Front Page Titles (by Subject) CHAPTER II.: THE BANK OF PORTUGAL. - A History of Banking in all the Leading Nations, vol. 3 (France, Italy, Spain, Portugal, Canada)
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CHAPTER II.: THE BANK OF PORTUGAL. - Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 3 (France, Italy, Spain, Portugal, Canada) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 3 (France, Italy, Spain, Portugal, Canada).
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THE BANK OF PORTUGAL.
ITS CONSTITUTION, MECHANISM, AND MANAGEMENT.
THE Bank of Portugal has held since January 1, 1888, and virtually from 1891 for a term of forty years, the exclusive privilege to issue paper money payable on demand to bearer. Its notes are a legal tender, representing gold in Portugal proper and in its dependencies. The Government has the option of reducing the term of the concession to thirty years upon giving to the Bank five years’ previous notice.
Capital.—The capital amounts to 13,500 contos, which includes 5500 contos contributed by the addition of the capital of the former Bank of Portugal. The law allows an increase of the capital if the circulation rises above 25,000 contos. The stockholders of the old Bank of Portugal have the option on any new issues of shares at 120 milreis. The shares unsold at the time of reorganization were marketed on the Stock Exchange, and the premium obtained was applied to the reserve fund. The capital is divided in 135,000 shares of 100 milreis each. Each share entitles the holder to a pro rata interest in the company’s property and earnings; the stockholders’ liability is limited to the amount of shares they hold. The shares are registered or to bearer; they may be owned jointly by several parties, but the Bank recognizes only one owner to a share.
General Assembly.—The stockholders are represented by 240 principal stockholders, who meet once a year in ordinary general assembly. Extraordinary general assemblies are composed of the holders of at least fifty shares, who vote for modifications of the by-laws, and to decide—if necessity should arise—on the dissolution and liquidation of the Bank. Each shareholder is entitled to one vote only, independently of the number of shares he may hold; but he may be represented by a member of the Assembly, who, in that case, has two votes—his own and his proxy vote.
Directors and Censors.—The General Assembly elects a directorate of ten regular and five supernumerary members from the native or naturalized Portuguese shareholders, besides a Censors’ Council (Conselho fiscal) composed of seven regular and three supernumerary members taken from the shareholders of the Bank, which must fill the same conditions as to nationality as the directors. The directors are elected for a term of two years; the censors are elected for the same period, and alternate in batches of three and four members. The supernumeraries of the directorate and the Censors’ Council have a term of office of one year and are re-eligible. Each member of the directorate must possess at his free disposal shares of the Bank to the amount of five contos, in order to qualify him for election, and upon his taking office ten contos in shares of the Bank must be deposited as a guaranty of his faithful administration.
Governor and Vice-governor.—The governor is appointed by the State for a term of five years, and can be re-elected. He must deposit as a guaranty of his administration ten contos of shares of the Bank or in Government securities with a margin of ten per cent. of the rate of the day. The vice-governor acts for the governor whenever necessary, and assists him in his functions; he is appointed for one year by the Government from a list of three candidates which the General Council submits. The governor represents the Bank in business and court transactions; he attends to all current business, signs the correspondence with the State and administrative authorities, as well as all other documents of the Bank, but he may delegate these functions to the vice-governor or a director. He supervises all details of the Bank, attends to its internal service and the development of affairs; he examines the books except those over which the General Assembly has like authority. He appoints and discharges the directors of the branches and the agents; he regulates the duties of the Administrative Council and the departments of the General Council, and presides at meetings. He can suspend execution of the decisions of the committees of the Administrative Council, and submit them to revision by the General Council, which is summoned at once, and he notifies the Government of all decisions which the Councils might have passed contrary to the laws, by-laws, or the interests of the Government. The governor may address himself to the King through the medium of the Ministers in all matters which interest the Bank and in which it is dependent upon the Government.
Council of Administration.—The Council of Administration directs and supervises the general business of the Bank in accordance with the laws and by-laws. Its special duties are to transact the business which the by-laws and regulations authorize; to regulate and supervise all departments, and to maintain prompt business discipline; for this purpose two directors must be on duty every day; to appoint and discharge employees and fix their salaries; to manage and control the business of the branches and agencies; to inspect them in person or by deputies; to elaborate for the General Council the rules for the branches and agencies; the General Council submits these rules to the Government for approval; to supply the Censors’ Council and the secretary-general with all documents necessary to give them an insight into the Bank’s condition; to submit important and extraordinary business to the General Council; to propose to the General Council the establishment, transformation, or abolition of branches, agencies, and Lisbon offices; to propose to the General Assembly, after conference with the Censors’ Council, all measures for the benefit of the Bank’s development and safety; to present the annual statement to the General Assembly; to summon the extraordinary general assemblies. The Council is obliged to hold two sessions per week, and minutes of its resolutions must be kept.
The council for the Bank’s business management divides itself into as many committees as it deems necessary. Each committee consists of three directors and the governor as ex-officio president. The following committees are obligatory: Committee on discount and miscellaneous business; committee on Treasury and State transactions; committee on bank note issue; committee on branches, agencies, and correspondents, and committee on litigations. These committees supervise directly the transactions within their sphere of competency and refer all useful measures to be taken to the Council of Administration.
The Censors’ Council (Conselho fiscal) is on duty throughout the year. Its functions are to examine the weekly balance-sheets and the accounts which are presented to the Council of Administration; to supervise the internal business of the Bank, and to attend to the carrying out of laws, by-laws, and rules; to inspect the cash whenever it deems it proper, and to make a report upon the result of its supervision to the General Assembly; to demand the calling of extraordinary assemblies.
General Council.—The General Council consists of the governor, president of the Council of Administration, and the Censors’ Council. It meets regularly once a month and decides specially on the rate of discount, the Bank’s state of affairs, the budget of expenses, and the appointment of the staff. Further, it selects the places where the Bank should keep representatives; it has the power of appointing and discharging the managers of branches and agencies; upon proposal by the Council of Administration, it authorizes business relations with foreign banking houses, and it considers and approves the regulations of the Bank, branches, and agencies. Finally, it has control of the distribution of profits, and it decides upon questions submitted to it by the Council of Administration.
Secretary-General.—The Government keeps an agent at the Bank under the title of “Secretary-General.” This official watches over the correct observance of the by-laws and regulations, and looks into the situation of the establishment from the standpoint of public interest and the security of the paper currency. The secretary-general is present at the meetings of committees, the Council of Administration, and the General Council. He takes part in the debates and makes such motions as he may deem useful for the relations of the Bank and State. He has a consulting vote. He can examine both documents and accounts of the Bank, which must furnish him full opportunity to carry out that portion of his function. He must be given access to all documents which the governor issues, and countersign the correspondence with the State. The governor receives a salary of 3600 milreis, and the secretary-general 2000 milreis; both are paid by the Bank. There are certain bars to the selection of governors, directors, and censors. Managers or partners of banking houses are ineligible to such offices. No two members of a firm, father and son, two brothers, uncle and nephew, two cousins, father-in-law and son-in-law, can be simultaneously members of the General Council of the Bank. The members of the General Council cannot obtain loans or advances either individually or as members of a firm, but they can procure discount commercial paper.
BRANCHES, AGENCIES, AND CORRESPONDENTS.
The Bank is obliged, by the law which conferred its concession, to establish branches and agencies in the capitals of the administrative districts of the kingdom and dependencies. These establishments should be opened within four years from January 1, 1888. The Bank was liable to a fine of one conto for each three months’ delay. If the Bank had failed to establish branches or agencies in four districts at least within five years, the Government would repeal the exclusive privilege of issue of legal-tender bank notes. In 1894, the Bank had one branch at Oporto, and eighteen agencies. The Bank is responsible for the administration of the branches, which are managed by a director, whom the Government nominates, and a Managing Committee appointed by the General Council of the Bank. The directors of branches supervise all business transactions, take part in the Managing Committee’s deliberations, and see to the observance of the laws, by-laws, and regulations. The administrations of the branches are responsible for their acts; full liberty of action rests with them as long as they conform themselves to the requirements of the by-laws and regulations.
If circumstances allow, a local Discount Committee is attached to each branch or agency. This committee is appointed by the General Council, and the director or one of the agents presides over it. The correspondents which the General Council appoints in concurrence with the Government transact the business with which the Bank intrusts them. There are also city branch offices of the central bank at Lisbon; these are simply city bureaus. Agencies are promoted to branches if the development of their business warrants such change, and branches may become agencies, or even simple correspondents, on authorization by a vote of the Shareholders’ Assembly, upon the proposition of the General Council and the approval of the Government.
TRANSACTIONS OF THE BANK.
Discounts.—The Bank discounts bills of exchange and other commercial paper; due bills backed by collateral, vouchers and certificates of the Public Treasury, and of the naval stations and colonies, if they are duly indorsed by the Ministries of the Navy and the Colonies. It discounts current interest and coupons of the National debt and bonds of the General Portuguese Crédit Foncier Company, which are guaranteed by the State. It buys and sells bills of exchange. Discounted commodities must not mature later than in three months and must bear three signatures of persons of acknowledged solvency. Bills of exchange are allowed under the guaranty of the signatures of the acceptant and drawer with one indorsement only so long as the drawer is safe and there is no reason to suspect the legitimacy of the draft.
The discounts of 1894 were constituted as follows:
The rate of discount is relatively high, as in all countries where capital is scarce and exchange impaired. Yet, by reason of the forced currency of the paper money, it is remarkably stable. The rate is the same at Lisbon as at Oporto, and at the agencies it cannot run higher than two per cent. above the Lisbon standard. The following statement shows the steadiness of the bank rate:
Buying and selling bills of exchange is one of the most important services which the Bank renders to commerce; for, through these transactions, funds are transferred at small expense throughout every part of the kingdom. During the last two years the sales of paper in the kingdom reached the following figures:
Loans.—The Bank grants loans on the following collateral: Gold, silver, precious stones, and bonds of the Portuguese public debt. Non-assessable stocks and bonds of banks, companies, societies, municipalities, districts, and other administrative corporations with established credit which are quoted on the Lisbon Bourse. It lends also on its own stock, on foreign Government bonds, foreign shares, and bonds of banks, companies, administrative corporations guaranteed by governments, and finally on bills of lading and merchandise warrants for goods stored in the customs warehouses or in general storage warehouses. It opens current loan accounts on the collateral of Government bonds, Treasury certificates, and bonds of the General Portuguese Crédit Foncier Company, which are guaranteed by the State. The ratio for loans is ninety per cent. of the actual value on gold, fifty per cent. on precious stones, ninety per cent. on Government bonds, eighty-five per cent. on stock of the Crédit Foncier Company, seventy-five per cent. on shares of other companies, bank stock, and foreign securities, and fifty per cent. on storage warrants and bills of lading. Loans must not exceed the face value of the pledged securities even if they are currently quoted above par. No more than sixty per cent. of the Bank’s capital can be applied to loans; but this limit may be extended with the consent of the Government. The loans on the Bank’s own stock must not be for more than five per cent. of the capital.
The enormous decline of the loans on securities was the natural consequence of the bankruptcy of the Government and of the convenio (covenant) of the Portuguese railroads for the restriction of credits.
Accounts Current.—The Bank opens current accounts and undertakes transfers by cheques and drafts from one account to another. The following is a statement of these transactions from 1869 to 1894:
The decline in deposits on current accounts was due to the withdrawals made by depositors when the Bank stopped paying out gold. People who had money to invest would no longer pay it into the Bank, and they began to take advantage of the exchange which favored its export. The years 1893 and 1894 showed a slight gain upon 1892, but still they remained much behind preceding years.
Miscellaneous Services.—Amongst other business details, the Bank issues circular letters of credit on Portugal and foreign countries; it allows first-class foreign banking houses to draw upon the Bank against exchange business, which serves to maintain its metallic reserve. These very important transactions figured at the following amounts before the crisis; they subsequently fell off considerably, as the appended table will show:
In 1894 the Bank drew the following amounts: On London, £168,888 8s.; on Paris, 271,843 francs; on Madrid, 5638 pesetas; on Berlin, 11,970 marks. It bought bills of exchange on London for £298,275 12s. 10d.; on Paris, 570,679 francs; on Madrid, 27,510 pesetas; on Berlin, 1569 marks. To these figures must be added 9220 contos of miscellaneous business; so that the total exchange business for 1894 amounted to 12,085 contos. The Bank also undertakes collections for its customers and renders them all services which the by-laws allow.
Deposits.—The Bank receives for safe deposit precious stones, jewelry, securities, and valuable documents. These deposits represented a yearly aggregate according to the table following:
Finally, the Bank can deal in the precious metals, buy and sell Government bonds and other public securities, as well as bonds of the Portuguese Crédit Foncier, which are guaranteed by the State. The following transactions are not allowed: The Bank must not deal in its own stock; it cannot rediscount its commercial paper on hand; stock exchange speculation—even for account of third parties—is disallowed. The Bank cannot pay interest on demand accounts; it is debarred from taking share in other banking establishments, or commercial or industrial enterprises; it must not act as broker in either guaranteed or hazardous business, and it cannot own real estate besides the buildings devoted to its own service or such as it may acquire by foreclosure of mortgages. Such acquisitions must be disposed of as early as possible.
ADMINISTRATION OF THE METALLIC AND PAPER CIRCULATION.
As mentioned above, the Bank holds the exclusive right of issuing bank notes payable to bearer on demand for a term of forty years from January 1, 1888. These notes are legal tender wherever the Bank has branches and agencies and within a radius of five kilometres of these establishments. Should the Bank ever cease to redeem its notes on demand at any of its offices or dependencies, it will lose the legal-tender advantage for its paper. The Bank, however, on May 7, 1891, was authoritatively released from paving for its paper money in gold. The decree of that date reads as follows:
“Under stress of exceptional circumstances of the country’s money market caused by the withdrawal of capital, and as the Treasury cannot increase the credit of its account at the Bank of Portugal before having received the product of the loan authorized by the law of March 23d of the present year, and, considering, First, that it is indispensable to enable the Bank to give aid to banking and commerce in interior business, as provided by its by-laws, without endangering its gold reserve. Second, that the distrust which has been caused by the collective withdrawal of gold coin as shown in the export statistics has abated, and that coin must again assume its natural functions to facilitate the transactions of the Bank and the exchequer. Third, that it will not be necessary to increase the stock of silver coin by more than 2000 contos for the ordinary needs of every-day life, commerce, and the Treasury, while the present difficulties continue. It has, therefore, been resolved: First, that 2000 contos of silver be coined in the standard and weight determined by the law of July 29, 1854. Second, during three months from the date of the present decree, the Bank may exchange its paper money calling for gold redemption in silver coin; this rule will take the place of the permission to redeem half in gold and half in silver, as the Government has deemed proper to allow formerly. Third, the bank will increase the credit allowed the Government by virtue of the law of July 29, 1887, to 4000 contos. Fifth, the circulation of paper money must not surpass triple the amount of the Bank’s metallic reserves.”
Although this decree does not express it in so many words, it means practically forced currency; because the creditors of the Bank have only the choice between paper money and silver, which is even more depreciated than the notes of the Bank. The metallic reserve, in contos de reis, was as follows on each December 31st of 1891-2-3-4:
Before 1891, the balance-sheet makes no distinction between the Bank’s paper money and the coin reserve which constitute the cash on hand.
This little item of importations had been far from filling the wide gap between the exports and imports of gold from the kingdom. The exports of 1891 were 29,705 contos, and only 3721 contos were imported, leaving an export balance of 25,984 contos.
Although the Portuguese Government has stopped payment on the major part of its foreign debt, even the settlement of that part which remains unrepudiated is an onerous burden to the kingdom, on account of the adverse balance of trade. The bank pays very dearly for the gold which it purchases. In 1892, it paid an average premium of 1227 reis per pound sterling, which brings the sovereign, nominally worth 4500 reis, to 5727 reis. The premium fell to 1045 reis in 1893, but it reached 1142 reis in 1894. The make-up of the metallic reserve is ruinous for the Bank, and the country derives no benefit from it, as all gold bought is locked up and the Bank will not part with it at any price. If a Portuguese merchant needs gold, he must resort to France, England, or Germany to buy it; he would not find a single gold piece in circulation or to be obtained at the Bank.
THE NOTE CIRCULATION.
The circulation on December 31st of each year, from 1887 to 1894, amounted to the following figures:
A comparison of these figures with the metallic reserve shows very clearly that the Bank does not observe in the least the prescriptions of the decree of May 7, 1891, which fixes the circulation at thrice the amount of the metallic reserve. Virtually, the Government has abandoned the legal limitation of the Bank’s output of paper; it permits any maximum which the needs of the Treasury may seem to dictate. The present maximum of circulation is 54,000 contos. The Bank makes strong efforts to prevent indefinite growth of its circulation; but the State places it constantly between the two horns of a dilemma by either compelling it to grant advances which necessitate new issues of paper or by putting a stop to its State service. From this position the Bank cannot extricate itself. Meanwhile, Portugal seems to recover somewhat from its unfortunate situation. Its credit is lost, and unless it can offer collateral of undoubted value, the foreign market for loans is absolutely closed against it. The country can depend only upon its own resources, and, apparently, it seeks to develop them. The chief condition of its salvation lies in its not exhausting its principal credit establishment, which is its last resource.
THE CONSTITUENTS OF THE BANK’S PAPER.
The circulation of the Bank is very singularly made up. Before the crisis of 1891, Portugal had been from July 29, 1854, under a single gold standard; no creditor was held to accept more than five milreis in silver money; yet it had become common usage to pay two-thirds in gold and one-third in silver, or even copper. The banks had made special issues of notes which were redeemable in silver and copper, and which clearly stated so on their face. These bills were much in excess of the silver and copper metallic reserves of the banks; and, by the letter of the law of 1887, they should be brought within the exact figure of the actual money reserve. Events, however, have not allowed this; and, on December 31, 1895, the Bank of Portugal had the following issue of paper money in circulation:
The 20-milreis denomination, which corresponds approximately to the French 100-francs note, occupies a prominent place in the Portuguese paper money issue.
RELATIONS BETWEEN THE BANK AND STATE.
Annuities and Pensions.—As in all countries with wrecked finances, the Bank of Portugal has the most intimate relations with the State. By the terms of its by-laws the Bank is obliged to pay the running civil and military pensions in force in July, 1887; pensions after that date do not fall within the contract. The Bank, in this case, is not an agent or disbursing medium; it advances the pensions, and the Treasury reimburses it for principal and interest by an annuity of 800 contos. The old debts of the State to the Bank, for the payment of pensions, have been merged in this contract. The rate of interest which the exchequer owes for this service is regulated by the quotation of Portuguese consols on the London Stock Exchange. When they are quoted at fifty-four, the Treasury pays five and one-half per cent.; but for each point of decline the rate rises six centimes; for each point gained the interest is lowered six centimes until it reaches five per cent., which is the minimum rate. At the end of each business year the Bank and the Treasury balance accounts and determine the rate of interest which the State has to pay. The Government can abandon this branch of the Bank’s service at any time; and the Bank, in such event, is not entitled to either compensation or indemnity. The Bank is authorized to issue bonds to be redeemed by drawings (premium bonds) against the Treasury’s debts for pensions. These bonds are guaranteed by the Government. If at any time the Government repays the whole or part of its debts, the Bank must redeem a corresponding amount of bonds. The following statement shows the increase of these obligations:
Cash Service.—The Bank is the State’s banker and the Treasury’s disbursing agent. The branches and agencies act in a like capacity for the Treasury, and become the collectors and disbursers of the public revenues; they are subject to the general rules and accountability applicable to public officials. All expenses for the movement of funds are at the Bank’s charge; it also pays the salaries of the disbursing officials of the Ministry of Finance, the Junta of Public Credit and its clerks, and the district disbursing agents. The Bank can employ the latter as its own agents. Any reforms which may be made in the Treasury service are at the expense or profit of the State. The Government employees are subject to the regulations of the Bank; the provincial directors of finance exercise control over the branch offices and agencies in so far as the State’s business is concerned. In matters for which the Bank is held responsible, the general direction of the Treasury takes up the case, and the Court of Account decides in all such affairs.
In accordance with its by-laws, the Bank has opened an interest account for the Treasury, whose debit may reach a maximum of 2000 contos. By several agreements, the last of which was entered into on February 9, 1895, the Treasury’s account has been raised to 21,000 contos, which it owes the Bank on open account. If the State is debtor, the Treasury pays four per cent. interest; if there is a credit in favor of the Treasury, the Bank pays three per cent.
It is not necessary to here enter into the details of the very confused accounts of the Government’s dealings with the Bank; it may suffice to give the figures of the State’s indebtedness to the Bank on December 31st, for a series of past years:
This shows that the State has absorbed an amount almost three times that of the Bank’s capital.
Taxes and Division of Profits.—The taxes figuring in the profit and loss account of 1894 represent: The stamp tax on the account-books, commercial paper, cheques, and receipts; municipal taxes; income and dividend taxes; an industrial tax on banking transactions. The total taxes in 1894 amounted to the considerable sum of 170:226$756. The annual profits remaining, after deduction of the share set aside for the reserve fund and a dividend of seven per cent. for the stockholders, are divided equally between Bank and State.
PROFITS, RESERVES, AND DIVIDENDS.
Two reserve funds must be provided for out of the annual earnings of the Bank. A permanent fund is built up out of a five per cent. levy upon the net profits and the premium obtained on sales of shares. This fund is intended to bring together a supplementary capital equal to twenty per cent. of the stock capital. A variable fund is made up to the amount of ten per cent. of the stock capital by setting aside seven per cent. of the net earnings. This is a reserve account for losses, and serves as a supplement to make up a dividend of five per cent. for the shareholders if the ordinary funds do not leave enough to allow a dividend at that rate. The variable reserve fund must be completed as soon as it falls below the fixed limit. The permanent fund must be invested in Portuguese consols; its current interest is paid into the variable fund if the latter falls below ten per cent. of the capital; when the variable fund is at its necessary level, the current interest of the permanent fund is carried to profit and loss account. The variable reserve fund is employed in the general business of the Bank, and its product is carried to profit and loss account.
