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• Banking In Germany.
• Chapter I.: Non-issuing Credit Institutions.
• Chapter II.: German Banks of Issue.
• History of Banking In Austria-hungary.
• Chapter I.: The Austrian National Bank.
• Chapter II.: Austrian Joint-stock Banks and Banking Associations.
• Chapter III.: Hungarian Joint-stock Banks and Private Credit Institutions.
• Appendix to Banking In Germany and Austria-hungary.
• II.: Statistics of Banking In Austria-hungary.
• Banking In the Netherlands.
• Introduction.
• Chapter I.: Era of Exchange Banks.
• Chapter II.: Period From 1814. Modern Dutch Banking.
• Chapter III.: Period 1814-1863. the Netherlands Bank.
• Chapter IV.: The Netherlands Bank, 1864 to 1895.
• Chapter V.: Banks of Issue In the Dutch Colonies.
• Chapter VI.: “cashiers,” Joint-stock Banks, and Private Bankers.
• Banking In the Scandinavian Nations.
• Part I.: Banking In Denmark.
• Chapter I.: History Previous to the National Bank.
• Chapter II.: The National Bank During the First Half of the Nineteenth Century.
• Chapter III.: Private Banks.
• Part II.: Banking In Sweden.
• Part III.: Banking In Norway.
• Banking and Money In Japan.
• Part I.: The Banking System.
• Chapter I.: Common Banks.
• Chapter II.: The National Banks.
• Chapter III.: The Yokohama Specie Bank. ( Shiokinginko. )
• Chapter IV.: The Bank of Japan. ( Nippon Ginko )
• Chapter V.: Land Mortgage Banks.
• Part II.: The Currency of Japan.
• Chapter I.: The Old Coinage System.
• Chapter II.: The New Coinage Period.
• Chapter III.: The Paper Currency.
• Chapter IV.: Readjustment of the Public Debt.
• Chapter V.: The Future Money Standard.
• Appendices.
• Appendix D.: National Debt In Japan. (from the “british Economic Association Journal” of June, 1895.)
• Banking, Currency and Land Tenure In the Chinese Empire.
• I.: China’s Currencies.
• II.: Chinese Banking: Ancient and Modern.
• III.: Land Tenure and Taxation In China.

CHAPTER V.

BANKS OF ISSUE IN THE DUTCH COLONIES.

SECTION I.

THE JAVA BANK.

THE Java Bank was established in 1827, and began its operations in 1828. The original Bank charter expired toward the end of 1837, but continued in force, first, until the end of March, 1838. It was further extended until March 31, 1848, with several modifications, by the decree of July 17, 1837. By decrees of March 3, 1848, March 28, 1858, November 22, 1859, March 6, 1870, March 25, 1880, December 13, 1880, and February 11, 1891, the Bank’s charter was extended until the following dates: March 31, 1858, 1860, 1870, 1880, 1881, 1891, and 1906.

Dr. N. P. van den Berg not long ago published in the “Encyclopædie van Nederlandsche-Indie” a table showing the general development of the Java Bank from 1828-29 to 1893-94. I give this table below, with a few changes for 1891-92—1893-94, and with supplementary dates for 1894-95, in order to render a review possible:

The difference is explained by the fact that Van den Berg has included the extensions in Holland in these figures. These statements supplement the Bank’s report for 1894-95, pages 12 and 13. The years 1854 and 1875 mark important turning-points in the history of the Java Bank; the former, because in that year the deplorable state of the currency in the Dutch East Indies had been repaired, and the latter, because a fixed maximum of note issue was then abolished.

THE BANK’S SPHERE OF ACTION.

A charter, very much like the one given to the Netherlands Bank, had been issued for the Java Bank in the first period of its existence. The sphere of action was, however, made much wider. The Bank’s operations were to include (1) the discount of bills of exchange and assignations (also those issued by public auction offices established at Java); (2) the grant of loans on stocks, the precious metals, jewels, and merchandise; (3) the trade in gold and silver; (4) deposit account business with the Treasury or other public authorities or private individuals; (5) the exchange of money and current coin for bank paper; (6) the keeping of foreign coins, which had to be returned after deducting a moderate rate of interest for the Bank, and on which, in the books of the Bank, a credit could be opened for a small commission; (7) the keeping of sums of 100 guilders or more, on which the depositor was to receive interest; (8) the granting of interest-bearing credits of at least 200 and not more than 1000 guilders, on security, to any Dutch inhabitant of good standing, who may dispose of these sums by assignations.

The Bank administration had to consist of a perpetual president, three directors, and one perpetual secretary. The Governor-General could increase the number of directors at the request of the Bank. The directors had to be elected every year at a general meeting of shareholders with voting power. For preparing the balance-sheet and declaring the dividend, a committee of seven shareholders, entitled to vote, had to be elected by the general meeting. The directors received a yearly salary of 4000 guilders, which was stopped in 1837. According to an official ruling of December 11, 1827, the Bank shares, which the Government had also tried to favor by pressing them on public servants, were recognized as a means of investment of trust funds.

