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This operation, which at a blow reduced the paper
; currency to a twenty-fifth part of its original amount, also
I brought gold to par.*

I In 1861 the depreciation of paper touched it? lowest
i point: 2483 piastre notes were given for $100 in gold.
The premium was thus 2383 per cent.

But the reader must not take this to be the only surprise
that the history of the double standard has in store ; others,
still greater, remain to be told. In 1862 the depreciation
was even lower, the premium reaching 2456 per cent., and
2556 piastre notes being given for $100 in gold.

The premium continued to rule high until 1867, being
2569 per cent, in 1863 ; 2784 per cent, in 1864, 2597 per cent.
I in 1865, and 2406 per cent, in 1866.

I We stated just now that the Republic, during a long
period of history, never escaped from the inconveniences
of depreciated paper save practically on two occasions,
which were unhappily of only too short a duration. The
first occasion was when Adolfo Alsina was Governor of
■ the Province of Buenos Ayres. The " Bureau of Bank

• See Las virisitud^s de nuestra moneda fiduciaria en los ultimas 65 aflos
I (1826-1890), by F. Latzina.



332 THE ARGENTINE IN THE 20th CENTURY

Exchanges " was established, its mission being to exchange
one piastre in gold against 25 in paper, and vice versa. This
Bureau was in operation from February 1867 to May 1876,
the date of the suspension of metallic conversion.

After this period the value of paper money declined anew.
In May 1876 the golden coin was worth 28 piastre notes; ini,
June, 30 ; in July, 33 ; in December, 29.

In 1877 the average value of a golden piastre was 29
piastre notes ; that is, 100 piastres in gold represented 2900
notes; in 1878 the ratio was 3187; in 1879,3220; in 1880
3055 ; in 1881, 2706.

It was at this time that the second exception occurred,
marking another check to the constant depreciation of
paper.

In November 1881, under the Presidency of General Roca, {
Sefior Romero being Minister of Finance, a law was pro-;
mulgated establishing a bimetallic standard in the Argentine. |
The monetary unit was to be the piastre of gold or of silver ;i
the first weighing 24*9 grains Troy, and the second 383"8(
grains, both being alloys containing nine-tenths of the purei
metal. This law also established the metallic conversion of;
depreciated notes. ;

This operation was a beneficent advance in the economic,
and financial system of the country ; for by establishing!
metallic conversion it gave stability to the legal instrumentj
of monetary transactions, and also contributed to establish!
an enviable state of affairs during the years 1888 and 1884,1
which gave rise to the rosiest hopes for the future. But by!
an irony of fate the very Government which had suppressed I
the double standard found itself forced to re-establish it in,'
January 1885. It should be remarked that at this time*
Sefior Romero was no longer Minister of Finance.

The country being once more abandoned to the miserable
system of inconvertibility, the depreciation of paper began
its downward progress, recalling the too celebrated case of
the assignats, a case one would have thought impossible of ,
recurrence in time of peace and among a people that had
suff'ered no catastrophe for many years.

In June 1885 the premium rose to 50 per cent. ; in 1886
it was 39 per cent.; in 1887, 35 per cent.; in July 1888'



:



THE DOUBLE CURRENCY 333

53 per cent, finally, in 1889, it proceeded by leaps and
bounds ; 50 per cent, in January, it was 53 per cent, a month
later; in March it was 55 per cent., rising to 120 per cent.
in September and October, and 130 per cent, in November
and December, despite the empirical measures of alleviation
adopted, amid violent disputes, by the Minister of Finance.

Thus the Republic entered on the year 1890 ; a year of
grave political and financial disaster. On the one hand was
' the revolutionary movement, prepared by the connivance of
part of the army and the navy ; on the other hand, the
crushing depreciation of paper, ending in an absolute
catastrophe which affected both public and private fortunes.

In the month of April of that year the premium increased
to 215 per cent. ; that is, 100 piastres in gold were equivalent
to 315 in paper. In July, when the revolution broke out,
it stood at 217 per cent. In November the Government
which replaced that which had been attacked by the insur-
gents prohibited the quotation of gold. Nevertheless, the
premium rose to 225 per cent, and remained at that figure
until December.

