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CURRENCY

On March 25, 1905, the gold standard was definitely put into effect in Mexico. The peso (100 centavos) is the unit of value and equals $0.498 United States currency. The coins are 20, 10, 5, 22 and 2 pesos (gold); 1 peso, 50, 20 and 10 centavos (silver). 20, 10, 5, 2, and 1 centavos (bronze).

During one period of the revolution, metallic currency almost disappeared from circulation, owing to the flood of paper currency which overflowed the country from the time of Madero onward. Besides the earlier issues of this fiat money and the bills circulated by local military chiefs, the Carranza government put out four distinct issues of itself, the most noteworthy of which were the so-called Veracruzaños, and Infalsificables. The latter, issued after Carranza was firmly entrenched in power, were de signed to supplant the government paper currency already outstanding. They were issued to the extent of about 500,000,000 pesos and made legal tender, with an assigned value of 20 centavos for each infalsificable peso.

This fictitious value, however, could not long be sustained, and the infalsificable currency soon became almost worthless. In November, 1916, gold and silver were declared the only legal tender; but some six months later a new decree required that an infalsificable peso should be returned for each peso in gold given in payment of certain taxes, chiefly export and import duties, and stamp taxes on metals and oil. The object of this decree was to recall the infalsificable currency into the treasury where it could be destroyed. The decree is still in effect.

Owing to the depreciation of paper currency and the insufficient supply of gold and silver, the government next restricted the export of silver and totally prohibited that of gold." After vainly seeking to supply the country's needs in this fashion, Carranza was at last forced to permit the use of American currency in commercial transactions and to accept it in payment of government taxes.

While all forms of business have suffered because of this scarcity of money, Mexico has at least freed herself from the ills faced today by so many of the European governments because of their depreciated paper currency. The nation is almost entirely on a metallic basis. In order to increase the supply of currency the government set about purchasing all the silver presented at the mint for immediate coinage. Obregón has also (July, 1921) prohibited the use of American money, except gold, throughout the republic. Whether this is a wise step is questionable. At the present time the currency is dangerously inelastic, and a remedy cannot be found until the banking system of the country is rehabilitated.

*Except under bond guaranteeing re-importation of an equal amount.

BANKS AND BANKING

Prior to the revolution of 1910 the banking system of Mexico comprised three types of banks, namely banks of emission, or commercial banks; mortgage banks, issuing bonds to cover loans on real estate; and auxiliary or promotion banks (bancos refaccionarios) designed to encourage mining, agriculture, and industrial enterprises. In 1914 the most important of these were as follows:1

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From 1914 to 1918 the banks of emission were forced into liquidation by Carranza, and their funds sequestrated by the government. In their place Carranza proposed to establish a single bank of issue, called the Bank of the Mexican Republic. This bank was to have a capital of 200,000,000 pesos, half of which should be furnished by the government. It was to be located in Mexico City, with branches throughout the republic. Carranza's banking program, however, was never carried out; and though various other expedients were proposed before his overthrow, nothing was actually done to repair the ruin suffered by the banking system.

Though materially injured by the Carranza policy, the foreign banks in Mexico escaped more easily than those operating under distinctly Mexican concessions. Chief of these foreign banks located in the capital are the following:

Compañia Bancaria de Paris y Mexico, Deutsche Sudamerikanische, El Desceunto Español, the Mexico City Banking Company, Lacaud & Son, the Bank of Montreal, the Canadian Bank of Commerce, American Foreign Banking Corporation, and the Mercantile Banking Company. The National City Bank, Equitable Trust Company, and Irving National Bank (all of New York) also maintain representatives in Mexico City.

these foreign banks in the capital, there are two American Banks in Tampico and one or more in other cities. Nearly all of the larger banks in the capital also maintain branches, correspondents, or representatives in the important commercial and industrial centers of the republic.

Although financial conditions in the early part of 1921 caused considerable embarrassment to several banks, the friendly attitude assumed by Obregón toward the re-opening of the banks closed by Carranza led to a pronounced revival of banking activities throughout the country. A number of the older concerns re-opened, and several new banks were established. The following presidential decree fixed the terms upon which the banks of issue might resume business.*

CHAPTER I

Article 1.-The Banks declared in liquidation, by reason of the decree of the 14th of December, 1916, will recover their legal capacity and will be returned to their legal representatives according to the terms and conditions of the present law.

