's
paper, and thus can accommodate them without inter-
mediaries. There results a very useful cooperation, which
in no way destroys the competition in production. More-
over, by using the Bank the cattlemen effect great sav-
ings, the full value of which they alone can estimate.
After the law of July i8, 1898, and the legislation
that followed, it might have been expected that the use of
agricultural warehouse receipts would be greatly extended.
This legislation makes a serious exception to the common
law for the benefit of agriculture. It "constitutes the
landowner, so to speak, a public warehouse. It is he
who, without any other controlling appraisement, makes
91
National Monetary Commission
declaration as to quantity and commercial value to the
clerk of the justice of the peace. * * * in short, the
agriculturist enjoys a confidence which so far has been
denied to industry and commerce."" Notwithstanding
this favor, the agricultural warehouse receipts are little
used,^ and the Bank, despite its willingness to take them
freely, regrets to find them among its discounts in such
very small number.
Our survey would not be complete should we fail to
say a word concerning the agricultural credit associations,
of which also much was expected and which have only
in a very limited measure fulfilled the high hopes of
their founders. "
For the support of agricultural credit the State draws
from two sources the funds required to supply the organs of
distribution, the local and regional associations. The first
sotu-ce is the loan of 40,000,000 francs made by the Bank
on November 17, 1897, when the charter was renewed.
This amount, like the 140,000,000 francs already advanced
in 1857 and 1878, bears no interest. The second source is
the yearly payment made by the Bank of France on the
" Carpentier, " Le cridit agricole," Orleans, 1905, p. 16.
6 The main reason lies in the numerous formalities which the law of
April 30, 1906, has simplified but not suppressed, in the many expenses
caused by the organization, and also, it appears, in the inexperience of
some of the officials. The clerks of the justices of the peace, intrusted
with the delicate and novel functions of registrars of chattel mortgages,
are, as a rule, little fitted to perform them.
"The model of these institutions came to us from foreign countries; but
the foreign differ from ours materially, because of the diversity of their
origin. With our neighbors the movement began slowly in the lowest
levels of the rural population. With us, on the contrary, the system of
agricultural associations began at the top. Thus, these institutions pene-
trate only with difficulty into the rural districts, where economic education
has but just begun.
92
The Bank of France
profit-yielding circulation. This payment can not be less
than 2,000,000 francs yearly," and more often it is in the
neighborhood of 5,000,000 francs.
All these sums, intended for agriculture, are distributed
by the Government, and are used in endowing the associa-
tions of agricultural credit. The regional associations,
which are the pivot of the present organization, are self-
governing societies, with a capital of their own. This capi-
tal, added to the advance made by the State, is invested
in first-class securities, which are then deposited in the
Bank of France, as discount guarantee to take the place
of the third signature, if need be. The local offices send
their paper to the regional office, which then takes it to
the Bank, as the needs of funds are felt.
Such is the part of the Bank of France in the distribu-
tion of agricultural credit. Effective intervention was
obviously very difficult, yet the Bank has contrived, even
beyond its legal obligations, to give the benefit of its
credit to agriculture, which so justly deserves the care
it is receiving.
» Tlhis yearly payment, independent of all charges, direct taxes, stamp tax
on circulation, stamp tax on stocks, tax of 4 per cent on dividends, tax of
4 per cent on the interest of loans to societies, and cost of transportation of
currency, is equal to the proceeds of one-eighth of the average discount rate,
multiplied by the average of the profit-yielding circulation, which is equal
to the quotient obtained by dividing the daily totals of discounts, loans, and
bills by the number of business days.
93
Part II.
THE BANK OF FRANCE AND INTERNATIONAL
CREDIT.
Credit conditions, as we have considered them thus far,
that is, from an exclusively national standpoint, become
somewhat modified and more involved^ when it is a ques-
tion of regulating and facilitating the multifarious and
complex operations of international credit. Bills drawn
against shipments of goods over long distances require
much more time to run; the various systems of appraisal
of values have not all the same standard of comparison;
the degree of confidence accorded to the exporting country
involves a more or less extended investigation of the lia-
bilities of that country; the condition of exchanges, some-
times depreciated and always fluctuating, the great differ-
ences between offer and demand in one place as compared
with another, in short, the state of the balance of trade at
any moment, and even of the balance of accounts — all these
are important factors which figure in the settlements to be
effected. These diverse factors, with many others, give
rise to difficulties sufficient to hamper the development of
international credit.
This development, though it is constant, is nevertheless
behind that of the national credit, and more than the
latter, it must be based on the monetary system. And
when we say monetary system, the expression must not
be taken in the precise sense we have hitherto given to it.
95
National Monetary Commission
Legal regulation can here play no part, and in tliis case,
especially, it is strictly correct to say with Turgot "all
merchandise is money and all money is merchandise."" *
From an international, as well as from a national stand-
point, the means of distributing credit are not always
those which strictly assure an easy and rapid liquidation
through the use of money, the medium of trafific. Certain
states, more advanced in the organization of international
credit, manage to settle a notable part of the world's oper-
ations. Others, more prudent and perhaps wiser, limit
their activity in this respect, in order to increase their
power of resistance. On shifting ground, the insecurity
of which is apparent, a lofty house with poor foundations,
which a storm would overthrow and which must repeatedly
be restored, is obviously less desirable than one built
low and broad, but strong and firm.
« Parliamentary documents published in 1859 by the ministry of finance.
6 Nevertheless, there exist in international commerce certain wares
which are more commonly used for equalizing exchanges, because they have
a sure market. Such are international exchange securities, and especially
gold. The important part played in settlements by securities quoted on
the principal exchanges of the world was for the first time manifest in 1847,
when France, threatened by famine, paid for Russian wheat by French
rentes sold to the Emperor Nicholas. They were again of the highest
importance during the American Civil War and the settlement of the war
indemnity in 187 1. (Cf. on this subject Arnaun6, "La monnaie, le cridit
et le change," pp. 76 and following.) More recently they were used in the
United States during the crisis of 1893. The excess of export of securities
from July i, 1893, to June 30, 1894, is estimated at $237,000,000. England,
in 1890, after the Baring failure, sold a large quantity of stocks and bonds of
American railroads. These securities were mostly repurchased by the
United States. As for gold, when it is used in international settlements,
it is only as a commodity. Each country receives it only on the basis of
weight, imless, of course, it should happen to be the local coin. This is the
only money that can be exported. Silver coin, from the standpoint of
international settlements, is only a sort of bank note struck in silver, instead
of being printed on paper. (Cf. Journal des Economistes, 1888, p. 265.)
96
The Bank of France
Our first chapter will be devoted to the explanation of
the world-wide inter-relation of the different international
markets and to the determination of the place which may
be assigned to the Bank of France. The following chap-
ters will show how the two perils of credit, crisis and
war, are foresfien by the Bank and what means of resist-
ance it can oppose to them.
83704—10 7 97
Chapter I.
INTERNATIONAL MARKETS.
Section I. International financial solidarity.
Thus far we have spoken only of the place of the Bank
in the national credit, and we have taken no account of the
influence of foreign markets on the French market. Such
is the method of writers on the theory of credit and espe-
cially on the theory of exchange. We must now examine
the influence of the international factors on our money
market.
Long ago the hamlet or borough ceased to be a self-
sufficient economic tmit, and expanded in order to gratify
constantly growing wants. Commerce early created a
commtmity of interests between the different parts of the
same province, then of the State. This steady develop-
ment has now resulted in a close harmony of the interests
of the different markets of the world, through the tmiver-
sal solidarity of production and consumption.
This interdependence is manifested in numerous in-
stances which may readily be recalled. Let there be a
poor wheat crop in America, as was the case in 1905, and
exports cease at once; European consumers are the first
to suffer. There is no scarcity, because one can not speak
of universal scarcity, but the total supply no longer fully
suffices for consumption, and a general rise in prices results.
It is also known that the English market, and indirectly
98
The Bank of France
all the others, is influenced by poor cotton crops, which
render idle a large part of British industry. It is the rates
of exchange which give us constant warning of our position
in relation to foreign markets. We need not insist
further on the solidarity and harmony of international
interests, which has long since been set forth with great
clearness by many distinguished writers.
It would be more interesting but much more difficult
to discover what forms the basis of this solidarity. No
doubt we shall be told that the satisfaction of economic
wants is not bounded by country, that these wants tend
to become identical in all countries through the diffusion
of knowledge, of education, in a word, through progress,
and that here is a sufficient explanation. We shall not
contradict this statement. But such a moral consider-
ation can not have much weight in the organization of
international markets which, like all markets, are gov-
erned only by very material causes. Even if we admit
that the world-wide unity of science and of economic
wants is a reason for international solidarity, it could not
furnish the concrete basis or the bond of material tmion
essential for permanence and strength.
What is, then, the basis ? It can not be the rate of dis-
cotmt, since, as we pointed out at the beginning of our
study, the differences in this rate are, in fact, too large
and variable to permit the idea, however pleasing, of its
serving in such a capacity."
a It may, however, be recalled that in 1866 the Bank of England, after
rates of 6, 7, 8, and 9, reached 10 per cent, where it remained for some time;
meanwhile the Bank of France kept the discount at 4 per cent. (Cf. Jour-
nal des Economistes, 1866, 2, p. 440.)
99
National Monetary Commission
It appears that metal reserves alone can form the basis
in question. They make business possible. Following
a natural current, they bring with them into the organ-
ism of markets a flow of invigorating blood. At the
same time they furnish assurance of the necessary sanc-
tions, when their influence has been disregarded. A few
details may suitably be given on this subject. After the
use made of biological methods, applied under the name
of sociology to all social phenomena, we may without
presumption compare the monetary circulation, not the
fiduciary, to the circulation of the blood in th^ body. A
certain amount of metal, as of blood, is required to main-
tain life. A sufiicient reserve of good money is th^ sign
of a flourishing State. A money which is scarce or
depreciated induces an anemic conditJPn of the State.
Of this Spain bears witness, since the always precarious
condition of her exchanges paralyzes all her activity and
renders impossible the progress which ought otherwise to
occur. Superabundance of metal discloses the plethora
of a sanguine temperament subject to crises. The mone-
tary congestion, so to speak, of OiWtnany after th.e war and
the payment of the indenmity offers a sufficient example.
A monetary bloodletting in a healthy and prosperous
State may stimulate activity. Proof of this is funjished
by the rapidity with which France recuperated after the
exhaustiaag drain of a costly war and the payment of the
indenmity.
It might be said, to continue the comparison, that there is
between all the gold circulating over the face of the earth
the same affinity as between the blood corpuscles circulating
The Bank of France
in the organism. The vital processes of both are similar,
and in both, to a certain degree, quantity is of less im-
portance than quality. It is therefore needless, from a
general standpoint, of course, to attach much importance
to the abundance or scarcity of gold. It is only essential
that its world-wide distribution be constantly assured in
close correspondence with the needs of the given country
and the supply of the neighboriflg state. For this reason
M. Aupetit could say: "The metal market is of necessity
international. Gold or silver bars circulate across the
frontiers, like all commodities, and by these movements
their prices reach everywhere a common level.""
A given amount of metallic currency cannot, therefore,
be thrown at will on any market at any time without the
immediate dispersion of this supply over the whole range
of markets. To act contrary to this principle would be
like attempting to stay the flow of a river. To close the
outlets on all sides would be in vain; the water wtmld
nevertheless filter through. "When money is brought
into internal commerce, it will be employed as a means &f
remedying every rupture in the equation of international
demands." *
A country can never succeed in building up gold reserves
by artificial means; first of all, it must create the need of
gold, and then the international market will of itself
undertake to supply its need. It is thus that owing to
our late development of the system of checks and transfers
oA. Aupetit, "Essai sur la tMorie gSn^rale de la monnaie," Paris, Alcan,
p. 177.
b Cf. Bastable, " Theory of Internetlitmal Trade," in the trattfelation by
Sauvaire-Jourdan, Paris, 1900, p. 72.
National Monetary Commission
we have created a considerable need of gold, which the
international market has had to supply."
Furthermore, it is well known how, for thirty years, the
discovery of gold mines has flooded the market with metal,
and how the metal increase has been continuous in the
different countries. The United States in particular,
with a very large population spread over a vast territory,
owes the increase of its metal holdings to the increase of
the metal holdings of other nations. * In this connection,
it would be especially interesting to follow one of the most
recent and most considerable transfers of specie, the
200,000,000 francs imported into France as the result of the
buying out of the Panama Company. These 200,000,000
francs in gold, coming from the United States, origi-
nated in large part from shipments made by Japan in pay-
ment of purchases of war material. A very large part of
this gold, when it had passed into French hands, was
absorbed by the Russian loan. M. Aupetit calls attention
"On the other hand, the Latin Union did not limit the coinage of 5-franc
pieces until January 31, 1874, while Germany had adopted the single gold
standard in 1872. During that time it is estimated that 500,000,000 francs
of gold were drawn by Germany from the countries in the Latin Union, to their
injury, because of the coinage of silver. (Cf. X. * * * "Bim&tallisme
international," Revue Politique et Parlementaire, 1896, 2, p. 589.) However,
this monometallic situation, added to the drain on the circulation caused by
the withdrawal of 5,000,000,000 francs, had, according to many authors,
the advantage of stimulating a, new movement of business activity and
of enabling us to withstand the crisis of 1873, which raged especially in
Germany, the United States, and Austria. (Cf. Juglar, " Des crises com-
merciales," Paris, Guillaumin, 1889.) It may be added that if Germany
had required the war indemnity to be paid in rentes, at least in part, she
would have secured great advantages for the future, without diminishing
her actual power of monetary resistance.
6Cf. J. Pallain, "Des rapports entres les variations du change et les prix.'-'-
Sancerre, Pigelet, 1905, pp. 28 and following.
The Bank of France
to this singular irony of fate, which opens the channels
for a movement of money between belligerents."
We may say in conclusion that "the distribution of
gold reserves is not susceptible of arbitrary agreement,
but is in a large measure the inevitable result of the
development of custom and of the financial requirements
of the different countries."'' It appears, therefore, that
the monetary circulation may be considered, to a certain
extent, as automatic. Each market possesses the amount
of gold which it should have, no more, no less. This
international distribution is effected, by the very nature
of things, with perfect precision. Any act of authority,
any arbitrary measure, would be powerless to secure a
larger gold supply; this is possible only in so far as new
needs are created. Such is, we believe, the indispensable
basis upon which the international markets rest. The fac-
tor of gold supply, which must be reckoned with, is inde-
pendent of the speculator, and any operation which should
neglect it would lack support and prove to be a danger-
ous error.
We have added that this system carries with it its own
sanction, and can not be disobeyed with impunity. In
this regard crises afford a great lesson. When a nation,
carried away by the blind confidence of an already long
period of easy credit and great prosperity, neglects more
and more the metallic basis and the progress of other
nations toward a clearing system, and thinks it can for-
oCf. J. Pallain, op. cit., p. 35, and Revue Economique Internationale,
A. Aupetit, " Chronique financUre," June 15, 1904, p. 216.
6 Georges Cochery, former minister of finance, cited by Aupetit in Revue
Economique Internationale, 1907, Vol. IV, p. 664.
103
National Monetary Commission
ever increase credit and exalt speculation, the crisis is at
hand and will suddenly appear; then, as the penalty for
ignoring the necessarily slow processes of evolution, it
must submit to the humiliation of asking the world for
help.