The decline of the variable reserve fund, which appears in 1893 and 1894, arises from the fact that the Bank exhausted it in 1893, for the following purposes:
The 1894 fund was applied entirely to the same purpose, so that the item of variable reserve does not exist any more in the balance-sheet of December 31st; provision for its reconstruction was made for 1895, but, apparently, it will be absorbed again by the end of the year.
The following statement will show that the Bank makes considerable profits:
This table shows that the transactions with the Treasury yield the major part of the profits. Those transactions are, of necessity, very lucrative, because in exchange for a bank note which is unredeemable and costs no more than the price of printing, the Bank receives a well-paying interest. Yet, this confusion of the credit of the Bank and State, this loss of the Bank’s independence, gives rise to great dangers for both the institution and the country. We must do justice, though, to the Bank in stating that, aside from its transactions with the State, it is intelligently and economically managed.
THE BANK’S BALANCE-SHEET.
The Bank must publish each year a statement of its transactions and a balance-sheet of its accounts. These publications are made after examination and approval by the general assembly of stockholders. The balance-sheet, which was originally a mere summary, became gradually more explicit, and to-day it offers a compact and interesting exhibit of the principal events of the business year. Each week, also, the Bank reports to the Government a summary of its assets and liabilities, in which it details the composition of its metallic reserve. The balance-sheet, of which we give an example below, is regularly published in the official Diario.
Assets.—The first item represents the Metallic reserve; its composition is given in detail at the foot of the statement. It contains a considerable quantity of copper coin, and is mainly made up of silver, quite contrary to the Portuguese monetary system, which is based on gold.
2.Commercial paper on hand comprises the unmatured notes and bills of exchange which the Bank has discounted.
3.Loans on collateral in force. The Bank makes no distinction between advances on securities and loans made on precious metals or merchandise.
4.Current loan accounts and open credits is the account of free credits opened in favor of the banks of Oporto in consideration at their relinquishing the right of issue.
5.Public securities on hand are the bonds of the public debt owned by the Bank. Since the State’s bankruptcy, which largely reduced the value of these securities, the Bank sets aside a considerable share of its earnings as a sinking fund for the recovery of the loss. It will keep this up until the stock of securities yield a capitalization at four and one-half per cent.
6.Miscellaneous accounts represent doubtful debts, and various other items which the Bank groups under this head.
7.Special contracts with the State and its administrative departments. We spoke in detail of these items in describing the relations between the State and Treasury, and explained the business which the Bank transacts with the Government.
8.Current accounts of correspondents. The Bank does not balance the total accounts of its correspondents, but separates the debit and credit side in the balance-sheet. It gives the indebtedness of the correspondents as an asset and the credits as a liability. The head of this item does not represent the sense which is generally attached to current accounts (deposits); it is simply a balance of transactions between the Bank and its agents or correspondents.
9.Dividends of the first half-year. This item is opposed in the liabilities by the item of Dividends payable.
10.Buildings, furniture, machines, etc., is a self-explanatory item.
11.Securities on deposit. This represents the value of safe deposits, and the amount is counterbalanced in the liabilities under the head of Creditors on securities on deposit.
12.Expenses to be charged out on profit and loss are running business expenses since the beginning of the year.
13.Current account of the Treasury. We spoke of this account in referring to the relations of the Bank and Treasury.
The Liabilities show:
14.Capital; which is self-explanatory.
15.Miscellaneous accounts, on which we can give no explanation.
16.Current accounts of correspondents.
17.Credits on securities on safe deposit. Counterpart of item 11 of assets.
18.Deposits on regular current accounts, i. e., funds deposited by the Bank’s customers who can draw against them by cheques or transfer orders.
19.Dividends payable. Dividends of the past year which have not been drawn yet by the parties entitled thereto.
20.Reserve funds. The permanent reserve must represent twenty per cent. of the capital, the variable fund ten per cent. The statement before us shows that the reserves are not complete as yet, and we have explained that the variable reserve has been used for sinking-fund purposes.
21.Interest and earnings to carry to profit and loss account. These are profits since the beginning of the business year.
22.Bank notes in circulation. The statement at the foot of the balance-sheet details the amount of paper money redeemable in gold or silver and in copper coin; the latter notes take the place of fractional currency.
23.Bonds of the Pension Fund. The Bank is authorized to issue bonds for the pension and annuity service, which it performs for account of the State.
24.Junta of Public Credit. This has been elsewhere explained; it is an account opened in favor of the administration of the public debt.
The situation of the Bank of Portugal shows symptoms such as are observed in all countries afflicted with wrecked finances; the resources are tied up, yet the earnings are considerable. A comparison of the liabilities subject to demand and the assets which can be realized, gives us the following status of the Bank on December 4, 1895:
This shows a deficit of almost 26,000 contos, if the Bank were called upon to settle its demand liabilities. For an ordinary bank, a like position would mean unqualified bankruptcy. If we look at the ways of employment of the capital and the reserves, which amount altogether to 15,212:966 $ 632, we find the following investments:
made up by paper circulation.
Thus the Bank’s paper money is guaranteed by a debt owing to the Bank by the State.
Portugal, like Spain, has failed to profit by the lessons of a pregnant experience. All faults which brought about the ruin of the first banks of issue in either Portugal or Spain are repeated to-day, only on a much larger scale. By declaring forced currency, both governments believe themselves to have acquired the right to drain the banks with impunity; but such assumptions are only illusory and the penalty for the fault must soon follow. There is a treacherous enemy who lays pitfalls for prodigal governments and for the banks which lack stamina to resist the State’s intrusion; this enemy is called Exchange, which is the dial of national decline of credit. This exchange arrests all commerce and makes trading a speculation on the country’s money. This exchange impoverishes day by day whoever receives a bank note; it makes money melt like snow, and like snow it trickles from his hands. Portugal is, on every side, at the mercy of a discredit which is increasingly turning the exchanges against it; these drawbacks keep it aloof from regular contact with the rest of Europe; and although some home industries have been developed as a consequence of the prohibitive action with which the high exchange affects importations, the nation is sorely afflicted in its most vital interests, owing to the misdeeds of its Government and the weakness of its principal credit institution.
NATIONAL BANK OF ROUMANIA.
A BRIEF EXPERIMENT WITH STATE NOTES,
THEN A NATIONAL BANK, WITH MONOPOLY OF ISSUING
UP to 1877, Roumania had no paper money. In that year, however, the Government issued non-compulsory notes of 5, 10, 20, 50, 100, and 500 lei, which were guaranteed upon the State’s domains; a late copy of the ideal of France’s assignats of the last century.
The Roumanian Parliament did not regard this issue favorably, and it invited the Government to consent to the establishment of a national bank which should effect the withdrawal of the State issue. The legislative corps voted upon this proposal on March 27 and 31, 1880, and a law was promulgated on April 11th, which embodied the following provisions:
THE BANK OF ROUMANIA.
A bank of discount and of issue shall be established under the corporate name of the National Bank of Roumania, which shall have the exclusive right to issue bank notes to bearer. The Bank’s privilege shall run from July 1, 1880, for twenty years. The Bank shall be located at Bucharest, and branches shall be established wherever they may be needed. The capital shall be 30,000,000 lei* ($6,000,000); the State furnishing 10,000,000 lei, and 20,000,000 lei being provided by stockholders. So soon as the Bank is in operation, 12,000,000 lei shall be assigned toward the working fund out of the Bank’s capital; and the balance of 18,000,000 lei shall be assigned, in two equal shares of 9,000,000 lei, for gradual investment as the business of the institution may increase. The capital shall consist of 60,000 shares, 24,000 shares of which must be subscribed for to effect the establishment of the Bank.
Within four years at most, the Bank must withdraw from circulation the notes issued by virtue of the law of June 12, 1877, secured by the Government domains; and the Bank’s proper issue shall take the place of said State notes. The by-laws of the Bank were prescribed by the Government, and the Prince of Roumania confirmed them by decree of March 22, 1880.
ORGANIZATION OF THE BANK OF ROUMANIA.
The State’s capital in the Bank carries full stockholders’ rights for the shares in its possession.
The Bank is conducted by a governor, six directors, composing the Council of Administration, and seven censors, who act as supervisors. The Council of Administration, in combination with the Censors’ Council, form the General Council. The governor is appointed for five years. During his term of office, he cannot be a member of the Legislature, nor hold any public office; he must own forty shares of the Bank’s stock. He draws a salary of 24,000 lei, which the Bank pays. He acts as president of the Council of Administration and of the General Assembly, and is the executive officer of these bodies. He presents the reports of the Council of Administration to the General Assembly. He appoints the managers of the various departments and directs all matters pertaining to the by-laws and regulations. He also represents the Bank in law, signs all documents, and has the right to suspend decisions of the Council of Administration in order to obtain a final determination by the General Council.
The General Assembly of the Bank is composed of stockholders owning at least four shares. The Assembly, which represents the whole body of shareholders, meets in ordinary session on the third Sunday of February, and in extraordinary assembly whenever called by the Council of Administration. It decides upon business submitted to it by the Council of Administration and the Censors’ Council and acts upon motions proposed and signed by at least twenty members; such motions must be brought in through the channel of the Council of Administration ten days previous to its meeting. The General Assembly also supervises the business management and accounts of the year and resolves upon the distribution of earnings. It is invested with the right to elect a part of the directors and censors, and can also discharge or revoke its appointees.
Directors must own twenty shares; censors ten. Out of six directors, the General Assembly appoints four for a term of four years; two are nominated by the Government for two years. All of them may be reappointed. Each director receives 12,000 lei per year. The vice-governor is selected by decree from the directors. The censors, to the number of four, are selected by the General Assembly; the Government appoints three; the appointees of the General Assembly serve for four years, and the Government’s censors have a term of three years; both can be re-elected. They receive a gratuity for every meeting at which they attend, and are entitled to a share of the profits.
The Council of Administration is concerned in all business matters, except those provided for in the law, decrees, and regulations. In concurrence with the censors, it fixes the rates of discount and the percentages for loans; it decides upon the amounts to be devoted to the purchase of Government bonds and public funds. It also establishes the budget of running expenses. This Council also appoints and discharges the staff of the Bank; it institutes legal proceedings and reports on all matters of business and management to the General Assembly.
The Discount Council is appointed by the General Council; it consists of six members, who serve for the term of a year. They receive fees for each meeting they attend. This body decides upon the commercial paper offered for discount and sees that the laws and by-laws bearing upon such transactions are observed.
The Government has supreme control of the Bank’s transactions and has the right of veto in all matters which are contrary to the laws and statutes as far as the interest of the State is concerned. The State’s surveillance is in the hands of an officer who holds the title of Government Commissioner. Besides his permanent supervisory function, he can provisionally suspend the execution of decisions relating to discount and issue of bank notes if in his opinion the resolutions of the Council of Administration are contrary to the laws and statutes or to the interests of the State. In such cases, he reports to the Government, whose decision is final.
BUSINESS REGULATIONS OF THE BANK.
Aside from the issue of paper money, of which we shall speak later, the Bank discounts and buys bills of exchange, drafts, and other commercial paper; invests, as far as twenty per cent. of the paid-up capital, in Treasury certificates and loans on storage warehouse warrants.
Discounted paper must not have more than 100 days to run and bear three signatures of recognized solvency; warehouse warrants need only one signature. Exceptionally, upon terms fixed by the General Council and approved by the Minister of Finance, paper with only two signatures is admitted to discount. Merchandise collateral can at any time supplant the necessity of a third signature. Treasury certificates are subject to the same terms of discount as are current for commercial paper.
Roumania has the gold standard, and as her paper money has free and not forced currency, she can only protect her metallic reserve by means of the rate of discount, a rather high one in general, as the following table will show:
The Bank loans on bonds of the State of Roumania, on Treasury certificates, and on other securities under State guaranty. Such loans are only granted to assuredly solvent people for a maximum of four-fifths of the value of the collateral. Loans are granted for four months, and can only be renewed once. Advances are made strictly on collateral; or the borrower may gradually draw against open account established on the security of the pledge. The rate on such loans is, as a rule, one per cent. higher than the current rate of discount.
The Bank opens current accounts, and nothing in its regulations prevents the allowing of interest on deposits; but, hitherto, this point has not been taken advantage of. Depositors can draw on their accounts by cheques or transfer orders. Unfortunately, the Bank embodies in its accounts the movement of the current accounts in the figures given under the head of total cash transactions; we have, therefore, no data on the subject. Following are the balances of current accounts on December 31st:
The total cash movement, i. e., amounts paid in and withdrawn in specie and paper, was as follows from 1881 to 1894:
The Bank takes in for safe deposit securities, precious metals, and gold and silver coin, of which the following statistics are illustrative:
ADMINISTRATION AND CIRCULATION OF COIN AND PAPER.
The National Bank of Roumania has the exclusive right to issue paper money payable to bearer on demand. The total paper circulation must be represented by securities and other values which can be easily turned into cash; and the Bank must keep a metallic reserve amounting at least to onethird of the paper outstanding. The notes of the Bank are received in payments at all State offices and public establishments connected with the State; they are redeemable in gold or silver coin of the realm over the Bank’s counters at Bucharest and at its provincial branches. In cases of emergency, five days’ grace is allowed at the branches, so as to enable them to obtain funds from Bucharest. It may be proper to call attention to the fact that the Roumanian monetary system is based upon the French, except that it is on the exclusively gold standard, which the law of October 15-27, 1890, established. The bourse and wholesale business is transacted entirely in gold; but five-lei silver pieces are so abundant that they have found a place in commercial dealings, and are virtually accepted freely up to fifty lei. The metallic reserve of the Bank comprises gold, silver, and foreign drafts payable in gold.
EMBARRASSMENT CAUSED BY THE STATE’S NOTES.
The charter of the Bank provided for the redemption of the notes secured on State domains; the Bank had to replace them by its own paper money, and consequently this old Government scrip figured in the Bank’s accounts as so much cash on hand. This Treasury paper amounted to 26,260,000 lei, and was to be withdrawn from circulation by 1884. On December 10, 1885, an agreement was entered into between the Bank and State by which the debt of the latter should be paid off in installments, the last to fall due in June, 1892. This measure had the inconvenience of hypothecating a share of the Bank’s circulation for the redemption of State paper money which could not be realized upon and would only be redeemed by the State after a long lapse of time. Consequently the Bank’s issue suffered severely. At one time, the premium on gold reached twenty-two per cent. The Government came to the relief of the Bank by redeeming the 26,000,000 lei of its own notes in the Bank’s hands in gold in 1888. This action improved exchange, which now deviates but little from par.
The authorized denominations of bank notes are of 20, 100, and 1000 lei. Intermediate denominations of 50 or 500 lei may be issued. Like the Imperial Bank of Germany, the Bank of Roumania redeems damaged bank notes in half their original value, if a fragment larger than one-half is presented; as a fact, half bank notes are not uncommon in Roumanian circulation.
On December 31, 1894, the bank note issue was composed of the following denominations:
This shows that the 100-lei note is predominant.
RELATIONS OF THE BANK WITH THE STATE.
We stated in the analysis of the by-laws that the State exercises a broad control over the Bank. It originally supplied one-third of the capital; appoints the governor, two directors, and three censors, and is permanently represented by a Government Commissioner. Nevertheless, the Government has been wise enough to abstain from abusing its powers. The balance-sheet shows an entire absence of Government loans. The Bank is simply held to perform the Treasury service free of charge. The State, however, receives the product of discount on loan rates above seven per cent. Besides the share of earnings to which it is entitled in its quality as stockholder, the Government receives twenty per cent. of the net profits, after deduction of twenty per cent. set aside for the reserve fund and six per cent. interest on the shares. The following statement shows the share of the Government in the net earnings of the Bank:
CAPITAL, RESERVES, AND EARNINGS.
As previously mentioned, the capital of the Bank of Roumania is 30,000,000 lei, of which 12,000,000 lei have been subscribed. Out of this paid-up capital, 8,000,000 lei has been furnished by private subscribers and 4,000,000 by the State. The balance of 36,000 shares, remaining in the hands of the Bank, will be issued, if necessary, in two lots of 18,000 shares each. Each share so far issued represents 1/24000 title to the capital stock.
Out of the profits, the Bank makes up first a reserve fund to set off losses on the capital; this fund serves also to complete a five per cent. dividend, if the year’s earnings are insufficient for that purpose. Twenty per cent. is used for the reserve out of the balance remaining after a distribution of a six per cent. dividend to the stockholders. The reserve fund has accumulated as follows:
The reserve fund grows, moreover, by the accumulation of interest on Government securities in which it is invested. As Roumanian bonds bring high interest, the reserve increases rapidly, and the time is not distant when it will be on a level with the paid-in capital. The reserve may even be virtually worth more than the figure at which it stands in the balance-sheet, as Roumanian funds have risen in market value since 1881. The accumulation of the reserve fund, to which neither regulations nor laws assign a fixed limitation, begins to attract the attention of the stockholders. On February 16-28, 1892, a demand was made by twenty-seven shareholders that the income of the reserve fund should be distributed as dividends. This proposition was rejected; but it will certainly crop out again and will finally be accepted, as the Bank can scarcely continue to accumulate indefinitely an unproductive capital. The by-laws provide that, after the payment of six per cent. interest on the stock and setting aside of twenty per cent. for the reserve fund, twenty per cent. of the remainder shall go to the State, while four per cent. is allotted to the Council of Administration, three per cent. to the censors, one per cent. to the provident aid fund of the employees, and the large remainder is distributed as dividend among the shareholders.
The shares are now usually quoted at about 1500 francs, the par value being 500 lei.
The National Bank of Roumania publishes a yearly statement of its transactions, which contains ample information and recapitulatory statistics. There is, though, in this return, a certain dryness of detail, and many items which might show to advantage if given separately are grouped under one head. It may be here suggested that a great public advantage might be gained if the large European banks of issue should come to an agreement with a view to issuing some uniform method of statement which would admit of easy comparison; and possibly the clear and complete statement of the Imperial Bank of Germany would afford the best model for such a form of exhibit.
Besides its yearly statement, the Bank of Roumania publishes weekly a condensed balance-sheet, in which the status of the principal accounts is given. We copy below, as an example, a statement of October 28, 1895. The various items are sufficiently explicit and call for no special observations.
Although the National Bank of Roumania is the credit establishment of a country less rich and economically advanced than other Latin nations, it is a remarkably well managed institution. Its business is conducted sensibly and sagaciously. The various departments have been organized by agents of the Bank of France, who have introduced the spirit of order and method which pervades that great establishment. With slight alterations, the by-laws of the Bank of France have served as a model for those of the National Bank of Roumania, and the experience of its prototype has served to prevent many errors of administration. The Roumanian Government deserves praise for the intelligent discretion which it has practised toward the Bank. It exercises all rights of control which are the proper domain of the State wherever banks of issue are concerned; but it has exacted no loans from the Bank. Such demands would have prejudiced the run of affairs and shaken the confidence of the public in the paper circulation. The Government and the country have reaped the benefit of this wise action. Exchange has remained favorable in propitious contrast to the unfortunate conditions of exchange in Servia and Greece.
THE LATIN MONETARY UNION.
CONVENTION OF DECEMBER 23, 1865.
THE Monetary Union which since 1865 has bound France to Belgium, Switzerland, Italy, and Greece, is of such comprehensive importance in its bearings upon the coin and auxiliary circulations of the allied countries, that we deem it essential to present a brief review of its history.
The law of the 7th Germinal, Year XI, which established the French monetary system, provided that “Five grammes of silver of a standard fineness of 9/10 shall constitute the monetary unit, designated by the name franc.” Articles 6, 7, and 8 added: “Gold pieces of 20 and 40 francs shall be struck. Their standard is fixed at 9/10 fine and 1/10 alloy. The pieces of 20 francs shall be 155 to the kilogramme and those of 40 francs 77½ to the kilogramme.” According to these provisions, gold of equal weight and standard is considered to be worth 15½ times as much as silver. This was the ratio fixed by royal decree of October 30, 1785.
The simplicity and admirable convenience of the French monetary system, with its great advantage of a decimal basis, procured for it adoption by Belgium on June 5, 1832, Switzerland May 7, 1850, and Italy August 24, 1862. In consequence of this identity of system, the moneys of each of the four countries circulated freely in the others, and thus a kind of monetary union was improvised without formal understanding. But in 1850, as a result of the discovery of gold deposits in California and Australia, the monetary circulation of Europe was profoundly disturbed. Whereas gold was abundant and commonly used even for payments of slight importance, silver, whose production had remained stationary, rose in value. The ratio between gold and silver, which during the ten years 1841-50 had averaged 1 to 15.83½, declined in the fifteen succeeding years, falling below 15.5 from 1852 to 1861, the lowest point, 15.21, being reached in 1859. The average ratio of gold and silver during that period was 15.37. The relative increase in the value of silver, amounting to 0.846 per cent., was sufficient to attract speculators, who, by continuous manipulations with large quantities of metal, gained tempting profits. At the very start, the money-changers drained the market of five-franc silver pieces, which disappeared from circulation. The fractional coins were melted, and France suffered from a genuine silver money famine, affecting the supply both of five-franc pieces and subsidiary coins. Among the varied devices suggested for putting an end to the dearth of fractional money, one was seized upon that had eminently the characteristics of an expedient. The intrinsic value was reduced to do away with the profits obtained from melting. Switzerland, by a Federal Act of 1860, lowered the standard of the silver franc and its multiples up to five francs, and of its fractions, to 8/10 fine, so that the franc coin was worth only 0.889 franc. Italy, adopting the French system in 1862, struck coins in denominations below five francs at a standard of 0.835, which gave the franc an intrinsic worth of 0.928 franc. In France, a law was enacted May 24, 1864, on the model of the Italian measure, adopting the standard of 0.835 for the twenty and fifty centime pieces, but maintaining the 0.9 standard for higher denominations. Belgium made no change in her coinage. These measures, taken without any previous agreement, altered the conditions of the monetary interchange of four nations and opened a new field for speculation. Swiss pieces were exchanged for Belgian, and the latter were brought to Switzerland for recoinage at a reduced standard.
