MMISSION ;iiBaBs, lno.J. LETTER OE SUBMITl^AL. The President : I have the honor to submit herewith the report of the Commissiori on International Exchange, constituted under authority of the act of March 3, 1903, in compliance with the request of the Grovernments of Mexico and China for the cooperation of the United States in an effort to bring about a fixed relationship between the moneys of the gold-standard countries and the present silver-using countries. During the past summer this Commission, accompanied by a com- mission from the Republic of Mexico, visited the capitals of Great Britain, France, the N"etherl-ands, Germany, and Russia, and there conferred with commissions appointed by the respective (Govern- ments of those countries. The subjects discussed were the benefits of establishing a gold- exchange standard in China, the adoption of a common ratio between the gold unit and the silver coins of the countries and dependencies which are considering changes in their monetary systems, and the diminution, so far as it might be practicable by legitimate economic measures, of the recent fluctuations in the gold price of silver. While eventually the extension of the gold-exchange standard will be sought in other countries, general approval of the policy of its adoption in China and the oriental dependencies of European countries was the immediate object of the Commission of the United States, and in this object they report that they have been entirely successful. It remains to carry this policy to completion by presenting the con- clusions of the foreign commissions to the Chinese Imperial Govern- ment, and for this purpose one of the members of the American Com- mission, Prof. Jeremiah W. Jenks, has gone to China with instruc- tions from you. For the purpose of defraying the expenses of his mission and other expenditures incidental to the work of the Commis- sion an appropriation of 1100,000 is hereby respectfully requested from Congress Measures to put an end to the fluctuations of exchange in China appear to be desired equally by the people and Government of China and by the foreign merchants doing- business there. The representa- tives of the Imperial Government, under instructions from Peking, have supported the representatives of the United States and Mexico 9 10 LETTER OF SUBMITTAL. at the principal capitals of Europe, and assurances of approval of the objects of the Commission have been communicated to our minister at Peking. A joint petition has recently been received by this Depart- ment, which was addressed to our minister and other members of the diplomatic corps at Peking by the chairmen of the Shanghai, Hong- kong, and Tientsin general chambers of commerce. This petition states that — If the treaty powers show their desire to render to China their sympathetic assistance, she may be encouraged to take the initiative in endeavoring to extri- cate thp country from the financial confusion into which it has drifted and to avert the ruin which further inaction seems to threaten. It is further said : It is hardly necessary to point out how essential it is to the powers carrying on trade with China, and no less to China herself, that this question of an uniform coinage, as a preliminary step to the establishment of a currency on a gold, basis, be taken in hand at once, nor, on the other hand, to demonstrate the dangers attendant on delay. It is only too well known by traders that the constant fluc- tuation of silver, converting as it may a profitable contract into an ultimate loss, engenders a feeling of insecurity in all commercial transactions which can not fail to hinder the expansion of trade. There is no doubt that great benefits to the trade of the United States and other exporting and manufacturing nations would result from the adoption of a stable exchange in China in place of the fluc- tuating silver standard upon which her transactions are now con- ducted. The experience of Russia and Japan indicates that the introduction of the gold standard increases foreign trade and the investment of foreign capital, while the importations into China from the United States during the past year have greatly fallen off, partly as the result of the violent fluctuations in silver during this interval. The subject is one of material importance to the economic welfare of China and the United States, and the successful termination of the work of the American Commission would tend to enhance materially the influence and prestige of this country in oriental affairs. Respectfully submitted. John Hay. Department of State, Was]iingto7i, December U, 190S. STABILITY OF INTERNATIONAL EXCHANGE. REPORT OF THE UNITED STATES COMMISSION. The gradual fall to a lower level of value and the serious fluctua- tions in the gold price of silver bullion for the past ten years have been slowly but unceasingly undermining the commerce of the impor- tant silver-using countries which do not have gold as a basis for their monetary systems. The fact that the importing merchants of such silver-using countries can not reckon upon the cost in their own local currencies of the remittances in gold, which they must u.se in making settlements for purchases made in gold-standard countries, has been slowly but surely producing domestic commercial xjaralysis, checking foreign investments for the development of public and private enter- prises, and hampering the importation of the products of the labor of the gold-standard countries. The more enlightened nations wldch suffer under such stress are alive to the importance of rescuing them- selves from the disaster which is surely impending, but by reason of individual burdens and general conditions are not strong enough in all cases to place their monetary systems upon the full gold standard with the general use of a gold currency. These obstacles to the immediate adoption of a gold-currency sys- tem, and the pressure for relief from trade conditions which are bad and growing worse, have brought several of the silver-using countries to realize the necessity of taking at least some remedial steps. Such steps, if not so complete as those of the United States and the gold- standard countries of Europe, if they are to have results permanently beneficial, must be at least in the direction of the ultimate adoption of the gold standard. The Republic of Mexico, whose progress as an industrial nation has been one of the most striking economic facts of the past generation, has been among the first to appreciate the necessity for siich action. Realizing the certainty of future compensations for anj' immediate loss, she has determined, despite the present cost to her silver-mining interests, to overcome tlie instability of her currency and to place it in proper relation to the systems of the gold-standard countries. She is delaying action temporarily in order to assure greater safety for her own policy by influencing other silver countries to act in harmony with her in improving their monetary systems. 11 12 STABILITY OF INTERNATIONAL EXCHANGE. The interests of the Chinese Empire are linked with those of Mexico, because China has been for a long time an important open market for Mexico's coinage. Monetary conditions in China are in the worst pos- sible state of confusion. For this reason, and because of her some- what antiquated and expensive commercial customs, which serve to obstruct industrial progress and to prolong adverse conditions, the possibilities of the great growth of her trade with the manufacturing nations of the West, with the extension of railways and the intro- duction of modern commercial methods, has been seriously retarded. To remedy these evils in a permanent and effective manner, Mexico and China, in January last, concurrently addressed the United States, seeking her friendlj^ cooperation and support in an effort to bring about a fixed relationship between the moneys of the gold- standard countries and the silver-using countries. It was this request which resulted in the appointment of the United States Commission on International Exchange, whose report is herewith submitted. Under the appointment made in accordance with the act of Con- gress of March 3, 1903, the American Commission, in cooperation with a Mexican commission, took up the work as outlined in its letter of instruction, and has presented the subject to the governments of Europe most closely interested. THE ACTION OF OTHER GOVERNMENTS. The Governments of Great Britain, France, Holland,' Germany, and Russia each in turn appointed Commissioners to meet the American and Mexican representatives in their several capitals. These Com- missioners have in all cases been men of eminence in their respective countries by reason of their official and financial positions in connec- tion with the public treasurjr, the national banks, and those banks having the largest business in the Orient, and at times men of wide reputation as specialists in monetary problems. Thus, in three coun- tries — France, Germany, and Russia — the head of the national bank of issue was chairman of the Commission. In the Netherlands the cor- responding official was a member of the Commission, and the chairman- ship was held by a former minister of finance and prime minister, who is everywhere recognized as at once the foremost economist and practical financier of Holland. In Great Britain one of the members of the council for India and the English negotiator of the new commercial treaty between Great Britain and China acted as chairman. In every country officials of their representative oriental banks — in Great Britain, the Hongkong and Shanghai Banking Corporation; in France, the Bank of Indo-China; in Germany, the German-Asiatic Bank; in Russia, the Russo-Chinese Bank — sat on the Commission, three of the directors of the latter constituting a majority of the Russian Commission. At all of the capitals visited, excepting The Hague, there have been STABILITY OF INTERNATIONAL EXCHANGE. 13 present at the conferences one or more secretaries from the Chinese legations, who have taken notes of the proceedings. In London Sir Halliday Macartney, counsel for the Chinese legation in London, and Ivan Chen, secretary of the legation, attended the meetings and signed the points of agreement with the Commissioners. Frequent consul- tations were held with the Chinese ministers at these capitals, usually at their request, and an intelligent interest was shown hy them and a disposition to forward the work of the -Mexican and American Com- missions, which gave evidence of the sincerity of the Chinese Imperial Government in its appeal to the United States and its appreciation of the importance of the benefits sought for China. PRIMARY PURPOSES OF THE COMMISSION. The first task set for itself by the Commission of the United States was to secure from the leading powers of Europe interested in the Chinese indemnity or in oriental colonial enterprise approval of the principle of the introduction of the gold standard into China. While the advantages of such a step are obvious, its accomplishment ofilers diificulties, arising from the lack of economic e.xperts in China, the heavy demands already made upon her financial 7-esourccs, the divi- sion of authority in relation to the pi'erogativo of coinage, and the relations of China with European powers. Under these circumstances some degree of suggestion and cooperation from abroad seemed to be required to.inaugurate a new currency system upon foundations which should be not only stable, scientific, and pract ical in fact, but capable of impressing that fact from the beginning upon the business world. It seemed also to be obvious that if definite measures were to be taken to place China upon a gold standard they must, under existing conditions, be taken by concurrent action of the leading powers, or at least with their approval. The action of any single power in suggest- ing a monetary plan to the Chinese Imperial Government and oflier- ing the aid of its own credit or that of its financial institutions for carrying it out would naturally and almost inevitably excite the dis- trust of Other powers and lead to their opposition. The Government of the United States, as was frankly admitted at several European capitals, is in a favorable position to take the lead in such a matter, both on account of China's invitation and because it is not suspected of seeking territorial extension or special privileges in China. Even our Government, however, could probably not, without arousing serious opposition, propose and carry out a monetarj' measure for China exclusively on its own plans and with the support solely of American financial institiitions. For these reasons it was felt that the first essential step in giving to the Chinese Empire a sound currency was to present the subject to the leading powers having commercial and financial interests in the Orient, with the object of bringing into a clear light the advantages 14 STABILITY OF INTERNATIONAL EXCHANGE. of the proposed measure, demonstrating to those powers the impartial motives of the United States and securing their approval of the gen- eral project and of the initiative of ths American Government. While many other steps will be required before the gold standard can be in actual operation throughout the breadth of the Chinese Empire, it was felt that the one step absolutely vital to the inaugu- ration of the system was that approval of the principle should be first secured. In this fundamental matter the Commission has been com- pletely successful. Approval of the principle of a national gold- currency system for China has been given by Great Britain, France, the Netherlands, Germany, and Russia with a completeness which has removed the first great obstacle to bringing the monetary system of the Chinese Empire into harmony with that of other advanced com- mercial states. ECONOMIC BENEFITS OF THE PROPOSED REFORM. It was natural that the Government of the United States should welcome the proposition to put China upon the gold basis and should look for the cordial cooperation of the leading manufacturing and exporting nations of Europe, becaiise such a measure promises so much for the extension of their future trade and their opportunities for safe investments. The present uncertainties, due to fluctuations in exchange, in regard to the profits upon commercial operations between the gold countries and the silver countries would be brought to an end if these fluctuations were brought within the usual limits between two gold countries. Under present conditions the importer in a silver country is compelled to live from hand to mouth and to greatly restrict his orders for goods given to European and American exporters. Investments of capital are even more hazardous, since a fall in the price of silver equal to that which occurred within a few months in 1902 would wipe out profits of 15 or 20 per cent and reduce by that amount the value of an investment made in a silver country if it were sought to withdraw it in gold. The adoption of a stable exchange, by remedying these conditions, would unquestionably stimulate the importation into China of the products of European and American mills and factories. Many of these importations would be in the form of advances of capital for the development of the rich natural resources of China. These invest- ments would be made in the form of rails and rolling stock for new rail- ways, equipment for factories, and supplies for the laborers engaged in extending railways and modern industrial methods throughout China. The fact that such exportations from the manufacturing countries would not depend primarilj' upon tlie increased consuming power of the Chinese people, but upon the surplus of capital of the rich countries seeking investment, would greatly stimulate this move- ment in the earlier years. This was the experience of Russia and Japan when they adopted the gold standard. In the case of Russia, STABILITY OF INTEKNATIONAL EXCHANGE. 15 imports of foreign j;-oods rose from 416,000,000 rubles (*21(i,(»00,()00) in 1890 to 626,000,000 rubles ($315,000,000) in 1900— an increase of 50 per cent in ten years. In the case of Japan the imports of foreign goods rose from 81,000,000 yen ($40,000,000) in 1890 to over 300,000,000 yen ($150,000,000) in 1900 — an increase of about 200 per cent, even when allowance is made for the reduced value of the yen bj' the fall in silver. If a ratio of increase corresponding to that in Japan were to occur in the imports of foreign goods into China, such imports would rise within ten years from 50 cents to $1. 50 per capita, and a market would be opened for $400,000,000 worth in American gold of the products of Europe and America in addition to the present volume of their trade with China. While it is probable that the development of the com- merce of China might not be so rapid as that of Japan, there can be no doubt that the opportunity for large trade and safe investments offered by the adoption of a uniform currency in China based upon the gold standard would afford benefits to the manufacturing and exporting nations which abundantly justify earnest- efforts on their part to secure such an impoi'tant economic result. Already, at about the date of the appointment of the Commission, the importance of stable exchange in China had become a subject of discussion in the Orient and of action by several commercial bodies. Typical of these expresssions is the i-esolution adopted on April 18 last by the Shanghai General Chamber of Commerce: "Having in view the fact that silver is subject to violent flaetua- tions and that China's financial obligations, national and commercial, are now mainly, and in future will probably be entii-ely, with gold- using countries, this chamber is of opinion that the treaty powers should urge the Chinese Government to take the necessary steps with- out delay to provide for a uniform national coinage as a first step toward establishing the currency of this country on a gold basis at as early a date as practicable." The high authority of Sir Robert Hart, inspector-general of the imperial maritime customs, may also be invoked in favor of securing for China the great commercial and fiscal benefits of a gold standard. In a paper presented to tlie board of foreign affairs and printed in the North China Herald of July 3; 1903, Sir Robert Hart declares: "It would be much wiser for China to maintain a gold standard instead of a silver one, as at present, since silver has dropped down to such a degree and moreover possesses no certain or uniform exchange, even within the limits of a single day. The hundreds of trades are all disastrously affected bj' the present state of the currency, while the GovernTnent having to pay its foreign debts in gold both country and people are being plunged into the depths of financial distress. The conditions pictured in the foregoing therefore compel one to seek some plan whereby they may be ameliorated, and so make it that China, while still using a silver currency, shall so fix a uniform exchange between silver and gold that there may be no danger of uncertain fluctuations." 16 STABILITY OF INTEBWATIOKAIi EXCHANGE. Closely related to the project of establishing a definite monetary system for China on the gold basis are several subjects relating to the monetary systems of other countries of the Orient, most of which are dependencies of the leading European powers. These countries include the Philippines, under the authority of the United States; the Straits Settlements, under the authority of Great Britain; Indo- China, under the authority of France, and the dependencies and colo- nies of Germany in East Africa and Asia. In support of the general objects sought the Commission presented, therefore, to the European powers : 1. Suggestions for a monetary system for China. 2. The subject of approximate uniformity in the relationship between the gold unit and the silver coinage in China and in such other countries as maj' hereafter establish new monetary systems based on the gold standard. 3. The subject of establishing a certain regularity in such pur- chases of silver bullion as are actually required for coinage purposes, with a view to aiding the gold price of silver and eliminating, as far as practicable, the extreme fluctuations in price incident to specula- tiou, thus rendering the adoption of the gold-exchange system in countries whose credit needs strength much more easily attainable. MONETARY PLAN FOR CHINA. The problem of introducing a new monetarj^ system into China is materially different from that which, under similar circumstances, could confront any of the prominent European countries or any of the colonies of the Far East. In the first place, China at the present time has no national monetary system. In the ports of Hongkong and Shanghai and the neighboring country British dollars are in cir- culation and Mexican dollars are more or less used. In Shanghai, and especially in Tientsin, Chefoo, Peking, and other northern cities, the old Mexican dollars are regularly used, although in connection with them the silver tael, passed by weight, is also found. In the interior one finds few silver coins; silver taels or syces are employed, by weight, while for most purposes the common people use only cop- per. In some of the more remote districts onty a system of barter is employed. Under such circumstances it is evident that a new mone- tary system must be introduced first in the places where coins are used and must then gradually make its way with the progress of trade into the interior. Moreover, there is no coin now employed in China which could be adopted as the basis of a new money without inspiring international jealousies. The entire system must be created. - It is extremely desirable that any plan adopted should have the hearty cooperation of the importing and exporting merchants, both Chinese and foreign, and of the native and foreign banks. In order to secure the cooperation and confidence especially of these foreign STABILITY OF INTERNATIONAL EXCHANGE. 17 govern ments and business men, it seems necessary that the Chinese Government should, for the time being at least, put the administra- tion of the new system, when it shall have been planned, into the hands of foreigners of sufficient ability and reputation, so that they will have the. complete confidence of these foreign governments and investors. It is generally recognized that, owing to the fluctuating and a1; times possibly conflicting interests of the different great powers, there is danger of awakening international jealousies, which might interfere seriously with the success of any plan which might be adopted. On this account, as well as from the necessity of maintain- ing unimpaired the sovereignty of China, it would seem essential that foreign appointees be not named by foreign governments, but be simply men of such reputation that their appointments would be acceptable to the foreign governments. They should be appointed by the Chinese Government and should in the full sense of the word be ofiicials of China working in her interests. So much independence has from time immemorial been left to the viceroys and other local officials in the different Provinces by the Cen- tral Government that in order to insure the complete success of any general undertaking in China the determination of the Central Gov- ernment needs also the cordial cooperation of the different viceroys. There seems little reason to doubt, however, that as regards (he most important of the coast Provinces this cooperation can be secured for a monetary system which will stabilize exchange. It will thus be seen that the introduction into China of a new mone- tary system presents rather unusual difficulties, but, inasmuch as a system which should fl.x; the rates of exchange would prove of so great benefit not merely to the foreigners who have trading interests in China and to the Chinese who are engaged in foreign trade, but like- wise to every Chinese taxpayer throughout the whole of China, there seems reason to believe that within a reasonable length of time a new system, if wisely inaugurated and reasonably, honestly, and well administered, would so commend itself to the people that it would rapidly extend into the country. The Chinese Government, in its petition to the United States Government for assistance has recog- nized these great advantages, and a new system wisely planned will doubtless receive the cooperation both of the Central Government and of the more intelligent, able, and influential of the viceroys aijd other Chinese business men. In the general plan for China, outlined briefly in the appendix, it is suggested that the Chinese Government not merely appoint for- eigners as oificials to fill some of the most important positions in the a;dministration, but that the Government also open the accounts of the comptroller of the currency to accredited representatives of the powers interested in the indemnity. Such a concession, unusual in its nature, should only be made provided the Chinese Government H. Doc. l-iA 2 18 STABILITY OF INTEENATJONAL EXCHANGE. itself is willing, but inasmuch as confidence is one of the essential requisites to success, it would doubtless be wise, for a time at least, freely to publish in every possible M'ay all of the details of the adminis- tration of the system, it being, of course, understood that this in no way involves the making public of the fiscal management of the Gov- ernment itself. CHARACTER OF THE NEW SYSTEM. The suggestions made contemplate the adoption of a monetary sys- tem consisting chiefly, if not entirely, of silver and copper coins, to \)& maintained at a parity with gold. The economic condition of the country is such that gold coins would not be suitable and gold itself would be used only in payments to foreign creditors. As has been intimated, in the interior of the country most of the inhabitants use only copper, their business transactions involving often at times a sum amounting to onlj' 1 cash — that is to say, only a trifle more than one two-thousandths part of the American dollar. Coins worth, saj', 50 cents American would cover the transactions of a workman's fam- ily in actual money for perhaps a month, excepting in the seaboard provinces, and even there a month's wages would often amount to considerably less than $5. It is obvious, therefore, that the use of gold coin would not be practicable, even if it were within the official and economic power of China to draw the necessary stock of gold from the western nations, because gold would not be practically divis- ible into the small coins required for the daily transactions of the Chinese people. The universal opinion of all European powers and experts, however,, is none the less that the system should be placed on a gold basis in order to avert present difficulties in dealing with gold-standard coun- tries. The only difference of opinion concerning the matter that has appeared among the experts is that regarding the best methods of beginning and of carrying out the plan. To the American Commis- sion it has seemed best to begin the new system in some of the treaty ports and seaboard provinces, but to begin on a gold basis. Owing to the large number of coins that it would be necessary to provide before the system was complete, their introduction into general circu- lation must in any event be gradual. Owing, also, to the system of government, it would be entirely possible to give the sj'stera legal effect in the difCerent provinces or even in different cities separately, as if they were different states, and then, as rapidly as provisions could be made, to give it legal effect in other adjoining cities or prov- inces. Since, as has been said, there is no currency system through- out China, there are no coins tlie redemption of which will be obli- gatory upon the Government, as is tlio case in the Straits Settlements and French Indo-China. In this regard, at any rate, China would escape the difficulties which confronted the government of British India in 1893 in the necessity of raising to a fixed par $500,000 000 STABILITY OF INTERNATIONAL EXCHANGE. 19 worth of silver rupees and would have a decided advantage over other countries with an established monetary system, where a similar legal and moral obligation in regard to the existing currencj' would have to be considered. Tlie system should be placed on the gold basis at once, because in that way the foreign nations and China herself especially will begin to get the benefits at once. By such action trade will be encouraged, foreign investments will be more readily secured, the beneficial influ- ence of foreign business methods will sooner be felt, and the Govern- ment itself will secure much earlier the great benefits of an increase of revenue. Should the system be begun on the silver basis, with the intention of establishing the silver coins later on a parity with gold, there would be no appreciable benefit to international trade until this parity should be established. While the interior trade of the country would to some extent be encouraged by a national cur- rency upon any uniform basis, a change in political or economic conditions in China might postpone for many years the benefits sought by the Chinese Government in establishing siable monetary relations between C'hina and foreign countries. Moreover, the change in the system from an established silver basis lo gold would inevi- tably lead to speculation to a much greater degree than if the new system wei'e to be introduced at once on the gold parity. MEANS OF MAINTAIXIN(; PARITY. The most difficulti and the most important quesi ion in conned ion with the establishment of a new system is the maintenance of the parity of silver coins with gold. In this regard the experience of other countries is suggestiA'c. The plan proposed for China is based upon wliat is commonly called the gold-exchange standard, similar to the plan recenl-ly adopted by the Congress of the United States for the Philippines and to the Dutch plan, which has been in operation in the Netherlands and the Dutch East Indies for twenty-eight years. The successful maintenance of this plan in the Netherlands for so long a period, covering fluctua- tions of more than 50 per cent in the gold value of silver, and the more recent success of a similar plan in British India, in the face also of great fluctuations in silver, dispel many of the doubts which might arise, in the absence of such historical evidence, of the practicability of the plan recommended for China. In the Philippine Islands the issue of a coin has been authorized of the size and fineness of the Mexican silver dollar, which has been given the legal value of 50 cents in the gold money of the United States. Although the silver bullion which the coin contains is worth about 20 per cent less than the legal value of the coin, these coins are now being paid out bj' the govern- ment of the Philippine Islands at this legal value and are finding prompt acceptance in the channels of trade. In the Republic of Peru 20 STABILITY OF INTEENATIONAL EXCHANGE. a system similar to that here reconimeuded was adopted in 1901, in compliance with provisions which will be set forth in an appendix. Under its operation silver coins of about the weight of the Mexican peso are being successfully maintained at a fixed gold par above their bullion value, and there can be no doubt that they will continue to be so maintained so long as the Government makes proper provision for their protection. A similar system has recently been adopted by the Russian Government for Bokhara, whose successful operation is set forth in one of the appendixes to this report, and is about to be adopted by Mexico for her own currency, by great Britain for the Straits Settlements, and by France for Indo-China. For the mainte- nance of these coins at their full legal value, the Government relies upon the three principles which have been applied so successfully in Holland and India and are here recommended for China: 1. Government control of the amount of the issues, so as to keep them within the demands of trade for legal-tender money. 2. Acceptance of the coins at their legal value for public dues and private debts. 3. The sale of drafts at or near par upon gold-exchange*funds kept at the financial centers of the world. Provided the system for China is first introduced in certain cities or provinces where the business conditions throxigh the experience of years are well known, it will not be a difficult matter to estimate the amount of coins that will ordinarily be needed in order to supply business demands. Under the circumstances, if the Government makes the new coins the sole legal tender for the payment of Govern- ment obligations, and if the quantity of coins is properly limited, the strong demand for the coins made by the Government and by busi- ness needs as compared with the limited supply will probably be suffi- cient for a limited period at least to maintain parity. As the supply of coins increases the Government should, of course, make them legal tender for the payment of private debts, thus increasing somewhat further the demand. The Government should also, probably from the beginning, pro- vide a gold reserve, so as to meet any demand for gold which would be necessary in order to maintain substantially the parity of the coins with the gold. This demand, however, need not be large. As has been already explained, there would be no proper demand for gold except for meeting foreign obligations. For that purpose gold exchange on Europe or America woiild be even more advantageous than a gold reserve held in China itself. In consequence, the Gov- ernment should keep a gold credit in Europe. It would not, however, be necessary for the purpose of maintaining the parity of the silver coins with gold that the Government should obligate itself to meet all ■ demands for gold for export purposes or for the payment of all for- eign obligations. STABILITY OF INTERNATIONAL EXCHANGE. 21 INFLUENCE OF THE BALANCE OF TRADE. While China has been on the silver standard, her foreign obligations have been paid in part, it is true, by the gold which has been mined and shipped out of thecountry as a commodity. Within the last two years also, since the payment of the indemnity began, considerable amounts of silver have been exported, but in the main the payment for imports has been met by exports. While accurate statistics are not available to show the balance of trade, there seems no reason to doubt that in the future, when the countrj' is placed on a gold basis, payment of obligations due abroad may usually be met, as in the past, without the export of much gold, provided proper business judgment be employed. In dealings between gold countries any tendency toward a drain of gold is met, as in England, by an increase in the rates asked for foreign exchange and in the rate charged for the use of money. An increase in the rate of discount by a fraction of 1 per cent is usually sufficient to check decidedly the drain, and a strong increase in the rate within a comparatively short time effectively stops it, inasmuch as it makes it more profitable to leave capital in the country than to send it elsewhere. It has also the effect of lessening the price of commodities and, in consequence, of making theui more available for export than is gold itself, which, of course, in interna- tional trade is only a commodity. If, thei'efore, the Government of China were to obligate itself to sell gold exchange only when the rate had atlvanced, say, 1 or 1^ per cent above the normal charges, there would jjrobably be \'('ry slight demands upon its gold reserve held abroad unless theri^ were an overissue of its silver coins. In case of such overissue — if the demand for foreign exchange reached this higher rate on account of the depreciation of the coins — the amount paid in to purchase the bills should be held out of circulation by the Government until the scarcity of the coins themselves tended to check the demand for exchange by making relatively lower prices for goods; or, in other words, by making it cheaper to pay foreign obligations in otiier ways than by using the silver coins to buy gold exchange. If this plan were followed of having the Government itself, either through its comptroller or through a national bank established in part for the purpose, not obligate itself to supply gold on demand for foreign exchange, bnt merely use its gold reserve for the pui-pose of protect- ing the parity of its currency system, there seems every reason to believe that the amount of the gold reserve would not need to be excessive and that the maintenance of the parity- would be entirelj^ within the power of the Chinese Government. Regulation of the foreign exchanges by providing a fund for absorbing the excess of the national currency in the market was one of the first measures successfully taken by Russia in preparing, in 1894, for the restoration 22 STABILITY OP INTERN ATIONAL EXCHANaK. of a specie basis and is the course now iiiider consideration by the Government of Spain for accomplishing the same object. It should also be kept in mind that in beginning the system on a gold basis there would come to the Chinese treasury ill the form of seigniorage, from the beginning, a profit at the- recent price of silver of 15 to 20 per cent on the face value of all the silver units coined, and a still greater percentage on the minor coins, all of which profit might readily be turned into the accumulation of a gold reserve. Furthermore, if the Government were to offer to furnish silver coins on demand at any time for gold paid in at the fixed rate of exchange (as is done in British India), there would in all probability — so long as the coins were scarce — be the same demand for these silver coins as has been the case in India, which would again contribute to maintain the gold reserve. It should also not be forgotten that the maintenance of the parity is chiefly only a question for the seaboard provinces and only for the standard coins. So far as minor coins are concerned, their parity would normally be maintained, as in all gold countries, by put- ting a proper limit on the amount issued in the interior of China. Where foreign traders are not regularly at work the entire business demands for many years to. come will be only for silver and copper coins. The exchanges will be only of silver and the question of the parity with gold will rarelj' be raised. The most important of the general principles governing the intro- duction of a gold system into China have thus been set forth. The details regarding the organization of a national bank, which might be of very great importance; regarding the degree of discretion that should be left to different officials; the methods of securing the support of the viceroys and of the Chinese banks, and other local questions can, of course, only be settled by the proper authorities at the time of the introduction of the system. On the principles above stated the decided majority of the European experts consulted by the American Commission are agreed, and there seems good rea- son to hope that with the hearty cooperation of the Chinese Govern- ment, which can probably be counted upon, a system like this one outlined can within a reasonable length of time be put into successful operation. RELATION OF BANKS TO THE REFORM. The introduction of a new currency system into China and its suc- cessful operation, at least during the period of transition from the old system to the new, would almost inevitably depend in a large degree upon the cooperation of the banks doing business in the coun- try. It might appear at first blush that they would oppose a measure which tended to reduce the fluctuations of exchange, because it might reduce the profits which they now derive from these fluctuations. There were indications in the opposition made to the Philippine cur- STABILITY OF INTERNATIONAL EXCHANGE. 23 rency bill at the first session of Congress ;it A\-hit'h it was presented that this view was more or less influential, but the serious fluct\ia- tions in exchange caused by the changes in the price of silver during the past two years have apparently led to the adoption of a broader view. Members of the governing boards of the banks doing business in the Orient sat upon the commissions appointed in London, Paris, Berlin, and St. Petersburg. While their practical experience, derived in many cases from prolonged banking service in the Orient, led them to lay stress upon the obstacles to be overcome in persuading the Chi- nese people to accept a new monetary system, they all ultimately con- curred in the conclusions reached at these capitals. The banking interest is an important one in all commercial countries and deserves the same consideration (and no more) as other factors of equal importance in the national economic life. Fortunatelj' for the successful inauguration of a new monetary system in China, the leading foreign bankers seem to have come to the conclusion that what tliej' may suffer by the loss of profits on exchange operations will ultimately be compensated by. the increased volume of business which will grow out of the improved economic conditions of the countiy. It is probable that profits on exchange would be affected to only a moderate degree by the inauguration of the gold standard. The opportunity for profit which arises in the exchange between two gold-standard countries would continue to exist in the exchange between China and the outer world, with the probability that at least until the new system had successfully stood the test of adverse conditions the variations in rates would be somewhat wider and the opportunities for profit greater than between two countries whose gold-standard systems have been longer established and whose economic conditions have become more firmly settled tlian those of China. One of the most important practical considerations in this connec- tion is the fact that the introduction of the new^ system must, in the nature of the case, be gradual. If the gold standard could be made universal throughout China within a few months, losses would prob- ably fall upon the banks which they would find it difficult to recoup; but the gradual extension of the field of more stable exchange from city to city and province to province would permit a gradual readjust- ment of banking business to the new conditions. In the introduction of the new currency, and in the operations necessary for the creation of a gold fund and the maintenance of the parity of the new coins, the aid of the banks would be required. From all these transactions they would receive a legitimate profit derived from the services rendered by them to the industrial interests of the country. The extension of those interests, moreover, by the growth of trade, would mean an increased demand for loans, a larger volume of drafts, transfers, and bills, and the introduction of foreign capital upon a scale which would tend to demonstrate that the interests of the banks could not be per- manently separated from the progress of the welfare of the country. 24 STABILITY OF INTERNATIONAL EXCHANGE. THE CHINESE INDEMNITY PAYMENTS. In connection with finding adequate financial resources for creating a gold reserve and paying the initial expenses of introducing a new- currency system into China, the subject of the indemnity due by China to the powers under the protocol of 1901 was presented by the American Commission to the other powers interested. The commis- sions appointed to deal with the other branches of the subject were not authorized to discuss this matter, but it was discussed in each case with representatives of that department of the government hav- ing it in charge. The essential question presented was whether, in view of the considerably increased burden imposed upon China by the recent fall in silver (if she were required to make the indemnity payments on the gold basis), the powers would not agree to accept payment on a silver basis for a term of j^ears if the Chinese Govern- ment would bind itself to reimburse the difference at some future time. With a single exception, there was a disposition to make this concession if it appeared that China would take effective steps, acceptable to the powers, to give stability to her monetary system. In the excepted case there was apparently a disposition to consider the matter if the other powers would couple with it the revision of the present scale of duties on imports into China. The assurances received on this head were all that were expected or desired by the American Commission. They were concerned with the indemnity only in its relation to the creation of a new monetary system, and it seemed clear that temporary remission of a part of it would be more than compensated to each power by the benefits accruing in the rela- tions of its merchants and financiers with China. This being the case, it did not seem desirable to go further until the project of a national currency for China had assumed such a definite form as to permit a pi-ecise understanding of the use to which the Chinese Impe- rial Government would put the amounts remitted on the indemnity payments. The suggestion that the remission of a part of the indemnity in con- nection with the introduction of a new monetary system be made for a limited time only was made because under such a system the finan- cial resources of the Chinese Imperial Government are likely to be materially increased. As soon as the taxes are collected in terms of the new money, they will probably afford a larger gold return than under present conditions. In any case, at whatever point the cur- rency is given stability, further losses in the proceeds of taxation caused by the fall in the gold value of silver will be brought to an end. It is also reasonable to assume an increase in the public revenues from the increased stimulus given to trade and industry by the adoption of a stable standard and the inducements thereby afforded for foreign Investments in China. STABILITY OF INTEENATIONAL EXCHANGE. 25 BENEFITS OF A UNIFORM RATIO. Comparative uniformity in tlie coinage ratio to be adopted between the gold unit and the silver coins to be issued in different countries which are about modifying their monetary systems was recommended by the American Commission and was generally approved. Present conditions seem to afford unusual opportunity for a certain degree of harmony in the policy to be pursued, because so many countries in the Orient and elsewhere are considering a change in their monetary systems. The. United States are about putting in force a new law for the currency system of the Philippines ; Mexico is preparing for the reform of her monetary system upon a gold basis ; Great Britain is taking steps for establishing a fixed exchange in the Straits Settle- ments; France is doing the same in Indo-China, and the Chamber of Commerce of Hongkong is considering a change in the system in operation there. These countries are all taking action or about to take action, independently to some extent of the policj^ of the Chinese Imperial Government, but it would obviously be for the interest of all if their systems and that of China were brought into some degree of harmony. The use of the term "ratio" in this connection is not intended to imply that the adoption of a given ratio of weight would in itself fix the relation of value between the coins and the gold unit, as is sought by the policy of free coinage of two metals. The term is used here simply to define the relationship between the weight of the silver coins and the gold unit. It is not proposed that the new coins shall depend upon this ratio for their value; that value will depend upon the measures taken to maintain the coins at par with the gold unit. The considerations to be presented regarding the ratio may be dis- cussed under two heads — (1) the reasons for adoption of the ratio of about 32 to 1; (2) the reasons why comparative uniformity of policy is desirable. The ratio of about 32 to 1 was adopted in the Philippines and has been recommended for other countries, because it seems to conform to the requirements of existing conditions. In the introduction of a new monetary system the coins should conform as nearly as other considerations permit to the actual market value of the metal which they contain and to the unit to which the people have become accus- tomed in its relation to the scale of wages and prices. The ratio of 32 to 1 does not depart widely from the present and recent gold value of the silver currency in circulation in the Orient. It represents the average price of silver for the ten years ending with 1902. It was also the actual ratio of about two years ago and of several preceding years. The adoption of a unit like this would have the advantage both of continuing without a break nearly the existing scale of wages and prices in retail transactions and of doing substantial justice in the fulfillment of contracts made under the silver standard. The slight 26 STABILITY OP INTEEKATIONAL EXCHANGU. increase in the purchasing power of Avages which might result would surely do no harm. What has just been stated regarding the coinage ratio needs to be qualified by certain other considerations which militate, against the adoption of the exact relation of a given moment between the market value of silver and gold. The adoption of the ratio of any given moment would be safe only upon the assumption that silver would continue to fall in value, or at least would never under any circum- stances rise above its gold price at tlie date when such relation was established. This assumption can not safely be made. . Silver rose in the interval between January last and April last from 2l35j-d. to about 25d. and has since risen to 27W. This was an increase of nearly 20 per cent in four months and nearly 30 per cent in eight months. Such fluctuations indicate the proprietj' of fixing a ratio which shall per- mit certain changes in the vahie of silver bullion without causing disturbance of the monetary system. DANGER OF GIVING TOO HIGH A COINAGE VALUE TO SILVER. There are certain risks in adopting a silver coin of a weight very much less than its bullion value, and there are risks of an opposite character in adopting a coin of a weight conforming too closely to the market value of the bullion which it contains. The dangers in the first case are much less serious than in the second. If too high a value is put upon the silver bullion in the coin — that is, if the coin contains very much less silvo' than it purports to represent in face value — then there will be a wide margin of difference between the gold value of the coin as coin and as bullion. This is the case at present with the coins of the United States, issued at the ratio of 16 to 1; with those of the countries of the Latin Union, issued at the ratio of 15^ to 1, and with those of Russia and British India, issued at the ratio of about 24 to 1. The two chief dangers in such a system are the private coinage of pieces of full weight and the strain upon national credit required to maintain the legal coins at their full value, since business confidence is an important factor. The first danger is not one which the advanced civilized countries have thus far found a serious menace to their monetary syst.ems. The second danger has sometimes threatened them when, as in the case of the United States, the coinage was per- mitted to become too large. This danger would be miieh graver in the case of a country whose currency consisted chiefly of silver coins, without a gold circulation, and especially in one whose financial stand- ing was not high. It seems to be desirable, therefore, in countries whose police system is not thoroughly organized to prevent and detect counterfeiting and whose ci'edit is not of the highest order, to depart from the ratio of European countries and the United States and to choose a ratio more closely .'ipproximating the bullion value of the coins. STABILITY OP INTERNATIONAL EXCHANGE. 27 DANGER OF FIXING TOO LOW A COINAGE VALUE FOR SILVER. It remains to deal with the opposite type of risk involved in the choice of a ratio giving too low a value to silver. This risk consists in the fact that under such a system a slight rise in the price of silver might derange the entire monetary circulation bj' making it more [)rofitable to export the standard coins as bullion than to employ them as coins. If, for example, the Government of Great Britain, when the subject of giving stability to the currency of the Straits Settlements was first discussed last December, had seen fit to adopt a ratio corre- sponding to the price of silver at that time it would have adopted a ratio of about 40 to 1. This ratio would have given to the British dollar a value of about 40 cents in the gold currency of the United States. The rise in the price of silver which occurred in April last would have raised the market ratio between the metals to about 36 to 1 and would have raised the value of the silver bullion contained in the British dollar to about 45 cents. It is clear that the holder of one of these coins, if he had found its gold value in the Straits Settlements to be only 40 cents and its value as silver bullion at Hongkong or in London to be 45 cents, would have gathered up c^very such piece within his reach and sent it to the market where it could be sold as bullion at the higher price. The result, if such conditions had continued for any appreciable time, would have been to deprive tlie Straits Settle- ments of their currency and to bring great derangement into business transactions. The operation of these principles can perhaps better be studied by the aid of the following table, furnished by the Bureau of the ]\[int, showing the gold price at which silver bullion stands at different i atios and the value of the bullion contained in standard silver dollars of the United States and Mexican pesos at sucli prices. It may be remarked that the bullion value of the new Philippine peso conforms approximately to that of jNIexico. BuUidii value of c<^ins at varlaiif: rafiox. Ratio. Price of sil- ver per oimce, Lon- don stand- ard, .925 fine (exchange $4.8665). Price of sil- ver per ounce, New York stand- ard, .999 fine. Value of sil- ver bullion in United States stand- ard silver dollar, .900 fine. Value of sil- ver bullion iu the Mexi- can peso, .902 fine. letoi Pence. 58. 979+ 47. 143+ 39.496+ 33.673+ 31.410+ 29.464+ 27.733+ 26.193+ 23.375+ SI. 2929+ 1.0335+ .8613+ .7382^, .6890+ .6459+ .6080+ .5742+ .5168+ 20tol 24to].- 28tol SOtol 32tol 34toT..- - 36tol ... 40tol SI. 000+ .799+ .666+ .570+ .532+ .499+ .470+ .444+ SI. 015 + .812+ .676+ .580+ .541 + .507 + .477+ .451 + .406+ 28 STABILITY OF INTERNATIONAL EXCHANGE. At the present price of silver tlie ratio of 32 to 1 gives to the pro- posed silver coins a face value higher by about 10 per cent than their value as bullion. This margin has been suggested in order to permit a certain increase in the price of silver bullion without deranging the monetarj' systems of the coimtries where this ratio may be adopted. A fall in the price can only affect the security of the currency by impairing confidence in the ability of the issuing government to main- tain its value. It can not have any tendency to send the coins to the melting pot. An increase in the price would have a much more dis- turbing effect and is guarded against in the adoption of the ratio of 32 to 1 by a margin which will permit silver bullion to rise in price by about 3d. per ounce before it will become profitable to melt the coins for bullion. The danger that a still further rise in the gold price of silver might occur, which seems improbable in itself in view of the course of silver during the past ten years, can be further guarded against by the cessation of purchases of silver for coinage purposes bj^ those governments which adopt this ratio when this price is reached. BENEFITS OF UNIFORMITY IN ORIENTAL COUNTRIES. It is in the enforcement of the latter policy that uniformity has seemed desirable among the nations which are about reorganizing their monetary systems and which, in consequence, are likely to enter the market more or less frequently in the near future as purchasers of silver bullion. If the ratio of 40 to 1 should be adopted in one case, 38 to 1 in another, and 36 to 1 in another, the governments of the countries having the ratios giving the higher value to silver would be indifferent to the conditions in countries giving a lower value to silver and would continue to purchase bullion for coinage purposes after silver rose above the lowest ratio. Thus, if the Straits Settlements had adopted the ratio of 40 to 1 they woiild have been compelled to suspend purchases of silver bullion when silver rose in value above that ratio, but other governments would have steadily continued their purchases, with the probable effect of maintaining and perhaps fur- ther advancing the price of silver. The monetary system of the Straits Settlements would then have been wrecked by the export of their coins as bullion without invoking anj^ sympathetic action on the parts of governments having a different ratio. If, on the other hand, the ratio were substantially the same in all these oriental countries, purchases of silver bullion would be suspended in all at substan- tially the same point, and' such suspension would have the effect of arresting the rise in price. It is for this reason that comparative uniformity of ratio has been suggested to the different governments directly interested in the question, and that the proposal has met their general approval. It was clearlj' stated at each capital that the United States did not propose to ask any government whose monetary system was already STABILITY OF INTEKNATIOKAL EXCHANGE. 29 established on the gold basis to change its ratio. It was also clearly stated that in suggesting comparative uniformity of ratio there was no desire to propose a monetary union or absolute uniformity in coin- age systems even among the countries of the Orient. It was felt that the experience of European countries in this respect did not justify such a measure in the present state of national credit and of monetary science. Whatever may be the benefits of a uniform currency system for several countries, it has the disadvantage that it makes the sys- tem of all depend to a large degree upon the sound financial manage- ment, the credit, and the good faith of each separate party to the union. If a common coin were iia use in all the countries of the Orient, the failure of any one to maintain the integrity of tliat coin would bring derangement into the currency systems of all the others by sending to them the coins of the defaulting cduntry, because these coins would continue to be full legal tender at their face value in gold in all the countries which were members of such a union. For these reasons at each capital a monetary iinion was not suggested or favored. There was sought simply the adoption of such a i-elation- ship between the silver coin and the gold unit that cMch government would be interested by the inevitable course of events, without any fornial agreement, to check its purchases of bullion at the point where the price of silver threatened distui-bance to its monetary system. CONSIDERATIONS REGARDING THE PRICE OF SILVER. The Commission on International Exchange was appointed U> secure, as far as possible, stability of exchange rates between the gold and the silver using countries. The exchange between gold and silver countries now depends fundamentally upon the fluctuations in the gold price of silver. Any step contributing toward stability in the gold price of silver bullion would, therefore, in itself tend to dimin- ish the fluctuations of exchange, independently of the more important object of separating the monetary systems of the silver-using countries from the silver standard and placing them on the gold standard. Moreover, as has been explained in a preceding paragraph, a gold- exchange system in silver-using countries can be established and maintained much more easily provided the price of silver bullion remains reasonably steady. A fall in the price of silver bullion would require a much larger gold reserve to maintain the parity between the token silver coins and gold, and this would prove a much greater bur- den for a countrjr whose credit is low than would be the case provided the price of silver remained steady. Even in the case of countries now upon tBie gold standard, but whose currency sj'stem contains a large volume of silver tokens, it may be worth considering whether further depreciation in the price of silver bullion might not increase the difficulties under which they have labored in recent years bj' further impairing the intrinsic value of 30 STABILITY OF INTERNATIONAL EXCHANGE. their silver coins, including the large stocks held as reserves by their banks of issue.~ On the other hand, a sudden rise in the price of sil- ver mig]it result in exportation or melting of the coins. It is thus seen that on both hands it is very desirable that the price of silver bul- lion should remain reasonably steady. Whether it is high or low, as compared with gold, is of less consequence. It is with relation to this subject of steadying exchange, with the resulting benefits to inter- national commerce, that the question of the price of silver has been considered and not with special reference to benefiting the silver industry. For several years past there has been a remarkably steady output of silver, and this output seems, on the whole, to have been reason- ably well absorbed by the demand for coinage purposes and for use in the industrial arts. This near balancing of supply and demand, with comparatively little reference, to the price of silver, together with the fact that the selling of silver in the London market is in the hands of a very few brokers, has made the market unusually sensi- tive. A very slight increase in the demand, for example, when the buying for the Philipjjine Islands began, with the anticipation of large demands from other sources, was followed by an increase in the price of from 15 to 20 per cent; whereas, on the other hand, the last great fall in the price of silver — from some 25d. per ounce to 21^d. last year — seems to have been brought about by a mere fear that since the Straits Settlements, the Philippine Islands, French Indo-China, Siam, and Mexico might adopt the gold standard the demand for sil- ver might be lessened. The actual demand had not, in fact, materi- ally lessened. PRESENT METHODS OF PRODUCING AND MARKETING SILVER. The annual production of silver for several years in the past has been about 170,000,000 ounces, and this production has not varied by 2 per cent a year, although the price of silver has fluctuated between 30id. in ] 900 and 21fVy any of the European powers, and that in many ways she may count on their hearty cooperation. The matter will also be presented to the Japa- nese Government as it has been presented in Europe, and there is reason to believe that its advice and cooperation, which is so influen- tial in China, will be secured. Thereafter the representatives of the Commission will cooperate with the Chinese Government in formulat- ing the details of a suitable gold-exchange system and in presenting the matter to jiative and foreign business men and officials and in urging it wherever such work can be of assistance. The notes of the Governments of Mexico and China contemplated also the extension of the fixed exchange system in some practicable form to the t)ther silver-using countries of the world. As has already been intimated, I'eru has taken action of her own volition, and the Straits Settlements with the Federated Malay States and French Indo-China have talcen first steps toward securing this fixed parity of exchange. When China succeeds in carrying out her plans, the Eng- lish colony of Hongkong and the German colony of Kyao-chau will doubtless adopt either the system adopted by China or one closely related to it. \Vith the new system successfully inaugurated in the near future in Mexico and in preparation by China, the path will be opened for the j)resentation of the project by the American Commis- 36 STABILITY OF INTERNATIONAL EXCHANGE. sion to the friendly republics of Latin America and for widening the opportunities there for the extension of American trade. The work has been begun successfully, even beyond the anticipa- tions formed by the Commission at the outset. The study of the subject has brought into clear light the great difficulties of the task, but it has made still more evident the great benefits that are to come both to the silver countries and to Europe and the United States from the success of the movement when it is finally assured. The, friendly petition of China to the United States has been a natural result of the cordial relations between the two powers growing out of the enlightened attitude of our Government, and has afforded the means of demonstrating anew the desire of the United States to promote the true economic interests of China, in the belief that those interests are identical with those of America and of all other powers seeking legitimate commercial opportunities in the Orient. Hugh H. Hanna. Charles A. Conant. Jeremiah W. Jenks. October 1, 1903. APPENDIXES. Appendix A. OFFICIAL PAPERS OF THE UNITED STATES COMMISSION. I. — Notes of the Governments of China and Mexico to the United States. [Senate Doc. No. 119, Fifty-seventli ConiirreRS, second sossion.] FIXED RELATIONSHIP ISETWEEN THE MONEYS OF GOLD - STANDARD COUNTRIES AND SILVER-USING COUNTRIES. Message from the President of the United States, transmitting a report from the Secretary of State, with accompanying notes from the Mexican ambassador and the Chinese charge d'affaires ad interim, which seek the cooperation of the Government of the United States in such measures as will tend to restore and maintain a fixed relationship between the moneys of the gold-standard countries and the silver-nsing countries, etc. [January 29, 190.9. — Read; referred to tlie (.'ommittc,^ on Finance and ordered to Im printed.] To the Senate and House of RepresetdaUves: I transmit herewith a report from the Secretary of State, with accom- panying notes from the Mexican anibas.sador and the Chinese charge d'affaires ad interim, which seek the cooperation of the Government of the United States in such measures as will toad to I'ostore and main- tain a fixed relationship between the moneys of the gold-standard countries and the silver-using countries. I recommend that the Executive he given sufficient jjowers to lend the support of the United States, in such manner and to such degree as he may deem expedient, to the purposes of the two Governments. Theodore Roosevelt. White House, January 39, 190S. The President : I have the honor to submit herewith a translation of a note from the ambassador of the Republic of Mexico and a copy of a note from the charge d'affaires of the Imperial Chinese Government. Both notes ask the cooperation of the Government of the United States in such 37 38 iSTABILITT OF INTERNATIONAL EXCHANGE. measures as will tend to restore and maintain a fixed relationship between the moneys of the gold-standard countries and the silver-using countries. It is not asked that the United States modify its monetary system, and it is distinctly disavowed that any movement is contem- plated for the restoration of international bimetallism. The opinion is expressed, however, by representatives of both Governments that consultation between the United States and European powers having dependencies in the Orient and the independent countries where silver money is in general use may result in the adoption of a monetary sys- tem which will prevent the great fluctuations in exchange which now occur in trade with the silver-using countries. If such a result can be achieved — and it is pointed out that at least a partial solution has been proposed in the United States in a bill now pending in the Senate in regard to the Philippine Islands — great benefits will follow to the trade of the world by making easier the access of the products of the manu- facturing nations to the markets of China and the other silver-using countries. The consideration of this subject may have an important bearing also on the payment of the indemnity due by China to certain Euro- pean powers and to the United States by enabling the Chinese Empire to put her monetary system upon a basis which will make it possible for her to meet these payments in a manner satisfactory to all the powers. This result, if it could be accomplished, would be of the first importance not only to the United States and to the other powers hav- ing a share in the indemnity payments, but to China herself and her future development. I respectfully submit for your consideration that these communica- tions be transmitted to Congress with the recommendation that the Executive be given sufficient powers to lend the support of the United States in such manner and to such degree as you may deem expedient to the purposes of the two Governments whose notes are herewith submitted. Respectfullj' submitted. John Hay. Department op State, WasMngton, January 28, 190S. List of papers. From Mexican ambassador, January 15, 1903, with inclosed memorandum. From Chinese charge, January 19, 1903. From Chinese charg6, January 23, 1903, with inclosed memorandum. Mr. Azpiros to Mr. Hay. [Translation,] ISTo. 32.3.] Embassy oe Mexico, Washington, D. C, Washington, January 15, 1903. Excellency : Referring to the interview which I had with you on the 20th day of December last, and to the suggestion of the secretary of foreign relations of my Government contained in the telegram of which I then had the honor to deliver to you a copy, to the effect that STABILITY OF INTERNATIONAL EXCHANGE. 39 my Government would present to that of your excellency a plan for the utilization of the monetary systems of the nations which at the present time employ silver as current money, I have received from the seoretarj' of foreign relations the necessary instructions to set forth the ideas of my Government in regard to the adoption of a plan by the United States and others of the governments which are most inter- ested in this question. These ideas will be found expressed in the memorandum which accompanies this note. The Government of Mexico would be gratified to obtain the cooper- ation of the United States in this matter in the manner which it may deem most appropriate, and hopes with the deepest concern that its suggestions may merit especial consideration on the part of your excellency's Government. I take pleasure, etc., M. db Azpiroz. [Inclosure.] MEMORANDUM. The serious dangers which are tltreatened by the recent fluctuations in the value of silver bullion to the commerce, both of gold and silver standard countries, have determined the Government of the Republic of Mexico to ask the cooperation of the United States in seeking a remedy for these conditions. Safe and profitable trade between any two countries is dependent to a considerable degree upon relative stability in the value of their currencies. This stability is destroyed in the trade between a gold-standard country, like the United States, and a silver country, like Mexico, when the variations in the gold value of silver, as was the case during the year 1902, reached nearly 10 cents an ounce in gold in a single year, or nearly 20 per cent, upon the price of silver bullion. The problem of securing relative stability of exchange between the gold and silver countries is one whose importance is not limited to silver countries, but comes home with force to all those gold-standard countries which are seeking markets for their products in silver coun- tries and are seeking the extension of their trade in the Orient. The importance of this trade is indicated in some measure by the follow- ing tables of the imports into certain silver-using countries for the latest year for which data is obtainable, based in some cases upon official figures and in others upon those presented in the Statesman's Yearbook for the year 1902, reduced to round figures in American gold coins: Imports of certain silver-using countries. China $196,934,343 Mexico : 65,083,451 Philippine Islands 32, 141 , 842 The Straits Settlements . . 150, 000, 000 Federated Malay States . _ 18, 000, 000 Indo-China 35, 750, 000 Cochin China 24, 000, 000 Tonking 12,300,000 Slam 12,600,000 Korea 5,500,000' Bolivia 3,300,000 Colombia 11,088,028 Guatemala Honduras _ Nicaragua - Paraguay _ 1, 521, 900 1,074,050 3, 500, 000 1,838,710 Total 574,627,323 The large volume of imports into the silver countries, exceeding the entire annual import trade of the United States as recently as 1879, comes almost exclusively from the gold-standard countries which are 40 STABILITY OF INTEENATIOjSTAL EXCHANttB. engagea m the manufacture of finished goods for the world's markets and are profoundly interested in the extension of those markets. The table given does not include British India and several silve;' countries in South America, who might become parties to an arrange- ment for giving stability to the relative value of the money of gold and silver countries. The volume of exports from the gold-standard to the silver-standard countries is threatened not only by the uncertainty introduced into all transactions, but by the barrier of constantly rising silver prices for foreign goods in the silver countries. Thus the Republic of Mex- ico, with the strongest desire to promote a large reciprocal trade with the United States, has not been able to prevent the automatic influ- ence of tlie rise in silver prices of American goods from acting as a sort of progressive protection against their introduction into Mexico. Recent action by the Government of Mexico, compelled by the necessity of preserving a sufficient revenue for meeting its gold obligations abroad, has placed the import tariff itself upon a sliding scale, which will increase the burden of the silver charges upon merchandise imported from gold countries. In another respect than the exports to silver countries the trade of the gold countries is tlireatened Ijy the fluctuations in the value of silver. Silver is a by-product in the production of gold, copper, and lead, articles which constitute a large proportion of the annual min- eral production of Mexico and the United States and form in both countries important articles of export. From the United States, according to of&cial returns, the exports of copper ingots, bars, etc., for the fiscal year 1902 reached 288,720,655 pounds, of a reported value of $39,190,619, and the net exports of silver were about $21,500,000. These two items, exceeding $60,000,000, constitute nearly 5 per cent of the total exports of the United States. It is obvious that if silver, as one of the two products of a given operation, falls greatly in value, it must depress the net price received for both products and thereby diminish the profits and the output of the gold, copper, and lead industries of the United States and the value of such products when exported. From Mexico nearly half of the annual exports are of silver, which makes it still more important to lier, from a commercial as well as a monetary point of view, that steps sliould be taken to check the recent fluctuations in the relative value of the monej^ metals. The large investments of tlie money of citizens of the United States in railways, mines, coffee plantations, smelting works, and many other enterprises in Mexico, exceeding in amount $500,000,000 gold, accord- ing to the last statement of your consul-general, Mr. Andrew Barlow, make the stability of relationship between the monej's of the two countries of direct importance to the United States. The eai-nings of these enterprises, remitted to American investors, have suffered a ser- ious fall in gold value with every fall in the value of Mexican money, and the principal of the investment has suffered in the same manner, when considered from the standpoint of converting it back into gold. It would act at once as a safegiiard to existing investments and a stimulus toward their increase, with obvious benefits to both countries, if the money of Mexico could be brought into a stable relation to the money of the United States. It is not advisable, in the opinion of this Government, that the Republic of Mexico should, under the present circumstances, adopt a pure-gold currency, and it desires that some other system might be devised, with the concurrence of other powers, which will give stability STABILITY OF INTERNATIONAL EXCHANGE. 41 of relationship to the money of the gold and silver using countries. The adoption by Mexico of a gold currency would cause the continued depreciation of an article which constitutes nearly one-half of her exports and would impose a seriously increased demand upon the gold stock of the world. The scale of wages and prices and the habits of the Mexican people are not well adapted to the introduction of gold coin as the principal medium of circulation. The same may be said of the conditions and the people of the Philippine Islands, which are under the authority of the United States; of the Straits Settlements, and the federated Malay States, which are under the authority of Great Britain; of Indo-China, C'ocliin China, and Tonking, wliichare under the authority or protection of France; of Formosa, which is under the authority of Japan, and of Siam, Korea and China. Even if it were practicable for Mexico to adopt a gold currency for herself, her action would represent but an incomplete and unsatiwfaetoiy solu- tion of the problem of the exchanges, because it would not contribute in any appreciable degree toward the solution of the same problem in the countries of the Orient. It will be noted that the largest volume of imports in the table given above is credited to the CJhinese Empire. This large volume of trade, in order to obtain which great military and economic sacrifices have been made by the United States and European powers, is threatened in the present state of the Chinese fiscal and curr(>ncy systt'uis with partialparalysis, if not with extinction. The heavy indemnity imposed by certain of the powers upon the C^liinese Government has led to large offerings of silver on the Chinese market, and has diminished the power of that country to purchase foreign goods to a point which threatens to materially reduce tlie existing export trade to China from the United States, Great Britain, France, (Germany, and other countries. It is with a view to finding a remedy for tlieseconditicjns, which will preserve the export and carrying trade of the leading manufacturing nations to the silver countries, that the cooperation of the United States is asked in representations to other leading powers in favor of international concert of action on this subject. The Government of Mexico does not seek the restoration of the free coinage of silver bj' either the gold or silver using nations, and does not ask the United States to modify her present monetary standard. It is recognized bj' this Government that bimetallism in the sense of the coinage of both metals is a policy which has been definitely discarded bj- leading i^owers of Europe and by the United States, and that it would be futile to ask its restoration. It is therefore not the expectation nor the wish of this Government that the gold-standard countries should take any action tending to impair their monetary standai-d or to make material changes in their monetary systems. It is desired that the governments of gold countries having dependencies where silver is used and the governments of silver countries shall cooperate in formulating some plan for establishing a definite relationship between their gold and silver moneys, and shall take proper measures to maintain such relationship. One such plan has already been proposed in both Houses of the Congress of the United States with reference to the Philippine Islands. It is this and other plans designed to accomplish the same end which the Government of Mexico would be glad to have considered by the United States and other governments, with the view to the adoption of the best attainable mone- tary arrangement by those countries which are not prepared under 42 STABILITY OF INTERNA TIOIST A L EXCHANGE. existing conditions to adopt a currency system involving the general use of gold coins. The cooperation of the United States with the Republic of Mexico in presenting this subject to other governments would, in the opinion of the latter, aid greatly in securing a prompt and satisfactory solu- tion of an economic problem which threatens the ruin of the silver- using countries on the one hand, in the vain effort to meet increasing gold obligations abroad, and which threatens also the commercial prosperity of the gold-using countries by destroying the purchasing power of their customers. It seems that it would contribute mate- rially to the permanent and satisfactory settlement of this problem if Great Britain and France, with their important colonial possessions in Asia, and if Germany, Russia, and other countries having large commercial and territorial interests there, would unite with the United States and Mexico in the adoption of a common standard for a new coinage system in the silver countries; in recommendations for the readjustment of the fiscal and monetary relations of China with the other powers, which would permit that country to continue to be a user of silver and a purchaser of the products of the manufacturing nations; and in such provision for their own subsidiary currencies as would tend to promote stability of relationship between their gold and silver money. Mr. Shen to Mr. Hay. No. 276. j Chinese Legation, Washington, January 19, 190S. Sir: I have the honor to state that on the 26th December last I received a telegram from the Imperial Government giving me instruc- tions relative to a proposed international discussion of the silver question. The steady depreciation and constant fluctuation in the value of silver, in recent years in particular, not only prove detrimental to the interests of China, which is one of the silver-standard nations, but, it is believed, seriously affect in no small degree the export trade of the United States and European nations with silver-using countries. With a view to further the interests of all concerned, it is now proposed that the Chinese Government, acting in concert with the Government of the Mexican Republic, request the cooperation of the Government of the United States in representations to other leading powers in favor of international concert of action relative to the silver question. It will be my pleasurable duty in the immediate future to submit to you for the consideration of your Government a memorandum embodying the views of my Government bearing upon this subject in greater detail. Accept, sir, etc., Shen Tung, F%rst Secretary and Charge d' Affaires ad Interim. STABILITY OF INTERNATIONAL EXCHANGE. 43 Mr. Shen to Mr. Hay. No. 277. J Chinese Legation, Washington, January 22, 190S. Sir: Referring to my note No. 276, of the 19th instant, in which I informed you that I had leceived instructions from the Imperial Gov- ernment relative to a proposed plan looking toward an international concert of action bearing upon the monetary question, I have the honor to submit to you the accompanying memorandum containing the views of my Government relating to the above-mentioned subject. It is the confident hope of the Imperial Government that the subject- matter of its memorandum may receive the careful consideration of the Government of the United States, and tliat such steps may be taken as it may deem proper toward bringing about the desired end, to the mutual benefit of all concerned. Accept, sir, etc., Shen Tung. [Inclosure.] MEMORANDUM. The serious results which are threatened by the recent fluctuations in the value of silver bullion to the commerce both of gokl and silver standard countries have induced the Chinese Imperial Government, acting in concert with the Mexican Government, to ask the coopera- tion of the United States in seeking a remedy for these conditions for the mutual benefit of all concerned. Safe and profitable trade between any two countries is dependent to a considerable degree upon relative stability in the value of their currencies. This stability is destroyed in the trade between a gold-standard countrj^ like the United States, and a silver country, like China, when the variations in the gold value of silver, as was the case during the year 1902, reached nearly 10 cents an ounce in gold in a single year, or nearly 20 per cent upon the price of silver bullion. The problem of securing relative stability of exchange between the gold and silver countries is one whose importance is not limited to silver countries, but comes home with force to all those gold-standard countries which are seeking markets for their products in silver coun- tries and are seeking the extension of their trade in the Orient. The importance of this trade is indicated in some measure by the follow- ing table of the imports into certain silver-using countries for the latest year for which data is obtainable, based in some cases upon official figures and in others upon those presented in the' Statesman's Year Book for the year 1902, reduced to roimd figures in American gold coin : Imports of certain sUver-itsing countries. China $196,934,343 Mexico.. _ 65,083,451 Philippine Islands 32, 141, 843 The Straits Settlements. _ 150, 000, 000 Federated Malay States. _ 18, 000, 000 Indo-China 35, 750, 000 Cochin China 24, 000, 000 TonHn 13,300,000 Slam 13,600,000 Korea $5,500,000 Bolivia . Colombia . . . Guatemala . Honduras - Nicaragua. , Paraguay... 3, 300, 000 11,083,038 1,531,900 1,074,050 3, 500, 000 1,838,710 Total 574,637,823 44 STABILITY OP INTERNATIONAL EXCHANGE. This large volume of imports into the silver countries, exceeding the entire annual import trade of the United States as recently as 1879, comes almost exclusively from the gold-standard countries Which are engaged in the manufacture of finished goods of the world's mar- kets and are profoundly interested in the extension of those markets. The table given does not include British India and several silver coun- tries in South America which might become parties to an engagement for giving' stability to the relative value of tlae money of gold and sil- ver countries. It will be noted that the largest amount of imports in the table given above is credited to the Chinese Empire. This large volume of trade is threatened in the present state of the Chinese fiscal and currency systems with a decline the limit of which no one could foresee. The heavy indemnity imposed by certain of the powers upon the Chinese Government has led to large offerings of silver on the Chinese mar- ket and has diminished the power of that country to purchase foreign goods to a point which threatens to materially reduce the existing export trade to China from the United States, Great Britain, France, Germany, and other countries. The foreign trade of China, while standing at the head of the above table in the order of magnitude, is small at present in proportion to the population and resources of the Chinese Empire. The exports from the United States to China have multiplied many fold within twelve years, and now exceed $24,000,000. The present volume of imports of merchandise into China, however, amounts to only about 50 cents per capita in gold, and affords but a slight measure of what the trade of China might become if expanded in the future as rapidlj' as even that of Japan, which has advanced in ten years from about $1.25 to nearly S3 per capita. An import trade of $3 per capita for the Empire of China, with its nearly four hundred million people, would represent the enormous sum of $1,200,000,000, or one-third more than the largest amount ever attained by the import trade of the United States. The encouragement of a commerce so important as this seems to the Chinese Imperial Government to be worthy of the most serious consideration of the Western powers. It would afford an outlet for the produce of the labor of many thousands of workers of Europe and America, and employment for many millions of the capital of tliose nations, and would dot the Pacific and Indian oceans with the.flags of a carrying trade as large as that now required in the entire commerce between Europe and the United States. While a readjustment of the currency of China upon a stable rela- tionship with that of the gold-standard countries would not in itself, perhaps, accomplish so tremendous a revolution as would be involved in the creation of a trade of more than a thousand millions, yet it would be one of several steps in that direction, which would contrib- ute greatly to accelerate an event of such paramount importance to the capitalists and the producing masses of the Old and New Worlds. The necesity is becoming more and more keenly felt by American and European manufacturers for the opening of new and the extension of already existing markets in every direction for the absorption of their goods, in order that means maybe found for relieving overproduction and affording profitable returns to the investment of capital. China, with her immense population and consequently large potential capacity for absorbing foreign products, offers a most important field for Ameri- can and European manufactures, the ready absorption of which would STABILITY OF INTERNATIONAL EXCHANGE. 45 tend to relieve overproduction and contribute materially to the pros- perity of the manufacturing nations. If results such as these are within the range of the influence of a reorganization of the monetary system of China, in harmony with the system of other powers where silver is the principal money in use, it is evident that the Chinese Imperial Government acts from no nar- row and selfish motive in asking the United States and the Republic of Mexico to join her in seeking an international arrangement for securing greater fixity of relationship between the moneys of the gold and silver countries. Questions of finance and economics should be considered in all their bearings, with due attention to their far-reaching effects, and not merely upon results which bring immediate benefit. Important as are the indemnity payments to the several powers, and ready as China is to meet them to the best of her ability, they represent but a trifling proportion of the benefits which may be derived by the western pow- ers from a policy which would give to China a permanent u iiif orm monetary system and make her a wide market for the products of American and European factories and workshops. It is with a view to finding a remedy for the monetary causes which threaten to relard this development and to preserve the export and carrying trade of the leading manufacturing nations to tli(^ sih'er countries, so that trade may not lose its licalthy activity and confi- dence may be restored to investors and manufacturers, tliat the coop- eration of the United States is asked in represent at ions to other lead- ing powers in favor of international concert of action on this subject. The Government of China does not seek tlie restoration of the free coinage of silver by either the gold or silver using nations. It is recognized by this Government that bimetallism -in the sense of the free coinage of both metals is a policy which has been definitely dis- carded by leading powers of Europe and by the United States and that it would be futile to lu'opose its restoration. It is, therefore, not the expectation nor the wish of this Govern- ment that the gold-standard countries should take any action tending to impair their monetary standard or to make material changes in their monetary sj'stems. It is desired that the governments of gold countries having dependencies where silver is used and the govern- ments of silver countries shall cooperate in formulating some plan for establishing a definite relationship between' their gold and silver moneys, and shall take proper measures to maintain such relation- ship. One such plan, it is reported, has alreadj' been proposed in both Houses of the Congress of the United States with reference to the Philippine Islands. It is this and other plans designed to accom- plish the same end whicli the Government of China would be glad to have considered by the United States and other governments, with the view to the adoption of the best attainable monetary arrangement by those countries which are not prepared under existing conditions to adopt a currency system involving the general use of gold coins. The cooperation of the United States with the Chinese Imperial Government and with the Republic of Mexico in presenting this sub- ject to other governments would, in the opinion of this Government, aid greatly in securing a prompt and satisfactory solution of an eco- nomic problem which threatens the ruin of the silver-using countries on the one hand, in the main effort to meet increasing gold oDiigations abroad, and which threatens also the commercial prosperity of the 46 STABILITY OF INTERNATIONAL EXCHANGE. gold-using countries by destroying the purchasing power of their customers. It would, we believe, contribute materially to the perma- nent satisfactory settlement of this problem if Great Britain and France, with their important colonial possessions in Asia, and if Germany and Russia and other countries having large commercial and territorial interests there, would unite with the United States and China in the adoption of a common standard for a new coinage system in the silver countries; in recommendations for the readjustment of the fiscal and monetary relations of China with the other powers which would per- mit that country to continue to be a user of silver and a purchaser of the products of the manufacturing nations, and in such provision for their own subsidiary currencies as would tend to promote stability of relationship between their gold and silver money. The Chinese Imperial Government will welcome the cooperation of the United States in this matter in any form which may be acceptable to that power and earnestly prays that the subject may receive the prompt and serious consideration which, in the opinion of this Government, it merits. II. — Instructions of the Secretary of State to the Commis- sion OF THE United States, April 21, 1903. Department of State, Washington, April 31, 1903. Gentlemen : In carrying out the wishes of Congress, expressed in the act of March 3, 1903, which provided, in accordance with the recommendation of the President in concurrence with the notes of the Mexican and Chinese Governments, "that the Executive be given sufficient powers to lend the support of the United States, in such manner and to such degree as he may deem expedient," to the pur- poses set forth by these countries, you are instructed as follows: The ever-fluctuating rates of exchange between silver-standard countries and gold-standard countries is universally recognized to be a heavy tax upon international commerce. The marked benefits to all countries that would follow the establishment of stability in these rates is universally acknowledged. The Mexican Government has asked the cooperation of the United States in an effort to ameliorate as far as possible these conditions. Your appointment is made in recognition of the desirability of accom- plishing the end referred to and to give evidence that the United States Government is anxious to cooperate with all silver-standard countries and with European powers to that end. In appointing this Commission, however, the United States does not commit itself to any particular plan or method. Neither the executive nor the legislative department has suificiently considered the many complicated questions involved to determine either definite recommendations or the accept- ance of any plan. You are therefore directed to confer with the executive depart- ments of Mexico and China, and also with England, Germany, France, Russia, and such other European countries as time and opportunity will permit, for the purpose of formulating, if possible, some wise and feasible policy. You are not authorized to suggest any specific changes in the cur- rency systems of the gold-standard countries, nor to suggest that any STABILITY OF INTERNATIONAL EXCHANGE. 