We must remember that, in spite of the downfall of paper,

the economic vitality of the Republic had suffered no serious

: blow ; no war had broken out, no international complication

j had occurred ; there was, in short, no organic cause to which

I the premium could be attributed. Certainly, the commercial

balance was unfavourable ; but that phenomenon has not

the significance generally attributed to it. The true causes

of this crushing state of affairs were exclusively of a financial

and administrative nature. It was the inevitable result of

the manner in which paper money had been issued to serve

the needs of the Governmenv., and to feed the furnace of

speculation. One cannot forget that at the end of 1886

' the total issue of paper amounted to $80,251,380 ; that in

less than two years it was nearly doubled, amounting to

I $147,503,911 ; while in 1890 the paper currency reached the

I figure of $196,882,500. But this situation, painful as it was,

■ could not be suddenly changed for the better ; other causes

of a like nature were about to intensify it. The new

j President, who came into power after the revolutionary

! outbreak found himself forced, by various circumstances,



334 THE ARGENTINE IN THE 20th CENTURY

to increase the existing circulation of paper. The new issues
amounted to $150,000,000.

As was only to be expected, such an issue on the back
of the existing paper currency, which exceeded $196,000,000,
could only produce a disastrous fall in paper. Its depreciation
touched the lowest point in the history of the Argentine, or
of any other country during the second half of the nineteenth
century ; the blackboard of the Stock Exchange showed an
exchange value of 464 per cent, or a premium of 364 per
cent., in the third week of October 1891. This was the
record of monetary depreciation.

After 1892 the monthly quotation of gold, in relation to
paper, oscillated between 359 and 290 in 1893 ; 433 and 307
in 1894; 377 and 311 in 1895; 352 and 266 in 1896; 317
and 274 in 1897.

We see from these figures that these conditions are
abnormal, extraordinary ; and yet, owing to their long
duration, they are almost part of the normal life of the ■
Republic. It is therefore a matter of interest to study the
causes of such phenomena, in order to decide whether they
are inherent in the period of transformation through which
the country is passing, in which case it would be idle to {
attempt any reform at present, or whether they can be j
controlled or checked by the employment of means counselled {
by science and confirmed by experience. j

According to the judgment of certain persons who have]
devoted themselves to the study of economic questions, the \
causes which, in the Republic, produce the double standard, '
are of a permanent character, proper to the period of forma-
tion through which the country is passing. It is even said
that so long as Argentina has not a capital of her own with
which to float herself in the full tide of affairs — such a
capital as is the result of years or centuries of prosperity —
80 long will she be a debtor among the nations, and the
system of the double currency must continue.

We ourselves are of opinion that the causes which have
produced, and now maintain the inconversion of the fiduciary
currency, are of a very difi"erent character to those implied
by the above judgment ; and that if we consider the
economic state of the country at the moment when the



THE DOUBLE CURRENCY 335

double standard was established, we shall find that it was
in no way responsible for the phenomenon of depreciated
currency. The true cause is the necessities of the Govern-
ment ; determined either by factors beyond the ranj^e of
debate, such, for example, as the eventuality of a foreign
war, or by less justifiable reasons, such as deficits in the
budo"et and reckless issues of paper. In both cases the
printing-presses of the official banks have been set to work,
in order to tide the Government over a difficult passage,
at the risk of vitiating the instrument of national credit by
the efflux of inconvertible paper.

Those interested should read the history of the first issues,
exposed in a masterly manner by Seiior Augustin de Vedia,
in his work on the National Bank ; they will see that the
excessive issue of notes cannot be explained or justified by
the period of economic formation which the country has
passed through. We must search for other causes in order
to explain this long and unfortunate period of inconversion,
which lasted, with a few years' respite, from 1820 down
to 1905.

What, for example, were the reasons which determined
the premium on gold in 1885, under the first Presidency of
General Eoca ? Was it, by any chance, that any economic
calamity fell upon the country ? Were the harvests lost ?
or was there a foreign war, or even one of those revolutionary
risings so common among the South American nations ? Did
the germs of some epidemic invade the country, decimating
the population by disease and poverty? Was there any
violent and ruinous fall in the market prices of Argentine
products ?