In the constant tendency toward an unattainable
perfection in the equation of the wctfld's holdings, exchange
rates are the reliable barometer which at every moment
indicates the situation of a country with reference to
others. If exchange is favorable and if the import gold
point is near, the incoming of gold may be counted upon,
and in the contrary case gold exports may be foreseen. It
is such movements in our favor or to our prejudice which
it is important to regulate or to check, but it has been
shown that, owing to the multiplicity of interests engaged ,
this may not always be an easy matter. However, it is
all the more necessary to avoid these movements because
we know the importance of a strong metallic reserve and
the difficulty of maintaining it at a high level. If, indeed,
a crisis occurs abroad, it will absorb the metallic currency
of the country and will create, besides, a demand for cur-
rency as much greater as credit was formerly more
extended and business more prosperous.
The country suffering from the crisis will thereupon
induce in all the other countries a desire for metal which
is sometimes irresistible. This desire will be shown in
a very definite form and in the following manner: When
money has acquired a considerable value in the country
where the crisis exists, foreign capital will not fail to flow
in. Capital, it is said, knows no patriotism or country,
and no consideration of sentiment or morality will for a
104
The Bank of France
moment hold it back. Rates of exchange will soon show
an enormous faUing off, the gold points will be exceeded,
and gold, if it is not retained, will overflow the affected
market. It is evident that this sudden reaction may
hasten its return to normal conditions, but the neighboring
markets will have suffered so much, in their turn, that
the crisis, like a contagious disease, will infect them also,
and the world market will regain some stability only after
a general fever which will have destroyed the feebler mem-
bers of the financial world.
We believe we have thus sufficiently demonstrated what
close solidarity, from a monetary point of view, exists
between the different markets. In closing, let us revert
to our biological comparison. Like the limbs and the
organs of the human body, nations may be classified
according to their importance in the vital economy, but
it is very rare that a disturbance of any serious nature
develops in any part without affecting the entire organ-
ism; there is much difficulty in localizing it altogether.
Before, however, inquiring how in such an organic unity
of the money markets the reaction upon others of disturb-
ances affecting one part may be prevented, we shall en-
deavor to indicate the place occupied by France and its
essential instrument, the Bank of France.
Section II. — Place of the Bank of France in the interna-
tional market.
At the beginning of this study we have shown that it is
to the interest of a nation to possess an important metallic
reserve, and we have just laid down as a principle the
automatic character of circulation. Although these two
105
National Monetary Commission
rules seem to be contradictory, they are not so in reality;
we are therefore brought back to our starting point.
France has with deliberation permitted the development
of its instruments of credit, especially of its bank notes,
and has in this manner created the need of gold to be
used as a reserve. It has utilized periods of favorable
exchange to build up a reserve which is to-day the strong-
est and the most important in the world. We need not
further insist upon the commanding position of the Bank
of France from a monetary standpoint. A study of the
situation of our neighbors in this respect would, in our
opinion, be more conclusive ; we shall also see whether the
lack of a similar reserve does not cause them serious
inconvenience.
We must remember, in the first place, that the number
of international markets is reduced to a single one for each
State. It is in Paris that the operations of France with the
entire world are settled. The same holds true of London,
Berlin, Brussels, etc., for their respective countries. This
may be considered as an exact statement of the situation ;
other financial relations which may exist are confined to
very limited amounts and to local transactions of quite
secondary importance. The fact that the rates of ex-
change are quoted simply by the names of Paris, l/ondon,
etc., sufficiently indicates the significance of markets in
international commerce.
Numerous minor countries with relatively small com-
merce need not be considered. Their transactions pass
through the intermediary of a more important neigh-
boring market, or, in case of a colony, through the
metropolis.
1 06
The Bank of France
It is seen that if the markets of international commerce
are heavily burdened with operations for settlements,
their number, on the other hand, is very limited. Never-
theless, the equation of the various demands and offers
for the whole world can not be solved by transferring
all credits indifferently to some one market, and relying
upon it to send to other markets all those credits which
it alone will have been unable to clear. There is a current,
normally established, which leads to the remittance of
claims not easily clearable, to the most active and im-
portant market, which is able to dispose of them more
easily and economically, and most willingly undertakes
the transaction.
It is thus that England, whose enterprise and com-
mercial expansion over the entire globe has greatly
favored, if it has not created, the development of this
special commerce, has always appeared, so to speak, as
the chief banker of the world. London has been called
"the financial Rome of civiUzed nations — that is, the
world's clearing house and its principal financial market.""
It is there that almost all international credits are settled
"France and Germany, however, are not entirely included
in this mechanism,"* and the operations peculiar to them
are to a large extent subject to direct negotiation.
This incontestable supremacy, this position as the
clearing house of the world, imposes a heavy obligation
upon England. It must not be forgotten, indeed, that
"A. E. Sayous, Meeting on February 5, igcra, of the Soci6t6 d'Economie
Politique de Paris, reported in the Economiste Frangais of March 3, 1900,
p. 271.
6 Sayous, loc. d.t
107
National M on et ar y Commission
in monetary transactions ultimate solvency is not suffi-
cient," bnt that the possibility of immediate realization
is essential. Even if a bank has assets and liabilities
which leave no doubt as to its final solvency, it must
above all be able to respond immediately to all demands
for cash which may be made upon it. This is the very
essence of banking.
Any bank in the world, however skillful in clearing
operations, must certainly at times furnish a little cash.
Some of its clients will prefer to be paid in gold rather
than by means of clearing house settlements. We may
obviously regret that education is not sufficiently ad-
vanced to eliminate such demands, but in the meantime
it is necessary to conform to the habits of our time.
These withdrawals of cash, however, are usually made at
expected times and for known destinations.* England
can then meet them, because, within a certain measure,
they may be foreseen.
Gold withdrawals from the Bank of England during September, October, and
NoTleMber.
Destination.
1903.
1904.
1905.
£-4. OS'S, 000
351, 000
8^07, 000
io,oo<3
190, 000
203 , od6
501,000
£3, o^o.ooo
1.483, 000
I. 358, 000
50, 000
£1, 520, 000
*. 543. 000
28, 000
United vStates _
151,000
190,000
264. 000
6,087,000
6, 252,000
3. 795. 000
oCf. J. S. Nicholson, "Bankers' Money," London, Black, 1902, p. 63.
6 The greatest demand for cash conies toward the end of the year. Eitypt and India
at the times of their wheat deliveries, require important metal payments.
108
The B a.n k of France
The above table shows that, even in normal times,
there is a drain as serious as it is unavoidable, since it
is the consequence of financial supremacy. On the ©ther
hand, as soon as there is the least trouble in any market,
London is the first place called upon for shipments of
metal. Compelled to be the medium of exchanges, the
customary purveyor of all kinds of merchandise, London
undertakes to meet all demands from abroad made neces-
sary by scarcity of money. The numerous banks of the
city are often asked for large amounts for export. Lom-
bard street, therefore, which in a way monopolizes the
banking business, and considers itself dispensed from
holding a cash reserve because it has large credit balances
in the Bank of England, calls for metallic currency with
increasing insistence. Thus all demands are found to be
made on the Bank of England, which at the same time
is restricted by the provisions of the Peel Act. It may be
imagined what a metallic reserve the Bank should have at
its disposal, in order to provide for such an extensive
market.
Thus the fact that a country undertakes internatianal
settlements carries with it the obligation of supplying
gold. Financial leadership implies monetary leadership,
and such should necessitate strong reserves. Is this
the case with England? Far from it. Experience shows
that England "has made too heavy sacrifices to her
classical principle of using a minimum of metallic cur-
rency for her payments at home and abroad."" London
has not a sufficient amount of gold to satisfy the needs of
"Aupetit, "La vie fvnancihre," Rev. Econ. Intern., 1907, Vol. IV, p. 654.
109
National Monetary Commission
Great Britain and to meet the demands of foreign peoples.
This deficiency is acknowledged by the English them-
selves." They have for a long time talked of modifying
the Peel Act. At a meeting of the Bankers' Institute,
which was held in L,ondon in November, 1906, the insuffi-
ciency of the reserve was discussed. It was recognized
that, in general, the banks do not appear to realize the
necessity of having sufficient reserves to maintain the
immense credit structure they must support. *
An example for the formation of reserves has, however,
been given. The Lancashire and Yorkshire Bank under-
took some years ago to imitate the French policy. This
innovation has yielded highly satisfactory results. It has,
however, remained unnoticed," because all the banks,
including the Bank of England, too willingly shirk this
crushing yet delicate task."^
The situation we have just outlined, which particularly
concerns England, but which partially affects all great
markets, can not fail to cause some anxiety, and we have
o Mr. Goschen wrote that it is a dangerous and deceptive system which
leads to reliance on services to be expected, in case of a crisis, from the
Bank of England. Arnaun6, La monnaie, le credit et le change, ist ed.,
Paris, Alcan, 1894, p. 394.
b Cf. Moniteur des IntirHs Matiriels, October 26, 1906, p; 3523; November
16 and 26, 1906, pp. 3778 and 4291.
c Cf. Messager de Paris, February 20, 1903, "La Banque de France et
V opinion itrang^re."
<* It is comprehensible that the private banks should rely on the bank
of issue and consider the credit at their disposal as available cash. But it
seems hazardous for the Bank of England itself to count on the others;
yet this actually takes place. To give but a single instance, let us re-
call that it insists upon a certain regulation of the use of the available
funds of Lombard street. When it finds that Lombard street uses too
much money it forces the banks to raise their rates. For that purpose
the Bank itself borrows on the consols it owns, and thus monopolizes a
large portion of the available funds. (Cf. Rozenraad, "Le marcM de
Londres," Revue Economique Internationale, 1906, Vol. II, p. 79.)
The Bank of France
witnessed during the last few years the almost universal
regret that a stronger metallic reserve was not provided.
The last crisis has especially drawn attention to the gen-
eral scarcity, and every country has perceived that it
lacked gold." The remedy for this state of things would
necessitate a revolution in well-established financial sys-
tems. On the first return of prosperity optimism becomes
general and causes the dark days to be soon forgotten.
"English financiers are too conservative to appreciably
modify an antiquated structure or to devise some new
system."'' It is not, therefore, very surprising to note
that the financial supremacy of England tends to decline.
France and Germany, as we have said, are, in a certain
measure, emancipating themselves. " In 1890, at the time
of the Baring failure, the question could be asked whether
London would not at once lose its position as the financial
center of the world and whether the English market was
not undermined." " It would be sufficient for France to
become monometallist in order to capture the direction
o The president of the London Bankers' Institute, at the opening meeting
of the annual session, regretting the insufficiency of the reserve, and showing
its increasingly indispensable character, proposed the formation of a special
fund, which would permit £5,000,000 to £10,000,000 to be shipped to New
York, without causing a rise in the rate of exchange. (Cf. Raffalovich,
"March4 financier en igoy," Journal des Economistes, January 15, 1908.)
Germany is also aware of its lack of gold. Various methods have been
used of late to increase the reserves by a systematic depletion of the circu-
lation. (Cf., infra, p. 128, note c.) In order to reduce the demands for
gold, which became alarming, a circular was sent at the end of December,
1907, to all public officials, recalling another circular, quite recent but
already forgotten, which advised officials to take their salary in bank notes
and not to insist upon gold.
6 A. E. Sayous, meeting on February 5, 1900, of the Soci^t6 d'Economie
Politique de Paris, reported in the Economiste Franfais, March 3, 1900, p.
271.
<; An often repeated phrase of Mr. Goschen. Cf. Bulletin de Statistique
et de Legislation Comparie, February, 1891.
National Monetary Commission
of credit, Paris then becoming the international money
market. The possibility of this succession possesses a
significance which is fully appreciated, but it is not cer-
tain, especially now when English policy appears to be
turning from extreme colonial expansion, that such a suc-
cession would be entirely advantageous. Instead of this
very lofty, but none the less dangerous and insecure posi-
tion, would it not be preferable to maintain the calm and
safe place we occupy in the financial world?
Conclusion.— li the Bank of England is for the present
the great clearing house of the world, the Bank of France
is and remains the general gold reservoir. This monetary
supremacy assures us a highly privileged situation even
from the standpoint of international credit, which, more-
over, it is not necessary to control more fully.
Chapter II.
THE BANK OF FRANCE AND CRISES.
There is perhaps no economic subject more discussed at
present than that of crises. We may suitably indicate,
first of all, in what measure crises which do not result
from monetary conditions may be of interest. We shall
then see what are the classical means by which the banks
can avoid them. We shall finally study the present
policy of the Bank of France in this regard.
Section I. Monetary crises.
This very complex subject has been often treated by
economists, legislators, and financiers who have vied with
each other in scientific zeal, in order to determine accu-
rately the physiology of crises. The causes of the evil
must first be known before the remedy may be indicated.
In this arduous quest, impelled by the logic of fascinating
systems, theorists often assign to crises not only very dif-
ferent causes, but also very different characteristics.
The word crisis has no sufficiently definite meaning of its
own, and for want of a previous agreement as to the sense
in which it should be used, discussion is endless and turns
solely upon an ambiguity. It is not our intention to throw
new light on such a complex question. This would de-
mand not only a competence to which we could not pre-
tend, but also a space devoted to this part of our work
greater than is permitted by its narrow limits. Our only
aim in stating what we mean by a crisis is to determine
83704—10 8 113
National Monetary Commission
the cases in which the Bank of France might intervene.
For that purpose alone we must classify crises and recall
the elementary divisions, which, in our opinion, are too
often lost sight of.
In the first place, from the standpoint of their extent,
there are local crises, national crises, and world crises.
The first are restricted to a certain region, like the recent
crisis in the wine-growing regions, or limited to a special
industry, like the one which was felt but lately in the auto-
mobile industry. Everyone will find, within his personal
recollection or experience, numerous instances of the same
kind.
National crises are more complicated and more serious,
from the very fact that they affect the economic condition
of a country in its entirety. The disturbance of the ex-
changes in Spain furnishes a concrete example; all com-
merce and industry suffered from it.
World crises result from the interdependence of the
different international markets. This is so close that a
violent disturbance in one commercial nation must react
upon foreign markets. Like a rapidly spreading epidemic,
it will surely affect other nations to an extent which is
sometimes very serious. For a long time world crises
have been recorded and carefully studied.
From another point of view a distinction can also be
made between crises resulting from growth and crises re-
sulting from contact. Attention has frequently been
called to the former because they reveal youthful enter-
prise in production. Such is the crisis which too strenu-
ous America has recently experienced. Nations, like
men, are not immortal. If but little thought is given to
114
The Bank of France
the possibility of their extinction, it is because our own
individual existence is only a minute period of theirs.
But, like us, they have their youth, their maturity, and
their decline. For a nation which has reached maturity,
crises resulting from growth are no longer to be dreaded.
If they should still occur, they are rare and of little
severity, and they can not happen unless a return of
youth, a certain access of vitality, leads to some reck-
lessness. Then comes the period of crises resulting from
contact, which are due to that solidarity of which we have
just now spoken. We shall presently have occasion to
remark that, except ephemeral crises, only crises from
contact are now experienced by us, and even these are
much attenuated. We do not mean to imply that our
country enjoys to-day the sorry privilege of 'escaping the
diseases of youth; this would be almost an avowal of
senile decay. Let us rather say that since it is a ques-
tion of sickness there may be remedies, and that the object
of our study is precisely the examination of the means, if
not to avert crises, at least to diminish their intensity.
This would be our answer to M. V. Pareto's'' highly
interesting question: "If it were possible to prevent
crises altogether, would it be advantageous to do so?"
He himself answers as follows: "Proper measures for
diminishing the intensity of crises may be beneficial;
but to suppress entirely a certain movement, or, in
exceptional cases, to endeavor to attenuate its violence,
are essentially different things." If, to become strong,
it is well to be accustomed to all seasons and hardened
"Villefredo Pareto, " Cours cC iconomie politiqite," Vol. II, p. 297.
