The Online Library of Liberty

A project of Liberty Fund, Inc.

• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

PART III.

BANKING IN SPAIN.

CHAPTER I.

THE EARLIEST BANKS.

SPAIN shares with Italy the honor of having established the earliest banks of deposit and circulation. The Bank of Barcelona was certainly in existence in 1401, and probably at a very much earlier date. Originating from causes similar to those to which the Italian banks owe their existence, and called upon to meet the same requirements, the Bank of Barcelona must have resembled those institutions very closely; on this point, however, we are confined to conjecture, for we have no really trustworthy information concerning this bank.

From the experience of the Netherlands, Spaniards were enabled to appreciate the value of banks of issue; and, in 1617, the Cortes demanded the establishment of such an institution. Accordingly, in 1621, Philip IV. issued letters patent authorizing it; but political events intervened to prevent its establishment at that time.

THE BANK OF ST. CHARLES.

It was a Frenchman, François Cabarrus, who furnished to Spain her first bank of issue. Consulted by the Spanish Minister of Finance, in 1779, as to the best means of ending a monetary crisis caused by the war which France and Spain were then waging against England, Cabarrus advised the issue of State bills, to be made a legal tender, to bear interest at four per cent., and to be redeemable in twenty years. The tobacco and salt duties were pledged as a guaranty for payment of the interest and for final redemption of the bills. These notes were fairly well received by the public, but they never reached par. The idea then occurred to Cabarrus of establishing at Madrid a national bank of discount and issue. In a memorial addressed to the King, under date of October 22, 1781, he thus sets forth his plans:

“It appears to me, in the first place, that in a country in which a large part of the lands are inalienable it is expedient, and even necessary, to furnish to the wealthy a means of investment to take the place of the real estate they lack. It seems to me also that they ought to be partners in the enterprise, and not mere lenders to it, that is to say, that they ought to be allowed to reap the full benefit of their investment. I think, furthermore, that inasmuch as the aim of this company and bank is to encourage and assist the commerce and industry of the nation, it ought to scrupulously abstain from all commercial undertakings on its own behalf, so as not to injure any individual merchant. In order to identify the interests of his Majesty’s treasury with those of the bank, and at the same time to furnish to shareholders a sufficient inducement for making the investment, the new institution ought to have the privilege of furnishing all army and navy supplies at a commission of ten per cent. The supplies would then be procured more economically and with greater certainty and promptness, and the profits, which are now shared by only three or four contractors, would be divided among a large number of citizens, thus furnishing a reasonable support for many persons without unduly enriching any. The bank must be hampered by as few restrictions as possible, for otherwise it will not gain the confidence of the public. Upon the basis of these fundamental principles, I propose to his Majesty the foundation of an institution which shall do a banking and general discount business; which shall advance money against bills of exchange, State bills, etc., at an interest of four per cent. per annum; which shall furnish all the supplies required for his Majesty’s fleets and armies, or for any other branch of his service at home or abroad, at a commission of ten per cent.; which, finally, shall pay all claims against the Crown at a commission of one per cent.”

This document contains some views that are very sound, especially that relating to the independence of the bank; but it takes too little account of the proper division of labor; and the proposition that the new institution furnish supplies for the army and navy was a morbid germ destined to develop. Likewise, the confusion of State affairs and the banking business involved in the proposed method of paying the debts of the Crown was a reversion to the scheme of Law, and tended to an unfortunate interdependence between the credit of the bank and that of the State. The regulations of the bank, in details covering forty articles, drafted by Cabarrus, contain little that is of interest. The royal memorandum of June 2, 1782, establishing a national bank, with general powers, under the title of the Bank of St. Charles, adopted all the propositions of Cabarrus.

Though the royal memorandum makes no mention of the circulating notes of the Bank, the right to issue such is assumed in a prospectus addressed to those whom it was desired to interest in the new institution. In this prospectus we read: “The outstanding State bills, whose existence makes the Bank necessary, have increased the difficulty of establishing it, for how can we put its notes in circulation and keep them at par like those of the Bank of England and the Discount Bank of Paris, while interest-bearing bills of the State are in circulation? How can we hope to exchange the barren notes of the Bank for the productive bills of the State?” It was to compensate for this restraint upon the circulation that Cabarrus demanded a monopoly in furnishing army and navy supplies. This bank, against which Mirabeau wrote a violent pamphlet, did not succeed in establishing a circulation, and could not find in Madrid a supply of commercial paper commensurate with its discount facilities, but it did succeed in one direction. It raised to par the State bills, or váles, from a discount of twenty per cent. Its capital, however, was immediately locked up by the redemption of this paper and by the purchase of shares of the Compagnie des Philippines, a sort of copy of Law’s Compagnie des Indes in France. At the same time, it launched out into all kinds of undertakings contrary to its powers, including the canalization of Spain, beginning with the Guadarrama. The affairs of the Bank fell into the greatest confusion; but, by leaning upon the Treasury, which was as badly disorganized as itself, it managed to survive, and was even able in 1807 to announce, not only that its capital was intact, but that its resources were very much greater than its liabilities. This was true on the assumption that it could realize upon its assets; but such was far from being the fact. They consisted of loans upon its own shares and upon depreciated securities, which could not be collected; of foreign credits of very doubtful value; of debts due from the State, now insolvent; of State paper, and of a small specie reserve and a few good commercial securities.

At this time the French had invaded Spain, and the whole country was one vast field of battle. At one time there were two banks, one at Madrid with King Joseph, and the other at Seville and later at Cadiz. On the return of peace, in 1814, the Bank demanded of the State repayment of 320,000,000 reals; but a decree of the Cortes, rendered on November 9, 1820, made the claim of the Bank part of the ordinary public debt. Fortunately for the Bank, the restoration of absolute power annulled all the acts of the Cortes. A report was demanded of the Bank setting forth its history and actual situation, and when this had been furnished a royal decree was issued, on February 4, 1824, ordering a liquidation of all the State debt not represented by Crown bonds. A second royal decree of the 8th of the March following ordered a reopening of the great book of the public debt, and that there be entered therein, in addition to the debt of 600,000,000 reals, a further sum of 200,000,000, half of which should be immediately delivered to the Bank, at an interest of five per cent., on condition that it could show an equal amount of interest-bearing claims in its own possession. This condition the Bank could not fulfill, and finally, in 1829, it received a subsidy of 40,000,000 reals. If there was any loss involved in this transaction the State was the victim, but the unfortunate situation of the Bank was generally attributed to the Government, and this grant of 40,000,000 reals was no more than a just indemnity.