PROPOSALS FOR A CONFERENCE.
Belgium, taking alarm at these abuses, made overtures to the French Government with a view to a conference in Paris, at which Switzerland and Italy should also be represented, and which should have for its object to establish a uniform system for the coinage and circulation of fractional moneys in the four countries. It was further proposed that the conference should have full liberty of action, and might either confine its work to a consideration of monetary regulations for the four States concerned, or extend its scope by laying the foundations of a uniform monetary circulation for the whole of Europe.
The conference proposition was approved by Switzerland and Italy, and the International Commission began its deliberations in Paris November 20, 1865, under the presidency of M. de Parien. As a basis for its work, certain questions were drawn up under nine heads, as follows:
1. What are the conflicting elements of the prevailing differences in the fractional silver money systems of the four countries represented in the conference?
2. Would it be advantageous to establish a monetary union of the four countries—a union adapted to facilitate reciprocal circulation of fractional silver money?
3. Would such a union call for absolute uniformity of standard for fractional silver coinage in the four countries, or only for a nearer approach to harmony of standard than we have at present?
4. Should the proposed monetary union have in view uniformity or closer harmony of standard for all fractional coins from the two-franc down to the twenty-centime pieces, or should its purposes be confined merely to some of these coins?
5. Would it be necessary to come to a specific understanding as to what fractional coins of each country should enjoy lawful circulation in each of the four countries separately?
6. Would it be advantageous to determine jointly a fixed wear-and-tear rate for fractional coins which, when exceeded, shall render them refusable by individuals and require them to be recoined by the governments that have issued them?
7. On what joint basis can the circulation of fractional coins be regulated in the four countries?
8. Would it not be convenient to make obligatory the acceptance in the public offices of the four countries of gold coins struck on the standard of the law of the year XI?
9. Is there necessity to modify, so far five-franc pieces are concerned, the double-standard system established by the law of the year XI?
From the beginning, the expediency of a monetary union of the four countries was recognized and resolved upon. In connection with this decision, it was agreed to have uniformity of standard for all fractional silver coins, with a maximum of circulation for such coins to correspond to the population of each country—their intrinsic value being less than their face value. It was also decided that the coins of the contracting States should be receivable in the public offices of each, and this provision was extended to include the gold coins struck on the basis of the Act of the year XI. The ninth question was determined in the negative, notwithstanding the strenuous effort made by M. Kreglinger, the Belgian delegate, to inaugurate the principle of the single gold standard by reducing the standard of the five-franc silver piece to 0.835; which would have been equivalent to placing it in the same category with fractional money.
The question of fixing the standard of fractional coins raised serious difficulties. The different rates suggested were 0.800, 0.835, and 0.850. From the minter’s point of view, the higher the standard the better and more durable the coin—and on that score it would have been in order to select the 0.850 standard. But in practice this contention could not sustain the tests to which it was subjected. Switzerland had given preference to the 0.800 standard, Italy to the 0.835 (which was adopted also by France for the twenty and fifty centime pieces), and Belgium alone had held to the 0.900. The representatives of Switzerland energetically insisted upon the 0.800 standard, maintaining that it was more in keeping with the decimal system and would operate more effectively than the 0.835 standard to protect the fractional coins from remelting and exportation. The discussion was carried on principally between the Swiss and the Italian delegates, the latter being discreetly supported by France. If the Swiss standard had been assented to, Italy would have been obliged to convert 100,000,000 francs, and France 16,000,000 francs, while Switzerland’s total would have been but 10,000,000 francs.
AN AGREEMENT REACHED.
After a protracted debate, in which Belgium declared for the standard already established in France and Italy, Switzerland consented to the 0.835 standard. However, the period fixed by the conference for the withdrawal of coins that had been issued by the various countries under conditions other than those provided for, which was to expire on January 1, 1868, was extended in the case of Switzerland until January 1, 1879. After this obstacle had been got over, all parties being in hearty sympathy with the project for a monetary union, the other matters at issue were not such as to cause any decided conflict of opinion. At the meeting of December 21, 1865, the conference adopted the fifteen articles of the famous agreement consolidating Belgium, France, Italy, and Switzerland in a monetary union. The following is a summary of that agreement:
The four contracting States were to issue coins of the same weight, standard, and diameter. The percentage of allowable loss of weight by use was to be uniform in all the States. The standard for the five-franc silver piece was to be 900/1000 fine, and for the pieces below five francs 835/1000 fine. The coins struck by each of the contracting States were to be accepted in the public offices of all, under these conditions: The five-franc pieces without restriction, and the fractional coins up to 100 francs, provided that coins which had been reduced in weight by use one per cent. below the legal limit, or whose effigies have been effaced, might be excluded. In the latter case, if their weight has been reduced by use five per cent. below the legal limit, they were to be restruck by the Government that issued them.
Each of the contracting governments engaged to accept from individuals or from the public offices of the other States the fractional silver coin that it had issued, and to exchange it for an equal value of current money (gold pieces or five-franc silver pieces), provided the sum presented for exchange should not be less than 100 francs. The quantity of fractional money to be issued was fixed at six francs per head of the population. The year of coinage was to be stamped upon the gold and silver pieces of each State. The same agreement conceded the privilege of joining in the compact to other countries adopting the Union’s monetary system, and named January 1, 1880, as the date of expiration of the compact; with a tacit extension fifteen years longer, unless notice of withdrawal should be given at least a year before the specified date of expiration.
DEFECTS OF THE SYSTEM.
These were the broad provisions of the Convention of December 23, 1865. A brief experience made its imperfections and deficiencies felt. Although it will always be a somewhat vexatious thing to have the seigniorage privileges subject to the consent of foreign nations, and to be held to accountability for the home coinage, the Monetary Union is easily defensible on both expedient and substantial grounds. But consequences had to be faced for which no provision was made. With perfect propriety, the most minute details of the fractional money were considered and regulated, because such money is, in truth, of the fiat variety. On the other hand, it was not foreseen that the money market, which in 1865 was favorable to silver, might change and favor gold; and that, in such not improbable contingency, a grave problem would arise respecting the final settlement of the 5-franc pieces, a problem which, indeed, would be much more serious than that of the subsidiary coins. It was, moreover, not taken into account that particular States might throw into forced circulation unlimited quantities of small coins not coming within the range of the Latin Union, and therefore not legitimately current outside the countries issuing them. These various questions, which should have been carefully weighed by the Conference of 1865, were neglected, and the solution of them was left to the course of events.
Several countries that were expected to join the Union entertained misgivings and were slow to decide. Austria, in 1867, seriously contemplated giving in her adhesion, but, finally, only Greece and the Papal States came over. By a law enacted August 10, 1867, Greece adopted the French monetary system, and, profiting by the privilege vouchsafed by Article 12 of the convention, on November 18, 1868, she signified her desire for membership in the Latin Union, which was accorded to her by the associated governments without any dissent.
MONEYS OF THE PAPAL STATES.
The Papal Government had watched with interest the proceedings of the Paris Conference, and, from the first, had manifested a disposition to become a participant in the Union. A decree issued June 18, 1866, instituted a reform in the coinage system of the Papal States, establishing the French system, but providing for 2½-franc and 25-centime silver coins, and a 2½-centime copper coin. It is proper to add, however, that the Papal gold and silver pieces corresponding to the French were of the same weight, standard, and diameter, and that, on such grounds, the most to be said unfavorably was that they were often beneath the correct standard. But that was a matter of small importance, and when they were subsequently thrown out of the French circulation, it was for reasons quite apart from those of mintage. The “Moniteur” of February 12, 1867, announced that the Papal Government had just given its indorsement to the Convention of December 23, 1865, and that by virtue of this action a uniformity of gold and silver moneys had been established between the Papal States and the Kingdom of Italy. But two essential requirements had to be conformed to by governments applying for admission into the Union: 1, That the coinage should have full weight and exact standard; 2, that the provision restricting the coinage to the 0.835 standard on the basis of population should be rigidly observed. As we have stated, the first condition was complied with. The Papal coins were worth neither more nor less than the French of the same denominations. The existence of 2½-franc, 25-centime, and 2½-centime pieces was regrettable. The Papal Government retained them on traditional grounds, the 2½-franc piece corresponding to the old écu or half-dollar and the 25-centime coin to the former grosso, or half-paul; but, upon their suppression, the adjustment of matters became easy, as the Holy See showed a conciliatory spirit.
While the negotiations were in progress, at the time of the return of a part of the French troops from Rome, the fractional money of the Papal States found its way in considerable quantities into the south of France. The Treasury officials had been instructed, by a notice inserted in the “Moniteur” of October 4, 1868, to lend their assistance for its circulation; but the Bank of France, not being authorized by any legislation to accept these coins, at first rejected them. This occasioned some trouble and numerous recriminations. Later, on strength of the assurance that the entrance of the Papal States into the Monetary Union was probable, the Bank relaxed its severity and consented to receive the Papal moneys on condition that they should be presented in payment only in small amounts. Thus it became of urgency to reach a decision upon the advisability of receiving the Papal States into the Latin Union. In order to determine that question, it was needful to know how much fractional money had been coined bearing the effigy of the Holy Father. The aggregate was found to be 26,000,000 francs, whereas only four or five millions was allowable under the proviso that the circulation should not exceed six francs per inhabitant. This overabundance of fractional coins was due in part to the peculiar economic conditions prevailing in Rome, which, as a place of pilgrimage, received a very great deal of money of the various denominations below five francs. But it was still more a consequence of the policy of the Sovereign Pontiff, who had steadfastly abstained from all acts that would imply in any manner a recognition of Italy’s absorption of a portion of the Roman States, and who deemed that it would be equivalent to such a recognition of the accomplished fact if the fractional money in circulation should be regulated proportionately to the number of subjects over whom he actually ruled. Under these circumstances, the French Government could not refuse the Papal coins the right of circulation.
The Chamber of Deputies took up the subject on February 5, 1870, the discussion being brought on by a question addressed by M. de Kératry to Count Daru, Minister of Foreign Affairs. M. de Kératry showed himself to be poorly informed, mentioning 0.735 as the Papal standard and 0.840 as the French. The reply of the Minister of Foreign Affairs was likewise somewhat astray; for it did not state the whole truth, and it encouraged credence of the old legend about the debasement of Papal money. Nevertheless, the facts were well reviewed. “The plain truth is,” said the Minister, “that there is no monetary convention which binds us to the Papal States. We have monetary agreements with Belgium, Switzerland, and Italy, but the Pontifical Government has decided that it cannot bind itself by a convention. His Excellency, Cardinal Antonelli, has stated in a memorandum, dated December 12, 1868, that he could not accept the terms of the Monetary Union. Notwithstanding this, Roman money has been circulating in France for several years, notably in Lyons, by sufferance of the Government. That sufferance must have an end. I have had the honor to notify the Government of the Holy Father, in a dispatch of the 27th of January last, that in my opinion the French Treasury cannot, without serious disadvantage, continue to concede to the Roman coins the circulating privileges hitherto enjoyed. Measures to correct the evil have been taken during the past fortnight.”
As a consequence of these explanations the Bank of France, which had already ordered several of its branches to refuse Papal coins, issued like instructions to its other offices without exception. Soon afterward, M. Buffet, Minister of Finance, instructed all persons connected with his department to reject them. These steps affected numerous interests. The circulation of the Papal coins had been rather widespread, especially in the southern cities. The press took up the question, and an active controversy was waged. One of the Deputies, M. Vendre, as the champion of those aggrieved, interpellated the Minister of Finance on February 25, 1870. M. Vendre took the ground that as the Government had tolerated and even promoted the circulation of the Roman coins, and as the public officials had used them for payments, the State should bear the responsibility for its acts, and indemnify individuals for the losses resulting from the elimination of these moneys. M. Buffet, the Minister of Finance, replied under some embarrassment. He pleaded extenuating circumstances for his predecessors, who, with a weakness that bordered on gross culpability, had permitted the introduction into France of the coins of a Government which had not fulfilled the conditions necessary for membership in the Union. M. Magnin, a Deputy, proposed that the holders of the coins be granted time to exchange them at their face value, or in approximation to it. The Minister of Finance declined to make such a concession, as he did not feel justified in inflicting the loss upon the Treasury.
On February 27th, a circular was published in the “Journel Officiel” stating that while the public offices were closed against the Papal moneys, there was nothing to prevent the officials from rendering their holders such services as might contribute to the disposition of them at the least possible loss; and consequently that all receivers and collectors would take the Papal pieces at the rate of ninety-one centimes paid immediately. This loss of nine per cent., the reasons for which the public could not understand, caused a merited discontent, and provoked slanderous accusations against the Papal Government. To put a stop to such reproaches, certain persons devoted to the Holy See and several bishops opened offices at which Roman coins were redeemed at par; but as speculators took advantage of the opportunity thus presented, they had to be suppressed, and the coins which the Papal authorities were unable to take up remained floating in France.
After the war, during the financial crisis of 1871, the Roman pieces rendered some service to France. By the middle of September, 1871, five-franc coins and fractional pieces had become so scarce that the public was greatly embarrassed for money to pay workmen and to transact the small business of daily consumption. Thereupon the Bank of France, which had collected about 1,900,000 francs of Roman money, decided to put it to use, and placed it in circulation under a formal agreement, made public November 1, 1871, to take back these coins the same as French in all affairs of payment and exchange. But the temporal power of the Pope was now at an end. Italy, which had seized the residue of the States of the Church, naturally became responsible for the Papal coinages. By a decree promulgated February 18, 1872, the Italian Government announced that after March 16, 1872, Papal money would cease to be current in the Province of Rome, and that after April 30, 1872, it would no longer be accepted at the public offices or by individuals. The period specified was too brief to permit France, compelled, as she was at the time, to utilize the Papal pieces, to profit by the privilege of exchange, and she had to keep them. At the Conference of 1885, the French delegates showed that France had on hand about 10,000,000 francs of the Papal money that had passed out of circulation, and obtained for the French Government authority, as an exceptional matter, to recoin them up to 8,000,000 francs. Thus ended the episode of the Papal moneys.
THE DECLINE OF SILVER.
The whole policy of the Second Empire displayed a tendency toward groupings of nationalities and the formation of a sort of European confederation. The Latin Union seemed to be a first step in that direction, and the next question opened up was whether the system adopted by the four countries might not be extended to embrace all Europe. The Exposition of 1867 appeared to offer a favorable opportunity. At the instance of the French Government, an international conference was held, at which eighteen nations were represented. It had its sessions in Paris from June 17 to July 6, 1867. As had been done in 1865, a list of questions was made up, which were brought forward successively for discussion. Nothing practical came of this conference so far as the Latin countries were concerned, but useful hints of the inclinations of the different powers were obtained. Mr. Meinecke, the Prussian delegate, signified his preference for the single gold standard, and the conference, with but one dissenting vote—that of the delegate of the Netherlands—expressed itself affirmatively upon the following question: “Is there a possibility to attain this end (uniformity in coinages) upon the basis and with the condition of the adoption of the exclusive gold standard, leaving to each country liberty to retain temporarily the silver standard?” Indeed, from the opening of the conference, it was evident that there was little prospect for gaining adherents for the system of the Latin Union, whose essential feature was the simultaneous use of gold and silver. This indication was not permitted to go unheeded; for the conclusions arrived at by the Conference of 1867 led Prince Bismarck, promptly after the war of 1870, to substitute in Germany the single gold standard for the old silver standard. This was to have consequences for the Latin Union that will now be examined.
The war was scarcely concluded when the new German Empire instituted a uniform gold money for all the German States. We translate the principal provisions of the law of December 4, 1871, establishing the new monetary system: “The gold money of the Empire shall be struck at the rate of 139½ pieces to each pound of gold fine. The tenth part of this gold piece shall be called mark, subdivided into 100 pfennings. The alloy of the gold money is fixed at 100/1000 copper to 900/1000 gold.” This law was in keeping with the spirit of the Conference of 1867. The moneys provided for were on the decimal basis, like French money, but the values of the ten and twenty mark pieces did not vary much from those of the corresponding coins of England and the United States. Thus:
This circumstance of the approximate equivalency of German moneys with English and American, is the practical application of Question 6, submitted to the Conference of 1867, and decided in the affirmative almost unanimously: “Would it be possible and useful to establish uniform or partially coinciding coinages on the basis of gold moneys?”
The twenty-mark piece was also a development of the Conference of 1867, which had highly extolled the twenty-five-franc piece. Besides gold coins, silver moneys were needed. The law of July 9, 1873, made provision for them by ordering the coinage of five-mark, two-mark, one-mark, fifty-pfenning, and twenty-pfenning pieces, on the 0.900 standard. But while creating the indispensable silver coinage, the law reaffirmed the principle of the single gold standard. Article 9 contained the following: “No one is bound to accept more than twenty marks in Imperial silver coin.” This restriction did not apply to the public offices, which were obliged to receive silver money to any amount. The silver coinage was limited to ten marks per head.
THE SCANDINAVIAN UNION.
Germany was soon followed by the Scandinavian countries—Denmark, Sweden, and Norway—which also profited by the decisions of the Conference of 1867. In the month of September, 1869, pursuant to a vote of the Swedish Diet, a special commission had been appointed to inquire into the monetary question. The Diet had indicated the single gold standard as the basis for the future system, and had manifested a desire to bring about a monetary agreement with other nations as far as possible. The commission presented its report on August 13, 1870. It recommended adopting the gold franc as a unit, on the standard of 0.900. Its proposals were without definite issue. But on December 18, 1872, Sweden and Denmark entered into an agreement to arrange the conditions of a monetary union. Both countries chose gold as the standard of their common system, silver and the baser metals to serve for fractional purposes. The standard of the new gold coinage was fixed at nine-tenths fine. The unit, called the krona, is a coin represented by its ten-fold and twenty-fold values, which are worth respectively 13.89 francs and 27.78 francs. This agreement took effect May 27, 1873. Norway, which naturally should have been associated with Sweden and Denmark from the outset, hesitated for some time. However, having on June 4, 1873, fully introduced the Swedish system, she reconsidered her attitude, and on March 4, 1875, joined the union already formed by Sweden and Denmark, which became the Scandinavian Union.
Since 1873, Holland had seriously taken up the coinage question, manifesting a preference for the gold standard, which she accordingly adopted on June 6, 1875. The decimal basis was provided for the new system, but the values of the coins did not correspond closely to those of the French. The ten-florin (gilder) piece is worth 20.83 francs.
THE GROWING OVER-SUPPLY OF SILVER.
All these transformations were not accomplished without some trouble. Silver, being discriminated against, glutted all markets and depreciated in value. The following figures for Germany will give an idea of the quantities of silver thrown on the market by the monetary reform in Germany alone. In 1880, after 382,501,311 marks had been struck (equal to 458,488,000 francs), Germany had sold 567,139,993 marks of silver (623,853,992 francs), retaining a remnant of 339,353 pounds of fine silver, which she could not put to use in coinage (International Conference of 1881). The effect of these demonetizations was reinforced by a considerable increase in the output of the mines. According to the “Report of the Select Committee on the Depreciation of Silver” submitted in 1876 by Mr. Goschen (p. 5), the estimated annual production of silver from 1852 to 1862 averaged eight to nine millions of pounds sterling, being:
From 1868 to 1870, the totals were a little lower, but after 1870 they rose again, being:
Of course, the above statistics are only approximate, but they illustrate the growing ratio of increase in production. A third very effective cause for the plethora of this metal was the diminution of India’s demand. In 1865-66 India’s net imports of silver aggregated £18,170,000, but after 1870 the excess of imports over exports was on a much smaller scale, being:
Meantime China and the other far Eastern countries did not take quantities to at all compensate for the excessive production. Thus three agencies worked together for depressing the price of silver; the change in the monetary systems of Germany, the Netherlands, and the Scandinavian nations, the increase in the output of the mines, and the decrease in the Asiatic demand. Moreover, the price of silver on the London market, which should have stood at 60⅛d. per ounce if the 15½ ratio is correct, took this downward course:
With the right of unlimited coinage allowed to the contracting States, the Latin Union served to drain off the larger part of the surplus silver. As the average intrinsic ratio of gold and silver rose from 15.64 in 1872 to 15.93 in 1873, this left, notwithstanding the loss of interest on mint vouchers, a sufficient margin for speculation, since the piece that circulated for five francs was worth barely 4.85 francs at the rate of the day. The coinage of 5-franc pieces took great strides. In 1873 there were coined—
This aggregate of 308,627,775 francs represents the coinages of only three governments, Switzerland having for a long time abstained from minting. The over-supply of the depreciated money alarmed the public. The Bank of France rejected Belgian and Italian five-franc coins, as it had the right to do. The Chambers of Commerce, particularly those of Antwerp and Lyons, gave decided expression to their solicitude, and demanded that the gold standard be adopted. To soothe these apprehensions, the French and Belgian Ministries caused a slackening in the coinage of five-franc pieces, but more energetic measures were needful. M. Malou, Belgian Minister of Finance, took the initiative. On November 11, 1873, he presented the draft of a law authorizing the Government to limit or suspend the minting of five-franc pieces until July 1, 1875. Among the reasons given by the Minister for this step, the following explanation is significant:
“While permitting nothing to prejudice my mind as to principles, it appeared to me that, pending the meeting of the Chambers, my duty was to exercise the hitherto undisputed powers granted by existing laws in order to better preserve the Legislature’s liberty of action and to indicate, though in a manner somewhat inconclusive, Belgium’s good faith in issuing coins, which, in the event of their withdrawal, she would recognize or replace.” This view, admitting the responsibility of the issuing State, is contrary to the one since maintained by M. Pirmez. After a prolonged discussion, the act suspending the coinage of silver was passed (December 18, 1873). The measure was good, but not adequate; for the money allies of Belgium and France could have made it of no avail by simply increasing their coinage and introducing the product of their mints into the two countries, which latter might have been done with perfect ease, exchange being nearly always against Italy and Greece. The danger could be dealt with only by an international agreement.