The value of the bank notes was to be 1000, 500, 300, 200, 100, 50, 25 guilders, smaller notes being allowed should the Bank consider their issue desirable; but during the first period no small notes were emitted. The bank notes were received as legal tender at all Treasury offices in Java and Madura as long as the Bank fulfilled its pledges in regard to their redemption.* On the other hand, the Indian Government was not to issue paper money under whatever form or name. Falsification of bank notes was ranked as false coining, but repeatedly took place.

No rule concerning the reserve against the notes existed at any time, nor did the Bank management set up any standard of safety. It desired simply to regulate its note issue according to the amount brought in by the credit operations. With regard to the total note circulation, the decree of December 11, 1827, prescribed that “the total amount of notes to be issued should be regulated by the Bank’s own capital, inclusive of all discounts, loans, deposits, bullion, and credits.”

The operations of the Bank, which established agencies at Samarang in 1828 and at Soerabaya in 1829, quickly developed during the first years. I have compiled the following table, to supplement that given in the beginning of this chapter, from data contained in D. C. Steijn-Parvé’s “Geschiedenis Nanhet Munt en Bankwezen van Nederlandsch-Indie” (History of Currency and Banking in the Dutch East Indies).*

DUTCH COLONIAL CURRENCY.

The state of the currency helped to develop the operations of the Bank, the former being very defective in the Dutch East Indies. By decree of January 14, 1817, it is true, a national Indian silver guilder, like the then current Dutch florin, had been provided; but at the same time the issue of two million guilders’ worth of paper money was sanctioned, and this amount was increased by the decrees of November 6, 1817, January 23, 1821, and March 18, 1822, to three, four, and five millions. The silver florin was ousted by the paper money, but the copper coins came to the front. In the decree of January 14, 1817, it was ordered that neither in making payments nor in receiving them were the officials to make any difference between copper, silver, and paper. An increase in the number of copper coins was ordered by the decrees of April 24, 1818, and June 25, 1818. The decree of the 13th of February, 1826, proclaimed the Dutch guilder, according to the Dutch law of September 28, 1816, to be the true standard coin, and ordered that nobody should be obliged to accept more than ten florins in copper coins; but these, nevertheless, became more and more popular. The withdrawal of 2,015,975 florins in one-florin notes and of 985,950 florins in five-florin notes from circulation rendered copper coins quite indispensable for all payments below ten florins. In 1825, besides, an arrangement had been made with the Nederlandsche Handels Maatschappij that the latter should provide the Indian Government with eight million florins, six million of which should be in copper.

When the Bank started, the chief medium of currency in the country was the copper “duitens” (doits), while the silver guilder had only nominal importance. It is evident that under these circumstances the bank notes, which were, besides, accepted as a legal tender at all public cash offices, should quickly come into favor as a general means of currency. The Bank did not bind itself to any well-defined limits with regard to either the amount or the cover of notes, but by issuing as many notes as the traffic demanded, it could make large “active operations.” It was, however, awkward that the Bank should be obliged to redeem its notes in the precious metals when asked for, as the latter had been nearly totally ousted from circulation in the Dutch East Indies. In 1830, merchants proposed to the Government at Batavia to stop the exchange of bank notes for silver for some time, and the Bank also repeatedly pointed out the difficulties accruing from redemption in silver. The Government, however, rejected such proposals and sought to reduce the silver export by imposing an export duty of four per cent., and by other means.

CONFLICT BETWEEN THE GOVERNMENT AND THE BANK.

The financial difficulties of the Government of the Dutch East Indies gave rise to some very remarkable measures in 1832. Thus, the Governor, Van den Bosch, had proposed in 1831 that some paper money representing copper should be issued by the Bank, the Government depositing the same amount in copper as security with the Bank. This proposal met with strong opposition in debate in the Indian Council. The Government, nevertheless, entered into negotiations with the Bank. The board of directors, after repeated consultations, refused the proposal on the 25th of May, 1831. The negotiations, however, were continued, and when the Bank stood by its refusal, a royal decree of June 16, 1832, presented to it the alternative of either acquiescing in the issue of three million guilders’ worth of notes against copper security or having its charter revoked. The Bank was compelled to bow to this, and by decree of August 23, 1832, it was proclaimed that the Bank would issue three million guilders’ worth of “copper paper” against a deposit of that metal to the same amount. These were the notes issued:

On April 16, 1833, the number of copper notes of 100 florins each was reduced by 2500, and they were replaced by 20,000 of five florins each, 10,000 of ten florins, and, besides, 25,000 of one florin each, were issued. In 1839, the 1000-florin notes were totally withdrawn, those of 500 florins reduced, and the issue of copper notes for 10, 25, 50, and 100 guilders was increased in the same proportion. The total of three million guilders was, however, not exceeded.*

In order to bring the Bank charter into harmony with this procedure, the right was reserved, in the charter of July 17, 1837, to the Government to issue copper notes through the intermediary of the Bank, if the latter chose to undertake this, or to issue or have them issued in some other way, should circumstances demand it. Hereby the independence of the Bank was considerably curtailed.