"5
National Monetary Commission
to all inclemencies, there is at any rate no necessity
of courting colds and bronchitis.
So far we have made no mention of monetary crises
and of crises of production. This distinction is the
most important for our subject, and it is also the one
which leads to the greatest misunderstandings.
It is well understood that the crisis of production,
Tesulting from the lack of correspondence between the
curve of production and the curve of consumption, the
■disastrous effects of which Malthus endeavored to sup-
press by his advice as to the increase of population, has
.a very close relation to the monetary crisis. They must
3iot, however, be confused; in many instances they
are perfectly distinct. Just here is the cause for the
differences of opinion among authors. In general, they
tend to explain the noncorrespondenoe of the curves,
that is, overproduction or underproduction, by various
theories which depend upon differences of temperament."
But usually, as the sole basis of all these theories, only the
relation between production and consumption is con-
sidered. The division which we have above indicated,
elementary as it may appear, shows sufficiently that this
basis is not wide enough.
It is indisputable that there are crises which are exclu-
sivdy monetary, such, for instance, as crises of exchange.
On the other hand, there are commercial or industrial
•crises of production or overproduction — the word mat-
ters little — which are not monetary in character. The
^nonetary crisis itself is almost always only an episode
»Cf. Lescure, "Des crises g4n4rales et pSriodiques de siirproduction."
Bordeaux, 1906, Chapter II, Sec. II, pp. 455 and following.
116
The Bank of France
of the general crisis. The former has too often been erro-
neously considered as the cause of the latter. On thi&
false notion was based the Bank Charter Act of 1844.'*
In one of the greatest crises which could be instanced^
and which, moreover, is still very present to our minds^
that in the United States, it has been possible to observe
very clearly the phase of a production crisis. On this,
point, M. Paul Leroy-Beaulieu writes: "As to the lack_
of money, and the defective organization of national
banks, they have been merely accessory, and have played,
no part until after the crisis had begun; they may have
somewhat intensified it and widened its scope, but they"
remain only secondary elements." *
This distinction between monetary crises and com-
mercial crises is, therefore, not artificial. They have
been, however, so persistently confused that some peo-
ple, often taking the effect for the cause, are ready to>
throw upon the poor organization of credit and of bank-
ing the heavy responsibility for the whole crisis. It
would appear to us more logical and more useful to
seek a remedy for both sides at the same time. The
banks can correct the bad effects of crises only so far
as these, after affectiag credit, disturb the monetary
harmony.
As for the correction of crises from an economic stand-
point, legislators and economists may devote themselves
"This refers to the so-called Peel Act, which organized the Bank of
England by starting from the principle that convertibility is not in itself
a sufficient safeguard against overissue of notes, and that this overissue
being a cause of crises, all danger would be averted if a proper propor-
tion should be maintained between reserves and circulation.
bEconomiste Frangais, November 30, 1907, p. 766.
"7
National Monetary Commission
to the regulation of production and consumption. The
subject under discussion on February 5, 1902, by the
Soci^t^ d'Economie PoHtique de Paris was the question
whether great public works could avert or cause crises.
This discussion followed the proposal of a law on March
I, 1901, by M. Baudin, the minister of public works."
More recently MM. Viviani and Vaillant have discussed
in the Chamber of Deputies a plan for the distribution
of public works in such a way as to avoid unemploy-
ment during crises.* In other coimtries, on the other
hand, trusts and manufacturers' agreements hope, by
regulating production, to avert crises.
Such is the train of ideas which could be developed
by studying the methods of meeting commercial crises.
But our aim here is to inquire into the part played by
the banks in monetary crises, and to prevent confusing
these crises with others. Is it not asking the impossible
to demand of the banks that they should cause the specter
of crises, of whatever nattue they may be, to disappear
forever?
The modern tendency to subject everything to a rigorous
determinism has led to the conjecture that crises obey a
law of immutable periodicity. The clue to this has been
sought in the most diverse and unexpected causes, even
in sun-spots." In continuation of M. Juglar's long and
<»Cf. Economiste Frangais, February 22, 1902, p. 245.
i>Cf. Journal Officiel, Chamber of Deputies, session of November 11,
1907, pp. 2, 129 and following.
Theory of Stanley Jevons, repeated by many distinguished economists.
See especially J. S. Nicholson, "Bankers' Money," I^ondon, Black, 1902,
p. 80.
118
T h
B
a n
f
ranee
authoritative enumeration," new crises have been, without
hesitation, predicted for 1900-1907.
We do not deny that during this period there have been
severe disturbances which were the cause of almost world-
wide crises, but from our national point of view an excep-
tion might have been made. The famous crisis of 1900
started in Russia, and this country was the first to give
the alarm. Germany suffered especially.* In France,
beyond some slight labor disturbances, a result of the
Exposition, which caused the well-known strikes, what
monetary crisis was noticeable? On this point, even
M. Siegfried" was forced to express some doubt: "The
o Juglar, " Des crises ginirales et de leur retour periodique."
Table of crises according to Juglar's system.
France.
England.
United States.
1804
1803
1810
1810
1813
181S
i8r4
1818
1818
1818
1826
1826
1826
1830
1830
1836
1837
1837
1839
1839
1839
1847
1847
1848
l8S7
i8S7
I8S7
1864
1864
War of secession.
1866
War of secession.
1873
1873
1882
1882
1884
1891
1890
The author gives the above list of crises. Each line corresponds to a
crisis and indicates the date of its reaction on the three markets described.
b On the effects of the crisis of 1900-1901 in Germany, cf. Depitre, "Le
mouvement de concentration des banques allemandes," Paris, Rousseau, 1905,
p. 104.
c M. Siegfried, whose name is well known to those who at present pay
some attention to political economy, is self-confessedly the most earnest as
well as the most accurate interpreter of the Juglar theory, of which he is the
continuator.
119
National Monetary Commission
crisis, * * * if ^g aare to call what took place in 1900
a crisis, for this crisis was much lighter than those which
preceded, and we might almost call it the liquidation of
ipoo."" Is not this an admission? What would M. Sieg-
fried say concerning the crisis of 1907? Nevertheless, to
trust to his barometer, there should have been hard times
in 1900, as well as in 1907.
It does not seem to us possible to find in France an
economic reaction from this last general crisis. Beyond
some imeasiness in the stock market, which, as is well
known, is extremely sensitive, the recent and indisputable
rise in prices of certain commodities should be attributed
to an entirely different cause. We assert, in the first place,
that this rise can not have been the sign of a crisis for the
excellent reason that, on the contrary, a fall in prices would
have been observed, since metal would have become scarcer
and would have then acquired a greater purchasing power.
The very fact of the rise would suffice to show that we
did not stiffer from a crisis. Furthermore, a perceptible
movement in the prices of commodities is the sign of a
crisis only when it is temporary. Now, the present rise
is acknowledged by all to be permanent. It is accounted
for almost entirely by the labor laws recently put in force,
by the enormous taxes imposed on manufacturers, etc.
The considerable increase in general expenses resulting
therefrom can not remain a charge on industry, and the
necessary shifting of its incidence takes the form of a rise
in prices.
o Bulletin menstiel de la Fid&ration des Industriels et CommerQants Fran-
(ais, April, 1907, p. 533.
The Bank of France
Not only has there been no commercial crisis, but there
has been no monetary crisis. Credit accommodations
have in no wise been affected, and the momentary rise of
the official discount rate, explained, moreover, by another
cause, can not point to a disturbance in our monetary
conditions. The reserves, furthermore, have not dimin-
ished." This last crisis, to which very precise limits have
been assigned, from Wednesday, October 23, 1907, the
beginning of the crisis, to Thursday, January 2, 1908,
when the English discount rate was lowered, has cer-
tainly not been for us a period of affiiction, and the smiling
sun at the end of December, 1907, did not appear as the
irony of fate to a wretched and starving people.
From that which precedes two conclusions may be
drawn. On the one hand, it is important to distinguish
between the economic and the monetary phases of crises,
and not to demand that the one shall correct the imper-
fections of the other. On the other hand, if it is unde-
niable that crises have hitherto tended to be universal
"■ The economic and commercial situation remains fundamentally most
prosperous, as evidenced by the general increase in foreign trade, the rail-
road receipts, and the tax collections. The crisis in the United States
resulting from considerable overproduction, from a wretched financial
system, from shameful speculation and too frequent fratids, was certainly
a calamity, but it may be said that the general situation has not been seri-
ously affected. Cf. George Moreau, "La crise amiricaine," he Censeur,
February 29, 1908; Germain Martin, " La crise amiricaine," Revue d'Eco-
nomie Politique, March 15, 1908, p. 203; Raphael Georges Levy, "La crise
iconomiqtte de 1907 et les Etats-Unis d' Amirique," Revue des Deux Mondes,
December 15, 1907, p. 805.
The same can not be said of Germany, where everything discloses a
decline of prosperity. Customs receipts have fallen off, taxes have shown
a serious deficit, and it seems that the consequences of the crisis, more
gradual in that country, are for it the sign of a progressive decline.
National Monetary Commission
and periodic, for some time past, at least, they have
spared France.
We have thus reached the object we had in view, since
the above considerations of themselves indicate the limit
of that which can be obtained from the Bank of France
when its intervention is demanded to allay crises. We
see also that for the last fifteen years this intervention
has been able to banish all crises and all reactions of
crises from our national market.
Section II. Customary measures of defense against crises.
Like a vigilant nation which keeps itself always on the
costly footing of armed peace, a bank of issue must
always be powerful enough to avert the numerous perils
which from all sides are incessantly threatening. Just as
the good condition of arms and supplies may sometimes
prevent the horrors of war, so may a strong reserve
suffice to avoid the monetary difficulties, which are the
precursors of crises."
o The symptoms are well known. Crises are always ushered in by a con-
traction of credit. Credit, poorly established on an insufficient metallic
basis, totters and falls wholly or in part; transactions then tend more and
more to a cash basis. From all parts money is wanted for the settlement
of obligations already incurred. If the bank of issue, regulating credit, is
able to resort to such an undertaking, it will throw on the market the
amount of metal which the emergency requires, taking credit bills for its
own account, and the panic will thus be averted.
If, on the contrary, the bank can not act thus, more and more pressing
demands will assail its reserve and will tend to absorb it. We shall then
have the prospect of the discredited bank note, bankruptcies, and all the
horror of a general panic, with the alternative, in case of insufficient reserve,
either to let gold go out to allay the storm, with the risk that the impover-
ished bank may find itself discredited and may carry the entire market
down in its ruin, or to defend the gold reserve, and thus by aggravating
the conditions of an already weakened credit to hasten the disasters of the
crisis. The dangers to be averted are, therefore, the drain of metallic
currency by foreign countries, the indefinite lowering of the reserves,
and the impossibility of continuing to discount, or at least of maintaining
a reasonable rate.
The Bank a f France
A study of the customary measures for mitigating crises
may appear superfluous, since the Bank of France, owing
to the formidable reserve which we know it possesses,
presents an unprecedented power of resistance to all
attacks capable of overthrowing credit. It is the Bank
which provides that reservoir of reserves of which so
much has been said, and thanks to which, for the last
fifteen years, even the possibility of the outbreak of a
crisis has disappeared. The greatest treasury, if in-
trusted to unskillful hands, could not, of course, render
much service, and while it is true to say that our holdings
are in themselves sufficient, yet much depends on the
manner of directing their advantageous use." These
means of resistance, which for the most part have long
since been carefully studied, we shall now pass rapidly in
review.
As soon as the cash holdings of the bank of issue begin
to be exhausted, as soon as it is no longer possible, with-
out extreme prudence, to allow the reserve to be further
diminished, then the monetary crisis commences. It is
then also that all the efforts of the bank, the resources
and crpdit of which will diminish at the same time, will
tend toward facilitating the collection of funds and re-
stricting the outgo. Like a reservoir which, after having
for some time distributed more water than it receives, is
soon exhausted or becomes useless for want of pressure,
so the holdings of a bank require that the receipts and
outgoes of currency be properly regulated. And for the
sole purpose of avoiding the lowering of the reserves,
" To be convinced of this it suffices to remember that the United States
and France have reserves about equal as far as amount is concerned, and
yet their powers of resistance are quite different.
123
National Monetary Commission
efforts will be made either to replenish the holdings with
larger receipts, or to avoid causes for withdrawing the
metallic currency. "
Among the measures to replenish the holdings we find,
in the first place, the purchase of gold bars. This does
not refer, of course, to the daily purchases which form
one of the current transactions of banks,* but to the
increase of these purchases by offering a certain premium,
and, if need be, by importing from abroad. This ex-
ceedingly costly system is in principle universally aban-
doned. Nevertheless, it has been greatly in favor in
every country. The most characteristic historical in-
stance is when the United States, from 1878 to 1893,
purchased for its monetary needs, 459,949,701 ounces
of silver for about $464,000,000." In France the Bank
had to purchase abroad in the three years from 1855 to
1858, 1,384,553,000 francs gold, which cost a premium
of 15,893,000 francs. In 1858 it abandoned this system,
but had to resort to it again in 1864, and during the crisis
of that year purchased 229,000,000 francs in gold.* In
" We shall speak only of measures applicable to a system with a bank of
issue similar to ours. The study of the present American system would
lead us to mention, among other things, the various expedients which tend
to give the banks a little elasticity, such, for instance, as the creation of
clearing-house certificates. Such a study, however interesting it might be,
would carry us outside the limits which we desire to assign to this work.
6 The Bank of France buys gold bars and pays at once, without discount,
as at the mint. This method was suspended in January, igo6, owing to
the fear of exceeding the limit of circulation, and resumed again as soon
as the law of February 9, 1906, was promulgated. In Germany, also, the
Reichsbank is bound to' purchase all fine gold bars offered at the price of
2,784 marks per kilogram.
"Cf. L. Poinsard, "Questions monitaires contemporaines ," Paris A. L.
Charles, 1899, p. 300.
<*Cf. CI. Juglar, " Des crises commerciales et de leur retour piriodique," p.
427.
124
The Bank of France
Germany the Reichsbank has purchased altogether, from
1876 to 1905, 3,3i2,ooo,cx)o marks in gold." The Bank
of England, during the last crisis, reconstituted its reserve
mainly by purchases of bars in the London open market,
to the amount of £20,000,000.'' Spain and Belgium
could also be mentioned as instances.
Another system consists in putting a premitunongold."
This can only be applied in bimetallic countries, which,
as such, put the two metals on a parity in payments,''*
It consists in offering silver, a metal depreciated from the
standpoint of international relations, and in refusing to
part with gold, except in return for a certain premium./
This most interesting system would deserve a much more
thorough stiidy than we can here give to it. Mter being
"Cf. Dr. Louis Katzenstein, "La Banque de I' Empire allemand," Revue
Economiq'ue Internationale, 1906, Vol. IV, p. 524.
^Cf. Aupetit, "La vie financikre," Revue Econ. Intern., 1908, I, 180.
c Bastable discusses the policy of the premium on gold. He assimilates
it to a tax on currency, at importation or exportation, and considers that
it is in reality a seigniorage. Cf. Bastable, "Theory of International
Trade," in the translation by Sauvaire-Jourdan, Paris, 1900, pp. 171 and
following.
^Oa this application in most of the bimetallic countries, see the Econo-
miste Ev/ropHn of January 24, April 25, September 26, 1902, January 3
and February 13, 1903.