Nothing of the kind befell. The Government itself,
in the message in which it solicited the ratification of the
double standard, that "the national production, the valuation
and the degree of culture of the soil, had consolidated the
national credit." The crops were abundant ; and their prices,
in foreign markets, were more than fair. The Republic was
at peace, at home and abroad ; thus realising one of the
dreams of the paternal administration which directed its
destinies. As for the public health, it suffered no perceptible
eclipse in all the Argentine Territory.



336 THE ARGENTINE IN THE 20th CENTURY

It has also been said that the commercial balances were
unfavourable to the Argentine : a country at once a debtor
and a centre of immigration. And it has been asserted, too,
that the Republic suffered from a sudden increase of growth,
without having behind it any reserves of accumulated capital.
The affirmation that the depreciation of the currency, and
in consequence the establishment of a double standard, arose
from unfavourable commercial balances, has no scientific
basis and is not supported by precise demonstration.

" None of the countries which have suffered the mis-
fortune of a depreciated currency have reached that condition
purely on account of adverse balances," as a Spanish
economist, Senor Edouardo Sans y Escartin, has said with
justice. All countries have suffered from this evil, on
account of monetary changes, and the Argentine is only the
latest example, France towards the end of the eighteenth
century, England from 1797 to 1821, Austria and Russia):
since the beginning of the last century, the United States
from 1862 to 1878, Italy since 1875, Paraguay since 1870,
and the Hispano-American Republics for the last twenty-
five years : all these countries have suffered from monetary
perturbations, some through the abuse of paper money or the
excess of the fiduciary circulation, others through the varia- ;
tions of the relation of gold to silver. In none of these countries ,
did the crisis take the form of the consequence of unfavour-
able commercial balances.

We find, in fact, that it is not the case that economic
causes, resulting either from the formative period the country
has traversed, or from its lack of accumulated capital, have
contributed and are still contributing in the Argentine
Republic to prolong the system of inconversion ; the causes \
are exclusively financial and administrative, as we have
already maintained.*

Having glanced at the circumstances which have deter- ,
mined the state of monetary inconversion which has afflicted:
the country ever since it became a nation, we must now:

* The famous Italian economist, Eteocle Lorini, maintained in a book which
he published in 1902 (Za Republica Argentina e i suoi maggiori problemi di
Economia e di Finanza), that the Republic has never possessed money, but only ,
a simple legal tender or instrument of exchange.






ttattt'
iroDitri

Ike
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THE DOUBLE CURRENCY 337

•xamine the remedies which the public powers have sufj^rjested
in the hope of emergincj from tliis detestable state of atiairs.

Every presidency has declared its firm intention of
redeeming or reducing the paper currency in circulation ; but
none of them has obtained results that we can really regard
as final.

Of all the attempts to terminate the condition of incon-
\ ertibility, to give stability to the currency, and to prepare,
in a more or less proximate future, for the establishment of a
<ane monetary system, the most earnest and scientific, and

hat which had the happiest results, was that which emanated
iiom the proposal presented to Congress in August 1899 by
the ex-Minister of Finance, Senor Jose-Maria Rosa, which has
since then become law : the present law of the conversion of
the fiduciary currency.

The scheme of reform of this eminent statesman was
worked out on the following basis : —

1. Immediately to fix the rate at which the future con-

version would be effected, in conformity with the
actual and contemporary value of the currency.
The fixing of a definite rate was necessary in order to
consolidate the then existing state of affairs, to
suppress the premium, and to give transactions a
positive basis, without indefinitely retarding the
possibility of conversion ; and also to prepare for
the liquidation of old issues, and to deliver the
country to some extent from the gigantic burden of
its issues.

2. To form a large metallic fund to guarantee this con-

version and to make it possible for money to become
stable during this period.

3. To maintain a fixed standard by these two means: —

(a) The creation, in the Caisse de Conversion, of a
bureau operating as an automatic regulator, in
conformity with the tightness or slackness of
money, and according to the necessities of the
market ; thus making elastic the paper cur-
rency, the circulation of which might increase



338 THE ARGENTINE IN THE 20th CENTURY

or decrease, on account of the quantity of gold
given out in exchange.
(b) The intervention of the Bank of the Nation in
matters of international exchanges.