In the same decree the Bank was ordered to give ten per cent. of any profit above nine per cent. of the share capital to charities designated by the Governor. This meant a further loss of independence to the Bank; but soon additional demands were to be made upon it. The Director-General of Finance, on July 26, 1839, requested the Bank to place at the disposal of the Government one million guilders of the copper deposited in its vaults. It was resolved to comply with this request on the 27th of July, 1839, and the decision was sanctioned by the Government decree of August 7, 1839. Thus the cover for a great part of the copper notes was withdrawn. On April 11, 1840, the Bank was summoned to give up all the copper deposited by the Government with the exception of that necessary for the redemption of the 500-florin copper notes. For the deficiency in the copper deposit the Bank was to receive a Government bond. The Bank management agreed to this also, but on April 16, 1840, demanded a special and definite order by Government decree to cover its responsibility toward the holders of the copper notes. After some further negotiations on this point, a corresponding secret decree of the Government was issued on the 27th of August, 1840, and the bulk of the security for the copper notes was handed over to the Government. In 1841, the board of directors became somewhat anxious with regard to these dealings, and on the 5th of June, 1841, therefore, they admonished the Government to return the copper deposit taken from the Bank. The Government was annoyed at this, and in its decree of August 23, 1841, called it as “rude as inconvenient” that the board of directors should approach them with such a request during the prevailing bad times. The Bank had to be satisfied with this at first, and after a renewed appeal, only the security was refunded.

The continued large coinings of copper by the Government, according to Steijn-Parvé, are evidenced by the following amounts put into circulation:

These copper coins were also bound to oust the silver more and more from circulation, and the Bank itself largely contributed thereto by constantly increasing its note issue and by favoring an unhealthy speculation in stocks through liberal grants of credit. The endeavor to secure big dividends had more weight with the Bank than the endeavor to remain within the limits of prudence.

INADEQUATE COIN RESERVE.

In 1836, the Bank was really incapable of redeeming its notes. On January 1, 1836, the Bank, with a note circulation of 6,450,000 florins, still held 2,450,000 florins’ worth of the precious metals; but on November 23d of that year there were already 7,050,000 florins of bank notes in circulation and only 856,680 florins’ worth of the precious metals. The Government, which had 2,500,000 guilders’ worth of bank notes on hand, thought this state of affairs so dangerous that it compelled the Bank to accumulate bigger amounts of gold and silver, which, under existing circumstances, was only possible by applying to other countries. The Bank increased its stock of bullion, but also increased its note issue; and thus in 1839 it was again incapable of redeeming its notes. In July, 1839, its entire stock of bullion did not exceed 18,638 florins. The fact that notwithstanding all this the bank notes remained in circulation can only be explained by the deplorable state of the currency, which made the use of bank notes absolutely necessary.

The outflow of silver from the Bank was partly caused by the Government’s economic policy. The Government had given to the Nederlandsche Handels Maatschappij (i. e., Dutch Trading Company), established in 1824, a commercial monopoly. The chief produce of the island of Java—sugar, coffee, and indigo—had to be delivered to the company, and was to be sold by them. Therefore, a free movement of trade, calculated to bring silver to the Bank, did not exist. Many merchants were also obliged to turn their energies in new directions, and agricultural enterprises were especially used for this purpose. Considerable credits were asked from the Bank for such undertakings, but as it was only very slowly that they became profitable, the credits granted could very frequently not be paid back to the Bank. It accordingly suffered great losses, and in 1841 nearly failed; the whole capital was in peril. The total breakdown, however, was prevented, because in pursuance of a resolution of the general meeting of March 5, 1841, sanctioned by the Government, an extension was granted for most outstanding debts of whose ultimate recovery there was any hope.* Besides this, from 1841-42 for seven years no dividends were paid, but the earnings were used for making up the deficiency in the share capital and restoring this to the former amount of 2,000,000 guilders, of which, in 1842-43, only 1,110,000 guilders were left. By 1852-53 the capital was re-established.

THE PROCESS OF RECOVERY.

But this recovery was not effected without hindrance. The Government rendered the accumulation of new stocks of bullion difficult by issuing, in 1842, a further three million guilders in copper, representing paper (without the intervention of the Bank). The Bank itself, by increasing its note issue, prevented the establishment of a safer ratio between the note circulation and the amount of bullion on hand. Up to the beginning of 1844, it had increased its stock of bullion to 2,880,000 guilders, and the amount of bank notes issued to 8,400,000 guilders. There was also the alarming proposal of the Director-General of Finance, in 1843, to take over the Java Bank for account of the Government, and to transform it into a Government loan and discount bank—a proposal which, however, was not adopted.

Further difficulties happened in 1845, in the beginning of which year the holder of an assignation for 4,598.70 guilders, issued by the Bank agency at Soerabaya, brought an action against the Bank for payment in specie, while the Bank would pay only in notes. That rendered people suspicious with regard to the safety of the Bank, and brought discredit on it. The Bank apprehended a run of note-holders, and demanded the Government’s assistance. In order to remove the difficulties, the Bank was forbidden to change its notes for specie during a year, and for this period courts of law were not allowed to take notice of legal claims on the Bank for the redemption of its notes. The Bank, on March 31, 1845, had three million guilders of bullion on hand, while the notes in circulation amounted to 7,986,000 guilders. Unless, therefore, every note-holder was expected to demand coin, there was no real inability to redeem the notes.