«M. Houdard, "Essai sur le service des billets de banque," Paris, 1891,
p. 18, shows that the discount rate comprises three elements, the charge
for the services of the Bank, the interest on the capital loaned, and the
premium on gold, the only element which varies according to different cir-
cumstances. He draws the conclusion that a rise in the discount rate is
nothing but an extra tax corresponding to the gold premium, and as he
would like to see it paid solely by those who desire gold, he demands a
uniformly low and steady rate.
/Though generally very small, in 1885 this premium rose to 227 per cent
in the Argentine Republic. Cf. Revue de Statistique, April 29, 1900, p. 48.
125
National Monetary Commission
highly esteemed for many years, it became the object of
violent criticism, which has caused it to be abandoned."
We shall not attempt its rehabilitation, for we are too
well aware of its serious drawbacks, and, moreover, there
is something much better to take its place. It seems,
however, to be as justifiable as the conversion of rentes,
an operation deemed admirable, yet none the less an
imperfectly concealed spoliation, which, however legal, is
usually preceded by highly artificial even though legiti-
mate quotations.* This policy of premiums on gold,
moreover, alarmed no one, neither the public nor the
banks; and the bank note, even when the premium was
in force, continued to be received on a par with gold in
almost all the banks of the world, although it was legally
redeemable in silver only. Furthermore, there are special
cases, such as systematic and constant drains of metallic
currency at some point on the frontier, in which the pro-
priety and efficacy of a defensive premium is incontest-
able. Thanks to the lowering of the normal gold point,
owing to the reduction of distances, a profitable and
o The present Spanish system rests upon a somewhat similar idea. Good
money having been driven out, the bank note is used. This has no forced
circulation, but on presentation is redeemable in silver. It accordingly
suffers a heavy depreciation, which allows our notes or our gold to com-
mand an enormous premium. Nevertheless, though Spain finds this system
inconvenient, it has managed hitherto to endure a considerable deprecia-
tion in its exchanges. It would not be considered as such if an exact
ratio was made between the value of their money and ours.
!> It should be remembered that the investments in French rentes which
are made obligatory by law are very numerous. Without speaking of
the reinvestment of dowries, etc., the Caisse des Dep6ts et Consignations
must invest all its available funds in rentes. For this reason, there is a
considerable demand for rentes which will tend soon to absorb them, and
which suffices to explain the high rate at which they are quoted.
126
The Bank of France
undesirable business can be transacted which a local
premium would destroy."
But the great drawback is that England and Germany
stand in the way of a system which is impracticable for
them. * This does not exclude a certain regret on their part
at their inability to avail themselves of this policy, as
is evident from the existence at the present time of a
bimetallist movement."
Some people, among whom are numbered certain pro-
fessors of law, would like to see the policy of the gold pre-
mium restored.^ As far as we are concerned, it is enough
to recall that this was the policy of the Bank of France up
to 1897, and the system could not have been as obnoxious
as might have been believed, since some people regret its
disappearance. It will be seen that we have adopted in
its place a system which is far preferable, and which our
neighbors are content to admire without being able to
imitate.
<»Cf. Meyer, "Les banques Swisses d' Amission et le drainage des 6cus."
Lille, Le Bigot frferes, 1903.
6 Germany, being monometallist since 1872, cannot adopt the premium
system, but the Reichsbank replaces it by a measure certainly more vexa-
tious. It does not refuse gold for export, but it ceases to aid the exporters;
their discounts are rejected and their accounts closed, if need be. (Cf.
Ansiaux, "Les problkmes de la circulation," Revue Econ. Intern., 1907,
Vol. IV, p. 277.) One frown from the director will repress any idea of
withdrawing gold. This system of brutal absolutism does not, of course,
prevent withdrawals from the circulating medium.
c This bimetallist movement is just now especially marked in Germany.
All the evils of the recent crisis are willingly attributed to gold monometal-
lism, and a comparison is made between the difficulties in the midst of which
the German market is struggling and the calm which the bimetallist French
market has preserved. On January 14, 1908, Count Kanitz put a question
before the Reichstag, the purport of which was that "a wall of silver be
built around our gold, in order to prevent the latter from leaving us."
^ Cf. Bulletin Mensuel de la Fidiration des Industriels, April, 1907, p. 524.
127
National Monetary Commission
We shall not speak of certain arbitrary measures which
belong to other cojintries and other times. There is an
occasional revival of the old ideas of brutal domination
cherished by the mercantilists, who fancied they could
prevent the escape of metallic currency by a mere pro-
hibition, as if gold or silver would ask the authorities for
permission, or were likely to do aught but follow their own
interest." These systems of taxes on imports or exports
are very old, and have long since been abolished. ^
Another expedient is to limit bank-note issues so that,
since a smaller metallic counterpart is required, the re-
serve may be allowed to diminish. This system is very
efficacious when a weakened reserve causes the deprecia-
tion of the bank note. Thus recourse to forced ctlrrency
may be avoided. On the other hand, if the bank note
does not suffer any depreciation, the expansion of issues
results in an increase of circulation, and may dissipate the
crisis. This was the purpose of the suspension of the Peel
« We find a typical instance in the following decree promulgated in
August, 1903, by the President of the Republic of Nicaragua:
" Whereas there exists no known means of preventing the disappearance
of silver coins the export of which is detrimental to the national treasury;
and whereas the continual exporting of silver coin is the principal cause of
the depression of the national paper money, and in order to preserve the
equilibrium of value which each coin represents for the nation, the President
of the Republic decrees:
"Article 1. The exporting of silver coin is prohibited from the date of
the present decree. Consequently, it shall be considered as contraband
goods, and the penalties shall be imposed as for that offense.
''Art. 2. The customs superintendents, the fiscal authorities, and the
police shall most carefully examine the luggage and parcels of travelers
leaving the Republic.
" Art 3. The present decree cancels all previous decrees which might be
construed in another sense." (Cf. Economiste Europien, September n,
1903.)
!> Cf. Levasseur, "La question de Vor," Paris, Guillaumin, 1858, pp. 300
and following.
128
The Bank of France
Act in England during the crises of 1847, 1857, and 1866,
when such a procedure was found necessary.
The cash holdings can also be replenished by issuing
very small fractional notes, which effect a withdrawal of
the unused portion of the circulation. This system was
applied in France in 1870-71. The note of 25 francs was
authorized by the law of August 12, 1870, the note of
20 francs, by the decree of December 1 2 of the same year
the note of 5 francs by the law of December 29, 1871.'' '"
In Germany much has been recently said about withdraw
ing gold from circulation by various methods, especially
by issuing notes of 50 and 20 marks. However, the ques-
tion is not new. " In England, Mr. Goschen, chancellor of
o The note of 50 francs dates only from June 9, 1857, and the note of 100
francs from March 15, 1848.
6 Toward the end of the year 1870 the scarcity of gold and silver was such
that all transactions, even the smallest, became well-nigh impossible.
Neither could bank notes be counted on to make small payments, because
fractional notes had not yet been legally authorized. There was, in short,
the greatest need of a medium of exchange for small transactions, and no
means of creating them. Private initiative, in a certain measure, was able
to meet this need. Thus a syndicate of bankers and merchants in Chalon-
sur-Sa6ne was formed, which deposited in the branch of the Bank of France
in that city a certain sum, not less than 100,000 francs, in notes of 1,000
francs. The syndicate issued notes of i, 5, and 10 francs for an equal
amount, and these fractional notes, accepted with confidence by the people,
were of genuine service to the communities of Chalon and the neighborhood.
The fractional note of i franc was rose-color. The 5-franc note was a
little larger and was green. The lo-franc note, which was larger still
without, however, reaching the size of the 5-franc note issued the following
year by the Bank of France, was blue. The numbers of the series and of
the notes and the two signatures were affixed by hand when the notes
were detached from the stubs. The signatures were those of M Antoine
Chevrier, a merchant, as president, and of M. Henry Druard, banker as
secretary.
We might also mention the instance of the "siege notes," such as were
issued during the war by order of General Roland, governor of the city of
Besanfon.
c Cf. Pour & Centre, October 15, 1905.
83704—10 9 129
National Monetary Commission
the exchequer, proposed in 1891 to issue notes of £1 each
for £20,000,000, in order to increase the cash holdings of
the Bank. This amount would be set aside, and, in time
of crisis, would serve to cover not only the £20,000,000
aheady issued, but also the additional £10,000,000 in frac-
tional notes which would then be issued." In the United
States also, more than a year before the crisis, there was
already talk of issuing bank notes of $5, $10, and $20.*
A similar procedure for withdrawing a part of the mone-
tary circulation consists in making popular the use of the
substitutes of the bank note, such as the check." But this
is no longer a question of a temporary measure, and its
effects are permanent. It is conceivable, however, that
a period of monetary stringency could be utilized to bring
about this popularization. "^
We have just seen how it is possible to act directly
upon the cash holdings by endeavoring to replenish them.
Let us now see how they may be kept at a high level by
restricting the causes of withdrawal. There exists a whole
series of rather ineffective measures, which at most can
« Cf. Journal des Economistes, 1891, Vol. I, p. 400.
^Cf. Economiste Frangais, November 23, 1907, p. 723.
<= In Germany, in imitation of Switzerland and Austria-Hungary, the aim
is to increase the use of the check, and a great deal is said about introduc-
ing postal checks. In Austria postal checks and transfers, reserved to
holders of savings-bank books, were created by ordinance of October 29,
1883, December i, 1883, September i, 1884, and then definitely organized
by the law of November 19, 1887. Substantial services were thus ren-
dered. There are 100,000 depositors, with a movement of 19,000,000,000
crowns. These checks are received at the public o£Sces and are admitted
to clearance through the Austro-Hungarian Bank. In Switzerland a simi-
lar system was created by the federal law of June 16, 1905. Germany is
seeking along this line the means to remedy the insufiBciency of her metallic
resources.
dCi. Economiste Enrop^en, OctobtT 2$, 1907, p. 516; Revue Economique
Internationale, October, 1907; Journal des Economistes, January 15, 1908.
130
The Bank of France
meet only a slight and temporary strain. We note, in
the first place, that the two exits by which the metallic
cmrency leaves the bank are discounts and loans. These
may be closed more or less to benefit the cash holdings.
Very nmnerous limitations on loans may be devised,
such as forbidding the opening of accounts and new credits,
and especially raising the rate on loans. Naturally this
rise is effected long before a rise in the discount rate can
be thought of. Indeed, the rate on loans is determined
by that prevailing for stock market operations." At the
first warning, the Stock Exchange, the most sensitive
barometer of credit, is strongly affected. The rates for
carrying over rise rapidly and must influence the rates
for loans. Thus it was that in the middle of January,
1907, the Bank of France was obliged to raise from 3X to
4 per cent the rate for loans in order to curb speculation,
which, after the rise in the rate for carrying over, relied
upon borrowing from the Bank at 3X per cent with the
object of using the funds thus obtained to carry stocks
till the next settlement.
I/ikewise for discounts, it is possible more or less to close
the exits by which the precious metal to be husbanded
goes into circulation. This can be done by measures
such, for instance, as the reduction of the maximum limit
o Loans are less than formerly, but still very often, like stock-market
advances, granted for speculative purposes, the pledge for which consists
of securities which can be realized only for what they will bring. The
difference between loans and stock-market advances lies only, for the latter,
in the delay for repayment, in the rate, which is more variable, and for the
former, in the margin between the price of the security quoted on the
Bourse and the loan granted. But these two operations are so similar that
it is impossible to perceive any marked difference between their respective
rates.
131
National Monetary Commission
of maturity of paper discounted." This system was the
rule at the Bank of France up to 1853. It was used for
restricting operations and for keeping the discotmt rate
unchanged. *
The really standard and effective measure is to raise the
discount rate. The effects of this are certain, because
in this way, by diminishing the advantage that may be
had from allowing capital to leave the country, the result-
ing interest of foreigners in bringing their funds to us is
increased. This system, at present unanimously approved
in spite of its grave defects, has not always been unre-
servedly accepted. The Bank of England was the first
to employ this policy in discounting. The commission
of inquiry appointed in 1848 by the House of Lords,
after the crisis of 1847, insisted upon the necessity of
raising the bank rate. Since then the Bank of England
has remained faithful to this policy, and employs it
whenever the metallic reserve falls below one-third of the
combined accounts of the treasury and the public serv-
ices, and of individuals. "For England a rise in the dis-
count rate is no longer the heroic remedy resorted to in
desperate extremity; it is a kind of prophylactic which
is applied as soon as the faintest symptoms of danger are
manifested." "
In France the Bank first adopted this system in 1858,
but it hampered itself by following too closely the discount
variations of the Bank of England, which is differently
fflCf. Juglar, "Des crises commerciales,'' Paris, Guillaumin, 1889, p. 138.
6 Cf . Courcelle-Seneuil, " Les operations ' de banque, Traits thiorique et
pratique," 9th ed., Paris, Alcan, 1905, p. 260.
c Arnaund, " La monnaie, le crMit et le change," Paris, Alcan, ist ed.
1894. P- 392-
132
The Bank of France
constituted, a practice which in 1864 it was obliged in
part to relinquish in favor of a policy of greater stability
of rates. "Experience proved, moreover, that the bank
rate could be different in Paris and in London without
immediately causing export of money from one place to
the other." «
There are evidently in every country special reasons
why the rate should be high or low. The relations
between the rate of exchange and the rate of discount
are undoubtedly numerous, but this does not necessarily
imply that they must always remain closely and unal-
terably linked in order to permit a normal and sufficient
circulation. "The bank rate has not the power to regu-
late the national monetary holdings. A moment's reflec-
tion shows that, under such conditions, each country
would have its proportion of metallic reserve when its
discount rate was on the same level as that of other
countries." ^
This very effectual method " of defending the national
cash holdings is nevertheless fraught with danger.** It
causes commerce alone to bear the brunt of all demands
for currency. To apply it means to contract credit, to
check business, and perhaps to disturb the development
<2 Courcelle-Seneuil, " Les operations de banque," 9th ed., Paris, Alcan
1905, p. 262.
6 Pallain, " Des rapports entre les variations du change et les prix," San-
cerre, Pigelet, 1905, p. 38.
c Certain special conditions might, however, be named in which the dis-
count rate is ineffective. Cf. Meyer, "Les ianques suisses d'4mission et le
drainage des icus." Lille, Le Bigot frferes, 1903, p. 270.
<* V. Pareto, " Cours d'iconomie politique," Vol. I, p. 389, views this
situation with great fortitude. He says, "Those who can not afford to
pay the price corresponding to the equilibrium must naturally fail and
disappear. The safety of the whole country makes this necessary."
133
National Monetary Commission
of prosperous industries. In a word, since this measure
is most often taken to ward off foreign demands for
funds, it is, so to speak, administering an energetic remedy
to our national commerce when the only trouble lies in
having sick neighbors. It is therefore obvious that the
Bank, though sometimes forced to resort to this expedient,
only uses it in case of extreme necessity, and that it taxes
its ingenuity to find certain devices which may defer the
rise in the discount rate.
It would still be possible at certain periods when
exchanges are momentarily strained to have recourse to
another system. The very needs of international credit
justify the existence of large banking houses which
make a specialty of exchange transactions and control
the commercial relations with foreign countries. They
constantly keep open accounts with each other. It is easy
for them to accept a bill of exchange "• against a check,
that is to say, a document payable at maturity against
another payable on demand, and to turn credit into
cash, thus modifying the true balance of accounts to
give the greatest possible stability to rates of exchange.