“The Bank of St. Charles,” says Don Ramon Santillan, “created for certain purposes, some of which were foreign and others diametrically opposed to the elementary principles upon which institutions of this kind should be based, found itself from the very first involved in a network of difficulties and hindrances, which was merely drawn tighter by the efforts of the managers of the Bank to escape from it. The losses naturally resulting from a discount of Crown obligations and from the complications involved in furnishing army and navy supplies, could not fail to be further increased by speculation in the public funds of France, then in the throes of a woful revolution. The participation of the Bank, as a very heavy stockholder, in the affairs of the Compagnie des Philippines, and its losses through worthless securities, completed its ruin. Its capital of 300,000,000 reals was far too great, and it had been able to employ only a small part of it in commercial loans. An attempt was made to secure a profit out of the capital by placing it at the disposal of a treasury whose condition was growing worse every day, and, as a matter of fact, the Government kept the Bank alive until a common shipwreck, in the early part of the present century, overwhelmed all institutions, public as well as private. Since 1814, the Bank had really been dead, and it required a mighty effort of the Government to resuscitate it.”

THE BANK OF ST. FERDINAND.

On July 19, 1829, with its indemnity of 40,000,000 reals and a right to issue new shares to the extent of 20,000,000 reals whenever it should need to do so, the Bank was reorganized. It gave up its old name, “Bank of St. Charles,” and became the “Bank of St. Ferdinand.” The business of the new bank was small at first, being largely confined to speculation in public funds; but a few notes were put in circulation in Madrid, where alone the Bank was permitted to issue; though it was authorized to open offices and establish agencies wherever it chose to do so. The sluggishness of commerce and industry in Spain, and more especially the narrowness of the Bank’s sphere of activity arising from its inability to circulate its notes beyond the limits of Madrid, made it impossible for the institution to gain any valuable result from its own proper business; and it could not survive except as an essentially governmental enterprise. During the first three years of the Bank’s existence no special attention was paid to commercial discounts, and in its reports it groups together under one heading that important branch of its business and its dealings with the Treasury. As a matter of fact, the Bank was merely speculating in rentes and in its own shares. One peculiar fact in the situation was the reluctance of the Bank to issue notes; the Government was constantly urging it to make such issues, and it was constantly refusing. Its wish was to act merely as agent of the Treasury; to make advances to it on good security, and to utilize its capital in speculation; it did not even comprehend the utility of loans on collateral, and against being compelled to publish reports it protested in the following language, which merits a reproduction: “The vaults of the Bank ought to conceal the mystery of credit, which its books reveal alone to the initiated. To publish this mystery is to destroy its value.” And yet, though it fulfilled but imperfectly the duties of a bank of issue, the Bank of St. Ferdinand rendered valuable services to Spain. The scarcity of its bills and the care with which it watched over them kept them at par with specie; moreover, it maintained correspondents abroad, through whom it negotiated the drafts of the Government upon its colonies, thus furnishing to Spain available funds in Paris and London, with which to replenish her gold supply and conduct her exchange operations.

Meanwhile the King, Ferdinand VII., had died, leaving his throne to his daughter Isabella, in derogation of the Salic law and to the prejudice of his brother, Don Carlos. The latter, supported by the Absolutists, began a war which ravaged Spain for the next six years. The Bank was compelled to make many large advances to the Government to enable it to withstand the insurrection. These loans were constantly renewed and never repaid, and the Bank of St. Ferdinand followed precisely in the footsteps of the Bank of St. Charles. Foreseeing the danger to which it was exposed, the Bank began to scrutinize the security offered by the Treasury and to restrict its credit. The Government retaliated by disowning the Bank of St. Ferdinand and raising up a formidable rival against it.

BANK OF ISABELLA II.

A decree of January 25, 1844, established a new bank of issue, to be known as the Bank of Isabella II. The Bank of St. Ferdinand then recognized the necessity of abandoning its ancient methods and appealing to the public. It offered to discount paper and to loan more freely than in the past, and solicited the opening of accounts current. At the same time, it managed to have the limit of its circulation increased from 24,000,000 reals to 60,000,000, and it refused to accept the notes of the Bank of Isabella II. It aimed a more dangerous blow at the new institution by establishing a clearing-house for bourse operations; a device from which the Bank of Isabella II. had hoped to reap some advantage. Two years later, however, the Bank of St. Ferdinand closed its clearing-house, because it had resulted in serious losses. The rivalry of the two banks gave a decided impetus to speculation. The Bank of Isabella II. placed all of its resources at the disposition of a small number of speculators; one of them in the course of three years obtained loans aggregating 188,000,000 reals, and another 116,000,000. Of the 1,019,000,000 reals loaned during that time, 786,000,000 were borrowed by thirty-two persons. The natural effects of such management soon made themselves felt. The crisis of 1847, which was so severe in France and England, did not leave Spain unscathed. The two banks, which had been mutually harmful, had fallen into the most deplorable condition; and the Minister of Finance, Don Ramon Santillan, was upon the point of compelling them both to go into liquidation when he quitted the Ministry.

THE TWO BANKS CONSOLIDATED—REPEATED RECONSTRUCTIONS OF THE CONSOLIDATED INSTITUTION.

The new Minister, M. Salamanca, thought that a more convenient and speedy remedy was to be found in consolidating the two institutions. By a royal decree of February 25, 1847, the two banks were made into one, bearing the name of the older. The fusion was an act of gross injustice toward the Bank of St. Ferdinand. True, its resources were not available; but at least it had the State for chief debtor, while the assets of the Bank of Isabella II. consisted of a mere confused jumble of credits, most of them worthless. The Bank of St. Ferdinand was so completely at the mercy of the State, to which it had delivered up practically the whole of its possessions, that it did not dare to protest against the combination, but was constrained to acquiesce.

The capital of the new bank was fixed at 400,000,000 reals, half of it to be paid in in cash. It was empowered to issue notes to an amount equal to its capital, and to establish branches wherever there was no local bank of issue. Its charter was to run for twenty-five years; it was required to publish a balance-sheet at stated intervals, and was forbidden to issue any note of a less denomination than 500 reals. According to the report of the commission appointed to appraise the securities held by each bank, the assets of the Bank of St. Ferdinand amounted to 372,413,342 reals, and those of the Bank of Isabella II. to 197,197,424 reals. There was not much to be deducted from the assets of the Bank of St. Ferdinand, but against those of the other there were very considerable offsets, the result being that the new institution found itself heavily incumbered from the very first, and that, too, at a time when commercial affairs were steadily becoming more serious. The crisis which began in 1847 had been followed in France by the Revolution of 1848, which disturbed the greater part of Europe. The consequences were distinctly felt in Spain, and her financial embarrassment was greatly increased by it. The cash reserve of the Bank was growing smaller, while its circulation was increasing and the Government was demanding further loans. To complete the Bank’s misfortunes, an investigation showed that it had been a victim of thefts and embezzlements to the extent of 60,000,000 reals. At this juncture, a new Finance Minister, M. Mon, determined to reorganize the Bank upon the model of the Bank of England. By a decree of September 8, 1848, a special issue department was created, distinct from the banking department, to be managed by a council composed of officers of the State, of the Treasury, and of the Bank itself, and two merchants of Madrid. This department was empowered to issue notes to the extent of 100,000,000 reals, guaranteed by State securities and a metallic reserve of 33,000,000 reals. The Bank was required to publish a balance-sheet every week. The new department withdrew about half of the outstanding circulation and thus raised the credit of the notes. But, unfortunately, it soon began to encroach upon the banking department, and each of the two branches of the institution interfered seriously with the work of the other. Nevertheless, some progress had been realized. A monopoly of future circulation had been secured and the practice of allowing the establishment of local banks of issue in the different cities of the kingdom was abandoned in favor of a single bank.