AGREEMENT OF JANUARY 31, 1874.
Switzerland, although less interested than any of the other countries, proposed a call for a new monetary conference. France gave her approval immediately to the Helvetian proposal, which was in the behalf of her own menaced interests, and invited the allied governments to appoint representatives. The conference assembled in Paris on January 8, 1874, M. Dumas presiding. The views of the four governments were successively brought under consideration. The French Government, through M. Dutilleaux, Director of the Circulation Department of the Mint,* informed the conference that, in order to check the movement of silver into the monetary establishments of Paris and Bordeaux, the daily minting of the white metal had been limited, first, to 280,000 francs, and then to 150,000 francs. M. Dutilleaux added that this precaution would have been sufficient if France had not been tied by reciprocal engagements to the other States of the Union, whose five-franc pieces flowed steadily into the public offices; and that the limit placed on the coinage of silver did not imply on the part of France either a change in the monetary system, or even a tendency toward any modification whatever. Belgium went farther. Her delegate, M. Jacobs, gave it as his opinion that each government should pledge itself for a certain period to cease the minting of five-franc pieces, or else specify a maximum figure. He urged, with good reason, that this would be the most practicable way to prevent the States of the Union from being used as the outlet for the depreciated bullion and demonetized silver coins of Germany, Holland, and the Scandinavian countries. Italy, whose coin had been rejected by the Bank of France, declared that she did not object on principle to a temporary restriction of silver coinage, but complained of the French refusal of Italian pieces, whereas French pieces enjoyed legal circulation in Italy, and claimed that the action of France was contrary to the spirit of reciprocity. M. Lardy, the Swiss representative, made a masterly argument, and demanded that an investigation be undertaken which should go deeper into the causes of the depression of silver. He was at no pains to much disguise his wish for a consideration, and perhaps an introduction, of the single gold standard. A series of questions was propounded to guide the conference in its deliberations, as had been done on the previous occasions. Omitting those adapted only to excite academic discussion, and others that were thrown out peremptorily by the French delegates, these were principally considered: “Is it possible, by limiting or suspending for a certain time the coinage of five-franc pieces, to find remedies for the embarrassment occasioned by the decline in the value of silver? Is it necessary to institute general legal tender for the current coins of the four countries, in addition to the existing legal tender, so far as the public offices are concerned?” The solution of these two problems was the whole purpose of the conference, and sentiment as to the former had already been strongly prejudiced by the attitude of France and Belgium.
Various opinions were advanced concerning methods for counteracting the injurious depreciation of silver. The most radical was the single gold standard policy, which was consistently advocated by the Swiss delegation. But although some of the French representatives were quite disposed to side with the Swiss, they were unable to entertain any discussion on that subject, since their instructions formally excluded it. M. Dumas, president of the conference, summed up matters as follows:
“The programme that apparently would have the best chance of acceptance, would be to create a fourth variety of legal money. Aside from the gold coins that are abundantly provided to meet the requirements of commerce, the fractional money struck by the four countries in limited quantities, and at an inferior standard and that circulates among them in common, and the copper coins issued by each country for its own home needs, silver coins of a uniform standard of 0.900 might be minted, which, instead of being abandoned to the speculations of trade, would depend upon the will of the governments themselves, like the old coinages that were made in the name of the Sovereign under special laws.”
After these plans had been discussed, it remained to determine the coinage allowances of the various States. It was the general sense of the conference that the total of the new coinage, for the year 1874, should not be in excess of 60,000,000 francs, to be apportioned among the four countries. But Italy raised objections which may be summarized as follows: (1) The Bank of Italy, which holds the monopoly of coinage, has in its vaults 60,000,000 francs in bullion. This metal must be converted into coin, but it was not intended for circulation. The coinage of that silver must not be subjected to the restrictions which will be fixed for the coinage of silver brought to the mint by individuals. (2) The restrictions for silver coinage should not be made to apply to the old Italian coins not on the decimal basis. These coins still (1874) amount to 50,000,000 francs, of which about 18,000,000 are to be reminted during the year. The apportionment, according to population, of the 60,000,000 francs agreed upon for 1874, gave to France 30,000,000 francs, to Italy 20,000,000 francs, to Belgium, 5,000,000 francs, and to Switzerland 3,000,000 francs. Adding mint vouchers to fall due in 1874, and the 60,000,000 francs to be coined for the account of the Bank of Italy, a total of 170,000,000 francs was obtained, of which Italy would have 89,000,000 francs, or twice her 1873 coinage. This concession to Italy, at a time when that country was under a forced currency régime, and was unable to keep her money at home (since it escaped into France and Switzerland almost immediately after being coined), was deemed particularly unreasonable.
At the next meeting the amount was raised to 94,000,000 francs. Finally the conference fixed it at 120,000,000 francs, distributed thus:
This total comprised the mint vouchers already issued and falling due in 1874. The 60,000,000 francs which the National Bank of Italy desired to transform into coin, in addition to the prescribed quota, constituted a genuine difficulty; for if Italy’s wish in that respect had been granted, her coinage would have surpassed that of France. After lengthy debates, the aggregate of the supplementary coinage was placed at 20,000,000 francs. The French delegates were hardly less strenuous in opposing the demand for the legal-tender quality for Italian coins in the various States of the Union than they had been in resisting the Italian claims as to the quota. They made a peremptory protest. “This same demand,” said the president, “was made in 1865, and it was not deemed possible to accede to it in France, because of the resistance that such a course appeared to deserve. The general tendency of public opinion in France has become strengthened by our experience with numerous types of foreign moneys which for a considerable time have been a part of the country’s circulation. The French Government would regard the recommendation of a law designed to make these moneys legal tender as utterly devoid of the possibility of acceptance by the National Assembly. Neither can the French Government interfere to compel the Bank of France to receive at its offices the Italian silver moneys. Notwithstanding the Government’s desire to arrive at an understanding, it can enter into no engagement whatever on that point.” The Belgian delegation took the same position. Switzerland, as a disinterested country (for, so to speak, she had no money of her own), supported Italy’s contention, and urged that, in default of legal tender, France and Belgium could at least induce their banks of issue to accept the five-franc pieces—a suggestion that met with unanimous approval. The Minister of Finance consulted with the management of the Bank of France, to ascertain whether the Bank would consent to take the five-franc coins of the Latin Union. The Bank replied, on January 30, 1874, that the policy it had enforced was occasioned by the need of putting restraints upon silver speculation, but that in view of the new decisions of the four associated States, it would discontinue its prohibitions for the year 1874. A like answer was received from the Bank of Belgium. Thus, the object of the conference was attained. The following is the substance of the principal resolutions of January 31, 1874: The five-franc silver coinage for 1874 was limited to 120,000,000 francs, deducting from this amount 49,868,000 francs of mint vouchers issued up to December 31, 1873. Italy was authorized to strike during 1874, for the reserve fund of the National Bank, 20,000,000 in five-franc pieces, all of which coin was to remain in the vaults of the Bank, under the guaranty of the Government not to circulate it, until the next conference, which was to meet in January, 1875. Article 12 of the convention of December 23, 1865, relating to the right of other countries to join the Latin Union, was modified. The privilege of membership in future was made subject to previous agreement by the associated States. Greece, not having been invited to participate in the conference, claimed that she was not bound by the stipulations of the agreement of January 31, 1874. As, however, this question was not raised until toward the end of 1874, it was decided by common consent to leave it for the action of the Conference of January, 1875, to which Greece should be invited.
CONFERENCES OF 1875 AND 1876.
The next conference came together on January 25, 1875. Its purpose was to determine whether the measures limiting the coinage of silver should be continued. All agreed that such a continuance would be expedient. But Italy demanded the right to coin 40,000,000 francs more, urging the necessity to create a reserve fund for banks of issue and to effect the conversion of a certain amount of non-decimal old money. In addition, she requested authority for the National Bank to place in circulation the 20,000,000 of five-franc pieces that were held in its vaults in obedience to the resolves of the 1874 conference. The conference, while reducing the supplementary quota of Italy to 10,000,000 francs, empowered her to circulate the 20,000,000 francs of the Bank that had been lying idle. Pursuant to the expressed desire of Belgium and Switzerland, the quotas of those countries were increased by one-fourth. As for France, since the agreement of 1874 was essentially restrictive and limiting, with a view to protect her against promiscuous issuance of five-franc pieces, it would have appeared but rational if she had declined for herself the right to increase the five-franc coinage. But her representatives thought that the four contracting States should be on a corresponding basis. Besides, each country was at liberty to waive the privilege conceded. The maximum amount of silver coinable by the Union for 1875 was fixed at 150,000,000 francs. It was resolved that another conference should be called to meet in Paris in January, 1876, and that mint vouchers for 1876 put forth up to that time in the various countries should not be in excess of half the quota for 1875.
With regard to the special circumstances of Greece, it was insisted by that country that her share in the total coinage should be adjusted not alone by the schedule of 1874, but also in proportion to the amounts struck by the several nations previously. This was thoroughly inadmissible. As a matter of fact, no limitation had been imposed upon the coinage of silver in the nations of the Union until 1874, and the more or less large issues had not been dependent upon the joint will of the allied governments, but upon the convenience of single governments. Thus it was quite out of the question, in a conference having for its aim to limit silver coinage, to allow Greece the scope she desired. Entitled to five francs in five-franc pieces per head, she would have been privileged to coin at least 75,000,000 francs if her request had been granted. As the Hellenic delegates were not present when the agreement was signed at the conclusion of the conference, the French Government was empowered to conduct negotiations with Greece on the basis of 5,000,000 francs for 1875. Greece accepted, reserving the privilege to demonstrate at the next conference that the 5,000,000 francs allowed was insufficient.
To complete the work in hand it was requisite to arrange terms for the acceptance of silver coins in the four countries. There were no difficulties to contend with in Italy, which accorded legal circulation to the coins of the Union, or in Switzerland, which struck no five-franc pieces, but used those of the other States. But, in France and Belgium, the circulation of the Union’s money had to be provided for by persuading the banks of issue to agree to receive them. The Bank of France, when the matter was laid before it, consented in very guarded terms, dwelling upon the anxiety which the uninterrupted growth of its silver stock had caused. In a letter of February 4, 1875, in behalf of the Bank, the following was said: “It is our opinion that the conditions which superinduced the legislation by the four contracting Powers restricting the coinage of five-franc silver pieces are still in operation. We express the desire that the agreement about to be renewed shall be modified in practice as little as possible. We will continue, for 1875, to take over our counters the coins struck by the contracting nations under the provisions fixed by the agreement.” A letter conceived in similar terms, dated January 5, 1875, was received from the Bank of Belgium.
CAUSES COMPELLING A LIMITATION OF COINAGE.
The conference contemplated by the resolutions of 1875 met in Paris January 20, 1876. The considerations that had rendered limitation of the silver coinage imperative in former years had acquired added strength during 1875. The standard ounce of silver had fallen to 55½ pence on the London market on June 11th, making the ratio of gold and silver intrinsically 16,989. Throughout the year, the ratio ranged above 16.3. The Bank of France saw its stock of silver coin augmented enormously, having increased as follows from 1871 to 1875:
Thus, in a period of five years, despite all the endeavors to maintain silver in circulation, the stock had nearly quadrupled. It was consequently needful to preserve the restrictions on coinage. But those restrictions, though absolutely necessary, operated to further abridge the utilization of silver, and thereby to increase its depreciation. At the first meeting of the conference M. Feer Herzog, the Swiss representative, said: “Never since the discovery of America has the relative value of silver fallen so low; and we cannot fail to see in this strange circumstance the evidences of a situation which is most menacing to the future of nations that permit the accumulation within their borders of an already depreciated metal whose decline must necessarily continue from day to day.” He concluded by recommending the total suppression of silver coinage and the substitution of the single gold standard. But as France was not inclined to pursue that course, Switzerland urged that the limit of 1875 be reduced to the farthest extent possible. The French delegates, while recognizing the justice of M. Herzog’s views, were in a delicate position. The National Assembly that had approved the coinage plan of 1874 had been dissolved and a new Chamber was about to convene. The Government felt itself obliged to leave matters in statu quo and do nothing that might be interpreted as binding, or that might embarrass the action of the representatives of the nation. This difficulty was very skillfully disposed of by M. Jacobs, the Belgian representative. Greece had been authorized to strike 5,000,000 francs for the year 1875, which was really insufficient, since that amount did not, as in the other States, provide for the conversion of old coinages. The Greek Government asked, and not without reason, for permission to coin 25,000,000 francs in 1876. This total, manifestly going to extremes—and particularly so if the proposed amount should be minted at once—was reduced to 12,000,000 francs. M. Jacobs proposed to adopt again the basis of 1874, and provide for a maximum of 120,000,000 francs, minus 12,000,000, to be conceded to Greece pro rata out of the quotas of the other States. This was agreed to, and the quantities to be coined during the year were apportioned as follows:
Greece, in addition to the 3,600,000 francs thus provided for, was granted the privilege of an exceptional coinage of 8,400,000 francs to replace the five-franc pieces of old coinages in circulation. It was decided that none of the contracting States should issue mint certificates for maturity in 1877 in excess of half the 1876 allowance.
The international agreement was signed on February 3, 1876. The Banks of France and Belgium, when requested to pledge themselves to accept the silver moneys of the Union, readily agreed, as they had done in the previous years. The new restrictions laid upon silver coinage had the effect of contributing to the further decline of silver. In the month of June, the metal was worth only 50d, per ounce in London, and on that basis the ratio of gold and silver advanced to 18.69. In England, public opinion, alarmed at such depreciation, which seriously affected the trade with India, demanded an inquiry for the determination of its causes and consequences. A commission was appointed, and Mr. Goschen, after gathering much data, summed up matters in rather vague terms by stating that, as the fall in silver depended upon uncertain elements and contingent values, the future state of the market could not be reasonably prognosticated. In France, M. Léon Say, Minister of Finance, deeming it inexpedient to have the coinage conducted at the sole pleasure of individuals, submitted to the Senate, on March 21, 1876, the draft of a measure authorizing the restriction or entire discontinuance of minting by decree. We quote from his explanatory statement: “Since 1865, there has occurred a certain depreciation in the value of silver. The Powers subscribing to the convention have considered it prudent, since 1874, to put a check upon the coining of five-franc silver pieces. A maximum coinage has been designated for the countries of the Union, amounting in 1874 to 120,000,000 francs, in 1875 to 150,000,000 francs, and in 1876 again to 120,000,000 francs. The share allotted to France was 60,000,000 francs in 1874, and 75,000,000 francs in 1875. This year (1876), it is 54,000,000 francs, with the privilege to coin at least 27,000,000 francs in 1877; which implies that our mints are limited to 81,000,000 francs until a new arrangement shall obtain. But as the home legislation of France has not meantime been altered, the amount which is maximum from the point of view of the State is minimum as regarded by interested individuals. Indeed, from the very day that France was empowered to strike 54,000,000 francs of five-franc pieces, the owners of silver have had a perfect right to insist that the Government neither can nor should deny them the privilege to convert their bullion into coin, so long as the international convention is not violated—in other words, so long as the prescribed bounds are not overstepped. They are therefore entitled to demand that five-franc pieces be minted for them until the quota apportioned to France shall have been exhausted.” After calling attention to Belgium’s suspension of silver coinage in 1873, M. Say concluded by declaring that, in view of the depression of silver, respecting which it was difficult to form a definite judgment, he believed it to be convenient, without wishing to solve the question whether the single or double standard was preferable, to assume a waiting attitude and not increase the quantity of silver pieces.
On the same day, M. de Parieu discussed the coinage question in an extended interpellation, in which he directed attention to a curious fact. He said, in substance, that the Conference of 1876 limited by resolution, which it was wrong not to submit to Parliament, the issuance of mint certificates in 1876. That would have been a perfect arrangement if individuals had not come forward in France and endeavored to have the Government admit the soundness of the following reasoning: “Though the business year 1876 is provided for, the resolution is silent so far as 1877 is concerned. Consequently, certificates payable in 1877 may be issued.” In other language, added M. de Parieu, a barrier erected for 1876 had been jumped, and certificates for the year next following were put forth, whereby the future contingents had been anticipated; and this very simple speculation had yielded its originators eight per cent. In his response, the Minister of Finance confined himself to the plea that there were extenuating circumstances for the past, and said that his views concerning the practical matter under consideration were sufficiently indicated by the details of the proposed act for the suspension of silver coinage. On March 29th, M. de Parieu, following up his interpellation, introduced in the Senate a bill more radical than that of the Minister of Finance, ordering the suppression of mint certificates. M. Rouland was appointed to make a report upon the two projects. He approved the course of the Latin Union in guarded terms, and concluded by recommending the adoption of the Government plan. M. Rouland’s report brought out nothing new. He stated that France, by the wide range of its markets and by its generally favorable exchanges, naturally became the collector of the Latin Union’s five-franc pieces. He presented the following statistics, which afford good material for reflection:
These figures show that as silver declined the minting increased. The amount coined in 1869 was 141,000,000 francs, which was entirely sufficient; yet, even under the restrictive arrangement, the coinage reached the very high aggregates of 139,000,000 and 155,000,000 francs.
THE FRENCH LEGISLATURE SUSPENDS SILVER COINAGE FOR PRIVATE ACCOUNT.
The Government scheme hung fire for a long time in the Senate and Chamber of Deputies, and was finally adopted, without modification, on August 5, 1876. On August 6th a decree was issued announcing that bullion and other material for the coinage of five-franc pieces for private account would no longer be admitted. Meanwhile, in the Belgian Parliament, M. Frère-Orban had interpellated M. Malou, Minister of Finance, on the coinage question. It is well to remember that the allowances successively granted to the several countries bore no relation to their legitimate needs, excepting probably in the case of Greece; and that in various instances they served only as a means to levy a convenient tax upon the circulation of neighboring States, the effect of which was not immediately felt. To levy such a tax, the only thing needful was to buy silver at the rate of the day—ten to twenty-five per cent. less than the nominal legal value—and throw it upon the market after transformation into five-franc pieces at face value. M. Frère-Orban’s interpellation bore upon such transactions. M. Malou confessed that he had bought bar silver for 10,800,000 francs with three per cent. consols, for the purpose of making a profit for the State. In his defence he said: “Is the five-franc piece false money? It is worth five francs, and therefore I could not make scandalous profits.” This provided his interrogator with an inviting opportunity, which was availed of in the following severe words: “Why has the Government bought and coined for the account of the State? By its own admission, to make a profit. The five-franc piece is always worth five francs; but whence comes the profit? It comes from the circumstance that you legislate in recognition of fundamental wrong, proclaiming against truth, against plain evidence, and against the nature of things—proclaiming, I say, in perpetuity that fifteen and a half kilos of silver shall always exchange for one kilo of gold. The Government, to gain a miserable profit, has swelled the burdens of the State in the event that demonetization shall occur, and has increased the amount of the coinage, as you admit.” The incident had no practical issue; but it afforded a demonstration of the spirit of speculation that actuated the demands for unnecessary coinage. M. Frère-Orban enjoyed a sort of satisfaction afterward, when the Belgian Chambers were convoked by the Ministry to vote upon an extension of the law of December 18, 1873, until January 1, 1879.
ADDITIONAL AGREEMENT OF JUNE 30, 1879.
No monetary conference was held in 1878. The law of August 5, 1876, gave to the French Government the right to limit or suspend the coinage of five-franc pieces until January 31, 1878, and, accordingly, the exchange bureaus of the mints of Paris and Bordeaux had been closed on August 6th. Thus the most imminent perils were warded off, and the Minister of Finance was able to postpone the conference that should have assembled in January, 1877. It was the opinion of the French Government that it would not only be needless to have the conference meet, but dangerous, inasmuch as embarrassing discussions would be raised. The request for postponement was accepted by all the interested countries. Italy, however, claimed the right to complete, in 1877, the coining of the quota assigned to her in 1876. It will be remembered that the agreement of February 3d authorized her to issue 18,000,000 francs of mint certificates in anticipation of the quota to be fixed for 1877. She also demanded that the Banks of France and Belgium should continue to accept Italian coins. As the increase in question was a matter of but slight importance in the aggregate amount of coined silver, Italy’s concessions were acceded to by her associates, and also by the Banks of France and Belgium. Greece complained that the 12,000,000 francs conceded to her in 1876 had been almost wholly consumed because of the demonetization of foreign coin circulating among her people, and she obtained permission to mint 5,000,000 francs. Toward the end of 1877, the French Government, much concerned about the monetary situation, was most anxious to avoid as long as possible another conference, whose printed proceedings could not fail to present a striking disavowal of the double standard policy that she had so long supported. The Government hoped, however, to find a means of escape from its troublesome position, counting upon the moral effect of a decision by Congress at Washington in favor of re-establishing the double standard in the United States, and upon an improvement in the price of silver, which had been indicated for some time by the growing demands of India and China. France, therefore, proposed to the other governments a further postponement until the last months of 1878, promising an extension of the law of August 5, 1876.