This system * of international checks and of interna-
tional bills from one bank to another can not, however,
render any considerable service, because it necessarily
depends on private initiative.
o In international commerce the bill of exchange is not only a means of
clearing, but an instrument of credit. Not only does it allow the accumu-
lation of reciprocal balances to an equal amount, but it also avoids the set-
tling of differences by giving to the debtor country the power to defer pay-
ment until it becomes a creditor for a similar amount. B. Nogaro, "Le
rSle de la monnaie dans le commerce international et la thiorie quantitative "
Paris, Giard et Brifere, 1904, p. 89.
bCl. Economiste Europien, July 8, 1904, pp. 37 and following. A.
Conant, " Les changes exterieurs."
134
The Bank of France
The discounting of foreign bills, much discussed of
late, tends to give stability to exchange. This practice
is the rule in Belgium, where the paper discounted is
almost all French. When exchange becomes unfavor-
able, the Bank sells its bills on Paris, London, Berlin,
and Amsterdam, and thus influences the rate of exchange.
These holdings of foreign bills are replenished later, at
periods of the year when the demand for bills falls off. It
is thus possible, to a certain extent, to regulate the rates
of exchange. The National Bank of Belgium is, however,
the only one which has made this negotiation of foreign
bills a settled policy." According to its by-laws its
reserve must equal one-third of all its sight obligations.
For a long time, at least one-half of this reserve has been
represented by foreign bills.
But that which is feasible for the Bank of Belgium,
as a satellite of the Bank ofFrance, ceases to be possible
for a great bank. Belgium can invest its reserves in
purchases of foreign bills, because it will always find
more powerful banks able to replenish its coflfers. It
knows the organization of the Bank of France, and con-
siders that the possession of French paper exempts it from
holding metal. But it would be diflBcult to imagine
the Bank of France adopting this line of conduct unless
in exceptional cases.
The idea of holding foreign bills in France is, how-
ever, not a new one. In 1865, during the inquiry on the
monetary and fiduciary circulation, this system had its
adherents. When the Bank charter was renewed, M.
" Cf . R. G. L6vy, " Les grands marches internationaux." Revue Econo-
mique Internationale, 1905, p. 491.
135
National Monetary Commission
d' Hubbard suggested that this be made a special policy
of the Bank. M. Burdeau showed that the system could
not be employed as a rule in normal times, but that it
could be resorted to in exceptional or special cases.
Much has also been said for some years past about the
holding of various international securities, which, when
exchange rates are unfavorable and in order to readjust
them, could be thrown on the foreign markets instead of
currency, thus avoiding the shipment of metal. This very
attractive proceeding does not appear to us to be practical.
It will be impossible, by distributing the purchased securi-
ties in numerous divisions, to avoid a general deprecia-
tion when they are sold. Since the various markets are
subject to the same impulse, if exchange rates necessi-
tate the forwarding of securities in order to avoid a ship-
ment of cash, there will be a considerable depreciation in
whatever market they are disposed of. This will occur
just at the time of falling prices, the moment when, with
every one selling, quotations are low, and when it would
be advisable to buy."
Finally, if the situation is so serious that the bank of
issue has become unable to redeem on demand the numer-
ous notes, which no longer possess the confidence of the
public, the legislator will decree a forced currency. * This
is the very calamity which all the measures we have exam-
<» Another drawback of this system is that it throws upon future genera-
tions the burden of paying a debt of the present. It only defers the time of
settlement, and exchange will be much higher at the fixed dates, when the
interest on the securities is due.
6 Sometimes endeavors have been made to defer the date of suspension of
payments by keeping only one window open for the redemption of notes, at
which the slowest clerk is instructed to redeem as slowly as possible the notes
presented. It is needless to remark on the lamentable weakness shown by
such a procedure.
136
The Bank of France
ined aim to avoid. We have, unfortunately, had an
experience of this kind in France. Cautious as the Bank
has been, it was only at this cost that it was able tg
weather the storms of 1848 and 1870, but it is well known
with what rapidity it recovered and with what strength
for the future."
It must not, therefore, be claimed that the Bank has
never been forced to yield before the storm, but we shall
see that its power of resistance has only grown, and that
it is more than ever ready to meet emergencies.
a The decree of March 15, 1848, established a forced currency and fixed
the limit of the issue. The law of August 6, 1850, repealed the two pro-
visions of that decree. In establishing again a forced currency, the law of
August 12, 1870, also fixed a limit for the issue. But when the law of Jan-
uary I, 1878, again abolished the forced currency, it allowed the limitation
of issue, which was a consequence of it, to continue. It is proper to recall
that the total of the loans made by the Bank to the State during the war
amounted to 1,470,000,000 francs. This sum, which does not include the
210,000,000 francs loaned to the city of Paris, by virtue of the decree of
February 11, 1871, the 16,500,000 francs requisitioned by the Commune,
and of which but 9,500,000 francs were reimbursed, or the 60,000,000 francs
previously advanced in accordance with the law of June 9, 1867, was dealt
with in the agreement of July 3, 1871. The loans were as follows:
Francs.
July 18, 1870 ' 50,000,000
August 18, 1870 50,000,000
August 19, 1870 40,000,000
September 24, 1870 75,000,000
December 5, 1870 100,000,000
December 5, 1870 100, 000, 000
January 11, 1871 400,000,000
March 13, 1871 50,000,000
March 30, 1871 90,000,000
April 15, 1871 75,000,000
May 17, 1871 150,000,000
June 10, 1871 50,000,000
July 3, 1871 (paid only on the 9th) 210,000,000
Loans from Metz to Strassburg 30, 000, 000
1,470,000,000
These loans were not finally repaid until March 14, 1879. The Bank,
nevertheless, had redeemed its notes at sight since 1874.
137
National Monetary Commission
Section III. Present policy of the Bank of France.
The Bank of France, since 1858, has always employed
the discount policy. How could it do otherwise? Unan-
imously adopted, fortunate in its effects, extolled by theory,
imposed by the interdependence of discount rates between
the various countries, this poUcy was inevitable, notwith-
standing its well-known and serious drawbacks. More-
over, since 1864 the Bank has always endeavored to miti-
gate the dangers of this poUcy by employing it only as a
last resource, as under compulsion, and by substituting
for it, as far as possible, a less radical procedure."
Let us recall once more the unprecedented strength
which France possesses, thanks to the colossal holdings of
the bank of issue. These holdings place us in a quite
special position, singularly favorable for resisting crises.
Domestic crises are not to be feared, but those coming
from abroad, with the inevitable reaction resulting from
the cosmopolitan character of capital, may reach our
market, though only in a weakened form. *
Up to 1897 the policy of the gold premium was com-
bined with the discount poUcy. This system, which we
o In the same way, the Reichsbank has endeavored for several years to
complete its discount policy by making loans without interest on gold im-
ports. This measure, however, can be of but little help.
& There exists another force of resistance, which is also due to the Bank of
France. Crises, as we have seen, are always accompanied and even pre-
ceded by a general decline on the Stock Exchange. But, at a period of
crisis, the shares of the Bank of France, far from following this movement,
tend on the contrary to rise. Prices on the Stock Exchange move together,
upward or downward. The result is that the shares of the Bank of France,
in resisting the movement of general depression, tend to diminish its intensity.
This is not the case abroad, where the banks of issue, much more vulner-
able, sometimes see their shares not only following the decline of other
securities, but even leading and intensifying that decline.
138
The Bank of France
have previously explained, resulted in a certain increase
of the number of grades in the discoimt rate, and rendered
them less noticeable. Since 1897 the Bank, with new
men, has apparently entered into a new path, which we
shall endeavor to define, though it appears as yet some-
what obscure.
We have just said that it is not so much the outbreak of
a national crisis which France has to fear as the reaction
from a world-wide crisis which may affect our market, de-
spite its resistance. Since this influence can not be alto-
gether avoided, it becomes apparent that no remedy can
be of benefit to us as long as we keep in view only our
national market. The only way for us to meet the effects
of the evil seems to be to attack it at its source. Thus
the remedy for us consists in bringing relief to the afflicted
neighbor. This is a singularly deUcate proceeding, since
the first step is to find the sensitive point where the
remedy may be applied to the best purpose. From some
obscure origin the disease develops, and if the instability
of any market offers favoring conditions, it soon spreads
through the world, scattering on its way desolation and
death. To bring relief to all who are stricken is impossible,
but in the midst of the general depression there are found
some who, being less affected and possessing more power of
resistance, need but a helping hand to rise again, and, by
their return to health, may promote and hasten the gen-
eral recovery. If it is a delicate matter to discover these
vital points, it is still more difficult to gauge the measure
of assistance it is proper to give. And those who bring
the relief should not be disturbed when pubUc opinion,
for want of the information which it is not at all fitted to
«39
N ati-on al Monetary Commission
receive, sometimes goes astray and objects to the wisest
measures of preservation.
Have we succeeded in showing what appears to us to
be the present policy of the Bank of France? With a
comparatively small sum, with which it can temporarily
assist a solvent and well-managed foreign concern, for
the moment in difficulties, it is able to take an effective
part in the relief of international markets, and to avoid
the disastrous effects of the contagion on our own market.
It is scarcely easier, as we have said, to make the public
comprehend this system than to carry it through to com-
pletion. If, for instance, announcement is made of a
shipment of currency abroad, and a few days later there
follows a rise in the rate of discount," many people will
declare that they can not understand this policy, that if
money is dearer, it is because of its scarcity, and therefore
it should not be exported. This reasoning is very natural,
but it dates from a period when nothing was known of
the international character of capital and of the practices
resulting from world-wide relations.
Reflection can only increase admiration for this poUcy,
since, in fact, it reveals a financial organization of immense
power, and permits us to be justifiably proud of calling
ourselves, in a way, the monetary physicians of the world.
It is thus that the Bank appears to us to have replaced the
obsolete premium system, not used since 1897. But it is
well known only to those who have astonished the world
by this wise and happy audacity.
The history of such temporary loans guaranteed by
paper of undoubted character is brief. " On July 16, 1839,
" As happened in the month of November, 1907.
140
The Bank of France
the reserve of the Bank of England fell to £3,000,000,
and that institution found itself compelled, in order to
strengthen its position, to ask for help from Baring
Bros., even at that time one of the first banking houses
in the city. They succeeded in borrowing for the Bank
of England from the Bank of France £2,000,000 in gold."''
After this occurrence, in order to remedy the failure of
the Bank of England to resist the crisis, the Bank Charter
Act of 1844, more commonly known as the "Peel Act,"
was passed. It is well known that this measure, which
still governs the Bank of England, has not always been
happily applied. The act had to be suspended in 1847,
1857, and 1866. It would have been again suspended in
1890, had it not been for the loan of 75,000,000 francs in
gold which the Bank of France made to this great insti-
tution. In fact, the house of Baring Bros., though it
enjoyed considerable credit, was heavily involved in Por-
tuguese and South American speculations, and in Novem-
ber suspended its payments. The Bank of England
gave such help as it could, but was not able to prevent
the flurried and anxious English market from flooding
the Paris market with international securities.* Checks
on London rose to 25.40, at which rate the Bank of France
could not maintain the discount rate at 3 per cent. In
London, the discount rate remained at 6 per cent only
because all paper was closely scrutinized and credit was
o Rozenraad, " Le marchi de Londres," Revtte Earn. Intern. 1906, 2,
p. 70.
6 Cf. TWry, " La France iconomique & financttre"' p. 286; Moniteur des
InUrHs MaUriels, November 18, 1906, p. 3811; "LerigimemonMaire dela
Banque d' Angleterre," Journal des Economistes, 1891, I, p. 398; Moireau,
"La Banque de France, prorogation du priviUge," pp. 101 and following,
Paris, Perrin & Cie., 1891.
141
National M on et ar y Commission
often refused. It was then that the Bank of France fur-
nished the Bank of England with 75,000,000 francs in gold,
repayable at three months, with a promise of renewal,
and secured by exchequer bonds. It seems that these
75,000,000 francs were not only returned to the Bank of
France with seals unbroken, but that they did not even
cross the channel. It was enough that the public was
conscious of such moral and material support for the
frenzy to disappear.
The difference in the power of resistance of the two
establishments was then clearly visible. The Bank of
France had just endured unflinchingly the downfall of the
old Comptoir d'Escompte, while the Bank of England, in
like circumstances, found it necessary not only to raise its
discount rate to 6 per cent but to ask for foreign help.
England then fruitlessly resolved to modify the act of
1844. The Bank of France was severely criticized on
account of this loan, even in the Chamber of Deputies."
In these two instances of 1839 and 1890, when the
Bank of France helped the Bank of England, first through
Baring Bros, and then because of Baring Bros., it seems
to have done this only under the pressure of business
necessity, just as any other bank might have done.
Russia, indeed, also assisted the English market, and evi-
dently had no notion that in this she was following any
special policy. ^
<» Interpellation and answer of M. Rouvier, minister of finance, in the
Chamber, January 17, 1891.
■6 The same applies to the aid furnished in 1898 by the Bank of England
and the Bank of France to the German banks, temporarily embarrassed.
Cf. Revue d'Bconomie Politique, 1899, Vol. XIII, p. 165.
142
The Bank of France
These are the only two cases of assistance given abroad
by the Bank of France up to the renewal of the charter.
From that time on we shall see this assistance becoming
more frequent and assuming apparently a different char-
acter. The Bank, already regulating the French money
market, after being forced by tu-gent necessity to regulate
the money market of the world, seems thereafter to apply
itself assiduously to this new task. Until then, gold
shipments had only been considered as the result of sim-
ple practical necessities; no theorist had expressed the
idea of making them the object of a financial policy.
The two recent instances of 1906 and 1907, and thd ex-
planations furnished on this subject in the reports to the
shareholders, have sufficed to reveal that there was here
something more than a normal banking operation.
In the autumn of 1906 ° a general and considerable
monetary stringency affected the London market, where
the demand for gold became intense, especially on the
part of the United States. The Bank of England had
also to meet considerable demands from Egypt* and
Brazil. The Bank of France did not hesitate to furnish
it with 75,000,000 francs in gold by discounting English
commercial paper. It also brought indirect aid by re-
leasing £200,000 for shipment to Egypt. Let us remark,
however, that the Bank of France did not let any of its
o Cf. Moniteur des IntSriis MaUriels, November 9, 1906, p. 3679; Eco-
nomiste Europien, "Chronique monSiaire," December 7, 1906; Pour &
Centre, "Revue du MarclU," 1906 and 1907.
6 Egypt, in addition to her usual requirements of currency at the end of
the year, was beginning to suffer from a severe financial crisis. Cf.
Arminjon, " La crise financikre actuelle," Revue des deux Mondes, Septem-
ber I, 1907.
143
National Monetary Commission
gold go to New York, and that for two reasons. In the
first place, America, with abundant currency, was en-
gaged in a general and frenzied speculation, which assist-
ance of this kind might have intensified and rendered still
more dangerous. And furthermore, since it was in the
power of the Secretary of the Treasury very effectively to
intervene, he should be the first to give support. English
public opinion for a moment believed that the Bank of
France would intervene, but it was deceived in this expec-
tation. The reason is, as we have said, that the Bank did
not believe in giving its gold except to good purpose, nor
in directing it elsewhere than to the points where it would
be really effective.
One year later, in the fall of 1907," the same demand
for gold reappeared in intensified form. The Bank again
lent its assistance to the English market. In answer to a
mere telegram it forwarded to London 80,000,000 francs
in gold eagles of the United States. Some days later the
reaction of the crisis forced the Bank to raise its discount
rate. It was at the time of this developing crisis that the
Bank of France was unreasonably reproached with its in-
difference to the monetary situation in the United States,
and with its refusal to give aid. The critics forgot that
the Bank was prevented by its statutes from the direct
shipment of sums for which the Federal Government re-
fused to become responsible, and that, nevertheless, it
forwarded 80,000,000 francs in American coin, which
a Cf. Economiste Europien, November 29, 1907, p. 676; Raffalovich,
"La crise amSricaine," Bulletin Menstiel de la Fidiration des Industriels
et Commerganis Frangais, No. 52, p. 126.