M. Ramon Santillan, appointed governor of the Bank, made it his first duty to look carefully into its actual situation. It was not promising. The assets consisted of 53,726,922 reals in specie and collectible securities, 82,052,885 reals of Government debts, 51,613,451 reals of contested claims, and 205,083,476 reals recovery of which was extremely doubtful, the greater part of this item consisting of loans made by the Bank of Isabella II. To sum up, of a capital of 200,000,000 reals, 110,500,000 might be considered as practically lost. As a first step toward reform, M. Santillan carefully separated the collectible securities from those of doubtful value; he collected all those that were recoverable, and with the 80,000,000 reals thus secured he reduced the capital to 120,000,000 reals; the two departments of the Bank were then united. On February 18, 1852, all of these reforms were enacted into law. Shortly afterward, the Finance Minister determined to take away from the Bank the management of the public debt and the collection of provincial taxes. To this end, he established a deposit office, which undertook to pay interest to depositors, and was required to accept all moneys in the hands of the courts and all bail moneys. This bureau established branches and opened accounts current, but it never paid the interest it promised, and soon fell into discredit. It thus became necessary to have recourse again to the Bank, which advanced money to pay the arrears of interest on the foreign debt, and guaranteed various State loans. From this time forth the Bank accumulated State securities with great profit to itself, if we look merely to the gains appearing upon the face of the transaction, but greatly to the dissatisfaction of its note-holders. A day of settlement was fast approaching, and the Government, having no means with which to meet the demands of the Bank, determined to reorganize it.

CHAPTER II.

THE BANK OF SPAIN.

ITS ORIGIN.

IN pursuance of the conditions above recited, and the determination to reorganize the embarrassed Bank, on January 28, 1856, a law was enacted providing that the institution should thenceforth be known as the “Bank of Spain”; that the franchises of the Banks of Barcelona and Cadiz should be continued for the term for which they were originally granted, and that the Bank of Spain, at the expiration of one year, should establish branches in the capital cities of nine provinces. Notwithstanding the Government’s intention to confer an exclusive franchise upon the Bank, a Deputy secured the adoption of an amendment by the terms of which private banks might be established with the same privileges granted by the law to the Bank of Spain. The effect of that amendment was to confine the business of the Bank of Spain to the city of Madrid. Nevertheless, the scope of its operations was somewhat enlarged, inasmuch as it obtained permission to make loans upon the shares of manufacturing and trading corporations.

The year 1857, which was signalized by a very severe and general crisis, was a critical time for the Bank. It was fairly successful in meeting the difficulties of the year, though for a brief interval it was compelled to suspend the redemption of its notes. During the following years, periods of tranquillity and of anxiety alternated, but there is nothing of special note to be recorded, except a constant increase of the State’s indebtedness to the Bank, and a gradual disappearance of Spanish silver coin; which was melted and exported in consequence of the appreciation of the white metal; which afterwards equally happened to the coins of the countries composing the Latin Union. In its embarrassment, the Government had induced the Bank to discount the obligations incurred through purchases of national property; but these assets had not a high degree of availability, and they did not constitute a strong element of the Bank’s resources. In 1862, the Government conceived the plan of issuing interest-bearing mortgage notes, due at fixed dates, and payable from the proceeds of past and future sales of national property. In 1864, the Government proposed to the Bank that it undertake the issue of these mortgage notes, the payment of interest upon them, and their final redemption; it was to receive as security all the obligations of purchasers of national property, and to enforce payment of them, at a commission of one per cent. The amounts recovered, it was to hold as security for future issues of mortgage notes. The Bank agreed to undertake this service, and as a result of the contract thus formed, a statute of June 26, 1864, provided: (1) That the obligations of the purchasers of national property arising out of mortmain should be delivered to the Bank on and after July 1, 1865, to the extent of 17,000,000 reals; (2) that the Bank should issue 1,300,000,000 reals of mortgage notes, payable to bearer, transferable by indorsement, bearing interest at six per cent., to be drawn for redemption, by lot or otherwise, at the option of the Government. A fund of 200,000,000 reals was to be set apart as security for interest payments and a semi-annual redemption; (3) that the mortgage notes should have the quality of public securities, and after their due dates should be accepted, at their face value, in all payments to public departments; (4) that the Treasury should make good to the Bank all defaulted obligations of purchasers of national property. The Bank received in settlement of its claims against the State 500,000,000 reals in mortgage notes.

In view of the closer relations thus established between the State and the Bank, the capital of the institution was thought to be too small, and, accordingly, it was increased to 200,000,000 reals. In spite of the fact that the union of Bank and State was constantly becoming closer, the Minister of Finance, on April 4, 1866, proposed, in behalf of certain English capitalists, that a bank of issue and discount be established under the name of the Banque Nationale Espagnole. The Bank, seconded by a vigorous public opinion, stoutly opposed this project, and it was abandoned; but the incident furnishes a good example of the dangers and contests to which the Bank was constantly exposed. Once assured of its franchise, however, the Bank showed itself more and more disposed to enter into closer relations with the State; accordingly, by a law of June 29, 1867, to go into effect on July 1, 1868, it was intrusted with the collection of taxes in all provinces and places where the office was vacant, and as fast as other collectorships fell vacant they were to be turned over to the Bank. The original term of the agreement was eight years, but it might be extended or renewed.

In 1868, Queen Isabella II. was dethroned. The new government evinced a friendly disposition toward the Bank, which, on its part, had been of considerable service to the Government. They maintained amicable relations, but the Bank was constantly called upon to furnish supplies to the State under one form or another.

GRANT OF EXCLUSIVE PRIVILEGES TO THE BANK.

The year 1874 marks the starting-point of a thorough transformation and reorganization of the Bank. In a report made to President Serrano on March 19, 1874, the Minister of Finance, M. José Echegaray, expressed himself thus:

This statement ws accompanied by a document containing the proposed regulations of the bank, in eighteen articles, all of which were enacted into law on July 17, 1876. Unfortunately, the new bank, which, as the report of the Finance Minister shows, was founded upon national principles, was not long in becoming a mere servant of the Government. By an agreement made on August 4, 1876, it undertook, for a period of twelve years, the collection of all direct taxes, and during the first year after its organization it came into possession of 200,000,000 reals of State obligations. From this time forth, the confusion of Treasury affairs with the business of the bank constantly increased and became more harmful. In 1882, the bank was intrusted with the payment of arrearages of the public debt in Spain and abroad. Another step much more open to criticism was that which consisted in farming out to the Bank of Spain the revenues arising from the Tobacco Monopoly. True, the bank organized for this purpose a lessee company, the “Compañia Arrendataria de Tabacos”; but the bank itself was the largest shareholder in that company; it held stock of the value of 12,270,000 pesetas, paying for them not out of its capital, but with its circulating notes.