47 change whatever will be made iu the present monetary standard of the United States. China, the greatest of the silver-standard countries, is at the present time suifering especially because of the depreciation in the ijrice of silver bullion. A stable currency would be greatly to her ad^'antage and greatly to the advantage of the powers to whom this indemnity is due. You are to assure the Imperial Government that the United States will give its hearty moral support to any reasonable plan which may be agreed upon, to the extent of using its good offices in present- ing such plans to the other powers interested and to bankers and financiers whose aid maj^ be desired in carrying them out. You are not, however, authorized to encourage in any way a belief that any financial support of any nature whatever will be given by the Govern- ment of the United States in aid of such plan. After thus conferring with the countries indicated, you will make report, embodying such information as you may be able to gather, such assurances of cooijeration as may i)e made by other countries, and such policies as may be recommended l)y the several Govern- ments, together with your own recommendations as to the course the United States ought to pursue. Very respectfully, John Hay. Hugh H. Hanna, Esq. Charles A. Conant, Esq. Jekemiah W. Jenks, Esq. III. — Papers Presented by the United States Commission to THE British Commission. [As printed by tlie British G-overnment.] No. 1. preliminary statement. We trust that in our visit to you we shall be welcome, since we are confident of the breadth of the spirit of our Government in the accept- ance of the service sought of it. "\Ye are conscious of the rectitude of our purpose and the world-wide interest of the subject of our mission, and, consequently, we wish to present it to you in all candor. The general stress, and particularly the stress suffered by the importers in countries whose currency systems are not based upon gold, and their consequent disinclination to risk profit and credit by reason of their inability to reckon cost, caused our Government to respond promptly and favorably to the notes of Mexico and China (copies of which we submit herewith) requesting our cooperation in an effort to bring about such measures as will tend to restore and maintain a fixed relationship between the moneys of the gold-standard countries and the silver-using countries. It is hoped that consultation between the United States and Euro- pean powers influential in the Orient and other countries where silver is in general use may result in measures which will prevent the seri- ous fluctuations which now occur in the cost of exchange in silver- using countries. By authority of Congress, the President, through 48 STABILITY OF INTERNATIONAL EXCHANGE. the State Department, has appointed the Commission for whom I have the honor to speak, to present the subject to the interested European powers and other countries mentioned. The importance of the sub- ject, the possibilities of development incident to it, the large interest the trade of Great Britian shares in it, and our special desire to work in harmony with you in the preliminary work and fundamental prin- ciples involved in the undertaking, have led us thus early to lay the subject in simple and free manner before you, soliciting your sympa- thetic support in wliat seems to be a measure without preference to any country and of equal interest to all. Our two countries, according to the latest available statistics, export nearly half of the foreign goods imported into China. The exports of Great Britain to China and Hongkong in 1901 reached a value in excess of £9,300,000, while the exports of the United States to China and Hongkong for tlie fiscal year ending June 30, 1902, were in excess of £6,400,000. These amounts make up nearly half of the total import trade of Cliina, which amounted in 1901 to 268,302,918 haikwan taels. The United States Government wishes to state clearly at the outset, as Mexico and China stated in their notes to the United States Gov- ernment, that it is not its intention to attempt to change the monetary systems of any of the gold-standard countries; it is not its primary object to affect the price of silver bullion, although the United States, as one of the greatest producers of silver, can not be entirely indiffer- ent to any matter which might seriously affect its value; nor is it the intention of the Government to make any effort to revive the question of an international bimetallic agreement. It recognizes the fact that whether such an agreement were desirable or not some years ago, now at any rate such a movement is not within the scope of practical poli- tics. It also believes that the essential end of fixing a stable rate of exchange between gold and silver moneys in the silver-using countries can be attained by simpler means and without drawing to any harm- ful extent upon the gold funds of Europe or America. If the mints are closed to free coinage, it is not necessary to rely entirely for this purpose upon the relation between the values of gold and silver bullion. Great Britain, in her conservative policy in India, pointed out one way in which a government may give to a silver-using country a fixed par of exchange, while still leaving to the people the silver coins to which tliey have been long accustomed. The United States, follow- ing in the main her example, with minor differences due to the differ- ent conditions, has already passed a general law regarding a new monetary system for the Philippines. The pressing needs of these islands could not well permit delay for another year, although prac- tically all means and methods of securing parity of exchange, of determining the extent and rapidity of the coinage, and of the main- tenance of the system have been left to the Philippine government to determine, as occasion shall arise, in the light of the experience of other countries and on such advice as it shall seem wise to secure. The Republic of Mexico, whose progress in commerce and wealth has been one of the most remarkable events of recent economic his- tory, is about considering the enactment of a similar measure forgiv- ing stability to the monetary relations between herself and the United States, Great Britain, and the other gold-standard countries with whom she conducts her trade. The United States Government has also been gratified to learn that the Government of King Edward is contemplating a similar step in the Straits Settlements, which may likewise affect the Federated STABILITY OF INTERNATIONAL EXCHANGE. 49 Malay States, while it has noted the many interesting discussions of the saine subject in the colony of Hongkong, and in Shanghai and Tientsin, where British commercial intereiits are dominant. It is hoped that this full discussion of the subject alreadj^ by British colonies and British business men may have placed the British Gov- ernment in readiness to consider and to suggest measures which may, with certainty and without too long delay, lead to the accomplish- ment of the desired result of securing a stable currenc}' throughout the Far East. Likewise, since the interests of all the great powers are so closely united on the question of the payment of the Chinese indemnity (while the trade of Great Britain is so closely connected with the prog- ress of China), it has been hoped that they all, and especially Great Britain, might be willing to give most careful attention to establish- ing a general currencj' for China, as stipulated in the treaty between that country and Great Britain, in the hope that this might prove a potent means of rendering China the more ready and able to meet her obligations. The Government of the United States does not seek to secure abso- lute uniformity in the monetary systems of the countries of the East, nor to secure binding treaty agreements governing those sj'stems. It simply desires by informal consultation and comparison of views to promote throughout the world, so far as may be found practicable, such a harmony of monetary systems as will tend on the one hand to promote the prosperity of the undeveloped countries bj' giving them the benefits of the same stability of monetary standard and the same freedom of commerce which have enriched Great Britain, America, and other nations under similar conditions; and on the other hand, to promote the industrial prosperity of these richer nations by the wider markets afforded for their products and the new openings cre- ated for the profitable investment of their savings. In these general objects the Government of the United States felt that it could count with a certain degree of confidence upon the enlightened sympathy of a nation which has always been foremost in blazing new paths for commerce and lightening the fetters upon its free movement. We therefore take the liberty of suggesting that it would be very gratifying to us and useful in helping us to carry out the instructions of our Government if you could see your way clear to bring us into communication with such of your ofl&eials as are closely related to the subject, or with other persons whom you nuiy prefer wlio are familiar with the monetary and commercial situation in the Far East, espe- cially in India, the Straits Settlements, and China, and who might be authorized to lay before the Government any result of our informal conference with reference to any future action which the Government may think it wis(^ to take. May 28, 1903. No. -2. ■[Handed in .June 1, 1903.] GENERAL SUGGESTIONS REGARDING THE ORDER OF PROCEDURE. 1. As was intimated in the memorandum'* submitted by the Ameri- can Commissioners to the Government of Great Britain, the Govern- "No. 1. H. Doc. 144 4 50 STABILITY OF INTERNATIONAL EXCHANGE. ment of the United States in tliis work wishes to use its influence to establish as widely as possible a fixed parity of exchange between gold and silver moneys, for these reasons : (a) To promote an international movement for the betterment ot trade relations throughout the world, without preference to any coun- try and of equal interest to all. (6) To aid two friendly nations who have asked assistance, and with whom the political and business relations of the United States are valuable and are improving. (c) To take steps which bid fair to assist materially the trade ot the United States. 2. The Commission came first to England— (a) Because Great Britain has colonies on a silver basis which have been lately contemplating a similar policy, so that the British Govern- ment would certainly be interested. (b) Because Great Britain's trading interests are large, and because it is her established policy to encourage and develop international trade. • (c) Because British experience along these lines, especially in India, has been very valuable, and bec^iuse British cooperation is very much needed if the plan is to succeed. 3. While the conditions in China present the most important problem, and while the establishment of a fixed rate of exchange between silver and gold currencies is the chief purpose of the Commission, the ques- tion of the influence of such a movement on the price of silver has been frequently raised, and it is probably better to consider that question first — (a) Because the discussion of that question will probably aid in determining opinions on other points. (&) Because such discussion will make clear the motives of the United States and Mexico regarding the production of silver. (c) Because it is very important that these motives and the probable influence of the change be made clear at the beginning of our work. No. 3. [Handed in June 3, 1903.] CONSIDERATIONS REGARDING THE PRICE OF SILVER. 1. Need for stability. — The chief interest of the Commission on Inter- national Exchange is to secure as far as possible stability of exchange rates on a gold basis between the gold and silver using countries. A gold exchange system in silver-using countries can be brought about and maintained much more easily provided prices of silver bullion are reasonably steady. Whether silver bullion is high or low as compared with gold is of less consequence than that its price remain steady. 2. Present conditions.- — {a) The silver market seems to be affected unduly by sentiment. For example, the last great fall in the price of silver seems to have been brought about largely by the fear that since the Straits Settlements, the Philippine Islands, French Indo-China, Siam, and Mexico might all adopt a gold standard the demand for silver would be very greatly lessened. The actual demand had not lessened materially, and the great fall seems to have been brought about simply by fear of future shrinkage of demand. STABILITY OP INTERNATIONAL EXCHANGE. 51 [b) Under present circumstances, with each nation buying inde- pendently and very irregularly, the demand can not be foreseen. Some three years ago India bought, within a short time, some 60,000,000 of ounces. Since that time its purchases have been practically nothing. If the demand could be made somewhat regular, it would aid in giving stability to price. (c) The silver supply is fairly well known. (1) The total amount for several years in the past has averaged about 170,000,000 ounces, and that with the price of silver varying between SO^d. per ounce in 1900 and 21^^d. per ounce in 1902. (2) The selling of silver is to a considerable extent In the hands of a few establishments. The London market apparently fixes the price for the world. There are sold regularly on the London market annually about 100,000,000 ounces. Great organizations of smelters and refiners in the United States have at their disposition from 70,000,000 to 75,000,000 ounces a year. Thoi-e can be sold by Mexico from 25,000,000 to 30,000,000 ounces a year. 3. Possible effects. — (a) In consequence, if the demand for silver were reasonably regular, it would be possible for these few sellers to main- tain a steady price. It would be for their interest to keep the price steady even though the price were not high. (6) It would be impossible for them to put the price very high, pro- vided the governments, who are the chief purchasers, though indicat- ing their probable annual needs, were to stop their buying when the price reached a certain fixed maximum, say 28d. (c) If the price of silver were to approach closelj' the coining value, the danger of counterfeiting would be greatly lessened. 4. Suggesiions. — "While the matter is entirely a commercial propo- sition with which the United States Government as such has nothing to do, it is evident that if each nation were to indicate its probable needs for a period of, say, from three to five years in advance and were to express its readiness to supply these needs steadily by monthly pur- chases, other things equal, that policy would tend greatly to secure the needed stability in price. With this indication of probable purchases might well be coupled the understanding that if at any time the i)rice went above 28d. per ounce such purchases would cease. No. i. [Handed in June H, 1903.] SUOGESTIONS FOE A MONETARY SYSTEM FOR CHINA. 1. The Chinese Imperial Government promptly to take effective steps satisfactoi-y to a majority of the indemnity treaty powers to establish a general monetary system consisting chiefly of silver coins with a fixed gold value. 2. In the establishment and management of this system, China to be asked to invite and employ acceptable foreign assistance. 3. In pursuance of this plan, the Chinese Government to appoint a foreign controller of the currency, who shall have general charge of the system for China; he to have acceptable associates in charge of the mint or of such work as he may prescribe. 52 STABILITY OF INTEKNATIOIST A L EXCHANGE. 4. The controller to make monthly reports in detail of the condi- tion of the currency, including amounts in circulation, loans, drafts on foreign credits, etc. ; his accounts to be open at reasonable times to inspection by accredited representatives of the powers interested in the indemnity, such representatives, as also the associate con- trollers, to have the right of suggestion and recommendation. 5. The Chinese Government to adopt a standard unit of value. The coin to consist of grains of gold, and to be worth presumably approximately the gold value of a tael or somewhat more than a Mex- ican dollar. Provision to be made for the free coinage of suitable pieces multiples of this unit, 5, 10, and 20, on demand, for a reason- able coinage charge. EV^entually some to be coined on Government account. 6. China to coin as rapidly as possible 200,000,000 silver coins with an appropriate device about the size of a Mexican dollar for circula- tion in the country. These to be maintained at par with the standard gold coin at a ratio of about 32 to 1. More to be coined thereafter according to needs, as indicated by provisions following. Subsidiary and minor coins of suitable weight and value to be provided. 7. Both the gold and silver coins to be receivable at par in payment of all obligations due to the Chinese Imperial Government in any of the provinces. When such obligations have been made in silver the new coins to be tendered instead at their coin value. 8. The Government at its discretion, in conjunction with the vice- roys, from time to time to declare by proclamation in the various prov- inces the new coins legal tender for debts incurred after a date fixed in the proclamation. Previous debts to be paid as contracted. 9. For the expenses of the inauguration of the system and for the maintenance of the parity of the silver coins, the Chinese Government to open credit accounts in London, Paris, Berlin, St. Petersburg, Yokohama, and New York, against which it may draw gold bills at a fixed rate somewhat above the usual banking rates. Such drafts to be made only under the direction of the Controller of the Currency, but to be made on demand for all depositors of the new silver coins in sums of not less than, say, 10,000 taels. 10. Should it be necessary to make a loan for the establishment of a general monetary system with adequate exchange funds, it to be secured by sources of revenue sufficient to yield an amount which will provide for the needed interest and sinking fund, such revenues to be managed in a way satisfactory to the parties interested. 11. The seigniorage profit from coinage to be kept as a separate fund. Whenever 500,000 taels' worth shall have been accumulated, it to be placed as a gold deposit with the several foreign depositaries in pro- portion to drafts made upon them. This process to be continued till 25,000,000 taels' worth shall be in the gold fund on deposit. 12. For replenishing the gold fund after its reduction by drafts, the Controller to honour silver drafts drawn by the foreign agents of the Treasury in exchange for gold at rates fixed" by the Controller. 13. Provision to be made for a banking law under which bank notes kept at par with the legal-tender currency may be issued by respon- sible banks under the supervision of the Controller. 14. As rapidly as is practicable the new currency to be introduced into the various provinces, the Controller making use of the local governments, banks, business houses, and such other agencies as are best suited to the purpose. 15. Within five years the new system to be introduced into all the STABILITY OF INTERNATIONAL EXCHANGE. 53 treaty ports and as far as possible elsewliere. Not later than five years all customs duties to be collect-ed in terms of the new currency. Local taxes to be collected in new currency as fast as it is adopted in provinces, and provisions also to be made ff)r the proper accounting for taxes under the new system. 16. The powers to be asked to accept silver in payment of their indemnity for ten years. Thereafter gold or its equivalent to be paid. If necessary, account being kept of the loss from the acceptance of silver, the balance to be adjusted at the time of each i)ayment, and to be paid later in installments. 17. The new system to be put into effect when 25,00(1,000 of the new coins are ready for circulation. 18. The Controller and the representatives of the powers to be authorized to recommend economic reforms to the Imperial Govern- ment. No. .-,. [Handed in Juno 15, 1903.] POSITION" OF THE AMERICAN COMMISSION. 1. The adoption of a stable exchange in China and other silver- using countries, with a view to benefiting the export trade of Great Britain, the United States, and other gold-standard countries, has been the primary and controlling purpose of the American Commission. 2. It is not the purpose of the Commission of the United States to promote bimetallism or anj' movement designed primarily to raise the price of silver. They have specific instructions not to favor an inter- national monetary conference. 3. The plan of the American Commission is designed to correct the evils in fluctuating exchange with China and other silver countries by taking under Government control one of the two branches of the problem of supply and demand for currency, by placing the control of the quantity of coins in the hands of tlie Government, and by making proper provision for maintaining them at par with gold. 4. The American Commission call attention to tlie fact that the essential purpose of their proposal is to extend economic benefits to the commerce of Great Britain and her dependencies and that of other manufacturing and exporting countries, and must, therefore, be looked at from the broad economic standpoint of national inter- ests, and not simply from the standpoint of the fiscal benefits or dis- advantages to one or more branches of the Government. 5. The interests of the exporting nations are also seriousl}' involved in the extension of a stable exchange standard in manj^ countries of South America and in the undeveloped dependencies of the European powers in Asia and Africa, and it is the belief of the American Com- mission that action for placing these countries upon a stable basis, with the result of great benefits to trade, would be hastened if Great Britain would lead in the support of a plan forthe early inauguration of such a sj'stem in China. 6. The United States and INIexico are thus acting in the common interest of all exporting nations, of which Great Britain is the chief. Mexico is offering to take risks and to make sacrifices in order to place her system upon a stable basis that she may invite the invest- ment of foreign capital in Mexico and create a wider market for for- 54 STABILITY OF INTEKNATIONAL EXCHANGE. eign products. The United States feel justified, therefore, in asking that other nations having a large export trade deal with the matter in the same liberal spirit of regard for the economic interests of all civilized nations. 7. Two methods of promoting stability of exchange with China have been suggested: (1) The creation of a token coin upon a fixed gold basis, and (2) measures for giving steadiness to tlie price of silver bullion. Either of these methods alone, if carried to its ultimate conclusion, might accomplish the result, but the employment of both would better assure its early accomplishment. 8. If the proposal is not adopted, that a gold parity shall be given at once to the currency system of China, then it becomes of prime importance that exchange should be stabilised, if possible, by giving some degree of stability to the price of silver bullion. 9. To fail to adopt either the method of establishing a gold par or that of giving stability to silver bullion is to leave the Chinese situa- tion exactly where it is in respect to the promotion of foreign trade, at least for many years to come. While the employment, of both methods of securing stability would best conduce toward the desired results, it is clear that if one is rejected the adoption of the other becomes of paramount importance. 10. To inaugurate a plan of uniform silver coinage throughout the Empire, without any attempt to establish parity with gold or to give stability to silver bullion, would only afford a better medium of exchange in the interior of China without direct benefit to foreign trade. It would, moreover, greatly increase the difficulties in the future establishment of the gold standard : (1) By the danger, if not the certainty, of miscalculating the point at which free coinage should be suspended and of beginning to raise the coins to parity with gold, besfdes the difficulty of securing from the Chinese Government in the uncertain future the needed action when the proper time should come ; (2) By supplying the country with a currency which would need to be contracted in order to raise it to gold parity, with no possibility of calculating beforehand the amount of contraction or length of time needed, thus unsettling business for some years; and (3) By fixing a range of high prices on the low bullion standard of the new coin, which would certainly lead to vigorous opposition from producers and dealers whenever a raising of the standard to gold should be proposed, since the fall in prices which might result would be burdensome to trade. 11. It would be unfortunate for the political and economic interests of China, as well as those of the nations interested in trade with her, if her monetai-y system should be organized without regard to the joint interests of all of them. The American delegates therefore have not felt that it was desirable to leave to one power alone the initiative in putting the monetary reform in execution in China without the approval of other powers having important interests there. They feel that, in view of the importance of the trade of Great Britain and the United States and the possibility of finding in China a wide market for their surplus products under a wise currency system, it is natural that these powers should lend every encouragement to the achieve- ment of this important reform. STABILITY OF INTERNATIONAL EXCHANGE. 55 IV. — Papers Presented to the French Commission. 1. Memorandum presente au Gouvernement fraiujais par la Commis- sion o put into effect when 25,0ii0,000 of the new coins are ready for circulation. 17. The Controller and the representatives of the powers to be authorized to recommend economic reforms to the Imijerial Govern- ment. Z. G-rilndf' fiir ilie mogliclidc Aiinahmr einer ^]'e/■trehltioll von idi- gefcihr nationalite etrangere, qui serait charge de I'administration du systeme pour la Chine. 11 aurait des collaborateurs pour s'occuper de la frajjpe de la monnaie ou de tout autre travail qu'il aurait a prescrire. ■4". Le controleur ferait des rapports mensuels, indiquant en detail la condition de la monnaie, la quantite en circulation, les prets, les traites sur les credits etrangers, etc. Les comptes devraient a intervalles raisonnables etre ouverts a I'inspection de representants accredites par les Puissances qui out droit a I'indemnite. Ces representants aussi bien que les collabora- teurs du controleur auraient le droit de presenter des suggestions et des avis. 6° Le gouvernement chinois adopterait une unite monetaire etalon composee de grains d'or et valant approximativement un tatil en or ou un peu jilus d'un dollar mexicain. Des mesures seraient prises pour la frappe libre de pieces appropriees, multiples de cet eta- 00 STABILITY OF INTERNATIONAL EXCHANGE. Ion, 5, 10, 20, sur demande et moyennant un prix raisonnable. A roccasion, quelques pieces pourraient etre frappees pour le eompte du gouvernement. 6°. La Chine devrait frapper aussi rapidement que possible, 200,000,000 de pieces, aveo un dessin convenable, k peu pr^s de la dimension d'un dollar mexieain, pour la circulation dans le pays. Celles-ci devraient etre maintenues au pair avec la monnaie d'or dans le rapport de 32 ^ 1 environ. D'autres devraient etre frappees plus tard, au fur et k mesure des besoins, ainsi qu'il est indique dans les paragraphes qui suivent. II faudrait etablir aussi des pieces subsi- diaires et divisionnaires convenables. 7°. Les pieces d'or et d'argent devraient etre, les unes et les autres, regues au pair, en paiement pour toutes les sommes dues au gou- vernement chinois dans n'importe qu'elle province. Quand les dettes encourues I'ont ete en argent, les nouvelles pieces pourraient etre offertes k la place, avec leur valeur legale. 8°. Le gouvernement pourrait, de temps en temps, a sa volonte et de concert avec les vice-rois, declarer par proclamations dans les dif- ferentes provinces, que les nouvelles monnaies ont cours legal pour le paiement des dettes encourues apres une date flxee dans la proclama- tion. Les dettes anterieures seraient payees comme cela avait ete entendu. 9°. Pour les depenses causees par I'installation du syst6me et pour le maintien de la parite des monnaies d'argent, le gouvernement chi- nois devrait ouvrir des comptes crediteurs a Londres, Paris, Berlin, Saint-Petersbourg, Yokohama et New- York, sur lesquels il pourra tirer des traites d'or k un taux Jixe, quelque peu superieur au taux habituel des banques. Ces traites devraient fetre faites seulement sous la direction du controleur de la monnaie, mais elles devraient etre faites sur demande pour tous les depositaires de pieces de la nouvelle monnaie qui aurait depose des sommes au moins egales a dix mille taels, par exemple. 10°- S'il 6tait necessaire de faire un emprunt pour I'etablissement d'un syst6me monetaire general avec une reserve suffisante pour le change, eet emprunt devrait 6tre garanti par des sources de revenu suffisantes pour faire face a la f ois a I'interet et a I'amortissement, ces revenus devant etre administres d'une mani^re satisfaisante pour les parties interessees. 11°. Les profits du seigneuriage provenant de la frappe devraient etre conserves comme un fonds separe. D6s qu'on aurait accumule la valeur de 500,000 taels, ils devraient fetre places comme fonds de reserve d'or chez les differents depositaires etrangers, dans la propor- tion des traites tirees sur eux. Ce systeme devrait etre continue jusqu'^ ce qu'une somme de la valeur de 25,000,000 taels se trouvat en depot dans la reserve d'or. 12°. Pour alimenter de nouveau le fonds de reserve d'or aprfes qu'il aurait ete reduit par des traites, le controleur ferait honneur aux traites d'argent tirees par les agents etrangers du tresor, en echange de I'or, k des taux flx6s par le controleur. 13". Des dispositions seraient prises pour passer une loi sur les banques, aux termes de laquelle des billets de banque maintenues au pair avec la monnaie legale, pourraient etre emis par des banques de credit solide, sous la surveillance du controleur. 14°. La nouvelle monnaie serait introduite aussi rapidement que cela serait praticable, dans les diverses provinces, le contrdleur ayant recours aux gouvernements locaux, aux banques, aux maisons de STABILITY OF INTEKNATIOTSTAL EXCHANGE. 89 commerce et k tels autres intermediaires qui seraient le mieux quali- fies pour cet objet. 15°. Dans I'espace de cinq annees le nouveau syst^me serait intro- duit dans tous les ports k traites, et, autant que possible, ailleurs. Tous les droits de douane seraient pergus dans la nouvelle monnaie, apres une duree qui ne devra pas exceder cinq annees. Les taxes locales seraient pergues dans la nouvelle monnaie aussitot qu'elle aura ete adoptee dans les provinces, et des dispositions devraient etre prises pour que la comptabilite des impots fut tenue d'apres le nou- veau systfeme. 16°. Les Puissances seraient invitees k accepter de I'argent en paie- mentpour leur indemnite, pendant dix annees. Apres cela on payerait en or ou en son equivalent. Hi c'etait necessaire, on tiendrait compte de la perte eprouvee par suite de I'acceptation de I'argent, et la differ- ence, fixee au moment de cliaque paiement, serait plus tard reglee par versements partiels. 17°. Le nouveau syst^me serait mis en operation quand 25,000,000 pieces de la nouvelle monnaie seraient pretes pour la circulation. 18°. Le controleur et les representants des Puissances devraient etre autorises k recommander des reformes economiques au Gouvernement Imperial. [Translation.] 1. Suggestions for a nioiiefari/ system for Cliina. 1. The Chinese Imperial Government promptly to take effective steps, satisfactory to a majority of the indemnity treaty powers, to establish a general monetary system (•< insisting chiefly of silver coins with a fixed gold value. 2. In the establishment and management of this system, China to be asked to invite and employ acceptable foreign assistance. 3. In pursuance of this plan, the Chinese Government to appoint a foreign controller of the currency, who shall have general charge of the system for China. He to have acceptable associates in charge of the mint or of such work as he may prescribe. 4. The controller to make monthly reports in detail of the condition of the currency, including amounts iii circulation, loans, drafts on foreign credits, etc. His accounts to be oiien at reasonable times to inspection by accredited representatives of the powers interested in the indemnity. Such represi'ntatives, as also the associate con- trollers, to have the right of suggestion and recommendation. 5. The Chinese Government to adopt a standard unit of value. The unit to consist of * * * grains of gold, and to be worth pre- sumably approximately the gold value of a tael or somewhat more than a Mexican dollar. Provision to be made for the free coinage of suitable pieces multiples of this unit, 5, 10, and 20, on demand, for a reasonable coinage charge. Eventually some to be coined on Govern- ment account. 6. China to coin as rapidly as possible 200,000,000 silver coins, with an appropriate device, about the size of a Mexican dollar, for circula- tion in the country. These to be maintained at par with the standard gold unit at a ratio of about 32 to 1. More to be coined thereafter according to needs, as indicated by provisions following. Subsidiary and minor coins of suitable weight and value to be provided. 7. Both the gold and silver coins to be receivable at par in payment of all obligations due to the Chinese Imperial Government in any of 90 STABILITY OF INTERNATIONAL EXCHANGE. the provinces. When such obligations have been made in silver, the new coins may be tendered instead at their coin value. 8. The Government at its discretion, in conjunction with the vice- roys, from time to time to declare by proclamation in the various provinces the new coins legal tender for debts incurred after a date fixed in the proclamation. Previous debts to be paid as contracted. 9. For the expenses of the inauguration of the system and for the maintenance of the parity of the silver coins, the Chinese Govern- ment to open credit accounts in London, Paris, Berlin, St. Petersburg, Yokohama, and New York, against which it may draw gold bills at a fixed rate somewhat above the usual banking rates. Such drafts to be made only under the direction of the controller of the currency, but to be made on demand for all depositors of the new silver coins in sums of not less than, say, 10,000 taels. 10. Should it be necessary to make a loan for the establishment of a general monetary system with adequate exchange funds, it to be secured by sources of revenue suiHcient to yield an amount which will provide for the needed interest and sinking fund, such revenues to be managed in a way satisfactory to the parties interested. 11. The seigniorage profit from coinage to be kept as a separate fund. Whenever 500,000 taels worth shall have been accumulated, it to be placed as a gold deposit with the several foreign depositaries in proportion to drafts made upon them. This process to be continued till 25,000,000 taels worth shall be in the gold fund on deposit. 12. For replenishing the gold fund after its reduction by drafts, the Controller to honor silver drafts drawn by the foreign agents of the treasury in exchange for gold at rates fixed by the Controller. 13. Provision to be made for a banking law under which bank notes kept at par with the legal-tender currency may be issued by responsible banks under the supervision of the Controller. 14. As rapidly as is practicable the new currency to be introduced into the various provinces, the controller making use of the local gov- ernments, banks, business houses, and such other agencies as are best suited to the purpose. 15. Within five years the new system to be introduced into all the treaty ports and as far as possible elsewhere. Not later than five years all customs duties to be collected in terms of the new currency. Local taxes to be collected in new currency as fast as it is adopted in pi'ovinces, and provisions also to be made for the keeping of the tax accounts under the new system. 16. The powers to be asked to accept silver in payment of their indemnity for ten years; thereafter gold or its equivalent to be paid. If necessary, account being kept of the loss from the acceptance of silver, the balance to be adjusted at the time of each payment and to be paid later in installments. 17. The new system to be put into effect when 25,000,000 of the new coins are ready for circulation. 18. The Controller and the representatives of the powers to be au- thorized to recommend economic reforms to the Imperial Government. 3. Raisonfi pour Vadoption, partout oil cela est possible, cVun rapport legal uniforine ile 3:3 a. 1 environ, et cTmie unite moncHaire apeu pres commune. 1°- II serait avantageux que le rapport pour la frappe de monnaie d'argent, d'apies un systeme de change fonde sur I'or, fut fixe k un taux qui se rapprochat sensiblement de la valeur de la monnaie STABILITY OF INTERNATIONAL EXCHANGE. 91 d'argent en lingot ot qui fut conforme au systeme raonetaire dej^ etabli dans Ics pays ii circulation d'argent. 2" II serait avantageux que le rapport legai pour la frappe de I'argent fut fixe un peu au-dessus de la valeur actvielle du lingot, afln de pouvoir tenir conipte des fluctuations possibles du prix du lingot dans les deux sens. 3°- La baisse dans la valeur de I'argent accentuerait la difference entre la valeur reelle de la monnaie et sa valeur legale dans le sys- teme du change d'or, pesant ainsi plus lourdement sur le credit du gouvernement monnayeur et augmentant le danger de la contrefa^on. Mais cette baisse, en elle-meine, ne compromettrait pas neeessaire- ment le systfeme, comme on le voit pour la circulation de la monnaie des pays de I'Union latine et des Etats-Unis, a une valeur legale plus que double de sa valeur en lingot. Si, d'aiitre part, la hausse dans le prix du lingot d'argent elevait le prix au-dessus du rapport legal de la frappe, meme pour un temps tres court, elle risquerait de provoquer une poussee de monnaie vers les ateliers de fonte et de priver le pays de sa monnaie. 4". L'emission d'une monnaie reposant sur un systeme de change foiide sur For, dans le rapport legal de 32 a 1, satisferait a ces condi- tions au prix actuel de I'argent, parcequ'elle laisserait une marge d'environ quinze pour cent entre la valeur de la monnaie i-n or et la valeur en lingot du metal qu'elle contiendrait. 5". Le rapport legal de o2 a I est preferable au rapport actuel des pays a etalon d'or ou k tout autre rapport donnant ii I'argent une valeur superieure a 32 k 1, parcequ'il diminue le profit qui pourrait etre tire de la frappe privee et f rauduleuse de monnaies de poids legal, qui se pratique dans une mesure considerable dans le eas des monnaies d'argent des pays de I'Union latine, des Etats-ITnis et de I'lnde anglaise, et qui constitiierait une plus grande menace dans les pays oil le iiouvoir central est moins fort et les moyens de d(''couvrir la fraude moins efficaces. 6". Un rapport de 32 a 1 aurait I'avantage de permetl re remission par le Mexiiiue, la Chine, les Philippines, les Straits Settlements, Hong-Kong et les Colonies fran Raises de I'lnde, de monnaies d'argent sensiblement pareilles a celles maintenant employees par leurs habi- tants, facilitant de la sorte I'introduction d'an systeme stable sans troubler trop profondement les habitudes aetuelles. 7". Le rapport de 32 A, 1 a I'avantage de representer a peu. pres le rapport commercial entre le lingot d'or et d'argent qui existait il y a deux ans et qui avait etc maintenu pendant plusieurs annees, et auquel les prix et les valeurs des pays ;\ etalon d'argent s'etaient adaptes dans une large mesure. 8". C'est pourquoi I'adoption d'un etalon de change d'or dans le rapport de 32 a 1 pour les pays qui font usage de I'etalon d'argent, aurait le merite de ne pas jeter trop de trouble dans le reglement equitable des contrats passes il y a deux ans, et comme, d'autre part, les prix et les salaires n'ont pas partout suivi la baisse de I'argent durant I'annee passee, un pareil etalon ne eauserait pas de prejudice serieux dans le reglement des contrats passes depuis cette epoque. 9". II est tres desirable que les pays qui sont en. train de reorganiser leurs systemes monetaires sur la base d'un systeme de change d'or, adoptassent un rapport de frappe a peu pves uniforme, de fac^on a leur permettre de se concerter pour la protection contre les fluctuations des prix de I'argent et contre le danger du faux-monnayage. Une uniformite de ce genre faciliterait le commerce entre pays ayant 92 STABILITy OF INTERNATIONAL EXCHANGE. adopte un pareil rapport et ferait mieux comprendre le mecanisme de I'etalon de change d'or et les methodes par lesqiielles il est maintenu. 10°. Si un effort est tente pour regulariser le prix du lingot d'argent en regularisant les achats d'argent, falts par le Gouvernement pour le monnayage, et si Ton essaye d'empecher la hausse de I'argent au dessus d'un point donne, en suspendant les achats quand ce point est atteint, cette methode pourrait etre facilement suivie si tous les pays interesses cessaient leurs achats chaque fois que le prix de I'argent atteignait le chiffre de leur rapport commun de monnayage. D'autre part, un ou plusieurs des pays qui font usage d'un rapport inferieur verraient fondre leur monnaie si d'autres pays continuaient k acheter apres que le prix de I'argent se serait eleve au-dessus de leur rapport. 11°. II serait avantageux que non seulement il y eut un rapport qui flit k pen pr6s conforme aux conditions du marche et que ce rapport fut uniforme, mais, autant que cela est faisable, qu'une unite com- mune fut adoptee pour la monnaie des pays Orientaux. 12°. L'adoption d'une unite commune pour la Chine, pour les colo- nies fran^aises de I'lnde, pour Hong-Kong et d'autres dependances anglaises et pour les Philippines, f aciliterait grandement le commerce entre tous ces pays et faciliterait le commerce d'exportation des pays k etalon d'or dans la mesure on leurs dependances serviraient de cen- tres de distribution pour leur production nationale. Ainsi l'adoption d'une unite commune faciliterait, par exemple, les exportations anglaises des Straits Settlements en Indo-Chine et, d'autre pa.rt, facili- terait les exportations frangaises k Hong-Kong et aux Philippines, comme en Indo-Chine et dans I'Empire Chinois. 13°. Meme si l'adoption d'une unite commune n'etait pas universelle en Extreme-Orient, l'adoption d'une unite pareille par q^^elques pays seulement leur serait avantageuse, et, en tout cas, il ne saurait y avoir de systeme plus prejudiciable pour eux que la continuation de la multiplicite des systemes contradictoires qui existent en ce moment. 14°. La Commission des Etats-Unis n'a pas I'intention d'etablir une union monetaire qui rendrait la monnaie d'un pays monnaie legale dans un autre pays. II semble preferable et d'une solution plus aisee que chaque gouvernement soit libre d'adapter son systeme monetaire aux necessites locales et qu'il soit responsable de I'integralite de son systeme de sorte que la faiblesse on les erreuvs d'un gouvernement ne puissent pas reagir defavorablement sur le systeme monetaire des autres pays. La Commission des Etats-Unis croit que I'uniformite ap- proximative dans le rapport legal et dans I'unite n'enchaine pas abso- lument les systemes les uns aux autres, mais presenterait, somme toute, I'avantage d'un systfeme commxin pour faciliter la comptabilite, preparer les listes de prix et les factures, payer les frais de douane, evaluer, d'une mani^re certaine, les profits des transactions commerci- ales et servir, ainsi, au progres du commerce pour le benefice commun des pays ;i etalon d'argent et des pays a etalon d'or. [Translation.] 2. Seasons for the adoption, where 'pi-acticnhJv, of a uniform coinage ratio of about 3:^ to 1, and of a litie monefanj unit. 1. It is desirable that the rate for the coinage of standard silver coins under a gold exchange system should be fixed at a point which conforms approximately to the value of silver coins and to the coin- age system already established in countries having a silver currency. STABILITY OF INTEKNATIONAL EXCHANGE. 93 2. It is desirable that a ratio for the coinage of silver snould be fixed somewhat above the present bullion value of the metal, in order to allow for possible fluctuations in its bullion price in the upward as well as downward direction. 3. Fluctuations downward in the value of silver would increase the difference between the bullion value of the. silver coins and their face value under a gold exchange standard, thereby imposing a heavier burden upon the credit of the issuing government and increasing the danger of counterfeiting, but such fluctuations would not in them- selves necessarily defeat the system, as is shown by the circulation of the coins of the countries of the Latin Union and of the United States at a face value more than double their bullion value. Fluctuations upward in the price of silver bullion, on the other hand, if they car- ried the price above the coinage ratio even for a short time, would involve serious risk of driving the coins to the melting pot and denud- ing the country of its currency. ■i. The issue of coins upon a gold exchange basis at the ratio of 32 to 1 would meet these conditions at the present price of silver, because it would afford a margin of about 15 per cent between the gold exchange value of the coin and the bullion value of the metal which it would contain. 5. A ratio of 32 to 1 is preferable to the existing ratio of the gold- standard countries or to any ratio giving a higher value to silver than 32 to 1, because it diminishes the profit in private and fraudulent coinage of coins of full weight, which is being carried on to a consid- erable extent in the ease of the silver currencies of the countries of the Latin Union, the LTnited States, and British India, and which would be a still greater menace in countries whert' the central authority is less strong and the means of detecting fraud are less efficient. 6. A ratio of 32 to 1 would ha^'e the merit of permitting the issue of silver coins by Mexico, China, the Philippines, the Straits Settle- ments, Hongkong, and the French possessions in India, conforming closely to those now in general use among their people, thereby facili- tating the introduction of a stable system without serious disturbance to existing customs. 7. The ratio of about 32 to 1 has the advantage of representing substantially the commercial ratio between gold and silver bullion of about two years ago, which had then been maintained for several years, and to which prices and values in the silver countries had to a considerable extent become adjusted. 8. The adoption of a gold exchange standard, therefore, upon the ratio of 32 to 1 in countries now on a silver basis would have the merit of interfering little with the equitable settlement of contracts made up to two years ago, and in view of the fact that prices and wages have not in all cases responded at once to the fall in silver dur- ing the past year, such a standard would do but little injustice in the settlement of contracts made since that date. 9. It is very desirable that the countries which are reorganizing their monetary systems upon a gold exchange basis should adopt a ratio for coinage approximately uniform, in order to enable them to coop- erate in guarding against fluctuations in the price of silver and the dan- ger of counterfeiting. Such uniformity will facilitate trade between countries having such a common ratio and make the mechanism of 94 STABILITY OF INTEKN A.TIONAL EXCHANGE. the gold exchange standard and the methods by which it is main- tained better understood. 10. If it is attempted to steady the price of silver bullion by giving regularity to government purchases of silver for coinage purposes and to prevent the rise of silver beyond a fixed point by suspending pur- chases when this point js reached, this policy would be much more easily carried out if all countries concerned were to stop buying whenever the price of silver reached the level of their common coin- age ratio. On the other hand, one or more countries using a lower ratio would find their coins melted down if other countries continued to buy after the price of silver had advanced beyond their ratio. 11. It is desirable not only that there should be a ratio conforming somewhat to market conditions and that this ration should be uni- form, but that as far as practicable a common unit should be adopted for the currency of oriental countries. 12. The adoption of a common unit for China, for the French pos- sessions in India, for Hongkong and other English dependencies, and for the Philippines would greatly facilitate trade between all these countries and would facilitate the export trade of the gold countries so far as their dependencies acted as distributing centers for their home production. The adoption of a common unit would thus, for example, facilitate English exports from the Straits to Indo-China and would, on the other hand, facilitate French exports to Hongkong and the Philippines, as well as to Indo-China and the Chinese Empire. 13. Even if the adoption of a common unit were not universal throughout the Orient, the adoption of such a unit by even a few coun- tries would be advantageous to them, while in no case would they be at any greater disadvantage in their trade with other countries than by the continuance of independent and conflicting systems among all. 14. It is not proposed by the Commission of the United States that there shall be a monetary union which would make the coins of one country legal tender in another country. It seems to be prefer- able and more easily attainable that each government should be free to adapt its monetary system to local requirements and that it should be responsible for the integrity of its own system, in order that default or weakness on the part of one government should not react injuri- ously upon the monetary system of other countries. It is the belief of the Commission of the United States that approximate uniformity in ratio and unit would not involve the risks of linking one monetary system absolutely to another, but would afford substantially all the benefits of a common system in facilitating accounts, preparing price lists and invoices, meeting customs charges, making certain and easily ascertainable the gross and net proceeds of commercial transactions, and thereby promoting trade and investment for the mutual benefit of the silver-using countries and the gold-standard countries. o. Considerations siir le pri.r de Vargent. T. Lie hesoln de stabilUe. — L'objet principal de la Commission du Change International est d'obtenir, autant que cela est possible, la stabilite des taux du change, sur la base de I'etalon d'or, entre les pays k etalon d'or et les pays k etalon d'argent. Le systdme du change d'or dans les pays k etalon d'argent peut 6tre etabli et maintenu beau- coup plus facilement pourvu que les prix du lingot d'argent soient raisonnablement stables. Les variations du lingot d'argent par rap- STABILITY OP INTERNATIONAL EXCHANGE. 95 port a I'or sont beaucoui) raoins importantes (luc ne Test la stabilite de son prix. 2. Conditions prr rentes. — («) Lc marelie de I'ar.u'eiit semble t'tre enclin a se laisser trop influeneer par des considerations de sentiment. Par exemple, la premiere grande baisse dn prix de I'argent semble avoir ete causee siirtout par la crainte que la demande de I'argeut ne soit diminuee a la suite de I'adoption possible de Tetalon d'or par les Straits Settlements, les lies Philippines, I'lndo-C/hine fran^aise, le Slam et le Mexique. En realite la demande n'a pas dimiaue sensible- ment et la grande baisse semble avoir ete amenee uniqnement par la crainte d'une limitation possible de la demande. (ft) Dans les conditions presentes ou chaqne nation fait ses achats d'nne maniore independante et trrs irregulierement on ne pent pas prevoir (xuelle sera la demande. II y a trois ans I'lnde acheta, dans un espace d^ temps trcs court, CO millions d'onces. Depnis lors ses achats ont ete presqne nuls. Si la demande pou^•;iit etre un peu regularisee cela aiderait a donner de la stabilite an prix. (v) La quantite d'argent sur le uiarche est assez bien connue. (1) Le montant total de la production d'argent pendant plusieurs annees a ete, en moyenne, de 170 millions d'onces environ et ('cila a.V(.'e des variations de prix allant de 30 pence:}- par om-e en ITKJO a 21 peiu'c y\- par once en 1902. (2) La vente de I'argent est, dans une large mesure, entre les mains de quelques establissements. Le marche de Londres fixe, semble-t-il, les prix pour le monde entier. On vend regulierement sur le marche de Londres a peu pres 100,000,000 d'onces per an. De grandes organisations de fondeurs et d'afflneurs d'argent des Etats-lTuis ont ;i leur disposition de 70,000,000 a75,O()0,()00 d'onces paran. Le Jlexique pent vendre de 25,000,000 a 30,000,000 d'onces annuellement. 3. Ejfetn posnihiis. — (a) En consetiuence, si la demande d'argent etait a-sscv, reguliere il serait possible a ces quehiues vendeurs de main- tenir un prix stable. II serait de leur interet de maintenir ce i)rix stable meiue s'il n'etait pas eleve. (ft) II leur serait impossible de hausser le prix d'une facon tres marquee, pourvu que les Gouvernements, qui sont les principaux ache- teurs, tout en indiquant k I'avauce leursbesoins probables par annee, arretent leurs achats quand le prix atteindrait un maximum donne, 28 penc(\ par exemj)le. ((■) Si le xjrix du lingot d'argent approchait de la valeur legale de la monnaie, le danger de la contrefacon serait grandement diminue. 1. Suggestions. — Quoiqire cette question soit une question entiere- ment commerciale et que, comme telle, elle n'interesse pas directement le Gouvernement des Etats-lTnis il est evident, cependant, que si chaque nation indiquait par avauce ses besoins probables pour une periode d'environ trois a cinq annees et manifestait sa disposition a satisfaire regulierement ses besoins par des achats mensuels, cette methode tendrait, toutes choses egales d'ailleurs, a assurer, dans une large mesure, la stabilite desiree des prix. En memo temps que les Gouvernements indiqueraient leurs achats probables il serait bon de s'entendre pour que, si, a un moment quel- conque, le prix s'elevait au-dessus de 28 pence par once, ils cessassent les achats. 96 STABILITY OF INTEKNATIONAL EXCHANGE. [Translation.] 3. Considerations regardintj the price of silver. 1. Need for stability. — The chief interest of the Commission on inter- national exchange is to secure as far as possible stability of exchange rates on a gold basis between the gold and silver-using countries. A gold exchange system in silver-using countries can be brought about and maintained much more easily provided the price of silver bullion remains reasonably steady. Whether silver bullion is high or low as compared with gold is of less consequence than that its price remain steady. 2. Present conditions.— {a) The silver market seems to be affected imduly by sentiment. For example, the last great fall in the price of silver seems to have been brought about largely by the fear that since the Straits Settlements, the Philippine Islands, French Indo-China, Siam, and Mexico might all adopt a gold standard, the demand for silver would be very greatly lessened. The actual demand had not lessened materially, and the great fall seems to have been brought about simply by fear of future shrinkage of demand. (6) Under present circumstances, with each nation buying inde- pendently and very irregularly, the demand can not be foreseen. Some three years ago India bought within a short time some 60,000,000 ounces. Since that time its purchases have been practically nothing. If the demand could be made somewhat regular it would aid in giving stability to price. (c) The silver supply is fairly well known. (1) The total amount for several years in the past has averaged about 170,000,000 ounces, and that with the price of silver varying between (iO\A. per ounce in 1900 and 21^^d. per ounce in 1902. (2) The selling of silver is to a considerable extent in the hands of a few establishments. The London market apparently fixes the price for the world. There are sold regularly on the London market annu- ally about 100,000,000 ounces. Great organizations of smelters and refiners in the United States have at their disposition from 70,000,000 to 75,000,000 ounces a year. There can be sold by Mexico from 25,000,000 to 30,000,000 ounces a year. 3. Possible effects. — (a) In consequence, if the demand for silver were reasonably regular, it would be possible for these few sellers to maintain a steady price. It would be for their interest to keep the price steady even though the price were not high. (6) It would be impossible for them to put the price very high, pro- vided the Governments, which are the chief piirchasers, though indi- cating their probable annual needs, were to stop their buying when the price reached a certain fixed maximum, say 28d. (c) If the price of silver were to approach closely the coining value the danger of counterfeiting would be greatly lessened. 4. Suggestions. — While the matter is entirely a commercial proposi- tion with which the United States Government as such has nothing to do, it is evident that if each nation were to indicate its probable needs for a period of, say, from three to five years in advance, and were to express its readiness to supply these needs steadily by monthly pur- chases, other things equal, that policy would tend greatly to secure the needed stability in price. STABILITY OV INTEENATIONAL EXCHANaE. 97 With this indication of probable purchases might well be coupled the understanding that if at any time the price went above 28d. per ounce such purchases would cease. VIII. — Instructions to Pkofessor Jenks in Regard to Mission TO China. Department of State, Wiiahington, October 2^, lOO-J. Jeremiah W. Jenks, Esq., etc., Tokyo. Sir: The Commission on International Exchange has completeer- haps in no other way so easily and so wisely secure confidence as by voluntariljr giving this right of inspection to the powers. China might well, also, be willing that they should make any suggestions and recommendations regarding the management of the system which they saw fit, although of coiirse the foreign experts in charge of the sys- tem and the Chinese Government itself should not be placed under any obligation to follow such suggestions. It is clear, of course, that the monetary system as sucli should be kept entir-ely sepai-ate from the fiscal system. The income of the state from taxes of various kinds should be kept entirely separate from the income in connection with the seigniorage of the monetary system, and the expenses of the state in every way, excepting those in connection with the monetary sJ^stem, should also be kept apart. So that while the details of the monetary system should be made public, these would in no way give any person information regarding the fiscal system of the country beyond that which would normally be secured in other ways. It is believed that while a reasonable degree of foreign assistance must be secured by China in order to make the success of a new mone- tary system secTire, it would be unwise for the foreign governments as such to take any part in the matter or take any supervision over the system beyond the inspection which might be offered by the Chinese Government itself. Different governments would beyond any ques- tion find it extremely difficult, if not even impossible, to Avork in harmony in connection with a matter so important and so complicated as that of a monetary system. 112 STABILITY OF INTERNATIONAL EXCHANGE. OUTLINE OF SYSTEM. While the details of the management of a monetary system must be determined in part as the system itself develops, the fuudameutal principles of such a system must of course be laid down in advance. Whether the monetary sj'stem of China should be begun at once with all the coins on a fixed parity with gold, or whether — as has been recommended by a minority of the Commissioners who have discussed the plan of a system — silver coins to circulate at their bullion value should first be introduced and afterwards be placed on a parity with gold, the opinion is unanimous that when the system is completed all " the coins should b^ maintained at a parity with gold. In such a system there must be adopted by the Chinese Government a standard unit of value. This should consist of a certain number of grains of gold of a fixed degree of fineness, so that its nature can not be questioned. How large this standard unit should be is a matter to be determined in the interests of China herself. The chief purpose of establishing a gold unit as a standai-d is to facilitate trade and largely that with foreign countries. In consequence the unit should be of such a nature that it will render the keeping of accounts in trade matters as simple as possible. If the different nations with which China trades had the same unit, it would probably be wise for China to adopt that unit. Inasmuch, however, as the monetary units of Great Britain, Prance, the United States, Russia, Japan, and Germany are all different, there is no one which would give absolute harmony. The next point of union seems to be one that is somewhat closely related in value to the American 50 cents, the English 2 shillings, the Japanese yen, the Russian ruble, the French 2^ francs, and the German 2 marks. If China is to adopt any one of these it would seem natural that she should choose one of a country with which her relations are close and with which her trade is large and increasing. Most nations, however, in order to emphasize their own separate sovereignty in part, and in part in order to check the circulation of foreign coins of equal weight in their own country, have thought it desirable to establish their monetary unit at a weight slightly different from that of other countries. The countries of the Latin and Scandi- navian Unions form an exception to this rule. If China were to adopt a similar plan she might, while adopting a unit not exactly the same as any of those suggested, still select one so nearly enough allied to the values already suggested that in ordinary retail dealings there would be little inconvenience of reckoning. In the larger trans- actions, owing to exchange conditions, there must always be slight fluctuations in rates of exchange which make somewhat complex bookkeeping, so that a slight variation from anj' of the standards mentioned would be of relatively slight importance. It is not at all necessary that this standard unit of value be coined in gold. It might be uncoined, like the Japanese 1-yen piece, or there might be no coinage whatever of either this unit or any of its multiples in gold, as is the case in the Philippines with their standard peso. So long as the unit is legally fixed and so long as the Govern- ment will maintain the minor coins at a parity with this quantity of gold, it is not essential that the coins be provided. It is probably desirable, however, that while primarily China should maintain its chief circulating medium, silver and copper coins, at parity with gold, there should be also some coinage of gold. It is STABILITY OF INTERNATIONAL EXCHANGE. 113 possible that in the course of time the price of silver might rise so that there would be the possibility of the silver coins becoming more valuable than the gold. Under those circumstances a cheek would be given to this tendency if provision were made for the free coinage of suitable pieces of gold, presumably multiples of the standard unit — 5, 10, and 20 — such coins to be furnished on demand for a reasonable coinage charge. Under ordinary circumstances, there would l)e no demand for these coins, inasmuch as silver would be more acceptable to the people, more in accordance with the economic needs of the country, and more profitable to the Government. It might be well, however, eventually, in order to secure the moral effect which might be obtained bj'^ an occasional use of gold coins, for the Government to coin some gold on Government account, and from time to time and as suitable occasion offers to pay out some of these coins in meeting Government obligations. Owing to the economic condition of China, it is desirable that the chief money of circulation be composed of silver or copper. In a country where wages are often not more than S7 or S"^ a month in American money, and where they are sometimes not more than from $2 to $5 a month, and where naturally the standard of living must be on the same scale, it is evident that there would be very little use for gold coins among the Chinese people. The one kind of cly its confidence in their value. The second measure to be employed, then, is that the Government should agree to accept the coins at their full parity val lie in payment of all obligations due to it. The magnitude of this demand, as compared with the demands of private business, will varj- hugely in each separate country. It is probably true that in many countries the demand of the Government in the course of the year iMjuals 25 per cent of the entire amount required to satisfy the needs of business. In some countries, even where business is comparativel.y limited and where the system of barter is somewhat extensive, llio proportion might be much larger, whereas in other countries it might well be less. Kven tlio minimum demand, however, from this source is seen to be so large that this method, in connection with tlie tirst, would, in most countries where the people had confidence in the integrily of the ({ov- ernment, be practically sufficient to maintain the parity of the coins with gold without any further steps. ','}. It is usual, however, to make the silver coins, esi)ecially in coun- li-ies where silver coins are the ones most commonly in circulation, legal tender in the payment of private as well as of public debts. The smaller subsidiary coins would naturally be legal tender for only a small amount, say, $10; the silver unit, howe\'er, would be legal tender for any amount. 4. The further means which is usually advocated, and by many believed to be the only sure means of maintaining the parity, is that the Government agree to redeem the silver coins bj- the payment of gold, practically on demand. AVith certain important qualifications this general principle may be accepted. It is not, however, necessary that the red(unption be always made on the spot and in gold coins. The metliod of redemption will, of nec("ssitj% depend upon the busi- ness customs and needs of the country in question. In a country like China, where the ordinary medium of circulation is silver, there is no business need whatever for gold to be used merely within the country itself. If gold is required for manufacturing jew- elry or for other similar purposes, this is not a question Avhicli con- cerns th(^ monetary system or, generally, the needs of business. Jewelers needing gold for any such purpose should supply their own needs as much as the manufacturers of steel tools should provide their raw material without depending upon the Government. The legitimate demand for gold, in connection with the cvrrrency, is a de- mand only for the purpose of making payments abroad in gold-stand- ard countries. For this jDurpose not gold within the country itself is needed, but rather a gold credit in the country or countries in which the payments must be made. If a mei'chant in Shanghai, with a gold obligation to be met in Lon- don, comes to a bank for the means of paying his debt, he does not 116 STABILITY OF INTERNATIONAL EXCHANGE. wish gold to ship; he wishes, rather, an order for the payment of gold in London. For the satisfaction of all proper business needs, therefore, in con- nection with the monetary system, it would be suf&cient on all occa- sions if the Chinese Government were to keep a gold credit in Europe against which it would sell bills of exchange whenever a legitimate demand came from business men for this purpose. This is practically the plan that has been followed by Holland for the past thirty years, and it is the plan which, at length, British India, after several years of effort in that direction, has adopted. In Holland, for example, the national bank, which acts as the Government agent in the regulation of the currency, does not agree to pay out gold on demand to all who present silver or bank notes. The silver gulden in Holland is not redeemable in gold. On the other hand, the Government has for many years declared itself ready to give gold in exchange for silver gulden or other money of the country, provided that gold were needed for the purpose of paying obligations due abroad. This qualified redemption only, taken together with the Government control of coinage and the high credit of the Dutch Government, has been suificient to maintain the parity of the silver coins during a long period of years, even in times of commercial pressure. In order to maintain the parity, however, it is not necessary that the Government should hold itself ready to meet all demands for gold for export purposes or for the payment of foreign obligations. With- out endangering the parity of the coins in internal transactions, and without in any way injuring the business of the country, it would be suf&cient if the Chinese Government were to put its monetary system and its gold reserve at the service of business men, not in the first instance at any time that the demand is made (why should the Gov- ernment enter into competition with the banks?), but only after the banks and other financiers had been unable to meet the ordinary demands for gold payments abroad, as would be shown by an increase in the rates charged for foreign bills of exchange. Whenever it becomes necessary for a country to meet the obliga- tions which it owes rfbroad it is usual for those obligations in the last resort to be met by the goods that on the whole can be shipped the cheapest. If there is a large supply of money in a country whose credit is unquestioned, it may well be that the gold supply in that country will be so large that it will be cheaper to ship gold abroad to settle the balances due than to force down the prices of some other product in order to make that the most available commodity for shipment. Whether the money metal in a country is the one that can most readily be spared to meet the balance of payments due will depend to a considerable extent upon the quantity of money in circulation as compared with the needs of business. If currency is really scarce in a country having a standard metallic money, it is probable that its value will be so great in terms of goods — that is, the price of goods in terms of money will be so low — that they will be shipped abroad rather than the money itself. If, on the other hand, either through the slackness of trade or through excessive coinage, the supply of gold money becomes larger in compaiison with the demand for its use within the country people can more readily buy gold than goods, rates of exchange rise, and money is more readily shipped for the payment of obligations or for investment. STABILITY OF INTERNATIONAL EXCHANGE. 117 In a country like China, therefore, it would be sufficient if the Gov- ernment were to announce that it would expect, under ordinary cir- cumstances, the bankers and other business men to supplj^ the needs of those who require gold or silver for the payment of obligations abroad, and that it would meet such requirements only when, owing to the strong demand, the rates for gold had risen considerably above the normal. If the Government woald announce that whenever the rates of exchange on Europe reached a high price above the XJarity — say 2 i^er cent — it would sell bills of exchange against its gold reserve in Europe for silver coins or other equivalent paid in, it would find its reserve called upon only when the silver currency had become for the time being redundant, either on account of diminished demands brought about by the state of trade or on account of excessive coinage. In either case, if when money were paid in exchange for the foreign bills of exchange that money were not reissued, but were held in the treasury, a scarcity of currency would thus be brought about, which would soon make it more profitable to ship other goods to meet matur- ing obligations rather than to take from the channels of trade addi- tional sums of the local currency. When, on the other hand, owing to the stoppage of the coinage or to the increase in the demands for the coins from an increase in busi- ness they became relatively scarce, business me:i would find it advis- able to pay gold either into the treasury of the Chinese (xovernment at home or, more likely, to the agents of the Chinese Government in Europe or America, and to receive in return these silver coins in China to meet their obligations there or to use them for the purchase of goods in the interior. By this means we should obtain in China a currency which would be elastic so as to meet the fluctuating demands of trade, while the Government would be relieved from furnishing gold except under special circumstances which Avould rarely arise. If the gold reserve were maintained especially for the purpose of maintaining the parit}', and if the banks were to meet the usual com- mercial needs, it would seem that the reserve fund need not be so large in amount as to be especiallj^ burdensome to the Chinese Impe- rial Government. lu India, with its circulation in round numbers of perhaps 1,800,000,000 rupees, or 120,000,(100 pounds sterling, it has been found that a gold reserve of considerably less than 10,000,000 pounds, or 8^ per c(mt of the monetarj'^ circulation, is ample to meet the needs of business for gold export purposes. Even if for a consid- erable period of time imports of goods wei'e materially i)i excess of exports, so that the tendency would be toward a strong demand for gold for export, it is scarcely conceivable that a contraction of the currency of, say, 15 or 20 per cent would not be sufficient to overcome this tendencj' and force the prices of some other goods so low that they would, in effect, be substituted for gold as a means for meeting foreign obligations. Owing likewise to the unlikelihood of a gold reserve held abroad for such purposes being frequently called upon, it would doubtless be comparatively easy for any country with good credit desiring to maintain such a reserve to secure, on relatively easy terms, gold credits against which it could draw to large amounts if necessary. Such obligations, of course, could not be unlimited as regards amount, but they might be ample; they could not be unlimited perhaps as regards time, but could be renewable, and as soon as an experience 118 STABILITY OF INTERNATIONAL EXCHANGE. of a few years had shown the wisdom of the management of the sys- tem in China, both the need of such a reserve and the difflculty of securing it would be much lessened. There seems no reason to doubt that by the means indicated the parity of silver coins in China can be maintained absolutely, so far as their exchange value in local transactions are concerned. The fact that a rate of exchange should be charged for bills sold on a gold reserve placed in foreign countries would not affect the local condi- tions, even though at times that rate should be quite high. If, however, for the sake of argument, we should grant that under the pressure of abnormal conditions the parity might temporarily fall by a small amount, even then conditions would be vastly better than they have been for the last few years, or than they could be even with a uniform silver coin whose value fluctuated with the value of the metal. This is another reason to be kept in mind, why under any circumstances a determined effort should be made to place the new silver coins on a parity with gold from the beginning and maintain them there. THE ESTABLISHMENT OF A GOLD RESERVE. It is extremely desirable, in order to maintain the confidence of business men in the new monetary system, that practically at the beginning of the work provision be made for the accumulation of a gold reserve which will be sufficient at all times to maintain the parity of the new coins beyond question. How may this gold reserve be accumulated? (1) If the price of silver were to remain about where it is at present and the gold unit were made substantially equal in value to the one recommended — that is, to the American 50 cents, the English two shillings, the Japanese j^en, the Russian ruble, etc. — there would be a profit from seigniorage of some 8 to 12 per cent on the silver coins. As regards the minor coins, especially those of copper and nickel, the seigniorage profit would be very much larger. Beyond question, all of this seigniorage should be used from the beginning for the pur- chase of gold to be used as a reserve. (2) It has already been suggested that the nations interested in the war indemnity might well afford to make some concessions to China provided she would establish a new monetary system which would give a fixed par to exchange in business dealings. If they were to make the concession which has been proposed — the acceptance from China for a period of years of their shares in the indemnity on a silver basis, reserving the j-ight to call for the difference between that and payments on a gold basis at a later period — a considerable saving would be made for China so long as the price of silver does not go materially above its present rate. It would seem entirely proper for the governments, if such a concession were made, to insist upon it that this saving be used directly for the establishment of a new monetary system ; and in good part, at least, for the establishment of a gold reserve. (3) In all probability, however, if the plan is carried through promptly for the most important parts of China, it will be desirable for China to make a loan of considerable amount. To that end it will be necessaiy, of course, for the Government to pledge specific revenues. Either new sources must be found which can be devoted to this end or some of the present revenues must become more productive. Per- STABILITY OF INTERNATIONAL EXCHA.NGE. 119 sons most familiar with the financial situation of China are of the opinion that a more rigid and businesslike management of present sources of revenue would result in a considerable saving, and are also of the opinion that it is by no means impossible to find new sources of revenue which will pi'ove sufficiently productive. It is thought that the people are not taxed to any very burdensome extent, and there is reason to believe that a loan raised for this purpose would soon result in so great an increase in the prosperity of the country that its burden would not be felt a j all, as was the case with the loan of Egj'pt a few years ago which so improved the irrigation system. It should be borne in mind also that a gold reserve secured thiis bj^ a loan would be kept on deposit at interest in Europe and America, and would doubtless be seldom drawn against. The interest that would thus be paid to China on current balances would ver}^ materially reduce the expense of the loan. Furthermore, inasmuch as the loan is not to be emploj^ed for ordi- nary uses, but is only to be drawn against on uncdmmon occasions, it might suffice if, instead of a very large gold loan, part of the sum necessary should bo simply in the form ol' a gold credit wliich might be drawn uiDon at will. Tliis gold credit, wliich would be merely a right to draw for a specific iiuiximum sum, a right whicli would seldom if ever lie used, could probably be secur(.'d at comparatively slight expense, provid Covernment could t)pen and win-k some of the gold mines which the country is said to contain, it is quite possible that within a few years a good supply could be secured from this source. BANK NOTES. As soon as practicable, if not even from the very beginning, some provision sliould be made for the issue of bank notes payable in the new currencj^ to be issued and managed in accordance with conserva- tive banking princijiles. A proper bank-note system, whether the notes were issued by a single banlc or a system of banks under proper organization and control, would giv(^ the needed elasticity to the sys- tem, by wliicli the amount of currencj' would practically automatic- ally increase and decrease in accordance witli the needs of business. Such a system would do much to protect the gold reserve. At the time of a7i increaseMn business, either for moving the croj)S or otlier temporary pxirposes, unless there were some banking system estab- lished, there would be naturally a large issue of the new silver coins. When this extraordinary demand fell olf the silver coins might easily be, to a considerable extent, excessive, and thus the rates of exchange would naturally rise and the coins would be paid in for bills of 120 STABILITY OF INTERNATIONAL EXCHANGE. exchange drawn against the gold reserve. If, on the other hand, a proper bank-noce system were established, the increased demands would be met by the increased issue of notes, and a shrinkage'in the demand would result in the paying in of these notes and in a conse- quent reduction of the monetary circulation without danger of a cor- responding demand upon the gold reserve. In the next place the bank-note system would take its part in the supply of the monetary needs of the country at a less cost than would the otherwise larger coinage of silver, always provided, of course, that the bank-note system is established on sound principles. Of a nature somewhat different is another advantage which, never- theless, ought not to be overlooked; that is, the advantage which would come from interesting bankers in the monetary sj'stem of the Government and getting their counsel and support in the proper management of the system. Of course the minor points in the establishment of a monetary sys- tem for any country, such as the amount of coin that is to be issued before the system is put into effect, the exact time for the introduction of the system, the rapidity of its extension, the places in which the gold reserve or gold credit shall be kept, the size of the loan neces- sary, etc., must be settled by persons who are intrusted with the onerous duties of putting the system into effect and of its adminis- tration. It has seemed propei' in presenting the matter generally before the foreign Commissions to indicate simply the natiire of the system proposed and the general principles on which it ought to be established. III. — The Benefits op a Uniform Ratio Between Gold and Silver Coins in Oriental Countries. The present time seems to afford an unusually favorable opportu- nity for introducing a certain degree of harmony into the coinage ratios of the countries and dependencies of the Orient, because so many of them are about changing their monetary systems. At the time when the American Government was asked by the Governments of Mexico and China to aid them in the effort to establish stability of exchange between the gold-standard countries and the 'silver-using countries the United States were already dealing with i he problem of a new monetary system in the Philippines. At about the same time the British Government appointed a Commission to consider the establish- ment of a new system in the Straits Settlements and the French Gov- ernment appointed a similar Commission to deal with the problem in Indo-China. In all the oriental countries there seemed to be an awak- ening, caused by the fluctuations in exchange, to the necessity of some new monetary system. While neither Great Britain nor France has officially declared her purpose to adopt the gold standard, the one in the Straits Settlements and the other in Indo-China, it has been obvious, and has not been denied, that this is their ultimate aim iu changing their systems. From all over the Orient are being heard urgent demands for a cor- rection of the evils of fluctuating exchange. The English newspapers published in China have begun to discuss the possibility of the gold standard in China and have published several carefully considered plans for (tarrying out this policy, among them the plan of Sir Robert Hart. The chamber of commerce of Hongkong in February last adopted a STABILITY OF INTERNATIONAL EXCHANGE. 121 resolntioii addressed to the British Government asking to be heard before definite action was taken for the adoption of a plan for the cur- rency of the Straits Settlements. At that meeting it was repeatedly asserted that Hongkong could not be separated from China nor from the Straits Settlements in her monetary system. In March or April the Shanghai Chamber of Commerce met and resolved that a gold standard was desirable and should be established in China. The Straits Association, composed of London merchants in the East India trade, met more recently and resolved that the gold standard should be established in the Straits at a ratio of about 2 shillings to the dol- lar. Siam also has suspended the free coinage of silver and is seek- ing to establish a fixed gold exchange. The United States passed a law for the Philippines on account of the extreme fluctuations of exchange, and for the further reason that the development of the islands could not begin until stability had been given to the standard. Authority was given to the Philippine government to take such steps as it desired to maintain the parity of the local currency with gold. Mexico also is proposing a reform in her monetary system which would put her on the gold basis, and is therefore in a position to cooperate with other nations in a policy of comparative uniformity of coinage ratio. One of the strongest objections made to the plan of the Philippine government when it was first proposed in 1901 was that its adoption would put the islands out of harmony with several of the surround- ing countries, which were then upon the silver standard; but now that the evils of exchange have steadily been growing more grave and the importance of stability has been shown. Great Britain and France are preparing to adopt the gold standard in their dependencies, and the time seems opportune to reach some conclusion that will improve the trade relations of all these countries. If a circulation of silver is best adapted to their conditions it can be given a fixed relation to gold upon some basis of harmony among all these nations which are now dealing with the problem. It is desirable under these circumstances to inquire what ratio will lAost nearly correspond to the present price of silver and to the needs of these countries. In issuing a new silver currency it would seem to be desirable that the exchange value of the coins should approach as nearly as possible to their commercial value as woiild be justified by other elements in the problem. It is important that the new coins should correspond as nearly as possible to the existing conditions and the habits of the people, and that the introduction of a new system should work as little change as possible in the real effect of contract obligations to pay money. It is of importance also that the new sys- tem should cause as little disturbance as possible to the existing scale of wages and prices. A ratio of about 32 to 1 has the merit of recognizing the deprecia- tion which has taken place in the value of silver for the last thirty years. This ratio is close enough to the bullion value to prevent large profits by cou nterf citing. The exchange value of the silver coins should not, however, be fixed at exactly their bullion value at the moment of the reform. To adopt this policy would leave no margin for fluc- tuations in the price of silver. Should this precaution be disregarded, there is grave danger that the system would be destroyed by a slight rise in the price of silver. The ratio of 32 to 1 does not mean the absolute stability of silver bullion at that ratio, nor does it mean that the silver coins would 122 stability' OP international exchange. depend upon the ratio for their gold value. The proposed ratio is simply one of weight between the" silver coins and the standard gold unit. The silver coin would depend for its value, not primarily upon the ratio, but upon its exchangeability for gold drafts. The fluctua- tions in the price of silver bullion ought not to affect the value of the coin so long as they do not carry the bullion value above the exchange 7alue. A ratio of 32 to 1 conforms approximately to the present value of silver, but it departs from it sufficiently to insure the safety and maintenance of the system. It is preferable to any of the existing ratios in western countries — 16 to 1 or 15^ to 1 — because it reduces the danger of counterfeiting. From the economic point of view it is less important that the ratio should not give too high a value to silver than that it should not give too low a value. Too high a value results in counterfeiting, which can be guarded against by an efScient system of police; and it increases the element of credit in the coin, which has to be insured by the financial standing of the state. Too low a value, on the other hand, invites the graver dangers.of depriving a country of its currency. The possibility that a rise in the price of silver would wreck a cur- rency sj'stem based upon too low a ratio for that metal has led the American Commission to favor a ratio Avhich would allow some margin for fluctuations between the market price of the metal and the legal ratio. Opinion in many quarters had been that silver would continue to fall steadily in price, but the experience of the past six months shows that it is not wise to count too certainly upon the persistence of that tendency. Within about eight months sih'er had risen from a price of -l^V^- per ounce, London standard, in December and January last, to a price of about 2(hid. Various influences, including the report that Mexico was going to the gold basis and would purchase silver for her new coinage, and the purchase of silver for the Philippine Islands, advanced the price of silver about 20 per cent, even within six weeks. This being so, meas- ures should be taken to guard against wrecking the system in China if such fluctuations occur after its inauguration. If Great Britain had acted on the theorj' that silver would continue to fall when she began to consider the reform of the currency in the Straits Settlements and had based her ratio on the price at that time she woiild have . fixed upon perhaps 40 to 1 instead of 32 to 1, as is here proposed. Had she done this she would have found her system wrecked by the subsequent rise in the price of silver. As soon as the value of the bullion in the coins exceeded their face value in gold thej"" would have been exported as bullion for sale upon the London market, and the country would have lost its medium of exchange. Such a case affords an instructive object lesson — that the ratio should not be fixed too low and should be approximately tlie same throughout the silver-using countries. If one country has a ratio of 40 to 1, another 30 to 1, and another 33 to 1, a slight rise would wreck the system first named, and another rise the second system, without check- ing purchases of bullion by the third. It seems proper, therefore, to recommend that the ratio for China and other oriental countries should be approximately 32 to 1. It is proposed to leave each government free to follow its own poliej', but it is believed also that each govern- ment should adopt a ratio that does not differ too radically from the others. The ratio of 32 to 1 allows a margin for fluctuations that may cover the rise and fall in prices of silver for sevei'al years. Under such STABILITY OF INTERNATIONAL EXCHANGE. 128 an arrangement, when the price rises above the bullion value, all gov- ernments will cease their purchases of bullion. Purchases will cease simultaneously in all if the ratio is the same. If, on the other hand, any country adopts too low a ratio it runs the risk of losing its currency by the rise in the price of silver. If the coinage ratio is the same in all thej^ will all suspend purchases when the price of silver reaches a certain point. They will do this au bomatically, when the bullion value passes the face value of the coin, without any consultation or agree- ment. It is important, therefore, that there should be a common point at which the purchase of silver should be suspended. But if each country had a difiEerent ratio the system of one might be wrecked by a rise in silver while the others went on buying until their ratio was reached. It follows, therefore, that some harmony of action is desirable to prevent danger to the new currency systems. It is not equally important that the countries which already have a higher value for silver should accept the proposed ratio. They would have a wider margin for fluctuations than those countries which adopted a ratio of 32 to 1. In the case of the Eurojjean countries, with a ratio of 15^ to 1, and of the United States, with a ratio of IG to 1, the ratios are so far above the market value of silver that there is no danger of their monetary systems being affected by its rise in price. Even the systems of Russia and British India, with the ratio of about 24 to 1, will not be exposed to this danger by the adoption of the ratio of 32 to 1 in the oriental countries. The American Com- mission believe, therefore, that the ratio of 32 to 1, or approximately that ratio, would best conform to actual conditions in nearly all the countries which desire to reform their monetary systems. The United States Commission does not propose any monetary union or any system which will make the coins of one country legal tender in another. Such a sj'stem is considered unwdse in the present state of economic progress, because it would make the circulation of the countries entering into such a union too dependent upon the errors of any one country which failed to maintain its coins at par or unwisely overissued its monej'. When Italy suspended gold payments, her paper money fell below par and her metallic money, being cnstomary tender in all the countries of the Latin Union, drifted to other coun- tries. Such a system would not be desirable in the Orient, for the reason that sojne of the eastern countries might pursue a policy that would disturb the union if the coins of one country were interchange- able with those of another. Substantial uniformity in coinage ratio is desirable, but not concurrent circulation in more countries than one. All civilized countries are equally concerned in the establish- ment of a stable system in China, and no legislation is asked from them that will affect adversely their own monetary systems. The question might arise whether a steadj^ demand for currency as a medium of circulation would not compel a government to continue to purchase silver for coinage purposes after it had risen above the ratio price or submit to the inconvenience of a deficient supply of currency. Fortunately, the plans proposed by the American Com- mission for China, and already adopted in the Philippines, provide a remedy for this condition. The mints would be open to the free coinage of gold. When silver rose above gold, therefore, in its bullion value at the official ratio, and the coinage of silver was suspended, gold could be imported and converted into coin. Thus the demand for silver would be diminished and the demand for gold would increase, with much of the automatic comjDensatory action attributed to bimetal- 124 STABILITY OF INTERNATIONAL EXCHANGE. lism in keeping the value of the metals together, but without the danger that the value of the coins of the two metals would part com- pany and alter the metallic standard of the country. IV. — Considerations Regarding the Price op Silver. The chief task of the Commission on International Exchange is to secure, as far as possible, stability of exchange rates on a gold basis between the gold and silver using countries. The means to be adopted for securing stability of exchange, as has been discussed earlier, are, of course, primarily, limitation of the coinage of silver ; the acceptance of the silver coins by the government at a fixed rate of exchange with gold; the making of these coins legal tender, and, if necessary, some provision for the redemption of the silver coins with gold, either directly or by means of bills of exchange on foreign countries. The parity of the silver coins with gold, however, can of course be brought about and maintained much more easily provided the price of silver bullion remains reasonably steady at a price not too far removed from the ratio whicli the government fixes between the gold unit and the weight of the silver coins. Whether the absolute price of bar silver be high or low is a matter of comparatively slight importance, inasmuch as the ratio could be fixed to correspond, provided the price remain steady; but if, after a ratio had been once fixed, the price were to increase decidedly (so that the bullion value of coins exceeded their nominal value) the coins would be melted down and the system would be destroyed. On the other hand, if the price of silver were to fall very low the burden of maintaining the parity would be heavier, inasmuch as a larger gold reserve fund mightbe required to maintain confidence. It is extremely desirable, therefore, especially for the countries that are somewhat weak financially, that the price of silver bullion should remain steady at a point somewhat near the ratio agreed upon. Heretofore in the international monetary conferences that have been held the evils of a fluctuating rate of exchange have been em- phatically set forth, and the need of maintaining a parity of the.silver coins with gold has been in argument associated likewise with the price of silver bullion. The remedy proposed in most instances, that of international bimetallism, has involved the free coinage of both metals, and in consequence the maintaining the relative prices of the bullion of the two metals at or very near the coinage ratio. On the other hand, the gold exchange system which has been presented by the Commission on International Exchange separates the monetary value of the silver coin in a large degree from the bullion value. If the credit and financial resources of the government adopting the system are suificient, there is practically no relation between the bul- lion price and the coinage price of the silver, so long as the bullion value of the coin does not go above its nominal value. For example, in the United States we ai'e maintaining at parity a silver coin whose bullion value is considerably less than half its coining value. It is desirable, however, as has been said, especially for a country finan- cially weak, that the bullion value should be maintained within, we may say, from 10 to 20 per cent of the coinage value. Fortunately, at the present time the conditions of the production of silver and of the silver market are much more favorable to such a result than they have been before for several years. In the discussions in Europe these conditions have been made very clear by the representa- STABILITY OF INTERNATIONAL EXCHANGE. 