It was impossible to go farther in delay, since the convention of December 23, 1865, was to come to an end on January 1, 1880, and it was consequently indispensable that the conference should take place before the close of 1878, both to consider questions of standard and coinage and to reach an understanding respecting the continuance or disruption of the Latin Union. Belgium, whose situation resembled that of France, accepted the French Government’s proposal, and Switzerland did likewise; but Italy raised difficulties. She insisted on permission to coin silver up to the same amount as in 1877 (18,000,000 francs), upon the acceptance of Italian five-franc pieces at the Bank of France and the Bank of Belgium, and upon the assembling of the conference in the month of April, 1878. Although it was to be regretted that Italy would not consent to suppress completely the coinage of silver, which certainly could not be useful to her, as her domestic exchange was regulated almost exclusively by forced paper currency, she was able to justify at least a portion of her demands by definite reasons. She had withdrawn from circulation a rather important volume of non-decimal coins, which thus had become a dead capital, the use of which she could not afford to lose permanently. This consideration was of a nature to prevent stubborn opposition by the other countries. By agreement they proposed, and persuaded Italy to be satisfied with, a quota of 9,000,000 francs. It was out of the question to do otherwise, for Italy, by simply allowing matters to take their course and returning to the convention of 1865, would have recovered her liberty and been able to mint as many millions as she desired. The banks, speaking strictly, might have rejected the Italian coins; but that procedure would have involved more inconvenience than advantage, and would have inextricably embarrassed the French State funds. Concession to Italy was the only available solution, and all the governments acted sagaciously in agreeing to it. The banks renewed their promise of assistance for 1878.
LÉON SAY PROPOSES TO EXTEND THE LAW OF 1876.
As had been promised in the negotiations for postponing the conference, the Minister of Finance, M. Léon Say, proposed to the Senate a measure to extend the law of August 5, 1876. His explanation was remarkable for its optimism. The sole announced reason was the instability of the money market, which, however, it was stated, had improved. M. Garnier, in his report, added nothing of any significance. M. de Parieu, while glorifying the Latin Union, of which he had been one of the founders, regretted that the energetic methods for the suppression of silver coinage which he had advocated in 1876 had not been adopted. The act was voted without trouble, and was promulgated February 1, 1878.
THE BLAND ACT AND CONFERENCE OF 1878.
On the 18th of the same month, the United States Congress had passed the Bland Bill, authorizing the coinage of silver dollars and making them legal tender. It had, moreover, decided that an international conference should be called to establish an international understanding as to the ratio between the two metals. General Noyes, Minister of the United States in France, made overtures to that effect to the French Government, which led to the resultless international conference held in Paris in August, 1878. As soon as the French Government received the invitation of the United States it sought the advice of the other governments comprised in the Latin Union regarding the reply to be given. All were of opinion that the international conference should be preceded by an exchange of views on the part of the delegates from the Latin Union countries; and for this purpose a conference was called for August 30, 1878, to examine the conditions for a renewal of the compact that was to expire in 1880. At a preliminary meeting, the Italian representatives once more brought forward the old demand for legal tender for gold and five-franc silver coins of each of the contracting States in all the nations of the Union. This Italian demand, rejected in the former conferences, was the logical outcome of the convention of 1865, which required the public offices of each nation to take unrestrictedly and without possibility of exchange and settlement a foreign money which, nevertheless, might be refused by the people to whom the State makes payments, since among them it is not legal tender. If, on the other hand, to forestall this danger, the coins should be invested with the legal-tender quality, individuals would then compulsorily have to receive foreign money—not note money, but actual—struck without the concurrence or surveillance of the Government to which they owe allegiance and which would hold itself responsible without power of control. All this applies equally to gold money; but the ready preference of the public for the yellow metal always assures foreign gold of easy circulation, and so it is the less necessary to pronounce it legal tender in order to keep it current. To finally secure assent to her claim, Italy agreed to a modifying provision, whereby each country, in the case of a breach of the convention, was to take back its own five-franc pieces that might be in the possession of the other States and pay gold for them. Upon this modifying clause turned subsequently the transactions of the Conference of 1885. Having served the desired purpose of an exchange of views, the conference, on October 1st, adjourned.
The Minister of Finance had consulted with the Bank of France about the pretensions of Italy. The management of the Bank did not feel at all satisfied with the outlook, observing that the practical effect would be to deprive the Bank of all right to refuse, if necessary, foreign coins, and thus further swell the stock in its vaults, which amounted already to 270,000,000 francs, whereon the loss in exchange was thirteen to fourteen per cent. Moreover, the question of State responsibility for the redemption of foreign coins held by the Bank had never been settled, and on that score the management had grave anxieties, which found expression in the reply sent, December 5th, to the Minister. In this the Bank, after explaining that the consequences of the 1865 convention were very burdensome, and that the receipts of foreign silver grew daily because of the public’s aversion for the heavy and inconvenient five-franc pieces, rejected with all its energy the proposition to establish legal tender for foreign coins, whether silver or gold. It added that, while it had consented temporarily, upon the State’s demand and in the general interest, to take foreign pieces, it would none the less be entitled to protection under the principles of the common law. In plainer words, it intimated that it would be able to throw upon the State the loss that it might have to suffer from the depreciation of silver. Finally, it was stated that although the convention of 1865 had not provided a method for the liquidation of the five-franc silver pieces, the decline of ten to fifteen per cent. which silver had undergone required imperatively that the conference should not leave the question without solution. This letter furnished the Minister of Finance a reason for rejecting the legal-tender proposal, which accordingly was ultimately set aside. Throughout the conference the question of liquidation was the cardinal subject of discussion by reason of the importance of the interests involved. Italy, having been unable to procure acceptance of her special demands, manifested great repugnance toward a liquidation scheme for the five-franc pieces. “There is in the convention of 1865,” said her delegate, M. Ressmann, “nothing providing for a final settlement for the five-franc pieces, while on the other hand there is such provision for fractional coins; therefore, by the axiom, Qui dicit de uno negat de altero, should it not be assumed that, if the convention of 1865 regulated in so precise a manner the settlements for fractional coins, it deliberately excluded the other from such obligation? If the proposed liquidation cannot be justified on grounds of right, neither can it be on grounds of equity. For, if it is said that forethought of liquidation was impossible in 1865, before the decline of silver, it may be replied that it could, however, have been contemplated in 1874; yet it was so far from contemplated then that recourse was had to limitation of the coinage quotas, which is antagonistic to any idea of liquidation. Therefore a liquidation arrangement can be asked for only on the basis of the reciprocal friendship and good assistance that the States concerned owe one another.”
M. Pirmez, who has since changed his mind, answered M. Ressmann in a truly remarkable manner. “It is not,” said he, “in the convention of 1865 that we must look for the liquidation obligation, but in the circumstance that Italy has established at home a forced currency. The convention stipulated that there should be no other moneys than those designated therein. If it excluded all moneys having other weight or standard than those determined upon, it excluded with much more reason paper money. What would a monetary convention signify to a country no longer having any money? Italy, by right and by equity, must repair the injury she has done to her associates by the forced paper currency.” Notwithstanding the cogent arguments of M. Pirmez, the liquidation clause was not adopted. However, the discussion was not entirely devoid of results, for by the agreement of November 5, 1878, which terminated the conference, Italy declared that it was her intention to put a stop to the emission of paper money of less than five francs, and that, to promote that end, she desired to withdraw the Italian fractional coins from circulation in the other countries. This was a relief of some consequence. The new convention, signed November 5, 1878, reproduced the essential features of the convention of 1865 (expiring January 1, 1880), and was to remain in force until January 1, 1886. It decreed that silver coinage should be suspended, excepting for Italy, which was exceptionally permitted to coin 20,000,000 francs in five-franc pieces during 1879, but was not to resume coinage afterward without the unanimous consent of the contracting States. Attached to the convention was an agreement on the part of the interested nations not to issue mint certificates for the year 1879. The Bank of Belgium and the Bank of France engaged to receive the five-franc pieces of the Latin Union during the whole period of the convention. But this was conditioned upon the preservation of the actual existing basis, and the engagement was to become void in case the free coinage of silver should be resumed, or in case any of the States wherein the money of the Union was legal tender should abolish the legal-tender policy without substituting engagements similar to those of the Banks of France and Belgium.
WITHDRAWAL OF ITALIAN COINS FROM OTHER STATES.
The withdrawal of the Italian coins from the other States was a difficult process. The details were regulated by an arrangement dated November 5, 1878, of which we give the outlines: From December 31, 1879, Italian fractional coins were to be no longer current in Belgium, France, Greece, and Switzerland. In the month following the conclusion of transactions, all such coins were to be remitted to the French Government, which was to undertake to pay for them, principal and costs, and to forward them to Italy. The account between France and Italy was to be closed January 31, 1880. The amount of the moneys to be returned to Italy was reckoned at 100,000,000 francs, of which 83,000,000 fell to the share of France, and 13,000,000 to the other countries. Italy was to take back first the 13,000,000 francs, then the 87,000,000, and, finally, the excess, if any. The transactions of the Italian Government were to give rise to a “current account,” the interest whereof was to be settled at three per cent. per annum, from the day on which the coins taken out of circulation should cease to be current. The times of payment for the moneys were specified, and the Government of Italy engaged to retire and destroy within six months at latest, from the completion of the fractional coin remittances, all its fractional paper below five francs. Italy also pledged herself to refrain from issuing new scrip of this kind, and to communicate to the other governments a statement of the withdrawals and destruction of fractional paper scrip as they were accomplished.
A SERIOUS DISPUTE WITH ITALY.
The convention received legislative approval in Belgium and Switzerland. In the French Chamber of Deputies it was on its first reading when a serious complication occurred. Italy, whose Ministry had resigned, made the following demands on the pretext that the convention of November 5, 1878, would not be approved by the Parliament: (1) That Italy be granted the right to coin 80,000,000 francs of five-franc pieces instead of 20,000,000, at the rate of 20,000,000 francs a year, from 1879 to 1882 inclusive, in order to put to use a supply of old Bourbon and Papal coins. (2) That she be not required to engage by international agreement to withdraw absolutely from circulation the small scrip, since it appeared to her that such a requirement would be an interference with her national sovereignty. Italy took this position on the ground that the new convention was less favorable to her than the one of December 23, 1865. By the original terms, she said, the contracting States were allowed two years to take back their fractional moneys and exchange them for current money, which would allow her to distribute her redemptions over the years 1879, 1880, and 1881, without payment of interest; whereas the new convention obliged her to take back the coins through the years 1880, 1881, 1882, and 1883, and to support an interest of three per cent.
As to the first point made, it seemed strange that Italy, having procured exceptional coinage privileges in the former years, should come forward asking for a supplement of 60,000,000 francs—especially in view of the great reluctance with which the other States had finally yielded her so small an allowance as 20,000,000 francs. Such an augmentation of the coinage would have been viewed very unfavorably by the Bank of France, whose coin stock on hand was more than half silver. For the rest, it was utterly inadmissible to permit Italy to retain her small scrip in circulation and thereby do away with the sole guaranty that the States had against the renewed turning out of her fractional coins. Lastly, the three per cent. which Italy regarded as a sacrifice was but a recompense for the capital that France had to employ for the withdrawal of the fractional moneys. Simple inspection of the 1865 convention shows that the period of two years specified for the exchange of coins was intended for the benefit, not of the debtor State but of the holders of the moneys. The exchange had to be effected as soon as called for, without delay, and thus no interest was to be paid to the holders. The new claims of Italy threatened nothing less than a rupture of the Latin Union. A rupture of the Union would have been disastrous first for Switzerland, where Italian pieces were legal tender, and next for France. From 1867 to 1876, Italy had thrown into France 1,131,000,000 francs of metal and had taken back only 215,000,000 francs. The excess was, therefore, 916,000,000 francs, or at the rate of 83,000,000 a year, employed principally to pay for coupons of bonds. Consequently, if on the basis of the 1865 compact, France could compel Italy to exchange, without delay, 100,000,000 francs of fractional money, she was, however, disarmed so far as the five-franc pieces were concerned, which were forcibly kept back in the French circulation and would have accumulated in the vaults of the Bank and the Treasury. The embarrassments of this situation impressed all minds.
THE CONFERENCE OF JUNE, 1879.
After an exchange of views among the countries of the Union, it was decided that a new conference should assemble in Paris. The propositions for consideration were: (1) France and Belgium are firmly resolved to maintain the principle of the coinage of silver. (2) Agreeably to this principle the Italian Government will withdraw its demand for five-franc silver coinage. The French Government will thereupon concur, with its associates, in the proposal to be made by Italy for the negotiation of a new act, supplementary to the convention of 1878, which shall permit her to provisionally retain the small scrip in circulation. In all cases, as a measure of safety, and for the purpose of withdrawals, joint action will be taken against the reappearance of fractional silver coins and as to the destruction of small scrip. The conference met June 11, 1879. It held five sessions and came to an end on June 20th, adopting an agreement which gave full satisfaction to Italy so far as it was possible to do so without conceding the important point of the supplementary coinage of 60,000,000 francs. Instead of having only six months’ time for the withdrawal and destruction of scrip after the receipt of the retired coins, she was granted all the time she required. She was obliged to repay in current cash 13,000,000 francs of small coins returned by Belgium, Switzerland, and Greece. But she obtained from France an option to take back the fractional moneys immediately (that is, during the first six months of 1880), or to postpone the taking back, with a storage charge of one and a half per cent. In either case, the sums transmitted to Italy bore a maximum interest of three per cent. from the day of delivery until the day of reimbursement. As a guaranty against the refloating of the fractional coins, it was prescribed that these moneys returned to Italy should be held and could only be put into circulation again when the suppression of the small scrip should be decreed by the Italian Parliament, and then only to serve as redemption money for the scrip. Finally, the conference adopted a resolution giving Italy her choice between the convention of November 5, 1878, and the agreement of June 30, 1879. The Italian Parliament gave its preference to the new arrangement. The additional act and the monetary convention of 1878 were approved by the French Chambers, and promulgated July 30, 1879.
To provide effectively for the amassing and withdrawal of the Italian pieces, the Minister of Finance addressed himself to the Bank of France and entered into a contract with it, under date of September 4, 1879, whose principal terms were as follows: The Bank agreed to amass the Italian moneys taken from circulation and to transmit them to the Italian Government, either immediately or later, as that Government should elect. The French Government agreed to send to the Bank the Treasury drafts and cheques given by Italy in payment, and the Bank was to have the full benefit of the interests paid by Italy. These interests, as determined by an agreement between the Bank and the Minister of Finance, were reduced from 3 to 2½ per cent., the consideration for keeping the moneys on storage (in case Italy should postpone their return) remaining at 1½ per cent. The Bank had to bear the expenses of the withdrawals, provided they did not exceed 250,000 francs. As recompense for the advantages that the Bank might derive from this contract, it was to keep at its own risk and peril a sum of 2,700,000 francs of Papal coins that it had in its vaults, and to sustain, up to a maximum of 130,000 francs, the costs of retiring Italian copper coins from French circulation, which the Minister of Finance desired to bring about. The work of retiring the Italian moneys and forwarding them to Italy was finished in November, 1883. The deliveries amounted to 78,877,000 francs, of which France supplied 70,819,000 francs, Belgium 6,501,000 francs, and Switzerland 1,557,000 francs. Greece took no part in the transactions, as the quantity of Italian coins circulating among her people was without significance.
ITALY AGAIN REFRACTORY.
It seemed reasonable to think that the convention of 1878, which was entirely favorable to Italy, would settle the coinage question for some time. The result was quite to the contrary. Italy again called for a new coinage allotment, this time on the pretext that her population had not been correctly calculated. Belgium protested. Soon afterward a royal Italian decree (August 12, 1883) modified materially the bimetallic principle established by the Monetary Union. The following is a translation: “The metallic reserves of all establishments of issue which, on June 30, 1883, did not have the proportion of at least two-thirds in legal gold money or gold bullion, shall, within two months from the promulgation of the present decree, be reconstructed so as to have at least two-thirds in metallic legal gold values and not more than one-third in metallic legal silver values. It is prohibited for any establishments of issue to convert into silver the portion of gold reserve in excess of two-thirds existing on June 30, 1883.” The Italian banks, to conform to this decree, refused silver money—even national silver money—except in the way of payment, and would not accept it either in current account or for exchange in bank notes. Notwithstanding all these predicaments, the convention of 1878 operated as an improvement, since it suspended for a rather prolonged time the coinage of silver.
AGREEMENTS OF 1885.
In 1881, at the instance of France and the United States, an international conference met in Paris with the object of promoting a common monetary system based on bimetallism. As usual, this conference accomplished nothing definite and afforded no advantages except interesting minutes. The convention of 1878, so laboriously constructed, was to terminate on the 1st of January, 1886, unless extended by general agreement. Early in 1884, Italy showed anxiety for a new convention. The Minister of Finance, Signor Magliani, seemed desirous of creating a situation in which gold should be the predominating element, awaiting circumstances for placing the country on a basis of absolute bimetallism. Switzerland, having suffered some losses from the convention of 1878, demanded, on January 11, 1884, the calling of a new conference, to consider details for a new understanding. The conference, after being several times delayed, began its deliberations on July 20, 1885. The wishes of France were: 1, The continuance of the Latin Union; 2, insertion of a settlement clause; 3, provision of taking measures to ensure equal treatment of gold and silver; 4, prohibition of all the States of the Latin Union to issue or maintain in circulation small scrip as injurious to the circulation of silver; 5, revision of the per capita basis of fractional coins. Items three and four had reference mainly to Italy. Her decree concerning the composition of the metallic reserves of the banks had been an interference with the equality of treatment due the two metals, which was indicated by the spirit, if not the letter, of the Union’s conventions. By preserving 350,000,000 francs of small scrip in circulation, she arbitrarily narrowed the field open to five-franc pieces and fractional silver coins. But the principal matter of difficulty was the proposed settlement clause—a clause which should bind the different countries, at the expiration of the Union, to take back the silver pieces struck by them and, after making mutual exchanges, to settle balances in gold or equivalent values. It is easily understood how strong an interest France had in urging such a clause (which, by the way, Italy and Switzerland approved) when it is stated that on November 5, 1878, the Bank of France had on hand 1,031,700,000 francs of silver, and on July 20, 1885, 1,150,900,000 francs—an increase of 119,200,000 francs. Of the 1885 sum, according to an estimate made at the time, 28.76 per cent. was in foreign pieces. The depreciation of silver, which in 1878 was ten to twelve per cent., had reached seventeen to eighteen per cent. in 1885. But the reasons that caused France to be so solicitous for a settlement clause were precisely the reasons inducing Belgium (which, more than any other country, had contributed to the plethora of silver by coinages far beyond her needs) to oppose the plan. Consequently, at the meeting of January 23, M. Pirmez, the Belgian delegate, in a lengthy explanation, showed why the settlement clause should be rejected; and, strange to say, he made use of arguments presented in 1878 by M. Ressmann, the Italian delegate, and resisted by him on that occasion. As these representations were of much importance, we here quote them:
“The Latin Union was founded on the basis of bimetallism and of stable relationship between gold and silver. This was done out of regard for France and despite the preferences of Belgium, which inclined to the single gold standard. Silver coin suffered a double loss—a decline resulting from the circumstances and a loss from wear. If each of the associated countries had coined silver money on the same scale, the losses would be equally divided and nothing would oppose itself to settlement; but such has not been the case. Switzerland has no national coin, and Italy has less of her own than that of other nations which she uses. But Belgium has coined more gold and silver than her requirements called for, and thus the heaviest loss would fall upon her. It would not be equitable, however, to compel her to bear it. As a matter of fact, the individuals, whether resident in the country or foreigners, who brought bullion to the mint ought to be the losers. In transforming that bullion into five-franc pieces the Government has enjoyed no profit; it has simply guaranteed standard and weight. There the responsibility should end; and the Government should no more be obliged to suffer the loss consequent upon the decline of silver than the loss caused by wear. At most, a claim might be maintained for settlement for pieces struck since 1874, since the agreements of that year and the subsequent years assigned to the various countries proportionate coinage quotas. It is proper to add that, by the striking of money, Belgium rendered services to the Union—services to Switzerland, which has minted no five-franc pieces, and to France, whose mints were stopped by the events of 1870-71. Should Belgium have to pay for services done? Moreover, to demonstrate that the States of the Union are not held to any guaranty respecting five-franc pieces, it suffices to remember that they are, on the contrary, formally held respecting fractional money. In the case of fractional money the situation is altogether different; the small pieces have no intrinsic value corresponding to their face value. Only the State utters them and profits by the operation. They are money taken on trust; and it is but reasonable that the State, which has put them forth, shall make them good when the reckoning comes. Nothing akin to this can be said of five-franc pieces, and here applies the principle, Qui de uno dicit de altero negat.”
This, as will be perceived, is a repetition of the reasoning of M. Ressmann in 1878. “Belgium,” concluded M. Pirmez, “is free from all engagement as to the five-franc coinage she has issued. A demand is made upon her to contract a new agreement and to assume a retroactive obligation to redeem in gold the excess of silver money circulating abroad. Belgium cannot consent to that, and she would prefer the disbanding of the Latin Union, however troublesome that might turn out to be. Belgium is ready, however, to engage to put no obstacle in the way of the return of her moneys through the channels of commerce and exchange, and to carry the spirit of conciliation to its farthest limits.” M. Pirmez had shown himself a skillful advocate of a difficult cause, and it was not easy to contend with him on the narrow ground he had chosen. His opponent, M. Luzzatti, the Italian delegate, did not even attempt to do so. Joining in the debate, he said: “Whatever may be determined upon, genuine balancings must be made, and will be made. In conference one may refuse to receive in payment the five-franc pieces which one’s government has struck, or to accept them at par with the more highly valued metal, but one speaks in such cases only on the line of theory, which is never put into practice. Each State takes the five-franc pieces of its coinage which are presented by its people; it cannot hedge itself in from the obligation, written or unwritten, to take them when they return from abroad. It will take them back, it will pay them in some form—in money, merchandise, drafts, interest on the public debt, or otherwise; but it will get them back; that material outcome is certain. Only it is of the highest importance to know how the result will be attained. Final balancing may be transacted in two very different ways: by contract, or in the natural course. The latter method might be a severe one under some circumstances. If by contract, all signers of the agreement are assured of ultimate settlement by the settlement clause, which fixes, in advance, an equitable and normal procedure for all concerned at the termination of the monetary pact.”