The contract between the Treasury and the bank by which the bank undertook the collection of taxes expired by limitation on June 30, 1888. It had frequently been a source of loss to the bank and it was not renewed. A law of May 12, 1888, placed the seal of approval upon another contract, in accordance with which the bank, through its main office at Madrid and its branches, was to have the custody of all the revenues under control of the Finance Minister and the Treasury; upon the security of these revenues the bank undertook to pay all claims against the Treasury. These receipts and payments made on behalf of the State formed an account current, productive of interest in favor of the bank, but not in favor of the State. By the terms of the same contract, the bank bound itself to purchase gold bullion to the value of 300,000,000 pesetas and to have it coined, the expense being shared equally between the bank and the State.

In 1891 there was a sudden change for the worse in the financial condition of Spain. The Government, heavily in debt as usual, turned once more to the bank, granting in return for the assistance it demanded, an extension of the charter (originally expiring in 1904) to 1921, and an increase of the bank’s circulation to 1,500,000,000 pesetas; on its part the State demanded a permanent loan of 150,000,000 pesetas, without interest, of which 50,000,000 pesetas was to be forthcoming on July 1, 1891, 50,000,000 pesetas on July 1, 1892, and 50,000,000 pesetas on July 1, 1893. The effect of these measures was instantaneous. There was an immediate fall in Spanish exchange, not only as a result of an adverse balance in international demands, but also by reason of an intrinsic depreciation of Spanish paper; and from that date to this, Spanish exchange on foreign countries has remained below par; but this is a subject to which we shall have occasion to return farther on.

ORGANIZATION OF THE BANK.

The Bank of Spain, whose franchise was originally granted for thirty years from March 19, 1874, now has a charter extending to December 31, 1921. It exercises its powers not only upon the Continent, but throughout the neighboring islands, including the Canaries. Its franchise is an exclusive one, for of the eighteen provincial banks in existence in 1874, eleven were absorbed by the Bank of Spain and the other seven have gone into liquidation. Though the Bank of Spain is a private institution, any theft or embezzlement of which it may be the victim is punished as a crime against the State.

Its main office is at Madrid, and throughout the provinces it is represented by branches, subsidiary offices, or correspondents, according to the commercial importance of the place.

Capital.—The capital, fixed at 100,000,000 pesetas by the decree of March 19, 1874, was increased to 150,000,000 pesetas by vote of a shareholders’ meeting of December 17, 1882, approved by royal decree on the 23d of the same month. The capital is divided into 300,000 registered shares of 500 pesetas each; a share being indivisible in its relations with the Bank, which refuses to recognize more than one person as having an interest in any share. The shares may be invested with all the properties of real estate.

Stockholders’ Meetings.—Ordinary meetings of stockholders are composed of those who have been recorded for three months as having legal or equitable title to at least fifty shares. Stockholders cannot be represented by proxy, with these exceptions: Married women, minors, corporations, and public and private associations may appear through their usual representatives, and widows and unmarried women of legal age may be represented by agents appointed for the purpose. Each member of the meeting has only one vote, without regard to the number of shares he may own or represent. Stated meetings are held at some time within the first fifteen days of March, the precise date being announced before the first of February each year by publication in the “Madrid Gazette.” A report of the year’s business is submitted to the meeting, accompanied by a balance-sheet and an account of profits and losses, and the members may inspect the books and documents upon which these reports are based. The meeting passes upon the management of the Bank, chooses the members of its Administrative Council, and votes upon such propositions as may be submitted to it by the Council or by one of its own members. A special meeting of the stockholders may be convened at the request of the Administrative Council, or upon a petition setting forth the grounds upon which it is issued and signed by 100 stockholders who have been in possession of fifteen per cent. of the capital stock for more than three months last past.

The Governor.—The affairs of the Bank are managed by a governor, two under-governors, and the Administrative Council (Conséjo de Gobiérno). The governor is appointed by the King, and is at the same time head of the administration and representative of the State in its relations with the Bank. The duties of the governor are: (1) To preside over meetings of the stockholders and of the Administrative Council, and, when he so elects, over the deliberations of standing and special committees; (2) to supervise all dealings of the Bank, subject to the laws of the State, the regulations and by-laws of the Bank, and the advice of the Administrative Council; (3) to sign, in the name of the Bank, all contracts and agreements, and to manage all judicial and extrajudicial controversies to which it may be a party; (4) to sign all the correspondence of the Bank, or to authorize an under-governor to sign it; (5) to appoint, with the advice of the Administrative Council, all employees of the Bank, and to revoke any appointment, reporting the facts to the Council; (6) to nominate to the Council candidates for heads of departments; (7) to veto all discounts, loans, and other transactions determined upon by the Council or by any committee, when they appear to be contrary to law or to the rules and regulations of the Bank. If the Council persists in its view, it becomes the duty of the governor to refer the whole matter immediately to the Minister of Finance. The governor supervises and directs the work of all employees of the Bank. He acquaints himself with the standing of all business houses, and passes upon the question of loans to them. The governor and under-governors have a deliberative voice in the discussions of the Council and in those of the committees, except when their own acts are under investigation. The governor has a casting vote in the Council and in all committees except the Executive Committee. The governor cannot dispose of the funds of the Bank by drafts, discounts, loans, payments, or any other means. He cannot bind the Bank by any signature given without the consent of the Council or a committee. It is his duty to advise the Council as to the progress of the general business of the Bank, and the final result of all transactions that require to be kept secret until their completion.

The Under-governors are appointed by the King from names submitted by the Administrative Council. They sit in the Council under title of First and Second Under-governor, and succeed to the duties of the governor in the order of their seniority. The governor intrusts to them such of his duties as do not seem to demand his personal attention. In case of the absence or impeachment of the governor and under-governors, they are replaced by members of the Executive Committee in the order of their seniority. The governor and under-governors take an oath of office before the Administrative Council, in the usual form; promising to execute the duties of their office faithfully and loyally, to enforce the law and the rules and regulations of the Bank, and to devote their best efforts toward ensuring its prosperity. The under-governors can be removed from office upon motion of the Council or by the Minister of Finance, acting in his official capacity, with the concurrence of the Administrative Council of the Bank and the Council of State, the accused being always entitled to a preliminary hearing. The governor must be a resident of Madrid, and he cannot leave the city without permission of the King. The governor and under-governors cannot offer bills to the Bank for discount, nor borrow of it upon collateral, nor be accepted as personal security for any debt due to it. The governor is not required to furnish a bond. The under-governors, before entering upon the duties of their office, are required to deposit fifty shares registered in their names. These are not returned to them until all of their official acts have been passed upon and approved by a stockholders’ meeting.