It was on these lines that the Minister drew up, and
Congress adopted, a law which enacted that the nation
should convert, during a fixed period, at a convenient time,
the whole fiduciary circulation into Argentine gold coinage,
at the rate of one paper piastre for 44 centavos of a gold
piastre. This same law ordered the formation of a Conver-
sion Fund, with resources which it enumerated ; and finally
it established in the Caisse de Conversion a bureau for the
exchange of paper into gold and vice versa to all who might
apply, at the rate of one paper piastre for "44 of a gold
piastre. ,

Few laws have been so beneficial as this law of monetary '
conversion was to the Argentine Republic. The present
prosperous economic conditions of the country are the work
of this law ; it constitutes the glory of Roca's Government, ;
which gave it birth and enjoyed its first fruits.

Yet we must emphasise the fact that this law, so bene- ;
ficial to the public, was at the outset repudiated not only by i
the President, who, to avoid subscribing to it, forced his ;
Minister to send in his resignation, but also by the principal
organs of the press, at the head of which was that important
journal La Nacion, and again by the Professor of Finance at
the University — M. Terry — who was all for conversion on a
sliding scale ; that is, for the worst method conceivable, as
by maintaining the condition of instability he would have
adjourned the question instead of solving it. But thanks to
the rare energy and the intelligent propaganda of Sefior
Rosa, the sole author of the law, eflfectually supported by;
Senator Pellegrini and Senor Tornquist, this important step ,
was accomplished, despite all the obstacles which barred
the way.

In a very short time this law, so strongly opposed before
its birth, produced marvellously beneficial effects upon the
economic life of the Republic. It gave stability to the,
currency; that is, it endowed the Argentine with one of the



THE DOUBLE CURRENCY 339

greatest blessings a commercial and productive nation can
enjoy.

To be convinced of this fact it is enough to run the eye
over the column of metallic quotations on the Exchange,
published in the " Statistical Annual of the City of Buenos
Ayres."*

This law has killed speculation on exchange values, which
before it was passed had assumed scandalous proportions,
and went far to developing throughout the country that
passion for gambling which is even now a corroding cancer
at the heart of the young Republic, t

This law also provided for the formation of a Conversion
Fund, which was a powerful factor — si vis pacem para
helium — in the pacific solution of the old frontier dispute
with Chili. This fund amounts to-day to £5,100,000 de-
posited in the Bank of the Nation, and would, without this
far-sighted law, have been swallowed up in the whirlpool
of administrative expenses.

Lastly, the law of monetary conversion has been the
salvation of agriculture and stock-raising, the two chief
sources of national wealth, by preventing the too rapid
change in the value of paper, which is a result that deserves
to be considered with attention. The law was promulgated
at a time when a large harvest was expected, and when,
from that very cause, the depreciation of paper violently
increased, the value falling from 278 in August 1898 to 206
in December of the same year. It is certain that at this
rate the depreciation would finally have touched 150, to the
greater profit of the speculators.

What would have happened had the monetary situation

* Annuaire statistique de la Ville de Buenos Ayres. — The trausactione in
metallic values effected on the Buenos Ayres Exchange in 18'J'J (before the
passing of the law), amounted in value to i;i0;»,817,116, or $1,234,579,370
paper, while in 1908 there were none. Any one wishing to exchange gold for
paper or paper for gold to-day, goes to the Caisse de Conversion, where the
exchange is effected without any charge.

t As the Annuaire statislique declares, in the course of the year 1908 no less
than £8,100,000 changed hands over the sale and purchase of lottery tickets
and betting on racehorses. This is an evil that may grow into a national
calamity if nothing is done to arrest it ; and we see with pleasure that the
Government has stated its intention of presenting to Congress the draft of a
law prohibiting lotteries.



340 THE ARGENTINE IN THE 20th CENTURY

altered so rapidly ? The Argentine agriculturalist or stock-
raiser, having paid all the expenses of production with gold
at about 300 per cent., would have been forced, by reason of
the rapid depreciation of paper, to sell his products at
a price which would no longer compensate him for his
increased expenditure. This would inevitably have ruined
the producer — that is, the principal artisan of the national
fortune. Far from opening up new lands with his plough-
share, as hitherto had always been the case, he would have
abandoned the land already under cultivation.