Signor Luzzatti’s reasoning did not suffice to convince M. Pirmez, who replied that his instructions would not permit him to subscribe to the view of the Union governments so ably defined by Signor Luzzatti, and he withdrew from the conference. The settlement clause, satisfactory in principle to all the countries but Belgium, was adopted on July 24th, but, to give Belgium time for reflection, it was decided to have the signing of the protocol remain in abeyance.
When the conference held its next meeting, July 30th. the Belgian delegates had received new instructions, and, besides, they perhaps viewed with alarm the probable consequences of a disorganization of the Union. They proposed various expedients: that the settlement clause be stricken from the agreement, leaving the signatory Powers to make separate arrangements among themselves; that the convention of 1878 be extended for a year, which would allow time to reach an understanding on the disputed points, etc. All the alternatives proposed by Belgium, which at bottom were only dilatory devices, were rejected, and the Belgian delegates withdrew permanently. The labors of the conference were suspended after August 5th, at the desire of the Italian representatives. At the concluding meeting, an agreement was formulated by which all the contracting parties—France, Italy, Switzerland, and Greece—were brought in accord except as to some points held open. The protocol had a strong menace for Belgium, whose coins were not to be received by the other countries three months after the expiration of the convention of 1878.
THE CONFERENCE RECONVENES.
The conference did not reconvene until October 22d. In the interim, negotiations were undertaken by France to persuade Belgium to come back into the Union; but the language that had been used by M. Duclerc, president of the conference, and, still more, the settlement scheme, threatening Belgium with considerable loss, had angered the Belgian people. The views of M. Pirmez were approved by all parties; and M. Frère-Orban, who had interpellated the Minister of Finance about the action of the delegates in leaving the conference, coincided with M. Malou in highly approving the attitude of M. Pirmez.
M. Pirmez now suggested a plan which could not be accepted, since it offered no remedy; but it illustrates how difficult it was to deal with the settlement clause. This project stipulated that each country should be free to step out of the Union at pleasure, assuming the responsibility to transact the settlement for its coins and bearing the losses resulting therefrom. This plan was laid before the conference rather inexplicitly. M. Pirmez went at length into the question, without coming to a conclusion. The conference continued its work without the co-operation of the Belgian delegate, who, after an interview with M. Duclerc, decided that his immediate return would be useless, neither side being disposed to yield anything. However, it was understood that upon the signing of the articles of the convention, the Belgian Government should be advised, so that it might either concur in them or submit proposals. The articles were signed, November 6th, by France, Switzerland, Italy, and Greece. The Belgian Government was notified at once. It suggested another arrangement, in substance as follows: “If a settlement shall occur, France will amass the Belgian coins circulating in the States of the Union and will herself proceed to exchange them with Belgium. If, after balancing, Belgium shall still be debtor to France, the difference shall be divided into two parts. The Belgian Government will, within five years, pay for the one-half in gold or drafts on France, and the other half will be sent back through commercial and exchange channels. Belgium shall make no change in her monetary system of a character to interfere with this taking back of coins, and she guarantees that the balance to be settled shall not be in excess of 200,000,000 francs.” This was regarded as an acceptable offer, and it was approved by the French Government in principle.
But another stumbling-block had to be got over. In the protocol of November 6, 1885, it was said in substance: “In the event that one of the governments of the Union, either directly or through the instrumentality of banks of issue, shall effect an arrangement with the Belgian Government for repatriating the five-franc pieces, such arrangement shall be submitted to the other States of the Union for approval. In case of non-approval, each of the other States will have, with regard to the State effecting such arrangement, the choice between agreeing to the arrangement or acting in pursuance of the settlement clause already adopted.” The Italian Government, informed of the understanding arrived at between France and Belgium, claimed the right to reserve to itself the privileges granted by the protocol. This gave rise to a possibility that circumstances might come to pass which would make it preferable for France to hold Italy to the settlement clause, and to send back the Belgian pieces at the risk and peril of France. Nevertheless, as it was all-important that Belgium should stay in the Union, it was determined, after long negotiation, that France and Italy should mutually claim the benefit of the conditions given to the Belgian Government as to the regulation of their accounts, so that the maximum balance of the repatriated coin should be 200,000,000 francs so far as Belgium was concerned. Greece reserved the right of choice at the time when she should abandon the régime of forced currency.
To provide for the special case of Switzerland—which, having struck no five-franc pieces, might have suffered from dearth of coin under the proposed mode of settlement—it was decided that France, Italy, and Belgium should settle “at sight” in Swiss five-franc pieces and ten-franc gold pieces and higher denominations for the moneys presented to them by the Swiss Confederation.
THE SETTLEMENT CLAUSE AND PROLONGATION OF THE UNION.
The settlement clause being thus adjusted, thanks chiefly to the energy of the distinguished governor of the Bank of France, M. Magnin, the other matters were of but secondary interest. The Union of 1865 was prolonged to December 31, 1890, by the terms of the additional Act of December 12, 1885, which restored Belgium to membership in it. Silver coinage was further suspended, not to be resumed without the unanimous assent of the contracting States. Any State desiring to have free coinage again was required preliminarily to redeem in gold and at sight the silver coins of its mintage that circulated in the other nations. The proportion of six francs per head of fractional money was preserved; but the Italian Government, as always previously, under pretext of withdrawing its non-decimal pieces, obtained permission to issue a supplementary amount of 20,000,000 francs in fractional silver. Switzerland—quite justly, in view of the requirements of her situation—was granted a quota of 6,000,000 francs. France was empowered to remint, up to 8,000,000 francs, the Papal coins which she had been unable to have Italy repatriate in 1872.
The terms of the convention of 1885, which in general respects were an improvement upon those of 1878, were particularly reassuring to the Bank of France. Conditions of settlement for the foreign moneys held by that establishment had never been determined, and it had been feared that the coins would ultimately remain wholly or in part on its hands, inflicting a loss that States of the second class would scarcely be able to make good. The Minister of Finance, in a letter dated October 31st, asked the Bank to receive the five-franc pieces of the Latin Union during the period that the convention had to run, and stated that at the end of that time the settlement for the foreign five-franc pieces then in the Bank’s vaults would be undertaken for the account of the Government. This time, the rights of the Bank were fully recognized, which was but proper, since the Bank had taken the coins of the Union only upon the demand and in the interest of the Government. The Bank consented to lend its co-operation to the State as formerly, but a proviso was made in the agreement that it should not be bound by the tacit extension clause.
CONTINUATION OF THE UNION AFTER 1890.
The convention was for five years, and therefore was to expire December 31, 1890. But none of the contracting States had any interest in its dissolution, and it was extended from year to year by tacit agreement. Since December 31, 1890, the Bank of France has yearly engaged to receive over its counters the coins of the Latin Union for the account of the Treasury.
Incidental reference may be made to the International Conference of 1892, which met at Brussels in response to the invitation of the United States Government, to establish a uniform international ratio between gold and silver, and to increase the employment of the latter metal in the world’s circulation. Twenty governments were represented. The debates were long and interesting, but nothing practical was realized. The conference adjourned sine die on December 17, 1892.
THE CONFERENCE OF 1893.
A conference concerning the Latin Union exclusively was held in 1893, at the request of the Government of Italy. The rise in Italian exchange had caused exportations of the fractional coins, which were taken in payment at the receiving offices of the other associated countries. These constituted a means to settle international debts, even such as were payable in gold, since it was sufficient for Italy to send fractional money into France, drawing upon French bankers and dispatching the resulting drafts (worth par in gold, and even a little more) to creditors. But these proceedings had exhausted the fractional moneys at home, and Italy became much embarrassed because of the scantness of the medium for every-day business. The Italian Government, tied by the conditions of the Latin Union, which fixed the amount of fractional coin utterable at six francs per head, had not the power to coin any more. To exercise that power it would be necessary to abrogate the convention of 1885, which would imply obligation to pay in gold a sum that might reach one hundred and fifty or two hundred millions, and to risk a formidable rise in exchange. The Government, in view of these perils, sought to make a remedy for the meagre supply of small silver by issuing copper and nickel coins, not provided for in the convention of 1885; but this device did not meet the case. The Minister of the Treasury, Signor Grimaldi, put forth a decree, on August 4, 1893, authorizing the issue in scrip, secured by fractional coin, of 30,000,000 of the denomination of one lire. The project was a good one, for the small notes would have no circulation outside Italy, and were a substitute for coin, which was being constantly exported, and which, being represented by redeemable paper, would have to remain at home. But the Italian Government did not possess thirty millions of fractional coin, and it resolved to provisionally emit a portion of the thirty millions of Treasury scrip secured by gold or silver money having legal-tender currency in the kingdom. This feature of the decree was a manifest infraction of the convention of 1885, which rigorously limits fractional coins, and it excited complaint, chiefly on the part of Belgium. As a way out of the difficulty, Italy opened negotiations to have the contracting Powers return the fractional coins struck by her which circulated within their dominions, and, moreover, to have them pronounce those coins noncurrent, so as to prevent their outflow. France, Belgium, and Switzerland received these overtures favorably. A conference assembled in Paris on October 10, 1893, and drew up an agreement by which Belgium, France, Greece, and Switzerland were to withdraw from circulation Italian two-franc, one-franc, 50-centime, and 20-centime pieces, and send them to the Italian Government, which thereupon was to pay for them half in gold coins of ten francs and over, and half in drafts upon creditor countries—the drafts not to run longer than three months. Each of the four States was empowered to prohibit the entry of Italian coins, but the Italian Government reserved the right to have the old state of affairs re-established later.
The coinage quota fixed by the old agreements was expressly maintained, and it was understood that the Treasury scrip of denominations less than five francs should be secured by keeping back in the Italian Treasury vaults an equal sum in Italian fractional silver money.
The amounts sent back to Italy were:
Since this transaction, the career of the Latin Union has been without episode. The monetary treaty to which Belgium, France, Italy, Switzerland, and Greece are parties is not partial to any of the members in particular. It survives mainly because the circumstances of the associated nations render it impossible for them to dissolve it. Switzerland, having coined but a practically insignificant amount of five-franc pieces, might step out without harm; but Italy and Belgium would be exposed to very grave embarrassment if they should be obliged to take back the five-franc pieces that France holds. As for France, she fears that by giving notice of her retirement from the Union the exchanges of her neighbors would be deranged, and she would suffer from the countershock. Notwithstanding, therefore, the precarious footing on which it stands, the Latin Union is renewed from year to year tacitly, and the probability is that it may continue for a long time to come.
DYNAMICS OF CIRCULATION.
The Author hopes that the following Essay, recently read before the Statistical Society of Paris, may with propriety be presented, at the close of his Treatise, as illustrating principles regulating the use of monetary instruments in the Latin nations.
CONNECTED with a great number of the problems of political economy and statistics, we find an abstract and rather vague concept suggested—the concept of dynamics, or rapidity. The idea of dynamics, so plain when it concerns bodies in motion, becomes confused when applied to social phenomena. It is nevertheless impossible to misconceive its importance. In commerce, in industry, the rapidity with which products are used is a vital matter. You will remember the remarkable discourse of our colleague, M. Edmond Duval, in which he showed that in prosperous periods the pledges at the mont de piété (pawnshops) were redeemed promptly, while in times of embarrassment the redemptions were very much less numerous. We have here a phenomenon for which we shall find an analogy by considering this subject of monetary dynamics.
Political economy teaches us that the usefulness of money depends upon two factors; first the mass of the money, and second the rapidity with which it circulates, meaning the number of times that it changes hands in a given period. One may say, to draw upon mechanical technology, that the service rendered by money stands in proportion to its quantity of motion (quantité en mouvement). This is why the most energetic commercial nations have striven, by artifices, to augment the rapidity of the money circulation. They effect a saving on the handling of money, which is very costly, and yet obtain equal results. On the authority of Palgrave and Martin, England, thanks to its cheques and clearing-house, balances all its accounts with less than £75,000,000 of gold and £21,000,000 of silver. France, on the other hand, with a lesser trade, possesses, according to De Foville, a stock of money comprising 4,500,000,000 francs of gold and 2,500,000,000 francs of silver; the difference between the two nations being as 96 to 280. The explanation of this difference is that England makes up for lack of money by rapidity of circulation. The valuation of the mass of money in a country is a delicate but not an impossible task. Palgrave and Martin in England, and De Foville in France, have arrived by different processes at satisfactory approximations which have been confirmed in practical ways. As to the rapidity with which this mass of money moves, in its varying forms of specie, bank notes, credit transfers, and settlements, nothing is known in the existing state of statistics; and notwithstanding the somewhat ambitious title of this treatise. I shall not deal with that problem in its general aspects, but shall confine myself to particular phases, the solution of which can be given with entire certainty.
One part of the great movement of money is effected through the medium of banks by open accounts; which constitute a very wide branch of the stream of circulation—a branch with which we are perfectly familiar in every respect. The banks receive from their customers funds on deposit, which are termed “credits.” Upon the order of a depositor, given in the shape of a transfer, the bank transfers to a new account all or part of a credit, and, by a mere stroke of the pen, and without the displacement of a coin or a note, effects a payment of any amount. For instance, in the Bank of France, in 1894, such transfers amounted to 50,000,000,000 francs. The amount of money kept by the banks is not altered by the transfers; it is only distributed in a different manner. Funds deposited in a bank may also be moved by cheques, which sometimes may occasion money transfers, but usually bring about a withdrawal of cash. The sums paid on transfers or cheques form the “debits” of current accounts. The difference between the credit and debit is called the “balance.” This balance occasions the movement of funds through changes of ownership; and it may be said that it is the active and circulating part of the open accounts. The system of open accounts may be represented correctly as a reservoir receiving a stream (credit), which flows through an orifice (bank). The balance is the level of the supply in the reservoir; the portion that has flowed out is the debit. The rapidity of the outflow is what I propose to figure out.
To arrive at this, let us say that A B is the distance separating a debtor from his creditor.
I call this distance 1. A payment will have to traverse the distance 1 to the sum paid. If I interpose a bank “c” at an equal distance from both creditor and debtor, and if the payment is made through the medium of this bank, the payment traverses one-half the entire distance from the debtor to the bank and one-half from the bank to the creditor. This reasoning remains correct whatever may be the number of debtors and creditors. It can, therefore, be extended to the totality of payments made into the bank and the totality of payments made out of the bank. If we designate these respectively by m and m1, the total displacement of funds passing through the bank will be . As the bank can displace only that which it holds, i. e., the daily balances, is the sum of the daily displacement of balances, or, expressed more simply, the displacement of the average balance of the year. If S is the average balance and V its annual displacement—i. e., its rapidity—we have the equation
or, in ordinary language: Half the combined amount of annual credits plus annual debits is equal to the quantity of movement of the average balance of the year. From the preceding equation we obtain
This shows the value of V; and on the basis of the above formula the accompanying illustrative charts* have been prepared. It should be added that all the bank figures to which the formula is applied are official, and that the statistics of rapidity of circulation thus derived are therefore scrupulously exact. In examining the fluctuations of the charts a simple glance will be sufficient to distinguish those relating to countries with sound finances from those which concern countries with disordered finances.
The following table gives the rapidity of circulation during the last eleven years for France, Germany, and Belgium:
It would have been interesting to include in this exhibit the rapidities of circulation for the Bank of England and the banks of the United States, but no data have been obtainable from these institutions except the balances of open accounts, which are not sufficient to admit of conclusions such as I desire to draw. Moreover, in those two countries the banks of issue pay none but clearing-house balances, and it is probable that calculations of rapidity from such figures as can be had would show results corresponding but little to the rapidities of general circulation. For the banks represented in the foregoing table the rapidities are easily computed. Germany has a slight advantage arising from the fact that in that country cheques and transfers (giro accounts) are more in use than in France and Belgium. These rapidities are reckoned from movements and highest balances, which are as follows for the last eleven years (in millions of French money):
The importance of the factors involved demonstrates that they must have a real influence on the economy of a country.
Passing now to the countries with disordered finances, we find low rapidities of circulation, testifying equally to the feebleness of exchange and irksome contingencies generally. I have traced, as far as possible, the deviations of rapidity of the Banks of Portugal, Spain, and Italy, and likewise of the Bank of Greece. In the case of Greece, however, the curve nearly approaches a parallel to the axis of the abscisses.
The movements and balances which I give below, although less important—at least in relative value—than those of the Banks of France, Germany, and Belgium, represent nevertheless a large aggregate of circulating fund of the countries under consideration.
It remains to remark that in general the more the condition of a country deteriorates, the more the average balances of current accounts grow.
Hitherto, I have taken into consideration only such accounts as do not bear interest, which are the true indices of the course of commerce. It is well also to examine how the case stands in respect to interest-bearing accounts. I give now the rapidities of some banks of issue that permit deposits of this kind:
There are two explanations for the slowness of money displacement in accounts at interest: First, the character of the clientage, which for the most part is not a commercial one, but lives on the income of the funds deposited in the bank; and second, the employment of interest money so placed as a kind of reserve, which is used after other resources are exhausted. Oftentimes the great banks of issue have been criticised for refusing to grant interest on deposits. A study of this question of rapidity of circulation leaves no doubt that they act wisely, for the payment of interest has a definite deadening tendency. Besides, the whole of the nation would have to pay for the handling of money on which the depositors alone would enjoy the profits coming from a granting of interest. This opinion is fortified by examination of the rapidities of circulation in several French credit associations that allow interest. Their rapidities bear no comparison to that of the Bank of France.
A comparative study of rapidities of circulation is not merely interesting as a matter of curiosity, but has practical utility. I have undertaken it to ascertain what economies may be effected by perfecting methods of payments. In 1893, if at the Bank of France the rapidity of circulation had been the same as at the Crédit Industriel et Commercial, the balance necessary to bring about a movement of specie of 48,809 millions would have been 1577 millions. As the Bank had used only 405 millions, there were 1172 millions for which no other employment was found. Again, if we could have been able to give to our cash the same rapidity as in Germany, we would have required only 295 millions.
Without entering upon a discussion as to the relative merits of circulations based, respectively, upon coin and upon the use of cheques and balancings, I simply present my general deduction that preference attaches to the latter for reasons of cheapness, and that a judicious use of the same gives to the country concerned the free handling of hundreds of millions of capital, with interest corresponding. I content myself, however, with merely suggesting this subject of economy in the use of money capital. The purpose of the present inquiry does not go beyond seeking a method for the calculation of rapidity of circulation; and, after having determined the fluctuations of rapidity, I have noticed without surprise that, in the Bank of France, their conspicuous aspects correspond with great fidelity to the periods of “crises and settlements” given by M. Juglar. M. Juglar defines a crisis as “the stoppage of rise in prices,” and a settlement as “the stoppage of a fall in prices,” and remarks that these phenomena find easy connection, by a process of cause and effect, with other phenomena readily observable, amongst which he mentions the following: (1) When a crisis breaks out, the discounts of banks of issue rise to a maximum; (2) the cash on hand reaches a maximum; (3) importations come to a minimum. On the other hand, when the contrary movements come about, the effect of the crisis is broken and a settled state begins. Movements of capital and balances of accounts apparently escape the influence of crises and settling stages, although the latter are often attended by a maximum of average annual balances.
I shall not depend for my conclusions upon this theory of crises; for classical though it has become, it is not yet fully accepted by all minds; and, besides, we well know that rules are sometimes reversed by accidenta causes. So far as France is concerned, the fluctuations in the rapidity of circulation afford an absolutely reliable test and leave no room for uncertainty. The following is M. Juglar’s list of crises and settlements since 1810:
Taking into consideration that the beginning of a period of crisis and the termination of a period of settlement are always comparatively slow in movement, and may encroach upon years antecedent or following, my calculations still show that the rapidity attains its maximum in critical times and its minimum when times become settled. The theory of M. Juglar is therefore verified by this new test, verified without exception or qualification during a term of eighty-five years, wherein the phenomena under observation have presented themselves twenty-five times. In view of all this, it appears very unreasonable to see in these circumstances mere coincidences; and, indeed, we seem to be dealing with a general economic law from which practice may derive benefit.
May it not be possible to so make use of the law of fluctuations of rapidity as to determine when we are approaching the acme of business? The answer to this question is difficult, for we have to do entirely with a problem of future phenomena that may or may not be reproductive of the past. Meanwhile, it is perhaps not too bold to apply, in our “Economic Meteorology”—to use M. de Foville’s term—the methods employed for forecasting the weather. The indications of the rapidity lines are identical with the barometric ones. The rising of the barometer is assurance of fine weather; and increase of circulation rapidity foretells activity of business. In the two cases the probability of the foreseen event is equally trustworthy. In examining the fluctuations in rapidity of circulation for the Bank of France a slight rise is observable for the year 1893, which continues in 1894. Now, the year 1894 was, at least for exchange operations, more active than the preceding year, and it may also be said that general commercial affairs showed an improvement; for, according to official statistics, the revenue on stamps for commercial paper surpassed that of 1893 by more than six millions—corresponding to an aggregate of ten to eleven billions in commercial paper. The rise of the wave, although not rapid, is rather marked, but it had not much opportunity for decided progress in 1895. Accordingly, it is presumable that we have entered on a period of relative prosperity. It is very desirable to reinforce these indications in any given case by the signs of M. Juglar’s barometer.
I make no more pretension than does M. Juglar to prophetic powers. I do not in any manner believe that the prognostications of the rapidity lines are to be taken as an infallible guide; but I think that, on consulting them carefully, they may supply, all other considerations being favorable, a valuable aid in forecasting an opinion of the future, with some chances of decided eventual justification.