125 tives of the Mexican Government. Since the year 1893, mainly on ac- count of the closing of the Indian mints to free coinage, as well as to the repeal of the coinage clause of the Sherman Act, and in part, also, on account of the decided increase in the production of silver, there has been a decided fall in the price, so that now it seems desirable to have the price of bullion maintained, as nearly as market conditions permit, at a ratio of somewhere nearly 32 to 1 instead of the former ratio of 15| or 16 to 1. The conditions of consumption and of production seem to make this, at any rate, possible. From 1873 to 1893 there has been an increase of the annual silver production of the entire world from about 63,000,000 to 165,000,000 ounces of fine silver. The conditions regarding tlie production at the present time, however, have so changed that the extent of the production is no longer directly dependent upon the cost of producing silver, except so far as the low price has led to the suspension of work in many of the pure silver mines, and in eon- sequence the present product, coming in great part from copper and lead mines, has become, relatively speaking, very steady in amount. In 1893 there was produced throughout the world about 165,500,000 ounces. According to the published report of the United States Director of the Mint, the entire silver output for the j'ear 1901 was only about 10,000,000 ounces more— 175,000,000 ounces. When the deduction is made of about 4,000,000 ounces on account nf an error resulting from the fact that the output of Bolivia, which reaches the sea after transportation across Chile, was in consequence counted twice, once in Bolivia and once in Chile, the ontiput of that year is only 171,000,000 ounces. For the year 1902 the production is some- what less, and there seems reason to believe at present prices there is not likely in the future to be much of a change from an average of 170,000,000 ounces a year. It is noteworthy that, if the silver-producing countries of the world are taken into consideration, the output in all of tliem, with the exce]i- tion of Mexico, has declined from 122,10(>,()00 ounces in 1S93 to 113,100,000 ounces in 1902. In Mexico, however, the production lias increased from 43,400,000 ounces in 1893 to 56,900,000 in 1902— that is, by 13,500,000. This increase in Mexico is doubtless due to the fact that there has been in that country free coinage of silver. The costs of production were, of course, paid in silver. The mine owners taking their product to the mints received back a number of Mexican dollars always proportioned to the amount of silver, regardless of the price of bullion in the market, and their laborers were, generally speaking, paid substantially the same sums in those dollars. Only some comparatively small expenses in connection with the importa- tion of materials being payable in gold increased in terms of their output. Should Mexico give up the free coinage of silver, those con- ditions would naturallychange somewhat. We might then anticipate a falling off even in the silver production of Mexico if the price of bul- lion remained the same. Of the 170,000,000 to 171,000,000 ounces that may be taken under present circumstances as the normal annual production, about 130,- 000,000 ounces are produced as a by-product in connection with other ores, mostly lead, copper, and zinc. Only some 40,000,000 ounces come from pure silver mines, the greatest and most important mines of the latter type being closed. In the United States not a single pure silver mine is now regularly worked because it would have to be worked at a loss. The production of silver, therefore, on the whole is not likely to increase materially. 126 STABILITY OF INTERNATIONAL EXCHANGE. There seems also to be another reason for believing in giving greater stability to the price of silver through the conditions governing the demand. If we take the average annual silver consumption of the world for coinage purposes during the years 1890 to 1901, we find that it amounts to about 93,604,000 ounces, exclusive of recoinage in such countries as Germany, Belgium, the United States, Japan, and Turkej^. The use of silver for industrial purposes in the years 1890 to 1901 averaged about 28,000,000 ounces, whereas the Director of the Mint estimates such uses for 1901 at 41,000,000 ounces. The silver dealers of England and the United States claim that the \ise of silver in the industrial arts during the last ten years has doubled. They are con- vinced that the industrial uses now exceed 50,000,000 ounces. In England it is certain that the industrial employment has increased in the ratio ot 1 to .'). It is especially to be noted that India, which is so great a consumer of silver, has taken even more by some 10,000,000 ounces a j'ear since the mints were closed in 1893 than she did before that period, and England has also increased her coinage of subsidiary coins for her colonies from 37,702 pounds in 1886 to 859,642 pounds in 1901, exclud- ing the coinage of rupees in India and of British dollars for Singapore and Hongkong. It is to be expected, of course, that the increase in population in the world will lead to a somewhat steady increase in the use of silver, especially for industz'ial purposes. Tabulated, the average consumption during the years 1890 to 1901, as explained above, gives the following result: Ounces. For coinage purposes 93, 000, 000 For industrial arts 38, 000, 000 For India for the bazaars, inclusive of coinage 24, 000, 000 For China 13,000,000 For consumption in the minor countries not included above 1, 000, 000 Total 158,000,000 This total is to be compared with an average annual prodiiction during the same period of 159,000,000 ounces. On the average, there- fore, for the last twelve years the demand and the supply have balanced within 1,000,000 ounces. Under these circumstances it is unreasonable to believe that if the different nations which are regu- larly buying silver for coinage purposes were in some more or less formal way to reach an agreement that they would make their neces- sary and legitimate purchases of silver with a certain degree of regu- larity, this regularity of purchase would have a sr.rong tendency to bring about greater stability of price. It will be noticed that according to the best information that can be secured, as will be seen from the tables Avhicli appear hereafter, thereis now a net consumption of silver for coinage purposes of, in round num- bers, 100,000,000 ounces a year. There ts reason to believe that if a uniform national silver currency is inlroduced into China which will, in part, take the place of the copper now in circulation there, this consumption will be somewhat increased. For several years to come there will also be a considerable demand from tht' Philippines, and it is not at all impossible that in the United States it may also be thought by Congress desirable that silver be purchased in small amounts for subsidiary coins. Taking all these things into consideration, it seems that for the next few years 100,(100,000 ounces a year for coinage must be looked upon as a moderate estimate. When account is taken of the STABILITY OF INTERNATIONAL EXCHANGE. 127 very great increases in the use of silver in tlie industrial arts, it seems not unreasonable to;issume that 50,()(J0,000 ounces Avill be a fair esti- mate for the a\crage consumption for sueli puri)Oses. If to these figures arc added the i'5,iJ()n,000 a year which India lias consumed for the last ten years in her bazaars, apart from coinage j)urposes, it will api^ear that there will be a total average annual consumption of 175, 0(H), 000 ounci-s, or an amount equal to the reasoiial)le expectations for the output of silver under present prices and present ci>nditions. The second factor, however, in the problem must be the condi- tions of ijrodnction. Even though we might reckon safely on the normal demand at present prices, we could not be at all certain in drawing conclusions unless there were reason to believe that the con- ditions of production would remain substantially tlie same, or would, at any rate, not become such as either to flood tlie marlsei; or to deprive it of its normal supply. One of the most interesting factors in the whole problem, however, is the new condition that has arisen in ccnmection with the produc- tion of silver. During the years of tlie unfortunate experiment of the United States under the Sherman Act the conditions of silver pro- duction were entirely different from what tliej' ar<> now. At that time a large percentage of t-he silver was produ(/ed in mines whose chief product was silver. The outjiut of such mines was, therefore, largely dependent upon the price of silver. At the presc-iil time those mines whose production is dependent only upon th(> jiri<'e of silver do not produce, on the whole, more than 25 per cent of the entire silver output. It should not be forgotten, as has been staled before, that the production during the last ten }X'ars has been substantially unchanged, and that in spite of the fact that the average annual price of silver has fallen from 35. 5d. to lU.ld., or more tlian 30 per cent. Such a stability in production with so ^reat. a fall in the pric(! shows a decided change in the conditions. The pure silver mines became quickly unprofitable. The richest ores were used up and the mines then abandoned. With jpresent prices I)eople are no longer looking for silver mines. It would not pay in most instances to go to the initial expense oC purchasing m;ichinery and opening them up. The cheapening of metallurgical processes and the lowering of rail- road freights, as well as the improvements in the application of power, have made it possible to open up and work mines which have some silver in connection with copper, lead, or zinc. This cheapening of the cost of production, however, can not be expected to continue indef- initely. At the present time the reduction itself of the cost of produc- tion during the last years has alreadj- been more than the pres- ent entire cost of production. Improvements may further lessen the cost of production in the future, but never again to so great a degree as heretofore. The impossibility of maintaining the production of silver through the single means of a further lessening of the cost is shown also in this fact, that the price of the other metals which are produced in connection with silver has been eontinuallj' increasing. When, for example, a copper mine produces also a considerable amount of silver, if the price of silver falls, the tendency is for the price of copper to increase, and A'iee versa. If the prices of lead, of copper, and of zinc, in connection with which silver is chiefly produced, were not higher than they were four j^ears ago, the silver ijroduetion of the western part of the United States would probably, even at the pres.z-nt, 128 STABILITY OF INTEKNATIONAL EXCHANGE. time, be insufficient to meet the demands. The following table shows the fluctuations in the prices of lead, copper, and zinc during the years 1895-1902 : London. New York. 1895-1898. 1899-1902. 1895-1898. 1899-1903. £ s. d. 11 17 47 11 9 16 6 6 £ s. d. 13 18 9 66 3 1 20 4 6 $3.39 11.24 $4.31 15.80 Zinp. This increase in the price of copper and zinc with the increasing demand for those metals has brought about a noteworthy stability in the production of silver. This may be expected to continue in the future so long as the use of the other metals does not lessen on account of the higher prices. It appears now that the point has about been reached at which the stability of the price of silver has become almost independent of its cost of production, since the supply of the other ores which are produced in connection with silver is dependent to a considerable extent upon the price of one or more of those metals which are produced in connection with it, and that price is apparently as high as it can go without a decided lessening of consumption. Another reason for thinking that the supply of silver at the present time does not exceed the demand is that, as a matter of fact, there are absolutely no stocks of silver held anywhere in the world. The demand and the supply of silver, therefore, at the present time, seem to have reached an equilibrium. The reasons for the great fluctuations in the price of silver bullion for the last few years must, therefore, be sought in other causes. These causes are to be found chiefly, probably, in the conditions which govern the sale of silver. Out of the 170,000,000 ounces pro- duced annually about 100,000,000 on the average are marketed at Loudon, and this amount is chiefly in the hands of four or five bro- kers. The actual sellers of the silver to these brokers, strange as the fact appears at first sight, have very little, if any, real interest in the price itself. It is their custom^for the smelters are the chief sellers — to sell their silver at the London price and immediately to buy a corresponding quantity of ore from the miners at a corresponding price. They receive from the miners a certain fixed sum in gold for each ton of ore to cover the expense of smelting and selling. In con- sequence it will be seen that the price of silver determines the price of ore, and the profits of the sellers are not materially lessened if the price of silver falls nor increased if the price of silver rises. The point which concerns them most is that the price of silver remains steady, so that they can count upon a steady output from the mines which shall keep their smelters running at full time. Another factor contributing to the same result is that the chief buyers of silver, the governments, are likewise not particularly inter- ested in the price. Other things equal, of course, government officials would like to buy silver cheap, but the government, where the coun- try is on a gold basis and silver is coined at the old ratios, is sure to make considerable profits from the seigniorage, whether the price be a little lower or higher. Under these circumstances, naturally, the silver market has been subject to speculation on the part of brokers and has been extraordinarily sensitive. We have seen within a year, STABILITY OF INTERNATIONAL EXCHANGE. 129 apparently on account of a relatively small demand from the Indian and Philippine governments, combined with the possibility that there may be other demands from other countries, an increase in price of 10 per cent within six weeks and of some 20 per cent within a few months, whereas two years ago there was a corresponding fall in the price, due apparently almost entirely to fears lest there should be a check in the demand from the adoption of the gold standard by Mexico and other countries, even though there was no real lessening of the demand, or to market manipulation without any substantial reason. Another important factor in connection with the production and sale of silver, which is an entirely new factor, is the combination among the actual sellers. Of the 170,000,000 ounces of the world's production, about 60,000,000 seem to have a local mai-ket in the coun- tries where it is produced. The remaining 110,000,000 come to the London market. On account of the combination among the smelters and other sellers at the present time, four great firms are able to con- trol a large percentage of this 110,000,000 ounces, and there is every reason to believe that within a year practically this entire amount can be handled, if it seems desirable, by one seller. For the reasons which have been given above, it seems therefore probable that if a reasonably steady demand on the part of the gov- ernments for the silver which they actually need from year to year could be assured, the supply could be so handled that the price would be kept steady to a much greater degree than has been the case in recent j^ears. It is not to be expected that the price would be abso- lutelj' stable, but there is reason to believe that it would become so nearly stable as to be of material assistance in establishing the monetary system on a gold-exchange basis in the present silver-using countries. It was suggested by the Mexican Commission, as will be seen in the data submitted by them, that two or three great banks, like the Bank of England, the Bank of France, and the Bank of Germany, might undertake to act as agents for the different governments in making purchases. Sellers could then put a sufficient amount of silver into the hands of these banks, who could distribute it among the different nations in a regular way, so as to satisfy their needs and at the same time prevent any great irregularity in the demands. Of course, under such circumstances no government would be expected to buy any more Ehan its regular coinage needs, nor to buy any above an average price agreed upon. If most of the countries which are now contem- plating the establishment of a gold-exchange system were toadopt a ratio of about 32 to 1, it would be expected that the governments, for their colonies and for their own use, would not buy silver if it were to go above 28d. or 29d. per standard ounce. If any agreement were made in this respect among the nations, it would of course be under- stood that their purchases were to cease, if they desired, when the price went above this maximum. This much with reference to the present conditions in the silver market as affecting the ease of the establishment of the gold-exchange standard. The following points should be distinctly kept in mind as opinions of the American Commission on International Exchange. (1) While it would be beneficial that the price of silver remain steady, it would be very injurious to the systems under contemplation if the price were to increase materially above the present price. H. Doc. 144 9 130 STABILITY OF INTERNATIONAL EXCHANGE. (2) Any purchase of silver beyond the actual monetary needs of any of the governments who might be willing to make their purchases with regularity would not only be of no benefit, but would be decidedly dangerous to the success of the whole plan, inasmuch as it would mean the accumulation of a stock of silver which might eventually come into the silver market and unsettle the price. The purchase of silver under the Sherman Act brought about such an artificial condi- tion of the market, and there is every reason to believe that every attempt of that kind would fail in the future as it has failed in the past. Artificial conditions must be avoided. (3) On the other hand, heavy losses have come to governments and to business men in various lines through the great decline in the prices of silver during the last few years. It would be beneficial, apparently, both to the governments and banks of issue which holdlarge stocks of silver on hand and to private individuals if this fall in the price of silver could be checked and the price remain stable. In addition to this, the security of the monetary systems of all countries using silver, whatever the ratio, would be greatly increased if the price were to become reasonably stable, so that it could be depended upon. There is no reason whatever why any government with these good results to its monetary system or the monetary systems of other countries with which it has important commercial relations or seeks new ones should hesitate to adopt any reasonable measures looking toward that end, even though such a measure were to benefit a great industry like that of the production of silver either in one's own country or in a for- eign land. The question is purely one of business, and, so long as the monetary systems of the gold countries are to remain unimpaired, should be considered from a business point of view. V. — Method op Maintaining the Currency of the Philippines AT Par w^ith Gold. The question of the gold reserve and of the demand for gold in any country adopting a gold-exchange standard, or, in fact, any other sys- tem, is essentially a question of the supply and demand for currency upon the one hand and for merchandise upon the other. In a gold- standard country, if there is too great a demand for merchandise — that is, if the imports of merchandise are excessive — the fact reacts upon the exchanges in a manner which causes exports of gold and makes money scarce and thereby raises its price. In the Philippines and in China the practical operation of the plan proposed would be the same as in a country with a pure-gold currency. When the exchanges are adverse, there is a demand for gold to settle obligations abroad. The essential question is whether the stock of gold is sufficient; that is, it is essential that there shall be enough to cover the ebb and fiow of exchange. So far as the interior currency is concerned, it does not need to be in gold. It simply requires to be kept at par with gold for the purposes of domestic transactions, and it will remain at par so long as foreign exchange can be furnished at rates approaching parity. If the local currency is withdrawn from use when it is paid for for- eign bills, then the circulation will be contracted. This will cause an increased demand for currency in relation to the existing supply. The reduced volume of local currency would operate upon the rates for money and would enable the bankers, through their relations with European centers, to deal with the situation by keeping money STABILITY OF INTEKNATIONAL EXCHANGE. 131 in Hongkong and Shanghai instead of remitting it to Berlin or Paris or St. Petersburg when there was a scarcity in China. The rates for money a;t different capitals would influence its transfer, independently to some extent of the balance of trade shown by shipments of mer- chandise. It is a matter which would regulate itself under natural economic law, under any proper management of the exchange funds, and under the intelligent policy which would naturally be pursued by the banks. Money and capital always seek the points where they earn the highest return, other things being equal. In New York there is to-day perhaps $150,000,000 of French money which might be trans- ferred to London or Berlin if money became scarce there and rates became higher than they are in New York. It is capital which the holders prefer to leave in New York, because it earns high interest rates there, rather than to transfer it to some other point. The question raised is whether the system proposed for China and the Philippines will operate in the same manner as a pure gold cur- rency and whether the gold fund will be sufficient to meet the demands upon it. We believe that the system in the Philippines and that proposed for China have been so adjusted that they will meet the demands for gold as such demands arise and will produce the natural reaction upon the rates for money and upon prices which is produced in a country having a gold currency and subject to the usual operations of exchange. The system is so adjusted that it will work automatically. In China in particular it would be introduced so gradually that there would be almost no probability of an excess of local currency being issued for many years. The controller of the currency or any functionai-y charged with its control would naturally govern his issues bj'^ the rapidity with which the currency was absorbed. If he found that every piece of money coined readily went into circulation, that it did not come back for reimbursement in gold or for the purchase of exchange, he would continue to issue money as rapidly as the mints permitted. If, on the other hand, he found that there were large demands for exchange and for reimbursement, if reimbursement were offered in gold, he would suspend his issues until the new currency was absorbed. In order to secure the automatic operation of the proposed system in the Philippines, it is intended to provide that when the local cur- rency is paid for drafts upon the gold fund that local currency shall be locked up. If this currency is locked up and thus withdrawn from circulation, the inevitable effect is the same as the export of gold. That is precisely what is proposed in the Philippines — that whenever there is a demand for drafts upon the gold fund of the Gov- ernment, which will be kept in New York, the proceeds — that is, the money paid in for those drafts — shall be set aside (what the English call "earmarked") and not paid out again except when the condition changes. Inevitably, then, if there should be an excess of 10 per cent in the circulation aud drafts upon the exchange fund should reach that amount, that amount of money would be withdrawn from the interior circulation of the islands. If money became scarce in the islands, on the other hand, the rate for its use would be raised, the discount rate would rise, and the monej' could be drawn out again from the local treasury by offering gold. Now, that gold might either be brought to the Philippine treasury itself, as we believe is the principle followed in British India, or it might be deposited in the gold fund in New York. In that way 132 STABILITY OF INTERNATIONAL EXCHANGE. the imnecessarj' transfer of gold would be obviated by a system of compensation, keeping the gold in New York and meeting demands upon it when they occurred, but replenishing it by the deposits of gold made to draw out local currency again in the Philippines when it might be needed there. We believe that under such a system exchange will control itself automatically, exactly as in a gold country, because the withdrawal of the local currency from circulation will create a rarification and scarcity of money which will naturally react upon the rates for inter- est and, to some degree, in time upon the prices for merchandise. It is obvious that under such conditions the market will not be gov- erned exclusively by the movement of merchandise or by what is usually called the "balance of trade." It will be influenced also by the relative profit in the loaning of money in the Philippines or in New York or London. If the rate for money is high in Manila and low in New York, money will be left longer in Manila. These conditions give a peculiar power to the Philippine Commis- sion in dealing with this exchange fund, because if they fix a rate for drafts upon the exchange fund which is higher than the ordinary banking rate they exercise a control over the market which makes it costly to transfer money from Manila to New York when the Govern- ment considers it undesirable that it should be transferred. It is conceivable, of course, that in a great emergency in China the Gov- ernment might go so far as to charge 2 or 3 per cent more for drafts than the usual rate. That would be undesirable because it would involve a slight departure from parity, but even that would be a great improvement over existing conditions. It would not affect the interior currency, as that of France was not affected materially during the war, when specie payments were suspended and the notes of the Bank of France went to a discount of 1^ to 2 per cent. Now, if that system works thiis automatically, and gives in fact a reserve power to those who control the exchange funds sufficient to make it attractive to the owners of money to leave it in the islands in case of stress, the only question is what the ebb and flow of the demands upon the exchange fund will be. The statistics of the import and export trade do not have a decisive bearing upon the question, because a great quantity of foreign capital will undoubtedly be trans- ferred both to the Philippines and to China if their monetary systems are on a stable basis. That capital of course will come in the form of exports from England, from the United States, and from other coun- tries in the form of merchandise, railway equipment, subsistence for European laborers and luxuries for entrepreneurs. It will not be paid for in full by exports of merchandise from China. It will be paid for simply by the transmission to those leading exporting and lending countries of titles to securities — the bonds and stock of European and American corporations. There is no doubt but that large amounts of such capital will be invested in the Philippines and in China and in Mexico when they are on a stable monetary basis. In Manila there have been for two years many cases of American promoters who were ready to engage in enter- prises there, but did not dare to do it until exchange was given sta- bility. In the case of Mexico we have been informed by our Mexican •associates that there are, perhaps, from $150,000,000 to $200,000,000 in capital awaiting investment — that is, capital held in the United States, in France, in England, in Belgium, and other countries — which STABILITY OF INTERNATIONAL EXCHANGE. 133 the owners will not invest so long as its \aluc is liable to shrink by the fall in silver. It is obvious that it would be very imprudent for a 31cxicaii banker to borrow in Paris, for example, 5,000,000 francs, to be repaid in five or six m.onths, even at the prospect of a large profit, because its gold value in two months might decline much more than the large pros- pective profits. It is certain, therefore, that in Mexico and the Philip- pines — and it would undoubtedly be the case also in China — there would be a great amount of imports of merchandise soon after the monetary system is put upon a stable basis, but that large excess of imports into China would not constitute a burden or impose a strain upon the monetary system of the countrj'-. On the contrarj% it would create industries and resources in those countries which would greatly increase their ability to retain their currency, to pay their foreign obligations, and to increase their wealth and their power to consume. A country is naturally much stronger which has securities to bring into the market on occasions of monetary pressure than one whose operations must be governed almost entirelj' by the movements of merchandise and the movements of currency. Securities in such cases act as a source of buffer which softens the shock of the pressure for currency, but, notwithstanding that fact, a country which has no securities feels perhaps more promptly and keenly the efEect of an erroneous balance of trade, of too heavy purchases of foreign goods, or of reducing its exports too much. Pei'haps such a country feels the effects and takes action to rectify them more promptly than a country whose securities mitigate and soften those movements. It is certain that if a large amount of money is \\ithdrawn from the inte- rior circulation and locked up in the manner proposed in the syst<'iu for the Philippines it must react soon upon the prices of merchandise. The gold reserve should undoubtedly be large enougli to meet all probable emergencies and to cover the ebb and flow of commercial demand. If such a fund were constituted at the beginning, the balance of trade would right itself through the natural operation of the rates for money. Under modern economic conditions it is not possible for a country to be denuded of its currency beyond a certain point without bringing forces into play which stop the loss. This has been demonstrated again and again in monetary history. It is one of the plainest and most indisputable laws of money that if any country imports foreign merchandise to an excessive amount under the stim- ulus of speculation, and exports gold in payment, the influence of the loss of gold is felt upon the money market by the rise in the rate of interest. When the charge for the use of money rose prices would fall, importations would diminish, and exportations of merchandise would increase. Then would come a check to the loss of gold and a restoration of normal conditions. This is exactly what happened in Russia and in Japan under such conditions. In 1899 Russia exported much gold under the stimulus of the large importations which followed the inauguration of the gold standard. There were those who declared that the country would be denuded of its gold. But the i-eserve stood the strain and the eco- nomic situation righted itself under the operation of natural economic law. The gold stock of the country dropped from 1,59] ,000,000 rubles at the close of 1898 to l,o(:6,400,000 at the close of 1899 and 1,492, .300,000 for 1900. But this loss of the yellow metal rectified the foreign exchanges, checked imports of merchandise, and brouglit gold pouring 134 STABILITY OF INTERNATIONAL EXCHANGE. back into the country in a volume whicli raised the gold stock of the country at the close of 1901 to 1,625,000,000 rubles and at the close of 1002 to 1,064,800,000 rubles. The experience of Russia demonstrated the truth of the profound observation of M. Witte, the distinguished Russian minister of finance, in his report on the budget for 1903: ' ' With a normal monetary regime and in the absence of exceptional circumstances, sucli variations have no great importance. To periods of ebb do not fail to succeed periods of inflow, so that, even if the metal temporarily lost to us had not come back in 1902, its return would have taken place in 1903 or the next few years." Japan went through the same experience in 1899 and 1900; but here, again, natural laws produced their usual results and the drain of gold was checked by an arrest of imports of foreign merchandise and the stimulation of exports. In the year 1900 exports of merchandise from Japan were only 204,429,994 yen and imports of foreign merchandise were 287,261,846 j^en. It is not surprising, in view of this large excess of imports, that ^ecie (nearly all in gold) went out of Japan to the net amount of 45,189,228 yen. It was freely declared that the mone- tary reform had failed and that Japan could not maintain the gold standard. But the scarcity of money produced its natural reaction upon the money market and trade, and in the year 1901 exports of merchandise rose to 266,000,000 and imports fell to 282,000,000 yen. The movement of specie and bullion, which showed net exports of 45,189,228 yen from 1900, showed net imports amounting to 1,371,129 yen for the first nine months of 1901. The fact that this tendency has continued until economic conditions in Japan were restored to a healthful basis was indicated by the following dispatch recently printed in the American papers: "London, July 18. — The Tokyo correspondent of the Times says the Bank of Japan's gold reserve is 173,000,000 yen, against 200,000,000 yen in notes, an unprecedented situation. The rate of interest is gradually falling and new joint stock undertakings are being floated. The foreign trade for the half year shows a large increase in both imports and exports, and the harvest prospects are favorable. A strong conflict over the budget is anticipated. " Japan, although nominally having a gold currency, is in some respects in much the same situation as the Philippines or China would be under this proposed system. Her gold is not to any considerable extent in actual circulation. It is chiefly held by the Bank of Japan. It is substantially a foreign-exchange fund, used in paying foreign balances, but not used in the interior trade of the country. The inte- rior circulation consists of paper secured in part by gold and of silver. There is, of course, some gold. It is seen occasionally, but it is not the common medium of circulation. Under the existing standards of wages and prices gold could hardly form under any circumstances a large pai-t of the circulation of Japan. One of the important factors in maintaining the parity of currency is that the currency system should be entirely separate from the fiscal operations of the government. China would enjoy this advantage if she placed the custody of her exchange funds in the hands of foreign banks and established intelligent foreign control over her currency system. Other governments — even that of the United States — have suffered from permitting the funds for maintaining the integrity of the currency to be encroached upon to meet the deficiencies of the treasury. China would, in some respects, enjoy an advantage over advanced civilized states if she would make her currency system STABILITY OF INTERNATIONAL EXCHANGE. 136 entirely independent of her fiscal system. She would enjoy this advantage if her reserves and her currency system were under a con- trol independent of the imperial treasury. This is substantially the case in England, where the issue department of the Bank of England is entirely separate from the banking department and the operations of the Government. The United States found it necessaiy in the gold-standard law of 1900 to guard against danger from this source by providing that the proceeds of the sale of bonds to replenish the gold reserve should be held as a separate fund and not applied to cover deficiencies in the ordinary revenue. An important consideration in framing a project for the Philippines was the low rate of wages and prices there. This would be true of China, Japan, and other countries of the Orient. Even if a gold cir- culation were issued in those countries, there probably is not one man in fifty of the population who would ever see a gold piece. A pound sterling or a 15 gold piece would represent almost the wages of a month. Hence there is very little need for a gold circulation under any circumstances, so long as those countries do not materially raise their standard of living. The gold held must be used simplj' as a fund for settling foreign balances and for some of the greater trans- actions of commerce; but, of course, these greater transactions are settled as far as possible by compensation, by exchange, and by econ- omy in the use of credit. The gold exchange fund simplj' settles the xiltimate balances in foreign trade. In the Philippines it will be necessary to charge a premium for gold and not to furnish it at exact par for silver, because of local condi- tions. If the Philippine government should offer to pay gold for silver at Manila, it would practically provide the gold fund for the entire Orient. The foreign bankers in Hongkong, for instance, and other foreign banks all through China, would simply have to send to Manila to get their gold, paying only such charges as were required from Manila to Hongkong. The government of the Philippine Islands would pay the freight and all other charges in order to bring gold to Manila and furnish it there free to the bankers of the entire East. That being the case, the government of the Philippine Islands has been advised to charge a premium sufficient to pay all those charges, at least. In the case of France this charge of a premium for gold by the Bank of France does not impair the value of the currencj' for local circula- tion. Of course, exchange necessarily costs something in any case, but what it is essential that the Philippine government shoiild do is not to pay the cost of bringing gold from Europe or America, includ- ing freight, insurance, loss of interest, and commissions, and then limit their charges to the cost between Manila and Hongkong. The Philippine government would have to pay the entire charges on gold from London, and if they offered to deliver gold at par or only at the cost of transferring it from Manila, there would be an immense profit to the banks in buying gold. The charge of a moderate premium will practically have no effect upon the local currencj^; while upon foreign trade it will have the effect of establishing a fixed rate of exchange. "Whether it is a trifie under gold par is of no importance, because in all countries there is a premium on gold for exportation. If the exporters and importers in the Philippines know that the premium on gold is 1 per cent they can make their calculation with certainty. The Government rate for gold drafts will probably be absolutely 136 STABILITY OV INTERKATIONAL EXCHANGE. fixed, but it will lie only occafeionally that an appeal will be made to the Government. The banking rate will change as it does in all coun- tries, including those having a gold currency. The Government rate will he fixed and will be jvist enough to protect the gold fund in New York. This premium, it should be clearly understood, is not charged for the delivery of gold in Manila, because the Government will not necessarily deliver any there. They may pursue the same policy which is pursued in India. When it comes to foreign exchange there is necessarily a charge, just as there would be to a man in Paris who wanted a million in gold delivered in Tours or Bordeaux. Th« local bankers would not give it to him without any charge. Yet it would not be said that that constituted any departure of the French bank-note currency from par. The premium charged in the Philippines will be for drafts upon the exchange fund in New York. The probability is that gold could not be used to any advantage in Manila and it would not be wanted there, because if a man took it he would have to pay all the charges of shipping it to the foreign port where he had his obligations to meet. If the Government offered drafts upon its New York fund in Manila at a rate below the legiti- mate banking rate, those drafts would be constantly sold by the for- eign banks and employed in transactions between London, Paris, and New York. It would be shortsighted and ill considered to deliver drafts at less than the banking rate or not to charge a slight premium to protect the Government. It is probable that the Philippine government will occasionally pay oiit a little gold in order to get it into circulation, in order to say it is upon a gold basis, but there will be no necessity for the iise of gold. The scale of wages is so small and the articles purchased by the Fili- pino people are of such small value that a 10-franc piece, for instance, would represent something like our carrying around a bill for a thou- sand francs. It would not be employed in the small operations of daily life. So far as the Philippine government is concerned, there seems to be no doubt of its ability to maintain its circulation at very small cost and without the slightest impairment of confidence. "When inquiries were first made in New York a year or more ago in regard to the prob- able value of the securities of the Philippine government and its bonds, it was stated that a 4 per cent bond probably could not be placed at a better rate than 95 per cent. You understand, of course, that the obligations of the Philippine government are not guaranteed by the United States. Nevertheless, there is doubtless a feeling among the purchasers of those securities that there is some moral obligation and that the United States might not permit default; but the bonds are not secured by any specific legal guaranty. There is no legal obligation upon the Government of the United States for the debt of the Philippines. That being the case, when the Philippine government offered, this spring, some $3,000,000 worth of its obligations for one year, paying 4 per cent, on the New York maricet, they were subscribed for at a premium. Although they run only for one year, the price paid for them was more than 102-^, reducing the net charge to the government to 1^ per cent. Beyond that the Phil- ippine government took the proceeds of this loan, deposited it in one of the trust companies in New York, and received interest at '6i per cent, so that they realized a profit of not less than 2 per cent by bor- rowing money. STABILITY OF INTERNATIONAL EXCHANOE. 137 Of course that was due partly to the peculiar eonditious of the New- York money market. These securities were made available by the Secretary of the Treasury to secure the deposit of the money of the United States in the banks, and it can not be expected that an actual profit will be derived from borrowing in all cases. Nevertheless, the success of that operation indicates how small would be the expense to any government maintaining an exchange fund in this manner. If China, for instance, should issue a loan upon which the interest was secured — if certain sources of revenue were set aside so there was no question of the payment of the interest — she could deposit the pro- ceeds in the banks and receive a good rate of interest for it. The criticism has been made that in certain cases, as in the United States in 1894-189G, the gold fund has been very costly. The situa- tion in China differs from that in the United States in this respect: Certain sources of the income of the Chinese Government would be set aside for the interest on the loan. They would afford an absolute guaranty of the integrity of the loan, whereas in the case of the United States the national credit of the United States was involved. The national credit of China would not be involved from a fiscal point of view, so far as these sources of revenue were secured. Under cer- tain conditions in time of war thej' might be suspended, as other gov- ernments have had to suspend specie payments in time of war. The amount of money which is supposed to be in circulation in the Philippines at the present time, and to have been in circulation for sev- eral years past, is 40,000,000 pesos. Of course, that is only an estimate. There is no means of ascertaining what is the actual amount. The cir- culation consists chiefly of Mexican dollars, but in that 40,000,000 pesos are included about 8,000,000 pesos issued bj' the Government of Spain for exclusive use in the islands. That amount is known with sub- stantial accuracy. Those pieces are considerably lighter than the Mexican dollar. They contain less silver. In the islands thej'^ circu- late at par with the Mexican pesos, but their lighter weight prevents their exportation. The Philippine government proposes to issue within the next few years as much silver as will replace those 40,000,000 pesos. It is their belief that the demands of business will increase and demand even more, but they will, of course, proceed with great caution when thej^ have gotten up to a point where the country is likely to be fully saturated with currency. It has been our opinion that the reserve required in New York for the Philippine currency system need not be greater than 15 per cent, and perhaps not so much as that. "We would not recommend so low a ratio, however, for a country having less firmly established credit or a country where the project would be more experimental than in the Philippines. In the Philippines the government begins under very favorable conditions. There is a great desire to get upon a stable gold basis among the Americans and foreigners, and even among the natives themselves. The government will, of course, be able to con- trol and to check the circulation absolutely. The new system is not yet in full operation, because it has required some time to make the coins. They are being coined very rapidly, and the system will be put into operation in the autumn. At that time the reserve will be established in New York, under the same con- ditions as the sale of the certificates in New York some time ago. There is one point in regard to the automatic operation of this sj'S- tem, not yet set forth, which might lead to misconceptions if omitted. 138 STABILITY OF INTEENATIONAL EXCHANGE. It was stated that the operation of the system would be automatic if the fact that when gold was paid for silver, either in the country itself or in the reserve funds in New York, that gold would be held, and, on the other hand, when local currency was paid for gold that silver would be held in reserve until there was a demand for it again by the offer of gold. That might seem to create a situation where there could be no permanent increase in the local currency, but there is a means of obviating such a condition. If there were no deposits of local funds in the gold reserve, and the people still desired additional circulation and indicated it by additional offers of gold, the government would take the gold, buy silver bullion, and by coining it increase the circu- lation. In other words, the plan does not preclude increase of the circulation when required. In the matter of increasing the gold reserve in such a case, the government would be governed by the actual conditions. The prol^- bility is that they would increase it by at least the amount of the profit on coinage, which would be, under ordinary conditions, 10 or 15 per cent. They would take still stronger measures, if required, but we do not think in the Philippines they would be required. The Philippine coinage act limits the amount to be coined to 73,000, 000 pesos ; that is the maximum limit. That is an arbitrary limit like that of 5,000,000,000 francs on the note circulation of the Bank of France, which will be raised, if necessary, by law. The government has a right to issue these securities for maintaining parity to the amount of $10,000,000 gold. That is the equivalent of 20,000,000 pesos. They have authority, therefore, to maintain a reserve in excess of 25 percent without recourse to the seigniorage profits on the coinage, but it is our belief that they will not be required to use those powers — that 12 or 15 per cent in gold in New York will always be sufficient. Pending the transition from the old system to the new — that is, while the new money is not sufficient in amount to take the place of the old — the old will be received at its bullion value substantially. The government is authorized to fix the rate from time to time in the new coin at which the old shall be received. The old coins circulate now at substantially their bullion value. The government has the right to fix the rate at which they shall be received for public dues and in the settlement of obligations, but anybody having made an obligation in the old money can pay it in the old money. The Philippine government has not felt under any obligation to redeem or even to receive permanently for public dues the Mexican dollars, because they were not issued under its authority. It has felt compelled, of course, to take such action as would not upset economic conditions in the islands during the transition. The Spanish-Filipino coins issued under authority of the government which preceded the American will be treated as an obligation of the Philippine govern- ment, but at their current value, which is their value at par with Mexicans. Appendix C. RESOLUTIONS AND REPOETS OF THE FOREIGN COMMISSIONS. I. — List of the Foreign Commissions. Commission of the Republic of Mexico. — Enrique C. Creel, chairman ; Eduardo Meade, Luis Camacho, Edward Brush, technical counselor. Commission of Great Britain. — Sir James Mackay, chairman; Sir Ewen Cameron, of the Hongkong and Shanghai Bank; Robert Chal- mers, of the treasury department; George W. Johnson, of the colonial office; W Blain; C. A. Phillimore, secretary. Commission of the French Republic- — G. Pallain, gouverneur de la Banque de France, chairman ; G. de Liron d'Airoles, sous-gouverneur de la Banque de France; A. Arnaune, directeur de la monnaie; A. Benac, directeur do mouvement des fonds au ministere des finances; Maurice Bloch; Robert Vasselle, directeur de I'Asie au ministere des colonies; Yves Guyot; Stanislas Simon, directeur de la Banque d'lndo- Chine ; Raphael Georges-Levy; A. Athalin, auditeur au conseil d'etat, secretary. Comrn ission of the Netherlands. — N. G. Pierson, chairman ; G. M. Boissevain; Roehussen, ex-minister of foreign afCairs. Commission of the Oerman Empire. — Doctor Koch, Prasident des Reichsbankdireetoriums, chairman ; Doctor von Lumm, Reichsbank- director; Dombois, Geheimer Ober-Regierungsrat und vortragender Rat im Reichsschatzamt; Doctor Helfferich, Legationsrat und standi- ger Hulfsarbeiter in der Kolonialabteilung des auswartigen Amts; Graf von Roedern, Regierungsassessor vom koniglich preussischen Finanzministerium; Roland Lucke, Director de Detuschen Bank; Doctor Salomonsohn, Geschaftsinhaber der Diskontogesellschaf t ; Franz Urbig, Vorstandsmitglied der Deutsch-Asiatisehen Bank. Commission of Russia. — Edward de Pleske, governor of the Impe- rial Bank, chairman; Alexander "Wyschnegradski, chamberlain of His Majesty the Emperor; lUarion de Kaufmann, member of the council of the Empire ; Pierre de Bark, president of the Banque d'Escompte de Perse, counselor of the court; Dimitrj' de PokotiloflE, director of the Russian-Chinese Bank; Nicholas de Malewinski, Benjamin Nor- man, Baron M. de Modem, secretaries. Commission of Japan. — Y. Sakatani, vice-minister of finance; F. Sugimura, director of commerce, department of foreign affairs; M. Morita, director of commerce and industry, department of agriculture and commerce; S. Matsuo, president of the Bank of Japan; S. Taka- hashi, vice-president Bank of Japan; J. Soyeda, president Industrial Bank; N. Soma, president Yokohama Specie Bank; Baron Y. Shibu- sawa, president First Bank; S. Hayakawa, chief director Mitsui Bank; K. Mizumachi, director finance bureau, department of finance; T. Tsukada, councilor, department of finance; K. Kanno, secretary, department of finance. Representatives of the Chinese Government who attended sessions of the Commissions : At London, Sir Halliday Macartney, Ivan Chen ; at Paris, Lion Ske Shun, Yen Chu; at Berlin, Mr. Kingyintai; at St. Petersburg, Koue Fang, Che Tseng. 139 140 STABILITY OF INTERNATIONAL EXCHANGE. II. — Note on the Action op the Foreign Commissions. The action taken by the commissions of other governments than those of the United States differed in form according to the instruc- tions given to these commissions by their respective governments. The British Commissioners desired the adoption of concurrent reso- lutions, in which the Commissions of the United States and Mexico concurred, the Commissioners of the United States, however, reserv- ing the right to present to other governments their original views without modification upon those points upon which they differed slightly from the British Commissioners. The most essential differ- ence, as stated in the report, was upon the question whether in China the gold standard should be established upon the initiation of a new monetary system or at a later date. The French Commissioners preferred to prepare a report for sub- mission to their own Government without seeking to reach an agree- ment upon concurrent resolutions. In their case and that of some of the other continental commissions some slight misapprehensions appeared to have occurred in regard to the exact views of the American and Mexican Commissions. While the discussions were quite full, the technical nature of the subjects discussed and the dif- ferences between the proposals made at international conferences and those made by the American and Mexican Commissions were of such a character that it was not surprising that they were not fully grasped in a short discussion. The French Commissioners appear to have misinterpreted the American proposals regarding the degree of foreign assistance proposed to be given to China in organizing her monetary system. They also appeared to attribute to the American Commission the desire to adopt a ratio of 32 to 1 to the exclusion of all other possible ratios, although the American Commissioners sought to make it clear that they desired only an approximation toward the market ratio and did not seek the adoption of the ratio of the Philip- pines to the exclasion of other ratios which would tend to accomplish substantially the same results. The report of the Netherlands Commission speaks in criticism of the policy of relying upon open credits with foreign bankers for the purpose of maintaining the parity of a local silver currency as involv- ing the risk that such credits would be withheld at the critical moment. The American recommendations, however, in this respect involved the creation of a gold deposit in favor of the Government selling drafts under such conditions, and would to this extent obviate the danger feared by the Commissioners of the Netherlands that a credit might be refused. The German resolutions, while concurring generally with the views of the Amerian Commissioners, added a clause iu the third resolution regarding the dependence of fluctuations in exchange upon the fluc- tuations in the value of silver bullion, which did not seem to the American Commission to give due weight to the fact that the suspen- sion of free coinage would bring silver token coins under a different rule from silver bullion. The resolutions adopted by the Russian Commission lay stress upon the difficulties of the transition from the present system to a gold standard, but the direct representatives of the Government on the Russian Commission appended a note to their conclusions, indicating that some of the difficulties of the transition would be mitigated by the issue of a national currency upon a silver basis, to be afterwards raised to iiarity with gold. STABILITY OF INTERNATIONAL EXCHANGE. 141 These explanations seem advisable, not for the purpose of qualify- ing or impeaching in any way the conclusions of the foreiga commis- sions, but in explanation of a few points upon which the brevity of the discussions and the difference of language apparently led to slight misapprehensions which should be understood in comparing their conclusions with the papers submitted by the American Commission. III. — Resolutions Adopted in Great Britain. CONFERENCE BETW^EEN DELEGATIONS FROM THE UNITED STATES, CHINA, AND MEXICO, AND REPRESENTATIVES OF GREAT BRITAIN. Points regarding monetary systems for silver-using count rie.^ on irJiich the Conference unanimously agree. 1. That the adoption in silver-using couatries of the gold standard on the basis of a silver coin of unlimited legal tender, but with a fixed gold value, would greatly promote the development of those countries and stimulate the trade between those countries and countries already possessing the gold standard, besides enlarging the investment oppor- tunities of the world. 2. That a national currency for the Chinese Empire, consisting of silver coins which shall be full legal tender throughout the Empire, is urgently desirable. As soon as practicable, steps should be taken for the establishment in China of a fixed relation between the silver unit and gold. 3. That approximate uniformity in the coinage I'atio between gold and the silver coins of such countries as may hereafter adopt a gold standard is desirable. 4. That, if there are no further serious changes in tlie price of sil- ver bullion, it is desirable that the coinage ratio between gold and the silver coins of those silver- using countries which may hereafter adopt a gold standard should be fixed at about 32 to 1. 5. That fluctuations in the price of silver bullion would, to some extent, be prevented by reasonable regularity in the purchases of sil- ver required by each government for actual coinage purposes, and that such regularity is desirable and might be adopted as far as pos- sible in each country subject to its monetary policy and convenience. Great Britain : Jas. L. Mackay, EwEN Cameron, Robert Chalmers, W. Blain, George AV .Tohnsox. United States: H. H. Hanna, Charles A. Conaxt, -Jeremiah W. Jenks. China: HALLIDAY 3IACARTNEY, Ivan Chen. Mexico : Enrique C. Creel, Luis Camacho, Ed° Meade. Edward Brush, T ,,> ,n/ia Technical Counselor. London, June IS, 1903. 142 STABILITY OF INTEKNATIONAL EXCHANGE. IV. — Report of the French Commission. [10 juillet, 1903.] Le Couiite charge par le Ministre des Finances de recevoir et d'en- tendre les delegations Americaine et Mexicaine, venues en France pour conferer "des moj'ens les plus propres k stabiliser les changes entre les pays k monnaie d'or et les pays k raonnaie d'argent" a I'honneur de lui rendre compte de sa mission. Les reunions des delegues etrangers et frangais devaient pas avoir et n'ont eu k aucun moment le caractere d'une veritable conference. II a ete entendu notamment qu'aucun proces verbal n'en serait dresse. Les considerations developpees par les delegues Americains et Mexi- cains, soit oralement, soit dans divers documents ci-annexes, ont ete resumes par eux dans un memorandum succinct qui a pu etre ainsi traduit: *^ Memorandum, des vues des Commissions du Change Intern ational des Etats-Unis et du Mexique presente d V appreciation des delegues du Gouvernemeiit Franpais." "1°. L'adoption dans les pays a monnaie d'argent d'un systeme monetaire sur un change d'or, consistant en pieces d'argent de cours legal illimite avec une valeur fixe en or, contribuerait, dans une large mesure, au developpement de ces pays et stimulerait le commerce entre ces pays et les pays deja en possession de I'etalon d'or, sans compter qii'elle mxiltiplierait les debouches pour les placements du monde. "2° Un systeme monetaire national pour I'Empire chinois consist- ant en pieces d'argent qui auront cours legal illimite dans I'Empire tout entier et auront un rapport fixe avec I'or est desirable et pratica- ble ; et des mesures devraient etre prises immediatement par la Chine pour I'etablissement d'un pareille sj^st^me. ' ' 3°. Une unif ormite approximative est desirable dans le rapport legal entre I'or et les monnaies d'argent des pays qui desormais adopteraient un systeme de change fonde sur I'or; et, s'il n'y a pas ulterieurement de changements serieux dans le prix de 1' argent lingot, il est desirable que le rapport legal entre I'or et les pieces d'argent des pays k monnaie d'argent qui adopteraient le systeme de change fonde sur I'or soit fixe a environ 1 k 32. "4°. La stabilite dans le prix du I'ngot argent aiderait beaucoup a I'installation prochaine et k la solidite permanente du systeme du change fonde sur I'or dans les pays qui sont maintenant k etalon d'argent. "5°. La stabilite dans le prix du lingot argent serait favorisee par une regularite raisonnable dans les achats d'argent necessites par chaque Gouvernement pour ses besoins reels de f rappe ; et iine regu- larite de ce genre est desirable et devrait etre adoptee autant que pos- sible dans chaque pays, dans la mesure oii cela s'accorderait avec sa politique monetaire et ses convenances." La redaction tres prudente de ces cinq propositions destinee k pre- venir autant que possible toutes objections, se rapproche du texte qui aurait ete agree par les Delegues anglais. A ce sujet, il importe de rappoler que le Gouvernement de la Grande Bretagne est reste com- STABILITY 01' INTEKNATIOKAL EXCHANGE. 143 pletement en dehors de cette discussion et n'a fait connaitre, eu aticune maniere, son avis sur les points vises. Le Gouvernement Frangais jugera sans doute a propos de reserver egalement son opinion jusqn'a ce qu'il lui ait ete possible de proceder k un echange de vues avec les autres puissances interessees et notam- ment avec I'Angleterre qui est le grand eontre commercial du monde. Pour examiner utilement les cinq propositions du memorandum, il sera necessaire de rechercher au dela du texte imprecis la portee veri- table des suggestions proposees. I. Le premier paragraphe exprime I'avis qu'il conviendrait d'instituer dans les pays a monnaie d'argent, un regime monetaire ayant pour bas e une monnai ed'or avec circulation fiduciaire d'esp^ces d'argent a cours legal illimite, sans aller neanmoins jusqu'a preconiser I'etablisse- ment d'une sorte d'union monetaire orientale. II semble, au contraire, ■preferable aux delegues etrangers et d'une solution plus aisee de lais- ser chaque pays operer separement la reforme a I'interieur de ses fronti^res. II nous a paru qu'auoune objection de principe ne pouvait etve elevee eontre cette proposition qui comporte neanmoins certaines reserves. II convient, en effet, de signaler d'une part, que le regime propose ne pourra etre institue ni se maintenir, dans aucun pay.s, si d'abord les monnaies etrangeres ne sont eliminees de la circulation, si ensuite le monopole des frappes d'argent n'est attribue ii I'Etat et exerce par lui judicieusement, si enfin la balance commerciale ne se maintient favorable a la constitution d'une reserve d'or. La stabilisation du change ne sera jamais obtenue et ne pourra durer qu'a cette triple condition. Si ces trois conditions ne se realisent pas, il n'est plus exact d'affirmer avec ce memorandum, que la reforme proposee develop- pera les effets les plus lieureux pour le commerce entre les pays a monnaie d'argent et les pays A. monnaie d'or. D'autre part, si certains Etats orientaux restaient fideles au m(''tal blanc et que celui-ci vint a baisser de nouveau, les pays acquis a la reforme paieraient les faeilites dounees a leur commerce avee I'Occi- dent d'entraves peut-etre lourdes genantleursrappoi'ts d'affaires avee des voisins immediats, la difference du niveau monetaire se reportant d'une fronti^re a I'autre. Toutes compensations faites, la balance pourrait bien ne plus pencher du cote des avantages comme se le promettent dans tons les cas les delegues etrangers. Pour que la stabilisation monetaire puisse etre consideree sans reserve comme favorable aux interets des pays en cause, il est desirable qu'elle soit simultanement realisee dans toutes les contrees a monnaie d'argent a commencer par la Chine. II. A cet egard, I'adhesiondela Chine a une politique de reforme mone- taire, visee par le paragraphe II du memorandum serait particuliere- ment souhaitable. En principe, et d'une maniere generale, la commission ne pent que s'associer aux vues des delegues etrangers en ce qui concerne I'acces- gion de la Chine a la civilisation monetaire, 144 STABILITY OF INTERNATIONAL EXCHANGE. II faut bieii avouer cependant que le probleme est pour elle particu- lierement malaise a resoudre. La Commission Americaine avait dresse pour aider la Chine a en surmonter les difficultes tout un plan de reformes expose en detail dans le memorandum du 25 Juin 1903. En presence des considerations d'ordre politique que ce projet souleve, notamment de I'institution a etablir d'un controle interna- tional, la commission estime que c'est au Department des Affaires Etrangeres qu'il appartiendrait d'apprecier si une entente Interna- tionale entre les Puissances interessees est de nature a se produire et a en permettre I'adoption. Les propositions americaines et mexicaines visaient egalement cer- taines conditions de paiement de I'indemnite de guerre chinoise. La Commission ne pouvait qu'eoarter de ses entretiens une question resolue par le Protocole de Pekin. Les delegues americaius qui avaient formule ees propositions n'ont d'ailleurs fait aiicune difficulte pour reconnaitre qu'elles n'avaient avec les questions en discussion aucuu lieu essentiel. III. Le troisieme paragraphe du memorandum exprime le voeu qiie tons les pays qui passerout de la monnaie d'argent au regime propose, adoptent le meme rapport legal entre For et I'argent et flxent ce rap- port, s'il ne survient pas de nouvelle baisse du metal blanc, a 1/32. La Commission ne saurait attribuer a ce desideratum I'importance que lui donnent les delegues americains. II est bien evident que tons les pays qui voudront stabiliser leur monnaie devront etablir un rap- port legal assez voisin du rapport commercial, mais inferieur a ce rap- port. Si le rapport choisi n'etait pas inferieur a celui resultant du cours de I'argent en barres, la moindre hausse amenerait la fonte ou I'exportation des especes d'argent. S'il etait trop au-dessous, le bene- fice de frappe creerait une prime a la falsification ou a I'infiltration clandestine particulierement dangereuses dans des pays dont les fron- tieresse pretent si difEicilement a une surveillance efficace. Pourvu que le rapport legal nominal se maintienne entre ces limites approximatives, on n'aper§oit aucune raison essentielle de souhaiter que le meme rapport soit impose a tous les pays. Les monnaies d'argent devant etre reduites k un role de circulation inferieure sur la base d'une valeur fixe en or, il importe peu qu'il y ait une legere difference dans leur valeur intrinseque. On constate en Europe, sans qu'il en resulte aucun inconvenient appreciable, des variations de rapport relativement sensibles entre les monnaies d'or et les monnaies fiduciaires d'argent. On peut observer, par contre, que tout ce qui tendra a uniformiser les especes d'argent des divers pays orientaux constituera plutot un inconvenient au point de vue des importations clandestines au moment meme ou il apparait que I'une des conditions de succes des reformes projetees se trouve etre precisement la nationalisation rigoureuse des monnaies fiduciaires d'argent dans chaque pays ou colonie intdresses. IV ET V. L'oxpose (les 1' et 5° points tel qu'il a etc presente par les delegues etrangers peut se resumer ainsi ([u'il suit: Dans la situjition actuelle de la production et de la consommation de I'argent, la baisse de ce metal devrait s'arreter. En effet, d'une STABILITY OF INTERNATIONAL EXCHANGE. 145 part, la consoramation est egale a la production, ce que deinontre I'absence de stock disponible. D'autre part, il n'est pas vraisemblable que la production vienne k augmenter, la plupart des mines d'argent proprement dites travailleraient a perte aux cours actuels. La plus grande partie de la production provient des mines de cuivre, de plomb, etc., * * * q^ I'argent ne joue qu'un role accessoire. C'est la demande de ces diiferents metaux qui commande la pro- duction de I'argent et non le prix de I'argent lui-meme. Si malgre cela I'argent baisse, cette situation provient, dans 1' opinion des delegues americains et mexicains, de la maniere dout fonctionne le maicbe de I'argent, etroitement concentre entre les mains d'un petit nombre d'intermediaires qui disposent des cours. Pour contre- balancer leur action, les delegues etrangers voudraient organiser une sorte de syndicat d'achat englobant toutes les Puissances dont les frappes necessitent des achats de lingots. Les puissances repartirai- ent leurs achats de maniere a eviter dans les cours des A-coups que ne justifierait pas, suivant les auteurs de la proposition, la situation du marche. II a paru impossible de suivre sur ce terrain les delegues etrangers dont la proposition souleve des objections de di versos natures. Sans s'arreter a ce qu'il y aurait, a premiere vue, d'anormal dans la creation d'un syndicat d'acheteurs ayant pour objectif de maintenir les prix, il ne semble pas que les nations europeennes dont quelques unes sont deja surchargees de metal argent, puissent prendre I'engage- ment, meiue moral, de proceder k de nouveaux achats en vue de besoins eventuels qui peuvent ne pas se presenter. En outre, I'assertion que la baisse de I'argent ne .persisterait pas si la loi de I'offre et de la demande fonctionnait dans des conditions normales, parait tr^s contestable. Le fait que la consommation dans ces dei'nieres annees a egale la production, ne pent etre considere comme une demonstration sufBsante. Ce n'est pas seulement le produit apporte sur le marche qui agit sur les prix, c'est aussi le stock que le producteur serait en mesure d'y Jeter eventuellemsnt. Or, I'argent ne vient pas seulement des mines oil il n'est qu'un sous-produit, mais aussi, dans une certaine propor- tion, de mines d'argent proprement dites qui, vraisemblablement, pourraient si les prix augmentent, accroitre leur production. D'autre part, si dans ces dernieres annees la consommation a absorbe tout I'argent metal venant sur le marche, sait-on si elle con- servera la m^me puissance d' absorption? L'Espagne vient de suspendre la frappe de la piece de cinq pesetas. Plusieurs paj's, reprenant les paiements en esp^ces, ont du constituer, ce qui n'est qu'une operation exceptionnelle et purement temporaire, des reserves importantes de monnaie d'appoint. Maintenant que ces besoins sont satisfaits ne va-t-il pas se produire uu ralentissement de la consiimmation? On n'oserait pas affirmer le contraire. Aussi semblerait-il perilleux de s'engager dans une serie de mesures qui, suivant les delegues etrangers, n'auraient d'autre but que de regulariser Taction des lois naturelles, mais qui, en realite auraient peut-etre nne toute autre portee et viseraient a soutenir artificielle- ment les cours de I'argent. L'experience deja faite siir une grande echelle par les Etats-Unis a demontre, une fois de plus, I'inanite de toute tentative de cette nature. Les Etats-Unis ont achete de 1878 k 1890 deux millions de dollars d'argent par mois; do 1890 a 1893 quatre millions et demi d'onces d'argent; le resultat a ete nul. Le prix de I'argent a flechi et la pro- duction n'a cesse de s'accroitre et neanmoins pendant cette derni^re H. Doc. 144 10 146 STABILITY OF INTERNATIONAL EXCHANGE. periode les emplois monetaires de I'Europe absorbaient annuellemeiit plus de cent millions de francs. Pour maintenir le cours commercial de I'argent les pays producteurs invitent les pays consommateurs k regulariser la demande, alors qu'ils se declarent hors d'etat de regulariser I'offre. II est inutile d'insister sur le caractere anormal d'une proposition qui tend a provoquer de la part de I'Europe une intervention con- traire k tous les principes economiques, pour fixer le prix d'une marcliandise au moment meme ou Ton declare que par fldelite k ces memes principes, on ne peut pas se resigner k en regulariser la production. Vers la fin de nos entretiens, le Mexique a suggere I'idee que cer- tains Gouvernements pourraient au moins favoriser les emplois indus- triels de I'argent en reduisant les taxes de verification ou d'essai, la oil elles sont elevees. Sous reserve des considerations budgetaires que peut soulever cette question, la Commission ne verrait pas d'inconvenient a s'associer a ce voeu dejk emis en Francs. G. Pallain, G. de Liron-d'Aiboles, A. Arnatjn:&, R. G. Levy, Benac, Simon, Bloch, Vaselle, Yves Guyot, Membrea du Comite. Atthalin, Secretaire. . [Translation.] V. — Report of the French Commission. lOth July, 190S. The committee designated by the Minister of Finance to receive and hear the American and Mexican delegations who have come to France to confer about "the best means to stabilize the exchanges between gold and silver countries " begs to render him a report of its deliber- ations. The meetings of the foreign and French delegates were not to have and had at no time the character of a formal conference. It was especially understood that no minutes were to be kept. The considerations developed by the American and Mexican dele- gates either orally or in the different documents sent herewith were summed up by them in a brief memorandum which may be translated as follows : '■^Memorandum of the views of the Commissions of the United, States and Mexico on International exchange submitted for the consideration of the Commissioners of France. " 1. The adoption in silver-using countries of a gold-exchange cur- rency system, consisting of silver coins of unlimited legal tender with a fixed gold value, would greatly promote the development of those countries and would stimulate the trade between them and countries already possessing the gold standard, besides enlarging the investment opportunities of the world. "2. A national currency system for the Chinese Empire, consisting of silver coins which shall be full legal tender throughout the Empire and shall have a fixed relation to gold, is desirable and practicable, STABILITY OF INTEBNATIONAL EXCHANGE. 147 and steps should be taken by China immediately for the establish- ment of such a system. " 3. Approximate uniformity is desirable intheooinage ratiobetween gold and the silver coins of such countries as may hereafter adopt a gold-exchange standard; and, if there are no serious changes in the price of silver bullion, it is desirable that the coinage ratio between gold and the silver coins of those silver-using countries which may hei-eafter adopt the gold-exchange standard should be fixed at about 32 to 1. "4. The early establishment and thepermanent security of the gold- exchange standard in countries now upon the silver standard would be materially aided by stability in the price of silver bullion. "5. Stability in the price of silver bullion would be promoted by reasonable regularity in the purchases of silver required by each gov- ernment for actual coinage purposes; and such regularity is desirable and should be adopted, as far as possible, in each country, subject to its monetary policy and convenience." The very careful wording of these five propositions, designed to anticipate as far as possible every objection, closely resembles the text agreed upon by the English delegates. In this connection it is important to recall that the Government of Great Britain has remained completely out of this discussion and has not made known in anyway its opinions on the points considered. The French Government also will deem it advisable, without doubt, to withhold its opinion until it has been enabled to exchange views with the other powers interested, and especially with England, which is the commercial center of the world. In order to examine profitably the five propositions of the memoran- dum, it will be necessary to go beyond the general text and seek the real significance of the suggestions which have been presented. I. The first paragraph expresses the opinion that it would be advis- able to establish in the silver-using countries a monetary system based on gold, with a credit circulation of silver coin of unlimited legal ten- der, without going, however, so far as to recommend the establishment of any sort of eastern monetary union. On the contrary, the foreign delegates deem it preferable, as affording an easier solution of the problem, to leave each country to manage the reform independently within the limits of its own frontiers. It has seemed to us that no objection in principle could be raised against this proposition, which requires, nevertheless, certain reser- vations. It is essential, in fact, to point out, on the one hand, that the regime proposed can not be established or maintained in any country if for- eign coins are not first eliminated from the circulation; if, in the sec- ond place, the monopoly of the coinage of silver i^ not given to the state and judiciously exercised by it; and, last, if the commercial balance does not remain favorable to the constitution of a gold reserve. Stability of exchange will never be obtained, and will not last except under these triple conditions. If these three conditions ai"e not real- ized, it will not be correct to affirm with this memoi-andum that the reform proposed will have the most beneficial effects on commerce between the silver countries and the gold countries. On the other hand, if certain oriental countries remained faithful to the white metal, and if the latter should decline anew, the coun- tries which adhered to the reform would pay for the facilities given to their commerce with the Occident by fetters which might prove seri- 148 STABILITY Off INTERNATIONAL EXCHANGE. ous ill hampering their business relations with their immediate neigh- bors on account of the difference in monetary level at their frontiers. With all these allowances made, the balance might not weigh so heavily on the side of advantages as is assumed for all cases by the foreign delegates. In order that monetary stability may be considered as favorable without limitations to the interests of the countries which are under consideration, it is desirable that it be simultaneously real- ized in all the silver-using countries, beginning with China. II. In this respect the adhesion of China to a policy of monetary reform contemplated in the second paragraph of the memorandnm would be especially desirable. As a matter of principle and speaking generally, the Commission can but concur in the views of the foreign delegates in regard to the accession of China to monetary civilization. It must be acknowl- edged, however, that the problem is for her especially difficult to solve. The American Commission, in order to aid China in meeting these difficulties, had outlined a plan of reform, which is set forth in detail in the memorandum of June 25, 1903. In view of the considerations of a political character which the plan raises, especially the proposal to establish an international control, the Commission considers that it belongs to the Department of Foreign Affairs to decide whether an international understanding between the interested powers is of a character to be brought about and whether it is likely to allow the adoption of such a control." The American and Mexican propositions dealt also with certain con- ditions regarding the payment of the Chinese-war indemnity. The Commission felt compelled to exclude from its deliberations a question settled by the protocol of Peking. The American delegates who had formulated these propositions did not fail to recognize that they had no necessary connection with the questions under consideration. III. The third paragraph of the memorandum expresses the wish that all countries which may pass from the silver basis to the proposed system shall adopt the same legal ratio between gold and silver and shall flx this ratio, if there is no further fall of the white metal, at 32 tol. The Commission can not attribute to this desideratum the impor- tance given it by the American delegates. It is quite obvious that all countries which seek to stabilize their currency must choose a legal ratio near the commercial ratio, but somewhat lower than that ratio. If the ratio chosen were not lower than that resulting from the price of silver in bars, the slightest rise of prices would lead to the melting and exportation of silver coins. If it were too much below, the profit of coinage would offer a premium to counterfeiting or the clandestine introduction of coins, which would be especially dangerous to coun- tries whose frontiers do not allow efficient surveillance. Provided the legal nominal ratio is maintained within these appro- priate limits, there seems to be no essential reason for desiring that the same ratio be imposed on all countries. The silver currency being reduced to a subordinate role in the circulation on the basis of a fixed value in gold, it matters little that there should be a slight difference in their intrinsic value. It is the result of experience in Europe that variations of considerable importance in the ratio between gold money "■ Upon this point the French delegates do not seem to have correctly under- stood the Americiin proposals, which did not contemplate an agreement for foreign control. (See preliminary note.) STABILITY OF INTERNATIONAL EXCHANGE. 149 and the token money of silver have resulted in no appieeiable inconvenience. On the contrary, it may be observed that everything that tends to give uniformity to the silver coins of the different oriental countries would constitute rather an inconvenience, from the point of view of clandestine importations, as soon as it appeared that one of the con- ditions of success for the projected reform was found to be the strict nationalization of the credit currency of silver in each country or colony interested. IV and V. The exposition of the fourth and fifth propositions, as it was presented by the foreign delegates, may be summed up as follows : In the present state of production and consumption of silver the fall of that metal should be checked; for, on the one hand, consump- tion is equal to production, which is shown by the absence of an avail- able stock, and on the other hand it is not probable that production will increase, since most of the silver mines, properly so-called, are worked at a loss at present prices. The greatest part of the silver pro- duction comes from mines of copper, lead, etc., where silver plaj's only a subordinate part. It is the demand for these different metals which controls the production of silver and not the price of silver itself. If in spite of this silver declines, this situation is due, in the opinion of the American and Mexican delegates, to the way in which the silver market is organized, narrowly concentrated, as it is, in the hands of a small number of middlemen, who control the quotations. To coun- terbalance their action the foreign delegates would like to organize a sort of purchasing syndicate, including all the powers which need bullion for coinage purposes. The powers would distribute their pur- chases so as to avoid ups and downs in tlie prices which are not jus- tified, according to the authors of the proposition, by the situation of the market. It has seemed impossible on this subject to follow the foreign dele- gates, for their proposition raises objections of varioiis kinds. Without enlarging on what may appear at first sight abnormal in the creation of a sj'udicate of buj-ers with the view of maintaining prices, it does not seem that the European nations, some of which are already overloaded with silver, could assume an obligation, even .moral, to proceed to new purchases, in view of ultimate needs which maj' never arise. Moreover, the assertion that the decline of silver would not con- tinue if the law of supply and demand operated under normal condi- tions appears to be Aery debatable. The fact that consumption during recent j^ears has equaled produc- tion can not be considered as a suflSicient demonstration. It is not merely the product thrown upon the market which acts upon prices; it is also the stock which the producer may be in position to bring there ultimately. Moreover, silver does not come only from mines where it is a by-product, but also in a certain proportion from silver mines, properly so-called, which, if prices rose, would probably be able to increase their production. On the other hand, if during the last few j-ears consumption has absorbed all the silver bullion coming into the market, is it certain that it will continue to show the same power of absorption? Spain has just suspended the coinage of the 5-peseta piece ; several countries resuming specie payments have been oljliged to constitute important reserves of subsidiary money, which has been an operation excep- 150 STABILITY OF INTERNATIONAL EXCHANGE. tional and purely temporary. Now that these needs are satisfied , is there not going to be a slackening of consumption? One would not dare to affirm the contrary. Therefore it would seem dangerous to engage in a series of meas- ures which, according to the foreign delegates, would have no other object than to give regularity to the action of naturallaws, but which, in reality, would have perhaps quite a different effect and would tend to artificially sustain the price of silver. The experiment already made on a large scale by the United States has demonstrated once more the uselessness of every attempt of this nature. The United States purchased from 1878 to 1890, $2,000,000 of silver per month; from 1890 to 1893, 4,500,000 ounces of silver. The result was absolutely nil. The price of silver weakened, and production has not ceased to increase, notwithstanding that during this later period the monetary demands of Europe absorbed annually more than 100,000,000 of francs. In order to maintain the commercial quotations of silver the pro- ducing countries invite the consuming countries to give regularity to the demand, while they declare themselves unable to give regularity to the supply. It is useless to dwell on the unusual character of a proposition which tends to invite on the part of Europe an interven- tion contrary to all economic principles to fix the price of a commodity at the very moment when it is declared that fidelity to these same principles prevents the giving of regularity to production. Toward the end of our discussions Mexico suggested the idea that certain governments might at least stimulate the industrial uses of silver by reducing the verification and assay taxes where they are high. Reserving the considerations affecting the budget which this ques- tion might raise, the Commission sees no objection in joining in this wish already expressed in France. G. Pallain, G. db Liron d'Airoles, A. Arnaune, R. G. Levy, Benac, Simon, Bloch, Vaselle, Yves Guyot, ilemhers of the Commisnio)}. Atthalin, Secretary. VI. Report op the Commission op the Netherlands. Her Majesty's Government are fully aware of the great advantages of stability of international exchanges. For the last thirty years, whatever party was in office, all steps tending in that direction have been favoured by Holland. As early as 1871, when it was rumoured that the German Imperial Government were contemplating measures towards al:)olishing the silver and introducing the gold standard, a memorandum was sent to that Government deprecating such measures and recommending the adoption in Germany of the system of the Latin Union based on the double standard. Since that period dele- gates have been sent by our country to every international monetary conference with instructions to advocate the establishment of inter- national bimetallism as the most proper and efficacious means of securing stability of foreign exchanges. STABILITY OF INTERNATIONAL EXCHANGE. 151 This clearly .shows that on the part of Her Majesty's Government there always was, as there is now, a strong feeling on this point, and that the Commissions appointed by the United States and Mexico might count beforehand on a fair and friendly examination of the measures proposed by them. Independently of these considerations the fact that China, now that it is more and more being opened to the trade of the world, is taking steps toward the adoption of a well regulated national currency system, should be most heartily wel- comed. The measures now proposed differ from bimetallism in this impor- tant respect that they do not aim at securing fixity of value of silver in relation to gold (though one of them may be useful in miti- gating the variations of value between those metals) but only to secure such fixity as regards certain silver coins. It is intended that the present monetary condition of Holland and her colonies shall be taken as a kind of model for those countries, where the silver stand- ard still exists. Now, it should be borne in mind that this monetary condition in our own country is not considered as perfectly correct. We are fully alive to its deficiencies and only abide by them, because we ha-v^e no choice. We try to make the best of a situation into which circum- stances, over which we had no control, had plunged lis, and we feel very happy in finding that, after all, things go on much better than was anticipated at the outset. In fact, it must be acknowledged that our currency, ever since the act of 1875, introducing the gold coinage (but leaving the silver untouched) was passed, has remained in a per- fectly stable condition. According to the proposals of the American and Mexican commis- sions it is intended so to regulate the supply of silver coins in Mexico and China that it shall never be excessive ; that any redundancj' threat- ening to manifest itself will be at once discarded. We can not but approve of the principles involved in this. As long as international bimetallism can not or will not be established there is no other way leading to the end in view. It only remains to be seen whether it will be possible to avoid the dangers which certainly will be incurred, and for this reason it is absolutely necessary that a verj- clear per- ception of those dangers should be gained and stated. Without magnifying them unduly, we ought to beware of belit- tling them, and our own experience has taught us that they are consid- erable. A system, if so it may be called, like the one now since about thirty years in operation in our country and its colonies does not work well automatically. That is the weak part of it. It requires constant supervision, and in the first place an intelligent cooperation between the bank (or the banks, where there are many) and the Government. On this point too much stress can not be laid. For it would be a mistake to believe that even under a well-regulated banking sj'Stem and assuming an undiminished home demand for sil- ver coin no redundancy of such coin can arise. It may arise from a large issue of bank notes produced by the granting of credits on an unusual scale, and thereby increasing the volume of the currency. Under the system of the single gold standard this would lead to a drain of bullion, but a drain of silver coins circulating at a value exceeding their bullion value would be impossible in such a case; hence a redundancy could not be avoided. Such an excessive issue of bank notes might leave the situation of the bank itself wholly unim- paired. 