Important changes in the currency and the affairs of the Bank took place in the next year. In 1846, the Government began to prepare for the currency reform. On February 4, 1846, it was resolved that the Government should issue récépissés of 1, 5, 10, 25, 100, and 500 guilders each, and put out of circulation 120, 600, 1200, 3000, 12,000, 60,000 doits, which should be kept as security for the receipts. The copper notes issued by the Government were to be withdrawn and changed for receipts, so that six guilders in copper notes were considered equal to five guilders in receipts. The receipts could at any time be changed at the public cash offices of the principal places, and were admitted in payment for all public dues. Nobody was obliged to receive in payment more than five guilders in copper coins, and was authorized to demand receipts for the amount in excess. The notes issued by the Java Bank were still received in payment at the public depositories, until March 29, 1846, and could, for a further month later, be exchanged for receipts. In case of such an exchange, the bank notes served as security for the receipts. The total amount of receipts issued was not to exceed the security in copper and bank notes.

On March 26, 1846, the receipts were declared a legal tender for all debts payable in silver. These orders caused an important modification of the Bank charter, because the currency really consisted of copper represented by receipts, and because the Bank’s methods had to be modified to suit the principles of this system. On March 26, 1846, therefore, the Bank was authorized to stop the issue of notes payable in silver, and to make its notes redeemable in receipts at Batavia. The total amount of notes to be issued had to be fixed and published by the Government from time to time. The real amount of notes in circulation had to be published every month. As long as the Bank should meet its engagements, and cover its liabilities by its assets, the notes representing receipts were to be accepted for all payments at the public offices.

NEW BANKING REGULATIONS.

The right of giving credit on a guarantee was taken away from the Bank. It was forbidden to pay dividends as long as the impairment of the capital was not fully made good. At the same time, it was ordered that at the general meetings a Government commissioner had to be present, empowered to delay decisions till the Governor-General had sanctioned them. The Bank’s sphere of action was reduced, in comparison with the orders of 1827, by abolishing some of its operations. Of the original functions, these remained:

1. Discounting bills of exchange and other commercial paper provided with two or more respectable signatures. This left more liberty of action than the Bank charter of 1827.

2. Granting loans on stocks, jewels, precious metals, and merchandise.

3. Trading in gold and silver.

4. Opening deposit accounts to the same extent as in 1827.

5. Keeping foreign coins, which may be delivered after deduction of a moderate rate of interest for the Bank, and on which, in its books, a credit may be opened for a small commission.

New branches of business were the following:

6. The drawing of assignations by the head offices on the agencies, and vice versâ. The carrying out of commissions intrusted to the Bank by the Government.

In these regulations of 1846 and 1848, the intention of increasing the Government’s power over the Bank especially excites surprise. An effective influence of the Government over the Bank was rendered possible by the fact that after 1846 the Government had to fix the maximum note issue, and to make prescription for the metallic reserve held against the notes in circulation. There was the further fact that a Government commissioner was authorized to superintend the general meetings, and that the Bank was obliged to carry out the mandates of the Government.

It must also be mentioned that in 1848 the Bank was obliged to place one-third of its net earnings to the reserves, as long as the reserve fund had not reached fifty per cent. of the share capital. The application of a part of the net profits to charities, however, ceased. As to the investment of the reserves, special directions were given on December 17, 1853, according to which the Bank was allowed to invest the reserves in entries into the Great Ledger, in Dutch East Indian bonds, and in mortgages. After 1848, the Bank, by degrees, got into better condition. Especially was the exorbitant note issue without sufficient metallic security effectually reduced. We find at the end of the following fiscal years the condition of affairs:

And bank notes in circulation:

REFORMING THE CURRENCY.

We must, however, take into consideration the fact that the security in receipts was of real importance only as long as the credit of the Government was not shaken. A sound basis for the currency system was wanting. The currency consisted of notes representing copper, and of copper coin, which must be considered a very unstable basis for a country’s currency. The risk to which the Bank was thus exposed could not be removed until the Dutch East Indian currency was based on the precious metals. It was only by the law of May 1, 1854, that a metallic basis was introduced by adopting the Dutch silver standard according to the Dutch law of November 26, 1847.

The Government did its best to secure for silver the importance to which it was entitled. From 1854 to 1860, the silver specie shipments from Holland to the Dutch East Indies amounted to nearly ninety million guilders. The old copper coins were changed as much as possible for new copper coins, the issue of which was not to exceed ten million guilders. No one was compelled to take in payment copper coins for more than two guilders, nor silver small coins for more than ten guilders. The existing receipts (more than twenty-six million guilders) were changed for silver standard coins. The currency reform upon this basis cost 19,800,000 guilders to the Government. But this sacrifice was not made in vain, because the currency of the Dutch East Indies became decidedly sounder. With the currency reform the Java Bank also entered upon a period of healthier development. The Bank was again able to accumulate a stock of silver, and this all the more so because private enterprise was allowed greater liberty of action.