The foregoing comments do not apply alone to the Bank of France. The credit associations in general do not obey the same influences, as is shown by the fluctuations of the Crédit Industriel et Commercial, the amplest wave that I have been able to trace so far as these establishments are concerned. Neither can I affirm that the lines of rapidity abroad have the same significance as with us; for methods of bank operation differ. However, the maxima and minima seem to come about under the influence of analogous causes. One of the waves is particularly interesting—that of the National Bank of Italy.* It reflects, in a way, the economic history of the country. In Portugal, Spain, and even Greece, crises of exchange are preceded by a maximum of rapidity, which, in all probability, does not happen by mere coincidence. In Belgium and Germany the maximum rapidities of 1889 and 1890 seem to point to the Argentine crisis, and, in a more general manner, to the national crises from which these two countries suffered so much as creditors of nations with straitened finances.
The suggestions I have here submitted are the result of attentive study and long-continued reflection. I have undertaken to estimate, in a concrete form, the importance of a factor which, though hitherto not exactly ignored, has been little considered. In seeking to understand, in their dynamic manifestation, phenomena which have been known heretofore only in their static aspects, I have been so fortunate as to verify a remarkable law and to contribute to the evidences of its precise workings. To the extent, therefore, that I have been able to furnish my contribution to the edifice erected by my savant colleague, M. Juglar, I do not deem my trouble in vain.
Subjoined are charts showing, respectively, the rapidity of open accounts at the Bank of France and at the National Bank of Italy.
Banks of Alsace and Lorraine, AFTER THE ANNEXATION.
BY ARTHUR RAFFALOVICH, correspondant de l’institut de france; agent of the imperial russian ministry of finance at paris.
NEW YORK. 1896.
THE BANKS OF ALSACE-LORRAINE
THE portrayal of the economic history of the provinces which the war of 1870 so severely separated from France is a task of great interest and much difficulty. We need not dwell upon the obstacles which would probably be encountered by a student who should go into those provinces from France and seek access to the necessary documents, and devote himself to a personal inquiry upon the spot. We must, therefore, be content with the information contained in works published in Germany.
That which forms a special chapter of this history involves an inquiry into the method by which the laws and institutions of the conqueror have been introduced, and the manner in which they have operated in a country that had become great and prosperous under the régime of French laws and customs. If we bear in mind the all-important rôle of the Bank of France and the influence it exercised upon the organization of credit in the country, we shall be anxious to see how it was replaced, how it has been possible to substitute the machinery of other institutions for that of an establishment so justly popular. For twenty-five years the Bank of France, represented by three branches, was a factor of the greatest importance in the development of Alsace-Lorraine. Its methods and usages were known and liked, and commerce had so entirely adapted itself to them that the Bank of Prussia, when it superseded the Bank of France, was impelled to carry out the policy inaugurated by the latter. Some new principles were indeed introduced; but, even in this process, it was necessary to take account of the sentiments of the annexed provinces and their patriotic attachment to ancient memories.
The Bank of France was the central point toward which converged the whole system of credit; the inexhaustible source from which private banks and bankers drew the resources needful for commerce and industry. There must, of course, be an intermediary between the bank and those seeking credit. They do not come into immediate contact; there are several steps between them; such as bill-discounters and brokers, who facilitate transactions among the various banks as well as between them and the public.
M. von Lumm, author of an interesting work on the subject,* calls attention to the fact that the circulation of bills of exchange is more general in France than in other countries. The merchant often finds it to his advantage to take a bill for his merchandise instead of debiting the purchaser upon his books. The retail merchant or the artisan buys the articles necessary for his trade or his production with a short-time bill drawn to order. The seller can realize upon the credit he has given by discounting the bill of the purchaser; the latter meanwhile utilizes his credit, and when the due date arrives he pays with the money resulting from the sale of his goods. Thus the French merchant needs, as cash in hand, a smaller money capital than is required in those countries where the system of book accounts prevails, or where long dating of bills is practised. The advantage of this system is that it encourages habits of prompt payment and gives to the seller a means of proceeding summarily if the bill is not met at maturity.
This custom has had a considerable influence upon the number and the amount of bills of exchange in France. One effect of it has been to develop the business of discounting far beyond the point it has reached in Germany. In Alsace-Lorraine the circulation of bills of exchange has always been larger than on the other side of the Rhine, both as regards the sum total and the number of bills. The use of credit has been more general and its organization broader.
In 1840, commerce in Lower Alsace had become of so great importance that the citizens insisted that an institution of credit should be established among them capable of meeting the needs of the district. The Strasburg Chamber of Commerce petitioned that a branch of the Bank of France be established there. In Upper Alsace the same desire arose on the part of a powerful cotton industry. On January 2, 1844, was opened the branch of Mulhausen; on August 20, 1846, that of Strasburg. In 1848 the Departmental banks were abolished, or rather they were incorporated with the Bank of France, which was thus enabled to be more liberal in the extension of its branches and to found one on June 29, 1849, at Metz. There was a constant and rapid increase in the business of these branches, and in 1868 Strasburg held fifth place among the sixty branches of the Bank of France, with a business exceeding 200,000,000 francs per year.
The disastrous events of 1870 were reflected immediately in the economic world. The people were in the hands of the enemy; their relations with France were severed, and the uncertainties of war prevented an influx of capital from Germany. A crisis was precipitated mainly by these three facts: a suspension of operations by the branches of the Bank of France, a forced extension of the due date of bills, and the suspension of the savings-banks. Immediately after the surrender, the business of the Bank at Strasburg was suspended and the employees were held prisoners in their homes. This unfortunate measure resulted from a mistake of the German authorities in supposing that the Bank of France was purely a governmental institution. The Germans acknowledged their blunder, insisting at the same time, however, upon a right to supervise and control the Bank. They found themselves face to face with the forced circulation secured to the bills of the Bank by the law of August 12, 1870, and they wished to prevent a new issue.
On November 4th, the Civil Commission of Kuhlwetter ordered the liquidation of the affairs of the Strasburg branch, which was followed by the liquidation of the branches at Mulhausen and Metz. Those banks afterward renewed their activity, but in a very restricted form. Their most important task was to convert their bills and acceptances into money (17½ millions of francs at Strasburg, 2 millions at Mulhausen, and 4 millions at Metz). This liquidation was accomplished without loss to the Bank, and was finished at Strasburg shortly after December 31, 1871. The branches having thus stopped discounting, the reservoir was closed from which the citizens had drawn their resources, and there followed a veritable credit famine, especially as private bill-brokers and bankers were also refusing to discount any paper. On October 26, 1870, the Strasburg Chamber of Commerce demanded of the Civil Commissioner that the Bank be allowed to renew its discount operations and that the Government place at its disposal a sum sufficient for that purpose. There was a complete stagnation of business, accumulations of merchandise with no outlet, and a large population of workingmen consigned to idleness. If the branches of the Bank of France were not allowed to renew their operations, then it was demanded that a new institution of credit be established as the only means of escaping total ruin. Considerations of general politics stood in the way of the desired concession, but permission was given to the branch to make certain indispensable discounts.
The extension of the due date of bills, by virtue of the law of August 13, 1870, proved to be another source of mischief. Debtors living in France to whom merchandise had been shipped took refuge behind this enforced opportunity of delay. The citizens of Alsace-Lorraine requested that the same extension be granted for their benefit. The German authorities yielded, but with bad grace. An order of the Governor-General of Alsace-Lorraine, dated March 20, 1871, postponed for seven months the payment of bills falling due between August 13 and November 12, 1870, and those of November 13, 1870, to April 12, 1871, were put forward to June 13 to July 12, 1871, the debtor being required to pay six per cent. per annum to the creditor from the original due date.
The suspension of the savings-banks affected other classes than those injured by the liquidation of the Bank and the extension of the due date of bills. In 1868, there were, in the departments of the Moselle, one depositor out of every fifteen inhabitants, with an average deposit of 252 fr. 82; in the departments of the Lower Rhine, one depositor out of every twenty-one inhabitants, with an average of 348 francs; in the departments of the Upper Rhine, one depositor out of every thirty-three inhabitants, with an average of 411 francs. The savings-bank of Strasburg had 18,180 depositors, and that of Metz 25,590; in these two provinces there were twenty-two savings-banks in full operation. The suspension of payments by this class of institutions resulted from the peculiar organization of French savings-banks, the money belonging to them being kept by the State and not by the banks themselves, as in Prussia. Their moneys were kept together in the Deposit and Consignment Office, which pays an interest of four per cent. There was due to depositors, in 1870, 22,110,896 francs, but the money was in Paris. The banks thus deprived of their resources and reduced to an insignificant amount of ready money, could not pay their depositors. But they declined to accept any further deposits, inasmuch as they did not know whether the new administration would acknowledge the same obligation that the French Government had observed. Under these circumstances, the German authorities made advances to the savings-banks, on account of the sum due from the Deposit and Consignment Office, to the extent of 4,200,000 francs. In November, the Strasburg savings-bank was enabled to pay all deposits below fifty francs, and to pay dividends upon larger deposits. At the close of 1871, when the financial situation seemed to be more stable, the German authorities, being assured of reimbursement on the part of France, committed to the Landeskassen (provincial treasuries) the powers of treasurers-general and those of deposit offices. In 1872 and 1873, the sums due to savings-bank depositors were once more intact and ready to be paid over; 1,230,000 francs had been remitted in French rentes. Little by little, the savings-banks, which had recently confined themselves to paying off their depositors, began once more to accept deposits.
In proportion as business resumed its normal course, the disappearance of the Bank of France branches was more severely felt. In order to avoid a real catastrophe it became necessary, at all hazards, to establish the business of credits upon a basis similar to that which had disappeared. The Prussian Parliament had merely skimmed the surface of the problem. At Strasburg, those most concerned took it upon themselves to settle the question by private initiative. Certain capitalists and bankers formed a syndicate to found, with a capital of thirty millions of marks, a bank to take the place of the branches of the Bank of France. A complete charter was drawn up; the bank was to have its headquarters at Strasburg, with branches at Metz, Mulhausen, and Colmar; bank notes were to be issued expressed in francs, and the establishment was to be independent and self-governing. The Strasburg Chamber of Commerce discussed the matter at several sittings. In default of permission to establish for the provinces of Alsace and Lorraine an independent bank, modeled upon the charter of the Bank of Wurtemburg and authorized to issue notes payable in francs, it was determined to ask for the establishment of branches of the Bank of Prussia. A delegate was sent to Berlin to submit the first of these propositions to Prince Bismarck; but on his arrival the question had already been determined by the Prussian Government, and, naturally, upon a basis opposed to the dreams of provincial autonomy. Alsace-Lorraine was provided with branches of the Bank of Prussia (law of February 26, 1872). On July 26, 1871, representatives of the Bank of Prussia had opened their doors at Strasburg and at Mulhausen; on August 21st, at Metz.
Were the form of organization and the charter of the Bank of Prussia such as to promise an effective substitute for the services rendered by the Bank of France? Were the advantages equally great? By the organic Constitution of October 5, 1846, the State not only took part in the management of the Bank of Prussia and shared its profits, as is the case to-day with the Bank of Germany, but it was an actual shareholder to the extent of 1,900,000 thalers, while the individual shareholders had paid in 20,000,000 thalers. The right of issue was unlimited, provided one-third of it was covered. The Bank had under its control the money of wards and funds in the custody of the courts, for which the State was responsible. The Bank of Prussia had only 3,780,000 thalers in public funds, in addition to a reserve of 6,000,000, whereas before 1870 the Bank of France had very nearly 113,000,000 francs in rentes. The influence of the State was preponderant. The stockholders, or their representatives, were entitled to be informed of the doings of the Bank, and to give their advice, but they had no decisive part in its management. The employees were servants of the State, though they were paid by the Bank. The actual management was in the hands of a directory, consisting of a president and five members. In addition to these, there was a Central Committee, elected by the two hundred largest stockholders; this committee exercised a general supervision, but the continuous special supervision was in the hands of three deputies chosen from it. The head of the Bank was the Minister of Commerce, and his decision was final in case of a difference of opinion between the directory and the shareholders’ representatives. He it was upon whom the responsibility rested in the last instance. The branches were governed by two officers, usually chosen for life, and a manager, who was at the same time the legal adviser of the institution. These three drew up each year a list of the credits to be opened, which was submitted for ratification to the directors in Berlin. The shareholders were represented by a Provincial Committee of six to ten members, each holding at least three shares, and chosen from two lists drawn up respectively by the manager of the Bank and the Central Committee. The Provincial Committee met once a month. The directors were interested in the proper management of the Bank by a certain percentage of the profits. This sum was invested each year in public funds. They received the principal on leaving the service, and meanwhile they were entitled to the interest. They were forbidden to own shares in the Bank.
The various departments of the establishment were practically the same as in the Bank of France. We have already said that the system of book credits in Germany condemns to idleness a certain amount of capital, which in France is kept in circulation by the custom of drawing bills. The average value (per piece) of bills of exchange has been in certain years as follows:
Confiding in the wise administration of its directors, the Bank of Prussia, summoned to replace an institution highly and justly popular, did not modify its usual customs, notwithstanding the larger circulation in Alsace. No embarrassing or complicated formalities for it; no certificate of solvency required from one presenting bills of exchange at its counters; no discount committee meeting three times a week to pass upon the purchase of bills. The bearer presents himself at the wicket; the bill is examined by the two directors; and, if they consider it good, the money is paid immediately. Moreover, the Bank of Prussia bought bills drawn upon foreigners. Loans were made upon the precious metals, personal property, and merchandise. The warehouse receipt was unknown to the German law. Thus, then, there were fewer formalities than under the French system. The intervention of a representative of the stockholders was not deemed necessary; the opening of a credit account was determined solely by the two functionaries placed at the head of the branch, to the extent of their instructions, given at the beginning of the year.
The branches at Strasburg, Mulhausen, and Metz were endowed with the same powers as those already in existence, namely: The discount of bills drawn upon places in which there was an office, agency, or representative of the Bank; the purchase of bills of exchange on Hamburg, certain cities in Southern Germany, London, Amsterdam, and Brussels; loans on the precious metals, and on securities; payments at Berlin, or at any of the branches; collections, and the sale and purchase of securities.*
With the German invasion and conquest, German money, the thaler and the silver groschen, had come into the country. One of the earliest measures of the generals had been to establish the comparative value of the thaler and the franc. An order of the Governor-General, dated November 8, 1870, directed that in all payments the creditor should be compelled to accept the thaler as the equivalent of 3 fr. 75, and the franc as the equivalent of 8 groschen.* The thaler had a legal circulation, and was a sufficient tender upon this basis of exchange with French money. In these circumstances, the Bank of Prussia authorized the discount of bills on Metz, Strasburg, and Mulhausen, expressed in francs, on condition that the bill should also bear upon its face the sum expressed in thalers or in groschen at this fixed rate of exchange. Besides, as the country was still subject to the Code of Commerce, the branch banks were authorized to discount not only bills of exchange, including bills drawn to order, but also paper not requiring acceptance. Bills of exchange calling for thalers could be paid in francs (gold or silver), but they could not be paid in notes of the Bank of France, which thereby suffered a loss. Subsidiary coins need not be accepted except to the extent of fifty francs; sous only to the amount of one franc.
At first the branches confined themselves to purchases of bills on London, Amsterdam, and Brussels; the forced circulation existing in Russia and Austria caused them to refuse bills drawn in roubles and florins. For the same reason, they declined to accept paper drawn upon Paris, Lyons, and other French cities until after the month of September, 1871, when forced circulation had been abolished in Alsace-Lorraine, and when the leading merchants of Mulhausen demanded that such paper be accepted. After this date, the Bank of Prussia authorized the purchase of bills drawn on France, taking as a basis of exchange the official rate of the Berlin Bourse. So long as the short rate on Paris remained below seventy-nine, little advantage was taken of this privilege.
Moved by a desire to gain the good will of the commercial classes, and to establish closer relations between Germany and the conquered provinces, the Bank of Prussia took pains to deal liberally in the matter of credits, and, provided the signatures were good, to exceed the sum which the Bank of France had been willing to allow. The Bank attempted the same liberal policy in making loans upon securities. That this benevolence might not be merely nominal, in the absence of German securities, which had no existence in that country, the Bank accepted in pledge three per cent. rentes and the stock and bonds of the chief French railroads, placing the maximum loan at sixty per cent. of the nominal value. These favorable terms remained in force only one year; but subsequently the maximum was even raised for the shares of the Northern, the Paris-Lyons, and the Orleans railroads. The business of accounts current was much more restricted at the Bank of Prussia than at the Bank of France. The former accordingly made every exertion to offer to its clients in Alsace-Lorraine the same advantages they had formerly enjoyed.
The payment of the war indemnity by France to Germany had caused fluctuations in the rate of exchange. Paper on Berlin was in demand and increased in price; the same was true of thalers, while exchange on Paris and the value of twenty-franc pieces were current at a discount. The twenty-franc piece had maintained itself at a high rate throughout the war; but on September 12, 1871, the Napoleon was quoted in Berlin at five thalers eight groschen, and Paris short exchange at 77¾ (for 300 francs), whereas on July 5th the latter quotation had been 80. On October 24th it had fallen to 77⅙; on December 16th to 77,* to rise gradually to 80 on January 20, 1872. Following the second large loan (4136 millions of francs) in July, 1872, exchange on Paris had once more drifted downward. In 1873, the extreme rates were 78⅔ on May 30th, and 80¼ on December 13th. To the same period belong the abandonment by Germany of the double standard, the adoption of the gold standard, and the fall in the market price of silver bullion. At the time when the Bank of Prussia established itself in Alsace-Lorraine, it was not foreseen that any harm would result from the permission given it to accept French gold or silver at the fixed rate of 80 thalers for 300 francs. But the fluctuations in the rate of exchange just noted placed the Bank in a dangerous situation, and exposed it to loss as soon as exchange had fallen to 77¾ thalers, and that at a time when the amount of French money in the two provinces was increasing. Speculation found it remunerative to buy French pieces where they were to be had at a low price, and to present them at the counters of the Bank in Strasburg, Mulhausen, or Metz, where they were accepted at the rate of 80 thalers for 300 francs.† German money-brokers would draw upon Alsace-Lorraine, the bills would be discounted, and when they fell due the drawee would pay them in five-franc pieces. The obligation of the Bank to accept such large sums in five-franc pieces imposed upon it, in addition to the risks of exchange, a heavy expense for transportation. Discounting became very active, the business world making the most of a situation that allowed it to exchange at par thalers for French money. The Bank of Prussia undertook to protect itself against these losses by refusing to discount bills savoring of arbitrage, but that was a matter not easy to determine. Its most efficacious remedy consisted in restricting, as far as possible, the issue of its bills and in making payments in francs, except when cashing its own notes. Alsace-Lorraine was overflowing with French money; the more especially as the South German governments had received in five-franc pieces part of the sum coming to them from the war indemnity, and had made haste to send them into Alsace-Lorraine. In 1873, with the constant and rapid amelioration of the situation in France, exchange on Paris rose, and beginning with 1874, there was a very natural efflux of French money toward its home country. The field was thus left free for the bills of the Bank of Prussia and for thalers and silver groschen, until they were replaced by marks. But the franc was still a legal tender; books and accounts were kept (as they are for the most part even now) in terms of French money.*
The German occupation had found the bill of the Bank of France endowed with a forced circulation by virtue of the law of August, 1870. After the annexation, the question arose whether this law had become obsolete. Opinions differed. The public treasuries refused to accept bills of the Bank of France, to which decisions of the tribunals of commerce (Strasburg, October, 1871) had imputed a legal-tender power. The Bank of Prussia appealed to its charter as an excuse for refusing them, being obliged by this document to receive nothing save its own notes. There was great exasperation among the people. They supported their contention by Article 143 of the Code of Commerce, which provided that any bill of exchange might be paid in the money named upon it; and they held that, in view of the forced circulation of French bills, they were entitled to pay with them. An attempt was made to explain the altered circumstances to them; but many persons from whom the Bank had refused to accept payment in notes of the Bank of France calmly allowed their drafts to go to protest. There was no doubt of their good faith, but the results were disastrous. In the months of August and September, public sentiment at Strasburg and Mulhausen was openly hostile to the Bank of Prussia; which, however, encountered less opposition at Metz. The law of September 28, 1871, which went into effect on October 14th, expressly abolished the forced circulation of the notes of the Bank of France. In order to furnish protection against Treasury notes issued during the war, a law of January 7, 1872, forbade payment in any paper money except German, a temporary exception being made in favor of notes of the Bank of France for fifty francs and over. The result of the law of September 28, 1871, was to cause French bills gradually to fall below par. Immediately there sprang up an arbitrage business, having for its object the purchase of these notes in Alsace-Lorraine.† Investments of Alsace-Lorraine capital in France also absorbed large sums, and gradually the notes disappeared from circulation.
On January 1, 1872, occurred the final incorporation of Alsace-Lorraine with the German Zollverein, with all the consequences arising from customs and other fiscal laws. The transition was not effected without weighing heavily upon commerce and industry, suddenly deprived of their ancient outlets and compelled to create new ones. At the time of this incorporation of the two provinces, all the German laws became effective in them, including the German Code of Commerce, which differed in some respects from the French Code. In one respect especially, there was a very marked difference; the Bank of Prussia was not allowed, for the future, to discount either bills drawn to order or drafts not requiring acceptance, imperfect bills of exchange which the German law did not recognize. Nevertheless, in small commercial transactions, the bill drawn to order had taken firm root under the French régime, and it has held its ground notwithstanding its exclusion from the privilege of discount. German manufacturers, money-brokers, and commercial houses make use of the bill of exchange drawn in legal form. But, on account of this strict requirement as to form, the Bank of Prussia lost a part of the discount business which the Bank of France had enjoyed, and that paper found its way into the hands of private banks or bankers.