144
The Bank of France
merely passed through London. Certain negotiations
took place at that time between the American Govern-
ment and the Bank of France with a view to dealing
directly without the intervention of the London market.
It is only because that Government would not or could not
offer such guarantees as the Bank of France considered
adequate that it made use of the London market, which
has a much greater interest than ours in the prosperity of
the United States.
The occasions which we have just mentioned are not
the only ones in which the Bank of France has had to in-
tervene. In the first days of May, 1906, it loaned 40,000,-
000 francs to the Bank of England in order that the latter
might avoid raising the discount rate. In September,
1906, it sold several millions in American eagles, with the
knowledge that they would at once make their way to
New York. More recently, in the very midst of the
crisis, the Bank released many millions of eagles and sov-
ereigns under similar conditions. It would therefore ap-
pear that this policy of relief has been definitely adopted
by the Bank of France.
The discounting of foreign bills has already been dis-
cussed." This system, applied as it is by the Bank of
France to the momentary regulation of rates of ex-
change, and with the especial object of giving valuable
and effective aid to the points most affected by pressing
demands for currency, appears to yield excellent results.
It can not, however, be considered as constituting a special
» Cf. supra, p. 133.
83704—10 10 145
National Monetary Commission
policy, because it can only be of temporary service," and
for the most part merely accompanies the policy of gold
shipments, which we have just explained.
Thus the Bank succeeds in diminishing to the greatest
possible extent the reaction of crises on our market. In
working for the prosperity of France it may also be justly
proud of being the indispensable financial organ of the
prosperity and progress of the world.
Appendix to Section III. Project for an international
bank.
The weakness of many markets and the great strength of
ours, added to the growing cosmopolitanism of capital, was
bound to suggest the idea of creating an international
institution in order to establish obligatory mutual assist-
ance as between the different markets. This idea has been
duly formulated.
A few well-known men have canvassed the question of
assigning a special international market for international
money transactions. At the time of the monetary confer-
ence of Brussels in 1892, M. de Foville presented the idea
of creating an international storehouse for gold on neutral
territory. International shipments would thus be avoided
since it would be sufficient to transfer the ownership of
a portion of the gold deposits. In 1895 M. Poinsard
oPor a number of years the foreign exchanges have been almost always
favorable to us, and therefore hardly need to be defended. (Cf. J. Faure
"La Banque de France et le parte jeuille Hranger," La France Economiqve
et Financikre, December 22, 1906.) If recently they have sometimes
ceased to be favorable, it is the result of an abnormal withdrawal of
money, thus revealing a very strained situation abroad. More effective
measures must then be employed, and the appearance of foreign bills is
only the natural consequence.
146
The Bank of France
developed the conception of an international money,
comprising gold, silver, and bank notes.'' M. Paul Leroy-
Beaulieu is inclined to believe in the future appearance of
an international money distinct from domestic money.'
The plan which M. Luzzati is now endeavoring to intro-
duce is more complex. It would involve an international
agreement between banks of issue or government treasuries
for the purpose of making permanent and obligatory such
financial relief as, during recent years, we have seen vol-
untarily extended by the Bank of France. Such was at
least the essence of M. Luzzati's plan." But, as thus out-
lined our National Bank would be forced to adopt, as
an obligatory rule of conduct, a measure which, after all,
is employed only as an exception, and at such times as it
deems opportune. It is easy to foresee what would happen
under such a system. France, finandially the strongest
country, would have very little to expect from abroad,
while it would find its aid urgently solicited at the least
alarm of its neighbors; its position as moderator, from
being voluntarily assumed as it is now, would become ob-
ligatory and subordinate, and this would be evidently
unacceptable.
M. Luzzati's initial plan has therefore been modified; it
has become more restrained in form, more philosophic,
more attractive, but the substance remains unchanged.
As a corresponding member of the Academy of Moral and
a Poinsard, " Qiiestions monitaires contemporaines, " Paris. A. L. Charles,
1899, pp. 253 and following.
i> Session of the Soci6t6 d' Economic PoUtique, of November 4, 1905,
reported in the Journal des Economistes, 1905, p. 248.
cCi. RafEalovich, "Notes sur la crise amiricaine," Economiste Europien
November 29, 1907, p. 683.
147
National Monetary Commission
Political Sciences, M. Luzzati presented his views before
that learned assembly on January i8, 1908." He now
proposes international conferences between banks and
treasuries, in which the various financial arrangements
would be examined and compared, thus leading naturally
to the reform of what might be found obsolete or erroneous.
It might then be possible to come to an understanding as
to the measures for mutual assistance. In this altered
form it is not difficult to recognize the initial idea of the
learned economist. It does not appear very attractive
for us in France, because it would always tend to create
for the world a certain claim on our reserves. We give
because we choose to do so, but by no means do we intend
to be forced to give, even with the advantage of a promise
to reciprocate. It does not please us that under this
pretext foreigners should enter our councils; that would
be dispossession in their favor.
It would be quite another thing to create a clearing
house on neutral soil, with means for international action.
But nothing is said of this; that would be dispossessing
London.
o-Ci. Journal Officiel, January 23, 1908, p. 593.
148
Chapter III.
THE BANK AND WAR.
Everyone knows what an admirable part was played by
the Bank of France in the settlement of the war indemnity
imposed by Germany in 1871.'' It was thanks to the
Bank that M. Thiers was able to effect that early libera-
tion of French territory, which so greatly surprised our
victors. The confidence in the Bank, already great, in-
creased still further, and from that time, in remembrance
of the services rendered, it has been regarded as the
keeper of the war chest. We have no intention of re-
writing, after so many others, that sad but glorious his-
tory. Our aim is to show what numerous and sometimes
unnoticed services this great institution performs or can
perform now that the fighting power of a nation seems to
have no other limit than the financial effort of which it is
capable.
Wars become increasingly expensive. Each man under
arms costs more and more money, while the number of
those who would be subjected to active service constantly
grows. During the war of 1870-71 the average cost per
soldier was 7.50 francs per diem. We can no longer
3 France had to disburse nearly 6,000,000,000 francs, divided as follows:
Francs.
War indemnity- - S.31S. 758. 853
Amount paid Germany for maintaining the army of occu-
pation 248,625,000
Indemnities of cities 251, 000, 000
Amount directly collected by Germany as taxes 62, 580, 000
5. 877. 963. 853
149
National Monetary Commission
count on making war at such low cost, now that England
and Germany, in their recent campaigns in South Africa
and China, have exceeded the figures of 17.50 francs per
diem for each man. The effective forces are also increas-
ing, and merely as the result of her new military regula-
tions, without taking account of the increase of popula-
tion, Germany will have available in 1922 at least
10,000,000 men subject to military service. To keep
such an army in the field would require over 76,000,000
francs a day, more than 2,000,000,000 francs a month, or
over 27,000,000,000 francs a year. And even these figures
neglect the inevitable increase in the price of food and the
numerous expenses imposed by the necessity of sustaining
an entire population reduced to poverty.
Under the present conditions of war, these expenses,
which it would be impossible to disregard, would reach a
figure too enormous to estimate. Not only is there no
financial organization strong enough to warrant under-
taking a long war, but the inevitable expenses of all sorts
are so great that they rigorously limit armaments.
"Obligatory military service merely constitutes a reser-
voir of men, which can be drawn upon only to the extent
of the available financial resources. But, nevertheless,
the financial preparation for war can not be considered as
complete unless this eventuality has also been foreseen."''
It is therefore true to state that nowadays the fighting
power of a nation seems to be strictly limited by the finan-
cial effort it can endure. More than ever governments
must base their plans for military mobilization on a most
o Captain Pain vain "La preparation financikre et la guerre," Revtte du
Cercle Militaire, December, 1902, and January, 1903.
150
The Bank of France
carefully prepared financial mobilization." Financial
plans exist in every country, but are kept jealously
guarded like everything pertaining to national defense.
Let us, however, consider for a moment of what effort
Germany is capable, that great military nation the devel-
opment of which particularly interests us to-day. To
meet the very numerous expenses which we have briefly
indicated, the Reichsbank may, in time of war, issue an
additional 1,000,000,000 marks. But in order to avoid
being discredited, it would be at the same time prudent
to cease publishing its weekly reports.^ On the other
hand, the system of requisitions, many of which could
not be paid for, would constitute the normal way of
obtaining supplies." German forecasts even count in
the largest measure upon requisitions of food and money
to be made in the enemy's country. <* Thus, finan-
cially speaking, Germany is conscious of being unable
to carry on a modern war with all the required devel-
opment, unless it be on the express condition of operating
in the enemy's territory. Financial mobilization would
compel Germany to invade, at any cost; in no case could
it sustain a war for any length of time in its own territory.
Since, in determining the sources whence the colossal
sums required may be derived, reliance can be placed only
"■ A. E. Sayous goes so far as to say: "It is perhaps as much to its
financiers as to its generals that contemporary Germany owes its great-
ness and power." "Les banques allemandes" Revue Politique et Parle-
mentaire, 1899, III, p. 311.
6 Cf. Raffalovich, "La mobilisation financiire," Semaine Poliiiqtie et Lit-
tSraire, December 7, 1901.
- Is not the result of this at once to exasperate the population, and after
starving i*. to incur the heavy burden of later assuring its subsistence?
d Cf. Painvain, op. cit.
151
National Monetary Commission
to a very small extent upon the national taxpayers, it
will be necessary to resort to loans and to various credit
operations. But "among the most precious instruments
of which the State is obliged to make use must be placed
good and sound money resting upon a solid basis, and a
central bank of issue provided with a strong metallic
reserve, without an excessive note circulation, thus per-
mitting the domestic channels of trade to be fully supplied
with gold."" The advantages of a perfectly solvent
bank of issue, which is able to avoid forced cvurrency or
redemption of its notes, are obvious. To maintain con-
fidence and to develop stronger credit conditions is indeed
a necessity for that tmstable period when the abnormal
expansion of credit results almost certainly in a crisis,
and thus complicates the difficulties of war by domestic
disturbances.
In this respect, Germany has but little power of resist-
ance. We are aware of the moderate size of its cash
holdings, and we have witnessed the monetary tmeasiness
which troubles it while in the midst of peace. We may
therefore say that the weak point of its military organ-
ization is the monetary side. The entire German press
is the first to recognize and to deplore this fact.
The recent Russo-Japanese war, for which financially
Russia was as well prepared as, from a military standpoint,
it appeared to be poorly prepared, furnishes a striking
example of what may be expected in time of war from
a firm financial organization. During that distant and
costly war, despite disorders at home, Russia was able to
"■ K. Raph, "La Banque Impiriale d' Allemagne en cas de guerre" Econo-
miste Europien, October 27, 1905, p. 323.
152
The Bank of France
maintain its credit at a high level by reason of its im-
mense holdings of gold, only little impaired, and at the
same time to acquire, on advantageous terms, all that
was necessary to meet the imperious needs of war.
To provide for such an eventuality, which must never
be lost sight of, France appears to be armed as well as
possible by the enormous reserve held by the Bank of
France. There is every reason to believe that a credit
even stronger than ours would long have been shaken
while we would still be offering resistance. And who
knows but that these sinews of war would save us ? " War
carried on without good provision of money has but a
mere breath of vigor. Money makes the sinews of war." °
The constitution and the employment of this force are,
we may say, mere details of internal organization, regu-
lated by the plans of mobiUzation. These are not known,
but it is evident that in time of war the Bank of France,
covering the entire territory by its numerous branches,
the cashiers and managers of which are not subject to
military service, would be entrusted with the duty of
meeting the financial needs of the army, by distributing
currency or notes to the military tmits in accordance with
their requirements. It would also be obliged to distribute
the metal reserves over the entire territory in order to
diminish the chances of their falling into the hands of the
enemy.
From a political and even from a diplomatic point of
view the indisputable strength of France places us in a
peculiarly advantageous position. When there exists
a Rabelais, Bk. I., Chap. XL VI.
153
National Monetary Commission
between two states the relation of creditor and debtor,
or, what is better still, when one of them possesses a kind
of pecuniary supremacy, has not the stronger the very
justifiable right to use its superiority in order to obtain
political concessions or economic advantages? Although
this factor has no recognized weight in international rela-
tions, it nevertheless carries "a prestige, which, on many
occasions, may be valuable for our diplomacy. From this
point of view, the position of France is particularly
enviable. It is courted by all foreign nations.""
The resotu-ces of France may not only assure pleasanter
relations, in a general way, with foreign covmtries, but
even bring about effective intervention. "At the time
of the Algesiras conference the financial groups of Berlin
had used all their influence to induce their government
to recede from its uncompromising attitude."* This is,
indeed, a pleasing instance of direct intervention. The
BerUn bankers, who better than anyone else were aware
of their insufficient preparation for war, and of our great
financial strength, are entitled to unanimous gratitude for
having prevented this scourge.
Even before this, "if war had broken out between
France and England at the time of the Fashoda incident,
what would have become of the German banks?" The
withdrawal of considerable amounts would have had very
serious consequences.' It would perhaps not be inaccu-
rate to state that, even on this occasion, the German finan-
o Lewandowski, "Le marchi de Paris," Revue Economique Internationale,
1906, II, p. 223.
fcLewandqwski, op. cit.
cAndr6 E. Sayous, " Les banquet allemandes en cas de crise ou de guerre,"
Revue d'Economie Politique, No. 13, p. 149, note 2.
154
The Bank of France
cial groups influenced international politics in favor of the
friendly agreement at which we arrived.
It may therefore be said that at the present moment
the question of armament in its full sense is more and more
a question of finance. It is money which limits the ex-
pansion of credit ; it is also money which limits the expan-
sion of military force. Here again we see that, as always,
the race is to the richest, not in imponderable treasures,
but in money. The centurie's have not yet accustomed us
to this sad philosophy, which nevertheless must be ac-
knowledged and endured. If man, taken individually, has
the right to be altruistic, he is none the less bound, from a
social standpoint, to take every means 6i guarding against
foreign invasion, since he must defend his hearthstone,
his family, his very existence. It is our duty jealously to
preserve our National Bank, which is our strength, to glory
and take pride in it, never forgetting what we may expect
from it. Some will say that this is a policy of selfishness.
Perhaps, but it is a national selfishness which the exigen-
cies of foreign politics will impose upon us for many years
to come despite ourselves and despite M. Luzzati's pro-
posals.
CONCLUSION.
There exists a close correlation between monetary hold-
ings and the credit system. Their importance and their
quality constitute its entire power. This fundamental
idea, which we expressed at the beginning of this work,
is also its conclusion and should be clearly evident. If we
have attained our object, we have shown that the forma-
tion and maintenance of the powerful Bank reserve is the
"55
National Monetary Commission
safeguard of French commerce, the guaranty of our pres-
tige abroad, the palladium of our independence.
We have seen how the Bank of France increases the gold
reserve of which it is the guardian, how it watches over its
quality, and assures for circulatiofi an abundance of sound
money. Thus, in its gold supply, France is the richest
of countries, and this unshakable strength will permit the
gradual elimination, though not the entire abolition, of
silver, which as a monetary rftedium is depreciated but in
some respects is still useful. It is because we have relied
on the reserve that we have taken such a decided stand
on the question of bimetalhsm, and that we have declared
ourselves for the statu quo.