The Bank’s stock of bullion amounted (according to Van den Berg, in the “Encyclopædie van Nederlandsch-Indie”) to

THE BANK’S DEVELOPMENT.

The active operations of the Bank increased, with a brief intermission in 1863-64 and 1864-65, up to 1867-68. In the sixties, the Bank established several new agencies, viz.: in 1864 in Padang, in 1865 in Macassar, in 1866 in Cheribon, in 1867 in Soerakarta and Pasoeroean. But in the second period, too, the regular working of the Bank was interrupted several times by the imprudent policy of the Government in fixing the maximum note issue, as was its right since 1846. All the disadvantages which can accrue from an absolute note maximum have been shown in the history of the Java Bank. Before 1859, no limits were fixed with regard to the metallic reserves against the notes in circulation. The Government did not think it advisable to have notes amounting to more than three times the share capital issued. On October 27, 1854, therefore, the maximum was fixed at 5,258,575 guilders, and on July 24, 1856, at 6,000,000 guilders. The new Bank charter of November 22, 1859, repeated the requirement that the Governor-General had to fix the maximum of notes* to be issued, but it was added that at least three-tenths of the notes had to be covered by legal currency. The Bank, however, was authorized to issue notes, when fully covered by bullion, above the maximum. Further on, the increase of the capital to 4,000,000 guilders was ordered, twenty-five per cent. of which could be invested in mortgages and other safe investment values.

THE QUESTION OF A MAXIMUM NOTE ISSUE.

The tenor of the new requirements was not unfavorable, but the Government’s policy concerning the note maximum and the metallic security for the notes continued to be hurtful to the Bank. The maximum was at first fixed at seven million guilders, and the Government was not willing to sanction a further increase demanded by the Bank before the capital had been raised to four million guilders. After increasing the capital with the help of the reserve fund,* the note maximum on July 31, 1860, was raised to ten million guilders. But this amount was insufficient, because in the beginning of the sixties the Bank had to respond to a greatly increased demand for credit, which even the raising of the discount rate to eight and nine per cent. could not restrain.

The Bank’s active capital (in 1854-55, only 3,700,000 guilders) was increased to 6,110,000 guilders in 1859-60, to 7,570,000 guilders in 1860-61, and to 9,470,000 guilders in 1861-62. In 1861, the Bank ventured to exceed the fixed limit, which brought it a severe reprimand from the Government. The request for permission to raise the maximum made by the Bank in 1861 was not answered before October, 1862. In reality, the disposable amount of bank notes was insufficient, and in the autumn of 1862 the Bank was not able to satisfy demands for credit either from private individuals or from the Government. It was only on October 24, 1862, that the Bank was authorized to issue bank notes up to twelve million guilders, provided a further increase of capital up to six million guilders took place, which was effected in 1863-64. On December 12, 1862, the maximum was raised to fifteen million guilders, but only for a short time. The Bank’s active capital (in 1862-63, 9,480,000, and in 1863-64, 8,900,000 guilders) advanced in the next four years to 9,200,000, 10,200,000, 13,770,000, 14,300,000 guilders, respectively. In the beginning of 1866, the state of affairs became very critical again, and the disposable funds of the Bank sank to a very small amount. On December 28, 1866, the bank notes in circulation, the assignations, and the current account balances amounted to 27,838,934 guilders, and the stock of bullion to 17,439,816 guilders; but according to the regulations of that time, only 100,882 guilders were disposable.† Although the discount rate was raised to ten and a half per cent., the demands for credit did not greatly decrease. On June 23, 1866, at last the Government sanctioned a note maximum of eighteen million guilders, and on September 26, 1866, of twenty million guilders.‡

During the next eight years a further increase of the note maximum was unnecessary, because after 1867-68 more moderate demands for credit were made on the Bank. Its active capital amounted in 1868-69 to only 11,766,000 guilders, in 1869-70 to 9,968,000 guilders, and in 1870-71 to 9,510,000 guilders. The yearly average of discount rates sank from 9.13 per cent. in 1866-67 to 8.25 per cent. in 1867-68; 6.24 per cent. in 1868-69, and 5.42 per cent. in 1869-70; while in 1870-71 a moderate rise to 5.95 per cent. occurred. Part of the demands for credit in that time were turned to the great private credit institutions, which began to operate more and more in the Dutch East Indies. (In consequence of all this, the Bank was not hampered by the restriction of an absolute and not very liberal note maximum.)

A NEW PLAN OF BANK MANAGEMENT.

In 1870, the Bank’s charter was renewed for ten years by decree of March 6, 1870, which changed the organization of the Bank’s management, that had not been modified since 1838.* According to this decree, the board of directors was to consist of the president and two permanent salaried directors, one of whom should act as secretary. These three persons were appointed by the Governor-General from a double nomination paper made out by the board of directors, together with the commissioners, and was binding only in regard to the two directors. The president was appointed for five years, the directors for three years. A permanent board of five commissioners had also to be elected at the general meeting, while before 1870, commissioners had been chosen at every general meeting.