The salary of the governor is 25,000 pesetas at least, and that of an under-governor is 12,500 pesetas, all paid by the Bank.

The Administrative Council is chosen by the shareholders, subject to approval of the King. No one is eligible to the Council except residents of Madrid who have owned 100 shares of the Bank’s stock for three months before the date of their election. These shares are inalienable during their continuance in office and until their administration has been approved by a stockholders’ meeting. The following are not eligible to the Council: Aliens, insolvents, bankrupts who have not been rehabilitated, persons who have been condemned to imprisonment or any corporal punishment, and those who owe any overdue debt to the Bank. The Council cannot contain more than one member of the same firm or special partnership, or more than one director of the same corporation, the single exception being that in favor of the directors of the Compañia Arrendataria de Tabacos. Neither can there sit in the same Council those related within the fourth degree by consanguinity or marriage. The councilors are eighteen in number, of whom twelve are regular and six alternate members. The latter are called upon, in the order of their seniority, to replace any regular members who may be absent. The term of office is four years; one-fourth of the members go out of office each year, but they are re-eligible.

Attendance Fees.—The governor, the under-governors, and the councilors are entitled to attendance fees, the total amount so payable being fixed at 375 pesetas per meeting, to be divided among those who are present. There is no other remuneration except such as may be voted by a meeting of the shareholders.

The duties of the Administrative Council are: (1) To determine the order and form in which the books of the Bank are to be kept; (2) to fix the amount, the number, the denomination, and the form of notes to be issued; (3) to decide how much money is to be devoted to discounts and loans, the rate of interest, and the formalities to be required of borrowers; (4) to establish branches and subsidiary bureaus and appoint their managers; (5) to supervise all the business of the Bank and its branches, and especially transfers of funds; (6) to examine the semi-annual accounts of the Bank, and determine the dividends to be paid and the amount to be added to the reserve; (7) to see that the rules and regulations of the Bank are enforced; (8) to determine the number, classification, and salaries of the employees engaged by the governor, and to nominate candidates to the places to be filled by appointment of the King; (9) to fix the dates for the regular stockholders’ meetings and for such special meetings as the by-laws provide for; (10) to appoint provincial and foreign agents and correspondents; (11) to approve the report and the statement of profits and losses submitted to the stockholders at their stated meetings; (12) to bring before those meetings all questions requiring their attention; (13) to draft the Bank’s by-laws, and to amend them in such manner as may meet the approbation of the Government.

Aside from their duty as a body, the councilors may, individually, proffer such advice and make such suggestions as seem to them likely to further the interests of the Bank. The Council holds a stated meeting each week, and may be called together in special meeting by the governor as often as necessary. The Council is divided into four committees—an Executive Committee, a Committee on Branches, an Administrative Committee, and an Auditing Committee. The Executive Committee and the Committee on Branches consist of three members each, chosen by the Council, renewable by thirds every four months, and indefinitely re-eligible. The Council also appoints an alternate to replace any absent member of these committees. The other committees consist of three members each, chosen from month to month. It is the duty of the Executive Committee to examine paper offered for discount, pass upon requests for loans on collateral, and to supervise all contracts and undertakings directly connected with transfers of specie or securities. The Committee on Branches superintends the management and the transactions of the various branches of the Bank. The Administrative Committee attends to the management of the different departments of the Bank, the printing of the notes, the expenditures of the Bank, and its suits at law. The Auditing Committee inspects all the accounts of the Bank, and looks to the safe-keeping of its funds and securities. The Administrative Council is empowered to appoint special committees in case of need. The committees are heard upon all questions coming before the Council, except in matters requiring haste, and they give advice upon all propositions submitted to them by the governor; they may also initiate such measures as seem to them expedient or for the best interests of the Bank.

Branches and Subordinate Offices.—The Bank, with the approval of the Government, may establish branches or subordinate offices wherever the needs of commerce or industry seem to require them. They are an integral part of the Bank itself, and can only undertake such business and establish such relations among themselves as are authorized by the Council. The administration of each branch includes a manager and a number of directors to be fixed by the Administrative Council, provided, however, that there shall in no case be more than eight regular directors and four alternates. The number, classification, and salaries of all employees are also determined by the Administrative Council.

The Manager is appointed for three years by the Council, subject to approval of the King, and is re-eligible; he furnishes security for the proper performance of his duties, consisting of shares of the Bank. The manager is the chief executive officer of the branch; he opens the correspondence and executes the orders of the governor.

The Directors are appointed for three years by the Administrative Council, are re-eligible, and are required to furnish security. Whenever any branch has at least thirty registered stockholders, each having been in possession for more than three months of at least ten shares, they are called together in a stockholders’ meeting, the manager of the branch presiding, and they draw up a list of candidates for the directorship, containing three times as many names as there are directors to be chosen; this list is submitted to the Administrative Council, which chooses directors from among the names upon it.

The manager and the directors make up the Governing Council of the branch, determining all questions over which the regulations of the Bank give them jurisdiction and all such as are submitted to them by the Administrative Council. The Governing Council appoints an Executive Commission, having the same duties with regard to the business of the branch that the Executive Committee has in matters affecting the central bank.

Agents.—From nominations made by the Committee on Branches, the Administrative Council appoints agents (comisionádos) to represent the Bank in Spain or abroad. The agents attend to such business as the governor may intrust them with. They furnish security consisting of shares of the Bank, and they are personally responsible for all paper they accept in behalf of the institution; they are paid by commissions fixed by mutual agreement.

BUSINESS OF THE BANK.

Accounts Current.—The governor opens accounts current with all individuals and associations who demand the privilege and fulfill the conditions required by the Council. The first deposit, in Madrid, must be of at least 2500 pesetas, or 1000 pesetas at any of the branches; subsequent deposits must not be less than 250 pesetas each. No interest is paid upon accounts current. Holders of accounts current dispose of the amounts standing to their credit by means of cheques or transfer slips, and can make their notes payable at the Bank. The Bank furnishes to them gratuitously blank cheques, with stubs attached, which can be made payable to any person by name, or to bearer. No cheque can be drawn for less than 125 pesetas, except to close an account. Anyone who makes an overdraft may be required to withdraw his account. Deposits and withdrawals in accounts current may be made by correspondence. The following statement, expressed in millions and hundreds of thousands of pesetas, will be found of interest:

Discounts.—The Bank draws up a list of those to whom it is willing to grant discounts, and indicates upon it the maximum credit to be allowed to each. It discounts notes payable to order and bills of exchange drawn in legal form, provided they bear the signatures of two persons, of whom one at least must be upon its credit list and must live in the neighborhood of the place of presentation. It discounts also coupons of the public debt and bonds drawn for redemption. Usually the term for which the paper is to run must not exceed ninety days, and the amount must not exceed that shown upon the credit list; but if the paper bears three signatures, two of which are upon the Bank’s credit list, it may be accepted though not due for 120 days, and though the amount is greater than that inscribed upon the list. The total of these latter discounts must not exceed the funds remaining available to the Bank after covering with its cash and ninety-day bills all of its demand liabilities; that is to say, its circulation, accounts current, and specie deposits. Public securities taken as collateral for a loan may replace one of the required signatures. The Bank is sole judge as to the acceptance or refusal of paper offered for discount, and it is not bound to state the grounds of its decision.