The immediate consequence of our superior monetary
position is the low discount rate, and, in this respect, as
. we have pointed out, France enjoys the greatest stability
and the best money market. It is this same condition
which permits the Bank to act as guardian both of national
and international credit.
An examination of the physiology of the agencies for
distributing national credit has shown us that it often
needs to be purified. We have seen that by the evolution
of banking methods the weakening or even the disappear-
ance of any one of our great financial institutions should
not be considered as a priori impossible. For this reason
it has seemed to us that the social interest demands a tute-
lary institution always ready to intervene in their behalf.
The examples we have given of the intervention of the
Bank are neither isolated nor accidental. They are the
normal manifestation of the part the Bank designs to take
in the work of distributing credit. We have shown that
156
The Bank of France
under all circumstances it knows how to fulfill this lofty
mission without trammeling the freedom of action of
other banks. It confines itself to serving them as regu-
lator, and intervenes only so far as is necessary to curb
speculation, and thus to protect credit against all dangers.
Through its reserves the Bank is also able to encourage
the development of the instruments of credit, especially
of checks and transfers, and to make itself accessible to the
small dealer, the small rentier, and the plain husbandman.
We have seen how its territorial expansion is ftuther in-
creased indirectly by the recent institution of outside
accounts, and what efforts it makes in favor of agricultuaral
credit. This is certainly one of the most interesting indi-
cations of its position as guardian of the metallic holdings.
It assures low rates for money to everybody, ever5rwhere,
sometimes at the expense of its own interests, but always
for the greater benefit of national commerce and industry.
It accomplishes even greater and better things in the
markets of the world through that preponderant influ-
ence of its reserve, the importance of which must con-
stantly be emphasized. We have been obliged, in this
connection, to take up the study of monetary questions
in order to show that international financial solidarity
has no other basis than the metallic holdings. Since
France is in this respect so rich, its position appeared
to us then as exceedingly privileged.
Our reserve has such a powerful influence upon the
international financial situation that it is able to avert
foreign crises and to furnish effective means of preserv-
ing France from dangerous reactions by bringing relief
to the foreign source of disturbance. In order to formu-
157
National Monetary Commission
late properly this serious question of crises we were obliged
to use a somewhat detailed classification; but it alone
could lead to the definite conclusion that, whatever
their character, they may be successfully combated by
the banks, in so far as they become monetary.
Since 1893 France has experienced no crises. Such is
at least our claim. The means employed by the banks
to avert them held for a time our attention, and per-
mitted us to form a sufficiently correct idea of the present
policy of the Bank. It is apparent that, with a view to
modifying the harshness of the unavoidable discount
policy, it has abandoned the policy of the gold premium
for another, that singularly happy device of interna-
tionalism, which we have just characterized. Admiration
must be accorded to this policy, which is a great credit
not only to the Bank but also to all France.
Its strong reserve, admirably managed, is not only
our insurance against crises but also our surest guaranty
against the recurrence of great wars. We have shown
that the fighting power of a nation has now no limit
other than the financial effort of which it is capable.
It is not going too far to state that the formidable cost
which a war would involve has more than once caused our
possible enemies to recoil, and that in the settlement of
pohtical or diplomatic questions the nation which is
richest in gold is always the one which commands the
most respect.
Gold is always the great motive of human activity.
It is above all the soul of credit; from this point of view
it is indispensable, and we have no apology to offer for
having given it such an important place in this study.
158
The Bank of France
It is owing to its wealth in gold that "France need not
fear the considerable progress made by the commerce
and industry of the surrounding countries, "" and the for-
midable cost of armed peace. Recognizing the great
importance of monetary questions in political and social
economy, we know that while our advance may be slow
and must not, indeed, be unduly hurried, we are assuredly
on the road of progress.
A large part of our power of resistance we owe to the
institution of the Bank of France, as guardian of our
enormous monetary reserve. But what would become
of this reserve without the wise and firm management
of men who join to experience of affairs the science of
distinguished economists? It is to the Bank and to its
eminent staff that our respects are naturally addressed
in concluding this study of their labors.
"J. Siegfried, "Expansion commerciale de la France," Revue des Deux
Mondes, June 15, 1907.
159
BIBLIOGRAPHY.
I. PERIODICALS.
Bulletin Mensuel de la F^d^ration des Industriels et Commergants Franf ais.
Bulletin de Statistique et de Legislation Compar^e.
Le Censeur.
Documents Statistiques sur le Commerce de la France, Direction des
Douanes.
Economiste Europden.
Economiste Frangais.
La France Economiste et Financifere.
Journal des Economistes.
Journal Officiel de la R6publique Fran^aise.
Le Messager de Paris.
Le Moniteur des Int^rfets Matdriels.
Pour et Contre.
R^forme Economique.
Le Rentier.
Revue du Cercle Militaire.
Revue des Deux-Mondes.
Revue Economique Internationale.
Revue (La) (anc. Revue des Revues).
Revue d' Economic Politique.
Revue Politique et Parlementaire.
Revue de Statistique.
Semaine Politique et Litt^raire.
II. VARIOUS PUBLICATIONS.
Arnaun^, La monnaie, le credit et le change, 3'^ ed., Paris, Alcan, 1906.
A. Aupetit, Essai sur la thtorie gdn^rale de la monnaie, Paris, Alcan, 1901.
Bastable, The Theory of International Trade, Dublin, 1887. French
translation with an introduction by Sauvaire-Jourdan, Paris, 1900.
Carpentier, Le credit agricole, Orleans, 1905.
P. Coq, Les circulations en banque, Paris, Guillaumin, 1865.
Comptes rendus de I'assemblde gdn^rale des actionnaires de la Banque
de France depuis 1891.
Courcelle-Seneuil, Les operations de banque. Trait6 th^orique et pratique
g** ed., Paris, Alcan, 1905.
M. element, Des variations du taux de I'escompte, Nlmes, Imprimerie
Cooperative, 1902.
Depitre, Le mouvement de concentration des banques allemandes, Paris
Rousseau, 1905.
Documents parlementaires publies en 1859 Par le Ministfere des Finances.
*
160
The Bank of France
Enqufite sur les principes et faits g^n^raux qui r^gissent la circulation
mon^taire et fiduciaire, 1865.
Flour de Saint-Genis, La Banque de France k travers le sifecle, Paris,
Guillaumin, 1896.
Germain-Martin et L^on Poller, Cours d'&onomie politique, II, Le credit.
E. Grillon, Une nouvelle institution financifere franjaise. R6ponse aux
critiques du livre " Le chfeque barr6" et aux partisans du privilege de
la Banque de France, Paris, Guillaumin, 1895.
A. Houdard, Essai sur le service des billets de banque, k propos du projet
de prorogation du privilege de la Banque de France, Paris, 1891.
CI. Juglar, Des crises commerciales et de leur retour p6riodique en France,
en Angleterre, et aux Etats-Unis, 2"'' ed., Paris, Guillaumin, 1889.
A. Lajusan, La crise franj aise. Un essai de solution, Paris, Giard et Brifere,
1906.
H. Leffevre, Le change et la Banque, Paris, Ch. Delagrave, 1880.
P. Leroy-Beaulieu, Traits thferique et pratique d' Economic politique,
Paris, Guillaumin, 1896.
Lescure, Des crises g6n^rales et p^riodiques de surproduction, Bordeaux,
1906.
Levasseur, La question de I'or, Paris, Guillaumin, 1858.
M. & A. Meliot, Dictionnaire financier international th^orique et pratique,
Paris, Berger-Levrault & Cie., 1904.
R. Meyer, Les banques suisses d' Amission et le drainage des 6cus, Lille,
Le Bigot frferes, 1903.
A. Moireau, La Banque de France, prorogation du privilege. Le Credit
Fonder, la Caisse des D6p6ts et Consignations, Paris, Perrin & Cie.,
1891.
J. S. Nicholson, Bankers' Money, London, Black, 1902.
B. Nogaro, Le r61e de la monnaie dans le commerce international et la
th^orie quantitative, Paris, Giard & Brifere, 1904.
J. Pallain, Des rapports entre les variations du change et les piix, San-
cerre, Pigelet, 1905.
Pantel, Les fonctions de la Banque de France, Montpellier, 1903.
L. .Poinsard, Questions mondtaires contemporaines, Paris, A. L. Charles,
1899.
V. Pareto, Cours d'^conomie politique.
Lton Say & Joseph Chailley, Nouveau dictionnaire d'^conomie politique.
L6on Say, Dix jours dans la Haute-Italie.
A. Soetbeer, Mat^riaux pour faciliter I'intelligence et I'examen des rap-
ports ^conomiques des m^taux pr^cieux et de la question mon^taire
2"* ed., Paris, 1889.
E. Th^ry, La France ^conomique et financi^re pendant le dernier quart
de sifecle, Paris (Economiste Europ6en), 1900.
Wolowski, Le change et la circulation, Paris, 1869.
83704 — 10 1 1 i6r
French Savings and Their Influence
Upon the Bank of France and
Upon French Banks
By
ALFRED NEYMARCK
' Editor of " Le Rentier "
163
FRENCH SAVINGS AND THEIR INFLU-
ENCE UPON THE BANK OF FRANCE
AND UPON FRENCH BANKS.
By Alfred Neymarck,
Editor of the "Rentier," Vice-President of the Sociit£ d'Economie Politique,
formerly President of the SociHi Statistique of Paris.
I.
SOME FACTS AND FIGURES.
In view of the monetary, financial, economic, commer-
cial, and industrial crises which break out almost periodic-
ally in all countries, and with the destructive force of a
cyclone sweep everything before them, the question has
been asked how France has escaped these disturbances,
or at least has been able to meet with ease their reaction.
Many reasons have been given, some of which could not
be passed over in a careful examination, for the scientific
and mathematical truth of the resulting conclusions is so
clearly evident. These reasons are in our opinion :
(i) The large amount of French savings and of avail-
able capital.
(2) The increase and distribution of French and foreign
securities held in France.
16s
National Monetary Commission
(3) The influence exercised upon the rate of interest,
the discount rate, and upon the banks, their reserves and
deposits, by this wealth of resources.
Many volumes would be necessary to develop these
few facts in all their details, but we shall confine ourselves
to their demonstration by brief and precise figures. This
will be our contribution to the thorough investigation
which is being conducted by the National Monetary
Commission of the United States and in which it has
asked us to collaborate.
2.
FORMATION AND DEVELOPMENT OF FRENCH SAVINGS. THE
PSYCHOLOGY OF FRENCH RENTES.
There are in France 10,000,000 electors, almost all
taxpayers. All or nearly all save their money with the
intention of putting something by for their old age.
There are savings in the special organizations called
savings institutions, in the mutual benefit societies, in
banks and securities, in lands, unimproved property, and
in houses, improved property. Such is the composition of
the private wealth of France, a wealth which is infinitely
disseminated. It can be proved, in fact, that of these
10,000,000 electors 9,000,000, at least, have a book at
some savings institution, a government rente, a railroad
or Credit Fonder bond or some other security, a strip
of land, or a house, whether large or small. And this is
not all. The French rentier does not invest everything
he has, but always' keeps by him some available means
in gold, silver, or bank notes to provide for sudden
166
French Savings and their Influence
emergencies. He wishes thus to avoid having to realize
his investments either in whole or in part, since to sell
his securities is a resolution he takes only in case of abso-
lute necessity.
3-
SAVINGS INSTITUTIONS.
What is, then, the situation as regards savings in
T'rance? How is the capital arising from savings divided
and distributed? That is the first question which must
be answered.
On January i, 1908, there were in France 4,976,000,000
francs deposited in the savings institutions and divided
among 12,828,847 books, representing an average of 387
francs per book. In these figures, 395,000,000 francs
and 1,797,542 books are counted in Paris and the depart-
ment of the Seine.
According to the statistics as to the distribution of
books, of these 12,828,847 books more than 4,000,000,
that is to say more than one-third, were for 20 francs or
less; almost 2,500,000 were for 21 to 100 francs; about
1,100,000 were for loi to 200 francs. This is the democ-
ratization of savings in its most extreme form. Of sums
for 1,001 to 1,500 francs, which is the highest amount
authorized for deposit in the savings institutions, there
are less than i ,100,000 depositors. It can not be said that
these 5,000,000,000 francs, in round numbers, deposited
in the institutions for savings belong to the wealthy
class. It is not the wealthy who resort to such institu-
tions for the investment of their capital, but people of
modest means who gather a little property, franc by franc,
167
National Monetary Commission
and lay it aside in order to use it later, either in temporary
or in definite and more profitable investments.
The development of these interesting small savings can
be clearly shown by three figures. In 1850 there were
deposited in the savings institutions 135,000,000 francs;
in 1 869, 711 ,000,000 francs ; to-day the sum is 4,976,000,000
francs. In the nineteen years from 1850 to 1869 the
increase was 576,000,000 francs; in thirty-eight years
from 1870 to 1908 it has been 4,265,000,000 francs.
FRENCH RENTES.
Let us take the case of a small investor who has placed
his first earnings. When he obtains new funds to invest
he turns to government rentes. He determines to possess
a French rente and to make it the basis of his holdings.
The following situation results. There are, in round num-
bers, 26,000^000,000 francs worth of French 3 per cent
rentes, part perpetual and part redeemable. From these
26,000,000,000 francs there must be deducted 3,800,000,000
francs of redeemable rentes which are found in the hands
of large investors; also, 1,000,000,000 francs of rentes
belonging to the great insurance companies, endowments,,
and various associations, leaving 21,000,000,000 francs.
It has been estimated that these 21,000,000,000 francs
are in great part in the holdings of 1,500,000 investors.
The attempt has even been made to determine the average
amount of rentes which these investors might possess,
but as averages are always disputable we shall not pause
to discuss them. What is certain is that three-fourths of
168
French Savings and their Influence
these 2 1 ,000,000,000 francs of rentes consist of registered
certificates. Of every 100 francs of rentes in circulation,
75 francs are in registered certificates and 25 francs in
certificates payable to bearer. It is interesting to note,
then, as a sign of the confidence with which the credit of
the State inspires the French democracy, that of 10,000^000
voters 1,500,000 persons hold a government rente, and
that there are more than 12,000,000 persons, adults or
minors, who have a book at some savings institution.
LOTTERY BONDS.
The third stage to which the French investor advances
in placing his savings is the acquisition of a lottery bond.
Everybody desires to leave the door open to fortune, and
the smallest holdings, as well as the largest, contain a
lottery bond of the city of Paris, of the Credit Fonder, or
of some provincial town, or some foreign lottery certifi-
cates negotiable in France, such as the Austrian bonds
of i860, etc.
We possess 6,000,000,000 francs in lottery bonds, rep-
resenting 17,000,000 certificates outstanding, and yield-
ing annually 30,000,000 in lottery premiums. The capital
invested in these bonds results again from the economy
of small investors and represents part of the savings
of the democracy. Neither in England nor in the United
States is there found such a use of funds, for there is not in
those countries, as in France, an army of people who put
by small savings.
169
National Monetary Commission
If, now, we recapitulate this first division of the popu-
lar savings, we have 5,000,000,000 francs in savings
institutions; 21,000,000,000 francs in State rentes;
6,000,000,000 francs in lottery bonds.
This constitutes a first total of 32,000,000,000 francs in
investments essentially of the nature of savings belonging
to millions of persons.
6.
RAILROAD BONDS.