152 STABILITY OV INTERNATIONAL EXCHANGE. Whether this he so or not depends upon the stock of coin and bullion in the bank at the moment when the extraordinary credits were granted. If this stock were very large at that time it is quite possible that even a large issue would not in the least jeopardize the convertibility of the notes. But it may, nevertheless, and under certain circumstances it necessarily will, endanger the state of the currency. Therefore, this is an evil to be guarded against. Of course the bank can not decline the granting of ordinary credits to trade and industry, but it certainly can decline, and whenever the danger presents itself it ought to decline, the granting of extraordinary credits to the State, meaning by this term either the central or the local authorities, as it may happen to be the case. It was, though not exclusively, still to a large extent, by not heeding this danger that in the month of January, 1883, the stock of gold in the Netherlands Bank, which in August, 1880, had amounted to 80,000,000 florins, fell to so low a fig- ure as 5,000,000, the lowest ever touched since the present system came into operation. The silver money may also become redundant by a too liberal issue on the part of the bank of gold coins for home circulation. The gen- eral public will never understand the reasons prompting the bank to withhold such coins when at the same time it is known that gold is freely given at the par value if required for exportation. It is, how- ever, the duty of the bank not to shun the unpopularity it necessarily will incur by adopting this course. Every gold coin that comes into circulation makes an equivalent amount of silver superabundant, and though this should be no reason for declining to issue small quanti- ties as an exceptional favor, it certainly militates against the redeem- ing of considerable amounts of bank notes in gold, whenever the gold is demanded for no other purpose than home circulation. It may be objected that all precautionary measures become unneces- sary by the fact that arrangements will be made enabling the Gov- ernment to draw bills on places abroad in case of a rise of the foreign exchanges. Undoubtedly such arrangements will be extremely useful, but we are not sure that it would be wise wholly to rely on them. On the contrary, we rather think that it would be adA'isable only to make use of such arrangements as an ultimate resource, to be drawn upon when other sources are failing. As a rule, every country should be able to keep its monetary system in a sound condition without appealing to the aid of other countries, and in the present case we do not see that any great sacrifices would be incurred if steps were taken to render this possible. If Holland or France now sold a part of their silver money this would entail upon these countries a heavy loss, amounting to at least 60 per cent of the face value of these coins. But the Mexican dollar, for instance, is worth no more than the quantity of silver it contains ; by melting and selling a certain amount of dollars the Republic of Mexico would lose very little money. Then why should not the Government take some millions of dollars from the banks and give them gold in exchange, so as to supply the banks with stocks of gold large enough to enable them to meet any demand proceeding from an adverse balance of payments? The quantity of dollars to be demonetized need not be enormous; a moderate quantity probably would be sufficient, if the banks could be expected to refrain from any excesses such as previously explained. Our intention is not to deter from making any arrangements with foreign bankers, but to show that a course might be adopted which would make them superfluous in the vast majority of cases; and that would, in the first (STABILITY (W INTERNATIONAL EXCHANGE. 153 place, be in iiceordanee with the dignity of the Government, while it would also give, a sal'er basis to the monetary sj^stem than can be found in the opening of credits by foreign bankers-; for such credits would be of no avail if circumstances arose impeding the sale of the bills. That this supposition is not unwarranted will be admitted bj' anyone who has some practical knowledge of the money market. In periods of monetary pressure or by the effect of political occurrences difficul- ties might arise. It is not impossible even that bills bearing a non- commercial character should be boycotted by the principal banks, and then what would be the situation of the Government? If our opinion were asked, we should advise, therefore, not indeed to give up the idea of the arrangements with foreign banks, but, on the other hand, not to make them the main foundation upon which the monetary system of the country is to rest. With regard to these drafts there is one detail which we think we ought not to leave unnoticed. In some of the papers von sent us stress is laid on the advisability of accepting in payment for the drafts when sold no other money but silver. This is not in accordance with our view of the matter. It rather seems to us that by making this condition the sale of the drafts will be rendered less eMsy than other- Avise, because many people will object to this mode of paj'ment, and there is no call for it. Whenever silver becomes redundant it is because the whole volume of the currency has dropped into that con- dition, and any measures tending to reduc<' tlic amount of money, no matter of what desci'iption, will- relieve the situation by putting a stop to the redundancy. Another detail, which regards Mexico, need not Ix^ dwelt upon, since it has been fully elucidated in the course of our discussions, ^^'e asked ourselves how yoii would prevent enorjnous quantities of Mexi- can dollars cii-culating abroad from being oifered in exchange for the new coin which you propose to issue, and so creating a circulation of these new coins far in excess of the home demand. We under.stood, however, that you mean to prohibit the importation of old Mexican dollars at some early period, and if this measure can be made effectual we readily admit that our objection is fully met. As to the course j'ou propose to follow, however, with regard to China we entertain some misgivings. Once more drawing your atten- tion to what we have observed about the necessity of a determined and intelligent cooperation of the banks, we entertain strong doubts as to the possibility of making any arrangements for China work well unless a central bank be established in that country and so organized that its management be wholly withdrawn from political and other non- commercial inflluences. ^^'e submit this point to j'our consideration. As to the question of the ratio between the value of the gold and silver coins to be adopted, we find it difficult to give an opinion. Of course in supporting the ratio of 1 to 32, which j'ou proposed, you do not mean to express any idea or to give anj' hint, however slight, about the ratio which should have to be adopted in the case of an international bimetallic union. We take this for granted, and therefore look upon the question as one of purely local interest. As such, however, it is highly important, inasmuch as by fixing the ratio either too high or too low great inconvenience might arise. A too high ratio might lead to an underestimation, a too low ratio to an exaggerated overestimation of the value of the silver coin, and in either case some harmful consequences would ensue. AVe can not help thinking that of these tAvo evils the latter is the one which should be chiefly guarded against. Xot Ix'canse the oth«r 154 STABILITY OF INTEENATIONAL EXCHANGE. evil is not equally harmful, though harmful in a different way, for, indeed, the whole plan would practically turn out a failure if the gold value of the new silver coin rose to such a point that the new gold coin fell below its face value. In that case no stability of foreign exchanges would be obtained. The reason why special attention should be paid to the risk of overestimation is this : That, as we gather from your own communications regarding the conditions under which silver nowadays is produced, the production of that metal will prob- ably go on increasing. This means that a further decline in the gold price of that metal is not improbable, and in that event, if the ratio were fixed at too low a figure, the margin between the face value and the bullion value of the silver coins would become alarmingly great. Especially in China this might lead to the coining of what may be called "false good money" on a large scale. We shall have little to say on your plan of obtaining more regu- larity in the purchases of silver for monetary purposes. Of course, if that object could be attained, this would to some extent mitigate the variations in the prices of silver on the New York and London mai-- kets. We can not but express our hope that your efforts in that direction may meet with a full success. Before terminating this memorandum we ought to observe that,, excepting the general agreement with the end your Commissions have in view of bringing about a greater stability in international exchange, the opinions here expressed do not bind our Government, but only the undersigned in their private capacity. PlERSON. ROCHUSSBN. G. M. BOISSEVAIN. The Hague, July 17, 1903. VII. Resolutions Adopted in Germant. KONFEEENZ ZWISCHEN DEN DELEGIERTEN DER VEREINIGTEN STAATEN VON AMERIKA, CHINA's, MEXIKO's UND DEN VERTEETERN DES DEUT- SCHEN REIOHS. Folgende Resolutionen sind von der Konf erenz einstimmig angenom- men worden: 1. Die Einfiihrung eines Goldvalutasystems in den Landern mit Silberumlauf , bestehend aus Silbermiinzen mit unbeschrankter gesetz- licher Zahlungskraft, aber mit einem festen Goldkurs, wiirde die Ent- wickelung dieser Lander erheblich begiinstigen und ihren Handel mit den Goldwahrungslandern fordern, sowie die Gelegenheit zu gewinn- bringender Kapitalanlage in der ganzen Welt erweitern. 2. Die Einfiihrung eines einheitlichen Geldumlaufs in China, beste- hend aus Silbermiinzen mit voller gesetzlicher Zahlungskraft, ist dringend erwiinscht. Die Yorteile einer solchen Reform sowohl f iir China als auch fiir die Goldwahrungslander wiirden ganz ausserordent- lich gesteigert werden, wenn es gelange, den Kurs der Silbermiinzen im Verhiiltniw zuni Golde zu fixiei'en. Fiir die Erreichung des letz- teren Zwecks ersclieint es geboten, das die Pragung der neuen Silber- miinzen nicht freigegeben wird, und das die chinesische Regierung zu Boginn der Reform alle diejenigen Masnahmen ergreift, welche ihr cine Einwirkung auf die ausliindischen Wechselkurse ermoglichen. 3. Wenn auch in den Ltlndern mit Silberumlauf der Kurs der Sil- STABILITY OP INTEEKATIONAL EXCHANGE. 155 bermiinzen von dem Stande der iiationalen Volkswirtschaft und ihren Beziehungen zu anderen Nationen abhangig sein wird, so ist es doch wiinschenswert, das ein einheitliches Ausmiinzungsverhilltnis von Gold- und Silbermiinzen in solchen Landern bestehe, wekhe kiinftig eine Goldvaluta annehmen, und das dieses Verhaltnis auf etwa 32 zu 1 festgesetzt werde, falls keine weiteren ernstlichen Veranderungen im Silberpreis eintreten. 4. Die Schwankungen des Silberpreises wiirden durch eine ver- standige Regeliniissigkeit in den Silberkaufen der Regierungen zu Miinzzwecken in gewissen Umfange eingeschrankt werden konnen. Eine solche Regelmassigkeit wiirde erwiinscht sein und wird den ein- zelnen Liindern empfohlen, soweit deren Miinzgesetzgebung und monetare Bediirfnisse nicht entgegenstehen. Dagegen wird zu diesem Zweck eine Aenderung der Miinzgesetz- gebung der Goldwahrungslander, insbesondere die Einfiihrung dos internationalen Bimetallismus, weder beabsichtigt noch fiir aussichts- voU gehalten. Ferner wiirde es im Interesse der Bestandigkeit des Silberpreises erwiinscht sein, wenn in den Landern, in welchen die industrielle Xov- arbeitung von Silber einer Steuer uuterliegt, diese Steuer aufgehoben oder ermasigt werden wiirde. Berlin, den 23. Jul!. 1903. EKKLAKUNG DER VERTRETER DES DEUTSCHEX REICIIS. Deutschland wird zunilchst nicht in der Lagc sein, seinen Silber- bedarf fiir monetare Zwecke durch Ankauf von Silberbarren zu bef riedigen, da es nach seiner Miinzgesetzgebung das zur Xeupriigung von Reichssilbermiinzen erforderliche Material den vorhandenen Talervorrat entnimmt, der fiir diesen Zweck noch fiir Jahre hinaus ausreicht, und da ferner der deutsche Silberoeldl)estand zur Zcit den tatsiichlichen Verkehrsbedarf um etwa Hundert Millionen Mark iibersteigt. In den deutschen Schutzgebieten besteht die Reichmark-Rechnung, ausser in Ostafrika und Kiautschou. Wenn die in den Resolutionen 1 bis 3 enthaltenen Vorschlage zur Ausfiihrung gelangen, so diirfte es ratsam sein, bei den fiir diese Schutzgebiete etwa vorzunehmenden Silberankaufen tunlichst nach den in Resolution 4 Abf. 1 festgestell- ten Grundsatzen zu verfahren. Berlin, den '23. JuU 1903. [Translation.] YIII. — Resolutions Adopted in Germany. CONFERENCE BETWEEN DELEGATIONS FROM THE UNITED STATES OF AMERICA, CHINA, AND MEXICO AND REPRESENTATIVES OF GER- MANY. Points on irhich the conference unaninicnisly agree. 1. That the adoption in silver-using countries of the gold standard on the basis of a silver coin of unlimited legal tender, but with a fixed gold value, would greatlj' promote the development of those countries and stimillate the trade between those countries and countries already possessing the gold standard, besides enlarging the investment- oppor- tunities of the world. 2. That a national currency for the Chinese Empire, consisting of 156 STABILITY OF INTERNATIONAL EXCHANGE. silver coins which shall he full legal tender throughout the Empire, is urgently desirable, and that the benefits of such a reform, both for China and for the gold-using countries, would be very much greater if a fixed relation between the silver unit and gold could be estab- lished. Foi' the latter purpose it seems advisable not to introduce free coinage of the new silver coins and for the Chinese Government to take at the beginning of the reform all those steps which would allow her an influence on the rate of foreign exchange. 3. That, although the exchange rate of the silver coin in silver-using countries will be dependent on the economic situation and the rela- tions with foreign countries, approximate uniformity is desirable in the coinage ratio between gold and the silver coins of such countries as may hereafter adopt a gold-exchange standard, and, if there are no further serious changes in the price of silver bullion, it is desirable that the coinage ratio between gold and the silver coins of those silver- using countries which may hereafter adopt the gold-exchange stand- ard should be fixed at about 32 to 1. 4. That the fluctuations in the price of silver bullion would, to some extent, be prevented by reasonable regularity in the purchases of silver required by each government for actual coinage purposes and that such regularity is desirable, and is recommended to each country, subject to its monetary legislation and needs. That, on the other hand, to this end a change of the monetary sys- tems of the gold-standard countries, especially the establishnlent of international bimetallism, is neither intended nor considered practi- cable. That, further, it would be desirable, as tending to promote the sta- bility of the price of silver bullion, that in those countries in which taxes are levied on manufactures of silver such taxes should be abol- ished or lowered. Berlin, July ;?-?, 190S. Dedarafion of the representatives of the German Empire. Germany is not at present in the position to satisfy its demand for coinage purposes by the purchase of silver bullion, because, accord- ing to its monetary system, it has, in the first instance, to use for recoinage the thalers in its possession, the supply of which will be suffi- cient for several years; besides, the present stock of silver coins exceeds the demand for circulation by about 100,000,000 marks. In the German colonies the Reichsmark system is used, except in East Africa and Kiautschou. Should the propositions contained in the resolutions 1 to 3 be carried out, it would be advisable to act in the case of purchases of silver for coinage purposes in the colonies accord- ing to the principles laid down in reselution 4, section 1. Berlin, July ;23, 1903. IX. — (Opinions of Professor IIelfferich, Legationsrat of the Colonial Department of the Imperial Foreign Office, Berlin. With the propositions which were presented and supported by the Mexican delegates at the last session, the discussions of this Commis- sion entered a new field. While heretofore in our conferences we have had under consideration the problem of the establishment of a gold system in lands with a silver circulation and with the fixing of a deter- mined ratio between the gold and silver moneys in actual use, now the question has been placed before us whether and in what manner STABILITY OF INTERNATIONAL EXCHANGE. 157 a certain stability of ratio may be brought about between the metals, silver and gold. Since so interesting and so valuable material regard- ing this question has been furnished by the foreign delegates, and since so valuable critical opinions have been expressed bj' them, it will perhaps be agreeable to them if the question, considered espe- cially in regard to its principal point, should be made the subject of a somewhat more general and detailed discussion by the German delegates. Between the two problems (1) of fixing a parity of exchange between silver and gold countries and (2) bringing about a ration as stable as possible between the values of the two precious metals, there exists a certain although not absolute connection. Until a short time ago the fixing of a ratio between the values of the metals gold and silver, somewhat after the plan of an international bimetallic sj'stem, was generally looked upon as the only way in which, if at all, stable rates of exchange between gold and silver standard countries could be reached. The starting point of the present discussions appears to me to lie in this, that the stability of the rates of exchange between the gold and silver countries which is so desirable may be brought about even without the fixing of a ratio of value between the precious metals. I can but recognize in this opinion M^hicli has been placed in the forefront of our discussions a great step in advance in the field of international monetary science, a step which finds an interesting analogy in the development of the national money systems. The task of holding in circulation in one and the same laud and within one and the same money system gold and silver coins in a ratio to one another which shall be fixed once for all was also thought earlier to be as dependent upon the fixity of the value relation between the metals silver and gold, as up to a short time ago the maintenance of a stable rate of exchange between gold and silver lands has been considered to be so dependent. According to the fluctuations in the values of the two precious metals sometimes the gold coins, sometimes the silver coins, had as bullion a slight value above their coinage value, and in these circum- stances sometimes the coins of the one, sometimes those of the other metal disappeared from circulation. Only little by little, through the development and application of reasonable principles concerning the issue of silver coins, did it become possible to introduce silver coins in a gold monetary system and to give them a value in gold independent of all fluctuations in the price of silver bullion. In the same way there lies now already before us a number of examples, showing that certain lands with a silver circulation have succeeded in making the value of their silver coins in relation to gold independent of the fluctuations in the values of the two precious metals, and in maintaining this parity at a value which has been determined once for all. Just as with us, in Germany the silver coins were introduced as minor coins in our system of a national gold currency, so certain lands whose monetary circulation is mainly silver have been able to inti'oduce their money into the general international system which rests upon the basis of gold. The most important examples are well known to this conference. The monetary system of India is worthy of the greatest consideration. There it has been possible, while maintaining the silver circulation, to raise the value of the silver rupee from 12kl. at the beginning of 1894: to lOd.; and after the year 1898 to maintain it at this rate, while the gold price of silver con- tained in the rupee has gradually sunk to nearly 8d. In this way it 158 STABILITY OF INTERNATIONAL EXCHANGE. is proved that the possibility exists of reaching the end which has been sought in the first instance by this Commission, namely, the fix- ing of the stability of the rates of exchange of the silver lands, even though there are strong fluctuations in the relative values of the metals gold and silver. Nevertheless, it would be a mistake to deny entirely the significance of the greatest possible stability in the price of silver in the attain- ment of a fixed parity of exchange between gold and silver lands. A stable price for silver is rather to be looked upon as an important, even if not an indispensable support of the rate of exchange for silver lands, for the greater and the more changeable the difference is between the gold value which is given to the silver money and its own metal value the greater will be the danger that it will not be possible to maintain the rate of exchange which has been determined. Fur- thermore, one of the most impoi-tant of those lands which would like to establish a fixed rate of exchange in gold for its silver money is especially interested through its national conditions of production in maintaining a value for silver which shall be not too low and which shall be as stable as possible — that is to say, the Republic of Mexico, represented in this conference. On account of the great significance which silver holds among the products, and especially among the export products, of Mexico the price which can be secured for silver must exercise an influence which is not to be underestimated upon the development of the industrial and flnancial power of the Mexican State, upon which again is dependent to a very great degree the abil- ity of Mexico to give to its silver money a fixed gold parity. On the other hand, it can not be overlooked that, together with the close relation which has been indicated above between the stability of the price of silver and the stability of the rate of exchange between gold and silver lands, there is also a certain conflict between these two aims. The stability of the rate of exchange in gold-standard coun- tries can be attained for silver countries only on the basis of a limited coinage of silver. If the forces which are ruling the market indicate the tendency of a fall in the price of silver, the rate of exchange of the silver money could be protected against this tendency only by means of keeping the circulation of silver scarce; that is, fewer silver pieces should be coined than would be coined under a sj^stem of free coinage. Exactly in that way, however, the pressure of the silver supply upon a free market would be increased, and the tendency toward a fall in the price of silver would, in consequence, be strength- ened. If, in accordance with the propositions which have been made in this Commission, the coinage of silver should be limited in those countries in which now the coinage of silver is still free, it must be recognized that in such a regulation there would doubtless be a factor which in itself would be likely to influence unfavorably the price of silver. Nevertheless it is, perhaps, to be expected that in connection with the reforms which have been proposed there are certain oppos- ing forces which of themselves would work against this unfavorable influence. Along this line I think especially that Mr. Creel is right when he expects a decided increase of the monetary use of silver in China from the introduction of silver coins of smaller denomination than the sil- ver bars now in use, which are only suitable for payments of large amounts. Likewise there would doubtless be also aii increase in the demand for silver for monetary and for industrial purposes in still other countries with the further increase of population, of wealth, and of commerce. In every instance I have gained the impression from STABILITY OF INTEENATIONAL EXCHANGE. 159 0111- discussions that even the representatives of Mexico, which has most interest in the price of silver, estimate the advantages of a stable rate of exchange so high that for the attainment of that end they would accept even a permanent lessening of the price of this most important product of their land . .On account of the great benefit which the devel- opment of Mexican industry would receive through the fixing of a certain rate of exchange, it could only be looked upon as a wise policy that the fixing of the rate of exchange should be considered of the first importance even by the Mexican delegates, as they have repeat- edly declared, and that the limitations of the variations in the price of silver should be considered a matter of secondary importance. In passing now to the means by which the aims which haA^e been treated in our discussions may be obtained, I consider it, in the first place, important to state that the fixing of the rate of exchange between lands with a silver circulation and those with a gold currency can be attained in the main only through measures to betaken bj'the silver lands themselves, especially by stopping the free coinage of sil- ver and through wise administration of the right of coinage on the part of the governments; further, through the creation and support of gold reserves, which would give to the goveruments the possibility of exercising a direct influence upon the rate of exchange through the selling of gold bills. For all these measures the gold-standard coun- tries could place at the disposition of the silver countries merely their moral support and good counsel. The practical carrj'ing out of the arrangements can be an affair only of the silver countries themselves. Even for China there could be offered by the powers merely a certain directing and controlling assistance. On the other hand, for the attainment of the aim which is second in importance, namely, the fixing of the price of silver bullion, the prac- tical assistance of the gold-standard countries might be claijnod to a further degree. On the part of the German delegates, as has been stated by his excellency, the president of the Reichsbank, the state- ment of the foreign delegates that no change in the monetary systems of the gold-standard countries and especially that no international bimetallic system is proposed has been unanimously received with sat- isfaction, as well as the further statement which Mr. Creel even to-day has again made emphatically, that it is not intended to ask the Euro- pean states to make any purchases of silver for which there is not a real commercial need. The suggestions which hav(> been made indi- cate rather only this, that a greater regularity than heretofore might be given to the acquirement of the silver bullion which is actually demanded for their jnonetary needs. The leading thought suggested by this proposition is, if I have rightly understood the matter, that the factors which have an influence upon the silver market have become in the course of the last few years decidedly more stable, with the single exception of the demand for silver on the part of the gov- ernments for the purposes of coinage. The statement of the Mexican delegates regarding the methods of production and of sale of silver have been extraordinarily interest- ing, for there has been heretofore scarcely anj'thing known in Ger- many regarding the very important changes which have taken place in this field during the last few years. The concentration of the sil- ver supply in a few hands, the increase and the relative importance of the industrial uses of silver are, in fact, factors which do make it appear that a greater stability in the price of silver may be obtained than has existed during the last ten yeai-s. I can see, however, an unfavorable factor in the interesting fact that silver is continually 160 STABILITY OF INTERNATIONAL EXCHANGE. becoming more and more a by-product of copper, lead, and zinc. If 75 per cent of tlie entire production of silver is due entirely to the pro- duction of other metals, then the limitation of the production in the case of an unfavorable tendency of the silver market would scarcely be possible, as has been indeed acknowledged b^ the Mexican delega- tion, and the supply of silver could on that account not be readily checked. . In any ease, however, it is to be recognized as right that, through a regular and systematic procedure of the governments in the supply of their monetary needs, there might be brought about an influence new and of considerable importance which would lead us to expect a greater stability in the price of silver. A fundamental prin- ciple for every agreement regarding silver purchases must, neverthe- less, remain, namely, that no silver should be bought for which there is no real commercial need, but that merely the purchase of the sil- ver which is needed should be divided regularly over a somewhat larger space of time. As to the purchases of silver which is not needed I am in full agree- ment with the opinion of the foreign delegates that no advantages could be expected from such purchases. Mr. Creel has rightly called attention to the great fluctuations in the price of silver which were brought about through the enactment and the repeal of the Sherman bill. As in this one case, so in the case of all silver purchases which exceed commercial needs, there must of necessity come a time when these purchases can no longer be maintained, and when for the main- tenance of the parity of the silver coin silver must perhaps be brought in the market. Purchases of silver, therefore, which were not founded upon a real commercial need would not contribute to bring about stability in the silver market, but would rather, on the other hand, lead to continual unrest and insecurity. For these reasons the German Empire must still for several years not be counted among those states which could enter into an agree- ment regarding regularity in their purchases of silver. As the presi- dent of the Reichsbank has explained in so clear a way, Germany has remained in the possession of a very large amount of silver for which its commerce lias no use, since in the year 1879 it stopped its sales of silver. A large part of this amount has been absorbed in the mean- time through the increase in population and the development of the industrial conditions of Germany, but even to-day there is still a remainder of about a hundred million of marks of superfluous silver money on hand, the absorption of which by commerce will not take place perhaiJS for ten years to come. Before Germany shall have come to this point of an equality between supply and demand new purchases of silver would be, of course, of themselves inadvisable. This is the condition of affairs as regards the German Empire. With relation to the foreign possessions of Germany and to the German protectorates the conditions are as follows : In all of the protected territories, except East Africa and Kiao-Chou (Kiautschou), there exists the German system with the German mark. This only unimportant demand for a medium of exchange is covered by the supply of imperial coins, besides which there is also found in circulation often French, English, and, in the South Sea, even American money. Kiau-Chou has no monetary system of its own, and even in the future must depend mainly on the Chinese system of money. The monetajy system of East Africa corresponds to the Indian monetary system, with tlio rupee as the unit. The monetary circula- tion is a small one, amounting, according to the highest estimates, to STABILITY OF INTERNATIONAL EXCHANGE. 161 about 10,000,000 rupees — that is, about 14,000,000 marks, or $3,500,000. The annual increase of this monetary circulation can not be considered of any importance for the world's silver market. To be sure, the German Empire, especially in the immediate future, will have to undertake for its East African colony a larger coinage of silver than in ordinary times, because the Empire a short time ago acquired again the right of coinage for the East African protectorate from a private company, and because it is the intention to replace the Indian rupees, which to-day form still the larger part of the circulation in German East Africa, by German rupees. This, change must be divided, considering the territorial extent of the protectorate, over several years. I think that I can unquestion- ably state that so far as purchases of silver may be necessary for the change in the East African monetary system, the colonial administra- tion will be ready to employ as far as is possible in the carrying out of these purchases the principles which have been laid down in the proposed resolutions. For this very small purchase of silver there will, indeed, in a still greater degree, be valid that principle wliich is valid for the entire system of the regulation of silver purchases by the different states, namely, that such a regulation can be only a little assistance, while the natural shaping of the relations of production and of the market must still bo the most important I'actors for the stability of the price of silver. X. — Resolutions Adopted in Russia. I. The introduction in China of a uniform monetary system witli ratio of oH to 1 — (1) Will procure considerable advantages in int ernational commerce, of which the foreigners who are in commercial connection with C'liina will derive the first benefit; (2) Will procure considerable advantages for silver-producing coun- tries; (3) Will procure considerable advantages also for the Celestial Empire on condition that the central Government succeeds in carry- ing out tlie reform to the end, and at anj' rate the cost of this reform will fall on the tax-paying population, as it will require considerable expenditure (which it would be difficult to define even approximately) for the purchase of new silver and especially for the formation of a gold reserve without which the stability of exchange can not be secured. (4) It induces the suspension of free-silver coinage and puts the Chinese Government in the necessit}- of limiting to a certain degree the seigniorage of coinage in order to avoid the depreciation of the coin. (5) In the course of the transitory period which, according to general acknowledgment, may last for a number of years, the conditions of interior monetary circulation will undoubtedly grow worse since the fluctuations in the interior change on those parts of China where the new system will first be introduced will certainly be more consider- able than at present. For these reasons, paying full tribute of esteem to the sound eco- nomical principles attesting the immutability of advantages connected with the improvement of the monetary circulation as soon as the reform of currency is put into force in China, we consider it uever- H. Doc. 144 11 162 STABILITY OF INTEENA.TIONAL EXCHANGE. theless our duty to point out that the said reform will require on the part of China most considerable expenditure, together with a firm though at the same time cautious and deliberate policy, and can therefore be undcrtalcen without risk only by a strong central power and after procuring the sufficient means. II. The choice of a coinage ra.tio between gold and silver is a ques- tion which should be determined for each country by its own monetary needs and economic conditions, and which must depend in each case on one hand upon the profits from coinage and the risk of counter- feiting (increasing in proportion to the diminution of the amount of silver in the coin), on the other iipon the risk of exportation of coin (in case of an excessive weight and the rise in the price of silver above par). III. The regularity and unification of purchases of silver by different countries for coinage purposes can contribute to a desirable diminu- tion of the fluctuations'in the price of silver, but can not absolutely fix the price. Finally, having considered the question raised by Messrs. Hanna and Jenks a few days after the last meeting as to whether their plan would have the approval if it were so amended as to mean a uniform national silver currency for China, issued on Government account, which should be given as soon as practicable a fixed parity with gold, Privy Councillor Pleske and Councillor of the State Vishnegradsky gave an affirmative reply. XI. — Resolutions Adopted in Japan. (1) Whereas the chaotic condition of the currency such as now exists in China, namelj', a condition under which there is no currency in the strict sense of the term, is highly disadvantageous, not to China alone, but also to those countries that have commercial rela- tions with her, it is the earnest desire of the Commission that a defi- nite and uniform currency system be speedily instituted and actually put into operation throughout the whole Empire of China, or, at all events, in some parts of it that are of commercial importance. (2) If possible, it is desirable that the currency system mentioned above should be on a single gold standard. (3) But, in view of the present condition of China, it is too much to expect that the currency reform can be started at once on a perfect sj'stem, and as it is considered highly disadvantageous to delay the said reform on that account, it is advisable to adopt the suggestions of the American Commission as a matter of expediency. But it must be admitted that the utmost skill and care are needed to overcome the great difficulties which necessarily accompany the operation of the sj^stem. (4) It is considered desirable that the ratio of 32 to 1 between gold and the silver coins should be adopted for other silver-using countries that may hereafter adopt the gold standard. (5) The Commission indorses the view of the American Commission on International Exchange that the fluctuations in the price of silver bullion would to some extent be prevented by reasonable regularity in the purchase of silver recxuired l)y each government for actual coin- age purposes, and that such regularity is desirable and is recommended to each country, subject to its monetary legislation and needs; but this indorsement is given with the understanding that no government STABILITY OF INTERNATIONAL EXCHANGE. 163 is expected by such indorsement to bind itself as to the practicability of the scheme proposed. (Signed) Y. Sakatani, vice-minister of finance; F. Sugimura, director of commerce, department of foreign affairs; M. Morita, director of commerce and industry, department of agriculture and commerce ; S. Matsuo, president of the Bank of Japan; S. Takahashi, vice-president. Bank of Japan; J. Soyeda, president, Industrial Bank; IST. Soma, president, Yokohama Specie Bank; Baron Y. Shibusawa, president, First Bank; S. Hayakawa, chief director, Mitsui Bank; K. Mizumachi, director, finance bureau, department of finance; T. Tsukada, councillor, department of finance; K. Kanno, scci-otary, department of finance. XII. — Report of the Mexican Commission ox Interx.\tional Exchange on the Monetary Conferences of London, Pakis, The Hague, Berlin, and St. Petersburg. [Translation.] To the lionoiithle the Assistant l^erri^ary of Fin(ut<-e and Public Credit. Sir: We have had the honor to attend, as delcj^atcs of llic Mexican Government, the monetary confei-ences held at Londi)n, Paris, Tlie Hague, Berlin, and St. Petersburg, and now have the satisfaction of submitting a brief report of the important work and resolutions (if said conferences, reserving for the future the presentation of a more elaborate studj' of the same. Before entering into any explanation about the monetary confei- enees which liave just been held, it is important to make som(^ liistor- ical remarks about the silver market and the influence it has had on the monetary system of Mexico. I. In 1S73 a movement in favor of gold monometallism was initiated in Germany, whicli resulted in the demonetization of silver in 1S7.'5, This policy was followed by other countries, which successivel}- adoiited the gold standard. In the monetary conferences of Paris and Brussels efforts were made to restore bimetallism, but it was not possible to reach any agree- ment; and the current of public opinion, each day more stronglj' pro- nounced in favor of the gold standard, has extended this system to all the countries of Europe and to sevi-ral of those of America. In the meantiTue the world's production of silver was increasing in a ver}- marked manner owing to the facilities of transportation and to the new industrial methods api^lied to mining and metallurgy. The iiroduction of silver in 1873 was 63,2(i7,187 ounces, and in ISO.'J increased to l(i5,472,6L'l ounces. The consumption of silver did not increase in the same proportion, and an overproduction showed itself in the market, which on the one hand constantly reduced the price of silver, and on the other inspired great distrust as to the future of the metal. In the United States efforts were made to reestablish the value of silver, first by the Bland Act, irnder which 291,272,018 ounces of silver were bought, and afterwards by the Sherman law, wliich caused the purchase of 108,674,082 ounces. This generous sacrifice on the part 164 STABILITY OF INTERNATIONAL EXCHANGE. of the United States proved to be useless, because the silver pur- chased, with the exception of a very small part, was not put in circu- lation. The result was an enormous accumulation and an artificial consumption of the metal, which could not continue for a long period and which' was contemplated with distrust in the market. Silver fell from oO^^d. m 1873 to 35^d. in 1893, producing, as was natural, a very great disturbance in the value of silver money, which naturally followed silver bullion in its decline. In 1893 the mints in India were closed, and in the same year the Sherman law was repealed, both event s causing a new depression in silver, the value of which fell from 35y\-d. in that year to Sl^ij-d. in November, 1002. The result of all these events was the creation of a universal feel- ing antagonistic to silver. Public opinion, both in the United States and in Europe, declared itself decidedly against this metal, and efforts have been made ever since to'eliminate it from circulation. Under these circumstances, the Mexican Government decided at the end of 1903 to invite the Government of China to study this problem and to send a confidential mission to Washington for the purpose of requesting the cooperation of the Government of the United States, in order to reach, after proper study of this economic question by commissions of several countries, some kind of an agreement, accept- able to all, by which greater strength and firmness would be given to the monetary systems which it might be found advisable to establish in the countries now liaving the silver standard, the whole problem to be studied under the general subject of international exchange. II. The (Government of Mexico has therefore been the one to take the initiative in this economic movement of such preeminent importance. In carrying out the measure above referred to Mexico has always had in view three points of capital interest, as follows : I. To endeavor to establish a monetary system which might give stability to international exchange. II. To protect as much as possible the mining industry. III. To harmonize the new monetary system with the internal neces- sities of the country, so as to facilitate its further development and progress. The study of tlie first two points was intrusted to the mission sent to the United States and to the Commission of International Exchange, which we have the honor to represent. As to the third point, which must be tlie principal basis of the sj^stem, the study thereof has been intrusted to a distinguished Monetary Commission, which is carrying on its important work at the capital of the Republic and is attracting the attention of the whole country. The Mexican Government fully succeeded in its endeavors with China and the United States of America, the result in the latter coun- try being the apjjointment of an American Commission on Interna- tional Exchange, consisting of Mr. H. II. Hanna, Mr. Charles A. Conant, and Prof. Jeremiah W. Jenks, with whom we have labored in the five conferences held in Europe during the months of June, July, and August of the present year. It is gratifying to state here that the collaboration of the American Commission has been of the greatest importance to us, owing on the one hand to the high prestige of their Government and on the other to the intelligence and ability of STABILITY OF INTERNATIONAL EXCHANGE. 165 the Commissioners and their firm and cordial disposition to support, as they did, tlie initiative of the Mexican Government. The latest fall in silver produced grave economic disturbances in all the countries having silver as a standard, and hence it was that efforts were simultaneously made in Mexico, China, the Straits, the ^lalay Confederation, the Philippine Islands, Siam, and Indo-China to change their monetary systems, the tendency being in all cases to establish the gold standard in one or another form. The movement was menacing to silver, and probably under its influence the metal fell to Sl/^d. at the end of 1902, which was the lowest price ever reached. Alarm and demoralization increased the danger, not only in the countries on the silver standard, whose money had irretrievably lost more than GO per cent of its purchasing power, but even in tli(^ coun- tries on the gold standard, which make use of largo quantiti(\s of sil- ver as subsidiary coin, whose systems were impaired by the enormous disparity between the legal value and the real market value of such money. III. From these trying circumstances arose the initiative^ of ]\Ieixco, clearlj' explained in the following instructions received liy us li-om the department of finance and public credit: "1. The Mexican Government, in initiating this international action, does not intend to ask any government whose standard is gold to modify in any way its monetary system, nor doi's it wisli lo suggest, any measure tending to maintain artificially the value in i^olil (if silver bullion. " 2. Nor is it the purpose of the Government of Mexico to suggest the conclusion of treaties or conventions, or the holding of cijnfei-ences where the repi'esentatives of several nations would consult simultane- ously. It only wishes the memliers of the Comiuissioii, after having come in contact separately with the persons designated by each foreign government, to study and discuss with tliem general propositions setting forth tlie conclusions which they nuiy have reached, reserving in all cases the liberty of action of the jMexican Goveninieut and of all the other governments in the premises, unless anyone of said governments may wish to make, either directly or throu"gh diplomatic channels, declarations which may bind them with such restrictions as th(\v may impt)se. " o. The fundamental ob.ji^ct of the Commission must be to secure the stability of tlie rate of exchange between silver-standard countries and gold-standard countries, without preventing thereby the nations which now use silver eoin from continuing to coin it or from consum- ing it in the same or larger quantities, provided that its value with relation Id gold becomes fixed. ' ' 4. It is very interesting for us to know the" opinion of those govern- ments which have to contend, either in their own territory or in their colonies, with the same monetar}' problem as Mexico, in regard to the fundamental basis of the reforms thej' propose making and the means of carrying them into etfect. "5. The Commission shall seek to show the advisability of the accept- ance, in a general way, of the same economic principles in all the new monetary laws to be enactc^d, and if possible of the same monetary relation between silver and gold, so as to secure for the monetary sys- tem to be adojjted not only uniformity and homogeneity, but all the 166 STABILITY OF INTEKNATIONAL EXCHANGE. prestige necessary for its acceptance by tlie people of the countries interested. ' ' 6. In studying the means of obtaining the stability of international exchange two fundamental questions should be discussed, namely, the restriction of the production of silver and the suppression of the free coinage of silver. As to the fonner, Mexico can not malce any concession Avhich is not made also by each of the other silver-produc- ing nations, and even in that case the Commissioners must not lose sight of the practical difficulties, perhaps insuperable, which may be found in the way of trying to enforce said restriction, because, among many other reasons, of the effect which that restriction might produce in the mining of other metals which are generally found, combined with silver. In considering the second question it is necessary to take into account the direct and immediate injury which our miners would sustain, and the fact that such a sacrifice could not be demanded from them except upon the pledge that it would not be fruitless, and that the mining industry would obtain compensation in some other way. ' ' 7. The protection due to the mining interests must be assured by the following means : "A. By bringing to an end the depreciation and even hostility to which the silver is subjected in the majority of the nations of the world ; and for this purpose the Commissioners shall furnish all the data and information upon prodiiotion and consumption of silver in the world, and show thereby that there is no economic reason which would justifj^ the adverse predictions as to the future of the metal. "B. By endeavoring to obtain from the Governments regularity in the purchase of the quantity of silver required to meet the normal necessities of their monetary circulation. "C. By calling attention to the irregularity existing in the legisla- tion of some countries by which manufactured silver is heavily bur- dened, although those countries have ceased to be on a silver basis. The manufacture of articles of silver should not be burdened with heavier taxes than any other industry. "D. By cooperating as strenuously as possible to improve the eco- nomic and monetary conditions of China. " It is evident in this respect that whatever concession may be made to the Cliinesc Government by the nations which are entitled to a war indemnity will notably improve the conditions of the silver market; and tlie Commissioners should endeavor to obtain, for at least a cer- tain number of years, a decrease in the annuity to be paid by China. The CVjmmissioners will not, however, insist upon this if they find opposition, because the question is one intimately connected with the foreign policy of several nations. But the Commission should make constant effort to secure a steady increase in the consumption of silver in China by promoting the use of silver coin in every portion of her immense territory and by hastening the removal of the obstacles whi<'li oppose the substitution of a uniform silver coin for the present imperfect medium of exchange. " 8. The mission of the Commissioners shall be limited for the pres- ent to the action to be taken by them with tlie Governments of England, France, Holland, Germany, and Russia, and they are recom- mended to carry on their work in harmony with the American Com- mission, acting jointly with it, unless the said Commission should, in the exercise of its functions, take some step or advance opinions con- trary to the instructions which the Commissioners have receiA^ed or to the interests of Mexico. The Commissioners must, on their part, STABILITY OF INTERNATIONAL EXCHANGE. 167 insist more tlian they upon the adoption of measnrcs regarding the future of silver bullion, because it is to be feared tliat under the special conditions of American politics, as far as silver is concerned, the American Commission will not be as much at liberty as might be desired to recommend measures of general interest suggested by equity in favor of the white metal." This was the programme which the department of finance and public credit laid down for the Commission-on International Exchange, and within the limits thus defined we have carried on our work in five conferences which have taken place in London, Paris, The Hague, Berlin, and St. Petersburg. In France and Russia it was decided that the conferences should adopt no resolutions, and that the respective Governments of tliose countries, basing their action on the reports of their Commissioners, would communicate to the Governments of Mexico and the United States their definite decision. Wo may expect, in view of the trend of the deliberations, that it will be favorable. The conferences held at London, Berlin, and The Hague adopted various resolutions of importance, which, with slight variations, were as follows: "I. That the adoption of the gold standard on the basis of a silver coin of unlimited legal tender, but having a fixed value in gold, would greatly facilitate the development of countries which at present are upon a siher basis and would promote their commercial relations with gold-standard countries, besides broadening the world's field for investment. "II. .That a national monetary system for tln' Cliinese Empire, based on a silver coin which shall be legal tender throughout said Empire, is urgently to be desired. "As soon as practicable the necessary steps should be taken for the establishment by China of a fixed ratio between her silver coin and gold. " III. That an approximately uniform ratio between gold and sil\'er in all those countries which shall in future adopt the gold standard is to be desired. "IV. That if no material change occurs in the vahie of silver bul- lion, it is to be desired that the ratio between gold and silver in coun- tries which accept the gold standard be fixed in the neighborhof)(l of 32 to 1. "V. Tliat fluctuations in the value of silver bullion would be obvi- ated to a certain extent by a prudent degree of regularity in the pur- chases of silver required by each Government for its ctirrency needs, and that in consequence such regularity is desirable and might with advantage be adopted by each eotmtry, subject to the needs and con- venience of its monetary system." "These resolutions express the opinions of the commissions which took part in the conferences, opinions probably inspired bj' their sev- eral governments, and therefore all the more entitled to respect; bttt they are in no manner binding upon any of the nations, for sticli was not the nature of otir mission, and just as the Government of Mexico has retained the fttUest degree of freedom, so the governments of the countries visited by us have taken upon themselves no obligation. "Notwithstanding this, it is of the utmost importance to ^lexico to know the opinions of the highly respected commissions of the five nations which we have visited, and those opinions, added to those of the Mexican, American, and Chinese Commissions, provide in the 168 STABILITY OF INTERNATIONAL EXCHANGE. domain of scientific investigation a harmony of principles, many points of agreement, and a certain moral obligation among the repre- sentatives of the eight nations in question, many of them persons of a high official station, others being professors of political economy enjoying a world-wide reputation, and others occupying the very important positions of presidents of tlie Bank of France, the Imperial Bank of Germany, and tlie Imperial Bank of Russia. IV. "Tlie resolutions adopted by the conferences and the papers pre- sented by the delegates thereto will undoubtedly have served as the basis for the reports of the various commissioners to their govern- ments, and this economic investigation and harmony of principles afford ground for hoping that the new monetary laws in countries which are at present on the silver standard will be adjusted on a com- mon scientific basis, and that a silver coin with a fixed value in gold will be generally adopted, meeting the usages, necessities, and customs of those countries on the one hand, and, on the other, assuring an increasing consumption of tlie white metal, in both of which problems Mexico is keenly interested. " In regard to China, opinion is unanimous in regard to the impera- tive necessity for the establishment of a national monetary system on the basis of a uniform silver unit. There is also uniformity of opinion as to the expediency of imparting to this silver unit a fixed value in gold, but the opinion of the conferees is divided as to the method to be adopted. Some recommend that from the beginning there should be established in tlie Chinese Empire a definite relation to gold or a fixed rate of exchange, whereas in other conferences the division of the reform into two periods has been recommended — first, a silver cur- rency Avithout relation to gold and, later, a fixed ratio between silver and gold. "The latter suggestion is based on the opposition and difficulties which are presented by oriental civilization to all reform movements, and on the belief that the gradual evolution will be less perceptible and will be attended with fewer difficulties. In Russia and England, especially, the immediate establishment of the gold standard in China is regarded almost as impracticable. "In this respect Mexico is advantageously situated, and whichever of the two solutions is adopted it will be highly favorable to her, though naturally from the point of view of the Chinese Empire it is to bo hoped that it will adopt the more perfect monetary system and the one that may be most conducive to the development of her exten- sive and richly endfiwed territory. " In the monetary system that is recommended for tlie purpose of bringing about the fixity of international exchange the price in gold of bar silver and the value in gold of silver money are absolutely dis- associated. The former may fluctuate in the market, whereas the sil- ver money will always have a fixed value in gold. Hence will come stability of international exchange. "This fixed value in gold will be maintained by the governments in the following manner: " I. Ky the closing of the mints to the free coinage of silver. ' ' II. By the fixing of a ratio between gold and silver by the govern- ments. STABILITY OF INTERNATIONAL EXCHANGE. 169 " III. Bj' the legal-tender character of the currencj' for the pajnnent and settlement of contracts of all kinds. "IV. By reason of its being the only monej' in which duties and taxes will be paid, as it is supposed that there will be no gold in circulation. "V. By the limitation of the quantity of silver money coined exclu- sively for the interior circulation of each country. " VI. By the creation of reserve funds in gold in those countries in which the foregoing conditions are not sufficient to maintain the sta- bility of international exchange." The whole of this mechanism is based on the fixity of value in gold of silver money. The fluctuations in the price of bar silver should not, we repeat, disturb this system. The history of all countries which have adopted the gold standard and which continue to use silver money proves this fact, and the experience of India also confirms it. Notwithstanding the foregoing observations, it is to be desired that the silver market should improve, and that a certain relativi' stability and a certain rise in the price of silver should be secured. Stabilitj^ in the value of silver would lie a very firm basis upon which the gov- ernments could establish and preserve, with more (Mn-tainly and less difficulty, the relation lietween silver and gold. A higher price of the white nii'tal would be not onlj^ favoi-al)le IVir the mining industry, liut would conslitute a great protection against the danger threatening the stoelc of four thousand millions of silver dollars (14,000,000,000) which (exists in th(' world and the enormously large quantity of the same metal in objects of art and other forms. For tliis reason, IMexieo feels bound to interest herself in obtaining both results, protecting thereby the silver mining of her I'oiintrj'. VI. In addition to these studies, connected all of them with the fixity of international exchange, this Commission believes it to be it.s duty to make an investigation as complete as possible of the i)reseiit conditions of production and consumption of silver, all of which is in accordance with instructions received from your Departm(>nt. We have the honor to submit, in a separate report, the study made by us on tlie siibject, showing that in latter years a reaction very favorable to silver is taking place. In fact, there has been no consid- erable increase in the production of the metal. In 1893 tlie total pro- duction in the world amounted to 105,472,021 ounces of silver, and in 1001 tlie production was 170,008, .^73 ounces, which shows a very remarkable stability in the production. The same conclusion does not apply to the consumption, as it has increased considerably both in the coinage of money, in industry, and in the market in -India. Taking the consumption of 1800 to 1901, which embraces a period of twelve years, and comparing it with that of 1873 to 1890, we find an increase of 828,000,000 ounces, which gives an average increase of 69,000,000 ounces per year, distributed as follows : Otmces. Coinage -_. 30,000,000 Industry 39, 000, 000 India 10,003,000 Annual increase 69, 000, 000 170 STABILITY OF INTERNATIONAL EXCHANGE. It is satisfactory to us to state that this investigation has produced everywhere a very good effect, and we might even say a certain sur- prise, because the discredit of the white metal was such that govern- ments and economists had not taken the trouble to form comparative statements so accurately itemized and complete. The eloquence of flgiires has asserted itself and caused the views of several persons with whom we have had an opportunity to discass the problem to be changed. VII. Some explanations should be made about a point of importance embraced in the resolutions of the conferences, namely, the one rela- tive to the closing of the mints to the free coinage of silver. According to the unanimous opinion of all the economists whom we have consulted, this basis is indispensable for the stability or fixity of international exchange. The free coinage of silver is the dividing of the silver bar into pieces upon which the seal of the Government is stamped as a guaranty of the fineness and the weight, without any obligation in regard to the value in gold. The pieces of silver, or, in other words, the coins, maintain invariably their market value, subject to rise and fall according to the current fluctuations in international exchange. All the countries of the world which have given their silver coin a fixed value in gold have closed their mints to the free coinage of silver. Mexico can not deviate from that inevitable economic law. In order to secure a fixed value in gold for its silver coin it is a requirement sine qua non to close the mints to the free coinage of silver. It is advisable to examine the effects which such a measure would produce. The mining industry has to suffer something when the market value of silver in gold is inferior to the ratio between silver and gold, which may be fixed by the monetary law. This sacrifice is inevitable, although it would be partially compensated by the lower cost of production on account of the relative fall in the price of all the foreign merchandise which is consumed in the mining industry, and because, also, the rise in wages which would be inevitable under the present system would then be suspended. As to the price of silver and its market in foreign countries there can be no difference. For Mexico it is the same, exactly the same, whether silver be exported in the shape of Mexican dollars or in the shape of bullion. In either case the value in gold received for -each kilogram of fine silver is the same. The Mexican peso does not derive its value from its coinage, nor is it exported as money. It is mer- chandise, and is now, and has been for many years, valued according to the amount of silver which it contains, and nothing more. It is sufficient to consult the quotations of the market during a period of twenty years to convince ourselves that the price of silver in bars and that of the Mexican dollars has been at the same level, save with very rare exceptions of little importance. Whether the miner were compelled to sell his silver in bars or in the shape of Mexican dollars, the value obtained by him would be the same. Much has been written about the prestige of the Mexican dollar in the markets of the East. This is an historical truth, and it is cer- tainly satisfactory to Mexico that the Mexican coin has enjoyed such confidence; but this credit of our coin has not gone to the extreme of giving it more value than that of the silver which it contains. This STABILITY OF INTERNATIONAL EXCHANGE. 171 being true, it is the same for Mexieo whether she coins or does not coin her silver. In regard to the market, the fact is that silver in bars is purchased with more facility than silver dollars. One hundred millions of ounces troy of silver are sold annually in London, but the sales of Mexican dollars do not exceed 810,000,000, which represents 8,000,000 ounces troy. In regard to China, it must be said that this Empire purchases also a greater quantity of silver bullion than Mexican dol- lars, and the same thing happens in the Far East. It must be said, further, that the Philippine Islands have their own coin, that the Straits and the Malay Confederation will very soon have their own national money, that the same thing will occur in Indo-China, and that the Chinese Empire itself is already taking the necessary steps to establish its own money. The market for the Mexican dollar is rapidly disappearing, and very soon its coinage will prove unneces- sary, except for domestic circulation. But this fact need not cause \is alarm, because in China and else- where it is the silver contained in the dollar, and nothing more, which is purchased. For this reason, what most concerns us is the market for silver. We must take care tliat tlie consumption is not dimin- ished, and that, if possible, it is increased. Wo believe that this will be the case if all tlie countries which are now on a silver basis con- tinue to use silver as coin, and the consumption will be greater if the Cliinese Empire establishes its own silver nionetarj' system. Witli both these ends in view, the labors of the Commission of International Exchange have been conducted. If the Government of Mexico adopts as the basis for its monetary system the conclusions approved by the five conferences, we shall have a currency of fixed value in gold for the interior eireulation of our own countrj' and stability of international exchange in all our transactions with foreign countries. The monetary reform will impart to the country greater vigor and greater economic strength, and will enhance its credit and prestige in all the markets of the world. Both domestic and foreign capital will carry on its operations with tranquillity and confidence. The alarm wliich at present agitates capitalists, owing to the sharp changes in the value of our money on the market, causing discouragement and even demoralization, will disappear. Throughout Europe and the United States it is believed that the monetary reform will attract to Mexico a vigorous current of foreign capital. It is thought that a new ei-a of great prosperity awaits 3Iexico as a consequence of her monetary change. Everywhere the impor- tance of this economic move is spoken of as the natural consequence and fruit of the laborious and patriotic administration of (General Diaz, ably seconded in financial atfairs by his honorable minister of finance, Sr. Lie. Don Jose Yves Limantour. The monetary reform is consid- ered as the crowning glory of the eminently patriotic task of General Diaz, whose work is known, talked of, and esteemed in Europe in terms which must fill everj' Mexican heart with gratification and pride. VIII. Before concluding tliis report we believe it to be our duty to express our feelings of gratitude to the governments of the countries which we have visited and to their delegates to the conferences of London, Paris, The Hague, Berlin, and St. Petersburg, as we have been every- 172 STABILITY OF INTEBNATIONATi EXCHANGE. where the recipients of great attention and courtesy, which we have accepted as an honor and token of distinction to onr country. The conferences were presided over as follows : In London, by Sir James Maekey, appointed by the Government of Great l^ritain to negotiate the last treaty with the Chinese Empire. In Paris, by M. M. G. Pallain, governor of the Bank of France. In The Hague, by Sr. Dr. N. G. Pierson, ex-minister of the treasury of Holland. In Berlin, by His Excellency Doctor Koch, governor of the Imperial Bank of Germany. In St. Petersburg, by His Excellency E. Edouard de Pleske, presi- dent of the Imperial Bank of Russia. We are likewise grateful to the honorable members of the American Commission, who defended our common cause with brilliancj^, intelli- gence, and energy, and who besides extended to us all kinds of per- sonal attentions. The assistance of the legations of Mexico was of great value. In placing ourselves under their flag we felt the warmth of home, received the benefit of their high standing, and pressed the loyal and generous hands of distinguished fellow-citizens. This is, Mr. Minister, the resume of our labors. We request you to be pleased to submit this report to the President of the Republic, expressing to him at the same time our feelings of gratitude for the honor which he was pleased to bestow upon us in intrusting to us such a delicate commission. We express also to you, Mr. Minister, our especial gratitude and high consideration. Enrique C. Creel. Luis Camacho. Eduardo Meade. Paris, August W, 190S. Appendix D. MONETARY POLICY OF MEXICO. I. — Principal Documents Submitted to the British Comiiiksion. No. 1. [Handed in .June 3, 1903.] 1. Mexico h;is been on a silver basis since 15:;.5. 2. The silver currency gave full satisfaction to Mexico unlil JS70, whiui the gold price of silver commenced to decline. 3. The fluctuations in the price of silver bullion lui\e been followed by changes in the value of our currency, and since 1S70 a new and unsatisfactory condition has existe(l, which has l)een going from bad to worse, with great accompanjing evils, as the gold price of .silver bullion has declined in the market. 4. The inconveniences of the silver carrency have been iiioi-e severe and raoi-e disastrous on account of the violent lluctuatinus in the gold price of silver bullion. When the price has been relatively steady and not too low, Mexico has adjusted her finances to such condi- tions, and under the influence of steadj^ exchange' at about I'fto per cent the country was for some time prosperous and liad a healthy development. 5. The very low value of our currency in relation to gold, and the violent fluctuations in exchange have injured ilexieo in many ways, viz: (1) The price of foreign goods has advanced with the decline in the gold value of our currency, but wages have not advanced iu propor- tion, hence international commerce is threatened with paralysis. (i) The amount of silver currency required to pay the interest and sinking fund on our gold foreign delit has been increasing every year and it has been difficult to regulate the budget of Mexico, unless liy very careful provisions on the part of our Government and with great sacrifices. Lately Mexico passed a new law establishing a sliding- scale system as to the collecting of her customs, in order to counter- balance the disturbing fluctuations in exchange and facilitate the pajauent of the interest on her gold bonds. (;]) The railroads and other enterprises that have issued gold bonds are in the same critical conditions as the Government, and, although the healthy development of the natural resources of Mexico has increased the volume of business and the gross earnings of such enter- prises, yet the profits have been consumed and destroyed by the advance in exchange. (4) Some of the exports of Mexico, though apparently encouraged by low wages, have to meet in the market the competition of similar products produced under the same system of low silvei' wages in other 173 174 STABILITY OP INTERNATIONAL EXCHANGE. countries, and consequently the price has declined and the gold value is less in proportion to the weight, measure, and quantity of exports. In this way Mexico has not had the full advantage of the growth of its export business, which, though largely increased as to the quantity of goods exported, does not represent a large increase in its gold value. (6) The working classes will suffer the consequences of the loss in the i)urchasing power of the Mexican dollar, until such time as the wages are advanced, and when this happens all of the arguments in favour of the so-called protection for home industries and exports will be destroyed by the rapid advance in the cost of production. (6) Foreign capital — English capital investments^ being largely rep- resented — is also suffering on account of the depreciation of the silver currency. (7) On the whole, the propertj^ owners, the investors in industrial enterprises, and the holders of Mexican securities are greatly dis- tressed on account of the fatal reduction of their capital which has followed the decline in the gold value of silver in the market. 6. The reason why we make an open statement as to the local con- ditions of Mexico, regarding the influence of silver currency, is because such conditions are common to other silver-using countries and establish the general outline and characteristics of the whole proposition. 7. Notwithstanding the discouraging factors mentioned in the pre- ceding paragraph, Mexico has made remarkable progress during the last twenty years, and some people may believe and do believe that the vital forces of Mexico have been strengthened and encouraged by the low price of silver; but careful investigation shows that Mexico has advanced and developed its resources in spite of its depreciating currency, and as the natural consequences of a good Government, a long period of peace, the building of railroads, the creation of a banking system, and of other new factors of life and prosperity. 8. After an earnest and exhaustive study of her economic condi- tions, Mexico has thought it wise to propose a change in her monetary system with the object in view of giving steadiness to foreign exchange by fixing a steady gold value to a new silver currency. 9. The undertaking is one of very great responsibility, not only because of ]\Iexico's home affairs, but also on account of the interests of other countries with whom Mexico has friendly relations and inter- national commerce; and also because of the fact that the currency which is being issued bj' Mexico has been for a long period the cur- rency of China and the various colonial possessions of the Far East. 10. For these reasons Mexico did not deem it proper to act inde- pendently, specially so because other silver-using countries have been agitated by the same evils and are recommending changes to be made in their monetary systems. 11. Such is the condition in China, in Siam, in the Philippine Islands, in the Straits Settlements, in the Federated Malay States, in French Indo-China, as well as other European possessions in Asia and Africa, and in some of the Central and South American Republics. 12. This being the case, Mexico has thought that it would be to the advantage of all countries concerned to exchange views, to study together the economic problems involved in this grand and far-reach- ing proposition, and, if possible, to come to some understanding as to what is the best to be done and under what procedure, system, and pi'inciples the change should be made. STABILITY OF INTERNATIONAL EXCHANGE. 175 13. With this object in view, Mexico invited China and botli coun- tries ha^'e asked for and secured the cooperation of the United States of America. li. Mexico believes that the gold countries are yerj much inter- ested in the stability of the monetary sj^stem of the silver-using coun- tries on account of international commerce, international finances, and other factors common to every country, and in conformity to the comity of the nations of the civilized world. 15. The silver-using countries are consumers of the products of tlie gold countries to the extent of about $000,000,000 gold per annum, and they are also debtors to the gold countries to an extent which aggre- gates jbillions of dollars. 16. The manufacturing industries of the gold countries are growing, and international commerce ia the natural outlet, keeping always run- ning the current of trade and prosperity and establishing the equilib- rium of supply and demand. 17. In the case of Great Britain, her interests as to the future of silver-using countries is direct and indirect, but always large and important, both for the reason that some of her colonies are using silver, and also on account of her international commerce with every silver-using country of the world. 18. Furthermore, from a financial point of view, the whole pr(iii<)si- tion is of the greatest importance. It seems the perfection of the monetarj' system of the world, by improving the circulating medium of the silver-using countries, by establishing a universal gold unit standard, in which to transact safely and successfully the business of the world. Silver will continue to be used in the gold countries as a ii.seful subsidiary coin, and silver will be used in the silven silver and gold countries has been fully set forth in previous memoranda; but with the continued decline in the price of silver it would doubtless become almost impossible to maintain the ratio. (14) The fall -in the price of silver places in danger not only 1he coinage of the silver countries, but that- of the Latin Union, the Scan- dinavian Union, and other gold countries which must be seriously weakened by such an extreme discrepancy between the commercial value of bullion and the legal value given to the coins in circulation. 2. Should Mexico estalilish a gold currencj^ its silver-mining indus- try will suffer. This fact is well known to the ^b'xican miners, who are naturally opposed to any change in the currency system. The great Bonanza mines, producing rich silver ores, are fast being worked out, and in fact but few are still being operated. A large proportion of the silver production of Mexico is now produced from mines of low grade, which can only be worked on account of cheap railway trans- portation and the facilities oifered by customs smelters. The profit in many cases is not over $1 a ton, and any advance in the cost of production will endanger this proportion of the silver-mining industry in Mexico. 3. As it is well known, the gold-standard sj'stem will increase the cost of production, and for this reason alone the i)roduction of silver in Mexico is likely to decrease, but if in conjunction with the increased cost there should continue to be a fall in the gold value of silver, the two factors together might be absolutelj' fatal and destroy one of Mexico's most important sources of prosperity. 4. This industry is now prosperous, and if Mexico should establish the gold standard it would be at a great sacrifice. 5. In memorandum No. 2, of June 5, 1903, it was clearlj' shown that the consumption of silver had kept pace with a slightly increas- ing production, coming exclusively from Mexico, but on the whole at a decreasing price. 186 STABILITY OP INTEBNATIONAL EXCHANGE. If Mexico can be encouraged to place her currency system on the gold basis, the decrease in production of silver in Mexico to be expected Avould aid, together with a natural increase consumption, in steadying, or possibly somewhat advajicing, its price. 6. The annexed tables give very interesting information as to the production of silver in the world in connection with silver mining in Mexico, and shows to what an extent the production of its silver mines may influence the silver proposition of the world : (a) Table No. 1 represents the yearly figures during the past ten years of the production of silver in the world, exclusive of Mexico. {b) Table No. 2 shows the production of silver of Mexico since 1878, and gives important information as to the silver-mining capacity of Mexico, which has grown from 19,500,000 ounces in 1878 to 56,944,000 ounces in 1902. (c) Table No. 3 shows the increase in the production of silver in Mexico since 1893, when the mints of India were closed. (d) Table No. 4 gives the average price of silver in the London mar- ket from 1893 to 1901, inclusive. 7. An examination of these tables is very interesting, because it shows that after 1893 the silver mining has been depressed and reduced in all of the gold countries, while, on the other side, the output of Mexico, under the free-coinage system, has been increasing steadily. 8. If Mexico establishes the gold standard, it is likely that the prod- uct of lier mines will also be reduced, and it will act as a strong lever to steady the price of silver in the market, provided that other countries agree to establish a method for the purchase and distribution of silver. 9. If a real effort is made to steady the price of silver and to con- trol it within certain limits, avoiding violent fluctuations, the mone- tary systems mentioned above will be secure, the whole financial conditions now existing in India will be continued, the financial con- dition of China may be improved very materially, the channels for international commerce will be widened, investments in silver coun- tries will be safe and further investments will become profitable, and all of these factors will contribute to the prosperity of the gold com- mercial nations. 10. In order to bring about these important and far-reaching results, Mexico is willing to offer important contributions by sacrificing to a great extent one of her most important mining industries, and hopes, therefore, that it may be thought proper to give her in return the assistance which she is now seeking to steady the price of silver bullion. What Mexico asks from other countries is a reasonable commercial proposition of common interest to all. She confidently believes that the results will be far-reaching and universal in their beneficence. London, June 10, 1903. Annex No. 1. -Production of silver in the world, exclusive of Mexico, since the year 1893. Year. Produc- tion. Decrease with refer- ence to 1893. Year. Produc- tion. Decrease with refer- ence to 1893. 1893 Troyounces. 122,062,627 118,870,721 122,151,886 109,026,6.37 110,376,216 Troyounces. 1898 Troyounces. 113,933,938 111,370,277 118,415,589 116,595,262 113,055,094 Troyounces. 8,128,589 1894 4,191,806 1899 10,692,250 1895 - 1900 - -- 3,646,938 189fl 13,035,890 11,686,311 1901 5,467,265 1897 -- 1902 9,007,433 STABILITY OP INTERNATIONAL EXCHANGE. 187 Annex No. 3. — Production of Ki'lver in thr RepnhVic of 2L\vicn. Year. Production. 1878 . . Troy ounces. 19, .510, 043 19,7.50,486 21,6.53,329 22,971,4.54 33,975,131 23,2.34,041 24, 905, .577 26,108,093 20,879,719 39,493,097 30,934,101 .33,489,641 30,468,071 1891 1879 1892 ]8,S0 1893 1.H81 1894 1895 1883 1884 1896 1897 1.885 1898 ]88l> 1899 1887 1900- -- 18,SS 1K89 1901 1902 18! !0 YPar Production. roil ounces. ;fe, 90:3, .573 37,00i;,a53 43,410,094 45,739,673 45,349,074 47,934,733 .50,044,866 .5.5,121,315 56,967,176 55,175,775 58,403.311 .56. 944. 906 Annex N". 3. — Tncrntftr in. fjn- jn'oilnr/iim iif .sUrci- in Mr.rii-JNEX No. 4. — Arcnii/c in'icr of .^ilrrr .^nm ,■ /.S'.'/..'. il. rvii(.f. d. Cut:!. 1893 .. ... . 3.5T»i;=0.7sO;? l.S'.I.S 26 ];=0. .51101 1894 . -- 38rJ= .(1347 1899 27-iV--^ .6IH.5 189.5 39yit= . G.540 1900 -. '-'S,; ---^ .(12 1896---- .... 30Tf= .6756 1901 ... .-- 27,;.= ..5!l.59 1897 37 /j= .6048 No. 4. [Paper handed in .Tune 1(1, 1903.] SOME SUtitiESTTONK FO.R THE PURCHASE AND DISTRIBITTK IN OF SILVER BULLION FOR MONETARY PURPOSES. 1. The following countries to express their williiit;'ness to purchase annually, as follows : Austria-Hungary - - - - - - China - Cuba - - France: For subsidiary coinage - . - - For Indo-China, etc Great Britain: For subsidiary coinage -- •">, 01)0,000 For India, Hongls:ong, Straits Settlements, and ether British dependencies . - 3.5, 000, 000 Germany - - Japan - . Mexico Ounce!?. 4, non, 000 IS, 000, 000 1.000,000 }- 7.000,000 :',(). 000, 000 3,000,000 .5,000,000 4.000,000 ISS STABILITY OF INTERNATIONAL EXCHANGE. Ounces. Russia . . . . . 5, 000, 000 Spain . . _ _ 3, 000, 000 Uniteil States: For sill isidiary coinage , 6,000,000 For the Philippines — Three years, at 15,000,000 ounces (average) Kq qqq qqq Three years, at ."), 000,000 ounces (average) ) ' ' 16,000,000 Total 96,000,000 2. The iJiirchasL's tt) bo uiiwlo hy the Bciuk of England aud the Bank of Franci' and such other banks with connections in the East as may be agreed upon. 3. The silver to bo purchased monthly at the rate of abont 8,000,000 ounces. i. The purchase price not to exceed 2Sd., London delivery. When- ever silver is over 28d., purchases to be stopped. 5. Special purchases might be made by the banks at a price over 2Sd. if so authorized by some of the interested countries. 0. The several countries to purchase during each calendar year the total amount agreed upon, unless the amount can not be obtained at a price of 28d. per standard ounce or less. In case purchases are suspended at anj^ time for the above reason and the market price recedes before the close of the same calendar year, then the monthlj^ purchases shall be increased to such an extent as to make the total purchases during the year equal to the amount agreed upon. 7. Should the selling bank be able to deliver silver to any purchas- ing country at a less cost than via London, then all savings in ship- ping exx^enses shall be for the advantage of the buj'er. 8. The banks to charge 1 per cent commission to the seller of silver. 9. The agreement to be made for six years. London, June S, 190S. II. — A Study of the Production and Sale of Silver Bullion. NEW JIOXKTARV system FOR THE SILVER-USING COUNTRIES. I. It is not our intention to open an academic discussion on the prin- ciples of biinotallism or monometallism, or to criticise in any way the gold-standard system. All to the contrary, we accept the condition of things as it exists; we recognize the influence of the gold standard, extending from one country to another, and we realize that the silver-using countries are obliged to change their monetary systems, so as to give full protection to their own finances, in order to induce the investment of foreign capital, and also to facilitate their trade and financial transactions with other countries, by the stability of international exchange. Th(^ silver-using countries will, in all probability and for internal reasons, continue to use silver coins, but with a. fixed gold value on some similar system to that introduced in India in 1893. Under this system, which rests on the principles of the gold stand- ard, because gold is the unit of value, the price of the silver bullion becomes independent of the gold value of the silver coins. STABILITY OF INTERNATIONAL EXCHANGE. 189 The fluctuations in the gold value of the silver bullion will not influ- ence the value of the silver coins, and the silver coins, having a fixed and steady gold value, establish at once the stability of international exchange. The parity value with gold will be maintained (1) by making the new silver coins full legal tender; (2) by the fact of being the only money in which taxes and customs should be paid; (3) by the limita- tion of coinage, and if necessary, (4) by gold reserves. II. As we have explained it, the gold price of the silver bullion will no longer be linked to the value of the silver coins; it will be indei^end- ent in its commercial and legal functions, as much as the silver coins of England, Germany, or the United States. At the same time it is to be remembered that silver is being used as a subsidiary coin by all of the gold-standard countries, and it will be used as a full legal tender by the silver-using countries under the system as it is being used at present. The circulation of silver money in the world is about $4,000,000,000. For these reasons, and also on account of the importance of the mining industry, not only for silver, but for gold, lead, copjier, and zinc, of wWch. silver is a by-product, it will be interesting to uuxke a careful investigation of the production and consumption of silver in the world, the reasons for its fall in price, and the probable prospects for the future. With this object in view, we have prepared various tables which show where the silver is produced, where it is consumed, the amounts that have been employed for monetary purposes 1 ly each country, the recoinage, and the amounts consumed by the industries, the arts, and the bazar trade of India. We also show in the tables the growth of the consumption. III. — Production and consumption of silver. There is a general belief, both in America and in Europe, that the production of silver is in excess of the consumption. Everybody knows that silver has been falling in price since 1.S72, and the general impression is that this has been on account of an overproduction . There was some good foundation for this line of thought previous to 1893, but in the last ten years the condition of things has changed somewhat, and at present it is not proper to say there is an overproduc- tion of silver. The period of overproduction was from 1873 to 1893. It will be noticed in Table ISTo. 43 how the output of the silver mines of the world increased during this time from 63, 267,187 ounces to 165,475,621 ounces. The consumption did not increase at the same ratio, and a surplus of silver was accumulated in the United States under the Bland and the Sherman acts. In 1893 the mints of India were closed to free coinage and the Sher- man Act was repealed. The influence of these two important measures was felt at once in the market. The average price of silver in 1893 was 35^d. per stand- ard ounce, or 78 cents per troy ounce. In 18',)4 the yearly average price fell to 28}^d., or 63^- cents per troy ounce; but during the year 190 STABILITY OF INTERNATIONAL EXCHANGE. 1894 silver was sold as low as 27d., a diiference of over 31 per cent in one year. This great drop in the price of silver in less than twelve months, together with the repeal of the Sherman Act and the closing of the mints of Bombay and Calcutta, were enough reasons to produce all over the world a great discouragement and a great dissatisfaction for silver. This judgment against silver was strengthened and supported by the fact that its price continued to fall and for reason of the failure of the Monetary Conferences of Paris and Brussels and of the Wolcott Commission. The silver agitation in the United States during two political cam- paigns also has contributed to depress the value of silver. In fact, all of these events have made such a deep moral impression that at present silver is a subject of very little or no importance whatever to the business community of the two continents, and it is almost a disagreeable topic of conversation. Nevertheless, the world continues to produce silver. The white metal is needed more than ever before for monetary purposes, and its use in the industries and in the arts is constantly growing. The mining and metallurgy of silver have changed a good deal, and its connections with the production of other metals have become of great importance. I V . — Pro duction. Since 1893 the production has been very steady, as will be noticed in Table No. 43. It is 1 rue that there has been an increase in the production, but only from 165,472,621 ounces in 1893 to 170,000,000 ounces in 1901. No other production of the soil or of industry lias been so steady. In Table No. 44 it will be noticed that the output of the silver mines, exclusive of Mexico, has been reduced from 122,062,527 ounces in 1893 to 112,053,667 ounces in 1901. In the same period Mexico has increased her production from 43,410,094 ounces to 58,944,906 ounces. This was on account of the free-coinage system, which for the present encourages silver mining; but in other countries, where the cost of mining has to be paid in gold, the output of the silver mines has been reduced. In fact, in the United States of America and other gold-standard countries a very large proportion of the mines where silver was the main product has been closed. The experience of ten years shows that the ]3roduetion of silver has become steady, and the probabilities are that it will remain steady so long as the price is under 35d. per standard ounce. V. — Consumption. Silver is consumed: (a) For coinage, (&) for industrial purposes, (c) for bazaar trade of British India, and (a) in China. The coinage consumption has been increasing steadily as the popu- lation and wealth of the world have increased. Table No. 39 shows that the average of total coinage of the world per annum, during twenty-nine years, from 1873 to 1901, was 102,- 446,400 ounces. This includes recoinage, STABILITY OF INTERNATIONAL EXCHANGE. 191 The net amount of new silver consumed was about 72,000,000 ounces, estimating the recoinage at about 30,000,000 ounces per annum. In Table No. 46 it is shown that the recoinage in 1S89 was 3!),!)71,150 ounces, and in 1900 it aggregated 38,384,514 ounces. Hence 30,000,000 ounces per annum is a rather conservative figure. It will be noticed in Table No. 40 that the average total coinage of the mints of the world per annum during twelve years, from IS'JO to 1001, was 103,718,866 ounces, exclusive of recoinage, which shows an increase in the world's consumption of silver for coinage of 31,7] 8,856 ounces per annum. The consumption of silver for industi'ial purposes has been steadily increasing. (See Table No. 38.) The consumption in 1890 was 400,000 kilograms, and in 1901 it liad grown to l,370,(iS5 kilograms, or about 1 to 3|. Tlie average consumption per annum in twelve years was 2s,147,Sl'5 troy ounces, and in 1901 it had increased to 44,000,522 ounces, as may be seen in Table No. 41. It is believed that in 1903 the consumption of silver foi-the arts and for industrial purposes will be about 50,000,000 ounces. When the mints of India were closed to free coinage in 1893 the general impression was that Indiui would reduce verj^ materially its purchases of silver, and this was one of the reasons why ils market price dropped; but, to the great surprise of most penple, India has consumed more silver since 1893 than before. Table No. 9 B gives the net imports of silver for British India from 1893-94 to 1902-3, and the average per annum is 35,202,0.1)0 ounces. Of this amount, 11",000,000 was coined into rupees and 24,202,000 ounces were sold in the bazaar trade. This figure shows an iuo'ease of about 10,000,000 ounces per annum over and above tlie avei'age amounts imported into India yearly during the twenty-fivt> years pre- vious to 1893. As to China, we regret that the statistics should not be as complete as it would be desired. Tables Nos. 13 A and 13 B, however, give some light on the sub- ject. The net imports of bar and sycee silver in twelve years, from 1890 to 1901, show a yearly average of 8,500,000 ounces per annum. As will be noticed in Table No. 13 B, the imports of silver dol- lars in haikwan taels in twelve years, from 1890 to 1901, aggregated 164,218,098 and the exports 166,971,867 haikwan taels. The exports to Hongkong in the same period amounted to 136,055,840 haikwan taels, and there is no record of the distribution of this amount from Hongkong uvev China, the Philippines, the Straits Settlements, etc., but it is a known fact that a great portion of tliis amount was carried again to China in the ^i^'er and coastwise trade. We know that most of the Mexican dollars, which have been exported in large quantities, as per Table No. 49, have gone to China, and when we remember the population of this great Empire, estimated at about 400,000,000, we must acknowledge that a consumption of from 12,000,000 to 18,000,000 ounces per annum is a conservative figure. Table II gives the names, population, and stock of silver money in 36 countries of the world and also the average amount of new silver which they have consumed for coinage during twelve years, from 1890 to 1901. In the last column of Table II is also given the amount of silver which the same countries will probably consume in the next fl\e years. 