The Discount Rate.—The discount rate is fixed monthly or oftener; it is the same for all persons, but not necessarily the same at Madrid and at the branches. Spain, being a country with no large accumulations of capital, maintains a rate of discount distinctly higher than that of France, Belgium, or Switzerland; but it has a double standard, the Bank will not pay out its gold, and silver pesetas cannot be exported; and from these facts it results that the rate of discount, notwithstanding the unfavorable situation of exchange and the premium on gold, remains within reasonably moderate limits.

Collections.—The Bank undertakes the collection of any paper left with it ten days before the due date. Those having accounts current with the Bank, but not living in its vicinity or in that of any of its branches, may forward by mail any paper they wish to have collected. The Bank will present the paper for acceptance or for payment, and will protest it if necessary. Proceeds of collections cannot be withdrawn until a week after the due date of the paper.

Exchange Operations.—The Bank is authorized to deal in exchange, either for the purpose of transferring to the central office any funds it may have in the provinces, or in foreign countries, or for the purpose of transferring funds from the main office to any place where they may be needed. The rates of exchange are fixed daily, and a list of them is made, to which the public has free access. Bills of exchange signed by the governor and payable wherever the Bank has funds are sold to all who ask for them. In order to make a transfer of funds upon its own account, the Bank is authorized to purchase domestic or foreign bills.

Loans.—The Bank makes loans on public securities, exchequer bills, mortgage bonds, railroad bonds, and other industrial and commercial securities; but it cannot loan upon its own shares. The maximum amount of a loan is eighty per cent. of the value of the security on the day the money is advanced; the minimum term is ten days, and the maximum ninety, except that loans may be made for 120 days under the same conditions that would justify the discount of paper having that number of days to run. The least loan made by the Bank is 500 pesetas; if the collateral loses ten per cent. of its value the borrower must deposit additional collateral or reduce his loan proportionately. The loaning rate is usually the same as the discount rate.

Loans on Bills of Lading.—To persons whose names are upon its credit list the Bank makes loans on bills of lading accompanied by invoices, and upon storage receipts issued by legally authorized warehouses. The merchandise must be insured, and the loan cannot exceed fifty per cent. of its current market value.

Special Deposits.—The Bank accepts on special deposit Spanish and foreign coin, gold and silver bars, precious stones, State funds, and all securities quoted on the Bourse. The receipts delivered by the Bank are or are not transferable by indorsement, at the will of the depositor. The minimum deposit of gold or silver or precious stones is of the value of 250 pesetas, and the maximum 75,000 pesetas. The commission for the first year is one-half of one per cent. per quarter, or two per cent. for the year; for the following years it is one per cent.; a whole quarter’s commission is charged for any period less than a quarter. The only obligation assumed by the Bank is that of returning the deposit intact. It undertakes to collect coupons of bonds deposited. No commission is charged upon deposits of specie unless the depositor demands a return of the identical coin deposited.

Accounts Current of Securities.—We find at the Bank of Spain one very interesting class of business (though it is there transacted in a somewhat rudimentary manner), the counterpart of which is not to be found elsewhere, except in Germany and Austria in those private establishments known as “Giro und Kassen Verein.” We refer to accounts current of securities. Any depositor who wishes may open such an account; he can withdraw his securities by means of cheques or drafts, but a separate account current must be opened for each different kind of security, and this necessitates a very complicated system of bookkeeping.

On December 31, 1894, the Bank had in its possession, including special deposits, pledges, securities belonging to the State and those in the custody of the courts, a mass of securities estimated to be worth 5,651,848,503 pesetas. This is one of the largest amounts, if not the very largest, to be found in any European bank of issue.

The Bank also deals in gold and silver.

ADMINISTRATION OF THE COIN AND PAPER CIRCULATION.

By decree of 1874, the Bank of Spain acquired the right to issue paper money to five times the amount of its capital; but its metallic reserve had to represent one-fourth the outstanding sum of the circulation. The law of July 14, 1891, modified those regulations. It authorized the Bank to carry its circulation to 1,500,000,000 pesetas upon a metallic reserve equal to one-third of that issue; the reserve must be at least fifty per cent. in gold, whilst the remainder or any part of it may be in silver. In no case can the amount of the circulation, together with the current accounts and deposits of securities, exceed the total of the coin on hand together with the aggregate of advances and commercial paper; included in the latter item there must be no bills receivable which have more than ninety days to run. Bonds of the four per cent. Public Debt, shares of the Tobacco Monopoly, Treasury bonds which are issued upon the security of the Tobacco Monopoly, and also bills of exchange and Treasury bonds of the floating debt are constituents in the guaranty fund for the issue of circulating notes.

In authorizing the increase of the circulation, the State had its eye primarily upon a permanent loan of 150 million pesetas, and it looked forward to advances which grew gradually upon the security of Treasury pay orders. The public was not deceived; it became convinced that the scrip was badly guaranteed, and the provisions of the law brought about a considerable increase in the rate of exchange. The premium on gold had remained, in 1890, between a maximum of 4½ and a minimum of 1½ per cent.; the variations of 1891 were significant, as will appear from the following comparison of the fluctuations in the gold premium.

The deterioration of exchange was too closely parallel with the working of the new law to preclude the conclusion that it was the simple relation of cause and effect. The protective measures which France took against Spanish exportations, and vice versâ, have still further aggravated the evil, as Spain is heavily indebted to France, through her having constructed the larger part of the Peninsular railroads with French capital, while France, moreover, holds a considerable amount of Spanish Government bonds. There is no doubt that the credit of the bank notes has suffered thoroughly from these commitments. Meanwhile, the Bank’s metallic reserve has grown continually, as the following statement of the metallic coin stock on hand on December 31st will show:

The coin stock consists of gold and silver, the latter being on an equal legal status with gold; but as Spain is not in the Latin Union, she cannot export her white metal. Consequently, she has a large store of money which is absolutely deceptive; for the duro, the 5-pesetas piece, is intrinsically lower in value than the paper money at the present price of silver. The Bank is always ready to pay out the duro, but refuses, absolutely, to pay in gold, as the paper is preferred to silver, which is not as much in use as the paper. Spain, although theoretically a free-currency country, is practically under the régime of forced currency. Besides, the legal prescription that the metallic reserve should consist of at least fifty per cent. in gold is not observed.