Article 2. The legal representatives of the Banks referred to above who wish to profit from this law must, within thirty days following the issuing of this decree, present a written request to the Treasury Department accompanied by the documents which show that its Board of Directors has been legally constituted and its Manager or Director appointed in accord with the provisions of the Commercial Code and the Charter of the Bank and its provisions.

Article 3.-The period of thirty days referred to above may be increased by the Treasury Department to ninety days for those Banks whose Boards of Directors are not legally constituted according to the information of the said Treasury Department.

Article 4.-Within the thirty days following the receipt of the written request above referred to, the Treasury Department will advise the petitioner as to the class in which the Bank will be included according to Article 5. This period can be increased to ninety days, if within the first thirty days no agreement is reached concerning the classification by the petitioner and the Treasury Department, which must be in accord with provisions of said Article 5. The petitioner will be permitted to freely examine the books, property, correspondence, and documents of the Bank. Article 5.-For the purposes of this law, the Banks referred to in Article 1 will be classified under one of the following groups:

(a)-Banks whose assets exceed their liabilities at least 10% (ten per

cent).

(b)-Banks whose assets exceed their liabilities more than 10% (ten per cent).

(c)-Banks whose assets are not sufficient to cover their liabilities. Article 6.-When the classification has been made, the Treasury Department will issue the necessary administrative measures for the return

As published in Mexico, Financial and Commercial, Vol. I, No. 11.

of the institutions intervened which may have been classified under (a), and (b), publishing their decision in three issues of the Diario Oficial (Official Journal), and recording such decision in the Commercial Registry.

Article 7.-The institutions of credit classified under (a) of Article 5, will be able to operate according to the terms which are afterward estab lished.

Article 8.-The institutions classified under (b) of Article 5 can only make transactions leading to the collection of their assets and paying their liabilities according to the terms of this law.

Article 9.-The institutions classified under (c) of Article 5 will be consigned to the proper authority for their legal liquidation. Likewise those institutions which do not come under this law will be consigned to competent authority for liquidation in accord with the terms and conditions established in Articles 2, 3, and 4.

Article 10.-At any time, the Treasury Department in accord with its information and after hearing the party concerned will be able to modify the classification made regarding any of the Institutions referred to by the preceding articles.

Article 11.-The Banks referred to by the present Decree will be subject in their operation to the terms of Article 28 of the Constitution, as well as to the provisions of the General Law for Institutions of Credit and the Regulations established by this law which are now in force without the old concessions therefor being applicable even for the transactions commenced before the 1st of May, 1917.

CHAPTER II

Article 12. The obligations in money contracted before November 30, 1916, in favor of or against the Banks classified under (a) and (b) of Article 5 will be liquidated in accord with the provisions established in the following articles. The obligations contracted after the date mentioned will be governed by the provisions of the Common Law.

The date of the obligations will be determined from the date when the original obligation was contracted, and not from the dates of renewal or modifications, except when through the particular circumstances of each case, it is learned that it refers to another transaction.

Article 13. The payments which may have been made or received by these Banks will be considered as flawless regardless of the money with which they were paid, except when the Courts decide on the legality of the act in case of controversy. Therefore, this Decree will only apply to the liquidation of the unpaid part of the obligations referred to.

Article 14.-The obligations contracted in favor of these Banks previous to April 15, 1913, will be payable on the following terms:

(a) When the principal does not exceed $2,000,000 (pesos), it must be covered in national gold at par, and in four months from the date of this Decree.

(b) When the principal exceeds $2,000,000 (pesos), it must be covered in national gold, at par, in twelve months from the date of this Decree.

(c) The interest due during the régime of circulation of metallic money will be payable immediately at par at the rate agreed upon; but without being capitalized.

(d) The interest due during the régime of circulation of fiduciary money will be payable immediately in accord with the provision of the preceding, after reduction is made of its value to metallic paper, according to the table of equivalent values established by Article 10 of the Law of April 13, 1918.

Article 15.-The obligations contracted in favor of the Banks after April 15, 1913, and November 30, 1916, will be payable according to the terms of the preceding article, after reduction of its value to metallic, according to the rate of the day when contracted, and according to the

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