Let us ascend a step further in the scale of capitalists
and small investors. We shall then have before us those
pieces of paper called railroad bonds, and, higher still,
railroad shares. The capital represented by railroad
bonds amounts to 14,500,000,000 francs, while that rep-
resented by railroad shares amounts to 3,500,000,000
francs. Now, to whom do these 18,000,000,000 francs
belong? To more than 700,000 families, numbering more
than 2,000,000 persons. These 18,000,000,000 francs are
in certificates payable to bearer and in registered certifi-
cates. The registered certificates exceed 900,000. We
have, then, including the railroad bonds, 50,000,000,000
francs invested from savings and 55,000,000,000 to
56,000,000,000 francs if we add the rentes belonging to the
great holdings. It is certain that there can nowhere else be
found a similar accumulation and dissemination of wealth
invested in seciurities yielding such low interest — i to i>^
per cent in the savings institutions, 3 to 33^ per cent from
railroad bonds and shares, and i to 2>^ per cent from lot-
tery bonds.
170
French Savings and their Influence
But this is not all, for we now come to what may be
called the fourth degree in the scale of investments, French
securities of variable revenue, and foreign rentes and
securities of fixed revenue and of variable revenue.
Furthermore, among these varieties of investments belong
the funds placed in mutual benefit societies and funds
deposited in financial institutions, to say nothing of those
which every person keeps by him without investing to
provide for unforeseen expenditures or needs. Let us
examine these different classes to see what the exact
statistics may tell us.
TOTAL OF SECURITIES BELONGING TO FRENCH CAPITALISTS.
On December 31, 1908, the total of French and foreign
securities, including government bonds, negotiable only on
the Paris Bourse, without counting securities negotiable
either at the banks or on the departmental exchanges,
amounted to 133,383,000,000 francs, of which 65,738,-
000,000 were in French bonds and securities, and 67,645,-
000,000 were in foreign bonds and securities. Together with
the securities negotiable on the market, at the Bank, and
on the departmental exchanges, the total of the securities
negotiable in France is not less than 155,000,000,000 to
160,000,000,000 francs. At the present time French capi-
talists possess 105,000,000,000 to 110,000,000,000 francs
in bonds and securities, yielding them annually from
4,000,000,000 to 5,000,000,000 francs, for the income
from these investments must be estimated not according
to the present reduced rate, but according to the rate at the
171
National Monetary Commission
time when the investments were made. To these 105,000,-
000,000 to 110,000,000,000 francs must still be added
the capital invested abroad in banks or various enter-
prises, the capital described as deposited in the savings
institutions, and that which has been paid into mutual
benefit societies, an amount exceeding several hundred mil-
lion francs. There must finally be added what may be
called the floating funds of savings — that is, capital de-
posited in current accounts or accounts subject to check
in the banks and financial institutions — which, year in
and year out, are above rather than below 2,000,000,000
francs.
ANNUAL SAVINGS.
Thanks to the abundance of its resources, of its econ-
omies, and of its available funds, France — ^that is, the
French investors — ^saves annually on the average 1,500,-
000,000 to 2,000,000,000 francs (more rather than less),
whatever may be the inclemency of the seasons, what-
ever the political crises at home or abroad, whatever may
be even the speculative crises and the losses which, from
time to time, are borne by capitalists in hazardous invest-
ments such as the Panama Canal or the gold mines.
Such losses, however extensive they may be, produce only
a temporary effect, because they are divided among a
large number of persons. It is seldom that a capitalist
loses all he possesses in a single venture; he loses some-
thing, to be sure, but not all that he has put by, just as
he does not make his fortune by engaging simply in one
prosperous and successful enterprise.
17-2
French Savings and their Influence
9-
IMPROVED AND UNIMPROVED PROPERTY.
To this wealth, consisting of movable securities, must
be added that consisting of immovable securities, im-
proved and unimproved property. A single statement
will suffice to make this situation clear. Of 12,000000,
households in France, there are 9,000,000 each possess-
ing and occupying its own house without renting from
others. As for unimproved property, there are 150,500,-
000 parcels of land and 62,000,000 town lots, while the
number of proprietors is estimated at 8,500,000.
10.
INHERITANCE STATISTICS.
France is a country of financial democracy. The in-
heritance statistics show that there are less than 20,000 (
millionaires. There were altogether 401,574 inheritances
declared in, 1907, which may be tabulated according to
the amount of the inheritance as follows:
I to 500 francs 116,3^3
501 to 2, 000 francs 106,807
2,001 to 10, 000 francs 114,691
10,001 to 50,000 francs 47,967
50, 001 to 100, 000 francs 7.703
100, 001 to 250, 000 francs 5)Oi8
250, 001 to 500, 000 francs 1,713
500, 001 to 1 , 000, 000 francs 814
1,000, 001 to 2, 000, 000 francs 360
2,000, 001 to 5, 000, 000 francs 134
5, 000, 001 to 10, 000, 000 francs 33
10,000,001 to 50, 000, 000 francsi 7
50, 000, 001 to 7
Hence, if we should use a pyramid to represent the
gradation of inheritances according to their importance,
173
National Monetary Commission
allowing the breadth of a milUmeter at the summit to
indicate inheritances under' 50,000,000, this pyramid
would enlarge rapidly until it reached a base besides 16
meters broad, indicating the number of small inheritances
in proportion to large inheritances.
II.
THE IMPORTANCE OF FRENCH SAVINGS AND THEIR CON-
SEQUENCES.
It is clear, therefore, without the necessity of further
emphasis, what enormous strength is imparted to the
country by the extent of its savings.
(i) Since France is everywhere a creditor and nowhere
a debtor, each year brings in, under the form of interest
and of repayments, the capital which has been loaned
abroad and which is then invested anew.
(2) As France puts aside every year 1,500,000,000 to
2,000,000,000 francs, it has no need to borrow abroad,
but has abundant means to supply its own requirements.
(3) Since, as we have seen, the total of the French
holdings in foreign securities and bonds yields a yearly
average of 1,500,000,000 to 2,000,000,000 francs, this sum,
which is paid to us annually, comes back in the form of
gold, and, allowance being made for the new uses to which
we put a part of these returns of the yellow metal, in-
creases our gold reserve.
(4) As we utilize a portion of our savings to make new
investments abroad, the income of these new investments
is added to the old and increases by so much the sums
which are annually paid to us in gold by foreign bor-
rowers.
174
French Savings and their Influence
These simple facts explain why the stock of gold pos-
sessed by France (the most considerable that it has ever
had) automatically increases every year."
This stock would diminish —
(i) If one or more poor harvests should make it neces-
sary to export gold for the purchase of cereals.
(2) If, on the other hand, foreign loans effected in
France should take on a greater development.
(3) Or, again, if for any reason we should be obUged to
piurchase a larger quantity of commodities abroad, and
if the sum of these purchases should not find a full or
practical equivalent in the sales which we should effect.
(4) It must also be said that the visible stock of gold
might diminish in the event of a serious political crisis
abroad.
(5) But as things are, simply by the natural play of
economic and financial laws and facts, and as long as
France remains a creditor abroad, gold will continue to
o The following table indicates the triple movement of gold, silver, and
notes of the Bank of France within the last ten years.
[Amounts are expressed iu millions of francs.]
End of December —
i8g8
1899
igoo
1901
1902
1903
1904
190S
1906.
1907
1908.
Gold.
Silver.
1, 810. 4
1.20S.S
1,866.4
1,156.6
2,334.3
i, 099-5
2.449-0
1,096.8
2,519.2
1,098. 4
^^,357.4
1, 100.
2, 650. 2
1,098.9
2,864.3
A, 071. 2
2,671.9
993. S
2,676. I
917.6
3.489.:^
883.3
Bank
notes.
3,754.1
3,937-8
4, 146 4
4, 072. 2
4,304-3
4, 244- 2
4.257.7
4,151-1
4,689.4
4,Soo.6
S.225.S
175
National Monetary Commission
increase in the country normally and automatically.
Contrary to what might be thought, and to what has been
stated in several foreign journals, we do not purchase
and we do not need to purchase gold abroad. This gold,
as has been said, comes to us naturally in payment of the
interest or capital of debts. And such will be the case,
we repeat, as long as France remains a creditor abroad
and not a debtor."
(6) This, furthermore, explains the fact that from 1898
to the close of 1906 the difference in favor of gold imports
into France was 2,613,000,000 francs. In 1907 the excess
of imports over exports — although the customs statistics
as to the precious metals must be used with caution —
was 296,000,000 francs. This would give, then, a total of
about 2,909,000,000 francs in gold, which in the nattural
course of business entered France between 1898 and the
close of 1907.
a According to our latest valuation the foreign securities held by French
capitalists (government bonds included) reach the minimum figure of
30,000,000,000 francs. The distribution by countries is as follows:
Billions
of francs.
Russia 9-10
England K
Belgium, the Netherlands }4
Germany 1
Turkey, Servia, Bulgaria J ■^
Roumania, Greece 3-4
Austria-Hungary 2
Italy i-iK
Switzerland ^
Spain, Portugal^ 3^
United States, Canada i-^-i
Bgypt, Suez 3-4
Argentine, Brazil, Mexico^ ^Hs
Chiiia, Japan i
Tunis, the French colonies 2-3
176
French Savings and their Influence
The economic, monetary, and financial strength of
France, which protects it from crises, is therefore clearly
shown by the facts which we have presented.
(i) An abundance of exportable securities. We pos-
sess 30,000,000,000 francs in foreign bonds and securities,
of which 20,000,000,000 to 25,000,000,000 in international
bonds are negotiable on our markets and upon the ex-
changes of those foreign countries which are our debtors.
This is a great advantage to us, for these debts, as long
as they are regularly settled, guarantee us favorable condi-
tions of exchange and are the equivalent of an addition
to our exports of commodities yielding a good profit.
(2) A considerable metallic reserve; that is, again, an
amount of exportable money which at any given moment
can, and always should, procure us important economic
and commercial advantages, not to mention political
compensations and advantages.
(3) A great abundance of floating funds issuing from
our savings. These funds are continually renewed, for
each year, whatever may be the political or other crises or
the unfavorable character of the seasons, France saves
1 ,500,000,000 to 2, 000,000,000 francs (some even claim that
these savings exceed 2,500,000,000)," so that we are able
not only to provide for our own needs, but also to lend
a portion abroad.*
"■ " L'Spargne jrangaise et son diveloppement annuel. A combien s'^lhient
anmiellement les placements de l'6pargne jrangaise." Communication to
the Socidt6 de Statistique de Paris, March 26, 1906. Published 1906.
6 " L'6pargne frangaise." Discussion of the Soci^td Amicale de la Marne,
October 28, 1908. Published 1908.
83704—10 12 177
National Monetary Commission
(4) An indisputable credit, as shown by two circum-
stances. First, the French 3 per cent rente sells for 1 1
francs more than the German rente. Furthermore, when
recently the the minister of finance, M. Caillaux, raised
the rate of interest on treasury bonds, payable from three
months to one year later, by only one-half of i per cent,
more than 200,000,000 francs entered the treasury within
twenty-fomr hours. No one will suppose that the in-
creased interest attracted the subscribers, nor will it be
maintained that unless the credit of France were unques-
tionable such a large amount of capital would be confided
to the treasury.
(5) The fact that France is everjrwhere a creditor and
nowhere a debtor"* explains also the return of capital which
under the form of arrearages or repayments comes in from
all sides, while France owes nothing, and so has nothing
to pay any-vphere.
(6) France is the only country in the world in which
the public debt has not increased for the last ten years. *
This assertion, incredible as it may seem to those who
do not study our budgets and the financial statements
annexed to them, is absolutely true, although in other
countries the public debt has grown. In the Rentier of
November 7, 1908, we have given the proof of this ap-
parently bold afi&rmation, together with figures and docu-
ments to support it. The growth of the budgets is, indeed,
inevitable, for, in the words of our regretted teacher, M.
L^on Say, " Our democracy tends to transfer to the State
o"Lo situation fmancikre de la France." Discussion of the Soci6t6
Amicale de la Marne, October 23, 1907. Published 1907.
6 "L'exposi des motifs el la discussion des budgets de 1^07 et 1908."
178
French Savings and their Influence
many functions with which it was not formerly bur-
dened." ° But, despite this fact, the budgets of France
show, on comparison, the least increase.
And, finally, it is in France that the quotations of gov-
ernment bonds have been most stable, maintaining with
English consols the highest level of prices.
12.
THE SUPREMACY OF THE FRENCH BANKS.
All these facts explain the constant support given to
the great French banks and the financial institutions
which have been established.
The supremacy of the French banks in national and
international finance is to-day undeniable. The principal
French banks, the Credit Lyonnais, Comptoir National
d'Escompte, Socidt^ Gdn^rale, Banque de Paris et des
Pays-Bas, Banque Frangaise pour le Commerce et I'lndus-
trie. Credit Industriel et Commercial, and the Union
Parisienne, had at the close of 1908 a nominal capital of
1,095,000,000 francs, of which 785,000,000 were paid in;
they had, besides, more than 250,000,000 francs in reserves.
The French banks abroad and in the colonies had a nom-
inal capital of more than 800,000,000 francs, while the
French and foreign Credits Fonciers had a capital of
nearly 600,000,000 francs without counting the reserves,
etc. The paid-in capital of these different French banks,
operating in France and abroad, is therefore not less than
1,300,000,000 francs. In this respect few EngUsh or
American banks can be compared with them.
oL^on Say, Chamber of Deputies, October 27, 1890. Cf. our " Vocabu'
laire manuel d'iconomie politique," Colin et Cie.
179
National Monetary Commission
13-
THE BANK OF FRANCE.
The strength of the French banks has, then, its source
first, as we have said, in the magnitude of French savings;
second, in their own internal and external organization; and
third, and above all, in the effective organization of the
Bank of France. The great French banks know that
they can count upon it to rediscount their paper. For,
to use the expression of M. 'L,€on Say, the difference be-
tween the Bank of France and all the other banks and
financial institutions is that it could liquidate them all,
while not one of them could liquidate it. The Bank of
France regulates the monetary situation of the country;
it releases the banks from all fear regarding internal
circulation and, consequently, regarding domestic com-
merce. The fixed and stable value of the notes of the
Bank of France, the credit which they enjoy at home,
and the favor with which they are received abroad, on
an equality with gold, give to the domestic and foreign
affairs of the country, in financial or commercial trans-
actions, the greatest security.
A single comparison will make this apparent. If there
had been in the United States a central bank operating
on the same basis and according to the same principles
as the Bank of France, the crisis which recently occurred
there could never have reached so acute a stage as it did,
for the banks and the bankers of the United States would
have found means to have their paper discounted or to
procure part or all of the capital which they needed. A
healthy Circulation of the notes which a bank of issue
i8o
French Savings and their Influence
can put out is the basis of a healthy condition of banking;
the proof of this economic fact has been given by the
Bank of France. The example which it has furnished
ought not to be ignored in countries where the banks
have a circulation out of proportion to the metallic
reserve.
But it must be recognized that the excellent condition
of the Bank of France and of the large financial institu-
tions and private banks in France has been aided by that
wonderful system of small savings so widely disseminated
over the country, and each year renewed and increased.
If, in any part of the world, the attempt should be made
to establish a central bank of issue with the same statutes
and regulations as those of the Bank of France, in the
hope of obtaining the same results, the experiment might
end in failure if there should be lacking in the country
that spirit of thrift and saving which governs the French
capitalist, large or small, the rich as well as the most
insignificant bourgeois, and the humblest laborers, peas-
ants, and clerks.
Such, then, are the facts which we have endeavored to
establish in this brief study of the diffusion of French
savings and their influence upon the successful operation
and the prosperity of the Bank of France.
^
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