We give the composition of the coin stock of the Bank on December 31st, for seven recent years:

The variations of the metallic stock are not of wide range, as virtually only silver is to be found in circulation.

The fluctuations in the Bank’s stock of coin are not abnormally wide, as will appear from the following comparison:

THE CIRCULATION OF THE BANK.

The amount of the circulation of paper swells from year to year, on account of the incessant wants of the Government. Each business year means to the Bank an added weight to the burden which it carries in the paper of the State; which is the principal, if not the veritable guarantor, of the Bank’s notes. The following statement shows the steady augmentation of the issues for the twenty years ending with 1894:

DENOMINATIONS OF THE NOTES.

The denominations are of 25, 50, 100, 125, 250, 500, and 1000 pesetas. The distribution of the circulation, as to denominations, stood, in December, 1894, as follows:

A peculiar circumstance is that the only denominations which are virtually useful in Spain are those of 1000 and 100 pesetas.

LIABILITIES VERSUS ASSETS.

Spain may be taken as a type of the countries “whose exchange is wrecked,” to use an expression of M. Leroy Beaulieu. The bad condition of the exchange is easily understood, if we consider that the credit of the Bank and of the State are merged into one. An examination of the balancesheet of December 29, 1894, will show that the Bank has neither capital nor reserves; thus—

These are absorbed by

On the other hand, the debts payable on demand consist of:

To meet these obligations, the Bank owns the following assets, which are, indeed, realizable funds, or supposably so:

Consequently, the Bank owes demand debts to the amount of 438,022,522 pesetas, which are represented purely by State scrip, which is rather difficult to turn into cash. The State securities so held are:

There is no doubt that if Spain had not its system of bimetallism, which allows it to pay its debts in silver which nobody wants, she would have been long ago under a forced currency régime. The 482,400,000 pesetas of Treasury securities which the Bank holds are a genuine asset; but they represent obligations of a State heavily in debt; and it can hardly be considered that a bank note which is secured by 275,000,000 of silver worth fifty per cent. of its face value and by 482,000,000 of securities whose value is far from being unquestionable, is equal to its face value in gold. The public understand the situation; and therein lies the principal cause of the unfortunate condition of the paper and coin circulation and of the Spanish rate of exchange.

RELATIONS BETWEEN THE BANK AND STATE.

The law of March 19, 1874, stipulates that the Bank can only negotiate public securities or make advances to the State upon substantial guaranties which can be readily turned into funds. This principle has been clearly violated by the law of July 14, 1891, by which the Bank was compelled to loan the Treasury 150,000,000 pesetas without interest. Reimbursement of this loan cannot be demanded before the expiration of the Bank’s privilege. The payment of debts owed to the Bank by the State, the provinces, and municipalities cannot be delayed in any case and the debtors cannot refuse settlement. Originally, the Bank had charge of the tax collections; but now it is released from this service. According to a law of May 12, 1888, however, it must undertake the State Treasury business for five years upon the following terms: It must gather the product from all sources of revenue of the State and centralize it at Madrid and the provincial branches. For this purpose, all administrations under the Ministry of Finance, who are in charge of the management and collection of revenues, must pay their receipts into the Bank. As in former contracts, the Bank paid the interest and assessments for the redemption of the four per cent. debt, and for the foreign two per cent. debt, by taking the necessary funds out of the taxes and revenue paid in. If necessary, the Bank may make advances, and if a balance in its favor appears it is entitled to interest at one per cent. less than the discount rate; this rate of interest, though, cannot exceed three per cent. The debit balance of the Treasury is guaranteed by three months’ paper which can be renewed until expiration of the agreement. In case of grave, exceptional events, the maximum of interest is subject to change. The Treasury has a current account at the Bank, in which payments are credited and drafts by the Treasury debited. This account is settled every three months. The Treasury pays interest on debit balances as stated above; the Bank pays no interest on credits in favor of the Treasury. Such credits serve for the settlement of disbursements made by the Bank. If the balance due the Bank exceeds 165,000,000 pesetas, the Treasury must issue certificates at three, six, or nine months’ maturity and hand them over to the Bank, which can negotiate them in order to reduce the open debt of the Treasury to 165,000,000 pesetas. The Bank redeems these certificates for account of the Treasury and charges them to its debit. It also collects funds due the Treasury in foreign places, and supplies the funds for the payment of the public debt and other obligations of the State wherever this may be necessary. The Treasury is charged with the expense of such transactions. The agreement, which expired on June 30, 1893, was extended until June 30, 1894, since when it runs on from year to year by tacitly implied acknowledgment.

In order to meet a deficit of about 750,000,000 pesetas, and the extraordinary expenses of the Carlist War in 1876, the Minister of Finance transferred to the Bank the proceeds of the ground and manufacturing taxes, as guaranty of an issue of 580,000,000 pesetas in pagarés (promissory notes), and a reserve fund of 70,000,000 pesetas set aside to ensure the payment of interest, and the gradual redemption of these obligations. This agreement was made by virtue of a law dated June 3, 1876. This issue was made at eighty-five per cent., which netted only 493,000,000 pesetas, and the Government entered into a new arrangement with the Bank, by which the Treasury certificates which were paid and returned to the Treasury were again applied to guaranty the floating debt, which, consequently, cannot decrease.

In order to regulate the service of the floating debt the Bank has had a current account with the Treasury since July 1, 1888. All remittances of Treasury certificates are placed to its credit, and negotiations of these securities by the Bank for State account are charged to the debit of this account.

It is interesting to watch the distribution of the Spanish debt abroad. The places of payment, as judged by the currency, are scarcely a precise guide in the matter, but they help to give a fair estimate:

The above table shows very clearly the effect of the deterioration of exchange on Spanish finances. The expenses caused by increased rate of exchange may be estimated at about 2,000,000 pesetas, for the period of July 1, 1888, to December 31, 1890. In 1891, they amounted to 800,000 pesetas; in 1892 they were 1,200,000 pesetas; in 1893, the cost was 2,400,000 pesetas; and the expenses of 1894 amounted to 2,200,000 pesetas. Still, it must be noted that, through the circumstance of the high Italian and Portuguese exchanges, Spain’s chances were essentially favorable for the payment of interest due in those countries. We speak here only of payments made for Government account, but, if we consider that the bonds of Spanish railroads are principally held in France, it becomes evident what a formidable increase in expenses these enterprises have to pay in consequence of the depreciation of the Spanish circulating medium. Hence, we can understand how certain railway companies considered French money too dear, and paid their interest obligations in depreciated pesetas, in violation of contract.

It is rather difficult to determine the amount of taxes which the Bank pays. The statements mention the following: First, ground tax and stamp duty; second, the tax on the profits, which seems to amount to about 16.50 per cent. of the dividends.

PROFITS AND EXPENSES OF THE BANK.

If the Bank of Spain is seriously embarrassed by the defective credit of its notes, which is due to its too intimate relations with a Treasury whose administration is utterly faulty, it makes, nevertheless, very considerable profits. We know of no other establishment which earns such an income for its shareholders.