192 STABILITY OP INTERNATIONAL EXCHANGE. As will be noticed, the amount of silver used for coinage per annum, exclusive of recoinage, aggregates 93,604,000 ounces. This statement is supported by 36 tables (Nos. 1 to 36), giving in detail the coinage and recoinage of 36 countries. The total amount agrees fairly well with that given for general coinage in Table No. 40 (93,634,905 ounces). There are some few other countries consuming silver, whose coin- age we have not been able to ascertain. Table No. 37 gives an estimated consumption by Persia of 500,000 ounces per annum, and Table No. 42 by Santo Domingo of 34,561 ounces. It is to be noticed in Table II that no coinage of new silver is shown for Belgium, Germany, Japan, and Turkey, because each of these countries has been recoining their old stocks of silver, and as regards the United States of America, only the amount used for fractional currency is mentioned. The silver dollars which have been coined in large quantities out of the old stock of silver purchased under the Sherman Act are not represented in the table, so as not to give any figures which might be misleading, as such coinage is not expected to continue. The coinage not included in the table is as follows: Ounces. Belgium-., .... 50,000 Germanv 1,993,411 Japan..' 7,764,263 Tin-key 1, 689, 033 United States 10,088,951 Total per annum 31 , 580, 656 All of these countries sooner or later will have to consume their old stocks of silver, and some time in the future their demand for silver will be quite important and will help to strengthen the market. The amount of 100,000,000 ounces estimated in Table II for the annual coinage of the world during the next five years is based upon the coinage of 36 countries during the last twelve years, and on the actual condition of things. It may be thought, however, that some countries will coin less in the near future than in the past ; but this may be compensated by the increased coinage of other countries, by the increasing consumj)tion in the arts, by the absorption of silver on the eastern and western coasts of Africa, and by a new demand for China, if this country opens its mints to the coinage of a national silver currency. In Table II we have estimated the annual coinage of the British Empire at 30,000,000 ounces for the next five years. This figure is exceedingly low. As will be noticed in Table No. 4 B, the coinage of the British Empire for the last twelve years was 51,000,000 ounces per annum. By condensing all of these figures we have the following results, shown in Table III: Production: _ Ounces. Average, per annum, in twelve years 159, 455, 567 Consumption: Coinage 93,604,000 Industries : , 28, 147, 825 Bazaar trade in British India . 24, 303, 600 China 13,000,000 Persia, Santo Domingo, etc - . 1,000,000 Total - 158,954,435 STABILITY OF INTERNATIOKAL EXCHANGE. 193 The only difference between production and consumption not accounted for is 601,142 ounces, which, although this can not be traced, it is known tnat it has been consumed, as for the past few years there has been at no time any accumulation of silver. VI. As to the near future, we estimate the consumption of silver as follows : Ounces. Coinage 100,000,000 Industries 50, 000, 000 Bazaar trade in British. India 35, 000, 000 Total 175,000,000 These figures allow for an increased production of silver of over 4,000,000 ounces per annum. It is certainly of the very greatest importance that the consumption of silver has grown so that it absorbs the entire production. In this connection it may be stated that our statistics are supported bj^ the fact that there is no stock of silver bullion accumulated in any of the markets of the world. Silver bullion is shipped to the London market from the smelters and refineries as fast as it is produced, with the exception of that por- tion which is sold for local consumption. The weekly shipments of silver are made to London with great regularity and aggregate 110,000,000 ounces per annum. The silver is shipped with instructions to bo sold on its arrival or before at whatever price it may bring in the market. This is the existing and true condition of the London silver market. There is no other commodity the production and consumption of which is so well balanced and whose market is so well established. There is always a market fo:. silver in London, and the surplus silver production of the world is sold there in very regular daily amounts. VII. Under these favorable conditions the question is naturally asked: Why has silver quite constantly fallen in price? In our opinion there are two main reasons: I. Silver is produced largely as a by-product. II. The methods of selling and buying silver have a depressing tendency. Of the total production of silver, it is estimated that 130,000,000 ounces are produced as a by-product (see Table No. 1) and 40,000,000 ounces as a main product, of which last amount 25,000,000 ounces are produced in Mexico. In the remainder of the world only 15,000,000 ounces are produced from what might be called straight silver mines. The consequence is that silver, being largely a by-product, has no fixed cost of production. With the decline in the price of silver the other metals with which it has been produced have advanced in value in proportion, because mining can not be carried on at a loss. This fact is shown in Tables Nos. 45 and 47. Silver has fallen in price from an average of 29|fd. in 1885 to 23||d. in 1902 — a difference of about 30 per cent. H. Doc. 144 13 194 STABILITY OF INTEENATIONAL BXCHANQE. In the same period lead, copper, and zinc have advanced from 20 to 30 per cent. How far this advance lu the price of copper, lead, and zinc can be carried is a question ; but it is rather doubtful whether the market will stand any higher prices. Certainly these high prices are to the detriment of very important industries requiring these metals for their raw material. We must therefore recognize that silver, being largely a by-product, can not be regulated In price by the cost of production, and this is one of the several peculiarities of the silver problem. This condition of affairs is very disadvantageous for mines whose main product is sllv3r, because, having no compensation in the rise in value of other metals, the fall in the price of silver is a direct and total loss to the miner. For this reason almost all of the straight sil- ver mines of the United States of America and other countries have been closed, and this explains why the production of silver, exclusive of Mexico, has been reduced to the extent of about 10,000,000 ounces per annum. (See Table No. 44.) VIII. — Metliods of selling and buying silver. The miners are the producers of silver, and it is to their interest to sell silver at the best possible price, but only to a small extent do they have any direct connection with the silver market of the world. Most of the silver-bearing ores are sold to the smelters, as the improvement in metallurgy favors concentration of work. When the ore is sold to the smelter the London quotation the day of ship- ment is paid to the miner. The business of the smelter is not to speculate in the price of silver, but to draw its profits from the smelting charges. The smelting com- panies are, therefore, always anxious to sell their silver the day of purchase, so as not to endanger their otherwise sure profits on account of the fluctuations in the market. Under these conditions, silver is hurried to London as fast as it is refined, and as the daily sales are made at whatever the market may be, there is little if any Influence to withstand the natural desire of buyers to supply their needs at lower and lower prices. At the same time, as it is known that silver is being shipped with great regularity, and as the history of the last thirty years shows an almost continual fall in the price of silver, it has been a somewhat safe speculation to sell "futures" at lower prices. This fact places the seller of "futures" in a position to be interested in the constant fall of silver and to work for it. On the other hand, the largest buyers of silver are the govern- ments — for coinage purposes. There is no regularity in their methods of buying, and there is always a feeling of uncertainty in the market as to the amount which they will buy and when they will buy it. But perhaps the strongest depressing influence has been the expe- rience of the last thirty years. Silver has fallen from 60^d. in 1872 to 23||d. in 1902. With four exceptions, in 1S7T, 1880, 1890, and 1900, the average price per annum shows a continual fall one year after another. This, of course, has produced a pressure of distrust, which, though of a moral character, has contributed largely to depress the value of silver. STABILITY OF INTEKNATIONAL EXCHANGE. 195 IX. Against all of these difficulties the natural laws of supply and demand are now acting effectively to produce a reaction^ and the silver market at present is very sensitive. During the Sherman Act the purchase of about 108,000,000 ounces of silver was not enough to influnce the market, and the price of silver continued to fall. The market price of silver has advanced from Sl^^^d. in November, 1902, to 25^d. in Juty, 1903, which represents a rise of 20 per cent in eight months. This seems to have been brought about by the inves- tigation recently made as to the production and consumption of silver in connection with the proposed change in the monetary system of the silver-using countries, which have shown the true conditions. The remarkably even balance between production and consumption, as discovered by these investigations and shown in the tables hereto attached, is liable to produce violent fluctuations in llie market price of silver, up or down, as purchases on the part of governments may be deferred, or when several governments may decide to purchase at the same time. The purchases of silver made for the Philippines have also contrib- uted to raise the price of silver for reason of the sensitive conditions of the market, which have been explained. X. Although, as wo have explained, the proposed monetary system for the silver-using countries rests on the i^rincii^les of making tlie gold value of the silver coin independent of the bullion value, yet everj-- body will appreciate the advantage of a steady price for silver bullion, not as a result of legislation, or through any one country buying more silver than it needs, nor hj anj' artificial means, but simply by regu- lating necessary purchases to conform to tlic regularity of production. This would especially be the case should China be able to adopt tlie proposed system, as the serious strain on its credit Avould be thereby greatly reduced. When we refer to a steady price ^^•e do not mean a fixed price or any ratio between silver and gold. AVe are not dealing with the sub- ject on the principles of bimetallism. Our study of the silver-bullion situation is on account of its con- nections with the new monetary sj'stenis proposed for the silver-using countries, and our investigations have been along the lines of the natural production and consumption, and we expect and ask no privi- lege not granted by the economic laws of supply and demand. The tables attached show that the coinage consumption of silver has constantly grown, and reason indicates that it will continue to increase in proportion to the growth of the population and wealth of the world. The industrial uses of silver are becoming greater and greater; and the settlement and growing commerce of the eastern and western coasts of Africa are now demanding a silver coinage. If in addition to these facts the proposed monetary system is estab- lished in China, a new demand for silver is to be expected. On the other hand, the production of silver is increasing very slowly, if at all, at present, and at any time a special occasion might arise to create a temporary shortage. This would cause a sharp rise in value, 196 STABILITY OF INTERNATIONAL EXCHANGE. and violent fluctuations, either up or down, are inconvenient and harmful in their influence on the proposed monetary systems. It is very imjDortant to keep the value of silver under the ratio to be established, whether 32 to 1 or any other, because otherwise the silver coins will be melted and sold as bullion, and the countries will be deprived of their own money, the governments of their seignior- age, and new ratios will have to be enforced, all of which will disturb the financial conditions of the silver-using countries. On the othei- hand, a very low price of silver encourages the illegal imitation or counterfeiting of the coins, a danger which becomes greater in the countries where the police system is not very vigorous, and greater still in the Far East, where the official protection of the coin would be most difficult. Should the difference between the commercial value and the legal value of the silver coins become great, the weaker countries, who may not be able to carry large gold reserves, or wlioso credit may not be of sufficient strength, will find their system strained in cases of emergency. For all of these reasons it would be desirable if the price of silver bullion could be steadied, although, as we have stated, this condition is not essential to the new monetary system about to be established in the silver-using countries. How could this important result be accomplished? Is it not against the principles of political economy to try to regulate prices? As to the first question, we believe that a system of regularity of purchases of silver, exclusively for monetary purposes by the govern- ments of certain countries, or of all countries if possible, would have a tendency to steady the price of silver bullion. For this purpose it is not necessary for any one government to bind itself to buy any fixed or .specified amount of silver, nor is it wise or desirable that silver should be purchased and accumulated, as was done iinder the Sherman Act. Nothing which is artificial would pro- duce satisfactory results. As to the second question, it would certainly be impossible and unwise to try to control the price of any ordinary commodity in the market; but in the case of silver, so far as its monetary use is con- cerned, the buyers, the governments, are in a position to regulate their purchases and even to agree to stop them temporarily if silver should advance o\'er a certain price, whicli would endanger the monetary sys- tems of the silver-using countries. As shown above, they are equally interested in counteracting a continued decline. If eight or ten of the great nations of the world should come to this understanding, it might be tried as a meritorious experiment. It has the advantage of placing no responsibility on any country. Our aim has been to show the relations of the proposed monetary system for the silver-using countries with the silver market. Our investigation seems to prove the following: 1. That the production of silver has not increased materially since 1893. 2. That the consumption of silver has grown very substantially and much faster. 3. That it is important for the monetary systems of the silver-using countries that the price of silver bullion should be steadied. 4. That under existing conditions it is possible to influence the sil- ver market in this direction without cost or hazard. STABILITY OF INTERNATIONAL EXCHANGE. 197 III.— The Work of the Commissions Abroad. [Prom President Diaz's message of September 16, 1903— Mexican Herald, September 17, 1903.] The measures instituted by the department of finance, both at home and abroad, in connection with the variations which the gold value of our money is constantly undergoing, aim at bringing about such sta- bility as is possible in the rate of foreign exchange and at placing our currency on a basis which will enable it to satisfy the internal needs of the country and to facilitate tlie development of public wealth. The executive, in carrying out this programme, has also endeavored by every means compatible with the final object of the studies and efforts that have been entered upon to protect the national mining industry, to rectify the point of view which unfortunately was becom- ing more generally unfavorable to silver, and to give its aid to every measure capable of enlarging the sphere of applicability of that metal. In approaching the governments of other nations the Government had no thought of entering into treaties or conventions nor of bring- ing about the holding of international conferences, such as on other occasions have been held with respect to similar questions. On this occasion the steps taken by the Government, with the support of the United States, have been addressed to bringing about an interchange of views with respect to the remedy that ought to be applied to the monetary situation of certain nations and coloaies; to securing the maintenance of silver for currency purposes by countries which now have the silver standard, while imparting to it, when possible, a fixed value in relation to gold; to unifying the fundamental basis of the reforms that may be accepted, so that the solution maj' e\'erj'where be surrounded by greater soliditj^ and prestige, and, finally, to avoid- ing, within the scope of governmental action, the continued operation of the pernicious influences entailed by many of the chief factors of perturbation in the silver market. It is gratifying to me to inform you that the steps taken bj' the Mexican mission abroad have been attended with favorable results, and that on all hands the executive lias received indubitable proofs of the esteem enjoyed by this country, and of willingness to cooperate in the realization of the desires expressed by the Mexican mission and the mission which, at our request, was appointed for a similar purpose by the Government of the United States. On the other hand, the grand commission appointed by the depart- ment of finance to studj^ in Mexico, from the point of view of national interests, the various questions relating to the same problem has made great progress in its labors, and will soon be able to announce their final result and the opinion formed by the enlightened persons con- stituting the commission. It will then be the duty of the executive, with all the data which the inquiries conducted in Mexico and abroad will have placed at its command, to avail itself of those data; and if it considers a reform to be desirable, to propose suitable legislative measures to the chambers. Appendix E. DATA REGARDING THE MONETARY SYSTEM OF CHINA. I. — The Present Condition of the Chinese Currency. [Prom a report of Mini9ter Conger to the Director of the Mint, dated Peking, September 24, 1902.] The actual currency of the country consists of (1) copper cash, (2) silver and copper fractional currency, (3) silver bullion, (4) Spanish dollars, (5) Mexican dollars, (G) Hongkong dollars, (7) native dollars, and (8) paper, i. c, native and foreign bank notes. I. Until quite recently, say ten or twelve years ago, the so-called "copper" cash — more properly brass cash — circular coins with a square hole in the middle, by which they are strung in groups of 100 or less, were the only native coins found in China. They were formerly made of copper, but during the present dynasty they have been alloyed with spelter, and have steadily decreased in size and quality from reign to reign. Thej' are cast, not stamped, though some of the recently established mints, equipped with foreign machinery, have stamped a small quantity. The gold and silver cash which may be bought in some of the treaty ports are unauthorized and are made private^ for use as ornaments only. In Peking a large coin of the denomination of 10 cash, but really weighing no more than 2 or 3 ordinary cash, is in common use. Though nominally worth 10 cash, they pass for 20. It was the intention of the Government, originallj^, that each cash should have the value of one one-thousandth of a lael or ounce of silver, but owing to the debasement that has taken place a tael has at times been worth as much as 1,600 cash. The present exchange is about 1,200, though it varies from day to day. -In Peking 50 large cash are placed on a string, which passes for 1,000, or a tiao. In other places a string usually con- sists of 98, passing for 100, though in every 10 strings it is allowable to use 3 of 95 each. The debasement of the coinage has led to the hoarding of the old copper cash of previous dynasties, as well as the better casli of the present dynasty, and these have been exported or melted down for use in maniifactures. This, together with the clos- ing of the mints and the steady increase of population, has caused a great scarcity of cash during recent j'ears, and this scarcity has in part been supplied by the introduction of — II. Silver and cupper fractional currency. — Small silver pieces were brought a few years ago from Jajjan, Hongkong, and the Straits Set- tlements, but their cii'culation was confined to the larger tvQ&ij ports. After the establishment of a mint at Canton, with foreign machinery, the provincial government of Kuangtung began to issue small silver pieces of the denominjitions 5, 10, and 20 cents Mexican. Other prov- inces have followed this example, and in 1897, the last year for which I 198 STABILITY OF INTERNATIONAL EXCHANGE. 199 have been able to secure a report, the foar mints at Canton, Foochow, Wuchang, and Tientsin together issued subsidiary coins as follows: 50-cent pieces 314,796 20-cent pieces 31, 853, 571 10-cent pieces 17,893,931 5-cent pieces 66, 931 These coins have gradually extended their circulation, but are not received at their face value. A dollar in Peking is exchanged for $1 plus 30 to 40 large cash in subsidiary coins. As may be seen from the inclosed edict of February 2, 1902, the minting of copper coins after the fashion of those used in the West was authorized. These ai"e now coming into circulation in Peking. Each coin represents 5 large cash, equal to 100 ordinary, called a cent. III. From time immemorial silver has been used in China as monej', but until recently it has never been coined, and even now over the greater part of the Empire it is used only in lumps, or " shoes," whose value is determined bj' weight, color, and touch. This value is expressed in " taels,"a word of foreign origin, derived from the IMalaj- "tail," said to be equivalent in meaning to the Chinese "bang," i. e.. "an ounce." This Chinese ounce is, generallj' speaking, equal to 1^ ounces avoirdupois. In practice, however, a tael or ounce of silver is found to vary greatly with locality. The haikwan or customs tael contains .583.3 grains tvoj. The K'u-p'ing or treasury tael varies from .569.1 grains at Ningpo to 5S3.3 grains at Canton. The Tsao-p'ing varies from 558 to 573.1 grains. The Han-p'ingand Ilsiang-p'ing, both used at Tientsin, are oiiuivalent to 560 and 569 grains, respectively. The Shanghai tael weighs 500 grains. Every important trade center has at least one variety pecul- iar to itself. The fineness varies from 1,000 for the customs tael to 900 for several Canton taels. IV. In the sixteenth century Spanish dollars were graduallj' intro- duced into China through commercial intercourse with the Pliilii:)- pines. Their circulation gradually extended over a good portion of the Empire. At present they have nearly disappeared, but there are some places, notably northern Anhui, where no other dollar will be accepted. V. Spanish dollars were later followed by tlie Mexican, and this is the most common silver coin in use to-day. In Shanghai and vicinity, as well as along the lower Yangtze, this is practicallj' the monetary unit. It is imported in large quantities every year. VI. Not long since the Hongkong Government began the issue of a dollar of similar value to the Mexican, which finds some circulation in the southern provinces and at present to a large extent in Pekin. VII. The Chinese Government having authorized certain of the provinces to purchase foreign minting machinery, they began the coin- age of a dollar of the same weight and fineness as the Mexican (nomi- nally so), with the purpose of supplanting the latter. So far thQ scheme has met with poor success. The coins in some cases were not up to their face value. The people were distrustful and refused to accept them. Attempts were made to compel the banks to accept them at a fixed value in cash, but the banks simply closed their doors. These mints are located at Canton, Foochow, Nankin, Chungking, Tientsin, Moukden, and Kirin. As will be seen from the edict inclosed, only two of these are commended as having maintained a uniform standard. 200 STABILITY OF INTERNATIONAL EXCHANGE. In 1899, the last year for which figures are obtainable, the Tientsin mint coined 1,566,940 dollars. I have not been able as yet to secure reports from other localities. The Tientsin mint has, of course, been closed since the troubles of 1900, but is soon to be opened in charge of two of our own counLrymen. These various dollars not only vary in value among themselves, but their relation to cash and the many varieties of the tael fluctuates from day to day. As will be noted from a perusal of the edict above mentioned, the Government proposes to receive the new dollars at a fixed rate, i. e., seventy- two one-hun- dredths of a tael (treasury). The following table will show the steady decline of the value of both the tael and dollar in cash : Year. Comparative value in cash of— Year. Comparative value in casli of— 1 liaikwan tael. $1 Mexican. 1 haikwan tael. $1 Mexican. 1892.... 1,«)0 1,370 1,300 1,270 1,050 1,030 970 950 1896 1,310 1,170 1,170 880 1893.. 1897 910 1894 1898 920 1895 II. — The British Commercial Treaty vfith China. The following is the correct version of the treaty, with annexes, which was signed at Shanghai on Friday, September 5 : His Majesty the King of the United Kingdom of Great Britain and Ireland and of the British Dominions beyond the Seas, Emperor of India, and His Majesty the Emperor of China, having resolved to enter into negotiations with a view to carrying out the provisions contained in Article XI of the final protocal signed at Peking on the 7th of September, 1901, under which the Chinese Government agreed to negotiate the amendments deemed useful by the foreign governments to the treaties of commerce and navigation and other subjects con- cerning commercial relations, with the object of facilitating them, have for that purpose named as their plenipotentiaries, that is to say: His Majesty the King of Great Britain and Ireland, His Majesty's special commissioner. Sir James Lyle Mackay, knight commander of the Most Eminent Order of the Indian Empire, a member of the coun- cil of the secretary of state for India, etc. And His Majesty the Emperor of China, the Imperial Commission- ers Lii Ilai-huan, president of the board of public works, etc., and Sheng Hsiian-huai, junior guardian of the Heir Apparent, senior vice- president of the board of public works, etc. Who, having communicated to each other their respective full powers and found them to be in good and due form, have agreed upon and concluded the following articles : Article I. Delay having occurred in the past in the issue of drawback certifi- cates owing to the fact that those documents have to be dealt with by the superintendent of customs at a distance from the customs office, it is now agreed that drawback certificates shall hereafter in all cases STABILITY OF INTEENATIONAL EXCHANGE. 201 be issued by the imperial maritime customs within three weeks of the presentation to the customs of the papers entitling the applicant to receive such drawback certificates. These certificates shall be valid tender to the customs authorities in payment of anj' duty upon goods imported or exported (transit dues excepted) or shall, in the case of drawbacks in foreign goods reexported abroad within three years from the date of importation, be payable in cash without deduction by the customs bank at the place where the import duty was paid. 13ut if, in connection with any application for a drawback certificate, the customs authorities discover an attempt to defraud the revenue, the applicant shall be liable to a fine not exceeding five times the amount of the duty whereof he attempted to defraud the customs, or to a confiscation of the goods. Article II. China agrees to take the necessary steps to provide for a uniform national coinage which shall be legal tender in payment of all duties, taxes, and other obligations throughout the Empire by British as well as Chinese subjects. Article III. China agrees that the duties and likin combined levied on goods carried by junks from Hongkong to the treat}- ports in the Canton Province and vice versa shall together not be less than the duties charged by the imperial maritime customs on similar goods carried by steamer. Article IV. Whereas questions have arisen in the past concerning the riglit of Chinese subjects to invest money in non-Chinese cntcrjiriscs and com- panies, and whereas it is a matter of common knowledge that large sums of ('hinese capital are so invested, China hereby agrees to recognize the l(>gality of all such investments past, present, and future. It being, moreover, of the utmost importance that all shareholders in a joint stock companj' should stand on a footing of perfect equality as far as mutual obligations are concerned, China further agrees that Chinese subjects who have or may become shareholders in any British joint stock company shall be held to have accepted, bj* the verj- act of becoming shareholders, the charter of incorporation or memoran- dum and articles of association of such company and regulations framed thereunder as interpreted by British courts, and that Chinese courts shall enforce compliance therewith by such Chinese sharehold- ers, if a suit to that effect be entered, provided always that their liability shall not be other or greater than that of British shareholders in the same company. Similarly the British Government agree that British subjects invest- ing in Chinese companies shall be under the same obligations as the Chinese shareholders in such companies. The foregoing shall not apply to cases which have already been before the courts and been dismissed. 202 STABILITY OF INTERNATIONAL EXCHANGE. Article V. The Chinese Government undertake to remove within the next two years the artificial obstructions to navigation in the Canton River. The Chinese Government also agree to improve the accommodation for shipping in the harbor of Canton and to take the necessary steps to maintain that improvement, such work to be carried out by the imperial maritime customs, and the cost thereof to be defrayed by a tax on goods landed and shipped by British and Chinese alike accord- ing to a scale to be arranged between the merchants and customs. The Chinese Government are aware of the desirability of improving the navigability by steamer of the waterway between Ichang and Chungking, but are also fully aware that such improvement might involve heavy expense and would affect the interests of the population of the provinces of Szechuen, Hunan, and Hupeh. It is, therefore, mutually agreed that until improvements can be carried out steamship owners shall be allowed, subject to approval by the imperial maritime customs, to erect, at their own expense, appliances for hauling through the rapids. Such appliances shall be at the disposal of all vessels, both steamers and junks, subject to regulations to be drawn up by the imperial maritime customs. These appliances shall not obstruct the waterway or interfere with the free passage of junks. Signal sta- tions and channel marks where and when necessary shall be erected by the imperial maritime customs. Should any practical scheme be presented for improving the waterway and assisting naivigation with- out injury to the local population or cost to the Chinese Government, it shall be considered by the latter in a friendlj' spirit. Article VI. The Chinese Government agree to make arrangements to give increased facilities at the open ports for bonding and for repacking merchandise in bond, and, on official representation being made by the British authorities, to grant the privileges of a bonded warehouse to any warehouse which it is established to the satisfaction of the customs authorities affords the necessary security to the revenue. Such warehouses will be subject to regulations, including a scale of fees according to commodities, distance from custom-house, and hours of working, to be drawn up by the customs authorities, who will meet the convenience of merchants so far as is compatible with the protec- tion of the revenue. Article VII. Inasmuch as the British Government afford protection to Chinese trade-marks against infringement, imitation, or colorable imitation by British subjects, the Chinese Government undertake to afford pro- tection to British trade-marks against infringement, imitation, or colorable imitation by Chinese siibjects. The Chinese Government further undertake that the superintend- ents of northern and of southern trade shall establish offices within their respective jurisdictions, under control of the imperial maritime customs, where foreign trade-marks may be registered on payment of a reasonable fee. STABILITY OP INTERNATIONAL EXCHANGE. 203 Article VIII. PREAMBLE. The Chinese Government, recognizing that the system of levying likin and other dues on goods at the place of production, in transit, and at destination, impedes the free circulation of commodities and injures the interests of trade, hereby undertake to discard completely those means of raising- revenue, with the limitation mentioned in section 8. The British Government in return consent to allow a surtax in excess of the tariff rates for the time being in force, to be imposed on foreign goods imported by British subjects, and a surtax in addition to the export duty on Chinese produce destined for export abroad or coastwise. It is clearly understood that after likin barriers and other stations for taxing goods in transit have been removed no attempt shall be made to revive them in any form or under any pretext whatsoever; that in no case shall the surtax on foreign imports exceed the etpiiv- alent of one and a half times the imj^ort duty leviable in terms of the final ijrotocol signed by China and the I'owers on September 7, 1901 ; that payment of the import duty and surtax shall secure for foreign imports, whether in the hands of Chinese or non-Cliinese subjects, in original packages or otherwise, complete immunity from all other tax- ation, examination, or delay; that the total amount of taxation levi- able on native produce for export abroad sliall under no circumstances exceed 7|- per cent ad valorem. Keeping these fundamental principles steadily in view, the high con- tracting parties have agreed upon the following metliods of procedure : Section 1. The Chinese Government undertake that all barriers of whatsoever kind, collecting likin or such like duos or duties, shall be permanently abolished on all roads, railways, and waterways in the eighteen provinces of China and the three eastern provinces. This provision does not apply to the native custom-houses at present in existence on the seaboard or watei'ways, at open ports, on laud routes, and on laiid frontiers of China. Sec. 2. The British Government agree that foreign goods on impor- tation, in addition to the effective 5 per cent import duty, as provided for in the protocol of 1001, shall pay a special surtax equivalent to one and a half times the said duty to compensate for the abolition of likin, of ti-ansit dues in lieu of likin, and of all other taxation on for- eign goods, and in consideration of the other reforms provided for in this article; but this provision shall not impair the right of China to tax salt, native opium, and native produce, as provided for in sec- tions 3, 5, 6, and 8. The same amount of surtax shall be levied on goods imported into the eighteen provinces of China and the three eastern provinces across the land frontiers as on goods entering China by sea. Sec. 3. All native custom-houses now existing, whether at the open ports, on the seaboard, on rivers, inland waterways, land routes, or land frontiers, as enumerated in the hu pu and kung pu tse li (regu- lations of the boards of revenue and works) and ta ch'ing hui tien (dynastic institutes), may remain. A list of the same, with their location, shall be furnished to the British Government for purposes of recoi'd. 204 STABILITY OF ITSTTBENATIONAL EXCHANQ-E. Wherever there are imperial maritime custom-houses, or wherever such may be hereafter placed, native custom-houses maybe also estab- lished, as well as at any points either on the seaboard or land frontiers. The location of native custom-houses in the interior may be changed as the circumstances of trade seem to require, but any change must be communicated to the British Government, so that the list may be corrected. The originally stated number of them shall not, however, be exceeded. Goods carried by junks or sailing vessels trading to or from open ports shall not paj' lower duties than the combined duties and surtax on similar cargo carried by steamers. Kative produce, when transported from one place to another in the interior, shall, on arrival at the first native custom-house after leaving the place of production, pay duty equivalent to the export surtax men- tioned in section 7. When this duty has been paid a certificate shall be given, which shall describe the nature of the goods, weight, number of packages, etc. , amount of duty paid, and intended destination. This certificate, which shall be valid for a fixed period of not less than one year from date of payment of duty, shall free the goods from all taxation, exam- ination, delay, or stoppage at any other native customs-houses passed en route. If the goods are taken to a place not in the foreign settlements or concessions of an open port, for local use, they become there liable to the consumption tax descriljed in section 8. If the goods are shipped from an open port, the certificate is to be accepted by the custom-house concerned, in lieu of the export surtax mentioned in section 7. Junks, boats, op carts shall not be subjected to any taxation beyond a small and reasonable charge, paid periodically at a fixed annual rate. This does not include the right to levy, as at present, tonnage (chuan chao) and port dues (chuan liao) on junks. Sec. 4. Foreign opium duty and present likin — which latter will now become a surtax in lieu of likin — shall remain as provided for by existing treaties. Sec. 5. TheBritishGovernment have no intention whatever of inter- fering with China's right to tax native opium, but it is essential to declare that in her arrangements for levying such taxation China will not subject other goods to taxation, delay, or stoppage. China is free to retain at important points on the borders of each province — either on land or water — offices for collecting duty on native opium, where duties or contributions leviable shall be paid in one lump sum, which payment shall cover taxation of all kinds within that province. Each cake of opium will have a stamp affixed as evi- dence of duty payment. Excise officers and police may be employed in connection with these offices, but no barriers or other obstructions are to be erected, and the excise officers or police of these offices shall not stop or molest any other kinds of goods or collect taxes thereon. A list of these offices shall be drawn up and communicated to the British Government for record. Sec. 6. Likin on salt is hereby abolished, and the amount of said likin and of other taxes and contributions shall be added to the salt duty, which shall be collected at place of production or at first station after entering the province where it is to be consumed. The Chinese Government shall be at liberty to establish salt-reporting offices, at which boats conveying salt which is being moved under STABILITY OF INTERNATIOKAL EXCHANGE. 205 salt passes or certificates may be required to stop for purposes of examination and to have their certificates vised, but at such offices no likin or transit taxation shall be levied and no barriers or obstruc- tions of any kind shall be erected. Sec. 7. The Chinese Government may recast the export tariff: with specific duties, as far as practicable, on a scale not exceeding 5 per cent ad valorem ; bnt existing export duties shall not be raised until at least six months' notice has been given. In cases where existing export duties are above 5 per cent they shall be reduced to not more than that rate. An additional special surtax of one-half the export dutj^ payable for the time being, in lieu of internal taxation and likin, may be levied at time of export on goods exported either to foreign countries or coastwise. In the case of silk, whether hand or filature reeled, the total export duty shall not exceed a specific rate equivalent to not more than 5 per cent ad valorem. Half of this specific duty may be levied at l;he first native custom-house in the interior which the silk may pass, and in such case a certificate shall be given as provided for in section 3, and will be accepted by the custom-house concerned at place of export in lieu of half the export duty. Cocoons passing native custom- houses shall be liable to no taxation whatever. Silk not exported but consumed in China is liable to the consumption tax mentioned and under conditions mentioned in section 8. Sec. 8. The abolition of the likin system in China and the abandon- ment of all other kinds of internal taxation on foreign imports and on exports will diminish the revenue materially. The surtax on foreign imports and exports and on coastwise exports is intended to compen- sate in a measure for this loss of revenue, but there remains the loss of likin revenue on internal trade to bo met, and it is therefore agreed that the Chinese Government are at liberty to impose a consumption tax on articles of Chinese origin not intended for export. This tax shall be levied only at places of consumption and not on goods while in transit, and the Chinese Government solemnly under- take that the ai*rangements which they make for its collection shall in no way interfere with foreign goods or with native goods for export. The fact of goods being of foreign origin shall of itself free them from all taxation, delay, or stoppage after having passed the custom-house. Foreign goods which bear a similarity to native goods shall be fur- nished by the custom-house, if required by the owner, with a protec- tive certificate for each package, on payment of import duty and surtax, to prevent the risk of anj^ dispute in the interior. Native goods brought by junks to open ports, if intended for local consumption — irrespective of the nationality of the owner of the goods — shall be reported at the native custom-house only, where the consumption ta.x may be levied. China is at libert}^ to fix the amount of this (consumption) tax, which may vary according to the nature of the merchandise concerned ; that is to say, according as the articles are necessaries of life or lux- uries; but it shall be levied at a uniform rate on goods of the same description, no matter whether carried by junk, sailing vessel, or steamer. As mentioned in section 3, the consumption tax is not to be levied within foreign settlements or concessions. Sec. 9. An excise equivalent to double the import duty as laid down in the protocol of 1901 is to be charged on all machine-made j^arn and cloth manufactured in China, whether by foreigners at the open ports or by Chinese anywhere in China. 206 STABILITY OP INTERNATIONAL EXCHANGE. A rebate of the import duty and two-thirds of the import surtax is to be given on raw cotton imported from foreign countries, and of all duties, including consumption tax, paid on Chinese raw cotton used in mills in China. Chinese machine-made yarn or cloth having paid excise is to be free of export duty, export surtax, coast- trade duty, and consumption tax. This excise is to be collected through the imperial maritime customs. The same principle and procedure are to be applied to all other products of foreign tj'pe turned out by machinery, whether by foreign- ers at the open ports or by Chinese anywhere in China. This stipulation is not to apply to the outturn of the Hanyang and Ta Yeh iron works in Hupeh and other similar existing Government works at present exempt from taxation, or to that of arsenals. Govern- ment dockyards, or establishments of that nature for Government purposes which may hereafter be erected. Sec. 10. A member or members of the imperial maritime customs foreign staff shall be selected by each of the governors-general and governors, and appointed, in consultation with the inspector-general of imperial maritime customs, to each province for duty in connection with native customs affairs, consumption tax, salt and native opium taxes. These officers shall exercise an efficient supervision of the working of these departments, and in the event of their reporting any case of abuse, illegal exaction, obstruction to the movement of goods, or other cause of complaint, the governor-general or governor con- cerned will take immediate steps to put an end to same. Sec. 11. Cases where illegal action as described in this article is com- plained of shall be promptly investigated by an offi^cer of the Chinese Government of sufBciently high rank, in conjunction with a British officer and an officer of the imperial maritime customs, each of sufficient standing ; and in the event of its being found by a majority of the inves- tigating officers that the complaint is well founded and loss has been incurred, due compensation is to be at once paid from the surtax funds, through the imperial maritime customs at the nearest open port. The high provincial officials are to be held responsible that the officer guilty of the illegal action shall be severely punished and removed from his post. If the complaint turns out to be without foundation, complainant shall be held responsible for the expenses of the investigation. His Britannic Majesty's minister will have the right to demand inves- tigation where from the evidence before him he is satisfied that illegal exactions or obstructions have occurred. Sec. 12. The Chinese Government agree to open to foreign trade, on the same footing as the places opened to foreign trade by the treaties of Nanking and Tientsin, the following places, namely: Ch'angsha, in Hunan; Wanhsien, in Szeehuen; Nganking, in Anhui; Waichow (Hui-chow), in Kuangtung; Kongmoon (Chiang-m6n), in Kuangtung. Foreigners residing in these open ports are to observe the municipal and police regulations on the same footing as Chinese residenis, and they are not to be entitled to establish municipalities and police of their own within the limits of these treatj^ ports except with the con- sent of the Chinese authorities. If this article does not come into operation, the right to demand under it the opening of these ports, with the exception of Kongmoon, which is provided for'in article 10, shall lapse. Sec. 13. Subject to the provisions of section 14, the arrangements provided for in this article are to come into force on January 1, 1904, STABILITY OP INTEKNATIOWAL EXCHANGE. 207 By that date all likin barriers shall be removed and officials employed in the collection of taxes and dues prohibited by this article shall be removed from their posts. Sec. 14. The condition on which the Chinese Government enter into the present engagement is that all Powers entitled to most-favored- nation treatment in China enter into the same engagements as Great Britain with regard to the payment of surtaxes and other obligations imposed by this article on Plis Britannic Majesty's Government and subjects. The conditions on which His Britannic Majesty's Government enter into the present engagement are: (1) That all Powers who are now or who may hereafter l)ecome entitled to most-favored-nation treatment in China enter into the same engagements ; (2) And that their assent is neither directly nor indirectly made dependent on the granting by China of any political concession or of any exclusive commercial concession. Sec. 15. Should the PoAvers entitled to most-favored-nation treat- ment by China have failed to agree to enter into the engagements undertaken by Great Britain under this article by January 1, 1904, then the provisions of the article shall only come into force when all the Powers have signified their acceptance of those engagements. Sec. 16. When the abolition of likin and other forms of internal taxation on goods as provided for in this article has been de(^ided upon and sanctioned, an imperial edict shall b(^ published in due form on yellow paper and circulated, setting forth the abolition of all likin taxation, likin barriers, and all descriptions of internal taxation on goods, except as provided for in this article. The edict shall state that the provincial high ofticials are respon- sible that any ofRcial disregarding the letter or spirit of tliis injunc- tion shall be severely punished and removed from his post. Article IX. The Chinese Governinent, recognizing that it is advantageous for the country to develop its mineral resources and that it is desirable to attract foreign as well as Chinese capital to embark in mining enterprises, agree within one year from the signing of this treaty to initiate and conclude the revision of the existing mining regulations. China will, with all expedition and earnestness, go into the whole question of mining rules, and, selecting from the rules of Great Britain, India, and other countries regulations which seem applicable to the condition of China, she will recast her present mining rules in such a way as, while promoting the interests of Chinese subjects and not injuring 'in any waj^ the sovereign rights of China, shall oflEer no impediment to the attraction of foreign capital or place foreign capi- talists at a greater disadvantage than they would be under generally accepted foreign regulations. Any mining concession granted after the publication of these new rules shall be subject to their provisions. Article X. Whereas in the year ISOS the inland waters of China were opened to all such steam vessels, native or foreign, as might be especially registered for that trade at the treaty ports, and whereas the regula- 208 STABILITY OF INTERNATIONAL EXCHANGE. tions dated July 28, 1898, and supplementary rules dated September, 1898, have been found in some respects Inconvenient in working, it is now mutually agreed to amend them and to annex such new rules to this treaty. These rules shall remain in force until altered by mutual consent. It is further agreed that Kongmoon shall be opened as a treaty port, and that in addition to the places named in the special article of the Burmah convention of February 4, 1897, British steamers shall be allowed to land or ship cargo and passengers, under the same regula- tions as apply to the "ports of call" on the Yangtze River, at the the following " ports of call:" Pak Tau Hau (Pai-t'u k'ou), Lo Ting Hau (Lo-ting k'ou), and Do Sing (Tou-ch'eng) ; and to land or dis- charge passengers at the following ten passenger landing stages on the West River: Yung Ki (Jung-chi), Mah Ning (Ma-ning), Kau Kong (Chiu-chiang),Kulow (Ku-lao), Wing On (Yung-an), HowLik (Hou-li), Luk Pu (Lu-pu), YuetSing (Yileh-ch'eng), Luk To (Lii-tu), and Fung Chuen (Feng-ch'uan). Article XI. His Britannic Majesty's Government agree to the prohibition of the general importation of morphia into China, on condition, however, that the Chinese Government will allow of its importation, on pay- ment of the tarifE import duty and under special permit by duly qual- ified British medical practitioners and for the use of hospitals, or by British chemists and druggists, who shall only be permitted to sell it in small quantities and on receipt of a requisition signed by a duly qualified foreign medical practitioner. The special permits above referred to will be granted to an intend- ing importer on his signing a bond before a British consul guarantee- ing the fulfillment of these conditions. Should an importer be found guilty before a British consul of a breach of his bond, he will not be entitled to take out another permit. Any British subject importing morphia without a permit shall be liable to have such m^orphia confis- cated. This article will come into operation on all other Treaty Powers agreeing to its conditions, but any morphia actually shipped before that date will not be affected bj^ this prohibition. The Chinese Government on their side undertake to adopt measures at once to prevent the manufacture of morphia in China. Article XII. China having expressed a strong desire to reform her judicial sys- tem and to bring it into accord with that of western nations. Great Britain agrees to give every assistance to such reform, and she will also be prepared to relinquish her extra territorial rights when she is satisfied that the state of the Chinese laws, the arrangement for their administration, and other considerations warrant her in so doing. Article XIII. The missionary question in China being, in the opinion of the Chinese Government, one requiring careful consideration, so that, if possible, troubles such as have occurred in the past may be averted in the future, Great Britain agrees to join in a commission to investi- STABILITY OF INTEKNATIONAL EXCHANGE. 209 gate this question, and, if possible, to devise means for securing permanent peace between converts and nonconverts, should such a commission be formed by China and the Treaty Powers interested. Article XIV. Whereas, under Rule V appended to the treaty of Tientsin of 1858, British merchants are permitted to export rice and all other grain from one port of China to another under the same conditions in respect of security as copper "cash," it is now agreed that in cases of expected scarcity or famine from whatsoever cause in any district, the Chinese Government shall, on giving twenty-one days' notice, be at liberty to prohibit the shipment of rice and other grain from such district. Should any vessel specially chartered to load rice or grain previously contracted for have arrived at her loading port prior to or on the day when notice of prohibition to export comes into force she shall be allowed an extra week in which to ship her cargo. If during the existence of this prohibition any shipment of rice or grain is allowed by the authorities, the prohibition shall, ipso facto, be considered cancelled and shall not be reimposed until six weeks' notice has been given. When a prohibition is notified, it will be stated whether the Govern- ment have any tribute or army rice which they intend to ship during the time of prohibition, and if so, the quantity shall be named. Such rice shall not be included in the prohibition, and the customs shall keep a record of any tribute or army rice so shipped or landed. The Chinese Government undertake that no rice, other than tribute or army rice belonging to the Government, shall be shipped during the period of prohibition. N'otiflcations of prohibitions and of the quantities of army or tribute rice for shipment shall be made by the governors of the provinces concerned. Similarly notifications of the removals of prohit)itions shall be made by the same authorities. The export of rice and other grain to foreign countries remains prohibited. Article XV. It is agreed that either of the high contracting parties to this treaty may demand a revision of the tariff at the end of ten years ; but if no demand be made on either side within six months after the end of the first ten years then the tariff shall remain in force for ten years more, reckoned from the end of the preceding ten years, and so it shall be at the end of each successive ten years. Any tariff concession which China may hereafter accord to articles of the produce or manufacture of any other state shall immediately be extended to similar articles of the produce or manufacture of His Britannic Majesty's dominions by whomsoever imported. Treaties already existing between the United Kingdom and China shall continue in force in so far as they are not abrogated or modified by stipulations of the present treaty. Article XVI. The English and Chinese texts of the present treaty have been care- fully compared, but in the event of there being any difference of H. Doc. lU li 210 STABILITY OF INTERNATIONAL EXCHANGE. meaning between them the sense as expressed in the English text shall be held to be the correct sense. The ratifications of this treaty, under the hand of His Majesty the King of Great Britain and Ireland, and of His Majesty the Emperor of China, respectively, shall be exchanged at Peking within a year from this day of signature. In token whereof the respective plenipotentiaries have signed and sealed this treaty, two copies in English and two in Chinese. Done at Shanghai this fifth day of September, in the year of our Lord 1902, corresponding with the Chinese date the fourth day of the eighth moon of the twenty-eighth year of Kwang Hsii. [l. S.J Jas. L. Mackay. [Signature of His Excellency Sh§ng Hsiian-huai.] [Signature of His Excellency Lii Hai-huan.] [Seal of the Chinese plenipotentiaries.] Annex A — (1). [Translation.] Lti, president of the board of works, Sheng, junior guardian of the Heir Apparent, vice-president of the board of works. Imperial Chinese Commissioners for dealing with questions connected with the commercial treaties, to Sir James Mackay, His Britannic Majes- ty's special commissioner for the discussion of treaty matters. Shanghai, K. H. XXVIII, 7th moon, llfh day. (Received August 15, 1902.) We have the honor to inform you that we have received the follow- ing telegram from His Excellency Liu,- governor-general of the Liang Chiang, on the subject of Clause II, mutually agreed upon by us: "As regards this clause, it is necessary to insert therein a clear stipulation to the e^ect that, no matter what changes may take place in the future, all customs duties must continue to be calculated on the basis of the existing higher rate of the haikwan tael over the treasury tael, and that ' the touch ' and weight of the former must be made good." As we have already arranged with you that a declaration of this kind should be embodied in an oflleial note and form an annex to the present treaty, for purposes of record, we hereby do ourselves the honor to make this communication. [Seal of the Imperial Commissioners for dealing with questions connected with treaty revision.] Annex A— (3). Shanghai, August 18, 1902. Gentlemen : I have the honor to acknowledge the receipt of your dispatch of the 14th instant, forwarding a copy of a telegram from His Excellency Liu, governor-general of the Liang Chiang, on the subject of Article II of the new treaty, and in reply I have the honor to state that His Excellency's understanding of the article is perfectly correct. I presume the Chinese Government will malic arrangements for the coinage of a national silver coin of such weight and touch as may be decided upon by them. These coins will be made available to the pub- STABILITY OP INTERNATIONAL EXCHANGE. 211 lie in return for a quantity of silver bullion of equivalent weight and fineness plus the usual mintage charge. The coins, which will become the national coinage of China, will be declared by the Chinese G-overnment to be legal tender in payment of customs duty and in discharge of obligations contracted in haikwan taels, but only at their proportionate value to the haikwan tael, what- ever that may be. I have the honor to be, gentlemen, your obedient servant, Jas. L. Mackay. Their Excellencies Ltj Hai-huan and Sheng Hsuan-htjai, etc. Annex B (1). [Translation.] Lii, president of the board of works, Slieng, junior guardian of the Heir Apparent, vice-president of the board of works. Imperial Chinese Commissioners for dealing with questions couuected with the com- mercial treaties, to Sir James Mackay, His Britannic Majesty's Special Commissioner. Shanghai, Sej)teniber ii, l'M2. We have the honor to inform you that on August 22 wo, in con- junction with the governors-general of the Liang Chiang and the Hu- kuang provinces. Their Excellencies Liu and Chang addressed the following telegraphic memorial to the Throne : " Of the revenue of the different provinces derived from likiu of all kinds, a portion is appropriated for 'the service of the foreign loans, a portion for the Peking Government, and the balance is reserved for the local expenditure of the provinces concerned. "In the negotiations now being conducted with Great Britain for the amendment of the commercial treaties, a mutual arrangement has been come to providing for the imposition of additional taxes, in com- pensation for the abolition of all kinds of likin and other imposts on goods, prohibited by Article ^'III. After payment of interest and sinking fund on the existing foreign loan, to the extent to which likin is thereto pledged, these additional taxes shall be allocated to the various provinces to make up deficiencies and replace revenue, in order that no hardships "majr be entailed on them. With a view to preserving the original intention underlying the proposal to increase the duties in compensation for the loss of revenue derived from likin and other imposts on goods, it is further stipulated that the surtaxes shall not be appropriated for other purposes, shall not form part of the imperial maritime customs revenue proper, and shall in no case be pledged as security for any new foreign loan. "It is therefore necessary to memorialize for the issue of an edict, giving effect to the above stipulations and directing the board of revenue to find out what proportion of the provincial revenues derived from likin of all kinds, now about to be abolished, each prov- ince has hitherto had to remit, and what proportion it has been entitled to retain, so that, when the article comes into operation, due apportionment may be made accordingly, thus providing the prov- inces with funds available for local expenditure and displaying equitable and just treatment toward all." 212 STABILITY OF INTERN ATION A Xi EXCHANGE. On the 1st instant an imperial decree, "Let action, as requested, be taken," was issued, and we now do ourselves the honor reverently to transcribe the same for your information. [Seal of the Imperial Commissioners for dealing with questions connected with treaty revision.] Annex B— (3). Shanghai, September 5, 1902. Gentlemen : I have the honor to acknowledge the receipt of your dispatch of the 2d instant forwarding the text of the memorial and decree dealing with the disposal of the surtaxes. I understand that the surtaxes, in addition to not being pledged for any new foreign loan, are not to be pledged to, or held to be security for, liabilities already contracted by China, except in so far as likin revenue has already been pledged to an existing loan. I also understand from the memorial that the whole of the surtaxes provided by Article VIII of the new treaty goes to the provinces in proportions to be agreed upon between them and the board of reve- nue, but that out of these surtaxes each province is obliged to remit to Peking the same contribution as that which it has hitherto remitted out of its likin collections, and that the provinces also provide as hitherto out of these surtax funds whatever may be necessary for the service of the foreign loan to which likin is partly pledged. I hope your excellencies will send me a reply to this dispatch, and that you will agree to this correspondence forming part of the treaty as an annex. I have the honor to be, gentlemen, your obedient servant, Jas. L. Mackay. Their Excellencies Lit Hai-huan and Sheng Hsuan-huai, etc. Annex B— (3). [Translation.] Lii, president of the board of works, Sheng, junior guardian of the Heir Apparent, vice-president of the board of works. Imperial Chi- nese Commissioners for dealing with questions connected with the commercial treaties, to Sir James L. Mackay, His Britannic Maj- esty's Special Commissioner. Shanghai, September 5, 1902. We have the honor to acknowledge the receipt of your communica- tion of to-day's date with regard to the allocation of the surtax funds allotted to the provinces, and to inform you that the views therein expressed are the same as our own. We would, however, wish to point out that, were the whole amount of the allocation due paid over to the provinces, unnecessary expense would be incurred in the retransmission by them of such portions thereof as would have to be remitted to Peking in place of the contri- butions hitherto payable out of likin revenue. The amount, there- fore, of the allocation due to the provinces, arranged between them and the board of revenue, will be retained in the hands of the marl- STABILITY OF INTERNATIONAL EXCHANGE. 213 time customs, who will await the instructions of the provinces in regard to the remittance of such portion thereof as may be necessary to fulfill their obligations, and (on receipt of these instructions) will send forward the amount direct. The balance will be held to the order of the provinces. In so far as likin is pledged to the service of the 1808 loan, a simi- lar method of procedure will be adopted. As you request that this correspondence be annexed to the treatj', we have the honor to state that we see no objection to this being done. [Seal of the Imperial Connnissioners for dealing with questions connected with treaty revision.] Annex C. Inland waters steam navigation. ADDITIONAL RULES. 1. British steamship owners are at liberty to lease warehouses and jetties on the banks of waterways from Chinese subjects for a term not exceeding twenty-five years, with option of renewal on terms to be mutually arranged. In cases where British merchants arc unable to secure warehouses and jetties from Cliinese subjects on satisfac- tory terms, the local officials, after consultation with the minister of commerce, shall arrange to provide these on renewable lease as above mentioned at current equitable rates. 2. Jetties shall only be erected in such positions that they will not obstruct the inland waterway or interfei'e with navigation, and with the sanction of the nearest commissioner of customs; such sanction, however, shall not be arbitrarily withheld. 3. British merchants shall pa}' taxes and contributions on these warehouses and jetties on the same footing as Chinese proprietors of similar properties in the neighborhood. British merchants may only employ Chinese agents and staff to reside in warehouses so leased at places touched at by steamers engaged in inland traffic to carry on their business; but British merchants may visit these places from time to time to look aftei' their affairs. The existing rights of Chinese jurisdiction over Chinese subjects shall not by reason of this clause be diminished or interfered with in any vray. 4. Steam vessels navigating the inland waterways of China shall be responsible for loss caused to riparian jiroprietors by damage which they may do to the banks or works on them and for the loss which may be caused by such damage. In the event of China desiring to prohibit the use of some particular shallow waterwaj' by launches, because there is reason to fear that the use of it by them would be likely to injure the banks and cau.se damage to the adjoining country, the British authorities, when appealed to, shall, if satisfied of the validity of the objection, prohibit the tise of that waterwaj' by British launches, provided that Chinese launches are also prohibited from using it. Both foreign and Chinese launches are prohibited from crossing dams and weirs at present in existence on inland waterways where they are likely to cause injury to such works which would he detri- mental to the water service of the local people. 214 STABILITY OF INTEENATIONAL EXCHANGE. 5. The main object of the British Government in desiring to see the inland waterways of China opened to steam navigation being to afford facilities for the rapid transport of both foreign and native merchan- dise, they undertake to offer no impediment to the transfer to a Chinese company and the Chinese flag of any British steamer which may now or hereafter be employed on the inland waters of China should the owner be willing to make the transfer. In event of a Chinese company, registered under Chinese law, being formed to run steamers on the inland waters of China, the fact of British subjects holding shares in such a company shall not entitle the steamers to fly the British flag. 6. Registered steamers and their tows are forbidden, just as junks have always been forbidden, to carry contraband goods. Infraction of this rule will entail the penalties prescribed in the treaties for such an offense and cancellation of the inland waters navigation certifleate carried by the vessels, which will be prohibited from thereafter plying on inland waters. 7. As it is desirable that the people living inland should be dis- turbed as little as possible by the advent of steam vessels, to which they are not accustomed, inland waters not hitherto frequented by steamers shall be opened as gradually as may be convenient to mer- chants and only as the owners of steamers may see prospect of remu- nerative trade. In cases where it is intended to run steam vessels on waterways on which such vessels have not hitherto run, intimation shall be made to the commissioner of customs at the nearest open port, who shall report the matter to the ministers of commerce. The latter, in conjunction with the governor-general or governor of the province, after careful consideration of all the circumstances of the case, shall at once give their approval. 8. A registered steamer may ply within the waters of a port, or from one open port or ports to another open port or ports, or from one open port or ports to places Inland, and thence back to such port or ports. She may, on making due report to the customs, land or ship passengers or cargo at any recognized places of trade passed in the course of the voyage, but may not ply between inland places exclu- sively except with the consent of the Chinese Government. 0. Any cargo and passenger boats may be towed bj' steamers. The helmsman and crew of any boat towed shall be Chinese. All boats, irrespective of ownership, must be registered before they can proceed inland. 10. These rules are supplementary to the inland steam navigation regulations of July and September, 1898. The latter, where untouched by the present rules, remain in full force and effect, but the present rules hold in the case of such of the former regulations as the present rules affect. The present rules, and the regulations of July and Sep- tember, 1898, to which they ai-e supplementary, are provisional, and may be modified as circumstances require, by mutual consent. Done at Shanghai this fifth day of September, in the year of our Lord 1902; corresponding with the Chinese date, the fourth day of the eighth moon of the twenty-eighth year of Kwang Hsti. [l. S.J Jas. L. Mackay. [Signature of His Excellency Sheng Hslian-huai.] Signature of His Excellency Lii Hai-huan.] [Seal of the Chinese plenipotentiaries. ] STABILITY OF INTERNATIONAL EXCHANGE. 215 III. — Provisions of the Commercial Treaty of the United States with China. The following is the full text of the treaty which was signed at Shanghai on October 8 : The United States of America and His Majesty the Emperor of China, being animated by an earnest desire to extend further the commercial relations between them and otherwise to promote the interests of the peoples of the two countries, in view of the provisions of the first paragraph of Article XI of the final protocol signed at Peking on Sep- tember 7, A. D. 1901, whereby the Chinese Government agreed to nego- tiate the amendments deemed necessary by the foreign governments to the treaties of commerce and navigation and other subjects con- cerning commercial relations, with the object of facilitating them, have for that purpose named as their plenipotentiaries: The United States of America: Edwin II. Conger, envoy extraordinary and minister plenipotentiary of the United States of America to China. John Goodnow, cons-ul general of the United States of America at Shanghai. John F. Seaman, a citizen of the United States of Americ;i, resident at Shanghai. And His Majesty the Emperor of China : Ltl llai-huan, president of the board of public works. Sheng Hsiian-huai, junior guardian of the heir apparent, formerly senior vice-president of the board of public works. Wu Ting-fang, senior vice-president of the board of commerce; Who, having met and duly exchanged their full powers, which were found to be in proper form, have agreed upon the following amendments to existing treaties of commerce and navigation pre- viously concluded between ihe two countries, and upo7i tlie subjects hereinafter expressed connected with commercial relations, with the object of facilitating them. Article I. In accordance with international custom, and as the diplomatic representative of China has the right to reside in the capital of the United States, and to enjoy there the same prerogatives, privileges, and immunities as are enjoyed by the similar representative of the most favored nation, the diplomatic representative of the United States shall have the right to reside at the capital of His Majestj' the Emperor of China. He shall be given audience of His Majesty the Emperor whenever necessary to present his letters of credence or any commiinication from the President of the United States. At all such times he shall be received in a place and in a manner befitting his high position, and on all such, occasions the ceremonial observed toward hiiii shall be that observed toward the representatives of nations on a footing of equality, with no loss of prestige on either side. The diplomatic representatives of the United States shall enjoj' all the prerogatives, privileges, and immunities accorded by international usage to such representatives, and shall in all respects be entitled to the treatment extended to similar representatives of the most favored nation. 216 STABILITY OF INTERNATIONAL EXCHANGE. The English text of all notes or dispatches from United States officials to Chinese officials and the Chinese text of all from Chinese officials to United States officials shall be authoritative. Article II. As China may appoint consular officers to reside in the United States and to enjoy there the same attributes, privileges, and immu- nities as are enjoyed by consular officers of other nations, the United States may appoint, as its interests may require, consular officers to reside at the places in the Empire of China that are now or that may hereafter be opened to foreign residence and trade. They shall hold direct official intercourse and correspondence with the local officers of the Chinese Government within their consular districts, either per- sonally or in writing, as the case may require, on terms of equality and reciprocal respect. These officers shall be treated with proper respect by all Chinese authorities, and they shall enjoy all the attri- butes, privileges, and immunities, and exercise all the jurisdiction over their nationals which are or may hereafter be extended to similar officers of the nation the most favored in these r'espects. If the officers of either government are disrespectfully treated or aggrieved in any way by the authorities of the other, they shall have the right to make representation of the same to the superior officers of their own govern- ment who shall see that full inquiry and strict justice be had in the premises. And the said consular officers of either nation shall care- fully avoid all acts of offense to the officers and people of the other nation. On the arrival of a consul, properly accredited, at any place in China opened to foreign trade, it shall be the duty of the minister of the United States to inform the board of foreign affairs, which shall, in accordance with international usage, forthwith cause the due rec- ognition of the said consul and grant him authority to act. Article III. Citizens of the United States may frequent, reside, and carry on trade, industries, and manufactures, or pursue any lawful avocation, in all the ports or localities of China which are now open, or may hereafter be opened, to foreign trade and residence; and, within the suitable localities at those places which have been or may be set apart for the use and occupation of foreigners, they may rent or purchase houses, places of business, and other buildings, and rent or lease in perpetuity land and build thereon. They shall generally enjoy, as to their persons and property, all such rights, privileges, and immunities as are or may hereafter' be granted to the subjects or citizens of the nation the most favored in these respects. Article- IV. The Chinese Government, recognizing that the existing system of levying dues on goods in ti-ansit, and especially the system of taxation known as likin, impedes the free circulation of commodities to the general injury of trade, hereby undertakes to abandon the levy of likin and all other transit dues throughout the Empire, and to abolish the offices, stations, and barriers maintained for their collection and not to establish other offices for levying dues on goods in transit. It STABILITY OP INTERNATIONAL EXCHANGE. 217 is clearly understood that after the offices, stations, and barriers for taxing goods in transit have been abolished no attempt shall be made to reestablish them in any form or under any pretext whatsoever. The Government of the United States, in return, consents to allow a surtax, in excess of the tarifE rates for the time being in force, to be imposed on foreign goods imported by citizens of the United States and on Chinese produce destined for export abroad or coastwise. It is clearly understood that in no case shall the surtax on foreign imports exceed one and one-half times the import duty leviable in terms of the final protocol signed by China and the Powei'S on Sep- tember 7, A. D. 1901; that the payment of the import duty and sur- tax shall secure for foreign imports, whether in the hands of Chinese or foreigners, in original packages or otherwise, complete immunity from all other taxation, examination, or delay; that the total amount of taxation, inclusive of the tarifE export duty, leviable on native produce for export abroad, shall, under no circumstances, exceed 7^ per centum ad valorum. ISTothing in this article is intended to interfere with the inherent right of China to levy such other taxes as are not in conflict with its provisions. Keeping these fundamental principles in view, the high contracting parties hAve agreed upon the following method of procedure : The Chinese Government undertakes that all offices, stations, and barriers of whatsoever kind for collecting likin, duties, or such like dues on goods in transit shall be permaner tly abolished on all roads, railways, and waterways in the nineteen provinces of China and tlie three eastern provinces. This provision does not apply to the native customs olficers at present in existence on the seaboard, at open ports where there are offices of the imperial maritime customs, and on the land frontiers of China embracing the nineteen provinces and the three eastern provinces. Wherever there are offices of the imperial maritime customs, or • wherever such may be hereafter placed, native customs offices may also be established, as well as at any point either on the seaboard or land frontiers. The Government of the United States agrees that foreign goods on importation, in addition to the effective 5 per centum import duty, as provided for in the protocol of 1901, shall pay a special surtax of one and one-half times the amount of the said duty to compensate for the abolition of likin, of other transit dues besides likin, and of all other taxation on foreign goods, and in consideration of the other reforms provided for in this article. The Chinese Government may recast the foreign export tarifE with specific duties, as far as practicable, on a scale not exceeding 5 per centum ad valorem, but existing export duties shall not be raised until at least six months' notice has been given. In cases where existing export duties are above 5 per centum they shall be reduced to not more than that rate. An additional special surtax of one-half the export dutj' payable for the time being, in lieu of internal taxation of all kinds, may be levied at the place of original shipment or at the time of export on goods exported either to foreign countries or coastwise. Foreign goods which bear a similai'ity to native goods shall be fur- nished by the customs officers, if required by the owner, with a pro- tective certificate for each package, on the payment of import duty and surtax, to prevent the risk of any dispute in the interior. Native goods brought bj' junks to open ports, if intended for local 218 STABILITY OP INTERNATIONAL EXCHANGE. consumption, irrespective of the nationality of the owner of the goods, shall be reported at the native customs offices only, to be dealt with according to the fiscal regulations of the Chinese Government. Machine-made cotton yarn and cloth manufactured in China, whether by foreigners at the open ports or by Chinese anywhere in China, shall, as regards taxation, be on a footing of perfect equality. Such goods upon payment of the taxes thereon shall be granted a rebate of the import duty and of two-thirds of the import surtax paid on the cotton used in their manufacture, if it has been imported from abroad, and of all duties paid thereon if it be Chinese grown cotton. They shall also be free of export duty, coast-trade duty, and export surtax. The same principle and procedure shall be applied to all other products of foreign type turned out by machinery in China. A member or members of the imperial maritime customs foreign staff shall be selected by the governors-general and governors of each of the various provinces of the Empire for their respective provinces, and appointed in consultation with the inspector-general of imperial maritime customs, for duty in connection with native customs affairs, to have a general supervision of their working. Cases where illegal action is complained of by citizens of the United States shall be promptly investigated by an ofiicer of the Chinese Gov- ernment of sufficiently high rank, in conjunction with an of&cer of the United States Government and an ofiicer of the imperial maritime customs, each of sufficient standing ; and in the event of it being found by the investigating officers that the complaint is well founded and loss has been incurred due compensation shall be paid through the imperial maritime customs. The high provincial officials shall be held responsible that the officer guilty of the illegal action shall be severely punished and removed from his post. If the complaint is shown to be frivolous or malicious, the complainant shall be held responsible for the expenses of the investigation. When the ratifications of this treaty shall have been exchanged by the high contracting parties hereto and the provisions of this article shall have been accepted by the powers having treaties with China, then a date shall be agreed upon when the provisions of this article shall take efliect, and an imperial edict shall be published in due form on yellow paper and circulated throughout the Empire of China, set- ting forth the abolition of all likin taxation, duties on goods in transit, offices, stations, and barriers for collecting the same, and of all de- scriptions of internal taxation on foreign goods, and the imposition of the surtax on the import of foreign goods and on the export of native goods, and the other fiscal changes and reforms provided for in this article, all of which shall take effect from the said date. The edict shall state that the provincial high officials are responsible that any official disregarding the letter or the spirit of its injunction shall be severely punished and removed from his post. Article V. The tariff duties to be paid by citizens of the United States on goods imported into China shall be as set forth in the schedule annexed hereto and made part of this treaty, subject only to such amendments and changes as are authorized by Article IV of the present convention or as may hereafter be agreed upon by the present high contracting parties. It is expressly agreed, however, that citizens of the United STABILITY OP INTERNATIONAL EXCHANGE. 219 States shall at no time pay other or higher duties than those paid by the citizens or subjects of the most favored nation. Conversely, Chinese subjects shall not pay higher duties on their imports into the United States than those paid by the citizens or sub- jects of the most favored nation. Article VI. , The Government of China agrees to the establishment by citizens of the United States of warehouses, approved by the proper Chinese authorities as bonded warehouses, at the several open ports of China, for storage, repacking, or preparation for shipment of lawful goods, subject to such needful regulations for the protection of the revenue of China, including a reasonable scale of fees according to commod- ities, distance from the custom-house, and hours of working, as shall be made from time to time by the proper officers of the Government of China. Article VII. The Chinese Government, recognizing tliat it is advantageous for the country to develop its mineral resouices and that it is desirable to attract foreign as well as Chinese capital to embark in mining enterprises, agrees, within one year from the signing of this treat}', to initiate and conclude the revision of the existing raining regula- tions. To this end China will, with all expedition and earnestness, go into the whole question of mining rules; and, selecting from the rules of the United States and other countries regulations which seem applicable to the condition of China, will i-ecast its present mining- rules in such a way as, while promoting the interests of Chinese sub- jects and not injuring in any way the sovereign rights of China, will offer no impediment to the attraction of foreign capital nor place for- eign capitalists at a greater disadvantage than they would be under generally accepted foreign regiilations; and will permit citizens of the United States to cany on in Chinese territory mining operations and other necessary business relating thereto, provided they comply with the new regulations and conditions which may be imposed by China on its subjects and foreigners alike, relating to the opening of mines, the renting of mineral land, and the payment of royalty, and provided they apply for permits, the provisions of which in regard to necessary business relating to such operations shall be observed. The residence of citizens of the United States in connection with such mining operations shall be subject to such regulations as shall be agreed upon between the United States and China. Any mining concession granted after the publication of such new rules shall be subject to their provisions. Article VIII. Drawback certificates for the return of duties shall be issued by the imperial maritime customs to citizens of the United States within three weeks of the presentation to the customs of the papers entitling the applicant to receive such drawback certificates, and they shall be receivable at their face value in payment of duties of all kinds (tonnage dues excepted) at the port of issue, or shall, in the case of drawbacks 220 STABILITY OF INTEENATIONAL EXCHANGE. on foreign goods reexported within three years from date of importa- tion, be redeemable by the imperial maritime customs in full in ready money at the port of issue, at the option of the holders thereof. But if in connection with any application for a drawback certificate the customs authorities discover an attempt to defraud the revenue the applicant shall be dealt with and punished in accordance with the stipu- lations provided in the treaty of Tientsin, Article XXI, in the ease of detected frauds on the revenue. In case the goods have been removed from Chinese territory, then the consul shall inflict on the guilty party a fine, to be paid to the Chinese Government. Article IX. Whereas the United States undertakes to protect the citizens of any country in the exclusive use within the United States of any law- ful trade-marks, provided that such country agrees by treaty or con- vention to give like protection to the citizens of the United States; Therefore the Government of China, in order to secure such pro- tection in the United States for its subjects, now agrees to fully pro- tect any citizen, firm, or corporation of the United States in the exclusive use in the Empire of China of any lawful trade-mark to the exclusive iise of which they are entitled in the United States, or which they have adopted and used, or intend to adopt and use as soon as registered, for exclusive use within the Empire of China. To this end the Chinese Government agrees to issue by its proper authori- ties proclamations, having the force of law, forbidding all subjects of China from infringing on, imitating, colorably imitating, or knowingly passing off an imitation of trade-marks belonging to citizens of the United States which shall Jiave been registered by the proper authori- ties of the United States at such offices as the Chinese Government will establish for such purpose, on payment of a reasonable fee, after due investigation by the Chinese authorities and in compliance with reasonable regulations. Article X. The United States Government allows subjects of China to patent their inventions in the United States and protects them in the use and ownership of such patents. The Government of China now agrees that it will establish a patent office. After this office has been estab- lished and special laws with regard to inventions have been adopted it will thereupon, after the payment of the legal fees, issue certificates of protection, valid for a fixed term of years, to citizens of the United States on all their patents issued by the United States, in respect of articles the sale of which is lawful in China, whicli do not infringe on previous inventions of Chinese subjects, in the same manner as pat- ents are to be issued to subjects of China. Article XI. Whereas the Government of the United States engages to give the benefits of its copyright laws to the citizens of any foreign state which gives to the citizens of the United States the benefits of copyright on an equal basis with its own citizens ; Therefore, the Government of China, in order to secure such bene- fits in the United States for its subjects, now agrees to give full pro- STABILITY OF INTERNATIONAL EXCHANGE. 221 tection, in the same way and manner and subject to the sameconditions upon which it agrees to protect trade-marks, to all citizens of the United States wIki are authors, designers, or proprietors of anj' book, map, print, or engraving especially prepared for the use and education of the Chinese people, or translation into Chinese of any book, in the exclusive right to print and sell such book, map, print, engraving, or translation in the Empire of China during ten years from the date of registration. With the exception of the books, maps, etc., specified above, which may not be reprinted in the same form, no work shall be entitled to copyright privileges under this article. It is understood that Chinese subjects shall be. at liberty to make, print, and sell original translations into Chinese of any works written or of maps compiled by a citizen of the United States. This article shall not be held to protect against due process of law any citizen of the United States or Chines^ subject who may be author, proprietor, or seller of any publication calculated to injure the well-being of China. Article XII. The Chinese Government having, in li^l)8, opened the navigable inland waters of the Empire to commerce by all steam vessels, native or foreign, that may be specially registered for the purpose, for con- veyance of passengers and lawful merchandise, citizens, firms, and corporations of the United States maj' engage in such commerce on equal terms witli those granted to subjects of any foreign power. In case either party hereto considers it advantageous at anj' time that the rules and regulations then in existence for sucli commerce be altered or amended, the Chinese Government agrees to consider amicably and to adopt such modifications thereof as are found neces- sary for trade and for the benefit of China. The Chinese Government agrees that, upon the exchange of the ratifications of tlais treaty, Mukden and Antung, both in the province of Sheng-king, will be opened by China itself as places of international residence and trade. The selection of fitting localities to be set apart for international use and occupation and the regulations for these places set apart for foreign residence and trade shall be agreed upon bj' the Governments of the United States and China after consultation together. Article XIII. China agrees to take the necessary steps to provide for a uniform national coinage whicli shall be legal tender in payment of all duties, taxes, and other obligations throughout the Empire of Cliina by the citizens of the United States as well as Chinese subjects. It is under- stood, liowever, that all customs duties shall continue to be calculated and paid on the basis of the haikwan tael. xVrticle XIV. The principles of the Christian religion, as professed bj' the Protes- tant and Roman Catliolic churches, are recognized as teaching men to do good and to do to others as they would huve others do to them. Those who quietly profess and teach these doctrines shall not be harassed or persecuted on account of their faith. Any person, whether citizen of the United States or Chinese convert, who, accord- 222 STABILITY OP IISTTEENATIONAL EXCHANGE. ing to these tenets, peaceably teaches and practices the principles of Christianity shall in no case- be interfered with or molested therefor. No restrictions shall be placed on Chinese joining Christian churches. Converts and nonconverts, being Chinese subjects, shall alike con- form to the laws of China, and shall pay due respect to those in authority, living together in peace and amity, and the fact of being converts shall not protect them from the consequences of any offence they may have committed before or may commit after their admission to the church, or exempt them from paying legal taxes levied on Chi- nese subjects generally, except taxes levied and contributions for the suiiport of religious customs and practices contrary to their religion. Missionaries shall not interfere with the exercise by the native author- ities of their jurisdiction over Chinese subjects; nor shall the native authorities make any distinction between converts and nonconverts, but shall administer the laws without partiality, so that both classes can live together in peace. Missionary societies of the United States shall be permitted to rent and to lease in perpetuity as the property of such societies buildings or lands in all parts of the Empire for missionary purposes, and, after the title deeds have been found in order and duly stamped by the local authorities, to erect such suitable buildings as may be required for carrying on their good work. Article XV. The Government of China having expressed a strong desire to reform its judicial system and to bring it into accord with that of Western nations, the United States agrees to give every assistance to this reform and will also be prepared to relinquish extraterritorial rights when satisfied that the state of the Chinese laws, the arrangements for their administration, and other considerations warrant it in so doing. Article XVI. The Government of the United States consents to the prohibition by the Government of China of the importation into China of morphia and of instruments for its injection, excepting morphia and instru- ments for its injection imported for medical purposes, on payment of tariff duty, and under regulations to be framed by China which shall effectually restrict the use of such import to the said purposes. This prohibition shall be uniformly applied to such importation from all countries. The Chinese Government engages to adopt at once meas- ures to prevent the manufacture in China of morphia and of instru- ments for its injection. Article XVII. It is agreed between the high contracting parties hereto that all the provisions of the several treaties between the United States and China which were in force on January 1, A. D. 1900, are continued in full force and eifect and except in so far as they are modified by the pres- ent treaty or other treaties to which the United States is a party. The present treaty shall remain in force for a period of ten years, beginning with the date of the exchange of ratifications and until a revision is effected as hereinafter provided. It is further agreed that either of the high contracting parties may demand that the tariff and the articles of this convention be revised STABILITY. OF INTEBNATIONAL EXCHANGE. 