We need not describe the disaster which would have
overcome the country under such conditions as these: the
loss of credit both at home and abroad. The stream of
immigration would have been suspended ; emigration, on
the contrary, would have increased, taking the form of a
veritable exodus, even of a flight ; and each impoverished
and disillusioned emigrant, as he left the Argentine, would
have proclaimed that the country was ruined. As a result
the Argentine would have been for years partially de-
populated, or at least deprived of the new recruits which
immigration brings in, and of whom it has such need in
order to realise the value of more virgin territory.

Worse still : once the harvest was sold, at prices which
could no longer be calculated on the basis of the cost, gold,
now freed from all restraint, like a balloon whose mooring is
broken, would have resumed its upward journey. The
melancholy spectacle of 1890 and 1891 would have been
repeated; gold would have risen by leaps and bounds, in
contradictory and incalculable rushes, finally to reach the
limits that mean bankruptcy.*

Such are the disastrous results which would have ensued
had not the law of monetary conversion come just in time
to restrain the rapid depreciation of paper, and to give
money the stability it must possess if it is to be the faithful

* We remember that gold, which on the 9th of August 1890 stood at 35
per cent, when a new Government came into power, had risen to 425 per cent.
by May 1891, and in October of the same year touched 464 per cent. ; the
highest premium ever known in the long history of the double standard during
the last half of the nineteenth century. In the United States during the war of
secession, the premium on gold rose to 286 per cent, only (on July the 4th
1864).



THE DOUBLE CURRENCY 341

and precise instrument of commercial transactions, the
common measure of all exchanges. Such were the beneficent
results which followed shortly upon the operation of the
law ; and we can only regret that it has not always been
understood and applied with sufficient force by those who
were responsible for putting it into practice. The Govern-
ments which have followed since then have not always
followed the ideal of economy and scrupulous administration
which should ensure the success of this important reform.
None the less, the Conversion Fund amounts to-day to
£5,100,000.

According to the figures for October 1909 the monetary
situation of the country may be summed up as follows : —

The total of notes in circulation amounts to $686,291,704
paper, equivalent to £60,393,670. The Conversion Fund of
£5,100,000 in gold, added to £34,752,058 on deposit in the
Caisse de Conversion and to the £14,073,515 deposited in
the various banks of the capital, forms a total of £53,925,573.
It follows from these eloquent figures that the fiduciary
c^'rculation, notes, nickel, and copper, is guaranteed in
Argentina by an actual value of 65-9 per cent, of its total ;
the notes alone are guaranteed by 89 per cent, of gold.

Unquiet spirits from time to time, including the enemies
of monetary reform, announce their opinion in the press
that this law should be modified. Quite lately the well-
known journal La Nacion, which is distinguished by the
constancy and fervour with which it attacks this beneficent
measure, has opened its columns to an enquiry, in order to
obtain the opinion of the public, or at least of persons com-
petent in such matters. Happily common-sense triumphed ;
the law remains intact, continuing to benefit the whole
national economy.



CHAPTER IV

THE CAISSE DE CONVERSION

The principles on which the establishment of this institution is hased — The
necessity of a rapid redemption of fiduciary money — The imperfect success
of this programme — New issues of notes — New attributes of the Caisse
dating from 1899 — The exchange of paper for gold and vice versa — The
development of this system of exchange — The authority attaching to the
Caisse.

AMONG the official institutions which are closely connected
with the issue and redemption of paper money, the
Caisse de Conversion demands a special place, on account
of the important part which it plays in the financial life of
the Republic. This establishment was created in 1890, at
a moment particularly critical for the credit of the country,
when the terrible crisis occurred which ruined several banks
and resulted in a depreciation of the fiduciary currency
which exceeded all expectation. The Government which
presided over the destinies of the country understood that
it was necessary, in order to ameliorate such a situation, to
put some means into practice which should ensure a more



Online LibraryAlberto B MartínezThe Argentine in the twentieth century [microform] → online text (page 29 of 33)