Instead of the Government’s commissioner—authorized since 1846 to be present at the general meeting—by the decree of 1870, a permanent Government commissioner, appointed by the Governor-General, was intrusted with the control.

It should also be mentioned that the amount of the reserve fund was again prescribed, and that the Bank was forbidden to invest part of the share capital in mortgages. The Bank having, in 1869-70, invested 1,340,000 guilders in mortgages, was obliged to get rid of these. It succeeded, however, in having this restriction canceled again, and it was allowed to invest the reserve fund and one-third of the share capital in safe stocks and mortgages.

INCREASING BUSINESS AND NOTE ISSUES.

The Bank’s operations increased after 1870. The active capital amounted to 10,116,000 guilders in 1871-72, 10,568,000 guilders in 1872-73, 11,760,000 guilders in 1873-74, and 11,760,000 guilders in 1874-75.

The yearly average discount rate was 5.95 per cent. in 1870-71, 5.83 per cent. in 1871-72, 6 per cent. in 1872-73, 5.93 per cent. in 1873-74, and 6.83 per cent. in 1874-75. The highest rate was in 1870-71—1873-74, 6 per cent.; in 1874-75, 8 per cent.

Under these circumstances, the Bank thought a further increase of the note maximum necessary, and this time the Government, having learned by experience, was ready to comply with the request. On September 8, 1874, the Bank submitted its proposal, and on September 19, 1874, permission was given to increase the note issue to 25,000,000 florins. The Bank had, however, proposed some time before to abolish entirely the note maximum and to treat the cover of the notes and the note circulation according to the rules laid down for the Netherlands Bank. This was also sanctioned, and the decree of March 18, 1875, abolishing the note maximum, ordered that the total sum of notes in circulation, bank assignations, and current account balances should be covered to the extent of at least forty per cent. by coin or bullion. With this, the latest period of development begins for the Bank, which now shows a much healthier growth than before. The Bank had become free to consult its own interest as well as that of the community at large, and in the next year the advantage of this change was clearly apparent. On the approach of the shipping season, the demands on the Bank’s resources grew very fast both in number and amount, but without any difficulty the amount of loans could be increased from 12,800,000 to more than 23,000,000 guilders. The discount rate, it is true, had to be raised to nine per cent., but it stood at that figure for only a short time, the yearly average being 6.99 per cent. as against 7.08 per cent. in 1875-76. During the next year, by law of March 28, 1877, the Dutch monetary law of 1875, together with the gold standard,* was introduced into the Dutch East Indies. This measure was well calculated to affect adversely the note circulation; gold, however, did not come, to a great extent, into circulation, and thus the bank notes kept their volume unchanged.

Of other outer events, there are first to be noted the establishment of a further agency at Djokjokarta in 1879, and the renewal of the Bank’s charter in 1880. On this occasion the part of the capital which could be invested in mortgages and stocks was increased to 3,000,000 guilders, and this brought larger earnings to the Bank. Further, the tenure of office of the directors was extended to five years; but for the rest, the working organization remained as in 1870.

THE BANK UNDER PRESSURE.

In 1882, the issue of five-florin notes ceased. Soon after, i. e., at the end of 1883 and in 1884, the bank again had an opportunity to show its capacity to meet the requirements of hard times. The credit crisis then existing in the Dutch East Indies led to large demands being made on the Bank. Its discounts amounted to 8,900,000 guilders on the last Wednesday in March, and 14,930,000 guilders on the same day in September. The rate of discount, which had never exceeded six per cent. since 1877-78, temporarily rose to seven per cent. in 1883 and 1884, and the yearly average was 6.52 per cent. in 1883-84, and 6.94 per cent. in 1884-85, as against six per cent. in the three preceding years. The loans granted amounted to 2,800,000 guilders toward the end of April, 1884, to 7,400,000 guilders toward the end of December; and the notes in circulation to 38,350,000 guilders at the end of May, and to 42,740,000 guilders at the end of December. It is remarkable, however, that the discount rates, although they had to be raised, remained considerably lower than in former hard times.

In 1885 and 1886 also, circumstances still necessitated liberal help by credit from the Bank, which could grant this without raising the discount rate too much. Discount fluctuated in 1885-86 between six and seven per cent.; in 1886-87, between four and six per cent. The yearly averages were: 6.37 per cent. in 1885-86, and 4.68 per cent. in 1886-87. After having conquered these difficulties, the dealings of the Bank lost their importance, because the other credit institutions which had to be supported by the Java Bank in 1884 could now again meet a part of the demands for credit. The active capital of the Java Bank, which had been 17,050,000 guilders in 1884-85, amounted to:

The discount rate fluctuated in 1887-88 between four and five per cent., remained unchanged in 1888-89 and 1889-90 at five per cent., while in 1890-91 it was kept at four per cent.

As the Bank had successfully gone through the trial, and the decree of February 11, 1891, renewed the Bank charter, it could safely extend its working sphere by the permission to take up the dealing in foreign bills and to invest a part of its resources in Holland. Besides this, the Bank was given leave to invest its whole share capital in stocks* and first mortgages on estates in the Dutch East Indies. In mortgages, however, not more than one-third of the capital could be invested. The charter was this time renewed for fifteen years (till March 31, 1906), while up to then the term had always been ten or eleven years. The extension of the banking business to Holland made a standing representation in Europe appear desirable, and in 1891, therefore, an office of the Bank was established in Amsterdam, managed by two agents.