223 at t]ie end of ten years from the date of the exchange of the ratifica- tions hereof. If no revision is demanded before the end of tlie first cerm of ten years, then these articles in their present form shall remain in full force for a further term of ten years, reckoned from the end of the first term, and so on for successive periods of ten years. The English and Chinese texts of the present treaty and its three annexes have been carefully compared, but in the event of there being any difference of meaning between them, the sense as expressed in the English text shall be held to be the correct one. This treaty and its three annexes shall be ratified by the two high contracting parties in conformity with their respective constitutions, and the ratification shall be exchanged in "Washington not later than twelve months from the pi'esent date. In testimony whereof we, the undersigned, by virtue of our respec- tive powers, have signed this treaty in duplicate in the English and Chinese languages, and have affixed our respective seals. Done at Shanghai, Octolier 8, in the year of our Lord 1903, and the twenty-ninth year of Kuang Ilsii, eighth month and eighteenth day. Annex I. As citizens of the Ignited States are already forbidden b\' treaty to deal in or handle opium, no mention has been made in this treaty of opium taxation. As the trade in salt is a Government monopoly in China, no men- tion has been made in this treatj' of salt taxation. It is, however, understood, after full discussion and consideration, that the collection of inland duties on opium and salt and the means for the protection of the revenue thercfi'oin and for preventing illicit traffic therein are left to be administered by llio Chinese Government in such manner as shall in no wise interfere with the provisions of Article IV of this treaty regarding the unobstructed transit of other goods. Annex II. Article IV of the treaty of commerce between the United States and China of this date provides for the retention of the native cus- toms offices at the open ports. For the purpose of safeguarding the revenue of China at such places, it is understood that the Chinese Government shall be entitled to establish and maintain such branch native customs offices at each open port, within a reasonable distance of the main native customs offices at the port, as shall be deemed by the authorities of the imperial maritime customs at that port neces- sary to collect the revenue from the trade into and out of such port. Such branches, as well as the principal native customs offices at each open port, shall be administered bj' the imperial maritime customs, as provided by the protocol of 1901. AXNKX III. The schedule of tariff duties on imported goods annexed to this treaty under Article V is hereby mutually declared to be the schedule agreed xipon between the representatives of China and of the United States, and signed by John Goodnow, for the United States, and Their Excellencies Lil Ilai-huan and Sheng llsiian-huai for China, at Shang- hai, on the sixth day of September, A. D. 1902, according to the proto- col of the seventh day of September, A. D. 1901. 224 STABILITY OF INTERNATIONAL EXCHANGE. IV. — Letter from Secretary Hay to Minister Conger Regard- ing Article XIII of the Foregoing -Treaty. No. 719.] Department of State, Washington, October 12, 190S. Edwin H. Conger, Esq., Peking. Sir: In connection with Article XIII of the treaty with China, signed on the 8th instant, by which the Chinese Government agrees to take the necessary steps to provide for a uniform national coinage, I have to request that you will address a letter to the president of the foreign office stating that this Government interprets this article in connection with the memorandum submitted on Januarj' 22, 1903, by the Imperial Government of China to the Government of the United States, through the Chinese charge d'affaires at this capital, regarding the desirability of establishing a fixed rate of exchange between the moneys of gold and silver countries, and that this Government conse- quently expects China to make arrangements by which its new coins will be given a fixed value in terms of gold. I am, sir, your obedient servant, John Hay. THE CHINO-JAPANESE COMMERCIAL TREATY. The Japan Times says that, according to the " Jiji," tlie provisions of the new treaty are substantially as follows : Article I. Questions relating to customs duties, supplementary customs charges, the likin tax, and consumption tax shall be deter- mined in the same way as the treaties with other powers. Art. II. Japan shall have the right of navigation between Ichang and Chungking, free from interference on the part of the Chinese. Art. III. Japanese vessels shall be entitled to enter any port in addition to the treaty ports, provided the fact be notified to the customs. Art. IV. The regulations with regard to all enterprises carried out in cooperation between Japanese and Chinese shall be the same as those contained in the Anglo- Chinese treaty. Art. V. The grant of copyright to Chinese publications or the reg- istration of trade-marks on Chinese products falsely purporting to be of Japanese origin shall not be permitted, nor shall copyright be granted to any objectionable publication, whether Japanese or Chinese. Art. VI. This provision relates to the Chinese currency and is the same as that in the Anglo-Chinese treaty. Art. VII. This provision relates to a uniform system of weights and measures in China. Art. VIII. The present inland navigation regulations shall be revised. Art. IX. This provision relates to the " most- favored-nation clause." Art. X. Peking shall be opened to foreign trade after the with- drawal of the foreign legation guards at that place; Changsha in Hunan within six months after the exchange of ratifications of this treaty, and Mukden and Tatunsjkou after the exchange of ratifications. Art. XI. This provision relates to the revision of the existing Chi- nese codes. The provision dealing with the abolition of extra territori- ality and the revision of the codes is the same as that contained in the Anglo-Chinese treaty. Art. XII. The treaty shall be made in triplicate, Japanese, English, STABILITY or INTERNATIONAL EXCHANGE. 225 iind Cliinese, the English copy to rule should dispute arise on a ques- tion of interpretation. Art. XIII. The exchange of ratifications of this treaty shall take place at Peking within six months after the treaty shall have been signed. V. — Distribution of the Chinese Indemnity Payments. tSir E. Satoiv to the Marquess of Lansdowne. No. 107.] Peking, June U, 1902. (Received August 4. ) My Lord: I have the honor to forward copy of the protocol signed to-day by the representatives of all the foreign Powers who were parties to the final protocol of September 7 last, fixing the share of each Power in the indemnity of 450,000,000 taels to be paid by China. I have, etc., Ernest Satow. [Inclosure in No. ].] PR0T0C(JLE. Les representants des Puissances etrangeres signataires du protocole final, reunis en seance le 14 Juin, 1002, ont declare qu'ils acceptent chacun en ce qui concerne son Gouvernement le partage de Findemnite de 450,000,000 taels d'apros la liste ci-apres. AUemagne 20.01567 Autriolle-Hongi-ie .88976 Belgique 1.88541 Espagne .^007 Etats-Unis .. 7.:il9"9 France . 15.75072 Grande-Bretagne i 11.249011 Pour cent. Portugal . ItaUe .- - Japon __. Pays-Bao Russie , Reclamations interna tionalos . Suede et Norvege.._ ._ _ . 02050/ 5. 91489 7.73180 .17380 2^.97136 .o;5:k6\ .01396/ 11.26951 Taels. 90,070,515 4,003,920 8,484,345 135,315 :e, 939, 055 70,878,240 '^"•<^^;!;f;} 50,712,795 26.617,1X15 34.793.10(1 782,1110 iai,371.120 f 149, 67111 / 62,8211/ 212,490 Grand total ,.., lOO.OOlOO 460,000,000 Pour r Allemagno : (Signe) A. v. Mumm. Pour I'Autriche-Hongrie : (Signe) M. Czickann. Pour la Belgique : (Signe) E. de Cartier. Pour I'Espagne : (Signe) Manuel de Carzer. Pour TEtats-Unis : (Signe) E. II. Conger. Pour la France : (Signe) Beau. Pekin, le H Juin, 1902. H. Doc. 144 15 Pour la Grande-Bretagne : (Signe) Ernest Satow. Pourl'Italie: (Signe) Pour le Japon : (Signe) Pour le Pays-Bas : (Signe) Pour la Russie : (Signe) G. Gallina. Y. Uchida. P. Loudon. P. Lessar. 226 STABILITY OF INTEBNATIONAL EXCHANGE. VI. — Suggestions Concerning a Uniform Currency. By Sir Robert Hart, Bart., inspector-general of imperial marine customs. [Presented to the Waiwupu (board of foreign affairs)— Specially translated for the North-CMna Daily News and reprinted from North-China Herald, Jnly 3, 1903.] 1. While the various countries of the world possess a gold standard, China at the present day is still without it and yet continues the use of silver money. It is not because other countries have no silver money, but since gold began to have a steady value regulations were made for a fixed ratio between gold and silver. China not only has no gold currency, but her silver money even has no uniform weight or appearance, nor has she a fixed ratio of exchange between the two metals, so that whenever there is need for gold it must be obtained at market rates. For this reason people in China labor under the diffi- culty of fluctuating rates of exchange at various hours of the day. Moreover the silver dollars in use are limited in number, tlie balance of the currency being largely made up of silver ingots and lumps. These lumps and ingots of silver are merely so much silver in the mass, and in the barter for goods are much inferior to the silver dollar. During the past twenty to thirty years the output of silver mines has been exceedingly great and much more than is needed for use by the various countries of the world, and it is increasing from year to year, so that silver has become cheaper and cheaper and the purchase price as compared with gold gradually less and less. Hence it would be much wiser for China to maintain a gold standard instead of a sil- ver one as at present, since silver has dropped down to such a degree and moreover possesses no certain or uniform exchange, even within the limits of a single day. The hundreds of trades are all disastrously affected by the present state of the currency, while the Government liaving to pay its foreign debts in gold, both country and people are being plunged into the depths of financial distress. The conditions pictured in the foregoing therefore compel one to seek some plan whereby they may be ameliorated, and so make it that China, while still using a silver currency, shall so fix a uniform exchange between silver and gold that there may be no danger of uncertain fluctuations. With this object in view I now proceed with my suggestions. 2. If the Chinese Government possessed a large quantity of gold this metal might be struck into gold coins, and then a fixed exchange could be decided in their relation to silver money. This naturally would be an easy matter to put into force. But when we have no gold and only use a silver and copper currency, it becomes incum- bent upon us to decide upon some method to bring about a fixed ratio of exchange between gold and silver. If it could be possible to do this by making only slight changes in the old methods of exchange, so much the better, as it would obviate the necessity of making the people suffer on both accounts. When there is no gold and yet it is determined to maintain a fixed ratio of exchange between gold and silver, it is necessary to create a silver currency of a uniform weight and fineness and in quantities sufiicient to meet the needs of the whole Empire. To do this a mint to strike these coins is of paramount impor- tance and indispensable. The central government must establish a special mint of its own, which shall strike all the coins needed, accord- ing to fixed regulations, and no branch mints must be permitted to be established elsewhere. As for the proposal to start a Government bank, while there are, of course, certain benefits and financial advan- STABILITY OF INTEKNATIONAL EXCHANGE. 227 tages obtainable from such an institution, as a matter of fact sucli a banJt can have little to do with the making of a fixed ratio in the exchange of gold and silver. 3. If it be decided to coin money to supply the currency needed for the whole Empire it would be advisable to continue to retain the terms and weights of "tael," "mace," "candareen," and "li" (Liang, Ch'ien, Fen, Li), as the people are accustomed to their use. But in minting the uniform currency it will be necessary that it should not onlj' be accepted at a fixed value throughout the Empire, but be also recognized and accepted at a fixed value in exchange for gold in the other countries of the world. This must be the main object in view and is of greater importance than that of being the accepted currency in our own Empire. Hence the "tael" must be made of sueli a weight as to correspond in value to a certain amount of silver, which should be decided afterwards, with the object of making it a recog- nized coin in other countries. It has been recommended by certain persons that in coining the new currency the American dollar should be made the standard, because the American dollar has already a recognized and fixed value in relation to gold in other countries. Others again have also recommended that the new silver currency be made each into a piece of coin 1 Kuping tael in weight, because tlie present market rate of gold exchange is 8 Kuping taels for £1 gold. Either of the above suggestions is feasible, and in making the new currency it should be made into four kinds, namely, 1-tael, 5-maco, 2|-mace, and 1-mace coins. Besides tliese silver coins there should be also struck two kinds of copper money, namely, l(i-ca.sh ijieces and 1-cash pieces (10 cash=l fen; 1 cash=l li). After the establishment of the mint and the striking of coins of all kinds, it will then be time to decide when the new currency shall be launched uj)on the country. No other coins should be permitted to circulate in the Empire after this. 4. As soon as it has been decided what coins are to be struck, proper regulations should be made with regard to the mint to be established. If too many branch mints be allowed, it is to be apprehended that the money struck maj' not be of uniform weight or fineness, and so con- fusion may be caused such as is now prevalent in this Empire, and thus infinite trouble and obstruction to the reforms suggested may arise. The best way would be to select some central spot for the con- struction of one principal mint which shall coin all the currencj' that may be needed by the provincial governments. With the exception of this principal mint no other mints shall be allowed to be estab- lished. All the minting machinery now in use in the various prov- inces should be without reserve sent to the principal mint in question, so that there may be no waste of the money expended upon it. Besides the native workmen to be employed in Ihis mint there should also be engaged certain foreign experts, namely, one superintendent, one examiner of silver, one head machinist, and one accountant, each having his special department of work. The 1-tael and 5-mace silver coins that are to be struck should be made of nine-tenths silver and one-tenth copper; the 2j-mace and 1-mace coins should be made of eight- tenths silver and two-tenths copper, the one-tenth and two- tenths silver balance thus obtained to be utilized as running expenses of the mint. These coins being thus substantial, no one will try to change them. When the mint has been established it should first begin with the work of coining into monej' the silver ingots deposited in the provin- 228 STABIIilTY OF INTEKNATIONAL EXCHANGE. cial treasuries, which should be all sent to the mint to be turned into currency. Should .silver bullion be brought to the mint with the request that it be coined, the foreign examiner of silver should weigh it and test its fineness. If these should prove satisfactory, the money already coined by the mint shall be paid out in exchange for the silver bullion. Furthermore, as to the question whether the mint shall issue silver notes or prepare silver certificates against the amount of silver coins deposited in its vaults, this is a matter of much Importance and requires deliberation and further consultation. 5. After the opening of the mint an imperial decree sliould be issued prohibiting the circulation of any silver currencj^ within the limits of the Empire other than that struck by the imperial mint. A certain limit of time must also be given for the stoppage of circulation, as money of the realm, of all silver sycee and silver ingots hitherto pass- ing current as money, and granting permission to the possessors of such silver to take them to the mint to exchange for the new currency according to weight of silver so brought. It should also be set forth by imperial decree fixing the exchange value of the new currency, namely, how many taels shall be equivalent to £1 gold, and how many copper cash to the tael. With regard to the important question of making the new currency accepted in other countries the authorities of the mint shall, after the issuance of an imperial decree, appoint an officer to take charge of the duty of (Exchanging certificates issued by the mint for gold. This officer shall be given a certain number of said certificates and shall be stationed either in China or abroad. Foreign merchants who have fii-ms, business, or banks in China must use Chinese currency, and in order to obtain such currency are bound to apply to the above-named officer for these mint cei'tificates. Moreover, in buying these certificates tlie foreign merchants must pay in accordance with the fixed rate of gold for silver currency as determined by imperial decree. After complying with these condi- tions the foreign merchants may then exchange these certificates at the mint for the new currency coined by it. The gold paid in exchange for the said mint certificates may either be first deposited with the oflicer in question or be iised to pay the foreign gold debts due by China, or be struck into Chinese gold coins in the future. Due note should be made of the progress of the scheme for the guidance of all concerned in the future. By acting in the manner indicated above the new currency will be a fait accompli and have free circulation, and there will be a recognized fixed I'atio in exchange between gold coins of foreign countries and the new silver currency to the benefit of international trade. This is one waj' of obtaining a fixed rate of exchange between silver currency and gold, which is only explained here in a general way, being too important a matter to be contained within the limits of these suggestions, and it will require careful and mature consideration and consultation to avoid mistakes at the beginning of such a great enterprise. 6. If it be indeed desired to obtain a fixed rate in the exchange of silver currency for gold, there seems to be no other way of doing so except the adoption of the foregoing suggestions. It will also be nec- essary to arrive at an understanding with the banks of other countries and work in conjunction with them;, but these are matters requiring much deliberation and attention, and should be taken up as the occasion offers. As to the question of whether China should have a Government bank, this is also a most important matter, although it will not affect STABILITY OP INTERNATIONAL EXCHANGE. 229 very much the question of bringing about ;i fixed rate between the price of silver currency and gold. Therefore tlie starting of a Govern- ment banlv may be left to some later period after the establishment of the present all-important matter. It is not a question which must be started before it. However, the various Powers all have Government banks and have obtained benefits from their establishment, especially Great Britain. When China, therefore, has reformed her fiscal sys- tem, then it will be of advantage to also establish a Government bank. There are six objects in starting a Government bank : («) To assist the authorities to collect and take charge of revenue and keep account of it; (b) to enable the collector of revenues to keep account of moneys disbursed, etc. ; (c) to take charge of the national debt and to pay off loans; [d) to take charge of moneys deposited by the masses under the same terms and conditions as ordinary mercantile banks ; (e) to do the same as other banks in investing Government and private funds deposited with it; (/) to transmit for the Government all funds needed in the provinces, and that should be sent abroad. The above six clauses are the basis of a bank's existence. There is also a further important matter to consider in such an insti- tution, and that is the necessity of appointing as few officials as pos- sible to such a bank in order not to interfere with the commercial nature of the place. Such a bank having been established, it will have to work in conjunction with the mint. The mint may be even made a department of the bank; if so, it would perhaps greatly sim- plify matters. With regard to the establishment of branch offices or agencies of the Government bank, they should bo started as the need for them arises. Indeed, the present customs bank in the outports or any substantial financial institution may also be selected to take up the duties of such agencies in the usual manner like other bank agencies. The first and most important idea in these suggestions is of course the making of a fixed rate in the exciiaugx' of silver currency and gold. The next idea refers to the extension of tlie first on the understanding that the first idea has been made a fait accompli. Should it be deter- mined to put into practice these sui.'gestions, there are yet details connected with them which may be entered upon as each question arises. VII. — A Gold Standard for China Without a Gold Currency. [By a late member of the Institute of Bankers, London.] author's note. In acknowledging the compliment paid me by the Tientsin General Chamber of Commerce in ordering that this series of papers, which recently appeared in the Peking and Tientsin Times, be reprinted in pamphlet form, I wish to express the debt that I owe to the writings of Mr. A. M. Lindsay, C. I. E., a well-known anthority on Indian currency. For the scheme itself the greater part of the credit is dtie to Mr. M. H. Houston, a banker of experience and an associate of the Institute of Bankers. London, who has for some years devoted much attention to the qnestion. It is not maintained that the scheme in its entirety affords the actual solution of the cun'ency problem, but it is hoped that It will be a modus operandi. The Author. Tientsin, March u, 1903. "In ISSO Mr. Gladstone wrote : ' Everj- wisely governed State should seek to have for its standard of value the commodity which is the 230 STABILITY OF INTERNATIONAL EXCHANGE. least subject to fluctuation; that commodity, as I conceive, is gold.' This opinion is confirmed by the desire shown by all civilized nations to maintain or secure a gold standard of value. The more generally gold is used, the more objectionable will a silver standard become, because the larger the area ruled by gold the more will the foreign exchanges of silver-standard countries be liable to disturbance." So wrote a great authority" on Indian currency in the year 1892, when the finances of India were passing through the most serious and alarming difficiilties into which the heavy fall in the sterling value of the rupee had brought them, and from which India was only rescued by the resolute and daring action taken by the government. She has, after a hard and stern fight, escaped from the meshes of financial embarrassment which at one time almost promised to drive her into insolvency and bankruptcy. Those who can remember the feeling in London ten years ago in respect to India, and the dark hints that were thrown out of her inability to face her sterling indebtedness, will remember with what a hopeless and gloomy feeling the announcement that she had closed her mints to silver was received. National loss and wreckage were foretold, and the chance of India's repudiating her sterling debts was almost openly discussed. In the happier days that have since dawned on India's finances, one is apt to forget the storm of ridicule and abuse with which the government's scheme was received. The commercial community of Calcutta openly laughed at the remedy, and there are even now those who will shake their heads and foretell a day of reckoning. And yet the committee, composed of some of the ablest financiers of the day, appointed in 1898 by the British Govern- ment to inquire into the Indian currency stated : " Experience gained since the mints were closed in 189.3, and particularly that of the last eighteen months, appears to us to justify the anticipation that the existing rate of Is. 4d. will, with possible temporary fluctuations, due to the course of trade, be maintained in future." Before the closing of the mints the rupee exchange was Is. 2|d. and silver was 37id. Since the closing the exchange has, after falling considerably, remained for the last five years at Is. 4d., though the price of silver has steadily fallen to 22d. (Januarj', 1903). In the unhappy straits into which China has been brought by the perverseness and incapacity of her own rulers, it may not be out of place to throw open the foreign press of China to the discussion of the really very serious and alarming crisis to which China is rapidly being swept. The drop in the sterling value of the tael affects us all, foreigners and Chinese Government alike, more or less. The exporter makes larger profits in taels. The importer finds his business deserting him or only possible at a loss or a very moderate profit. The salaried man and the clerk who are paid in the currency of China find their salaries very seriously reduced when converted into sterling. It is all very well to say one can still live cheaply in China and that the tael will buy almost as many comforts as of yore. Granted that the purchasing power of the tael in China has not decreased as rapidly as exchange has fallen, the foreign residents of China almost without exception are not here to live and die. We all desire to return home when the opportunity comes, and many of us have present t)bligations to fulfill in sterling, so that from the Chinese officials' point of view it might almost be considered that any advice emanating from a foreign newspaper was prejudiced and likely to be "Mr. A. M. Lindsay. STABILITY OF INTERNATIONAL EXCHANGE. 231 vory little in the i-eal interests of the Chinese Government. It would give lis foreiii'ners great pleasure if we could so express our views as to eonvinee the Chinese Government that in this respect they should see eye to eye with us. Our interests and their interests are identical in so far as that mc both wish to give a certain and fixed sterling value to the tael. In studying and examining the steps by which the Indian govern- ment extricated itself from a most difficult and unpleasant position, and seeing how far the jiolicy followed in India will help us in China, we have several important facts to bear in mind. First and foremost, India being part of the British possessions, there was no doubt that if the vicero}^ and his advisers followed the wishes of the India office, the British Government, with all the moral and financial support that goes with the name, would support and back the Indian government in any aL'tiou it took. Furthermore, the country was well and benefi- cently ruled ; its taxes and dues found their way to the proper quar- ter. The currencj' of the country was minted and coined by the government, which, as in England and elsewhere, made itself respon- sible for the soundness of the coinage. It was in the power of the government to reduce or increase the coins in circulation. As far as tlie internal currency was concerned things were on a satisfactory basis. Rupees of good and true weight and toucli were issued from the government mints. An elaborate system of government notes payable on demand was in vogue. The fact is, the country was flourishing, and if it had not been for a yeaily sterling indebtedness of some £17,000.(iiHJ India could have afforded 1o snap her fingers in the face of the world and say, "\ gold standard tor me? What do I want with a gold standard when my produce is being sought after in larger quantities, and when I am receiving far larger payments in my cur- rency of ruiJeesV" The fact is, it would appear that it is only when a country has payments to make in gold that the depreciation in the sterling value of her currency affects her. China is in one respect in tlie same condition as India, in that she has incurred an enormous sterling indebtedness, which lias to be met annually, and in payment of which she can only offer the greatly depreciated siher metal. If China, lil;e India, could show a large bal- ance of tra(l(> in her fa\or every year the difficulties would be materi- alh' decreasi'd; but tlie fact of the matter is that China goes on her way piling up her indebtedness to gold-using countries both l)y incur- ring gold debts and by buying manufactures and goods which require to be paid for in gold. In l!iOOthe foreign debt of China amounted to about £5i,00O,0U0. In I'.iOl she added to tliis amount the enormous sum of i'G7,-!)00,(iOO, thereby increasing her previous liabilities by 130 per cent. Xow, tliese liabilities have to be met in gold. The gold equivalent of the tael is yearly decreasing as the sterling equivalent of silver lessens. Why is it that China, withtliis enormous load of responsibilities, which fi-om no fault of lier own is yearly increasing, does not take some step to try and keep lierself from the inevitable pitfall to which she is iiastening':' And let every foreign resident in China realize that in so far as he is earning his living in China lie is individually and person- ally interested in the financial condition of the country. We have only to read history to realize what an effect financial instability has upon the internal peace of a country. Let this vast and great country drift into hoiieless financial distress and who will guarantee that the authoritv of the central government can be maintained? So far we 232 STABILITY OF INTERNATIONAL EXCHANGE. are all interested; but when it comes to the fixing of the sterling equivalent of the tael cries are heard on all sides that the export trade will suffer and that we shall be undersold by the few countries that continue to use silver. There is truth in the cry. It was the same in India. Tea planters petitioned the government against fixing the rupee. If it was decided to fix it, they prayed that it might be left at the level to which it had fallen and not be given an extra artificial value. Those connected with the Indo-China trade declared that their business would be ruined and that China would he induced to encourage her own industries instead of buying from India. The cry was again true. Manufacturing industries sprang up in China and the trade was, for a time at any rate, diminished. But look at the result. The finances of India are once more in a flourishing condition. She is able to pay her sterling liabilities withoiit the fear that revenue may be too small for the purpose and she is able to control her own taxes and expenditure, which she could not efficiently do when it was not known how much the expenditure for her sterling debt was going to be. Sir David Barbour, the financial member of council, said in his budget speech: "Our financial position for the coming year (1893) is at the mercy of exchange and of those who have it in their power to affect in any way the price of silver." The position of China now is that she has a vast sterling debt, in payment of which she can only offer a commodity rapidly decreasing in value. Is there any way out of the difficulty? Can China collect or borrow a sufficient amount of gold to enable her to start a gold coinage? Does she require to have an actual gold coinage in circula- tion in the country? If she gets the gold, how will it affect her external trade? II. At this stage it may be interesting to examine shortly the objections that are often raised against a stable currency. It would be thought that it is hardlj'' necessary to demonstrate that not only would a stable exchange be of advantage to the Chinese Government, but that it would also be of the very greatest advantage to all traders in China. A short extract from a letter written to the Darjeeling Planters' Asso- ciation by the government of India in reply to a memorial on the sub- ject of the closing of the mints deserves close attention: "To sum up, the government of India are of opinion — "That a country, as a whole, makes no gain in its international trade by a depreciation of its standard, since the extra price received for its exports is balanced by the extra price paid for its imports ;" "That the producer of an article of export may make a temporary and unfair gain from depreciation of the standard, at the expense of his employees and of other persons to whom he makes fixed pay- ments;" "But that this gain, while not permanent, is counterbalanced by a tendency to overproduction and consequent reaction and depression, by a liability to sudden falls in price as well as to rises, and by the check to the general increase of international trade which necessarily results from the want of a common standard of value between coun- tries which have intimate commercial and financial relations." The Indian Currency Commission of 1898, in commenting on the above, went on to say : " We are unable to find that anything has occurred since the closing STABILITY OF INTERNATIONAL EXCHANGE. 233 of the Indian mints to silver to throw doubt on the soundness of the views exi)rcss(>d in 1S<12 by tlie government of India." To return to China. The depreciation in exchange is assuming such a very serious aspect that all thinking men must be alarmed by the serious state Into which the China tra,de is falling. The import trade is, from our own knowledge and from accounts that reach ns from Shanghai, Hongkong, and elsewhere, almost at a standstill; the bene- fits that are accruing to the export trade are so delusory and tem- porary that a statement of the grounds on which advocates of a fixed exchange argue that the export trade of the country will be benefited may not be out of place. Count Matsukata Masayoshi, H. I. J. M.'s minister of state for finance, in his official report for 1899 on the adoption of the gold standard in Japan, wrote : "At that time (1893) Japan being a de facto silver country, the effect upon her of this sudden fall in silver was very great. Fluctua- tions in foreign exchange now became exceedingly frequent and unre- liable. Business men lost a constant standard of value and became compelled to pay constant attention to changes in the money market, so that foreign trade tended to become largely a matter of nionetar}' speculation. It became more and more hopeless to exxx'ct to see the healthy growth of trade, both home and foreign. Thus was impressed most clearly upon the minds of the financiers of the ccjuntry the neces- sity of adopting gold as the standard coinage in Japan, that metal being least subjected to changes in its price and most fitted for use as the medium of exchange." These are the words of a man wlio has succeeded in establishing, in spite of strong opposition, a fixed exchange for Japan. Now, to use the arguments of an Indian currenc.v authority," one of the objections raised against a stable excliange is that "a falling exchange, by increasing the amount of silver money ()l)tainal>le for a gold price, operates as a bounty on exports from Cliina to gold-using countries, and it is said that if the Cliina exchange is fixed exporters will be unfavorably handicapped with silver-using countries. 'Now, it will not be gainsaid tliat the proper function of monej' is to act as a medium of paj^ment and a standard for deferred i^ayments, both in internal and foreign transactions, and its work in connection with foreign exchanges can not be properly performed unless foreign exchange is steady. It is not the dutj'' of money to stimulate exports, and as tliere are two parties to each paj^ment, and money is merelj' an intermediary, it is obvious tliat what one gains in this way some one else must lose. Injustice of this kind should be stopped, and the monetary machine should be adjusted so as to carrj- out properly the functions for which it was designed. It might also be asked how much of a fall will satisfy China exporters." Statistics have been produced to show that a falling exchange does not in the long run stimulate production. We would not argue that there may not be a temporarj^ stimulus, but the accrued benefit to the country in the end does not exist and is, on the other hand, positively harmful. As has been said above, an unstable exchange checks the growth of international trade and engenders that lack of confidence as to the future which acts with such a deterrent and crippling force on trade. And it is found that not onlj^ is the unhealthj' stimulus to export trade caused by a falling exchange temporary, but the cost of produc- "Jlr. A. M. Liadsav. 234 STABILITY OF INTEKNATIONAL EXCHANGE. tion in the silver country is materially raised. This in China we all know means that prices rise in proportion as silver falls in price. For instance, who is the gainer by the rise in the tael value of produce? Possibly the producer, certainly not the foreign merchant. But more probably the almost entire benefit goes to the middleman, the export- er's compradore, and his go-betweens. The foreign merchant benefits by the fall in exchange in that he is enabled to make lai'ge profits by speculating in exchange, and waiting to fix the sterling equivalent of the tael amount he has paid for his merchandise in the hope that exchange will drop and that he will receive considerably more than he paid for it in local currency. Apart altogether from the inevitable but slow increase of wages, transport, etc. , the cost of production is z'aised in proportion as exchange falls, because prices are pushed up by excessive competition and the clever combination of Chinese sellers, so that the foreign exporter is unable to benefit by the higher price he is able to obtain, and the profit passes from him to the native seller. It is then difficult to see in what way exporters benefit except in the temporarj' stimulus given to trade; but this stimulus is on its part counteracted to a great extent by the fact that the middleman and not the actual producer procures much of the profit. III. Before bringing ourselves face to face with the question we have started out to discuss, namely, the feasibility of China securing a fixed exchange by means of a gold standard, it may be of general interest and of benefit to the question under discussion to outline the course of silver since it first began to depreciate in value. Silver first began to fall in price in 1872, and it is pretty generally known that the number of silver-using countries is now limited. The latest addition to the gold-standard countries is Japan, which inaugurated a gold coinage in 1897 and which since that date has enjoyed the boon of a stable sterling exchange at or about 2s. per yen. Prior to the year 1872 the price of silver averaged 60d. per ounce. In 1871, however, the establishment of the German Empire and the steps that were immediately taken to replace with gold coins the sil- ver currency formerly in use may be said to mark the beginning of the downfall of silver, which seems to be unending. The Government of United Germany undertook the unifying of the coinage systems in vogue in the different portions of the Empire, and issued a new coin- age law, stopped coining standard silver pieces, and in 1873 put into effect the gold-standard system. In effecting her monetary reform, Germany called in all her old silver coins, and soon began to sell large quantities of silver, which had the immediate effect of causing depreciation. Up to the end of March, 1893, there had been sold by the German Empire 7,205,152 pounds of fine silver, as the result of melting silver coins of the nominal value of 672,802,730 marks. The bimetallic countries of Europe saw the danger of being turned into silver countries, so that they were constrained to adopt a policy which had the effect of making them gold-standard countries. The Latin Union, consisting of France, Belgium, Italy, Switzerland, and Greece, was forced to first limit, and then suspend, the free coinage of silver. In 1873 the United States of America adopted a gold standard. In 1874 Sweden and Norway, and in 1875 Holland, stopped the free coin- age of silver. These measures all assisted to bring about the sudden fall in the price of silver, so that in 1876 the average price for the STABILITY OF INTERNATIONAL EXCHANGE. 235 year was 5L>2d. per ounce, luiving touched during tlie year as low as 46|d. per ounce. At this stage a steadiness was imparted to the metal, as will be seen from the following table: Year. Average price of bar silver per ounce. Output of gold and sil- ver in the world. i Year. Average price of bar silver per ounce. Output of gold and sil- ver in tlie world. Gold. Silver. . Gold. Silver. 1876 1877 1878 1879.. 1880 1881 -- 1882 52. 750 54.813 .52.563 51.2.50 52.250 51.938 51.813 50.625 50.750 48.563 45.375 44. 635 42.875 Ounces. 5,016,488 5, .512, 196 5,761,114 5,262,174 5,148,880 4,98.3,742 4,934,086 4,614,588 4,921,189 5,245,572 5,135,679 5,116,861 5,330,775 Ounces. 67,753,125 , 62,679,16 73,385,4.51 ' 74,383,495 74,795,373 79,020,873 86,472,091 89,175,023 81,567,801 91,609,956 93,297,290 96,123,586 108,827,606 1889 1890 1891 1892.. 1893- 1894.. 1895- 1896 1897 1898— 1899 1900 43.688 47 .-750 45.063 :». 813 35. 625 28. 875 29.875 30. 75 27.4375 26. 9375 27. 4375 Ounces. 5,973,790 5,749,306 6,330,194 7,094,266 7,618,811 8,764,363 i;,641,;«7 9,817,991 11, 489, 291 Ounces. 120,213,611 126,095,062 137,170,919 153,151,762 165,473,631 164,610,394 167 38.S 7''9 1883. 1884 1885. 1886 1887— ll-.5,l(K),.s.';7 lSi,(lvith the board of finance, to consider carefully all necessary steps STABILITY OF INTERNATIONAL EXCHANGE. 247 to make improvements in that direction and carrj' them out with diligence. At present the silver coins used in different provinces are of differ- ent designs and quality, and their weight is also not uniform. This state of things entails a great inconvenience to the mercantile class, and it is therefore very imperative that a uniform device for silver coin should be designed, and a mint should be established in Peking for the purpose of such coinage. As soon as a sufficient amount of such coin shall have been turned out for circulation, all national revenues, custom duties, etc. , shall be collected and all public expenses shall be defrayed iji that coin and that coin alone, with the view that the abuses of exacting money for making up alleged insufficiency in weight of silver ingots which are now used may be put an end to altogether. At any rate, uniformity must be preserved with regard to all the moneys received or sent out by the board of finance or by various provincial treasuries, and no new names shall be invented for that purpose to create thereby divergences. We also command you to make exhaustive investigations as to how to frame satisfactory regulations, and submit them to us in regular order for enforcement. In short, this question is of great importance to our Empire, and will be of great benefit to the high and the low. You, a prince and a minister of the state, are i-equired to carry this out with undaunted courage, unflinching energy, and strong determination, in order that our currency, may be improved, and the benefit therefrom will be sci widespread as to gratify our earnest desire to benefit our people by adopting necessary reforms. Respect this. IX. — The Hongkong Currency Questkin. [From the North China Herald, March 5, 1903, pages 413-414.] February 28. The discussion that took place in the chamber of commerce at Hong- kong on the IStih instant on the currenej^ question in Hongkong is a very interesting one, but it is not so interesting as it would have been had the question been the direct one whether the gold standard should be adopted in the colony or not. As our readers alx-ead}^ know, the resolution moved by Mr. E. Osborne was: "That in the opinion of this meeting it is desirable the Straits Currency Commission should extend its inquiries to Hongkong, with a view to ascertaining whether reform of the colony's currency arrangement is desirable," a somewhat tenta- tive resolution after all. The meeting was opened by a speech from the chairman, Mr. C. S. Sharp, who explained that the committee of the chamber which he represented had had no intention to shelve the subject or stifle discussion of it by the chamber when they declined to call a special meeting, but "they were unable to see their way to advocate the policy of this colony taking steps in regard to a change in currency' measures apart from China, and they therefore felt that there were no reasons on their part for calling a general meeting." They quite realized that if there was a sufficiently strong feeling on the subject it would be easy to get five members to sign a requisition for a special meeting, and this course had been followed. The com- mittee did not overlook the advantage of securing stabilitj^, but there were a great many interests to be considered, and they saw grave 248 STABILITY OF INTERNATIONAL EXCHANGE. risks of eventual calamity and disaster if the colony entered upon any change of currency apart from China. In moving the resolution already quoted, Mr. E. Osborne said that many residents of Hongkong disagreed with the committee. All, he said, admit "that a great loss has taken place in the shrinkage of capital and investments, and that the dollar to-day is worth only one- half of what it was ten years ago. Those who agitate for reform hold that an unstable currency restricts and hampers trade, and that a depreciated dollar means increased expenditure, shrunken capital, and reduced savings. On the other hand, there are those who contend that a depreciated dollar stimulates exports, that salaries rise in sym- pathy with increased expenditure, that larger dividends compensate for reduced capital, and in fact that everything is adjusted in course of time," but all, Mr. Osborne said, would join hands in seeking whatever made for sound, wholesome trade — trade which brings rea- sonable and certain profit to all concerned in it. The prosperity of Hongkong is due to its unique position as the sea- port for Canton and the neighboring districts north, south, and west, and to its being a first-class British fortress'. It has no exports, and its imports are only the goods consumed on the island and the raw produce brought in for manufacture and reexport. On these imports the adoption of a gold standard will have no material effect; those now paid for in gold will so continue, and those now paid for in silv«r will continue to be paid for in silver, the only alteration that could arise being the creation of an exchange business between Canton and Hongkong. The adoption of a gold standard will not increase the cost of labor, because the laborer does not look at the coin itself, but at its purchasing power, and if he can get as much rice for a penny piece in Hongkong as for a 10-cent piece in Canton he will be per- fectly satisfied with the penny. "It is objected," said Mr. Osborne, "that imports intended for dis- tribution in China will be bought in Canton instead of in Hongkong. Why? In any case the buyer has to pay the gold value of the goods, and Hongkong is a natural center of distribution, which Canton is not. Then it is said that Chinese goods for export abroad will be bought in Canton instead of Hongkong. But so they are now; no Canton produce is bought in Hongkong. No change in the currency will rob Hongkong of its eminence as a transshipment port, because it is the only deep-water customs-free port available. There is no proof that Hongkong would lose the profit it makes by financing the Chinese interport trade ; but it would gain by the retention in the colony of profits made in the colony, which are now invested elsewhere on account of the uncertain value of local securities. Three other objections Mr. Osborne noted: (1) That Chinese like the gambling element in the fluctuations of silver, but he believed that most Chinese preferred to work for a certain and steady profit; (2) that we should have to make good the loss on the British and Mexican dollars now in circulation, but the loss is already made and no one proposes to redeem them at an artificial value; (3) that the future silver tokens will be counterfeited in China, but "the same protection that guards the shilling and six- pence at home could be extended to guard them in Hongkong." Turning to the advantages to be gained by the proposed change, Mr. Osborne asked if there was any man in the colony who could truthfully say that he had benefited by keeping his capital or invest- ments in silver, and the dollar may go to Is. 3d. or Is., or even lower. And the gospel of adjustment is a fallacy. STABILITY OF INTERJSTATIONAL EXCHANGE. 249 "Salaries, investments, rates of interest on mortgage liave not doubled since the dollar was twice its present value;" mir has cheap silver stimulated the exports of China. It is suicidal to wait until the Straits and China have thrown over silver, and Mr. Osborne painted a depressing pietuic of the disappointment and misery that have been caused by the fall in silver. With a gold standard we should find our level again ; monej' would flow into the colony, indus- tries and trade would flourish. The colony now is in an unsound con- dition because its expenditure is largely in gold and its income in silver. Mr. Osborne suggested the adoption of the English currencj^ of pounds, shillings, and pence, importing the necessary coins and making them the sole legal tender, leaving the ISritish and Mexican dollars to be sold at bullion rates. IJefore closing Mr. Osborne reminded the meeting that the resolution did not commit those who supported it to approval of a gold currency, but only of a full and independent inquiry. "In the meantime," lie said, "let us continue to help ourselves, especiallj' as l)y so doing we may possibly influence China to adopt the one true standard of value under which the great- est nations of the earth have prospered and ijrogressed." II. March 2. The resolution moved by Mr. Osborne at the recent meeting of the chamber of commerce in Hongkong was seconded by Mr. Playfair, chief manager of the National Bank of Cliina, wlio began liis speech by saying: "We are all lu^artilj' sick of silver; it is an utterly unre- liable currency and we all see our little harJ-oarned savings melting away into nothing, like a lumxjof sugar in a cup of tea." He repeated the dictum that "stability is the desideratum of Hongkong's pros- perity," and ridiculed the idea that under any probable circumstances the trade of Hongkong would escape to Canton. He dwelt on the probability of a still further decline in silver and the present and future loss to the colony, whose expenditure is in gold and whose revenue is in silver, and which has "borrowed in gold and lost ter- ribly in the transaction." He showed how the salaries of nearly all employees in the colony had been put on a gold basis and how there had been the same distrust in India of the ad\'antage of the change to gold, a polic}' which had been amply justified bj^ the result. All that is asked for, he said, is an inquiry; it would probably be found better, as the Singapore chamber wrote to the Government there, that the sug- gested details of the scheme should not be made public beforehand. Mr. J. R. Michael supported the resolution in an able speech. He said it would leave "a perpetual stigma on this important business community if the 'chief objection' of the chairman of the cortimittee had been upheld, namely, an avoidance of a public discussion of this vital question." Everyone in the colony was interested in the ques- tion, and the chairman was absolutelj' unjustified in assuming as he did that public discussion would be desultory and show no appreci- able resiilt and might create a bad impression. From the public dis- cussion useful knowledge would be evolved, and to sit like Micawber "waiting for something to turn up" was a selfish, timid policy unworthy of Hongkong. The position of Hongkong was much the same as that of Singapore, and it was absurd to say that Hongkong must not divorce its currency from that of China, for the real uni- versal currency of China is copper. Japan's principal customer is 250 STABILITY OF INTERNATIONAL EXCHANGE. China, and yet the former country did not hesitate to adopt gold. All the experience of the past showed that the Chinaman, give him time, will adapt himself most firmly to a fixed standard. Mr. Michael demonstrated the absurdity of supposing that Canton could supersede Hongkong as a commercial center, and he noted as facts that: "(a) Hongkong is a nonproducing commercial port. (6) It is a commercial medium between the world and China, (c) Trade with Hongkong means virtually the trade of the world with China, (d) Over 90 per cent of the world's monetary standard is gold, and China's is silver, (e) A gold or silver currencj' in Hongkong can therefore have no effect, either good or bad, on the trade of the world with China." Mr. Michael went on to show at some length that Hongkong would lose nothing of its trade by the proposed change, while its accumu- lated wealth would no longer go on dwindling day by day, foreign capital would be invited, and investors in China would send their savings to Hongkong, knowing that they would theu be secure from depreciation. Mr. li. C. Wilcox also supported the resolution. "We are met to-day," he said, "to consider what may, I think, without exaggera- tion be termed a crisis in the history of this colony, and I trust that in such consideration we shall neither be swayed by fears of the unknown nor biased by mere opinions as to our impotence in the matter." He showed at some length how the savings of the colony had fallen away in value, these savings being estimated at $82,000,000 in real property and $40,000,000 in loans on mortgage. Holders of shares in joint stock concerns which had improved in value had to be reminded that of the reserve funds of those companies over $11,000,000 were invested in mortgages. The Hongkong and Shanghai Bank had over $46,000,000 of silver deposits, of which a fairly large amount belonged to Hongkong, and Mr. Wilcox showed how a deposit of .§1,000 on the 1st of January, 1902, showed a loss of £10 7s. 4d. on the 31st of December, after allowing for $40 received in interest. He mentioned the case of an estate he had to realize which was worth £26,000 some twent.y years ago. The securities in which it was invested had increased in value in dollars, notwithstanding which it only produced a little over £13,000 for division among the legatees. He had clung for a long time to the belief that the ratio between gold and silver would some day be adjusted, but tliat hope had been finally dissipated. "Are we to stand idly by," he said in conclusion, "and see the savings of a lifetime melt into space, leav- ing us to indulge in \"ain regrets for the fatuity that prompted us to pin our faith on its recovery and the apathy that induced us to acquiesce in the dictum that Hongkong must continue financially wedded to China?" Thete were only two speakers against the resolution, Mr. Gershom Stewart and Mr. E. A. Hewett. Mr. Gershom Stewart's chief argu- ment was that it is sometimes " better to bear the ills we have than fly to others that we know not of." Mr. Stewart objected to changing the currency of Hongkong just when the treaty of Shanghai had provided that China should have an equal currency spreading all over the coun- try, Hongkong being commercially a part of China. This argument would have more weight if we found China preparing to carrj' out this provision. Mr. Stewart was not convinced that the Indian experi- ment was a success; ho feared that if Mr. Osborne's resolution was carried it would be "giving another kick to the already very much depreciated dollar," and he said : " I will not give my vote to anything STABILITY OF INTERNATIONAL EXCHANGE. 251 whicli may lend to further depreciate silver." ]\Ir. Hewett personally thought" the ai'gunieiits put forward by the supijorters of the resolu- tion very largely fallacious. He believed wages would rise with the change to a gold standard, and he contemplated with horror the loss to the colony if it had to redeem some 50,000,000 silver dollars at a fictitious value, which nobody had proposed to do. He entirely agreed with Mr. Stewart that it was better not to jump out of the fry- ing pan into the fire. This, it may be remarked, is one of the proverbs that people constantly and absurdly use without thinking what they mean. Its real meaning, of course, is that a lingering death is better than a speedy one, whereas most people would prefer to be put out of their misery at once. The chairman wound up the discussion with a few words in which he expressed a doubt whether the Straits Currency Commission knew anything about the China trade or the local conditions affecting Hong- kong, and he repeated that the committee of the chamber, Avith one exception, would strongly disapprove of the adoption of a currency different from that used in China, "as they are ftilly convinced that it would work very serious harm to the business and prosperity of the colon J'." The weight of argument, it will be seen, was all on the side of the resolution, and the voting, by show of hands, was for the reso- lution — 40 against 25 — the smallness of the vote being due to the fact that many left the meeting before the speaking was concluded. The chairman then asked those present to record their votes on the cards supplied them, laying it down that only those were to leave this record who did actually vote, notwithstanding which 74 cards were collected. We have already published the names. The following analysis is from the Hongkong Daily Press: Total membership of chamber- ... _ 127 Number of members present who signed the attendance sheet 105 Votes on show of hands: In favor of Mr. E. Osborne's resolution . . 40 Against Mr. E. Osborne's resolution 25 Total votes recorded 05 Votes shown by signed voting cards: In favor of Mr. E. Osborne's resolution 40 Against Mr. E. Osborne's resolution 34 Total votes recorded 74 Members present who left no written record of votes . _ 30 Members not present at meeting . _ _ 2:^ Total membership . _ _ 127 X. — Action of the Chambers of Commerce of Hoxgkoxg, Shanghai, and Tientsin. Legation of the United States, Pekiiuj, China, September 29, 1903. Sir: Continuing the subject-matter of dispatch No. 1352, of July 21 last, I have the honor to inclose copy of a letter addressed to the dean of the diplomatic corps by the general chambers of commerce of Hong- kong, Shanghai, and Tientsiii, urging the importance of monetary reform in this Empire, and asking that the representatives of the treaty powers lose no opportunity in urging upon the Chinese Govern- ment the imperative necessity of the early establishment of a uniform national coinage. 252 STABILITY OF INTERNATIONAL EXCHANGE. The diplomatic corps as a body will take no action thereon, and I shall not present the matter to the Chinese Government until again instructed by you as to the progress of the International Commission now at work upon the subject. I have* the honor to be, sir, your obedient servant, E. H. Conger. Hon. John Hay, Secretary of State, Washington, D. C. [Inclosure No. — in dispatcli No. 1399.] The Chairmen, of the Shanghai, Honghong, and Tientsin General Chambers of Commerce to Mr. Conger. Shanghai, August — , 1903. SiR: We, the undersigned chambers of commerce of Shanghai, Hongkong, and Tientsin, respectfully beg to bring to your attention the serious disabilities under which commerce within this country labors by reason of the violent fluctuations in gold value of silver and the pressing need thereby occasioned for the prompt introduction of remedial measures. In approaching this subject we are fully aware of the difficulties with which it is surrounded ; but while in no way seeking to minimize these difficulties, we venture to think that if the Treaty Powers show their desire to render to Cliiua their sympathetic assistance she may be encouraged to take the initiative in endeavoring to extricate the country from the financial confusion into which it has drifted and to avert the ruin which fui'ther inaction seems to threaten. Under clause 11 of the treaty recently concluded with Great Britain, China agrees to take the necessary steps to provide for a uniform national coinage, and it is in the fulfillment of this clause of the treaty (whicli to be efHective must include the absorption of the provincial mints) that we recognize the preliminary step to the much-needed -reforms. It is hardly necessary to point out how essential it is to the powers carrying on trade with China, and no less China herself, that this question of a uniform coinage, as a preliminary step to the establish- ment of a currency on a gold basis, be taken in hand at once, nor, on the other hand, to demonstrate the dangers attendant on delay. It is only too well known by traders that the constant fluctuation of silver, converting as it may a profitable contract into an ultimate loss, engen- ders a feeling of insecurity in all commercial transactions which can not fail to hinder the expansion of trade. Moved by these considerations, and feeling confident that whatever measures may subsequently be found to be desirable and feasible, the first step is the establishment of a national coinage, as provided by the treaty, we respectful! J' beg that the representatives of the T.ieaty Powers in Peking lose no opi;)ortunity of urging upon the Chinese Government the imperative necessity of taking this matter in hand without delay. We have the honor to be, sir, your obedient servants. Chairman Shanghai General Chamber op Commerce. Chairman Hongkong General Chamber op Commerce. Chairman Tientsin General Chamber op Commerce. His Excellency E. II. Conger, Minister of the United States and Doyen of the Diplomatic Corps, Peking. STABILITY Of INTERNATIONAL EXCHANGE. 253 XI. — Resolutions of Shanghai General Chamber op Commerce. No. 1184.] Shanghai, August 15, 1903. To the Secretary of the Commission on International E.rchaiKje of the United States of America, Room 28, Corcoran Building, Washing- ton, D. C. Sir: I am directed to acknowledge receipt of letter of 29tli June, aslfing for a copy of the resolution passed by this chamber in favor of a gold standard in China, and to inform you that the resolution referred to reads as follows: "Having in view the fact that silver is subject to violent fluctua- tions and that China's financial obligations, national and commercial, are now mainly, and in future will probably Ije entirely, with gold-using countries, this chamber is of opinion that the Treaty Powers should urge the Chinese Government to take the necessary steps without delay to provide for a uniform national coinage as a first step toward estab- lishing the currency of this country on a gold basis at as early a date as practicable." I am, yoiirs, faithfully, Leslie IIubill, Sccrclnnj. XII. — Foreign Trade of Chin.v and Stable Exchange. [Views of officers of the China Association.] China Association, Shanghai, May 11, li«J-j. Dear Sir : I now beg to return to your letter of January 30, with apol- ogies from this committee for having left it unanswered so long. The question upon which you ask our suggestions, namely, "the policy to be adopted for the common benefit, with the purpose of securing some approach to stabilitj' in the exchange value of silver," is so difficult and complex a one that it is almost impossible to express any opinion representing anything in the nature of a united view. As a preliminarj' to an expression of any views, it would appear per- tinent to give some attention to the question as to what has l)een tlio course of China's foreign trade during the period of constant deprecia- tion of silver. For this purpose, in dealing with China's imports, the eleven years IS'.IL' to 1902 are taken, the value of the haikwan tael in the first year being 4s. 4^d., and in the last 2s. 7^d., a fall of just over 40 per cent. In the following figures quantities will be dealt with as far as possible, as being a far better guide to the course of trade than values, and, moreover, though the values as returned by the imperial customs are useful as a general guide, we confess that we can place only a qualified reliance upon their accuracy. First, then, as regards China's foreign import trade, we will deal with it according to the classification adopted by the customs, namely: (1) Opium, (2) cotton goods and yarn, (3) woolen goods, (4) metals, (5) sundries. (1) OPIUM. The importation in 1802 was 70,929 piculs; the importation in 1902 was 50,801 piculs, a decrease of 20,128 piculs, or 28.4 per cent. The matter of the opium trade is, however, exceptional. The decrease in the importation of Indian opium will no doubt be wel- comed by the "antiopium society." The enormous increase in the 254 STABILITY OF INTERNATIONAL EXCHANGE. production of native opium, which is the cause- of the decline of the foreign importation, is a fact which the society will receive with such satisfaction as tlie circumstances call for. (2) COTTON GOODS AND YARN. Imports. 1892. 1902. Increase. Plain staple goods (shirtings, sheetings, drills, T cloths, etc.), pieces Fancy goods (dyed, printed, figured, etc.) pieces. Yarn piculs. 13,794,274 3,754,189 1,303,599 18,695,975 5,252,541 2,447,971 Per cent. 35.5 40 87.8 And in addition there were imported in 1902 some 500,000 pieces of goods which were not classified in the 1892 returns at all. Taking this class as a whole, its valuation by the customs in 1892 was 52,707,432 taels, or in sterling, at the 4s. 4xd. exchange of that year, £11,474,847; in 1902 the valuation was 127,545,309 taels, or, at exchange 2s. 7^d., £16,580,890, an increase in China's spending power in taels of over 140 per cent, and an increase of 44| per cent in the sterling paid to home manufacturers. (3) WOOLEN GOODS. Imports. De- 1892. 1902. crease. All classes... - pieces.. 498,700 306,957 Per cent. 38.4 Against this decrease, however, there appears in the 1902 returns an importation of some 77,000 pieces of other goods which were unclassed in 1892. The customs value of woolen Importations in 1892 was 4,704,230 taels, or at exchange 4s. 4id., £1,043,744; in 1902 it was 3,921,173 taels, or at exchange 2s. 7.^d., £509,754; a decrease in taels of 18.2 per cent, and in sterling of something over 51 per cent. The decline in the woolen trade is accounted for by the replacement of woolen fabrics by cotton imitations. (4) METALS. Imports. Increase. 1892. 1902. 1,359,343 53,443 66,966 17,970 223,589 43,114 26,336 1,162,410 197,113 52,636 65,123 135,744 33,566 25,782 Per cent. 269.0 262.5 Decrease. Iron (all kinds) piculs.. Steel (all kinds) ..do.... Tin (slabs) do — Tinned plates do — Lead (all kinds) -- - .do — Copper (all kinds) do — Yellow metal (all kinds) do — Per cent. 14.5 21.4 39.3 22.1 2.1 The importation of otlier metals, such as spelter (contraband), quick- silver, white metal, brass wire, etc., is inconsiderable, and need not be taken into account. The customs valuation in 1892 of the whole STABILITY OF INTERNATIONAL EXCHANOE. 255 metal class was 7,130,i-!0G taels, or at exchange 4s. 4|d., £1,552,449. In 1902 it was 10,574,928 taels, or at exchange 2s. 7|d., £1,;J74,741, an increase in taels of 48.3 per cent and a decrease in sterling of 11.4 per cent. (5) SUNDRIES. The analysis of this class of imports is a more complicated matter; we divide it into the following subclasses : (n) Articles which appear in the customs return of 189S and IMS in unit of quantity. Imports. 1892. 1902. Increase. Sugar (all kinds) piculs.. Coal .- -tons.. Kerosene oil .gallons.. Matches gross.. Cotton picnls.. Fish and sea products do Umbrellas pieces.. Needles _. millo.. 531,625 398,320 40,.'>.33,a31 5, 227, .598 106, &35 885,983 667,663 3,043,5.39 4,473,222 1,173.621 89, 9:«, 907 15, 21 Ki, 140 24,s.566 9114.976 1,213,290 4,432,679 Per cent. 741.0 195.0 122.0 I'.K) 4.5 81.7 45.6 The customs value of the above articles in 1892 was given as 17,595,797 taels, or at exchange 4s. 4|d., £3,830,751. In 1902 it was 54,351,400 taels, or at exchange 2s. 7.|^d., £7,091,1182, an increase in taels of over 200 per cent and in the sterling of about 85 per cent. It should, however, be mentioned in connection with the enormous increase in the importation of sugar that a large part of the sugar is really of Chinese origin, which is sent to Hongkong and thence reex- ported into China. In this way the sugar becomes nominally a for- eign import, and as such receives the benefit of the transit pass. (&) Ai-ticlestvhicli appear in the customs returns oj ISO? and 1902 in unit of value. Imports. ' 1892. 1902. Paints, dyes, colors, etc TaeU. 1,436, 7.T,s 670,904 593,449 364,977 291,806 2,343,961 TaeU. 3,850,540 3,844,319 Machinery 794,303 1,500,450 1,061,161 Timber and wood 4,750,613 Total ... 5,7()l..s.'i.i 1.5,801,446 £1,241,341 £2,054,188 Showing an increase in taels of 177 per cent, and in sterling of something over 65 per cent. N. B. — Sundiy imports of minor importance, such as betel nut, cloves and spices, ginseng, jadestone, window glass, flints, etc., the importation of which in quantity or value has not varied materiallj^ in the eleven years, are omitted from the foregoing two tables. Rice is also purposely, omitted, as the annual importation varies so greatlj', according to the conditions of the home crop. 256 STABILITY OF INTERNATIONAL EXCHANGE. (c) Articles irhicli wen- micimmerated 171 the customs returns for ISCiS, hut which (qypear in the returns for 190S, in unit of value. Imports, 1902. Articles of personal and household use, such as butter and cheese, candles, china- ware, cigars, cigarettes, foreign clothing, household stores, eto Leather Bags and mats.-. _ _ Silk goods _- -- Buttons ._ _ _ _ Llama braid _ Match-making materiaL.. Cement, charcoal, and fans Total. Taels. 8,085,889 525,811 1,322,773 764, 9U9 291,670 368,944 293,934 485,442 12,139,872 At exchange, 2s. 7Jd., equal to £1,578,118. And lastly, we have: (d) Sundries unenumerated in both years. Year. Value. Exchange. Equivalent. 1892.. Taels. 9,475,296 24,350,825 s. d. 4 a 2 7J £3,062,851 1902 3,165,607 157 53.4 From these tables it will be seen that, except in the three articles of opium, woolens, and metals, the increase in the import trade has, despite a 40 per cent fall in silver, been very material. What would have been the course of the trade had there not been this fall in exchange it is of course impossible to say, but at least the fact of a material increase in import trade expansion, and this in many new directions, must be admitted. Taking the customs valuations of the foreign import trade for what they are worth, they supply the follow- ing comparison : * Year. ^ Value. Exchange. Equivalent. 1892.... Taels. 135,101,198 315,363,905 s. d. 4 4i 2 n £29,413,666 40,998,307 1902... Increase, per cent . 133.4 39.4 It will be noted that, curiously enough, the percentage of increase in the sterling value of the trade is just about the same as the percent- age of decrease in the gold value of silver. Turning next to China's foreign exports, ib has been thought desir- able to make a more extended examination of this trade than has been applied to her imports. The wants of the Chinese in the matter of imports, and the expansion and paying power which China has evi- denced in connection with these wants are, we think, sufficiently evi- denced by the eleven year's comparison of the trade which has been given above. China's exports to foreign countries seem to require STABILITY OF INTERNATIONAL EXCHANGE. 257 somewhat different treatment, in that these exports, being mostly of raw products, come into competition with the world's supply and are affected by the varying conditions governing the possibilities of such supply ; for instance, an abundant silk crop in any given year in Italy, happening in conjunction with, in the same year, a bad silk crop in China, must necessarilj' affect the possibilities of the latter's export- Therefore any comparison of figures should be based on an average of years, and for the purpose of such average we have chosen the two decennial periods of 1882 to 1891, and 1893 to 1901, at the same time placing alongside the averages of these two decennial periods the fig- ures for 1902, which have only lately been published. The endeavor still will be, as far as possible, to confine figures to the quantitative basis, though in many cases we must perfoi'ce fall back upon the less reliable figures of customs valuations; and first, to quote these customs valuations for what they are worth, we would submit the following comparison between the periods mentioned : Customs valuations of exports averaged on the following decennial periods : Period. Value. Exchange. Equivalent. 1883 to 1891 Taels. , s. i-> i.=B 1898 to 1901 lUi 807 1S4 ' 3 ■'; 23'3Tf;"360 1902 814,181,oS4: ■' 7! 21 KiH (U7 That is to say that in the two decennial periods the average annual value of China's exports, as measured in gold, increased by some 21 per cent, the fall in exchange in the two periods being about 33 per cent; and in 1902 they increased, as compared with tlie average of the previous decade, by about 15 per cent, as against a further fall in exchange of 18 per cent. It would appear, therefore, that the declining gold value of silver, while it may have to some extent stimulated China's export trade, has not done so in anything like the ratio of such decline. Some other explanation of the reasons of the compara- tively slow expansion of China's export trade will be attempted later on. So much for valuations, which, as I have said, are not, in our opinion, to be accepted as fully reliable. Our next endeavor is to take up the subject of the export trade on a quantitative basis. In considering the export returns a point which immediatelj' strikes one is the very great increase that has occurred in the export of Chinese produce to countries lying within what maj' be termed the "China basin" — i. e., Japan, Korea, Straits Settlements, Philippines, and the so-called "foreign " Hongkong. A very important proportion of these exports is simply for the use of Chinese emigrants in these adjacent countries, while Japan, as is only natural, is drawing upon China's productive resources in a rapidly increasing extent. The articles in this category comprise bamboos, bean cake, cattle, china ware, Chinese clothing, cotton, fans, firecrackers, fish and fishery products, fruits, fungus, glassware, grass cloth, mats and matting, medicines, nan- keens, oils, paper, preserves, provisions, samshu, silk piece goods, sugar, and vermicelli. Now, these articles, which appear in the customs return of 1902 as almost one-third of China's total foreign exports, only find place in the returns for the decade of 1882 to 1891 (so far as they are represented at all) to the extent of about one-fifth. This question is not without H. Doc. lii- -17 258 STABILITY OP INTERNATIONAL EXCHANGE. its importance as illustrating the natural growth of China's export trade in her immediate surroundings — a trade which ought to possess, and no doubt does possess, possibilities of almost unlimited expansion. Let us now turn to the question of China's exports to the exclu- sively gold-using countries of Europe and America — the trade which has probably been chiefly in our minds as the export trade of China. In the following table are left out of account such exports as cam- phor, china root, curios, galangal, gold and silver ware, leather, lily flowers, and sunflowers, for the double reason, first, that it is difficult to get any accurate information as to what is the destination of these exports (they are probably largely for Asiatic use) ; and, secondly, that they do not represent any imijortant proportion of the trade (in 1902 less than 1 per cent). The lists of exports to Europe and Amer- ica, then, is reduced to the following limited number of articles, which we give as follows : Articles. Average annual quan- tity exported. In- De- Export in 1902. 1883-1891. 1892-1901. • 1 Cassia lignea Piculs. 54,055 C) 91,172 36,456 72,162 23 29,919 5,481 («) 76,277 7,015 46,223 6,817 82,999 C) 1,997,961 46,714 65,708 Piculs. 69,775 24,872 59,900 115,137 169,528 00 39,649 7,630 152,929 109,368 12,713 66,894 8,356 95,275 46,575 1,619,741 151,334 181,636 Percent. 29.0 Percent. Piculs. 71,314 37,547 71,993 222,478 295,205 19 Bristles 34.3 Hemp.. 216.0 135.0 32.'5' 39.2 Hides Musk 4.0 NutgaUs Ehubarb... 48 488 9 292 Sfisn.TmnTi sepfl 882' 302 Silk.- Eaw 45.8 22.6 14.8 f 119,698 13,436 84,397 10,:«4 100,678 174 270 Cocoons. Waste Straw braid Tallow Tea 18.9 .1,519,311 169,339 225,937 224.0 176.0 Wool a No return. And, in addition, we have the following two export articles of importance which are returned by the customs in measure of value : Annual average value. 1SS2-1891. 1892-1901. 1902. Hair Taels. 241,091 518,489 Taels. 355,068 2,687,044 Taels. 423,949 5,268,373 Skins Total 759,580 2,942,112 5,692,321 1882-1891: At exchange 43. 9d. = £180,400. 1892-1901: At exchange 3s. 2id.= £468,286. 1902: At exchange 2s. 7Jd. = £740,000. Now, taking 'the articles of which we have returns for both decades in unit of quantity, we find the increase in actual weight of these exports to be hardly more than 3| per cent, and a comparison of the figures for 1902 with those of the 1882-1891 decade shows an increase, article for article, of little more than 13 per cent, though it is to be admitted that the three articles of bristles, sesamum seed, and tallow, STABILITY OF IN^TEENATIONAL EXCHANGE. 259 which had no place in the returns of the 1882-1891 decade, show evi- dence of new export expansion. Again, looking at these exports in the light of their returned values, we arrive at the following: Period. Average an- nual value. Exchange. Equivalent. 1882-1891 Taels. .59,184,562 s. d. 4 9 i II £14,061,333 1893-1901 .. .■ 87,883,941 124,957,518 13, 988, 199 1902 16,661,144 showing that there was no sterling expansion in the returned value of the trade in the two decades; for 10O2 the value certainly does show some increase, but the figures of a single j'ear are, as has been stated, of little use for purposes of comparison. To sum up, then, the general conclusions which are arrived at are as follows : That while the import trade has in the eleven years — 1892 to 1902 — increased in sterling value some 40 per cent, the trade in exports has in twenty years hardly increased at all so far as Europe and America are concerned, but has made some fair increase with countries adja- cent to China — countries which, with the exception of Japan, have adhered throughout the period to a silver basis, and even in Japan the adoption of a gold standard dates from only some six j'ears ago. Clearly, then, it can not be claimed that the decline in the gold value of silver has done anything to stimulate the growth of China's exports to gold-using countries, while, on the other hand, it has not checked an expansion of imports from these gold countries. Ithasto be admitted, however, that there maybe — that, infact, there are — factors outside the exchange question which have prevented, and continue to prevent, export expansion. Some of these are: (1) The indifference shown by the Chinese Government to any encouragement of the export trade. (2) The absence of facilities for the transportation of produce to the ports of shipment. (3) The fraudulent practices of the Chinese in connection with the preparation of produce for export. With regard to the first point, a most pertinent illustration of China's indifference is the tea trade. Some thirty j-ears ago the Chinese Gov- ernment was solemnly warned that unless serious measures were taken to improve the cultivation and preparation of China teas, and unless considerable relief was granted in the taxation upon export, the trade was bound to be ruined by Indian and Ceylon competition. Not the slightest attention was paid to these warnings, and although the value of China teas has been steadily declining, the specific export tariff has (until 1902, when a half-hearted reduction was made) remained the same, while the internal exactions have considerably increased ; nor has there been the slightest attempt made to improve either cultivation or preparation. The result has been a decrease in the export, as shown in the preceding table, of 18. 7 per cent between the decade of 1882-1891 and 1892-1901, while the export for 1902 shows ^ further fall of about 6i per cent more. And as regards the general question of exports, not only would it appear that the Chinese Government is wholly indif- ferent to the patent economic necessity of fostering export expansion, but that it merely looks upon that trade, as upon all trade, as a milch cow, to be squeezed to the uttermost for its own purposes of rapacity and immediate necessity. 260 STABILITY OF INTERNATIONAL EXCHANGE. On the second point it is not necessary to dwell. It is certainly something gained that China has avowedly recognized the necessity of railwajr development, and she has also agreed in a progressive undertaking as regards her inland water navigation communications. It must, however, be some time before trade advantage is to be found either through railway construction or through the promise of an improved system of her inland water regulations. As to the third point we can not do better than quote from the report prepared in 1901 by the subcommittee appointed by the Shang- hai General Chamber of Commerce to look into the question of "sun- dry exports." The report says : "Among the many irregularities apparent in the packing of various exports, we would point out the following: ^^ Bristles. — Putting short hairs or 'riflings 'in the middle of the bundles, a fraud very difficult to detect; also packing the bundles with a thick paper, so as to get a squeeze in weight. "Horse hair, — The same trouble as in bristles, of putting short hair in the middle of the bundles; also adulterating with 'dead hair.' "Gall nuts. — Usually sent down with about 10 per cent refuse and small pieces of wood, entailing trouble and expense in sorting. The unwary often get caught. " Tallow. — Adulterating with stones and pieces of wood put into the slats during the melting process, and water added to increase weight. "China grross. ^Introduction of short lengths. "Fish maws. — Kept damp, so as to squeeze in weight. "Mush. — Opening the pods and removing the musk, afterwards resewing the pods ; damping for weight; adulterating with ammonia. "Rhubarb. — Mixing soft, wormy, spongy, perished stuff with sound cargo, the inferior stuff being put in the center of the bales or cases. "Feathers. — There is no excuse for the fllthy way in which these are brought to market, except the eagerness of buyers to secure cargo. Until recently ordinary parcels used to lose about 30 per cent; now 60 or even 60 per cent is not uncommon. We think foreign buyers are responsible for a great deal of the adulteration, loading, wetting, and inferior quality of cargo. When there is any demand for an article buyers compete so eagerly for it that the natives are able to impose all sorts of conditions — such as examination at the wharf, payment before delivery, and so on. This goes on until the article deteriorates to such an extent that buyers make heavy losses; then for a time it is entirely neglected, until natives, finding it impossible to sell their common stuff, produce a better quality, and again the same process is repeated." And the report concludes with the suggestion that — "Assorting and repacking of all goods for export should be per- mitted at the original port of shipment, as well as at the port of trans- shipment. This reasserting of goods is rendered necessary in conse- quence of the vagaries of the Chinese as stated in the foregoing, and the arbitrary exactions of the customs in requiring special permit for so doing is severely complained of as being unnecessary and cumber- some to the export trade." Until foreign exporters are permitted to deal with their exports at the ' ' point of origin " there is little hope of the irregularities com- plained of being removed; something may be hoped. for in this direc- tion under the working of the inland navigation rules. ******* It has been suggested by more than one competent observer that STABILITY OF INTEENATIONAL EXCHANGE. 261 though gold has theoretically no place in the domestic trade of China, yet that the fact of the constant rise in the currency values of China's products has some connection with the question of gold appreciation. That this is so does not, in the opinion of this committee, admit of doubt. The fact is too much lost sight of that the actual basis upon which the internal trade of China is conducted is not silver but cop- per; it is the purchasing, or selling, power of the "copper cash" that the Chinese buj^er, the Chinese seller, and the Chinese laborer looks to; it is in copper cash that they measure their power of purchase, in copper cash that they measure the value of their produce, and it is in copper cash that me laborer measures the value of his wages. It may be suggested that silver is in very large measure merely a convenient medium of overcoming the expenses and diflftculties which would be entailed in the movement of the enormous masses of copper cash which the trade would, without some such medium, require. Let us look at this mixed question from the copper-cash point of view. Value of the tael in 1SS3 ami 1003. Period. Gold value. Copiier-casll value. 1882 s. d. .5 2* 1,690 1903 1,24(1 per cent.- Depreciation 4H,7 26.6 A considerable depreciation in copper ca.sh, no doubt, but not much more than half the depreciation of silver in terms of gold. It there- fore comes to this that in terms of cash what a Chinese could afford to sell for the one silver tael in 1SS2 he would in lHOi (assuming an equality of conditions in both jears) require l.:)ij taels; and, on the other hand, for what he bought of foreign imports for 1 tael in 1882 he M'ould be in the same position by j)aying l.'M taels in 1002. The point is put forward as suggesting that the Chinese bimetallic ques- tion has more reference to the relations of gold to copper than the rela- tions of gold to silver. In all this confusion of China's currency (or rather absence of cur- rency) it must be agreed on all sides that the first thing to be arrived at is the establishment in China of a national coinage, a coina.ge which shall by law be legal tender for the payment of all taxes, duties, and debts. The first bimetallic problem that China has to face is the rela- tion between silver and her copper coinage — a problem which surely, if China possesses any power of government, should not be difficult of solution. This matter of a national coinage was put in the forefront of the Shanghai treaty, by Article II of which "China agrees to take the necessary steps to provide for a uniform national coinage, which shall be legal tender in payment of all duties, taxes, and other obli- gations thi-oughout the Empire by British as well as Chinese subjects." Until this is done, it is, in our opinion, idle to talk about a gold currency for China. With a national silver coinage which shall set- tle her bimetallic trouble of silver and copper, China will be far advanced toward dealing with the further question of some fixed rela- tions between her coinage and that of gold countries. Until she has taken this preliminary step, and has carried out her obligations under the treaty, there is nothing to be hoped for, and therefore this com- mittee completely indorses the resolution which was unanimously 262 STABILITY OF INTEKNATIONAL EXCHANGE. passed at the recent annual general meeting of the Shanghai General Chamber of Commerce to the effect that- — "Having in view the fact that silver is subject to violent fluctua- tions and that China's financial obligations, national and commercial, are now mainly and in future will probably be entirely with gold- using countries, this chamber is of opinion that the Treaty Powers should urge the Chinese Gov-ernment to take the necessary steps with- out delay to provide for a uniform national coinage, as a first step toward establishing the currency of this country on a gold basis at as early a date as practicable." The establishment of a national coinage should be accompanied by the establishment of a national bank controlled by a Government board aided by foreign advisers, which bank shall have power to con- trol all the mints, to issue notes against stipulated reserves, and to demonetize existing forms of currency within a specified time. The board should also have power to adopt measures necessarj- to fix and maintain a par of exchange between the imperial silver unit, subsi- diary silver coinage, and copper cash. To conclude, it is the opinion of this committee that as the expan- sion of China's exports is of first consequence in assisting a fixity of exchange, the Powers interested should lose no opportunity of press- ing upon China the urgent necessity of reducing taxation upon exports to the lowest possible point and of improving her internal communi- cations, whether by land or water, rendering all encouragement and assistance to schemes having such object in view. I am, dear sir, yours faithfully, C. J. Dudgeon, Chairman. Joseph Welch, Esq., Secretary China Association, London. Hotel Metropole, London, July 11, 1903. Dear Mr. Welch : Through your courtesy I have recently received a copy of Sir Charles Dudgeon's report of May 11, 1903, whieh I have studied with great interest. It is a remarkable analysis of China trade statistics for some j^ears back, worked out, if I am not mistaken, by an entirely original method. I myself have recently had occasion to compile figures from the Chinese custom statistics with a view of ascertaining the balance of trade to and from the treaty ports, which is nominally adverse to China. For this purpose I naturally took a different series of figures from those used in Sir Charles Dudgeon's analysis, viz, annual imports, value at moment of landing, annual exports, value at moment of ship- ment, and net imports or exports of treasure, gold and silver. I may mention that, taking the net balance of trade, favorable or adverse, for each j'ear in haikwan taels, and converting the amount into sterling at the oificially quoted rates, I make the total sterling balance, nominally adverse to China, for the thirteen years 1890-1902 to be £20,682,000, or an annual average of £1,591,000. This does not appear to be more than may be reasonably offset by those numerous movements of merchandise and treasure, which, as the statistical sec- retaries of the maritime customs are constantly reminding us, are beyond the control of their department. After reading the Shanghai report of May 11, it occurred to me to gi'oup some of my own figures in a new way, and I venture to submit to STABILITY OF INTERNATIONAL EXCHANGE. 263 you two tables with my results. These are interesting because, from an entirely different standpoint, they confirm Sir Charles Dudgeons' conclusions in a general way, and also because they bring out impor- tant facts which are hardly apparent from his figures as published. The facts are these. Since 1892 China's tailings of foreign imports and the values of her foreign exports, as measured in silver, have expanded steadily and continuously. Even measured in gold, the values of imports, and in a muchsmaller degree the values of exports, have been annually expanding since 1805. A reference to my tables will show how I reach these results. Along- side of the details of actual imports and exports I give the figures of triennial averages, obtained by averaging the figures for each year with those of the preceding and the following years. Tliis system of averages tends to distribute the statistical effect of such sudden leaps in botli imports and exports as are four.d between 1901 and 1902, and to bring annual figures into closer approximation with the actual operations of commerce, whicli always overlap calendar periods. The index numbers for both silver and gold values are percentages of the respective averages for the year 1S92, whicli are talcen as 100. I shall be glad if these figures prove of any interest to my old friends of the Cliina Association, and I remain, j'ours sincerelj', F. B. FOKBES. Joseph Welch, Esq., Honorahle Secretary, China Assdciulion. sterling value of Years. haikwan tael. s. a. 18S11 4 11 1S!1:J 4 4i 3 lU l.Wi 1,S!I4 3 2i LSHB 3 ik ISllli 3 4 1.H>I7 3 11} LSftS^ 2 10( IMIil 3 Jr 10(10 3 1} lani ■■- lift in()3 2 '\ 18111 ISK IRIB 1«I4 1WI5 VMS 18il7 l.SHS l«l Haikwan taels. Index num- Value in pounds Index num- bers. sterling. bers. """i2i.'.574'.545' ilKj" ""2l"i,"(i:i4,"777' i(Vi 131, 2.S(i. 11711 108 24,,'^77,.57li 1)3 145,7711,451 120 25,131,304 114 150,771,91)2 124 .24,(34,711 1'2 ira, 131,946 135 25,948.304 97 168,i;21,490 139 25,7(l.s.0;^l IHl 192, l,'4 lli5 2.'*, (155, 599 lO.S Imports ii/to China — Value at )iioiiinit of landing. Sterling ; value of I haikwan tael. Actual imports. s. ! 4 4 d. 11 a IH 21 3i i ?i 115,023 116 786 i 3 1 3 3 129,241 1:39, .5611 150 244 ---! 3 2 2 3 177,630 177,915 184,4,'<(i 233 1153 -.. 3 lt<5,87(l 237,871 :300, »US Haikwantaely Value in pounds sterling. Triennial averages. Haikwan taels. Index No. Value in pounds sterling. 