The Bank of Prussia was in operation in Alsace-Lorraine from 1871 to 1875. The abnormal condition of affairs under which it was established, the disappearance of the branches of the Bank of France, the general need of credit, assured to it at the beginning a large amount of business. In 1872, the three branches bought bills of exchange aggregating 171 millions of marks; in 1873, 201 millions; in 1874, 189 millions; in 1875, 153 millions. The profits were 668,000 marks in 1872, 821,000 marks in 1873, 505,000 marks in 1874, and 403,000 marks in 1875. In its earlier years, the Bank of Prussia had practically no competition; but this monopoly was brief.
In 1872 and 1873, Germany fell a prey to the wildest speculation, which resulted in a severe and prolonged period of depression. This Alsace-Lorraine escaped. In 1875, the Bank of Prussia disappeared. It was replaced by the Bank of Germany, which was organized under the tutelage of the Empire and upon a larger basis, and which became to a fuller extent the central reservoir of monetary, note, and credit circulation among the German States. The offices of the Bank of Germany (the Reichsbank) are divided into head offices (Reichsbank-Hauptstellen) and ordinary offices (Reichsbank-Stellen), and into simple branches and agencies. Each of these administrative subdivisions has its own special line of business; some merely loan upon securities, while others not only make such loans, but also buy bills of exchange and do a full banking business.
The branch at Strasburg became a head office, and those at Mulhausen and Metz became ordinary offices, on January 1, 1876. On the same date, the mark became the official money of the Empire, and from October 1, 1875, French silver and copper pieces lost their legal-tender quality. Nevertheless, bills are still drawn and circulate in Alsace-Lorraine expressed in francs; money-brokers have continued their former habit of keeping their accounts in francs and marks, using the fixed rate of 100 francs to 80 marks, which is favorable to them. All this paper expressed in francs escapes the Bank of Germany. In addition to this, that bank is subjected to the competition of local banks, those of southern Germany especially, which discount paper at less than the official rate, and accept bills drawn for a longer period than three months. Such was especially the custom of those banks having a right of issue, which discriminated according to the signatures upon the paper, and did not confine themselves to one rate of interest. The Bank of Germany lodged a protest with the Federal Council, but that body was unable to find any provision of law to protect the complainant. There was nothing better for it to do, therefore, than to imitate its rivals and discount paper at less than the official rate, as the only means of keeping its capital fully employed. This reform dates from January, 1880; thanks to it, the Bank exercises a greater influence over the money market, with which it is in closer touch. Moreover, as soon as exchange becomes unfavorable to Germany, and a drain of gold is threatened, the Bank stops taking paper below the official rate, and even raises that rate. The competition of private banks and bankers with the central institution is very active, especially in the collection of bills of exchange. The Bank of Germany is thus deprived of the means of supervising credit transactions and the circulation of commercial paper. It strives, nevertheless, to attract to itself short-time drafts by reducing the commission upon drafts for small amounts, which is especially favorable to small tradesmen.
The sum total of the bills discounted by the three branches in Alsace-Lorraine was 133 millions of marks in 1877; 126 millions in 1878; 152 millions in 1881; 171 millions in 1883; 143 millions in 1886, and 175 millions in 1889. Thus there is a considerable variation in the size of the figures, a variation corresponding with the state of the markets and of general business throughout the Empire. It is difficult to secure statistical information regarding the extent of the competition which the Bank of Germany has to meet. It is stated, however, that the branches in Alsace-Lorraine discounted in 1888, 86,935 bills of exchange aggregating 168,362,200 marks, and that they collected 33,985 bills aggregating 7,631,300 marks, while five large independent banks handled 1,371,502 bills of exchange representing 735,881,300 marks. In this latter total, however, are included bills drawn on foreigners. M. von Lumm estimates at forty per cent. the proportion of bills not bankable at the Bank of Germany. These bills must be handled by these independent banks, which have a paid-up capital of twenty-six millions of marks, and by the sixty-seven banks and bankers of less importance.
In spite of their forcible separation from the mother country, the bankers and the people have maintained the closest relations with her. Many bills of exchange drawn in francs and payable at Paris or some other French city or town are sent into France for discount when the rate of interest there is favorable to this course. The average amount of the bills discounted by the Bank of Germany at Strasburg is greater than that of those discounted by independent banks in the proportion of about four to one. Germans are very proud of the rapid increase in the business of accounts current, cheques, and payments by book entry at the Imperial Bank. It has covered the country with a veritable net, within the meshes of which it gathers all unemployed funds, brings them together in its treasuries, and makes them the instruments of a continuous transfer of property, thus economizing the use of metallic money and its own notes. Beyond an amount fixed, once for all, its note circulation, not covered by metallic money, is subject to a tax of five per cent. per year. In ordinary times, therefore, when the discount rate is below five per cent., the Bank seeks to avoid the necessity of increasing the circulation of its notes, and for this reason it has every motive to encourage the opening of accounts current and the use of cheques.* Transactions relating to accounts current are carried on exclusively by means of cheques furnished by the Bank. To make a transfer from one account to another, whether at the same or another branch of the Bank, the depositor makes use of red cheques, similar to the book-entry slips used by the Bank of France, cheques made payable directly to the beneficiary, and not transferable; these must be presented at the counters of the Bank before half-past four in the afternoon. The withdrawal of funds is accomplished by means of special white cheques, and the Bank collects upon these withdrawals one-fifth per thousand. It undertakes to see that bills sent in by the owner of an account current are accepted at the Bank itself or at a branch, at the option of the owner. The sums deposited to the credit of accounts current are handled by the Bank without charge, but it pays no interest upon them. Following the example of English banks, it requires that a certain amount shall always be kept on deposit, the exact sum depending upon the importance of the account.
The money-brokers of Alsace-Lorraine, accustomed to this method of doing business as a result of their relations with the Bank of France, immediately carried their patronage to the Bank of Germany; but the latter wished especially to have accounts current opened by the commercial and industrial classes, who, however, were much slower to avail themselves of its services. The Bank is employed to collect bills of exchange for very small amounts, even as low as five or six marks, which subjects it to considerable expense, and compels it to charge a commission of twenty pfennigs upon any bill returned unpaid. It was the special ambition of the Bank to become cashier-general, relieving the public of the necessity of keeping any considerable sums on hand. It was equally ambitious to become the banker of the State, of the general and local authorities, civil and military. In England and Belgium, the national bank is cashier for the Government. In Germany, the Bank is compelled to gratuitously accept payments for the Empire, and to make up such to the amount of the Empire’s credit, and it must grant the same privilege to the various States. It must handle gratuitously the money of the Empire and keep account of all payments made or received in its behalf. The business of the main treasury of the Empire is managed by it, and the Treasury itself is connected with that of the Bank. The Federal governments may equally avail themselves of the facilities of the Reichsbank; but the minimum of collections and payments made for their account is fixed at 10,000 marks. It is well known that the gratuitous management of its treasury is not the sole benefit which the Imperial Government secures from the constitution of the Bank; to that there must be added certain special dues and a participation in the profits.
In Alsace-Lorraine, the Bank of Germany has maintained close relations with the principal treasury of the province (Landes-Hauptkasse) in Strasburg, since 1890,* with the chief treasury of the railroads belonging to the Empire, and with the Post-office Department (postal orders drawn in favor of depositors having accounts current are credited directly to them by the Bank, and are not paid in specie). In 1887, the Minister of War directed, as an experiment, that accounts current should be opened by the various military treasuries in order to lessen the amount of funds to be handled in actual money and to decrease the responsibilities of the officers. It seems that the results thus far have been encouraging, and much more so in Alsace-Lorraine than in other parts of the Empire.
The independent banks have not remained idle. They cultivate assiduously the branch of the business relating to deposits and cheques. If they cannot offer to the public facilities for transferring money gratuitously from any part of the Empire to any other, they yet furnish to the depositor an opportunity to draw interest upon his deposit, paying as a rule one per cent. From this, it results that the sums in accounts current in the large independent banks of Alsace-Lorraine are very much greater than those in the Bank of Germany. The General Alsatian Banking Company had, in 1883, 885 accounts subject to cheque, whereas to-day the branches of the Imperial Bank have only 286 depositors with accounts current. Loans upon securities have not hitherto been a source of much profit for the branches; the reason being that the public of Alsace-Lorraine lack confidence in German funds and securities. When the public have any money to invest they buy foreign funds, French rentes, upon which the Bank makes no loans; besides, they are less given to speculation than the people beyond the Rhine.
The forcible incorporation of Alsace-Lorraine with Germany has resulted in a considerable modification of the organization of banking. So long as Alsace-Lorraine was French, private banking houses, backed by the unlimited liability of their owners, had practically the whole field to themselves, and the number of stock corporations had been very small. But uncertainty as to the future, resulting from the conquest, the emigration of a part of the inhabitants, the very natural desire among men of wealth to keep their capital in a form as convertible as possible—these are the factors which brought about the adoption of various forms of association, including corporations, to carry on undertakings that formerly had prospered in the hands of individuals, or to establish new enterprises intended to meet the requirements of commerce and industry. M. Engel Dollfus has an interesting chapter upon this phase of the history in his account of the industry of Mulhausen and its economic evolution between 1870 and 1881. With the good sense and equipoise habitual with them, the citizens of Alsace-Lorraine have been shrewd enough to escape the follies and losses of stock-jobbing, of founding corporations solely for the purpose of issuing stock and securing the profits to be realized from fluctuations in its price. This transformation into stock companies has resulted from changes brought about by annexation. It has arisen in response to the necessities of a new situation so grievous for the conquered. The special object of the change was to facilitate the settlement of estates. In case of death, the heirs of the deceased find it very easy to divide the shares among them. Thus, dealings in the stocks are rare. They are sold in the presence of a notary or at the bank; few of them are quoted at Basle or Frankfort.
It is deserving of remark that the natives of Alsace-Lorraine have been able to preserve their superiority and maintain their supremacy, and that branches of independent German banks have not succeeded in acclimating themselves, or in taking root among them. Three failures have occurred successively by the Bank of South Germany, the Union Bank of Berlin, and the Provinzial Disconto Gessellschaft, all of which have been compelled to close their doors and wind up the affairs of the branches they had established in Strasburg. The merchant or manufacturer in the two provinces preferred to continue his relations with his former banker, or with banks established by his fellow-citizens, rather than to ally himself with Germans, newcomers into his land, ignorant alike of its usages and traditions, whom he would have been compelled to initiate, to some extent at least, into the privacies of his business affairs.
In 1871, four old banking houses of Strasburg combined to form the Bank of Alsace-Lorraine, with a capital of 12,000,000 francs.* In 1872, the chief manufacturers of Mulhausen transformed the house of M. A. Schlumberger Ehinger into a corporation under the name of the Bank of Mulhausen, with a capital of 12,000,000 francs. Alsatian capital, in order to replace the Crédit Foncier of France, established in 1872, at Strasburg, the Société de Crédit Foncier et Communal d’Alsace-Lorraine, chartered by imperial decree. A few months later the Bank of Alsace-Lorraine established a branch at Metz, and in 1874, a second at Mulhausen. The fusion of two banking houses existing since 1852, Ch. Staehling and L. Valentin & Co., resulted in the establishment of a limited liability company. All of these corporations are still in existence. While these new banks were springing up some old houses disappeared (Lamey & Co., Coulaux Sutterlin, Bastien & Co., Grouvel & Co.). But some houses of importance have continued under the names of individuals, one of the most important being that of August Nanheimer, at Colmar. Among the establishments antedating annexation may be named the Mulhausen Bank of Discount (1848); the General Banking Company of Alsace-Lorraine at Strasburg, Colmar, and Mulhausen, which had been a branch of the General Banking Company of Paris, but which had severed its connection therewith and been re-established on an independent basis; and, finally, the Discount Bank of Mayer & Co., at Metz (1856). The Bank of Discount of Colmar (1848) failed disastrously in 1884, as the result of too liberal credits and general bad management. This is the only failure to be recorded as occurring among the banking and credit establishments during a period of twenty years.
In 1852, everything was ready for the establishment of the Crédit Foncier of the department of the Lower Rhine at Strasburg, with a capital of 2,000,000 francs, when the law of December 10, 1852, intervened to substitute, instead of local mortgage banks, a central and privileged institution, the Crédit Foncier of France. Under the Empire, the Alsatians demanded the decentralization of mortgage credits. About 1866 or 1867, the agricultural convention of the Mulhausen district had suggested the idea of a mortgage and agricultural bank at Mulhausen. It was found that a powerful institution having its headquarters at Paris could not adequately supply the demand for credit in that district. In the absence of a local institution certain notaries acted as intermediaries to secure the money of individuals for farm-owners who wished to borrow, under which arrangement small holders were compelled, by many of the lenders, to pay usurious rates of interest.
As we have said above, the German conquest had deprived Alsace-Lorraine of such assistance as it had received from the operations of the Crédit Foncier of France. Here was a gap to be filled up. Accordingly, a group of Alsatian capitalists and bankers, with the assistance of some German and Swiss bankers, founded in 1872 the Société de Crédit Foncier et Communal d’Alsace-Lorraine, conforming it much more closely to the type of the great establishment which had disappeared than to that of the mortgage banks of Germany. The nominal capital was fixed at 12,000,000 francs, divided into 24,000 shares, with the privilege of increasing it to 24,000,000 francs. The powers of the corporation are very extensive, being modeled very largely upon those given by the charter of the Crédit Foncier of France. The minimum of loans is fixed at 375 francs. The amount loaned is not to exceed two-thirds of the estimated value of country property, nor fifty per cent. of the value of improved property. The company is authorized also to make loans to the communes, to clubs, to societies for the improvement of agriculture, and to corporations. It may issue mortgage and communal bonds, the sum total of the former being limited to twenty times the amount of the paid-up capital of the company. All the bonds it issues must first be covered by mortgage security. The supervision and control are in the hands of a Government official, who has his office at the company’s headquarters. The company is authorized to receive deposits, which help to maintain the business of its banking department, properly so called (discounts, loans upon securities, etc.). As regards registry of its mortgages and executions against delinquent debtors, the corporation has rights and privileges very much the same as those of the French Crédit Foncier. Some years passed before the public fell into the habit of applying to the company for loans; but from the very beginning its bonds were in demand as an investment, and as early as 1879 its 4½ per cents. were quoted at 103. An imperial decree of 1876 gave permission to communes and to public institutions to invest their money in mortgage or communal bonds issued by the company. But, as the sum total of its mortgage loans was only 10,000,000 marks, in 1880 a meeting of the stockholders authorized it to extend its operations to include the Grandduchy of Baden, Bavaria, Wurtemburg, Hesse, and the province of Nassau; the result being that, in 1889, its mortgage loans amounted to 37,500,000, serving as security for 35,000,000 of bonds. The corporation conducts its business with great care, insomuch that the number of forced sales it is compelled to make of the property of delinquent debtors averages only ten a year. The value of unsold property on its hands was 197,000 marks in 1884, and this had been reduced to 184,000 marks by 1888.
Up to 1886 the Société de Crédit Foncier et Communal was intrusted with the receipt and temporary investment of Government deposits. A law of 1872 had transferred to the provincial treasury of Alsace-Lorraine the rights and obligations of the French Treasury—that is, of the Consignation and Deposit Office, relatively to the receipt, management, and repayment of securities furnished by Government employees, money in the custody of the courts and administrative officers, unemployed funds of local authorities, savings-banks, etc. The president of the provincial treasury had been authorized to enter into a contract with some banking house under which the latter would manage these funds, paying a fixed sum for the privilege. On November 15, 1872, President Moller entered into a ten years’ agreement with the Société de Crédit Foncier et Communal and turned over to it the sum of 17,022,000 francs, to be kept separate and managed independently of the company’s mortgage dealings and under the direct supervision of a State commissioner. The interest to be paid by the corporation was fixed at 3 per cent. upon all sums turned in by public institutions, 4 per cent. upon money belonging to savings-banks, and 4½ per cent. on deposits made by mutual benefit societies (1875). The corporation was liable, to the extent of its capital, for all Government deposits.
The care and investment of such large sums, for the prompt repayment of which provision had to be made, compelled the corporation to perfect the banking features of its business, in order to secure an adequate return for its trouble. For this return it depended upon the discounting of bills and dealings in the highest class of securities, French and German. At the close of 1885, against 55,000,000 deposited by the Government and public institutions, it had on hand 22,500,000 in bills of exchange and 24,000,000 in securities. Beginning with 1879, the tax receipts were turned immediately over to the corporation and a right was given to the Imperial Government to overdraw its account temporarily. The result was that the company was subjected to the necessity of providing for very large withdrawals upon a moment’s notice. The general decline of interest rates in Europe, the prosperity of the country, and other causes resulted in a very rapid increase in savings-banks deposits, for which the company was bound to pay interest at the rate of four per cent. (In 1873 these deposits aggregated 8,000,000 marks; 18,000,000 in 1876; 26,000,000 in 1880; 43,000,000 in 1885, when about 78 per cent. of the sum total of public moneys was on deposit with the company). The management of these sums was very expensive and imposed a heavy burden upon the shareholders. So, in 1885, the company expressed dissatisfaction with its contract, which had been renewed in 1882. A modification in the terms of the agreement resulted. There was a change in the conditions under which savings-banks deposits were received, and the latter were compelled to reduce from 3½ to 3¼ per cent. the interest paid to their depositors. The Société continues its management of deposits made by the State and by public institutions; but the maximum amount on which it is compelled to pay 3 per cent. is fixed at 15,000,000, and this amount forms an ordinary account current, the sum to the credit of which must not fall below 10,000,000 marks. The payments which the company formerly made on Government account have been turned over, except in Strasburg, to the Post-office and the Imperial Bank. One result of the new contract has been a diminution in some branches of the company’s business. Its bills and acceptances and its securities are fewer, but it now has the advantage of being always assured of a deposit of 10,000,000 marks on State account.*
There are seventy-two banks and bankers in Alsace-Lorraine, sixteen being in Strasburg, seven in Mulhausen, four in Colmar, and eight in Metz—that is to say, thirty-five in the four large cities; the others are scattered throughout the provinces.
Nine stock companies are engaged in the banking business, with a nominal capital of 51,800,000 marks (29,500,000 being paid in). We should not be very wide of the mark, probably, in estimating at 100,000,000 the responsible capital of independent bankers.
We have already called attention to the fact that in Alsace-Lorraine books and accounts are kept both in francs and marks; we may add that a large proportion of the bills of exchange drawn in those provinces are written in French. Out of 2510 bills held by the branch of the Bank of Germany at Strasburg on January 24, 1890, no less than 1405, or fifty-six per cent., were in French (not in francs, however, for in that case they would have been excluded from discount by the Bank). Thus we see how, even in this matter, the native element holds out against assimilation with the German. It is a thorn in the flesh which the Germans beyond the Rhine would gladly pluck out, but this is a wish much easier to cherish than to realize. Again, the sympathies of the people show themselves very plainly in their investments, inasmuch as they always seek for this purpose either local securities or such as are bought and sold in France. This explains why the crisis of 1882 was more seriously felt in Alsace-Lorraine than that of 1873; the earlier affected Germany particularly, while the more recent was especially severe at Paris.
Banking in Canada,
BYRON E. WALKER,
general manager of the canadian bank of commerce; president of the canadian bankers’ association, 1894-1895, vice-president of the canadian institute; fellow of the geological society of london.
BANKING IN CANADA.
[* ] The lei, or leu, is the monetary unit of Roumania; equal in value to the franc. The monetary standard of the country is gold.—Editor.
[* ]Directeur du Mouvement des Fonds.
[* ] See end of Essay.
[* ] See chart at the end of this Essay.
[* ] The substance of this admirable Essay originally appeared in the “Revue des Deux Mondes.” In the form in which it is here presented, the brochure has been extended and amended by M. Raffalovich.—Editor.
[* ] “Die Entwickelung des Bankwesens In Elsass Lothringen seit der Annexion,” von Dr. K. von Lumm. Jena, 1891.
[* ] The purchase of securities is an important item in Alsace-Lorraine, for the newcomers into the country prefer to transact their dealings in these with the Reichsbank, especially as the native bankers have little acquaintance with German securities.
[* ] 4 thalers = 7 florins = 15 francs.
[* ] The 2776 million loan was made on July 27, 1871.
[† ] An arbitrage broker, for example, would turn in 8000 thalers in five-franc pieces at the rate of 3.75 at the branch of the Bank at Strasburg, and have them transferred to a Berlin banker. These 30,000 francs in French silver at the rate of 77¾ were worth only 7775 thalers; there remained, therefore, a profit of about 222 thalers on the transaction.
[* ] Small tradesmen at first refused to keep their accounts in marks, but they have become accustomed to this course since it has been obligatory that the prices ticketed upon goods in the shops should be in marks. They begin to see that it is puerile to reckon the mark at 1 fr. 25.
[† ] These provinces took an important part in the subscription to the five per cent. French loan.
[* ] To obtain the opening of an account current it is necessary merely to address a formal demand to the directors, upon which they pass, and upon their approval the depositor receives a copy of the rules and a pass-book to contain a statement of the sums paid in and drawn out, as well as an entry of the credits arising from the discount or collection of bills. The Bank accepts deposits in specie from persons having no accounts current to the credit of those who have such.
[* ] In Alsace-Lorraine, the following had accounts current on December 31, 1890. 2 civil authorities, 35 military authorities, 44 individuals, 141 industrial establishments and commercial houses, 37 money-brokers, 27 sutlers, making 286 in all. The deposits and payments upon accounts current were 318 millions of marks in 1876, and 1467 millions in 1889, whereas for the whole Empire the increase was from 16,611 millions to 75,676 millions. The proportion then was about the same.
[* ] They were the houses of Ed. Klose & Co., L. Grouvel & Co., Léon Blum Auscher, and F. Bastien & Co., which had been intrusted with the payment of arrearages of French rentes and pensions for Government account.
[* ] On December 31, 1891, the Crédit Foncier held bills and acceptances to the amount of 6,000,000 marks, it had also 7,000,000 marks in public securities—loans to the Empire and the German States, and city bonds.