Under the influence of the new decrees, the Bank’s operations again increased. In 1892-93, claims on the Bank were so large that the discount rate temporarily rose to seven per cent., while in 1891-92 the rate of four per cent. had been maintained. The discounts were as follows, according to the Java Bank’s annual report for 1894-95:

In the ten preceding years, the maximum and minimum discounts were as follows (in thousands of florins):*

Loans amounted to the following sums on the last Wednesday in—

During the three years 1892-93, 1893-94, and 1894-95, the different classes of loans amounted to:

The loan rate in 1894-95 was four and a half per cent. on Indian securities, three and a half per cent. on other securities, four per cent. on gold and exported merchandise, five per cent. on imported merchandise, except mineral oil and rice, loans on which cost only four and a half per cent.

As to bank notes, in 1894-95 five-florin notes were again issued, which had been first introduced in 1866, but had not been put into circulation since 1882. With the Java Bank also, the smaller notes were most in demand.

The following notes were in circulation on March 31st:

The note circulation has increased up to the average of 44,000,000 in 1894-95.

Bank assignations were issued from—

The liabilities payable on call, consisting of bank notes, bank assignations, and balances from current accounts,* and the stock of bullion, amounted to (in guilders, according to the yearly averages):

The Bank’s trade in the precious metals, mostly gold, was chiefly in sovereigns and ducats. The Bank sold in—

As already stated above, the Bank may since 1891 invest its capital (six million guilders) in stocks and not more than one-third in mortgages. On March 31st, this had been done with 5,692,475 florins, of which 1,644,000 florins was in mortgages and 4,048,475 florins in stocks. On the same day, the reserve fund amounted to 1,041,566.88 florins, of which 866,000 had been invested in mortgages and 148,917.5 in stocks. I still have to add that the Government has no share in the net profits, which to a great extent return to Holland. Of the 12,000 shares composing the share capital, the following number was held in Holland, according to the report of 1894-95: 1890, 6735; 1891, 6940; 1892, 7096½; 1893, 7240½; 1894, 7408½, and 1895, 7592. The total number of shareholders on March 31st was: 1890, 1315; 1891, 1304; 1892, 1281; 1893, 1266; 1894, 1337; and 1895, 1383.

SECTION II.

THE SURINAM BANK.

THE object of the Surinam Bank, established in 1864, is to act as a bank of issue in the Dutch West Indies. Its importance not being equal to that of the Java Bank or the Netherlands Bank, only a cursory statement in regard to it is necessary.*

The Bank was chartered by the decree of May 14, 1864, as the only bank of issue in Surinam for twenty-five years, ending November 9, 1889. Its capital was fixed at one million guilders, divided into 4000 shares of 250 guilders each. The chief board of directors had to be in Amsterdam, and was composed of two directors, elected for five years at the general meeting, with the sanction of the Governor of the colony, according to a double nomination paper made out by the Amsterdam commissioners. At least six commissioners, charged with the supervision of the directors, are elected at the general meeting. The management in Paramaribo is conducted by a local board of directors, composed of a president and a director elected by the Surinam commissioners, with the Governor’s sanction. The Surinam commissioners to superintend the management in Paramaribo were appointed by the head board of directors, with the consent of the Amsterdam commissioners. Furthermore, the Governor had to appoint a colonial commissioner, who was authorized to be present (without voting power) at all meetings of the commissioners.

The Bank was empowered (1) to discount bills and other commercial securities provided with two or more satisfactory signatures and with the usual term of currency; (2) to deal in bills; (3) to grant loans on merchandise handled in Surinam, and on specie and bullion, for three months, and up to two-thirds of the value of the securities; (4) to trade in the precious metals; (5) to open deposit accounts, with or without payment of interest; (6) to discharge financial commissions for Government or private individuals; and (7) to keep money and other valuables.

The Bank was not allowed (1) to give any credit in blank; (2) to take shares in any commercial undertakings; (3) to buy its own shares or to grant loans on them; (4) to buy stocks, merchandise, or movable property; nor (5) to acquire or possess real estate not necessary for the conduct of its own business; (6) to lend money on mortgage or on ships. But it was permitted to invest the reserve fund and 500,000 guilders at the outside in Dutch public funds, or in Surinam obligations, or in bonds of mortgage companies sanctioned by the King.

The notes issued by the Surinam Bank could circulate only in Surinam, and, according to a special royal decree, also in other Dutch colonies. The Bank issued notes of not smaller denominations than ten guilders each, and, with the King’s sanction, also of five guilders each. It was the duty of the Paramaribo board of directors to make known the denomination and amount of the notes issued. The notes were admitted in payment at the Government offices in Surinam. When requested by the note-holder, the Bank was obliged to redeem the notes in specie. The holder of a bank note had to be considered its legitimate owner, but in case of suspicion or at the written request of the party interested, the Bank might have the note receipted and signed by the holder.