120, 128, 139, 1.55, 168, 180, 198, a)i, 219, 241. :«2 10(1 372 107 165 116 766 129 753 140 766 149 \X\ 165 977 167 Olll 182 242 201 26.3X2,097 24,395,441 24,110,749 25,497,623 26,,S92,760 27,.574,a57 29,444,300 3( 1,22*;, 537 33,103,569 ;-H,4(i4,6:a Index No. 100 93 91 97, 102 105 112 115 126 130 264 STABILITY OF INTERNATIONAL EXCHANGE. XIII. — The Currency Question in China. [London Times, Thursday, June 4, 1903.] For some time past, in fact, since the effect of the Boxer indemnity has been realized, the question of introducing the gold standard into China has received the serious attention of native and foreign mer- chants, and has become a subject of discussion even amongst native officials. If its solution were dependent on the activity or inactivity of the latter, the matter might at once be classed with the open door, the integrity of the Empire, educational reform, and all the other pleasant fictions which the mandarinate is ever ready to discuss with sympathetic Europeans, so long as nothing is said or done to interfere with its time-honored privileges. There are indications, however, from more than one quarter that this question must before long be taken out of the hands of native officialism. There are too many inter- ests involved in the promotion of China's commercial and financial prosperity to allow the present condition of affairs to be protracted indefinitely. At a meeting of the Shanghai Chamber of Commerce, held on the 18th ultimo, the following resolution was unanimously adopted: "Having in view the fact that silver is subject to violent fluctua- tions and that China's financial obligations, national and commercial, are now mainlj^, and in future will probably be entirely, with gold- using countries, this chamber is of opinion that the treaty Powers should urge the Chinese Government to take the necessary steps with- out delay to provide for a uniform national coinage as a first step toward establishing the currency of this country on a gold basis at as early a date as practicable." The reform to which this resolution refers is one for which the necessity has for long been evident; the Chinese Government has practically admitted the fact by accepting in principle Article II of Sir James Mackay's treaty, and the United States and Japanese treaties now under discussion contain similar clauses, in the press, native and foreign, opinion is unanimous that the existing chaotic condition of Chinese currencj^ and finance is in itself sufficient to check progress and to handicap trade ; on all sides the necessity for immediate I'eform is admitted, and the weight of public opinion is such that even the vis inertiaj of the central Government must even- tually feel its effect. Already there are signs of potential mental activity on the subject in the slumbrous precincts of the board of revenue and the Wai-wu-pu; several of the aged classical scholars who control the country's destinies have recently given the matter attention, and there is a hopeful impression abroad that somewhere and somehow an effort is really going to be made to do something. (The position, in fact, is somewhat similai- to that of war office reform in England at the close of the Boer war.) The few Chinese officials who have made an intelligent study of the question have realized that this reform, unlike many others, is not one which can begin and end with an imperial edict; furthermore, that if anything is to be done it must be done upon strict business principles; 'finally, that under those conditions, the proposed changes, though gen- erally beneficial, hold out little hope of immediate profit for individ- uals. Looked at from the national point of view and in the light of patriotic theory, the scheme of currency reform is unassailable — with- out it, the country must continue to be confronted by the prospect of STABILITY OF INTERN ATIONAL EXCHANGE. 265 instability and ever increasing liabilities; yet from the individual offi- cial's standpoint, it is not entirely free from objections. The present system offers the advantages of independent mints — and profits on coinage — in each viceroyalty; of numerous and ever fluctuating units of currency, creating unlimited opportunities of " squeeze," together with elasticity and intricacy of accounts verj' dear to the Chinese mind. Under a uniform coinage system much of the interest of life would be lost to the mandarin, while the banker, compradore, and " shroff" will naturally resist its introduction to the utmost. For these reasons, and despite the unmistakable trend of public opinion to which I have alluded, it is improbable that the Chinese Government will move with anything like undignified haste in the direction of financial and currencj' reform. There are many con- servative ideas and vested interests to be overcome before any prac- tical results can be attained. For instance, there exists a very general belief among native officials of the class which abetied the Bo.xer ris- ing that a falling and fluctuating exchange, being evidently bad for trade, is a dispensation of Providence, since trade is the chief end and object of the outer barbarians' existence in China. Kill his trade and tlie foreigner will go. It is a simple belief, which from its very simplicity appeals strongly to minds unfitted to grapple with complex questions; they perceive that the situation created by the fall of silver is jjerturbing the serenity of European traders, and their attitude in tlie matter is therefore one of contented expectancy. Atiain, the provincial authorities, especially those who control their independent mints, may reasonably be expected to oppose any I'eform which deprives them of profit from this source. Finally, there are to be reclvoned with the native bankers, especiall.y the great Shansi guilds, who maintain and control the present com- plicated machinery of finance throughout the Empire. Discussing recently the currencj'-reform article in Sir .Tames ^Eackay's treaty, an intelligent native official observed that edicts might l)e publisheil and the board of revenue might issue instructions to euforce them, but he doubted whether all the authority of Peking could overcome the oppo- sition of the Shansi bankers, in whose hands the country's finances virtually rest. The recent complete dislocation of trade in Tientsin, resulting from the Viceroy Yuan's well-meant attempt to amend the methods of the native banks, has demonstrated the power of resistance latent in their widely extended organization and the dif6.culties which lie In the path of the currency reformer. Nevertheless, the mass is undoubtedly moving. A first cause is to be found in the increased burden which the country's gold debt has imposed on the Central GoAernment. Between the date of the pro- tocol (September, 1901) and the end of 1002 China's liabilities were augmented by over 20 per cent, due simplj^ to the fall in the value of the metal in which the country's revenues are collected. The abstract injustice of the situation requires no comment; the people of China have done nothing to deserve this further addition to their punish- ment, nor could thej' by anj^ means have prevented it. Any other government but the Chinese would long siuce have recognized the present gravity and future dangers of such a situation and would have taken immediate steps to remedy it. Even the "\Vai-wu-pu feels tiiat something must be done, and accordingly its intelligence and energies are directed in the first instance toward repudiating the pro- tocol. A further step, in conformity with the traditions of Celestial procedure, has therefore beeu taken in directing that the special 266 STABILITY OP INTERNATIONAL EXCHANGE. mission to the Osaka Exhibition shall study and report on the ques- tion of introducing the gold standard into China on lines similar to those successfully adopted by the Japanese. Anyone acquainted with Prince Tsai Chen, Na t'ang, and the other native personages who rep- resent China at this exhibition will appreciate the value of the forth- coming report. It will probably not make its appearance till next year, a fact which no doubt appeals to the Wai-wu-pu; the interval represents so much time gained during which the matter may rest in that condition of indefinite theory which commends itself to the Chinese official mind, and in the meanwhile there is always the possibility that "something may turn up." Meanwhile an edict of April 22 directs Prince Ching and Chu Hungchi, in conjunction with the board of revenue, to devise measures for the establishment of a central mint at the capi- tal whereat ' ' a sufficient quantity of coins shall be struck for distribu- tion throughout the Empire, which may be used by the people in payment of taxes, likin, etc." Lest matters should move too rapidly, it is further decreed that " when the prince, minister, and board have drawn up a report they shall await the Imperial instructions in this matter." As indicating the value of the advice which the Government may expect from Chu Hungchi, president of the Wai-wu-pu, it is useful to bear in mind that this is the official who, upon the conclusion of Sir James Mackay's negotiations, drafted the Imperial edict sum- marily abolishing likin — a decree which was subsequently amended. It will be observed that the present edict apparently anticipates that likin will continue undisturbed. To the foreign merchant in China the currency question is one of immediate and serious concern. Not only with the steady fall of sil- ver have his income, investments, and savings greatly depreciated in value, but the sudden and violent fluctuations to which exchange is subject invest his trade generally with a speculative element, which perforce curtails operations. To the ordinary chances and changes of the market is added the ever-present risk of exchange, converting business operations into gambling transactions, wherein neither expert opinion can guide nor caution protect the trader. Within the past week the value of the tael at Shanghai has risen from 2s. 2fd. to 2s. 4^d. — about 8 per cent — and an equally rapid fall in the near future is not improbable. Legitimate trade under such conditions becomes impossible. Under existing circumstances and with the burden of heavy foreign loans to be faced, China, to reach a sound financial state, should be able to show a considerable balance of trade in her favor, for evi- dently, unless exports largely exceed imports, she must in course of time meet her liabilities b.y exporting bullion. It was generally expected in 1002 that, following upon the heavy fall in silver, China's exports would be greatly stimulated; also that her imports must be curtailed. So far neither of these predictions has been justified, nor has silver been shipped to any considerable extent; but so many are the unseen factors which affect Chinese trade and finance, so unreliable is the official information on many points immediately affecting the whole question, that it is unsafe even to hazard an opinion as to the real meaning of recent statistics. Two things are certain — namely, that exports show no sign of expansion, and that the constant fear of a fall in exchange affects the balance of trade adversely in various ways. STABILITY OF INTERNATIONAL EXCHANGE. 267 In the first place, it causes the foreign exchange banlts to postpone and curtail shipments of silver to China and. induces them to reduce their cash balances as much as possible; it discourages the invest- ment of sterling capital in the country and leads foreigners in China to remit their savings for investment in Europe. These factors have an immediate effect on the balance of trade, and the withdrawal of capital in particular produces serious results. The countrj's finances are now passing through a necessary period of adjustment which inevitably hampers trade, and the situation is one which no half measures can alleviate; it is liable to reoccur indefinitely so long as unstable exchange conditions continue. The more enlightened class of native officials and merchants perceive that foreign capital and foreign methods are necessary if the country is to bo saved from insolvency, bankruptcy, and chaos, and they realize also that if sal- vation of this kind is to be forthcoming the introduction of a national uniform currency is a matter of urgent necessity as a step xjrelimi- nary to the establishment of the gold standard in China. It is recog- nized that since the United States have abandoned the free coinage of silver, and as one country after another has discarded the white metal for gold, China's difficulties havebec(niie intensified. To quote a statement made by Sir David Barboiir in his Indian budget speech in 1893, permanently applicable in China to-day, "The financial posi- tion for the coming year is at the mercy of exchange and of those who have it in their power to affect in anj' waj' the price of silver." Cliina's financial position is none the better for the fact that she knows nothing of budgets or financial members, but in other icspects it bears every featui-e of resemblance to that wliieh led the govern- nient of India to close the mints and to reestablish the rupee on a fixed sterling basis in 18'J3. Many views on the subject have during the past year been expressed from platforms and in the press; much advice has been tendered to the seven sleepers of the Peking state department, from whieh may be deduced a very general consensus of opinion that China in reform- ing her finances should follow the example of India rather than that of .Tapan. The resources and general condition of the Empire render inadvisable any immediate attempt to establish, with borrowed capi- tal, a gold coinage and a gold reserve, whereas the establishment of a gold standard of value without a gold currency appears to be a matter of practical politics, providing a way out of the present impasse with- out radical disturbance of existing conditions. A very able essay on the subject has recentlj' been published in the columns of a Tientsin journal and reissued as a pamphlet. Its author makes definite and practical suggestions which have attractettlements" shall be inscribed above, and the words "One Dollar" and the date below the scroll. 2. For the purpose of making the Straits Settlements dollar legal tender in the colony, the order of 1S95 shall, as from such date as may be fixed by the governor of the colony by proclamation, be read and apply as if the schedule to this order were added to the second schedule to that order. 3. The governor of the colony maj', by proclamation made with the consent of the secretaiy of state, substitute the schedule to this order for the first schedule to the order of 18'.>o, and accordingly as from the date mentioned in the proclamation the order of 1895 shall be con- strued as if the standard coin were the coin described in the schedule to this order in substitution for the Mexican dollar described in the first schedule of that order, and as if the Mexican dollar as described in the first schedule to that order were comprised in the second schedule to that order. 4. Tlie governor of the colony maj", by proclamation made with the consent of the secretary of state, declare that any of the coins the descriptions of which for the time being form part of the second schedule to the order of 1895 shall cease to be legal tender in the col- ony, and so much of the order of 1895, or any order amending that order, as makes tender of payment in that coin legal tender shall, as from the date fixed in the proclamation, be repealed. 5. The interpretation act, 1889, shall apply for the purpose of the interpretation of this order as it applies for the purpose of the int-er- pretation of an act of Parliament. 292 STABILITY OF INTERNATIONAL EXCHANGE. 6. This order shall be read as one with the order of 1895, and may be cited as the Straits Settlements (coinage) order, 1903. And the lords commissioners of our treasury and the Right Hon? Joseph Chamberlain, one of our principal secretaries of state, are to give the requisite directions herein accordingly. A. W. FiTZ Roy. Schedule. STRAITS SBTTLBMEITTS DOLLAE. Coin. Metal. Millesimal fineness. Standard weigM. Least current ■weight. Grains. Grams. Grains. Grams. Straits Settlements dollar Silver.. 900 416 26.957 411 23.633 The remedy allowances for the Straits Settlements dollar shall be as follows: Weight per piece . Grrains. G-rams. 0.1296 Millesimal fineness. Ordinance No. XXIV of 1003. AN ORDINANCE to regulate the import and export of coin into and from the colony. [Septembbk 25, 1903. J F. A. SWBTTENHAM, [l. S.] Governor and Cuiiimander in Chief. Whereas it is advisable to adopt certain measures to regulate the import and export of coin into and from the colony; It is hereby enacted by the governor of the Straits Settlements, with the advice and consent of the legislative council thereof, as follows: 1. This ordinance may be cited as "The coin import and export ordinance, 1903." 2. For the purposes of this ordinance the term "banker" shall mean any corporation carrying on the business of bankers or financial agents in the colony, and the term "moneychanger" shall mean a person who carries on the business of money changing as his chief business. 3. (a) Subject to the approval of a secretary of state it shall be law- ful for the governor in council by order to prohibit the importation into the colony of such coins, whether legal tender within the colony or not, as are in such order specified. (&) It shall be lawful for the governor in council, subject to the like approval, by order to prohibit the exportation from the colony of such coins being legal tender within the colony as are in such order specified. (c) It shall be lawful for the governor in council by order to pro- hibit the circulation in the colony of such foreign coins not being legal tender within the colony as are in such order specified. (f/) It shall be lawful for the governor in council bj' order to exempt any country or state from the operation of any order prohibiting the STABILITT OF INTERNATIONAL EXCHANGE. 293 import into or export from the colony of such coin as are in such order specified. 4. Every such order may, subject to the like approval, be rescinded or varied in such manner as the governor in council may see fit. 5. Every such order shall be published in the Gazette and shall not come into force until so published. G. (a) If any person, in contravention of any such order, import or export, or attempt to import or export, any coin in such order specified, to the amount of 15 in nominal value or upward in the case of copper or bronze coin, or of $25 in nominal value or upward in the case of silver coin, he shall be liable, on conviction before a bench court, to a fine not exceeding $1,000, and any coin so imported or exported, or attempted to be imported or exported, in contravention of any such order, shall be forfeited. (b) In any case in which it has been proved to the satisfaction of a court that coin has been exported in contravention of any such order as aforesaid it may impose, in addition to the fine authorized by this section, a further penalty not e"xceeding the amount or Aalue of the coin so found to have been exported. (c) The provisions of this section shall not apply lo any coin imported or exported under a license in Avriting under the hand of the colonial secretary or of any of&cer appointed in that behalf 1 ly the governor. Every such license shall specify the terms on wliich such coin may be imported or exported, as the case may be. (d) Any person importing or exporting coin under the provisions of any such license shall be bound to comply with the terms in such license specified, and any person importing or exporting coin in con- travention of the terms of such license shall be liable on con\ iction before a bench court to a fine not exceeding -^1,000, and any coin imported or exported in contravention of the terms of such license shall be forfeited. The provision contained in subsection (h) of this section shall apply in the case of any coin exported in contravention of the terms of any such license. (e) If any person shall in contravention of any such order cii'culate or attempt to circulate any coin in snch order specified, he shall be liable on summary conviction to a fine not exceeding $-5, and the coin shall be forfeited. (/) For the purposes of this section a person is not deemed to cir- culate coin who gives such coin to a banker or money changer in exchange for other coins or for notes. (g) In this section the expression ' ' person " includes any company or association or body of persons, whether incorporated or not. 7. Any coin the circulation of which in the colonj^ is for the time being prohibited by any such order as aforesaid found within the colony otherwise than in the possession of a banker or money changer after the expiration of thirty days from the publication in the Gazette of siich oi'der may, if it amounts to the nominal value of $5 or upward in the case of copper or bronze coin or 125 or upward in the case of silver coin, be forfeited, and may be seized without warrant by anj' police ofBcer and detained pending adjudication. 8. A justice of the peace, if satisfied by sworn information in writing that there is good cause to believe that anj^ coin which has been imported, or is in the act of being imported or exported, in con- travention of any such order as aforesaid, is likety to be found in any place to the nominal value of ^50 or upward, may, by warrant under 294 STABILITY OP INTEBNATIONAL EXCHANGE. his hand, direct any public ofl&cer named or specified therein to enter such place and search the same ancl seize all coin or coins found therein the import or export of which is for the time being prohibited as aforesaid and detain the same pending adjudication. 9. Any person found offending against the provisions of this ordi- nance may be arrested by any police officer without warrant. 10. Forfeitures of coin may be declared under this ordinance — (a) By the supreme court upon information filed by His Majesty's attorney-general under "the Crown suits ordinance, 1876;" (6) By the convicting court in all cases where a person is convicted of an offense against the provisions of this ordinance in respect of such coin; (c) By a police court where no person is convicted and the nominal value of the coin does not exceed $500. 11. The court may direct any fine or portion of a fine imposed and levied under this ordinance to be paid to the informer. 12. "The foreign coin prohibition ordinance, No. 2, of 1891," is herebj^ repealed. Passed this 2oth day of September, 1903. E. G. Broadeick, Acting Clerlx of Councils. Order in council under ''the coin import and export ordinance, 1906'." Order by his excellency the governor in council, under "the coin import and export ordinance, 1903." Whereas by section 3 (4:) of "the coin import and export ordinance, 1903," it is provided that it shall be lawful for the governor in coun- cil by order to exempt any country or state from the operation of any order prohibiting the import into or export from the colony of such coin as may in such order be specified; And whereas by an order in council made on the 2d day of October, 1903, the importation into the colony of the British trade dollar and the Mexican dollar was prohibited from the 3d day of October, 1903; And whereas by another order in council made on the 2d day of October, 1 903, the exportation from the colony of the Straits Settle- ments dollar was prohibited from the 3d day of October, 1903 : Now, I, Sir Frank Athelstane Swettenham, knight commander of the most distinguished order of St. Michael and St. George, governor and commander in chief of the Straits Settlements, by virtue of the powers vested in me by the said ordinance, with the advice of the executive council, do hereby declare that the said orders in council shall not apply to the states of Perak, Selangor, Negri Sembilan, and Pahang, otherwise known as the Federated Malay States, and to the state and territory of Johore, but that the same are hereby exempted from the operation of the aforesaid orders. E. G. Broadrick, Acting Cleric of Councils. Council Chamber, Singapore, October S, 1903. STABILITY OF INTERNATIONAL EXCHANGE. 295 In the name of His Majesty King Edward the Seventh of that name, by ihe Grace of God of the United Kingdom of Great Britain and Ireland, and of the British Dominions beyond the Seas, Defender of the Faith, Emperor of India. PROCLAMATION. By His Excellency Sir Frank Athelstane Swettenham, knight com- mander of the most distinguished Order of Saint Michael and Saint George, governor and commander in chief of the-Straits Settlements. F. A. SVFETTENHAM, [L. S.J Grovernor and Commander in Chief. Whereas by order of Her late Majesty Queen Victoria in council dated the 2nd day of Februarj^, 1895 (hereinafter called " the order of 1895 "), provision was made with respect to the currency of the colon j' ; And whereas by "the Straits Settlements coinage order 1903" it was, among other things, ordained and enacted that a Straits Settle- ments dollar should be coined and be of the metal weight and fineness specified In the schedule to that order, and that for the purpose of making the Straits Settlements dollar legal tender in the colony tlie order of 1895 should, from such a day as might be fixed by the gov- ernor of the colony by proclamation, be read and apply as if the schedule to the Straits Settlements order 1903 wore added to the sec- ond schedule of the order of 1895. Now, I, Sir Frank Athelstane Swettenham, knight commander of the most distinguished Order of Saint Michael and Saint George, governor and commander in chief of the Straits Settlements, in exercise of the power vested in me by the Straits Settlements coinage order 1903, and of every power enabling me in that behalf, do b.y this proclamation fix the 3rd daj^ of October, 1903, as the date from whicli the order of 1895 shall be read and apply as if the schedule to the Straits Settle- ments (coinage) order 1903 were added to the second schedule of the order of 1895. Given at Singapore this -nd daj' of October, in the year of our Lord one thousand nine hundred and three. By his excellency's command: W. T. Taylor, Colonial SecrHarij. COD S.VVE THE KING. The schedule to the referred to. Straits Settlements coinasie order 1903, above Straits Scttlciiiciits doJlar. Coin. Metal. Silver -- Millesimal fineness. Standard weight. Least current weight. Grains. Grams. Grains. Grams. Straits Settlements dollar 9ai 416 l.'(;.9o7 411 m. 633 296 STABILITY OF INTERNATIONAL EXCHANGE. The remedy allowances for the Straits Settlements dollar shall be as follows: Grains. 2 Gratos. Millesimal fineness. 0.1298 0.002 Ordinance No. XIII of 1903. AN ORDINANCE to amend " The currency note ordinance 1899." [July 3, 1903. J F. A. SWETTENHAM, [l. S.] Governor and Commander in Chief. Whereas it is advisable to amend "The currencj^ note ordinance 1899" and to provide for the reminting of the coin portion of the note guarantee fund: It is hereby enacted by the governor of the Straits Settlements, with the advice and consent of the legislative council thereof, as follows : 1. This ordinance may be cited as "The currency note ordinance 1899 amendment ordinance 1903," and shall be read and construed as one with "The currency note ordinance 1899" (hereinafter called " the principal ordinance"). Any copy of the principal ordinance printed after the commencement of this ordinance shall be printed with the amendments, alterations, and additions required by this ordinance. 2. The following new section 7a is inserted after section 7 of the principal ordinance: 7a. (1) ISTotwithstanding anything in the last preceding section con- tained it shall be lawful for the commissions of currency, with the approval of a secretary of state, to use any part of the coin portion of the note guarantee fund for the purpose of having it reminted and coined into such coins as may be approved by His Majesty's Govern- ment as legal tender in the colony : Provided always, That where siich approval has been given the commissioners of currency shall not be bound to sell any of the securities forming the investment portion of the fund by reason of the coin portion of the fund falling below the fixed proportion of the fund in consequence of the reminting of any part thereof. (2) All coins the result of the reminting of any part of the coin por- tion of the fund shall, on being received from His Majesty's mint, be forthwith placed in the coin reserve for the ordinary purposes of the currency note issue : Provided always, That the commissioners may exchange them or anj^ part of them for an equivalent value of other silver coins which for the time being are legal tender in the colony. (3) The cost of such reminting as aforesaid and all charges in con- nection therewith, including any loss of silver caused by the said reminting, shall form part of the expenses of and incidental to the execution of this ordinance. (4) Any difference in the way of loss between the nominal value of coin originally taken from the coin portion of the fund to be reminted as aforesaid and the nominal value of the new coins actually received back from His Majesty's mint shall forthwith be made good to the commissioners from the general revenue of the colony. (5) In the event of the reminting of any part of the coin portion of STABILITY OF IKTERNATIOTSTAL EXCHANGE. 297 the fund as aforesaid the monthly abstracts published in the Gazette by the commissioners, in accordance with section 10 of the principal ordinance, shall include and show separately in the statement of the coin portion of the note guarantee fund the nominal value of the coin taken out to be reminted. 3. Section 10 of the principal ordinance is amended by substituting for the word "tenth," in the first line of subsection 4, the word "first." Passed this 3d day of July, 1903. A. AV S. O'SULLIVAN, Cleric of Councils. III. A Gold Standard for the Straits Settlements. [London Statist, Saturday, October 3, 1903.] A cable received late this evening informs us that the further import of silver dollars into the Straits Settlements is prohibited. This step is, of course, preliminary to placing the currency of the Straits Settlements upon a gold basis. For some months past large imports of British and Mexican dollars into the Straits have been made in anticipation of the fixing of the value of the dollar in the Straits Settlements at 2s. The result of these importations is that the quantity of dollars in Singapore at the present time is quite out of proportion to the needs of the countrj', and that there will be no necessity to purchase silver for the coinage of new dollars perhaps for some years. The further steps which the Straits government will take to make the gold standard effective are awaited with great interest. It is improbable, however, that the Straits government will act in any arbitrary manner toward those who had no option but to receive and to keep in their vaults the undulj^ large quantity of dol- lars sent into the country. It would x)ossibly have been wiser of the government to have taken their present step several months ago, before so many dollars were sent into the countiy and deposited with the banks. But inasmuch as the government has hitherto taken no step to prevent the large importation of dollars, it is to be expected that they will take steps to ascertain the quantity of dollars in the country at the present time, and will agree to recoin these dollars into the new Straits dollar free of charge before they purchase bar silver for coinage. Appendix Gr. I. Repokt of the Indian Currency Committee, 1898. India Office, July 7, 1899. Right Hon. Lord George Hamilton, M. P., Secretary of State for India: 1. In your letter of April 29, 1898, your lordship referred to us for consideration the proposals of the government of India for making effective the policy adopted by Her Majesty's Government in 1893 and initiated in June of that year by the closing of the Indian mints to what is known as the free coinage of silver. That policy had for its declared object the establishment of a gold standard in India; and in inviting us to consider whether this object could best be attained by the specific measures proposed by the government of India or otherwise, your lordship indicated the scope of our inquiry in the following words: "It will be the duty of the committee to deliberate and report to me upon these proposals and upon any other matter which they may regard as relevant thereto, including the monetary system now in force in India, and the probable effect of any proposed changes upon the internal trade and taxation of that country; and to submit any modifications of the proposals of the Indian government, or any suggestions of their own, which they may think advisable for the esiablishment of a satisfactory system of cur- rency in India, and for securing, as far as is practicable, a stable exchange between that country and the United Kingdom." 2. For the purposes of our inquiry we have held 43 meetings and examined 40 witnesses. The notes of evidence, together with statis- tical tables and other important information bearing on the subject of inquiry, have already been communicated to your lordship; and we now proceed to report the conclusions which we have reached upon the questions referred to us. /. The monetary system of India. 3. In order to explain the monetary system now in force in India, it is desirable to record certain salient facts of the history of Indian currency. 4. At the beginning of the present century no uniform measure of value existed in British India. Some parts of India (e. g. , Madras) maintained a gold standard and currency; elsewhere, as in Bengal, a silver standard obtained, with gold coins in concurrent circulation; throughout India the coins, whether of gold or silver, difliered in denom- ination and differed in intrinsic value even within the same district. Out of this confusion arose the demand for an uniform coinage, a demand to which the court of directors of the East India Company gave their approbation in the important dispatch on Indian currency 298 STABILITY OK INTERNATIONAL EXCHANGE. 299 addressed by them to the governments of Bengal and Madras on April 25, 1800. It is important to observe that the directoi-s, while "fully satisfied of the propriety of the silver rupee being the principal measure of value and the money of account," by no means desired to drive gold out of circulation. "It is not byanj^means our wish," they said, "to introduce a silver currency to the exclusion of the gold, where the latter is the general measure of value, any more than to force a gold coin where silver is the general measure of value." Nevertheless the first fruits of the policy of 1806 were seen in the substitution in 1818 of the silver rupee for the gold pagoda as the standard coin of the Madras Presidency, where gold coins had hitherto been the prin- cipal currency and money of account. In 1835, when the present sil- ver rupee was formally established as the standard coin of the whole of British India, it was enacted that "no gold coin shall henceforward be a legal tender of payment in any of the territories of the East India Company." 5. But, though gold had ceased to be a legal tender in India as between private individuals, the coining of gold mohurs (oi- " 1.5-rupee pieces") was authorized by the act of 1835, and a proclamation of January 13, 18-11, authorized officers in charge of public treasuries "freely to receive these coins at the rates, until further orders, respectively denoted by the denomination of the pieces." As the gold mohur and the silver rupee were of identical weight and fineness, this proclamation represented a ratio of 15 to 1 between gold and silver. In 1852 it was held bj' the directors of the East India Company, on I'epi'esentations from the government of India, that the effect of this pioclamation " has been and is likely to be still more em))arrassing" lo the government of India. "The extensive discoveries of gold in Australia having had the effect of diminishing its value relatively to silver, holders of gold coin have naturally availed themselves of the opx)ortunity of obtaining at the government treasuries a larger price in silver than they could obtain in the market." Conseijuently, on December 25, 1852, there was issued a notification withdrawing the above provision of 1811 and declaring that on and after January 1, 1853, "no gold coin will be received on account of paj'ments due, or in any way to be made, to the government in anj- public treasury within the territories of the East India Company." 0. In 18(jl:theBombaj' Association (representing the native mercan- tile community of Bombay) and the chambers of commerce of Bengal, Bombay , and Madras having memorialized the government of India for a gold currency, the government proposed " that sovereigns and half- sovereigns, according to the British and Australian standard, coined at any properly authorized roj'al mint in England, ^Vustralia, or India, should be made legal tender throughout the British dominions in India, at the rate of 1 sovereign for 10 rupees; and that the government currency notes should be exchangeable either for rupees or for sov- er^'igns at the rate of a sovereign for 10 rupees; but that they should not be exchangeable for bullion." The Imperial Government, while unwilling to make the sovereign a legal tender, saw " no objection to reverting to a state of matters which prevailed in India for many years, namely, that gold coin should be received into the public treasuries at a rate to be fixed by government and publicly announced by proc- lamation." It was considered that this experimental measure "will, as far as It goes, facilitate the use of the sovereign and half-sovereign in all parts of India; it will pave the way for the use of a gold coinage in whatever shape it may iiltimately be found advisable to intro- 300 STABILITY OF INTERNATIONAL EXCHANGE. duoe it, and at the same time it establishes a preference in favor of the sovereign." Accordingly, on November 23, 1864, a notification was issued that sovereigns and half-sovereigns should, until further notice, be received as eqiiivalent to 10 rupees and 5 rupees, respec- tively, in payment of sums due to government. In the following March, the directors of the Bank of Bengal urged that, "in view of the continued influx of sovereigns," the time had come when British gold might, "with safety and advantage, be declared legal tender at the respective rates of 10 and 5 rupees," and the government of India again pressed their original proposal on the Imperial Government. The secretary of state replied on May 17, 1865, that the time did not appear to have arrived for taking any further step, nor did he see that a.nj practical advantage would attend the proposal to admit British gold to legal tender in India. On October 28, 1868, the government of India raised the rate for the receipt of sovereigns and half-sover- eigns at the public treasuries from 10 and 5 rupees to 10:|^ and 5^ rupees, respectively. 7. In 1876, after the rupee had temporarily fallen in exchange to 18|^d., the Bengal Chamber of Commerce and the Calcutta Trades' Association iirged the temporary suspension of the compulsory coin- age of silver by the Indian mints. The government of India decided that "up to the present there is no sufficient ground for interfering with the standard of value." 8. In 1878, however, the government of India expressed a different opinion, being "led to the general conclusion that it will be practi- cable, without present injury to the community as a whole, or risk of future difficulties, to adopt a gold standard while retaining the pres- ent silver currency of India, and that we may thereby in the future f ullj' protect ourselves from the very real and serious dangers impend- ing over us so long as the present system is maintained." Aiming at the eventual adoption of the British standard, and the extension to India of the use of British gold coins, the government proposed to proceed at the outset as follows: "We first take power to receive British or British Indian gold coin in payment for any demands of the government, at rates to be fixed from time to time by the gov- ernment, till the exchange" (aboiit Is. 7d. in 1878) "has settled itself sufficiently to enable us to fix the rupee value in relation to the pound sterling permanently at 2s. Simultaneously with this the seigniorage on the coinage of silver would be raised to such a rate as would vir- tually make the cost of a rupee — to persons importing bullion — equal in amount to the value given to the rupee in comparison with the gold coins above spoken of. We should thus obtain a self-acting system under which silver would be admitted for coinage at the fixed gold rate as the wants of the country required ; while a certain limited scope would be given for the introduction and use of gold coin, so far as it was found convenient or profitable." The above proposals of 1878 were referred to a departmental committee, who, on April ?0, 1.S79, briefly reported that they were " unanimously of opinion that they can not recommend them for the sanction of Her Majesty's Gov- ernment." A discussion of some of the reasons which appear to have influenced the committee of 1879 in urging the rejection of the pro- posals referred to them will be found in the evidence given before us • by Sir Robert Giffen, who was a member of that committee. (See questions 10025-10048.) 9. Between 1878 and 1892 the continued fall in the gold price of silver caused repeated embarrassment to the government of India; but STABILITY OF IliTTERNATIONAL EXCHj4NG£. 301 the main object of such attempts as were made by that government to deal with the subject during the period in question was not to effect a change of standard in India, but to facilitate an international agree- ment which might cause a rise in the gold price of silver, and thus diminish the inconvenience resulting from the retention of a silver standard in India. 10. In 1881 Indian delegates were sent to the monetary conference at Paris, with instructions that " while the secretary of state in coun- cil is unwilling to encourage an expectation of any material change at present in the monetary policy of India, he would be ready to consider any measures * * * calculated to promote the reestablishment of the value of silver." In 1886, shortly before the appointment of the royal commission on gold and silver, the government of India expressed the opinion that " the interests of British India inaperatively demand that a determined effort should be made to settle the silver question by international agreement;" and in 1892 Indian representatives were sent to the International Monetary Conference at Brussels, which was convened for the consideration of measures for the increased use of silver as currency. 11. In 1892, inasmuch as it was foreseen that the international con- ference might fail to secure the objects for which it was to be called together, the idea of changing the standard of value in India from silver to gold had been once more brought into prominences by the action of the representatives of the mercantile community of Calcutta. On February 18, 1892, when the international conference was in pros- pect, the Bengal Chamber of Commerce represented that it was "impossible for men of business to feel any confidence in the future value of the rupee, and they believe that such a state of things restricts the investment of capital in this country and seriously ham- pers legitimate enterprise." If success could not be secured by inter- national agreement, the chamber saw nothing "but the pros[)ect of endless fluctuations in the relative values of silver and gold, attended with a fall in the value of silver of indefinite amount; and tlie com- mittee [of the chamber of commerce] think that in such case the gov- ernment of India should take steps to have the question of the advisa- bility of introducing a gold standard into India carefully and seri- ously considered by competent authorities." In their dispatch of IMarch 23, 1892, the government of India, while urging the secretary of state to lend his support to any proposals that might be made by the United States of America, or by any other country, fcir the settle- ment of the silver question by international agreement," called atten- tion to the probability that, failing an international agreement, the United States would be forced to stop the purchase and coinage of silver; and they requested the Imperial Government, in view of this contingency, To take forthwith into consideration whether any, and, if so, what measures could be adopted for the protection of Indian interests. On June 21, 1892, the government of India proceeded to record their "deliberate opinion that, if it becomes evident that the inter- national conference is unlikely to arrive at a satisfactorj^ conclusion, and if a direct agreement between India and the United States is found to be unattainable, the government of India should at once close its mints to the free coinage of silver and make arrangements for the introduction of a gold standard." In a telegram of January 22, 189.3, the government of India further explained their proposals, as follows: "Our proposal is that we shall take power to issue a 302 STABILITY OF INTERTSTATIONAL EXCHANGE. notification declaring that English gold coins shall be legal tender in India at a rate of not less than 13J rupees for one sovereign [i. e., 18d. per rupee]. * * * ^ji interval of time, of which the length can not be determined beforehand, should, we think, elapse between the mints being closed and any attempt being made to coin gold in India. The power to admit sovereigns as legal tender might be of use as a measure ad interim, but it need not be put into force except in case of necessity." 12. The proposals of the government of India weife referred on October 21, 1892, by the Earl of Kimberley, then secretary of state for India, to a committee consisting of the late Lord Herschell, Lords Farrer and Welby, Mr. Leonard Courtney, Sir Arthur Godley, Lieut. Gen. Sir Richard Strachey, and the late Mr. Bertram Currie, and on May 31, 1893 (the Brussels conference having meanwhile adjourned without arriving at any agreement), the committee reported as follows: "While conscious of the gravity of the suggestion, we can not, in view of the serious evils with which thfe government of India may at any time be confronted if matters are left as they are, advise your lordship to overrule the proposals for the closing of the mints and the adoption of a gold standard, which that government, with their respon- sibility and deep interest in the success of the measures suggested, have submitted to you. "But we consider tliat the following modifications of these proposals are advisable: Tlie closing of the mints against the free coinage of silver should be accompanied bj^ an announcement that, though closed to the public, thej^ will be used by government for the coinage of rupees in exchange for gold at a ratio to be then fixed, say Is. 4d. per rupee; and that at the government treasuries gold will be received in satisfaction of public dues at the same ratio. "We do not feel ourselves able to indicate any special time or con- tingency when action should be taken. It has been seen that the difficulties to be dealt with have become continually greater; that a deficit has been already created, and an increase of that deficit is threatened; that there are at the present moment peculiar grounds for apprehension, and that the apprehended dangers m^ become real with little notice. It maj^ also happen that, if action is delayed until these are realized, and if no step is taken by the Indian government to anticipate them, the difficulty of acting with effect will be made greater by the delay. It is obvious that nothing should be done pre- maturely or without full deliberation; but, having in view these con- siderations, we think that it should be in the discretion of the gov- ernment of India, with the approval of the secretary of state in coun- cil, to take the requisite steps, if and when it ajjpears to them and to him necessary to do so." 13. The committee's recommendations having been approved by the Imperial and Indian governments, there was passed on June 2G, 1893, the act. No. VIII of 1893, "to amend the Indian coinage act, 1870, and the Indian paper currency act, 1882." This act provided for the clos- ing of the Indian mints to the "free coinage "of both gold and silver — government retaining the power to coin silver rupees on its own account. By notifications (Nos. 2(362-4) of June 26, 1893, arrange- ments were made (i) for the receipt of gold at the Indian mints in exchange for rupees at a rate of 16d. per rupee, (ii) for the receipt of sovereigns and half sovereigns in payment of sums due to govern- ment at the rate of 15 rupees for a sovereign, and (iii) for the issue of STABILITY OF INTERNATIONAL EXCHANGE. 303 currency notes to the comptroller-general in exchange either for Brit- ish gold at the above rates or for gold bullion at a corresponding rate. 14. In 1897 the secretary of state for India referred to the govern- ment of India the question whether, if the mints of France and the United States of America were opened to the free coinage of silver as well as gold at a ratio of 15-^ to 1, the government of India would undertake to reopen concurrently the Indian mints to the free coin- age of silver and to repeal the alaove notifications of 1893. In reply the government of India expressed their ' ' unanimous and decided opinion" that it would be "most unwise to reopen the mints as part of the proposed arrangements, especially at a time when we are to all appearance approaching the attainment of stability in exchange by the operation of our own isolated and independent action." This conclusion was indorsed by the secretary of state for India in council and by the Imperial Government. 15. In January, 1S08, ''in order to afford a means of relief to the severe stringency " then prevailing in the Indian money markets, an act was passed (No. II of 1898) empowering the government of India to direct, by order notified in the Gazette of India, the issue of cur- rency notes in India on the security of gold received in England bj' the secretary of state at the rate and subject to the conditions to be fixed by such order. Under this act, which was to remain in force for six months, a notification was published by the government of India on January 21, 1898, announcing that notes would be issued in exchange for gold held by the secretary of state for India at the rate of 1 gov- ernment rupee for 7.53314 grains of fine gold, with the addition of such further quantity of fine gold as the secretary of state should from time to time determine to be "sufficient to cover all costs and charges inci- dental to the transmission of gold to India. " Under this notification the secretary of state in council gave notice of his readiness "to sell until further notice telegraphic transfers on Calcutta, ^Madras, and Bombay at a rate not exceeding Is. 4^d. for the rupee." This act was extended for a further period of two years by the amending act. No. VIII of 1898. No gold has been tendered under the provisions of these acts. 16. It will thus be observed that at the present time gold is not a legal tender in India, though the government will receive it in the payment of public dues; that the rupee remains bj' law the only coin in which other than small payments can be made; that there is no legal relation between rupees and gold, but that the Indian govern- ment has declared (until further notice) a rate at which rupees can be purchased for gold coin or bullion, such rate serving to determine the maximum limit to which the sterling exchange can rise under present arrangements. II. — ^1 silver standard. 17. Having thus set forth the origin and present position of the mone- tary system of India, we proceed to consider the question whether, in the light of the six years' experience gained since 1893, it is desir- able to reverse the policy initiated in that year and to reopen the Indian mints to the unrestricted coinage of silver. Such a step has not been advocated in the memorials which we have received from the chambers of commerce of Bengal, Bombay, Madras, and Karachi, nor is there unanimity among those who do advocate so important a 304 STABILITY OF INTERNATIONAL EXCHANGE. change of policy. Apart altogether from the fact disclosed by the evidence that some who were opposed to the closing in 1893 now advo- cate a gold standard, there is a clearly marked division between those who would reopen the mints to silver forthwith and those who, while contemplating such a course eventually, hesitate to reopen the mints immediately. The latter class may be further subdivided into those who propose to leave the time and conditions of such reopening to be hereafter determined and those who suggest immediate steps toward a gradual reopening. With regard to the last suggestion, which aims at mitigating what its advocates have represented to us as the pros- pects of disaster to merchants and traders and of grave diificulty to the government of India from the sudden drop in exchange to the bullion value of the rupee (about 10|d. at the present time), no scheme has been submitted to us which appears likely to attain the object in view. In our opinion, any measures for gradual reopening would be so fully and immediately discounted as to defeat the precise objects for which they are suggested. It is obvious, moreover, that the cer- tain prospect of a heavy fall in the exchange would at once drive capital from India. 18. As regards the policy which, while declaring in favor of open mints, would leave it to future undefined circumstances to indicate when the step should be taken, this (so far as it is not dictated by the desire for an international agreement, to which we refer presently) recognizes that for the present the benefits anticipated from a return to a silver standard do not counterbalance the evils which would result from abandoning the status quo. The hope apparently is that from a rise in the gold price of silver or from a fall in the sterling exchange of the rupee or from a combination of these or other unde- fined circumstances it may hereafter become possible to revert to a silver standard without causing a sudden and heavy fall in the exchange value of the rupee. Meantime it is proposed that the pres- ent arrangements should continue indefinitely in spite of the disa- bilities considered to be thereby imposed on what are regarded as the true interests of India. This suggestion could, of course, only be entertained by the government of India if it were defi.nitely decided in principle to reopen the Indian mints to silver, and its adoption or rejection must depend on the answer to the broad question with which we are about to deal, viz, is it desirable for India to revert to silver monometallism? 19. The policy of reopening the mints at some future date to silver stands on a different footing when urged by those who look forward to an international agreement and consider that there is reasonable hope of such an agreement within a limited period. Such persons, unlike those above referred to, aim directly at a stable exchange between India* and the United Kingdom and advocate delay only in order that an international agreement may be reached. With regard to this anticipation, we confine ourselves here to stating that the negotiations of 1897 with France and the United States of America having proved fruitless, no fresh proposals, so far as we are aware, have been or are being made by any of the governments concerned. 20. The main proposal that the Indian mints should be reopened forthwith to the unrestricted coinage of silver has been supported by witnesses on various considerations, one of which is that "a low rupee and a low exchange" encourage the export trade on which India's prosperity depends, and that an "arbitrarily enhanced " rupee dis- courages exports. It is urged that encouragement would best be STABILITY OF INTERNATIONAL EXCHANGE. 305 given to exports by a reversion to the system of open mints, so that the rupee in exchange would again coincide with the gold price of silver, with the result that an end would be put tothe unfair advan- tage which the present system is held to give to the silver-using com- petitors of India, and which, according to this view, the effective establishment of a gold standard would perpetuate. Great stress is laid by the advocates of open mints upon the burden imposed on the export trade of India bj^ stringency in the Indian money market, which they attribute to the closing of the mints and represent as likely to increase under the present system of closed mints. It is admitted generally by the advocates of open mints that the benefits which would accrue to India from restoring the siher standard would probably lead to difficulties on the part of the Indian government; but it is urged that these difiiculties would be temporary only, and that they could be met either b}^ borrowing or by increased taxation, including im^iort and export duties. 21. Dealing first with the question of discount rates, it will be suf- ficient to remark that the anticipations of increasing stringency have not been verified during the recent busy season. ^Vhereas the mini- mum rate of the Bank of Bengal was 10 per cent on January 6, 1898, rising on February 24 to 12 per cent (at which figure it stood until April 27, 18'.)8), and did not fall below 10 per cent until June Hi, 1898, the rate for the busy season of 1898-99 has never exceeded 7 per cent, and this though the total volume of India's sea-borne foreign trade exceeded Rx. 210,000,000 in 1898-99, as against (under) Rx. 199,000,000 in 1897-98. 22. While it may be questioned whether banking arrangements in India might not with advantage be strengthened and adjusted to the growing requirements of Indian trade, we can not doubt that one of the main causes of the stringency of 1S97-9S was the reversal (neces- sitated by the exceptional circumstances of India at the time) of the relations of the government of India and the money market in the autumn of 1897. In ordinarj' years the government is able, through the sale of council bills and telegraphic transfers, to place large sums at the disposal of the money market throughout the aiitumn and winter. Thus, during the last four months of 1894 the bills and transfers sold by the secretary of state amounted to Rx. 8,052,000; in 1895, for the same period of the year, the amoxint was Rx. 9,8S8,000; in 1896 the amount was Rx. 6,056,900. Jiut in 1897, owing to the depletion of the balances of the government of India, brought about by expenditure on famine relief and military operations and by fail- ing revenue, the secretary of slate was unable, from September 1 to November 15," to offer bills or transfers for sale, and was compelled to purchase drafts on India for Rx. 1,000,000. Thus, during the last four months of 1897 the amount placed at the disposal of the Indian monej' market in the presidency towns in consequence of the remittance trans- actions of the government was only Rx. 332,700, or Rx. 5, 724, 200 less than the year before. 23. It must not be forgotten that high discount rates were not un- known in India under the sj^stem of open mints. For examiale, the bank rate reached 12 per cent in April, 1890, in which year the rate did not fall below 10 per cent from February 10 to April 24, while in 1889, 12 per cent was (|Uoted continuously from February 21 to March 28, the rate not falling below 10 per cent from January 17 to April 11 of that year. H. IXic. 144 2(1 306 STABILITY OP INTERNATIONAL EXCHANGE. 24. We come next to the suj^gestion that the present sj'stem of closed mints handicaps India in her industrial competition with coun- tries on a silver standard. Of such countries China may be taken as the type, and it is said that the greater fall in, saj^, the London exchange with China as com- pared with the fall in the exchange with India stimulates exports from China, which compete with exports from India, and also stimu- lates native production in China to the disadvantage of Indian im- ports into China, and that in this way India is placed at a disadvan- tage, and that the disadvantage to India is increased when an actual rise occurs in the Indian exchange. It is explained that a fall in the price of silver is necessarily accom- panied by a fall in the China exchange ; that the producer in China consequently receives a higher silver price in respect of the same gold price, while wages and the other factors in the cost of production do not increase in the same proportion ; that production in China becomes more profitable, and is therefore stimulated ; that, on the other hand, if the Indian exchange does not fall to an equal degree, the Indian producer does not receive this stimulus, and if the Indian exchange rises, the producer in that country receives a lower rupee price, while wages and the other factors in the cost of production do not propor- tionately diminish; that the Indian producer does not receive the same profit as before, and that production is therefore checked. This aspect of the question was considered by Lord Herschell's committee, and the conclusions at which they arrived will be found in paragraph 27 of their report. They expressed the opinion that, even if we assume the argument as to a stimulus or check to produc- tion to be sound, the effect of each successive fall in exchange must be transitory, and could only continue until circumstances have brought about the inevitable adjustment. In this opinion we concur, and evidence has been laid before us which shows that prices and wages have risen in China since silver has fallen in price and the local copper currency has appreciated in terms of silver. 25. Lord Herschell's committee examined the statistics of Indian exports for a series of years, and came to the conclusion that "although one may be inclined, regarding the matter theoretically, to accept the proposition that the suggested stimulus would be the result of a fall- ing exchange, an examination of the statistics of exported produce" [from India] "does not appear to afford any substantial foundation for the view, that in practice this stimulus, assximing it to have existed, has had any prevailing effect on the course of trade ; on the contrary, the progress of the export trade has been less with a rapidly falling than with a steady exchange." We need not quote the statistics of the export trade to which that committee called attention, but we desire to state that we have been unable to find any statistical support for the theory that exports are largely and permanently stimulated by a depreciation of the standard of value, resulting in a fall in the exchange. The statistics of the Indian export trade since the mints were closed to silver might have been expected to throw light on this portion of the question, but their value for this purpose is much diminished by the special disturbing influences to which that trade has been subjected during the last six years. The closing of the Indian mints, the cessation of the purchases of silver by the United States of America, the consequent fall in the price of silver, and the apprehension to which it gave rise undoubtedly STABILITY OF INTERNATIONAL EXCHANGE. 307 disturbed the coui'se of trade for a time, and when recovery to more normal conditions might have been expected, India was aifected by war, famine, and plague, and its finances were so seriously embar- rassed the drawings of the secretary of state were largely reduced, and loans of unusual magnitude were raised in London on account of the government of India. The exports from India were largeiy reduced in 1897-98. In the following year (189S-09) there was a marked recoverj^ ; the drawings by the secretary of state were unusually large, and a substantial sum in gold was brought to the Indian treasurj*. 26. For convenience of reference we give in this place the figures of gross exports from India in the twelve years from 1887-88 to 1898-09. Year. Exchange. Silver, per ounce. Exports of merchan- dise. Year. Exchange. Silver, per ounce. Exports of merchan- dise. 1887-88 1888-89 1889-90 1890-91 1891-92 1892-93 -, d. 16. 898 16.379 16.566 18.089 16.7:« 14.985 d. 44 j 42 i- 42 if 471 J 45,'„ W13 Bx. 90,471,000 96,978,U(X) 103,397,000 100, 136, oa) 108,036,000 106,536,000 1893-94 1894-95 1895-96 1896-97 ci 1897-98 « 1898-99 rf. ,1. 14..")4r 35,", 13.101 ax'.f 13. (W ' axi 14.4.->1 »lj 15. 354 27,-,. 1.5.978 -MYi B.r. 106,44-^,000 108,KI5.000 114, 2ll:^, 1100 1I)3,9H,000 97,.5:)r,(X)0 112,723,000 3 Famine years. For the reasons we have stated in the preceding paragraph, we hesi- tate to draw any positive conclusion from these figures, but they afford no support to the theory that large exports are incompatible with a rise in the rate of exchange. 27. In this connection we wish specially to notice the very impor- tant tea industry of India and Cej'lon, which certain witni\sses stated to be seriously threatened by competition with China tea produced in a country on a silver basis. Wo recognize the large capital invested in the tea estates, and that their maintenance is of vital importance to the many Europeans and natives employed therein. It was repre- sented to us that the profits of the producers of Indian and Ceylon tea had been aifected by the recent rise in the Indian exchange; that although this diminution of profit could not immediately aifect the total export of tea from gardens alreadj- in existence, or the increase from gardens in process of formation and about to come into bearing, it would tend to diminish the extension of cultivation, and thus pre- vent the export of tea from increasing to the extent to which it would otherwise have done. We do not doubt that the recent rise in the Indian exchange tem- porarily diminished the profits of the producers of tea, just as the previous fall had temporariljr increased them; but, as we have already said, we see no reason to suppose that the strength of the competition of China tea will be permanently increased by the fact that China is on a silver basis. So far there is no evidence to show that the exports of China tea have appreciabl}^ increased, and there is evidence to show that the rise in Chinese wages and general prices has at least begun to take effect. It appears to us that the permanent interests of the tea gardens of Ceylon and India will be promoted rather than injured when their operations are carried on under the same standard of value as exists in the countries to which their produce is exported. We find that this question of the competition of China with Indian tea was specially considered by the government of India in 1892, 308 STABILITY OF INTERNATIONAL EXCHANGE. before the Indian mints were closed to silver, in connection with a memorial on the subject from the Darjiling Planters' Association. The views of the government of India on the subject are contained in a letter to the honorary secretary to the association, dated Octo- ber 12, 1892, and printed at pages 176-177 of the minutes of evidence before Lord Herschell's committee. The following extract from that letter contains a summary of the views which the government of India expressed at that time : "To sum up, the government of India are of opinion — " (1) That a country, as a whole, makes no gain in its ifiternational trade by a depreciation of its standard, since the extra price received for its exports is balanced by the extra price paid for its imports. "(2) That the producer of an article of export may make a tempo- rary and unfair gain from depreciation of the standard, at the expense of his employees and of other persons to whom he makes fixed payments. "(3) But that this gain, while not permanent, is counterbalanced by a tendency to overproduction and consequent reaction and depres- sion, by a liability to sudden falls in price as well as to rises, and by the check to the general increase of international trade which neces- sarily results from the want of a common standard of value between countries which have intimate commercial and financial relations." We are unable to find that anything has occurred since the closing of the Indian mints to silver to throw doubt on the soundness of the views expressed in 1892 by the government of India. 28. As regards the argument that a low exchange stimulates exports and discourages imports, it is further to be observed that whatever advantages attach to a low exchange should be increased, by paritj' of reasoning, by a still lower exchange; and it has accordingly been represented to us that it is a falling exchange which stimulates exports. But, as regards the ultimate limits of beneficial fall, we have failed to discover at what precise point, if at all, the advocates of this view would hold that the alleged advantages of a falling exchange cease. 29. To reopen the Indian mints to silver without an international agreement would necessarily result, according to all past experience, in renewed instabilitj^ of the exchanges between India and gold- standard countries. It is generally recognized that fluctuations of exchange constitute an obstacle to international trade, the true inter- ests of which are to be sought in a stable monetary par of exchange. Since over four-fifths of India's sea-borne foreign trade is with gold- standard countries, it follows that the balance of advantage is heavily in favor of stability of exchange with gold-standard countries; and accordingly, considered by itself, the instability of exchange which must be anticipated from reopening the Indian mints to silver is a powerful argument against taking the step. 30. So far we have considered the matter solely from the standpoint of trade, and the above remarks will have indicated our conclusion that, even apart from considerations primarily affecting the govern- ment of India, it is not in the permanent interests of India that her foreign commerce, over 80 per cent of which is with gold-standard countries, should be hampered by the restoration of silver monomet- allism. This conclusion is strengthened by considerations affecting the government of India, which is the representative of the general interests of India. Apart from certain large payments in India (such as the pay of British soldiers serving in that country), the rupee total of which payments is regulated by the sterling exchange, the secre- tary of state for India has now, under normal conditions, to meet obli- STABILITY OP INTERNATIONAL EXCHANGE. 309 a;atioris in England amounting annually to between £17,00(i,00() and £18,000,000. In order to make these paj^ments the <;overnment of India raises taxation in rupees, and would therefore he seriously affected b}' the reopening of the mints to silver. It is impossible to foretell what would be the actual effects of this step on exchange. But a drop to Is. (which is about 2d. above the present bullion value of the rupee) would, on a moderate estimate, increase the necessities of the govern- ment of India by at least Rx. 10,000,000 gross, against which might be set some possible increase of revenue, leaving an increase of at least Rx. 7,000,000. This sum exceeds the total excise revenue of India by Rx. 1,500,000, exceeds the total stamp revenue b}' Rx. 2,100,000, and is nearly four times the total yield of the Indian income tax. An increase of expenditure to this extent would not only absorb the whole of the present surplus — which is the result of an increase in taxation imposed since 1S80 iJrineipally to meet exchange difficulties — but would also necessitate further taxation. As regards an increase of taxation, Lord Northbrook has expressed the (opinion (<^. B-tOT) that, while it would be possible, "it would be in the highest degree unwise, both in respect of the trade of India, the welfare of the people of India, and I will go so far as to say the security- of tlie Indian Empire." Concuriing as we do in this opinion, which has been supported by the independent testimony of other distinguished administrators of India, we must add that the government of India would not Ije justi- fied in assuming that, with the mints reopened to silver, the fall of the exchange to a shilling is the greatest fall which they might be called upon to face either immediately or at a future time. 31. It has been urged before us that so long as the rupee is current at a value considerably above that of the silver which it contains, there is serious risk of counterfeit coins in silver of standard fineness being manufactured and put into circulation. This subject has engaged the attention of the government of India, and in a dispatch dated January 12, 189'.i (more than five and a half years after the closing of the mints), they express the opinion that there is no evi- dence of such counterfeiting on any appreciable scale. We see no reason to doubt the correctness of that opinion, nor does the experi- ence of other countries in which silver coins circulate at an enhanced value suggest any other conclusion. 32. In view of the considerations wliich we have stated, we concur with the government of India in their decision "not to revert to the silver standard." III. — The irrincipJc nf a gold stcmdarrl. 33. At the present time the practical alternative to silver mono- metallism is a gold standard; that is to say, gold as the measure of value in India, either with a gold currenc.v or with a gold reserve. 34. We have already refen-ed to the fact that over four-fifths of the foreign trade of India is with gold-standard countries, and that for this reason it is desirable that India should have the same measure of value as those countries. Regard being had t6 the supremacy of gold in international commerce, the change to a gold basis has been represented to us by Professor ^Marshall (Q. 11815) as "like a move- ment toward bringing the railway gauge on the side branches of the world's railways into unison with the main lines." This consideration directl}' relates to facilitating interchange of commodities. 310 STABILITY OP INTERNATIONAL EXCHANGE. 35. A further and certainly not a less important consideration for a country like India is that an established gold standard is the simplest and most effective means of attracting capital. The need of India for foreign capital is indisputable, and this need is partly of a temporary and partly of a permanent character. For climatic reasons India is essentiallj' a country of seasonal trade. She has a busy season and a dull season, though the tendency of late years has been to diminish the disparity and to exhibit approximation to a more uniform average within each year. From this seasonal character it follows that the demand for money is much greater for one part of the year than for the other. In the busy season there is a brisk demand for temporary adA'^ances to move the crops. In the dull season money is in little demand. The distinction is shown in an extreme form by the facts of the money market in 1897-98, when there was a seasonal variation in discount rates of no less than 7 per cent, and the fluctuations were even greater in 1889 and 1890. In order to dimish the risk to Indian commerce of a recurrence of such stringency, and in order to reduce the average rate charged for the local use of money, the sound policy is to attract capital to India from the gold-standard countries which have capital to lend, and this can best be achieved by a gold standard and a stable exchange. Moreover, it is in many ways as important that money should be able to flow out of a country without depreciation, when it is no longer in relative demand there, as that it should flow in when required. A gold standard is, in our opinion, the only means by which, under present conditions, these benefits can be secured. 36. The natural resources of India are beyond question, as also is the need for their development. In order to develop and reap the benefit of her resources, India requires, and must long continue to require, foreign capital. Such foreign capital can only be drawn from the gold-standard countries, and the capital of these countries can only be attracted by a moderate rate of interest or profit on condition that the investor is satisfied that there is not likely to be a fall in the sterling exchange. We have had the valuable testimony of Mr. Alfred de Rothschild (Q. 11853) that British capital would be at once forth- coming if the British investor knew that there was a fixed rate of exchange between the two countries. We attach great importance to this argument in favor of a gold standard for India. 37. It seems unnecessary to discuss the further considerations which point to the benefits to India of a gold standard. We desire, how- ever, to remark that the effective establishment of such a standard in India would not preclude India hereafter from considering responsi- ble proposals for an international agreement, if circumstances should arise to render such negotiations practicable. 38. Before discussing the various further measures which have been proposed for establishing a gold standard in India, we submit to your lordship the following considerations relating to the existing currency arrangements. Inasmuch as for practical purposes the stei'ling exchange furnishes a broad test of a country's claim to be on a gold standard, and inasmuch as the Indian exchange since January, 1898, has been stable (within what may be regarded as " specie points") at 16d. pet rupee, it has been represented to us that the gold standard may be regarded as having been reached in India already. According to this view the closing of the Indian mints to silver and the undertaking by the government to give rupees for gold has already had the result of making gold practically a legal tender in India, pres- STA13ILIT"X OF INTERNATIONAL EXCHANGE. 311 ent arrangements being sufficient to supplement automatically from time to tiQie the stock of currenc}^ 39. Judged solely by existing facts, this contention can not be dis- puted in its essentials. Events have proved more favorable than was anticipated by the government of India when, in their dispatch of March 3, 1898, they represented that it was not very probably that gold would be presented in the early future. And, although they expressed the opinion that it was " in any ease extremely unlikely to be presented in such quantity as to lead automatically to an accumulation of gold sufficient for a reserve," statistics indicate that a considerable accu- mulation has already been effected. On March 31, 1899, the reserve of the paper currency department of the government of India included gold to the amount of over £i, 000, 000. Atthe present time the amount of gold is £2,878,609, 40. While this substantial addition in gold was being made to the Indian currency, the government of India was able, within the year to March 31, 1890, to remit by the sale of council bills a sum of £18,712,454, which is eonsiderabli' more than the average sterling requirements of the secretary of state, and was £2,712,454 in excess of the original estimate of his sterling drawings. This lias been accomplished without lowering the average price realized liy the sale of council bills below 15.97sd. (or as nearly as possible the limit fixed in 1893), and stringency has not recurred in the Indian money mar- ket. Automatically, therefore, existing currencj^ arrangements suf- ficed not only to maintain, without munetary stringency, a steady gold standard in 1898-99, but also to initiate a gold reserve in India to serve as a bulwark for the maintenance of the gold standard in future years. 41. If it has been possible to secure these results in the past in the face of distrust, it may be argued that even greater success may be expected in the future with the growth of confidence. We are l>y no means prepared to suggest that this may udt prove the case, or that the mere continuance of the status quo may not pro\e adequate by itself gradually 1o supplement the currency of India with a margin of gold suflicient to tide her over adverse j'ears hereafter. But the same considerarions which tell in favor of maintaining the status quo for the piesent, equally tell against its maintenance permanently. In practice it would be impossible for the government of India to receive gold beyond a certain point into their treasuries or their paper currency reserve, unless they were also empowered to paj" that gold out again in cashing their notes or meeting other liabilities in India. But this would mean declai'ing gold a legal tender at a fixed rate, and tliereby superseding the purely provisional machinery of the existing sj'stem. According to this argument, therefore, maintenance of the existing system conies to mean little more than postponing further action for a time. The interval would be long or short; according to the slow or rapid accumulation of gold; but in no case could the pro- Aisional arrangements now in force constitute — nor indeed, were they ever intended to constitute — a permanent settlement of the problem. The practical question is, therefore, narrowed to this : Should the statue quo be allowed to continue until events force the Government to take action? There would have been more to be said in favor of suspending action and leaving facts to settle the problem, had it not been for the circumstances which led the government of India to formulate proposals for curtailing the transition period and taking 312 STABILITY OF INTERNATIONAL EXCHANGE. "active steps to secure the early establisliment of a gold standard and a stable exchange." That 'opinion having been expressed by the government of India, and public discussion having been aroused by the publication of their proposals and by the present inquiry, it appears to us undesirable, even though results have proved more immediately successful than the government of India anticipated on March 3, 1898, to leave matters as they are. If in face of the public attention which the question has attracted, and in face of the considerable divergence of the views expressed on the subject, no further steps were now to be taken, an additional uncertainty would be caused, doubts would be excited as to the ultimate success of the gold standard, rumors would arise of a possible change of cur- rency policy, the Government, both in India and at home, would be pressed for a final pronouncement, alike by the. friends and by the foes of a gold standard, and meantime the material interests of India would suffer from the withdrawal of confidence in her monetary future. For these reasons we conclude that steps should be taken to avoid all possibility of doubt as to the determination not to revert to a silver standard, but to proceed with measures for the effective estab- lishment of a gold standard. IV. The Indian governmenfs proposals. 42. Having thus expressed our agreement in the objects which the government of India have in view, we pass to the consideration of the specific measures proposed by them with a view to making efEeet- ive the monetary policy adopted by Her Majesty's Government in 1893 and initiated by the closing of the Indian mints to the unrestricted coinage of silver. 43. The proposals of the Indian government were contained in their dispatch of March 3, 1898, and have been explained to us by offlcial witnesses. They may be summarized as follows : In order to keep the exchange value of the rupee at a steady level of 16d., it was deemed necessary to decrease the rupee circulation so as to remove the relative redundancy. The amount to be so withdrawn could not be foretold with exactness, but it was more than probable that it would fall short of Rx. 24,000,000. Within this outside limit it was proposed "to melt down existing rupees, having first provided a reserve of gold, both for the practical purpose of taking the place of the silver, and in order to establish confidence in the issue of our measures." The first step was to take powers to borrow sums not exceeding in the whole £20,000,000, and at once to remit £5,000,000 in sovereigns to India as a first installment. If exchange remained at or above 16d., there would be no further step (Q., 2653). But if, and so long as, the exchange fell below 16d. (Q., 2667-8), the government of India would take rupees from its balances, melt them jlown, sell the bullion for other rupees in India (at an assumed loss of 40 per cent), pay these other rupees into its balances, and finally make good thereto the 40 per cent balance of loss with part of the borrowed gold. It was anticipated (Q., 2663) that one borrowing (£5,000,000) might be sufiicient, that sum approximately covering the assumed loss to gov- ernment of Rx. 8,000,000 on melting down Rx. 20,000,000. As a result, it was anticipated that, by the automatic operations of trade, gold would flow into the country and remain in the circulation. But until the exchange val'ue of the rupee was established at 16d., and STABILIXr OF INTEKNATIONAL EXCHANGE. 313 sovereigns became to some extent, however small, a permanent part of the circulation, it was not the government's intention to part with any of the gold in their possession. Meantime gold was not to be made a legal tender in India, though the government looked forward to this as a future goal. 44. The proposals of the government of India were based on the belief that the rise in the value of the rupee, and in the exchange with London, subsequent to theyear 1894-95, was due to a contraction of the Indian currency relative to the demands of trade, that this cause would continue to operate so long as the Indian mints were closed to silver, and that, if only that stage of distrust could be passed, "which appears the moment exchange approximates to 16d. to bring into operation influences which interfere with the actual realization of that rate," the exchange, under normal conditions of trade, might bo expected " to attain the level at which gold would be tendered under the notification of June 26, 1S93, and the introduction of the gold standard would become practicable." They were anxious, ' ' both in the interests of the state and of the mercantile community to terminate the period of transition without further delay," in the interests of the state, because it would be cheaper in the end to acquire a reserve of gold by borrowing, and thus keep the exchange value of the rupee at a steady level of 16d., than to bear for years the burden of expenditure entailed by the lower level of the rupee; in the interests of the commercial com- munily, because it was not desirable that their legitimate business should be hampered and embarrassed by the uncertainty of exchange, while the want of conlidenee in the stability of the rupee discouraged the investment of capital in India, and available capital was remitted to England whenever the exchange value of the rupee rose to a high level. The proposals of the government of India were made in March, 1898, and since that date there has been a marked improvement in the position. The exchange has been steady at or about Is. 4d., the drawings of the secretary of state have been unusually large, and a substantial sum of over £2,370,000 in gold has been brought to the Indian treasury; in other words, what the government of India described as the "stage of distrust," which interfered with the actual realization of a rate of 16d., has been already passed. If the government of India coiild have foreseen the course of events in the past year, it is possible that their recommendations might not have taken the precise form in which thej' were put forward; and we are informed that even if their proposals had been sanctioned at once they woirld not, under the conditions that have since prevailed, have given effect to that portion of their scheme which provided for the withdrawal of rupees from the Indian currencJ^ However that maj' be, we tliink it desirable that the proposals of the government of India should, even under the altered conditions of the present day, be carefully considered by us. 46. In the first place we desire to point out that it has not been proved that the rise in the value of the rupee since 1894-95 is due solely to relative contraction of the Indian currency, and it may be that it is not due mainly to this cause. It is not certain that there has been any contraction of the Indian currency which has materially affected the exchange, though it may not irnreasonably be inferred that there must have been some contraction and that such contraction has had some influence on the exchange value of the rupee. On the 314 STABILITY OF INTERNATIONAL EXCHANGE. other hand, there are causes other than contraction of the currency which affect the value of the rupee and the exchange with London. Large borrowing in London on account of India, reduction of the drawings of the secretary of state, an increase in the exports from India unaccompanied by an equivalent increase in imports, as well as a general rise in gold prices, would all affect the rate of exchange with India, though it is quite impossible to estimate the relative importance of these factors among themselves or the amount of their influence on exchange as compared with the effect of a contraction of the currency or to state the precise degree of influence which any or all of them have had on any particular alteration in the exchange. Nor, on the other hand, is it certain that the unusually low rate of exchange that prevailed in 1894-95 was due solely to a relative redundancy of the Indian currency. The closing of the Indian mints necessarily brought into play many disturbing influences which may have affected 1894-95. Since the mints were closed there has also been large borrowing on Indian account, and there have been, in some years, large reductions below the normal amount in the public remittances from India, while fluctuations have been experienced in the foreign trade of India, due to famine and plague as well as to other causes. All these causes must at different times have affected the exchange either favorably or unfavorably. Another influence which must have had a favorable effect on the Indian Exchange is the reduction in the imports of silver due to the closing of the mints. The average yearly net import in the three years preceding the closing of the mints was 43,133,678 ounces, of the value of Rx. 12,020,296, and for the three years ending 1898-99 the average net import was 31,126,376 ounces, of the value of Rx. 6,103,431. 46. In face of the facts we have just stated we are unable to accept, without qualification, the opinion that the rise in the value of the rupee since 1894-95 has been due wholly or mainly to a relative eon- traction of the Indian currency. We are not prepared to say that the contraction of the Indian currency has not been an important factor in the rise in the Indian exchange, but so long as the facts of the case are surrounded by so much obscurity we consider that it would be unsafe to base action of so drastic a character on this assumption. If it be the case that the rise in the value of the rupee since 1894-95 is not due, wholly or mainly, to the relative contraction of the Indian currency, it follows that an additional contraction of that currency, produced artificially by the withdrawal of rupees in the way proposed by the government of India, might not have so much effect in strengthening exchange as the government of India believed, and though we accept in principle the proposition that a reduction in the number of rupes tends to increase the value of the rupee, "we are not prepared to admit that such effect must necessarily be direct and immediate; nor are we satisfied that such reduction, carried out on a large scale and within a limited period, might not aggravate, if it did not produce, a period of stringency in the Indian money market. 47. So far as the proposals of the government of India were intended to secure the confidence of the commercial community, they have failed in their effect; these proposals have not been supported before us bj' the representatives of the commercial and financial interests connected with India, nor, indeed, by any of the independent wit- nesses whom we have examined. The commercial classes of India appear to have feared that the withdrawal of rupees from the currency would inevitably aggravate or produce stringency in the Indian money STABILITY OF INTEENATIONAL EXCHANGE. 315 market, and that the sale of silver by the Indian government wonld lower the price of that metal and disturb the exchanges with China and other countries on a silver basis. The argument of the government of India that the adoption of their proposals would involve less loss to the Indian exchequer than the maintenance of the status quo does not appear to us to possess much force. If the principle on which they based their proposals was sound — namely, that the rise in exchange was due to the contraction of the Indian currency and that the same cause would continue to act in the same direction so long as the Indian mints were closed to silver — there was no likelihood of any serious fall in exchange, and conse- quently no prospect of any considerable increase of expenditure on this account. If, on the other hand, the basis of their proposals was unsound, it was not cei'tain that they would have produced the desired effect, and, while a considerable expenditure would have been incurred in borrowing in gold and withdrawing rupees from the currency, the operation might not have resulted in any material reduction in the charge for exchange. Although we sympathize with the government of India in their desire to shorten the period of transition, to, inspire confidence in the commercial comiiiunitj^, and to remove au impediment to the flow of British capital to India, and recognize the force of the pressure upon them in the beginning of 1898 to take immediate steps in a direction which, it was hoped, would lead to the desired result, we can only say that, for the reasons already stated, we do not approver of their proposals and can not recommend their adoption. V. — A (JdIiJ currcncij. 48. It is of greater practical importance at the present time to con- sider what steps the government of India contemplated taking when, by their methods, that state of things had been established which is in actual operation to-day. They did not definitely propose to make gold coins a legal tender, but they did not hesitate to express the opinion tliat "the only state of things which can be called a thor- ouglily satisfactory attainment of a gold standard is one in which the gold coins whicli represent our standard are those also which are good for payments in England." As a matter of principle, tlierefore, the government of India favored a gold standard with a gold currency. 40. This brings us to the consideration of schemes which have been proposed for establishing a gold standard without a gold currrency. Great stress has been laid upon the hoarding habits of the natives of India, and in view of the direct encouragement which a gold cur- rency might give to the hoarding of gold, it has been represented to us by JMr. Lesley Probyn that "if gold coins were passed into the currency it would be at first almost like pouring water into a sieve." He accordingly proposed (i) to institute a separate issue of gold notes of the denomination of 10,000 rupees; (ii) to issue such notes onlj' in exchange for gold; (iii) to make them payable (at the option of the holder) either in rupees or in gold; (iv) to make it optional to the currency department, when gold is demanded, to pay either in sovereigns or in gold bars of not less than £67. It was hoped that gold would be attracted to India, and that a gold reserve would be gradually accumulated which would be strong enough to allow the government to undertake ultimately the universal convertibility into gold of all rupees and rupee notes when presented in parcels of not 316 STABILITY OF INTERNATIONAL EXCHANGE. less than 10,000 rupees. Under this scheme the gold standard would be left to automatic agencies to establish, and its establishment would coincide with an ultimate undertaking to exchange rupee cur- rency for gold bars of high value. 50. On this scheme we remark that, while bullion may be regarded as the international medium of exchange, there is no precedent for its permanent adoption for purposes of internal currency; nor does it accord with either European or Indian usage that the standard metal should not pass from hand to hand in the convenient form of current coin. ISTo real support for such a scheme is to be drawn from the purely temporary provisions of "Peel's act" of 1810, whereby for a limited period the Bank of England, as a first step to the resumption of cash payments, was authorized to cash, in stamped gold bars, its notes, when presented in parcels of over £200. Little or no demand for gold bullion appears to have been made on the bank under these temporarjT provisions, which were repealed at the instance of the bank itself in 1821. As regards the hoarding difficulty in India, we are not satisfied that the danger therefrom is so great as has been suggested. There is little or no likelihood, even according to the most sanguine view, that for a long time to come gold coins, even if declared a legal tender forthwith, would find their way to anj^ great extent into general cir- culation. Even under silver monometallism India imported and absorbed gold, as she is doing to-day, and as she maybe expected to do in the future, no matter what her system of currencj''. In a strongly conservative country like India no sudden changes are to be expected in the habits and customs of the people, particularly in matters relating to currency and hoarding; but while we must look to the con- tinuance of the habit of hoarding, we may also feel satisfied that until gold has penetrated into general circulation (so far as the relatively small transactions of India permit) there will be no materially increased temptation to the natives of India to hoard gold instead of silver. Moreover, the introduction of a gold currency into India would not be an untried experiment. As has been shown above, gold coins were in common circulation in India generally within living memory, and were expressly stated in 1806 to form the principal cur- rency and money of account of Madras. If hoarding did not render a gold circulation an impossibility in the past, we look for no such result in the future. 