The statistics of the profit and loss account can be established in a positive manner only since 1881.

The high proportion of the profits accruing on investments is the most palpable proof of the bad condition of Spain’s finances. A similar situation prevails in the Bank of Portugal and the National Bank of Greece. All States with “wrecked” finances use their principal credit establishment for the marketing of their signature, and pay very dearly for this dangerous service. The country suffers not only from the exorbitant sums which it pays to the banks, but still more so from the increased rate of exchange. A candid examination of these conditions warrants the conclusion that it would have been better to establish a State bank pure and simple. Such a bank would at least show merit in lending its signature gratis. A bank whose credit depends absolutely upon the State, and which stands responsible while it cannot offer opposition to the Government’s prodigality and bad management, has all the drawbacks of a State bank, with hypocrisy added.

RUNNING EXPENSES.

The running expenses of the Bank are considerable, as will appear from the subjoined statement covering fourteen years:

DIVIDENDS.

The dividends of the Bank are very favorable, and the Bank’s shares are quoted high, as will appear from the subjoined data:

REPORTS AND BALANCE-SHEET.

The Bank of Spain publishes annually a statement of its transactions. That document is rather explicit and well arranged; it contains numerous figures, some of which, though, are not sufficiently explained. The statement is a valuable source of information, which is extensively sought. Moreover, an abridged balance-sheet is published weekly, one of which we here reproduce:

The two first items of the assets give the amount of gold and silver which constitute the metallic reserve of the Bank. The third item represents outstanding debts of the Bank owed by foreign correspondents who buy exchange for the Bank and pay the interest on the public debt. In item 4 we have the foreign paper owned by the Bank. The fifth item represents the stock of commercial paper, and the sixth shows the loans made. Item 7 concerns commercial paper out for collection. From 8 to 13 the statement recapitulates the securities held by the Bank; we have already spoken of these in detail. Item 14 shows the amount of copper coin; the Bank receives this for Treasury account and does not carry it under the head of coin on hand. Item 15 gives the amount of the loans granted by the Bank for payment of interest on the floating debt; and No. 16 shows the expenses which the Treasury has to pay back to the Bank. The permanent loan of 150,000,000 pesetas, which resulted from the stipulations of the law of July 14, 1891, appears as the seventeenth item; while No. 18 declares the value of the Bank’s buildings. Finally, No. 19 consolidates the accounts of the Bank, which are not mentioned in detail.

In the liabilities, items 20 and 21 correspond to capital and reserve. The profit and loss account which follows indicates the profits of the running year, and the statement distinguishes between profits actually made and those which will be realized only after maturity of the engagements from which the profits are derived. Item 23 gives the paper circulation; next come current accounts and deposits in coin; then dividends of the Bank and interest on the public debt which has matured but not been called for as yet. Under item 27 we find the reserves made up from taxes which are set aside for the payment of the public debt; we explained this in detail before. Item 28 represents the current account of the Treasury; and the statement closes with the balances of open credits which the Bank has established against deposit of public securities.

CONCLUSION.

The Bank of Spain is one of the strangest institutions of issue in Europe. On the ground of the amount of its business and the high figure of its profits, it occupies one of the first places among banking establishments of its class; but this apparent prosperity conceals an incurable weakness. The Spanish financial administration leaves much to be desired. The budget is never made up in a thorough and responsible manner; deficits are the rule, and the floating debt, which widens the chasm between expenses and receipts, grows steadily. The Bank absorbs all Treasury certificates and orders for the redemption of its own notes, and so sells its credit very dearly to the State. The public is not duped by this transaction, and its misgivings find expression in the fact that the people are always ready to give 117 or 118 pesetas paper for 100 pesetas in gold. The old traditions of the Bank of San Carlos and the Bank of San Fernando are still extant, and the same faults cause the same calamities.

Of course, Spain has formally no forced currency; but while she boasts of exchanging her paper for hard money over the counter, she only bandies words. She proposes to pay for bank notes in a clumsy money which does not circulate abroad and which, instead of being preferable to paper, offers only drawbacks; she neither takes in nor pays out gold. According to the Gresham law, bad silver and paper have systematically driven away good money, and to-day not a single twenty-peseta gold piece can be found in Spanish circulation. Consequently, the Bank gives only the choice between paper or money which is worth still less, and yet forced currency is not acknowledged.

Nevertheless, the Bank’s signature lends a certain additional value to its paper money. Although the bank note is only redeemed in silver which has lost fifty per cent. of its metallic value, the paper is worth eighteen to twenty per cent. below par. In calculating the loss, two elements must be taken into consideration. First, the absolute depreciation of the paper money on account of the insufficient guaranty which it offers; and then the increased exchange owing to the ugly situation of Spain’s balance of trade. The country has no large capital and has to place Government loans with its neighbors. Spain depends upon them for her railroads, port and canal improvements, etc. The extremely large amount of interest which she owes abroad could only be counterbalanced by large exports of merchandise and products of the soil, and she needs a very severe control over her imports. Yet, in spite of an almost prohibitive customs tariff, which is often intensified by harsh interpretations of the officers in charge, Spain’s imports are constantly higher than her exports. Again, Spain’s wines, which constituted the main staple for export, are kept out of France, as the French vineyards which were destroyed by the phylloxera have recovered; and, moreover, France inaugurated a protective tariff in 1892. Thus there seems to be little hope for an improvement in Spanish exchange.

The bimetallist school has built quite a framework of theories to demonstrate that a high exchange against a country is favorable to the sufferer; that it develops its industries and foreign commerce; but such reasoning has scarcely been applicable in the case of Spain. She struggles with genuine courage against all kinds of difficulties caused by her bad economic conditions. The high exchange against her is its most striking symptom, and credit, which plays such an important part in the capital of a nation, is seriously compromised to the detriment of Spain. The Bank is accused—we think wrongly—of aggravating the evil by squeezing the Government.

If Spain does not resolve to issue paper money on her own account—which would seem to be advisable—and if she has not the wisdom or rather the opportunity to bring her expenses upon a level with her revenues, she is compelled to call upon the principal credit establishment of the country for discounts and for the disposal of Treasury bonds. It is natural, and even necessary, that the Bank should demand good compensation; for therein lies the only means for moderating the Government’s exactions. Spain suffers from the mistake which economists fight in vain—the error that the Government can do as it pleases with the money and credit of the country. Laws do not change the nature of affairs, and if matters are handled contrary to nature, immediate and sudden countershocks show that mistakes have been made, and those who danced must pay the piper.

Virtually, Spain is under forced currency rule. She has misused her Bank; she has deflected the bank note from its natural purpose; she has harvested as she has sown, and suffers from her errors the same as Italy, Portugal, Greece, and many others in the past and present. The decline of credit and the depreciation of the national money are the natural disastrous consequences which result from her course.