Bank notes, current account balances, and other liabilities to be met instantly, or due within four months in Surinam, had to be covered by current coin to the amount of one-third of the whole. The permanent amount of metallic security had to be fixed by the King after consulting the chief board of directors. The Surinam Governor, however, was authorized, in case of need, to permit deviations from these regulations, provided the King sanctioned them. Bank notes and other liabilities above three million guilders had to be fully covered by a reserve of current coin. The Bank’s bills and notes were exempt from stamp duty, but the Bank was not allowed to claim commission for keeping and paying out money for the colony’s account. The Colonial Government, however, had no share in the net profits of the Bank. Supplementary orders were contained in the decree of June 20, 1869, and May 14, 1871. The former authorized the Bank to issue 10,000 bank notes of five guilders each; the latter declared forty per cent. of the total amount of bank notes, current account balances, and other liabilities due within four moths, should be covered in specie and standard bullion.

In the first years, the Bank’s operations were hampered by many difficulties, caused by the unfavorable state of trade in the colony. Business, therefore, was limited and profits moderate. Dividends were paid only in 1866 (3½ per cent.), 1867 (3 per cent.), 1868 (4¾ per cent.), 1869 (4 per cent.), 1873 and 1874 (2½ per cent.), and 1877 (3½ per cent.).

EARLY REORGANIZATION AND RENEWAL OF THE CHARTER.

In 1877, a reorganization of the Bank was decided upon. Its chief purpose was to reduce the share capital to 700,000 guilders (divided into 4000 shares of 175 guilders each), in order to write off the losses. By royal decrees of April 17 and May 27, 1875, these modifications were sanctioned, and since then the Bank’s condition has improved by degrees in consonance with the gradual but not uninterruptedly favorable development of the colony.

The Bank’s charter expired on November 9, 1889, and was renewed by royal decree of June 26, 1889, for twenty-five years. The new decree shows a few modifications only. The Bank was authorized to invest two-thirds of its capital and reserves in Dutch public funds or Surinam obligations, or in bonds of mortgage companies sanctioned by the King, and one-third in first mortgage on real estate in Surinam. The minimum denomination of the bank notes was fixed at five guilders, the royal sanction for notes below ten guilders being dispensed with. The metallic reserve for bank notes, current account balances, and other liabilities due within four months, was fixed at thirty-three and one-third per cent. For the rest, the former regulations were kept in force. A supplementary order of November 19, 1890, prescribed that the stock of bullion had to be valued by the Governor according to information given by the board of directors in Paramaribo.

The development of the Bank’s business from 1871 is shown in the following table:

It is only after the reorganization in 1878 that the “reserve fund” is stated in the balance-sheets. Before 1878 we find a “fund for doubtful debts” instead, amounting in 1872 to 95,555 guilders, in 1874 to 145,924 guilders, in 1875 to 157,139 guilders, in 1876 to 186,858 guilders, and in 1877 to 194,648 guilders. The reserve fund once formed, the “fund for doubtful debts” is mentioned no more. The reserve fund reached the twenty-five per cent. prescribed by the decree in 1888.

The reports contain no regular information concerning the discount rate. It was reduced for a time in 1872 to seven per cent., in 1890 to eight per cent., and was generally nine per cent. as far as we can ascertain.

[* ] According to the order of December 18, 1827, the redemption had to be made in gold or silver.

[* ] Zalt-Bommel, 1852.

[* ] Steijn Parvé, page 124 et seq., and page 244, gives particulars of this coercion of the Bank. His information has lately been supplemented from the documents of the Java Bank by N. P. van den Berg in his essay, “A Conflict Between Governmen and Java Bank,” in the magazine “De Indische Gids” of December, 1895.

[* ] N. P. van den Berg (in the “Encyclopædie van Nederlandsch-Indie,” page 105) mentions that relief had been granted to claims on bills up to a total of 4,634,815 guilders.

[* ] Then, also notes of ten guilders each were permitted.

[* ] One million guilders on March 31, 1860.

[† ] See N. P. van den Berg’s paper, “Bank Javasche,” in “Encyclopædie van Nederlandsch-Indie.”

[‡ ] By decres of March 31, 1866, also notes of five guilders each had been permitted.

[* ] In general, the regulations of 1870 remain in force to-day.

[* ] In fact, an étalon boiteux.

[* ]I. e., in Dutch and Dutch-Indian National Debt and other bonds negotiable in Batavia, Amsterdam, or other important European centres.

[* ]Cf. Van den Berg, “The Financial and Economic Progress and Condition of Netherlands-India,” First Edition, Batavia, 1887; Third Edition, Batavia, 1895. The figures refer to the last Wednesday in every month.

[* ] Inclusive of dividends unclaimed.

[* ] The Amsterdam board of directors, on my application, has sent me the reports for 1872, 1874-1879, 1886-1891, and 1894. Other dates are to be found in “De Nederlandsche Naamloofe Vermootsehappen” (The Dutch Joint-Stock Companies), published annually by Dr. A. H. van Nierop and Dr. E. Bank since 1882.