61. Consequently we are of opinion that the habit of hoarding does not present such practical difficulties as to justify a permanent refusal to allow India to possess the normal accompaniment of a gold standard, namely, a gold currency. 52. Another plan for establishing a gold standard in India without a gold currency was submitted and explained with great ability by Mr. A. M. Lindsaj^ In order to fix the sterling exchange he proposed to make the rupee currency freely convertible in India at a fixed rate into drafts on a sterling fund located in London. At the same time rupee drafts were to be sold at a fixed rate in London. Assuming a par of 16d., sterling in London was to be convertible into rupees in India at IG^ig^d., and rupees in India were to be convertible into ster- ling in London at 15|d. ; drafts were to be sold both in India and in London to any extent, but the amount in each case was to be not less than 15,000 rupees and £1,000, respectively. In order to provide for meeting the sterling drafts, a loan not exceeding £10,000,000 was to be raised in London, while, so far as the available stock of rupees STABILITY OF INTEKNATIONAL EXCHANGE. 317 proved insufficient, silver would be purchased (also out of tlie loan) and sent to India to be there coined into rupees. If an excess of rupees accumulated as the result of selling sterling drafts, it might be necessary to sell the excess as bullion and credit the proceeds to the sterling fund. Under the scheme rupees would continue to form the circulating medium of India, gold not being admitted to legal tender. While Mr. Lindsay held that such a system of currency would answer all purposes and be economical, and might, therefore, be permanentlj' adopted, he considered {(),. 43013-4) that his scheme would be the best means of leading up to a gold currency, if this were ultimately thought desirable. 53. It is evident that the arguments which tell against the perma- nent adoption of Mr. Probyn's bullion scheme and in favor of a gold currency for India tell more strongly against Mr. Lindsay'.s ingenious scheme for what has been termed "an exchange standard." We have been impressed by the evidence of Lord Rothschild, Sir John Lubbock, Sir Samuel Montagu, and others that any system without a visible gold currency would be looked upon with distrust. In face of this expression of opinion it is difficult to avoid the conclusion that the adoption of Mr. Lindsay's scheme would check that flow of capital to India upon which her economic future so greatly depends. More- over, if the system were to be permanent, it would base India's gold standard for all time on a few millions of gold (or rather command over gold) in London, with a liability to pay out gold in London in exchange for rupees received in India to an indefinite lixtent. This was the main reason which weighed with tlie government of India in deciding not to adopt the scheme, and we think they were justi- fied in their conclusion. We are not prepared to recommend Mr. Lindsay's scheme, or the analogous schemes proposed by the late Mr. Raphael and by Major Darwin, for adoption a.s a permanent arrange- ment, and existing circumstances do not suggest the necessitj' for adopting any of these schemes as a provisional measure for fixing the sterling exchange. 54. We are in favor of making the British sovereigu a legal tender and a current coin in India. We also consider that, at the .same time, the -Indian mints should be thrown open to the unrestricted coinage of gold on terms and conditions such as govern the three Australian branches of the royal mint. The result would be that, under identi- cal conditions, thesovereign would be coined and would circulate both at home and in India. Looking forward as we do to the effective establishment in India of a gold standard and currency based on the principles of tln' free inflow and outflow of gold, we recommend these measures for adoption. VI. Co7irertihilHij. 55. Under an efllective gold standard rupees would be token coins, subsidiary to the sovereign. But existing conditions in India do not warrant the imposition of a limit on the amount for which they should constitute a legal tender; indeed, for some time to come no such limitation can be contemplated. 56. It is true that in the United Kingdom the silver currency has a fixed limit of 40s., beycmd which it can not be used to pay a debt. But this has not always been the case. Prior to 1774 the" English mint was open to silver, and silver coins were an unlimited tender. In 1774 the tender of silver by tale Avas restricted t(^ £25 in any one 318 STABILITY OF INTEKNATIONAL EXCHANGE. payment, although it was left an unlimited tender by weight. In 1798 the free coinage of silver was stopped altogether, the English mint being thereby closed to silver. In 1816, when gold monometal- lism was formally established by law, silver coins were placed on a purely subsidiary footing, with a 40s. limit of tender. At the present time the right to coin silver is confined to the Government, who are responsible for seeing that there is no overissue; and in the exercise of that responsibility no additional silver is coined at the royal mint for the United Kingdom except in response to the automatic demands of trade, as testified by requisitions received through the banks of England, of Scotland, or of Ireland. Seeing that for every 20s. of additional silver coin requisitioned the banks have to credit the royal mint with a sovereign, there is certainly-no temptation to them to demand an overissue, the immediate profit on which would go not to themselves but to Her Majesty's Government. While it can not be denied that the 40s. limitation tends to emphasize and maintain the subsidiary character of our silver coinage, yet the essential factor in maintaining those tokens at their representative nominal value is not the statutory limit on the amount for which they are a legal tender in any one payment, but the limitation of their total issue. Provided the latter restriction is adequate, there is no essential reason why there need be any limit on the amount for which tokens are a tender by law. It is principally to restriction of the total issue of silver coinage in the United Kingdom that we attribute the fact that 20 silver shillings (intrinsically worth at present about 8s. 6d.) pass cur- rent and are freely received, for all purposes of internal currency, indifferently with the sovereign, which they purport to represent. By law there is no convertibility of our silver coins into gold. They possess an extralegal convertibility evinced by their being generally and popularly exchangeable ;nto gold, and this quality they owe essentially to the fact that they are not issued bj' the Government in excess of the volume required for the purpose which they discharge. 57. Outside the United Kingdom there are two principal instances of countries with a gold standard and currency which admit silver coins to unlimited tender. These countries are France and the United States of America. In France the 5-franc piece is an unlimited ten- der and for all internal purposes is equivalent to gold. The same remark applies in the United States to the silver dollar. At the pres- ent time there is no addition to the coinage either of o-franc pieces or of United States silver dollars. In the case of the 5-franc piece there was free coinage up to 1874; in January, 1874, the coinage was limited, and in November, 1878, it was suspended altogether. With the repeal in 1893 of the purchasing clauses of the Sherman Act the same result was reached with regard to the United States silver dollar. Both in France and in the United States the mints are now closed to the coin- age of silver coins of unlimited tender. In neither country are such coins convertible by law into gold; in both countries alike they are equivalent to gold for all internal purposes. For international pay- ments, so far as specie is concerned, France and the United States depend ultimately on the international medium of exchange, which is gold. In the last resort it is their gold which, acting through the foreign exchanges, maintains the whole mass of their currency at its nominal value for internal purposes. 58. We do not doubt that it is, in theory, possible to attain the same result in India as in Prance and the United States of America by limitation of the quantity of the rupee currency. The special dif- STABILITY OF INTKRNATIONAL EXCHANGE. 319 ficulty in the case of India is one of degree and not of principle. We are unwilling to commit ourselves to the acceptance of the estimates which have been made of the number of rupees actually circulating in India. There can be no doubt but that it is very large; and there are also large quantities of rupees in existence which, though not actually circulating, might, under certain conditions, be brought into circulation. On this account doubts have been entertained in the past whether the mere closing of the Indian mints to silver would, in practice, be attended with such a restriction of the rupee currency as would make the rupee permanently exchangeable for gold at a fixed rate. The experience which has been gained since the closing of the Indian mints supports the belief that this result will be attained. From the nature of the case, the demand for rupee currency increases every year; there is no evidence that large quantities of rupees that were formerly hoarded have been thrown into circulation since the mints were closed; the exchange has risen steadily since 1894^95, and the rupee is now actuallj' exchangeable for gold at the rate of Is. 4d., while the demand for additional currencj' has been so great that over £2,370,000 in gold has been paid to the Indian treasury for the pur- chase of silver rupees. The forces which affect the gold value of the rupee are complicated and obscure in their mode of operation, and we are unable, therefore, to say positively that the mere closing of the mints to silver will, in practice, lead to such a limitation of the rupee curi'ency, relatively to the demands for it, as will make the rupee permanently exchangeable for gold at a fixed rate, but we have no hesitation in repeating the opinion that the experience of the last few years, so far as it goes, indicates that this result is attainable — if, indeed, it has not already been attained. 59. The position of the currency question in India being such as we have explained in the preceding paragraph, we do not consider it necessary to recommend a different policy in the case of that country from that which is found sufficient in France and the United States, by imposing a legal obligation on the government of India to give gold for rupees, or, in other words, to substitute the former for the lattei- on the demand of the holders. This obligation would impose on the government of India a liability to find gold at a moment's notice to an amount which can not be defined beforehand, and the lia- bility is one which, in our opinion, ought not to be accepted. Although the government of India should not, in our opinion, be bound bj' law to part with its gold in exchange for rupees, or for merely internal purposes, we regard it as the principal use of a gold reserve that it should be freely available for foreign remittances when- ever the exchange falls below specie point, and the government of India should make its gold available for this purpose when necessary, under such conditions as the circumstances of the time may render desirable. For example, the government of India might, if the exchange showed a tendency to fall below specie point, remit to Eng- land a portion of the gold which it may hold, a corresponding reduc- tion being made in the drawings of the secretary of state, and when it has accumulated a sufficient gold reserve, and so long as gold is available in its treasury, it might discharge its obligations in India in gold instead of in rupees. 60. Tlie exclusive right to coin fresh rupees must remain vested in the government of India; and though the existing stock of rupees 320 STABILITy OF IJSfTERNATIONAL EXCHANGE. may suffice for some time, regulations will ultimately be needed for providing such additions to the silver currency as may prove neces- sary. The government should continue to give rupees for gold, but fresh rupees should not be coined until the proportion of gold in the currency is found to exceed the requirements of the public. We also recommend that any profit on the coinage of rupees should not be credited to the revenue or held as a portion of the ordinary balance of the government of India, but should be kept in gold as a special reserve, entirely apart from the paper currency reserve and the ordi- nary treasury balances. VII. — The sterling rate for the rupee. 61. We have now to consider the fixed relation which, under a gold standard for India, the rupee should bear to the sovereign. Hitherto we have dealt in general terms with the question of a gold standard, and our recommendations have presupposed a fixed relation, but have not specified the actual rate which should be ado^jted. We have now to state to your lordship the conclusions we have reached on this matter. 62. The government of India proposed in' 1892 to close the Indian mints to silver and to pass an act authorizing them to declare gold a legal tender at a rate not exceeding 18d. for the rupee. They would not have exercised this power at once, and they would have been guided by circumstances and the experience gained by the closing of the mints in determining what should be the fixed, permanent, legal ratio between the rupee and the sovereign. The rate could not, how- ever, under the 'law proposed by the government of India, have exceeded 18d. for the rupee, though it might have been lower. The proposals of the government of India were generally approved by Lord Herschell's committee, but the committee recommended a provisional limit which would prevent the exchange with India from rising materially above Is. 4d. for the rupee. The committee did not recommend that the limit of Is. 4d. for the rupee should be the per- manent legal ratio between the rupee and the sovereign. It left the question of the permanent legal ratio between the two coins to be decided in the light of subsequent experience. In paragraph 151 of the committee's report the following language is used : "It would not, of course, be essential to the plan that the ratio should never be fixed above Is. 4d. Circumstances might arise rendering it proper and even necessarj' to raise the ratio, and the Indian government might be empowered to alter it with the sanction of the secretary of state. Such a scheme would, indeed, in the first instance, be tentative, and would not impede further action if circumstances should render it desirable." The modifications of the proposals of the government of India rec- ommended by Lord Herschell's committee were accepted, the Indian mints were closed to silver, and a provisional arrangement was made for giving rupees in exchange for gold at the rate of 16d. for the rupee. The maximum limit of 18d. for the rupee, originally suggested by the government of India was not imposed, and the question of the permanent legal ratio can now be considered in the light of what is expedient in the present day, and unfettered by any promises made or conditions imposed in the past. 63. In dealing with this question at the present day, it is desirable to have in view an outline of the whole series of facts of exchange, STABILITY OF INTERNATIONAL EXCHANGE. 321 both before and after the closing of the Indian mints to silver on June 26, 1893.^ Starting from the year in which Germany demonetized silver, the following table shows the average rate per rupee at which council bills and telegraphic transfers on India were sold in London : d. 1872-73 32.754 1873-74... 22.351 1874-75.... 22.156 1875-76 21.626 1876-77 20.508 1877-78 20.791 1878^79 19.794 1879-80 19.961 1880-81 19.956 1881-82 19.895 1882-83.... 19.525 1883-84 19.536 1884^85 19.308 1885-86 18.254 d. 1886-87 17.441 1887-88 16.898 1888-89 16.379 1889-90 16. 566 1890-91 18.089 1891-92 16.733 1892-93 14. 985 1893-94 14,547 1894^95 13. 101 189.5-96 13.638 1896-97 14.4.51 1897-98 15.3.54 1898-99 15.978 From these figures it will be observed that, after a fall of about 3d. in the first six years, there was comparative stabilitj- above lOd. for the seven years from 1878-79 to 1884-85; that, apart from the tem- porary effects of the passing of the Sherman Act in 18!iO and the speculation connected therewith, the average rate ranged round 16^d. in 1887-88, 1888-89, 1889-90, and again in 181)1-92; and that in 18iiL'-!i3 the average rate had fallen to under 15d. It was under the.se circum- stances that on May 31, 1893, the Herschell committee, in recom- mending the closing of the Indian mints to the public, further recommended that rupees should be coined on tender of gold at the mints "at a ratio to be fixed in the first instance not much above that now prevailing, say Is. 4d. the rupee." That did not propose to go back to the so-called par of -'s. ; they fixed, provisionally, a maximum limit which was lower by 2d. than the liin it of Is. (id. proposed by the gov- ernment of India. Apart fi-om a momentary rise to Is. -tJ^d. for tele- graphic transfers on June 27, the Indian exchange fell steadily away through the second half of 1S!)3 and through the whole of 1894, until on January 23, 1896, council bills wei'esold at Is. 0^-|d. From that date onward there was, on the whole, a steadj' and a continuous rise of the exchange, and 16d. was regained (after an interval of si.x years) in the early days of January, 1898. From the beginning of 18!is up to the present time a rate of 16d. has practically been maintained with- out a break, the extreme limits of oscillation for bills being 15|^ and 16id. 64. In the year 1898-99 the total volume of the export trade exceeded that of all past years, amounting to over Rx. 120,000,000. and showed a net surplus over total imports of no less than Rx. 30,000,000. As we have pointed out, this result was achieved with a 16d. rate of exchange and without monetary stringency. We have further pointed out that in the year 1898-99 the government of India has been able to accumulate a gold reserve of £2,378,609, which will contribute toward the maintenance of exchange. Moreover, the continuance of existing arrangements, under which no fresh rupees are coined except in exchange for gold at a fixed rate, must tend more and more to establish the exchange at such rate and to insure the gradual and automatic introduction of a gold currency to supplement, in response to the growing demands of trade, the relatively shrinking stock of rupees. H. Doc. 144- -21 322 STABILITY OP INTERNATIONAL EXCHANGE. 65. Although the limit of Is. 4d. for the rupee was declared to be merely provisional, it has been regarded generally as the permanent rate at which the India monetary standard was to be transferred from a silver to a gold basis. There are some who would prefer a lower rate, and there are others who are prepared to accept a higher rate, but it is not desirable, in the absence of any strong reason, to adopt a rate different from that on which calculations have been based and which has formed the ground of practical action. We also desire to point out that the rate of Is. 4d. is that of the present day. Prices in India may be assumed to have adjusted them- selves to it, and the adoption of a materially lower rate at the pres- ent time would cause a distinct and, in our opinion, a mischievous disturbance of trade and business. The onus probandi rests on those who would now propose a different rate. Between the rate of Is. 4d. and the rate determined by the bullion value of the rupee there is no one rate which can be described as natural or normal rather than any other rate. 66. Various proposals have been made for disturbing the existing rate by the substitution of another rate. It has been proposed to fix the rate at Is. l-jd.. Is. 2d., Is. S^^^d., Is. 3d., and Is. 6d. All these proposals are arbitrarj^, and involve a dislocation of the existing ratio between rupee prices and sterling prices. For such disturbance no adequate reasons, in our opinion, have been adduced. In great part these proposals (other than that of Is. 6d.) are based on the belief that a lower sterling value of the rupee would cause a rise in rupee prices, benefit the Indian producer, check consumption of foreign goods, and so affect the balance of trade as to promote the importation of gold needed for expanding the volume of currency to an extent commen- surate with the rise in the scale of prices. In our opinion a rise in prices which expresses only the depreciation of the currency is no gain to the community as a whole, and, although the fixing of a lower denomination in sterling for the rupee might for a time give some advantage to producers and induce for a limited period a larger importation of gold than would otherwise take place, this would be at the expense of everj^ holder of a rupee, or debt or security for a fixed amount of rupees, and the taxpayer would again be compelled to provide a larger amount of currency to meet the ster- ling requirements of the State. It is not by such an expedient as the writing down of the rupee in sterling that a permanent stimulus can be given to production or to the importation of the standard metal. We see no sufficient reason for altering the existing relations of prices and the essential conditions of contracts exi:)ressed in Indian currency, or for reversing the course of exchange and returning to some basis of va,lue which may have prevailed during the interval between the fall and partial recovery in the sterling value of the rupee, and which does not possess elements of permanent stability in a higher degree than the present rate. We are, therefore, of opinion that the permanent rate should be that which has been adopted as the provisional rate in the past, and which is also the market rate of to-day, viz, Is. 4d. for the rupee. 67. In recommending a fixed legal rate of Is. 4d. we are not unani- mous, though the majority hold the views we have just expressed. One of our number would not fix the permanent rate at once, but would leave that question to be decided in the light of further experi- ence, the final rate being fixed either below or above 16d., as further STABILITY OF INTERNATIONAL EXCHANGE. 323 experience might show to be expedient. We are of opinion that any advantage which might arise from this course is more than counter- balanced by the importance of removing doubts as to the future policy of the government of India and giving increased confidence to those who are engaged in the commercial and financial business in connec- tion with the Indian Empire. 68. Two other members of the committee are not prepared to accept the rate of Is. -td., and recommend that it should be fixed at Is. 3d. It is argued that the rate of Is. 3d. will be more favorable to the Indian export trade than Is. 4d. ; but we have already expressed the opinion that any advantage to the export trade that is gained in this way is gained at the expense of other members of the community and is only temporary. If the rate is to be fixed at Is. 3d. in order to benefit the Indian exporters and the Indian producer of articles of export, the same argument would justify a further reduction to Is. 2d., and so on, without any limit which we have been able to discover, nor do we rhink there are any good grounds for holding that the gold standard can not be established in India at Is. 4d., while it can be established at Is. 3d. If it is impossible at Is. ^d. it will be impossible at Is. 3d., and we have already dealt in paragraph 60 with the question of the temporary loss and gain to iMividuals and classes of the community caused by a lowering of the existing rate of exchange. Wo would add that if the exchange were now lowered from Is. 4d. to Is. 3d. the classes of the community who would gain are those who have already gained through the fall from 2s. to Is. 4d., and the classes who would lose are those who have already lost through that fall. Stronger reasons than appear to us to exist would be needed to justify a measure which would have the effect of adding to the gains of the former classes and intensifying the losses of the latter. It is said that the conditions prevailing in 1893 show that Is. 3d. is the rate that should have been adopted at that time. We do not accept this argument, and the conditions have changed since 1S',)3. The rate of Is. 3d. may have prevailed shortly before the mints were closed, but the rate of that time was a fluctuating rate. If the mints had been closed some years earlier, and the market rate had been adopted, the permanent rate would have been considerably higher than Is. 4d. ; if they had been closed some years later and the same principle had been followed, the permanent rate would have been lower than Is. 3d. As we have alreadj' said, between the rate of to day and that determined by the bullion value of the rupee, there is none which can be described as natural or normal, and we can find no good reason for making the permanent rate depend upon the accident of the date on which the Indian mints were closed to silver. It is true that Lord Ilerschell's committee remarked that "to close the mints for the purpose of raising the value of the rupee is open to much more serious objection than to do so for the purpose of prevent- ing a further fall;" but an undue stress is laid on these words when they are used as an argument against permanently adopting a rate of Is. 4d., since that committee actuallj' adopted a provisional rate of Is. 4d. and expressly said that circumstances might arise rendering it proper and even necessarj' to raise the rate. 69. AVe recommend that there should be no change in the existing relation of the rupee to the sovereign. The experience gained since the mints were closed in 1893, and particularly that of the last eight- 324 STABILITY OK INTERNATIONAL EXCHANGE. een months, appears to us to justify the anticipation that the existing rate of Is. 4d. will, with possible temporary fluctuations, due to the course of trade, be maintained in the future. VIII. 70. In conclusion, we desire to record our opinion that the effective establishment of a gold standard is of paramount importance to the material interests of India. Not only will stability of exchange with the great commercial coiintries of the world tend to promote her exist- ing trade, but also there is every reason to anticipate that with the growth of confidence in a stable exchange capital will be encouraged to flow freely into India for the further development of her great natural resources. For the speedy attainment of this object it is eminently desirable that the government of India, with whom it will rest to decide when successive steps should be taken, should husband the resources at their command, exercise a resolute economy, and restrict the growth of their gold obligations. 71. We desire to express our high appreciation of the assistance which Mr. Chalmers has rendered to us throughout the whole course of this inquiry. We feel it to be our duty to recognize in the strong- est terms the knowledge, ability, courtesy, and industry which he has displayed and which have greatly facilitated our labors. Henry H. Fov^ler. Baleour of Burleigh. John Muir." Francis Mowatt. D. Barbour. C. H. T. Crosthvs^aite. Alfred Dent. F. C. Le Marchant. E. A. Hambro. W. H. Holland. RoBT. Campbell." Robert Chalmers, Secretary. Although I am aware that the question of the banking facilities of India was not referred to the committee, I venture to call special attention to the first part of paragraph 32, where it is pointed out that they have not of late years kept pace with the increasing trade, and, further, to draw attention to the fact that it has been considered wise in Europe to intrust the carrying out of currency laws to banks established or strengthened for that purpose. In my opinion, a strong bank, properly constituted, would be a powerful assistant in giving effect to any regulation having the convertibility of the rupee in view, and that, working under proper currency regulations, such a bank would be likely to carry them out in a more effective way and in a manner more in harmony with the trade wants of the country than any Government department, however well administered, could possibly do. "Subject to a reservation as to the ratio to be adopted between gold and the rupee and the points connected with that question in regard to which our views are expressed in the subjoined note. . STABILITY OF INTERNATIONAL EXCHANGE. 325 I venture to call attention to this point because I believe that the success of the recommendations of the committee, if adopted, will very much depend on the banking wants of the country being assisted in times of pressure and curtailed in times of slackness ; and this, in my opinion, could only be done by the establishment of some institu- tion having ample facilities at its disposal and framed on somewhat similar lines to those of either the Bank of England or the Bank of France. E. A. Hambro. Since the committee was appointed the condition of the money mar- ket in India has so greatly improved that the immediate settlement of the currency question has, in my opinion, become less urgent than it was in the spring of 1898. Under existing conditions gold is not, in form, a legal tender in India, yet for all practical purposes the sovereign is now a legal tender for 15 rupees, because the holder of a sovereign can obtain for it 15 rupees at the government treasury, and these 15 rupees constitute a legal tender. To make the sovereign a legal tender at the rate of 15 rupees is therefore only a change in form and not in substance and will neither strengthen exchange nor be likely to lead to a greater import of gold into India. It may be tliat further experience will show the balance of advan- tage to lie with a lower exchange than Is. Id., or, on the contrarj% circumstances might conceivably arise (e. g., silver legislation in the United States) which would necessitate a higher rate. In view of these possibilities and of the fact that the existing monetarj' condi- tions of India are not, in my judgment, producing any serious evils, I am of opinion that no action should be taken at the present time in the direction of finally settling the rate between the sovereign and the rupee, biit that the question should be left to be decided in the fuller light which would be afforded bj' further experience. Subject to these remarks, I am in general accord with the principles of the report. W II. Holland. "We do not admit that the experience of the last six years justifies the adoption of a Is. 4d. ratio. For five years after the closing of the mints exchange never effectively reached that level in the sense of bringing gold to the currency, and while giving due weight to the fact that during the last six months the currency department has received a considerable amoiint of gold, we can not agree that a single year of unprecedentedly large exports, arising from exceptional causes, is a sufficient basis for assuming that this will continue to the extent necessary for India's currency requirements. The great rise in the price of wheat in April to June of last year increased the Indian exports of that article to Rx. 9,720,333, as compared with Rx. 1,341,151 in 1897-98 and an average of Rx. 2,750,137 in the five years 1893-94 to 1897-98, inclusive. The exports of rice were also Rx. 3,500,000 above the average of the previous five years. But for these exceptional causes last year's total exports would not have been unusually large, and it may be questioned whether gold would have found its way to India as currency in any quantity. 326 STABILITY OF INTERNATIONAL EXCHANGE. A review of the circumstances which accompanied the closing of the mints is sufficient to show that the violent disturbances which unsettled exchange for several years were mainly due to the arbitrary enhancement of the rupee to Is. 4d. On May 31, 189.3, the date of the Herschell committee's report, exchange stood at Is. 2|-d. It will be remembered that although the report was not made public till June 26, the day the mints were closed, its purport became known to a group of speculators almost as soon as it was signed (a correct sum- mary was published in a continental newspaper on June 7). This led to immense speculation in exchange and rupee paper, in connection with whicli unusually large remittances were made to India. Between May 31 and June 6 no less than Rx. 3,780,000 council bills wei'e taken, and in addition £1,180,000 of bar silver was shipped. It was then believed that the closing of the mints would establish a Is. 4d. rate, and consequently there was a strong movement to remit money out at anything under it. Exchange touched Is. 4d. for a day on June 27, but it soon became apparent that the rise had been overdone, and the downward movement which followed, assisted by the plethora of money arising from the above operations, carried exchange as much below its level as it had previously been forced above it.. Had a Is. 3d. rate been adopted these wide fluctuations would not have taken place, and we believe the market would have settled down to it without much difficulty, that gold would have gone to India as currency to a fair extent in 1896-1)7, if not earlier, and to a larger extent in'1897-98, and that the intense monetary stringency of these two seasons would have been avoided. When exchange began to advance after toxiching its lowest point on January 23, 1895, it gradually recovered without any pressure on the monej^ market till Is. 3d. was reached in November, 1896. The Presidency Banks' rates were then 6 to S per cent, the latter being the highest rate touched during the period in question. It was only when exchange began to rise above Is. 3d. that stringency was experienced, and that the raising of the rate by the additional penny required to bring relief in the shape of gold became a difficult process accompanied by extreme monetary pressure. These considerations appear to us to point to Is. 3d. as the ratio which should be adopted rather than a forced ratio of Is. 4d. The advocates of a Is. 4d. ratio point to the fact that this rate has now been more or less effective for the last eighteen months, thereby establishing a status quo which it would be unwise to disturb. This argument would have greater weiglit if the status quo had been arrived at in a natural way, but the circumstances under which it was reached have only to be considered to deprive it of any value. With no fresh currency otherwise obtainable, the monopoly rupee was bound in time to rise to whatever gold point the Indian government chose to fix; and the fact of its having risen in five years to Is. 4d. is of itself no more a proof that Is. 4d. is an equitable ratio than it would be in regard to Is. 6d. or Is. 8d., which coiild equally be reached in course of time. To arrive at a rate in this manner and then point to the accomplished fact as disposing of any question of its propriety is not convincing, especially if there is reason to believe that a rupee so greatly enhanced is calculated to have an injurious effect on the country's interests and to retard or even jeopardize the success of the gold standard. We approve of the principle that India should be allowed to acquire the necessary gold by jneans of the trade balance in her favor. But to STABILITY OF INTERNATIONAL EXCHANGE. 327 enable her to do so anything calculated to injure that balance should be avoided. This is equally imperative on the ground that it is on the trade balance that India also depends for the power to meet her foreign obligations; and the rate of exchange, or the ratio fixed between gold and the rupee, is of the greatest importance in its bear- ing on her ability to maintain a balance of exports over imports suf- ficient to meet both these requirements. The committee have obtained a great deal of evidence as to the effect of exchange on trade, and, although opinions differ, this at least is undoubted, that the rate of exchange has a direct influence on the rupee prices of articles of export and import. A lower exchange gives the Indian exporter a higher rupee price for his produce, with- out raising the gold price to the foreign buyer, while compelling an importer of foreign goods to exact a higher rupee price to cover his gold outlay. A higher exchange, on the other hand, lowers the rupee price of native produce, while enabling the foreign importer to sell his goods cheaper. An appreciated exchange through its action on prices has thus a double effect on the trade balance, by checking exports and stimulating imports; and that this is not of the tempo- rary character which some maintain is shown in India's opium trade with China. Owing to the closing of the mints, China exchange on India has fallen from about 30G rupees per 100 taels in 1S02-03 to the present level of about 204 rupees (it has been even lower), thus necessitating a higher price for opium in China to give the Indian exporter the same rupee return. Viewed in this light, the course of the trade is instructive. There has been an advance in the tael price in Shanghai from an average (Patna, Benares, and Malwa together) of about 307 taels per picul in ls92 to 556 taels in 18!i7, notwithstanding whieli the price in India has fallen from an average of about 1,202 rupees per chest in the former year to about 1,114 rupees in the latter, while Indian exports have diminished from 75,3S4 chests in lS'.i2-r)o to 56,()(;'.) chests in 1S'.)7-0S." We thus see the effect of the euhancey are the only parties to make much use of the facilities offered by the paper-currency department for remitting between Calcutta and Bombay. REASONS FOR LOCATING IN LONDON INSTEAD OF IX INDIA THE PROPOSED GOLD CONVERSION FUND FOR THE INDIAN CURRENCY. 1. The gold will be required onlj- for settlement of the balances of India's foreign indebtedness, and as London is the one gieat center for settlement of international indebtedness it will be the most con- venient spot both for receipt and payment of the gold. 2. There must be a certain amount of uncertainty as to the quantity of gold or sterling money required as conversion fund, and gold or sterling monej^' can always be borrowed in London at short notice, whereas there would be no facilities for prompt replenishment in India. 3. The establishment of the fund in India would withdraw gold from London, whereas its location in the Bank of England would strengthen the great central reserve of the Empire. 4. India is a hoarding country, and if her currency is made con- vertible on the spot into gold bars and these bars are always exchange- able on the spot into currency there is a danger that the gold bars will be absorbed into hoards and kept there, instead of rupees bearing extrinsic value. 5. The location of the reserve in India might create a monetary crisis under exceptional circumstances. Although London can obtain gold in a few days' time both from Paris and Berlin, yet a monetary crisis occurs there now and then, because the gold is not obtainable promptly. India is protected, as a rule, from these crises bj' the system of coun- 350 STABILITY OF INTERNATIONAL EXCHANGE. oil wire transfers; but these are not always available, and, looking to the great distance between London and India, the issue of fresh currency should not be delayed until gold can be imported. 6. Under ordinary circumstances (i. e., except during or shortly after periods of redundancy) the gold paid by the public into the con- version fund will be for the purchase of new rupees, and part of the gold will therefore be used by government in the purchase of silver for the mint. As silver can best be bought in London, it is desirable that government should receive the gold there. If the gold is received in India and the silver bought there, not only will government have to buy in a small and unreliable market, but two metals will be sent to India when one only, viz, silver, is wanted. 7. The object of the scheme is to prevent the use of gold as cur- rency in India and to confine its use in connection with the Indian currency to the settlement of the balances of India's foreign indebted- ness, and it is pure waste of time and money to bring gold out to India merely for the purpose of having it sent back. • 8. When England arranged in 1819 to make her currency converti- ble into gold without the use of gold coins, she had no outside central market in which to deposit her gold conversion fund with safety, and she had therefore to adopt the somewhat clumsy plan of making her currency convertible on the spot into gold bars that could not be used in the local circulation ; but when Scotland had the same object in view she naturally made her currency convertible into drafts on Lon- don and located there her gold conversion fund ; and when a similar economical measure was contemplated in Ireland in 1804 Pitt, Fox, Canning, and the other members of the parliamentary committee recommended that the conversion fund should be located in London and the local currency made convertible into drafts on that fund. To the objection to the plan that the liability which the govern- ment will incur under it is indefinite, Mr. Lindsay's answer is: First, that the currency machinery proposed will contract the rupee cur- rency only as far as may be necessary and no further; it will be auto- matic, and will therefore act with all the accuracy with which a gold currency would act; not a single rupee will be withdrawn from circu- lation in excess of what is necessary, and therefore the machinery will involve the minimum of expense. Second, that it will be an unfailing (that is, the orthodox) remedy for an unfavorable balance of indebtedness. Third, that it will be an effective preventive of a fall in exchange, each fall involving heavy loss in the payments of the state. INCLOSURE 4 IN No. 1. Minute hy the Hon. Sir James Westland, K. C.S.I., examining Mr. Lindsai/s sclieme, dated January IS, 1S9S. Mr. Lindsay's scheme is described in Inclosiire No. 3 in words which are understood to have Mr. Lindsay's own approval. He proposes that the government should offer to sell, without limit, on the one hand, rupee drafts in India at the rate of exchange of IGjij^d. the rupee, and, on the other hand, sterling drafts on London at the rate of exchange of 16fd. the rupee. He also proposes that when the demand for gold drafts on London becomes so great as to indicate the neces- sity the volume of the rupee currency should be contracted by melt- ing down rupees, the silver bullion being sold for gold. STABILITY OF INTERNATIONAL EXCHANGE. 351 The funds connected with the transactions are to be kept separate from the ordinary government balances in "gold-standard" offices in London and in Calcutta and Bombay. The London office is to be kept in funds to meet the drafts drawn on it (1) by borrowing in gold to the extent of five or ten millions sterling; (2) by the receipts real- ized by the sale of drafts on India; (3) by the receipts realized bj^the sale of the silver bullion in rupees melted down; and (4) when neces- sary, by further gold borrowing. The Indian offices are to be kept in funds to meet the drafts drawn on them (1) by the receipts realized by the sale of drafts on London; (2) by the coinage, when necessary, of new rupees from bullion pur- chased by the London of&ce and sent to India. The two main objects of the scheme are, first, to make the ster- ling and rupee currencies interchangeable at rates approximating to 16d. the rupee, and, secondly, in making rupees convertible into sterling to do so in a manner that will prevent the use of gold as money in India. 2. There is no doubt that a conversion fund which is ready and sufficient at all times to issue sovereigns in exchange for, say, 15:^ rupees and to receive them in exchange for, say, 15 rupees will have the eff:ect of maintaining the exchange somewhere about these values. So far as regards this object it is immaterial whether ihe conversion fund is held in England or in India, or partly in one and partly in the other. The question of locality merely affects the convenience of the persons who will tender for exchange, and will add to the quarter- rupee difference a further diflierence in respect of charges of actual remittance. 3. In Mr. Lindsay's plan that side of the conversion fund which receives and pays gold is located in England, partly ln'cause, as above stated, one of his objects is to keep gold entirely out of circulation in India, where he thinks it would only be absorbed for hoarding, and partly because the gold will be required only for the settlement of the balance of India's foreign indebtedness, and London, being the great center for the settlement of intei-national indebtedness, is considered to be the most convenient place for the receipt and paj^ment of gold. Mr. Lindsay also wishes to avoid the withdrawal of gold from Lon- don, a measure which might weaken the great central reserve of the Empii-e. This feature seems to be a distinct objection to the scheme. The public will regard with distrust arrangements for the establishment of a gold standard in India which carefully involve the location of the gold reserve in London and its use there by trade. A gold reserve intended to support the introduction and maintenance of a gold stand- ard in any country ought to be kept in the country if it is to produce its full effect in the way of establishing the confidence which is almost indispensable to the success of the measure. If the Indian gold reserve is located in London and the public believe that it may at any time vanish in supplying the requirements of trade or of the secretary of state, confidence will hardly be established; and in any case it seems certain that a reserve of any named amount will produce a greater effect if it is located in India than if it is 6,000 miles away. •i. The method and principle of operation of the scheme are very much the same as those on which our own proposals are based. Given a circulation composed of a certain number of rupees, and given a certain condition of trade in point of volume and activity, the rate of exchange will tend to some definite point. If the number of rupees 352 STABILITY OF INTERNATIONAL EXCHANGE. is diminished or the activity of trade increased, the rate of exchange will rise, and vice versa. It follows that if rupees are bought and locked up, the rate of exchange will be raised, and if the government offers to buy them up at 15|d. and continues to so buy them up as long as they are offered (as they will be as long as the exchange value is less than 15|d.), the value will ultimately be raised to ISfd. But it is merely an assumption that the difference between the number of existing rupees and the number at which the exchange would rise to 15|d. is so small that the absorption of 5,000,000 or 10,000,000 worth would be enough to bring about the result. It assuredly would not have been enough had the scheme been introduced in 1893. It may be enough now that the volume and activity of trade have increased so much above the standard of 1893; but, on the other hand, it may not. The scheme, therefore, would involve the undertaking of an indefinite liability. 5. .Further, in so far as the contraction of the rupee currency is concerned, there is no reason why the government should offer a fixed rate for the rupees, for it would obtain all the advantage which the plan brings by the reduction of the volume of currency if it were to offer simply something more than the market rate for the time being. The rate proposed by Mr. Lindsay would have been much higher than the market rate if the operation had been begun in 1894. 6. An offer of this kind, it may be admitted, would not have the same effect as the offer of a fixed rate in steadying the rate of exchange at the desired level. But an offer of a fixed rate of 15f d. can be made economically only at the final stage. Mr. Lindsay's plan, indeed, is not adapted to the preliminary stage in which the government is engaged in reducing a redundant circulation; it assumes that the redundancy has already been removed, and that the circulation has reached the stage in which at the season when trade is inactive the rupee tends to fall below 15|d., and at the season when it is active it tends to rise above 16d. That stage being reached, it is quite possible that the redundant rupees would come into the fund in exchange for gold at 15^ rupees for the pound in the inactive season, and thus keep the level of exchange up to 15|d., and then be returned into circulation at 15 to the pound in the active season, and thus keep the level of exchange down to 16d. ; and that the amount that would so come and return would not exceed some manageable figure, say five or ten millions' worth. 7. The scheme accordingly becomes practicable only when the con- dition of the circulation has already reached the point where the redundancy in the inactive season is reduced to a small amount. Before that stage is reached it is merely a plan for buying up, without limit and at an unnecessarily high price, the excess of rupees in cir- culation. Mr. Lindsay contemplates the melting up and sale of these rupees, for which, ex hypothesi, there would be no room in the circu- lation. To simply lock them up would be useless and expensive. They might as well be melted up and sold, and his plan, so far as this stage of its operation is concerned, differs from that proposed in the dispatch only in this respect, that he buys in at a higher price than they are worth the rupees which he intends to melt instead of using those which we already hold at a lower value. 8. Several newspapers published in India, in examining Mr. Lind- say's scheme, have noticed as a point of objection that it would involve the government in an unlimited liability to pay gold in exchange for rupees. It may be observed that not only is it impossible to fix before- STABILITY OF INTERNATIONAL EXCHANGE. 353 hand any limit to the amount of rupees to be ultimately purchased, but also the government would abandon all control of the measures for introducing its gold standard, and under a quite conceivable con- currence of adverse circumstances might find itself committed sud- denly to a liability beyond its immediate resources. This is one of the most important differences between this scheme and that proposed in the dispatch to which this memorandum is appended. Under the latter the government can feel its way and need never commit itself in advance to any liability which it is not fully prepared to meet. 9. There is also an important feature which does not seem to have been sufficiently considered. It is that the plan we have to adopt will not be applied to a market in wliich the government (who are the pro- prietors and workers of the conversion fund) can afford to stand aside and let the operations go on only as between public and public. On the contrary, the problem to be faced is how to maintain the exchange value in the face of the secretary of state's drawings of sixteen or seventeen millions a year. Let it be assumed that the stage has been reached where the fimd is in actual operation, and that the value at which the rupee would stand, in regular course of Irade and of draw- ings without the aid of the conversion fund, is somewhat below ISJd., but that it is maintained at this rate by banks paying their surplus rupees into the fund and taking gold out of it for employment in Eng- land. Mr. Lindsay states that under liis scheme the sales of council bills are under such circumstances to be continued on their present footing. During the operations just supposed, tlicrcfore, the secre- tary of state will be selling council bills on India. The expectation, it is presumed, is that he will sell them at a rate approaching an exchange of 16Jd. ; for it can hardly be contemijlated as possible that he- would for any length of tilne sijnultaneously sell sovereigns at a cheaj) rate and buy them at a dear rate. Tlie secretary of state accord- ingly receives gold from banks in England and gives them bills on the treasury in India, while at the same time tlio same or other banks pay rupees into the conversion fund, drawing out gold in exchange. The only final operation is that the secretary of state has passed a certain amount of gold from the conversion fund into the India oHiee treasury; the banks, as a whole, remain unaffected, and the situation is exactly the same as if the secretary of state had suspended draw- ings for the time and met his requirements in the inactive season with money directly borrowed against the intended heavier remittances of the active season. In short, the conversion fund under such cii-cum- stances gives no facility and no machinery wliich is not, under the existing system, available by means of suspension of drawings. If the amount suspended in the inactive season is more than can be recovered by excess drawings in the busy season, then ex hypothesi the rupees paid into the conversion fund in the inactive season are greatly in excess of the amount for which a demand would be made upon it in the busy season, and the case is that described in the latter part of paragraph 7 above, namely, the final withdrawal of rupees purchased at an excessive price. 10. To consider the other side of the plan let the supposition now be the contrary of that made in paragraph 9, and that the rate of exchange is tending to rise above the gold point. In that case it is proposed to receive into the conversion fund all gold tendered, and with this gold to buy silver bullion to be coined into rupees until, the requisite addition being made to the circulating stock, the value of H. Doc. lU 23 354 STABILITY OP INTERNATIONAL EXCHANGE. the rupee falls to 16d. — that is to say, when circumstances arise in which gold would naturally, in response to the demands of trade, find its way into circulation in India, the scheme contemplates special steps to prevent that result in order to substitute silver for gold as the required addition to the volume of the currency. It has been stated in paragraph 8 of this memorandum that if Mr. Lindsay's initial assumption proved erroneous the government would be deprived of all control of the measures for introducing the gold standard in the matter of the payment of gold for rupees. Here we find that, if Mr. Lindsay's assumption be correct, the government are vested with a sensible degree of control of the volume of the rupee currency, for new rupees are to be coined from bullion bought with gold from the gold-standard offices at the discretion of government. This is not a feature of the plan that can commend itself in principle, for the regulation of the sole full legal-tender currency of a country should be entirely automatic and not in any degree dependent upon the discretion of the administration. 11. This special interference of the Government is suggested in pur- suance of one of the two main objects of the plan. But it seems very doubtful whether the object of the interference^even if the interfer- ence were in itself unobjectionable in principle — is really worth attain- ing. Instead of requiring the Government to make additions of its own motion to the currency, would it not be a more healthy state of things that the state of par should be maintained by the natural back- ward and forward flow of excess currency in the hands of the public? And when the circumstances assumed in this paragraph arise, would it not be preferable to let the gold coin go into actual circulation? The par of exchange between rupees and gold will be maintained only by exporting redundant rupees, in some form or other, and when the stage is reached where the circulation as a whole is sometimes redundant and sometimes deficient (with reference to a value of 16d.), the par will be maintained only by an arrangement by which the redundancy will ebb in the form of coin to England and the deficiency be corrected by the fiow of coin from England. Mr. Lindsay's proposal is to make this ebb and flow take place in rupees, and it may be admitted that it would so operate, though not (except at inordinate cost) to raise the rupee circulation to the point where the stage of ebb and flow comes into operation. But it will be far preferable if the margin of circulation which is to ebb and flow consists of sovereigns which can be directly utilized in England. India will then have a gold standard in the simplest and most convenient form. The number of rupees in circulation must be so reduced that they shall, even at the most inac- tive time of trade, be insufficient with reference to an exchange of 16d., and will even then require to be supplemented (mainlj^, if not entirely, in respect of the less active circulation which is represented by the reserve of banks and of the Government) by further coin. That coin should be gold, and under the scheme proposed in the dispatch it is sovereigns only which would find their way into the circulation when the rupees became deficient, and the sovereigns incliided in the circulation will form that margin of it which ebbs and fiows in the manner above described. STABILITY OF INTEKNATIONAL EXCHANGE. 355 No. 3. The secretary of state for India to the gorernnr-tjeneral of India ni council. No. 67 (financial). India OPFit'E, Aioril 7, 18US. My Lord : I have to acknowledge the receipt of your excellency's financial letter, dated March 3, 1898, No. 70, in which you make cer- tain proposals for the completion of the policy which was initiated in 1893 by the closing of the Indian mints. That policy had for its declared object the establishment of a gold standard in India, and you now submitthe scheme by which you consider that this policy can best be made effective. 2. It is unnecessary for me to inform your excellency that your sug- gestions will receive from Her Majesty's Government the careful and minute attention which the extreme importance of the subject requires. 3. I agree with your excellency in the opinion that it is most desir- able to bring about, without delay, such an improvement in the present situation as may remove the existing uncertainty and want of confidence which are undoubtedly verj- injurious to the interests both of India and of the United Kingdom. 4. I concur in the view expressed by your e.xcelloncy's government that any attempt to return to the state of things which existed pre- viously to the closing of the mints is practically out of the question. It remains, therefore, to be decided whether the objects of your gov- ernment can best be attainc^l by the scheme which you have put for- ward or otherwise. 5. I have no intention at the present moment of making anj^ com- ment upon your proposals, with the nature of which, as you are aware, I only became acquainted on the receipt of you.r letter above men- tioned. Your excellency must, however, be conscious, as I am, that they contain suggestions upon matters which have been the subject of much difference of opinion, and that, in view of the gravity of the issues involved, a final decision upon them can only be arrived at after a patient and thorough investigation by the highest available authorities. 0. I propose, therefore, to refer the whole matter to a committee consisting of gentlemen whose knowledge and experience, whether administrative, iinaneial, or commercial, entitles their judgment to ■ the greatest weight and who may be expected to give an impartial and unbiased opinion upon the questions which will be submitted to them. They A\'ill be requested to consider and report upon j^our proposals and upon any ( ither matter which they may regard as relevant thereto, including the monetary system now in force in India and the effect of any proposed change on the internal trade and 'taxation of that country, and tliey will, further, be invited to submit any modifications of your proposals or suggestions of their own which they may consider ad\'isable for securing stalnlity of exchange with the United Kingdom and for the establishment in India of a satisfactory system of currency. 7. I agree with your excellency in thinking it most desirable that the matter should be dealt with as speedily as possible. The commit- tee will be appointed immediately and will commence their inquiry as soon as may be found practicable. In view of the very great impor- tance of the interests affected and of the intricacy of the questions 356 STABILITY OF INTERNATIONAL EXCHANGE. involved it can not be expected that they will report for some time to come, but you may rest assured that no effort will be wanting on their part or on that of Her Majesty's Government to avoid upnecessary delaj^ 8. I think it very desirable that the views of your excellency's gov- ernment should be explained to the committee by some competent officer or officers deputed by you for the purpose, and I request that ypu will take measures accordingly on the receipt of this dispatch. I have, etc., George Hamilton. ni. Amount ( )f Silver Purchased in London for the G(}vern- MENT of India. [Furnished by the Indian office.] First purchase. — 50,297,224 ounces of silver were purchased and shipped to India between March 15, 1900, and April 4, 1901, at a total cost, including the charges made by the Bank of England, of £6,056,175 13s. 7d., i. e., 28. 9d. per ounce. The price per ounce of each installment was as follows : Date of purchase. Value. First installment Second installment. . . Third installment Fourth installment - . Fifth installment Sixth installment Seventh installment . Eighth installment. . . Ninth installment — Tenth installment Eleventh installment Twelfth installment . Mar. 15 to Apr. 5, 1900 May 5 to May 31, 1900 May 31 to June 29, 1900 June 29 to July 26, 1900 Sept. U to Oct. 5, 1900 Oct. 12 to Nov. 9, 1900 Nov. 9 to Dec. 7, 1900... Deo. 7 to Dec. 21, 1900 Dec. 20, 1900, to Jan. 10, 1901 Jan. 11 to Feb. 1, 1901 Feb. 7 to Mar. 7, 1901 Mar. 7 to Apr. 4, 1901 27f| ii 30A 29|i ^^ 28^ 28§| Average price, 28.919d. Second purchase. — 3,188,890 ounces were purchased between March 6 and April 9, 1903, at a total cost, including the bank's charges, of £302,586 18s. 9d. The price per ounce of each installment was as follows: • Date of purchase. Value. First installment Mar.6,1903 d. ail Second installment Mar. 12, 1903... Third installment Mar.19,1903. Fourth installment Mar. 37, 1903 flSgi Fifth installment Mar. 31, 1903 "ill Sixth installment Apr. 9, 1903 a Average. STABILITY OF INTEKNATIONAL EXCHANGE. 357 IV. The Cxjerency Policy of India. [By J. Barr Robertson, in the Journal of the Society of Arts, March 37, 1903.] India is naturally a country to which silver is better suited than gold for the purposes of money. The vast numbers of its population and the very, slender resources and income of all except a limited number make it extremely desirable that its money should be of small denomination and intrinsic value, so that the people may be able to carry out with facility the vast mass of their transactions for very small amounts. For more than sixtj' years before 1899 silver had been the sole unlimited legal tender, and in the last twentj'-five years suc- cessive Indian administrations have supported the various efforts that have been made to establish a fixed par of exchange between gold and silver by international agreement, though the particular terms con- tained in the proposal of the American and French Governments in 1897 were not approved of by the Indian government of that day. The failure of so many efforts and the increasing divergence between the values of gold and silver caused the Indian government in 1802 to consider seriously their position in regard to the great fall in the rate of exchange, and the threatened further fall, and they came to the conclusion that the only policy that could arrest this downward course was to close the mints to the silver of private owners. In ordei' to calm the fears of a considerable body of objectors who thought it nec- essary to provide against the danger of a considerable rise in the exchange, they proposed to take in at the Indian treasuries any amount of gold that might be offered, and to give out rupees in exchange at the rate of 1 rupee for every Is. 6d. worth of gold tendered. The committee, presided over by the late Lord IlerschoU, was appointed to investigate the proposals, and it finally reported in favor of closing the mints and of issuing rupees for gold at 1 rupee for every Is. -Id. instead of Is. 6d. This policy was passed into law by the Indian gov- ernment on June 26, 1893. The closing of mints is clearly one of the prerogatives that govern- ments may rightfully exercise, the sole question in each case being whether it is wise or expedient to resort to it in any particular set of circumstances. The causes that led the government of India to close the mints at the time they did were clear and unmistakable. In the financial year 1872-73 the average rate at which council bills were sold was Is. 10|d., and the rate fell steadily for twenty years, so that in 1891-92 the rate was Is. Ifd., notwithstanding that purchases of silver by the United States had been, from 1878 to 1890, on the scale of the minimum fixed by the Bland and Allison acts, namely, §2,000,000 worth per month, and from 1890 to 1803, under the Sherman Act, at the rate of 4,500,000 ounces per month. At the end of 1803 these pur- chases were entirely abandoned and silver was left to its fate. Ever since 1873 the question of the fall in the gold price of silver, and consequently in the gold rate of exchange of the rupee, had been a cause of anxiety to the Indian government and to merchants engaged in its external trade with this country and with other gold- money countries. As gold appreciated and the rupee rate of exchange fell, more rupees were necessary for all classes of gold debts, and par- ticularly was this conspicuous in connection with the Indian home charges. As compared with the rate of 2s. at which the accounts of the government were kept, the loss by exchange for 1892 as shown in the remittances of the Indian government reached Rx. 0,916,200. The average rate for council bills, which in 1891-92 had fallen to Is. 358 STABILITY OF INTERNATIONAL EXCHANGE. 4|d., had further fallen in 1893 to a fraction less than Is. 3d. The probable partial or total suspension of the purchases of silver by the United States, which was strongly advocated there, was in these cir- cumstances a danger of very great magnitude hanging over the Indian financial position, because all efforts at an international settlement of a par of exchange between gold and silver had proved abortive, and there was no reasonable expectation of any such solution being arrived at in the near future. In the meantime between 1873 and 1892 many proposals had been made t o the government to close the mints to the silver of private holders, but so long as the equilibrium of Indian finance was not seriously endangered the government had declined to close the mints. When, however, the rupee fell to Is. 3d., with the likelihood that it might fall a great deal further, the government felt that the limit of safety for Indian finance had been reached and that the mints ought to be closed. No doubt this step was taken by the Indian government with great reluctance, as it imposed on them a very grave responsi- bility. In the interest of India, however, the step was essential if greater evils were to be warded off than those that might be expected to follow in the train of the closed mints. The increased purchases of silver by the United States under the act of 1890 had raised the price of that metal, and the following figures of Mr. Sauerbeck's cover the years before and after the closing of the mints : Year. Gold value of silver m London.n Forty-flve leading coramodi- ties in Lon- don. & Year. Gold value of silver in London.a Forty-five leading commodi- ties in Lon- don. & 1889 70 78 74 &5 59 48 49 72 72 72 68 68 &9 62 1896. 1897.. 50 45 44 45 46 45 40 61 1890. 82 1891 1898 64 1893 1893... 1894 1899. 1900 1901 68 75 70 1895 1903 . 69 «100 equals 60.84d. per ounce. 6 100 equals gold prices of 1867-1877. In spite, therefore, of the large purchases of silver by the United States, its gold value fell in 1892 to 65, and by 1894 it had fallen to 48. But in addition to the fall in the gold value of silver as a conse- quence of the appreciation of gold a new factor came in to lower the gold value of the rupee, and that was the increased supplies of silver that were imported into India. The yearly average of the net imports of silver in the fifteen years 1800-1874 was Rx. 7,920,388, whereas during the fifteen years 1875- 1889 the yearly average was only Rx. 6,503,575. Yet it is generally believed that during the latter period the fall in the rate of exchange was due to increased supplies of silver placed upon the Indian mar- ket, though, as will be seen above, the supplies of silver during these fifteen years were much reduced as compared with those in the pre- vious fifteen years. But in 1890, 1891, and 1892 the average net imports amounted to Rx. 11, 378, 400, an increase of 65 per cent as compared with the aver- age of the previous five years. Thus it is evident that in addition to t-lio fall in the gold value of the rupee, caused by the appreciation of gold, there was also in these three years the influence at work of STABILITY OK IISTTERNATIONAL EXCHANGE. 359 largely increased supplies of silver which also depressed the exchange. It will be seen that the average net imports of silver in the five years from ISOU to 1894 amounted to Rx.l2, 137,717, while in the eight years from 1895 to 1902 they were only Rx. 6,4-12,310. Under the combined influence of scarcity of gold and increased supplies of silver, together with the prospect of the United States partially or wholly suspending the purchases of silver, the Indian government found themselves in a critical position. On June 20, 1893, when the mints were closed, the rate of exchange was Is. 2:^d., and the government undertook to give out a rupee for every Is. 4d. in gold paid to them. This rendered it absolutely certain that the rate of exchange could not rise more than fractionally al>ove Is. 4d. It was frequently asserted that tliis policy would be a failure, but as the Indian government received gold which is salable in every market of the world and only undertook to give a rupee for every Is. 4d. in gold, failure could only take place if the amount of silver in a rupee became worth more than Is. 4d. As that was exceedingly unlikely to happen, seeing that the government were offering for Is. 4d. what at the time was only worth Is. 2|d., the posi- tion of the government was a very strong one; indeed it was impreg- nable from the currency point of A'iew. It is in the highest degree necessary to emphasize the fact that up to 1890 India's "financial troubles were due almost entirely to gold. The silver standard gave India in the twenty years 1873-1892 a remarkable degree of prosperity, whereas if India had been on tlie gold standard with exchange at Is. lid., and prices in 1802 on, a gold basis of (18 instead of, as thej' really were, on a silver basis of 96, it is needless to say that there would have been ^videspread adversity all over India. The following table gives a condeused view of the material facts: India — Rates of e.ivliangc itml net iini^nrft: nf gnhl iinil silcer. Years ended March 31 — rttZffx 'Average net srg^e'^f'-iir-f ™ijir --"-■ Average net imports of silver per annum. 1860-lsi;4 1 iif iiii 1 10} 1 9 1 7} 1 6i 1 4; 1 ir 1 4i 1 3 1 ■>•_ 1 1 1 1= Rx. .'i, S.S9. 5:>s r>,Ka-,.ii7 3,073,776 l>:»,593 4,128.613 3Jl.S^. 6711 4,615,304 5,636,172 2,413,792 2,812,683 641,246 4,974,094 3 .-i-'.-, 9.^2 Rx. 10,181,781 18C.V1SIK1 9,981,112 18Tt>-lS74 3,698,271 7,920,388 1875-1X711 6,408,692 1880-l-<<4 1885-18S',1 6,205,349 6,896,685 6,503,575 1890 10,937,876 IStl _ --- 14,175,136 1892 .- - -- is9:i 1S94_.,, _ 9,022,1.84 12,863,569 13,719,818 12,137,717 issi:> 6,329,230 6,582,222 5,856,030 8,473,480 3,980,784 3,576,698 9,507,232 7,192,800 ISiW... ._ _. 1897 1 2i' ■' 291 n:*i 1898 ..-- ISflll ., 1900 1 Si 1 4 1 4 1 4 1 4 4,908.489 6, .503, 408 9,440,660 842,135 1,937,600 1901 1903 6,412,310 360 STABILITY OF INTERNATIONAL EXCHANGE. At the time of the closing of the mints a number of fallacies were entertained as to the course of exchange. One was that the Indian government had, by closing the mints, obtained control of the exchange, and apparently sharing this view the secretary' of state immediately fixed his minimum for council bills at Is. 4d. , and afterwards reduced it to Is. 3id. The rate had at the closing of the mints been Is. 2|d., with a downward tendency, and it may be asked what sudden effect had the Indian government produced that Is. 2fd. should be trans- formed into Is. 4d. or Is. S^d.? There was no reason for any such expectation, and the result was that, notwithstanding the practical withdrawal of council bills from the exchange market for the last six months of 1893, the average exchange for the year 1893-94 was only Is. 2id. Another fallacy of the period which was almost universally believed in, and was not objected to by Lord Herschell's committee, was that the surplus exports must begin to flow from India before the corre- sponding council bills could be sold, and from July to December, 1893, the secretary of state for India acted on that view. The result, how- ever, of waiting for the surplus exports to flow from India was that in the absence of council bills they did not flow. The following figures show exactly what did take place : INDIA. Six montlis, July tu December. Surplus ex- ports. Surplus imports. 1891 Bx. 7,735,822 11,107,802 Bx. 189a 1893 1,960,511 The secretary of state sold only a very small amount of council bills in the last half of 1893, and the result was that, as he made no demand on India to pay its current indebtedness, the money being borrowed in London instead, the demand for surplus exports from India was not made, and the balance of Indian trade was turned into one of surplus imports. It is important to observe the rapidity with which the trade immediately adjusted itself to the diminished demand for exports in the absence of council bills. In January, 1894, the sec- retary of state abandoned his policj^ of trying to co'Utrol exchange, or to obtain a higher rate than the conditions of the market warranted, and began by offering his bills at the market rate. The average exchange in 1893-94 was Is. 2-Jd., and the rates for the two following years, 1894-95 and 1895-96, was Is. Id. and Is. Ifd., respectively, while in 1896-97 the rate was Is. 2id. and in 1897-98 Is. 3|d. These figures would seem to present a difficulty, as the question naturally arises why, after the mints were closed in order to prevent the further fall in exchange, the rate should have fallen by l^d. , or about 10 per cent — that is, from Is. 2^-d. to Is. Id. No very marked change ought to have been expected to take place immediately after the closing of the mints, though the tendency ought to have been upward. However, in examining Mr. Sauerbeck's gold index numbers of commodities in London, as given in a previous table, it is seen that the number for 1892 was 68, and the same for 1893. But in 1894 it fell to 63, in 1895 to 62, and in 1896 to 61. That is a total fall from 68 of about 10 per cent. In "prices and wages in India," which gives the rupee prices of Australian gold, the index number for 1893 was STABILITY OF INTERNATIONAL EXCHANGE. 361 144, in 1894 it was 160, and in 1805 it was 169, wliile in 1896 and 1897 it was 155 and 154, respectively, wlien the exchange had again risen to Is. 2^d. The rise in the rupee value of gold from 144 to 160 was about 11 per cent, and, though not exactly for the same period, the fall in the gold index number of prices in London was about 10 per cent, exactly the same as the fall in exchange from Is. 2M. to Is. Id., so that these three series of index numbers all pointed to an increase in the purchasing power of gold of about 11 per cent. It is not well, however, to expect too close resemblances where the statistics are taken at points so widely apart and where there maj^ be considerable differences in circumstances, but it is important to show that changes in gold and in rupee prices and exchanges can to a great extent be accounted for. The conclusion to be derived from the above figures is not that the closing of the mints was a failure because it did not arrest the fall in exchange, but that the purpose of the closing was counteracted for a time by a subsequent increase in the purchasing power of gold and decrease in the purchasing power of the rupee; and, had tlae mints not been closed, the exchange would have fallen lower still, as a larger amount of silver would have been imported and coined. But for these two changes it is fair to infer that the exchange in 1894-95 would have been higher than Is. 2^d.,and in 1896-97 would have gone higher still. The following table shows the rates for council bills and Indian index numbers from 1890 to 1902: Years ended March 31— Average rate of council bills. Index num- bers of ex- ports and imports at Calcutta. (I 1890.. . ... s. d. 1 H 1 6 1 4} 1 3 1 'H 1 1 1 If 1 2i 1 3* 1 4 1 4 1 4 1 4 94 1891 89 1892 94 1893. 100 1894. 101 1895 105 1896 103 1897. 101 1898 . . 93 1899 97 1900 107 1901 (■111 1902 Average of periods per annum: 1873-1882 96 1883-1892. 88 1893-1901 102 aFrom a table from 1873 to 1901, furnished by Sir Hem-y Waterfleld, G. C. I. E., as compiled from index numbere in "Prices and Wages in India." The prices are for January and July. Prices in 1873 equal 100. tFor Januasy only. The Sherman Act was passed in 1890, and in that year the gold price of silver in London, as shown in a previous table, was 78 on the aver- age, while in India in 1891 the rupee index number of commodities had fallen to 89, both responding to the increased value of silver. The above table is the most important available in regard to the prices of Indian commodities generally, as it embraces a very large number of articles, and it shows that the average of the nine years 1893-1901 was 102 as compared with 100 in 1873.. From 1890 to 1892 the gold price of silver fell from 78 to 65, and from 1891 (average of prices of Jan- 362 STABILITY OF INTERNATIONAL EXCHANGE. uary and July onlj') to 1892 the rupee price of commodities rose to 94, and in 1893 they were 59 and 100, respectively. Rupee prices of commodities were, in 1889 at 94, in 1893 at 100, in 1894 at 101, and in 1895 at 105, the highest price of the whole period from 1873 up till that year. In 1896 the index number fell to 103, iu 1897 to 101, and in 1898 to 93, so that the year 1896 may be noted as the beginning of the con- traction of the Indian currency. The 1895 prices are the average of those for January and July, and thus this highest index number occurs after a period of less than two years from the closing of the mints. The gold price of silver meanwhile fell from 59 in 1893, to 48 in 1894, 49 in 1895, 50 in 1896, 45 in 1897, and 44 in 1898, while in 1902 it fell to 40, and at the end of December, 1902, to 37. On the other hand, the rupee exchange, which at the closing of the mints on June 26, 1893, was Is. 3Jd. , was still for the year, March 31, 1894, a little above Is. 2id. ; but in the following year ending March 31, 1895, it had fallen to Is. 1-^. on an average, for the year 1895-96 it rose to nearly Is. Ifd., in 1896-97 to nearly Is. 2id., and in 1897-98 to Is. 3fd. It will be seen, therefore, that the highest point of Indian rupee prices was 105, the mean of prices of January and July, 1895, and the lowest yearly average of the gold exchange per rupee was Is. lyVe arrived at is that the currency policj^ of the last ton years has given great stability in prices and wages, which means great stability in the monetary conditions under which agriculture and indu.stries are carried on, and under which taxes and duties are levied. Open mints would have produced greatly inflated prices, whereas the new policy has maintained stability in prices and wages, and no currency policy could have accomplished more. But it may be well to consider what the effect would have been on the internal economj' of India if the mints had not been closed and if India had continiied on the silver standard along with China, Hongkong, the Philippines, Indo-China, the Straits Settlements, the Federated Malay States, and Mexico. The bullion value of the rupee to-day is about S^d., and if the mints had remained open and silver had flowed freely in for coinage it is safe to assume that the rate of exchange of the rupee would not now have been higher than lid. That is to say, it would have required, with the rupee at lid., 145 rupees to make a purchase of commodities that with the rupee at Is. 4d. only requires 100 rupees. The payment of the home charges would have required 45 per cent more rupees than are needed to-day; all debts and fixed amounts at interest in rupees would have been repaid in rupees of a purchasing power of 30 per cent less than the purchasing power of the rupee of to-day. Then the prices of the exports and imports at Calcutta, and the seven chief food grains, regarding which I have quoted the figures, would have been raised 45 per cent higher than the prices of to-day, or than the average prices of the last thirty years. The result would have been a very serious advance in general prices, in which the cultivator would have gained at the expense of the other classes. That would have been a change due to an inflated 374 STABILITY OF INTEENATIONAL EXCHANGE. currency, whereas the present stable range of prices that has practi- cally existed for more than thirty years demonstrates that the Indian currency has been for that period , as it is to-day, a stable currency more stable, indeed, than any other currency in the world. However, if the mints had been kept open we should have had an appeal to the home Government to defray a part of the expenses of the government of India. The addition to the taxes necessitated by this monetary dis- location would have been so great that at the time the statesmen of India did not see the possibility of finding new sources of taxation for the purpose, or of increasing existing taxes in any manner ade- quate to the prospective requirements. In the debate in the House of Commons on March 29, 1898, Lord George Hamilton used these words: " What was the position that the late government had to face? I do not want to use language too strong, but India was unquestionably on the verge of bankruptcy. She could not pay her way and one of two things was inevitable, either that she would be unable to meet her obligations or that this country would have had to come to her aid." Now, if that was tlie position of India, and it can not be doubted that it was, when the mints were closed and when silver was at 39d. and the rate of the rupee exchange was Is. 2f d. , what would it have been to-day if the rate had fallen to lid. and prices were 45 per cent higher than they are? By the adoption of the new policy India saved itself from a great national calamity which would inevitably have overtaken it if the mints had been kept open. The Indian ryot is entitled to every consideration, and his interests must always be a subject of great solicitude to any Indian government. But the Indian laborer is entitled to even moi'e consideration, because, unhappily, his life is spent on the borderland of starvation. Now, with open mints the ryot would have received vastly increased prices for his produce, prices to which he had no claim whatever; but where would the enormous class of laborers and their dependents have found the money to pay these greatly increased prices? Wages would not have risen pari passu with increasing prices, and there would have been a great amount of dislocation in the internal economy of India and widespread suffering among the laborers and their dependents, who, as has already been stated, are much worse off than the ryots. In periods of drought as soon as there is no longer any employment for laborers the latter and their dependents immediately have to be supported by the government, but while the whole of the laboring classes in the famine districts have to be supported only a small per- centage of the total persons relieved are ryots and their dependents. The consequence is that the laborers are in far more need of protection and consideration than the ryots, and under the present currency policy they have both had justice done to them, the ryot by having higher prices for his products and the laborer by having the benefit of some- what increased wages and fairly stable general prices. THE CURRENCY POLICY AND SILVER ORNAMENTS. It has been already remarked that no important change can take place without causing some injury, though the benefits may vastly outweigh the drawbacks. There is no doubt that natives who possessed silver ornaments— and most of them would have some orna- ments—were placed at a disadvantage by the closing of the mints. At the same time the disadvantage has been greatly exaggerated When the famine commissioners were investigating into the views of the STABILITY OF INTEKNATIONAL EXCHANaE. 375 natives as to their ornaments, they did not find that any serious objec- tion was taken by the ryots to the mints being closed. Their view was that they could replace their ornaments at a cheap rate when times improved. Had the mints remained open the rupee would not to-day be higher than lid., whereas the injury done to the natives is frequently described as if his loss consisted in not being permitted to tender ornaments at the mints and receive in return rupees worth Is. 4d. each. Thus immense percentages of loss are stated which will not bear examination. The loss on ornaments is nevertheless a verj^ serious matter, and it must be regarded as the one great disadvantage of the closing of the mints. The silver in a rupee is to-day worth about 8:^d., and lid. may be regarded as a very high estimate for the rupee if the mints had remained open, as the amount of silver that India absorbed in the form of currency when the mints were open was not very great, prob- ably not more than Rx. 2,000,000 or Rx. 2,500,000 at most per annum, when the net imports did not much exceed Rx. 0,000,000. As soon as famine set in the scanty store of ornaments in the pos- session of tlie laborers proved but a slender resource, and the latter almost immediately went on the relief works. The statistics of the Indian mints, however, show that it was only in famine times that country silver and ornaments were sent to the mints in any c|uantity that called for special remark, so that only for a limited amount of silver ornaments was advantage ever taken of the mints, though of course they would be salable everywhei-e on the basis of the mint price. At present ornaments are only salable at their value as sil- ver; but as there are silversmiths everywhere throughout India, there is a current price for silver in every village. It is to be deplored that the natives should sustain any loss on their ornaments, but the act that closed the mints to their ornaments also closed the mints to an enormous increase in the prices of the necessaries of life, and thus saved them from evils infinitely greater than any they can have sus- tained by the mints having been closed to their ornaments. CONCLUDING REMARKS. The question of the currency policy and its results may now be summed up in a very few sentences. When the mints were closed the rate of exchange was falling rapidly, owing to two causes — the increase in the purchasing power of gold and the increase in the net imports of silver into India. From 1873 until 1892 Indian prices of commodities were comparatively stable, but the process had then set in by which rupee prices of commodities began to rise in response to the increased quantities of silver arriving in India. As gold was thus becoming more valuable, and moi-e and more rupees had to be raised by taxatioa to defray the home charges, that was a difficulty which could no longer be trifled with. And as the rupee itself was becom- ing less valuable, owing to increased supplies of silver, as was shown by the rise in Indian rupee prices of commodities, this threatened to lower the rate of exchange and to raise Indian prices to a very mate- rial extent. Therefore, to arrest the rise in Indian prices due to excessive sup- plies of silver, with the very great probability of further large supplies becoming a permanent factor in the currency, and to arrest the further fall in exchange owing to the increasing purchasing power of gold, the mints were closed. It has been shown in the 376 STABILITY OF INTERNATIONAL EXCHANGE. course of this paper that Indian average prices have been compara- tively stationary for the last thirty years, whereas if the mints had remained open they would now have been at least 45 per cent higher than they are. It has been shown that the change in the currency basis of the rupee, as valued in gold, from the former par of Is. 10|d. before 1873 to Is. 4d. at present is a fall of 30 per cent. Is. 4d. in gold to-day purchasing the same amount of leading commodities in London as Is. 10|d. did thirty years ago. Therefore a rupee to-day purchases just about the same amount of average Indian commodities as it did thirty years ago. Whereas in the gold countries general prices are to-day 30 per cent lower than they were thirty years ago owing to the relative scarcity of gold, India has escaped any such misfortune by taking a new par of exchange, namely. Is. 4d., exactly 30 per cent below the former one, so that India has thus placed itself on an auto- matic gold system without any currency change in the purchasing power of the rupee. This is the crux of the whole question. India has passed on to the gold standard, but at a changed valuation in gold for the rupee bj' which stability is maintained for average prices, a result that no other country in the world can show for the last thirty years. The Indian government have, wittingly or unwittingly, established a currency policy that, considering the present range of gold prices in London and rupee prices in India, could hardly be improved upon from the currency point of view. Average prices have been compara- tively stationary, agriculture and the industries have all benefited from this stability, and so far as currency is concerned there has been quiescence and not dislocation in the internal economy of India. Wages have, on the whole, somewhat advanced, and the laborer has had his reward, while the comparative stability of general prices has been an immense benefit to him. He has lost something in the value of his ornaments by the mints being closed, but, on the other hand, if the mints had been open and he had received a higher price for his ornaments, he would have had to pay at least 45 per cent more for the necessaries of life. The conclusion, therefore, that follows from the foregoing facts and figures is that the closing of the mints was in the circumstances inev- itable, and in its results was one of the most fortunate events in Indian history, as it provided the means of maintaining the economic position of the Indian agriculturist, laborer, manufacturer, and trader unchanged and unimpaired, so far as any currency policy could accom- plish that object, and at a time when but for this policy India would have passed on to currency conditions which would have produced national disaster. V. Coinage, Currency, and Exchange in 1903. [Fi-om the Indian Financial Statement for 1903^, India office. May 8, 1903,] 82. During the past year our coinage operations, as regards rupees have been limited to recoining rupees of the 1840 issue and coining on account of native states. The amount thus coined on government account up to the end of February was 7,09,44,122 rupees and for native states 2,98,86,000 rupees. It must be remembered 'that the coinage undertaken on government account added nothing to our cir- culating currenc}'. 83. Since the beginning of the current calendar year there have been very heavy demands for money, in great part in connection with the STABILITY OF INTERNATIONAL EXCHANGE. 377 disposal of the bumper rice crop in Burma and the large cotton crop in Bombay and central India. These demands have been largely met by the increased sale of council drafts, which will reach, according to our revised estimate, the total of £18,261,000, comparing as fol- lows with those of preceding years : Amount. 1901-2 £18,539,071 1900-1901 13,300,277 1899-1900. 19,067,023 1898-99 18,693,377 1897-98...- 9,506,077 But this large sale of council bills has by no means sufficed to meet the demand on foreign account for riipees in India, and very consider- able sums in gold, amounting to approximately £4,500,000, have been shipped to India, chiefly from Australia, up to the end of Februarj^, besides a total net importation of silver bullion, up to the same date, approximating £4,000,000. Of the silver importation, however, a large amount was for dollar coinage and for consumption in the coun- try, but a certain proportion was apparently imported by speculators for a rise in silver, as a profitable method of remittance. 84. Our currency balances have naturally been strongly affected by the bullion importations and demands for rupees, and our reserve of silver coin fell from 15,55,66,000 rupees on November .30 to 9,01,73,000 rupees on February 22, while the amount of gold held increased dur- ing the same period from £5,801,389 to £8,464,599. The stocks of both silver and gold have, however, since increased, the former to 9,90,90,000 rupees, and the latter to £9,073,853 on March 7. In view of the large Importations of gold bullion and the decreasing stock of silver coin, we decided at the end of February to purchase £300,000 of silver in London, so as to be fully prepared for the coinage of rupees should circumstances require it and our then existing stock of silver prove insufficient. At the time that we made the purchase, besides our stock of rupees in the currency reserve, we held in the two mints approximately 1,15,00,000 rupees in withdrawn 1840 rupees and silver bullion and bars obtained from the melting of such withdrawals. Our purchase was, therefore, simply a precautionary measure, and I allude to the fact to show that we are not unmindful of our responsibilities in the matter of providing currency. 85. During the year our gold reserve fund has increased from £3,454,246 to £3,810,730, and substantially the whole of the latter amount is now invested in consols. The fund is increasing slowly, but satisfactorily. 86. Our exchange operations, as indicated by the rates obtained for council drafts, have been very favorable during the closing year. The average rate, to date, for the rupee has been 16.002d., as com- pared with the rates noted below for the four preceding years : d. 1898-1899 15.978 1899-1900 16.067 1900-1901 _ 15.973 1901-1902 15.987 87. I may point out that our position, as regards currency and exchange, is now somewhat as follows: We have virtually relegated our rupee currency to the position of a token currency, and we are now practically in the position of bankers who have issued a certain amount of fiduciary currency (whether paper or metal is immaterial), and to maintain the value of this 378 STABILITT OF INTERNATIONAL EXCHANGE. fiduciary currency we are bound to be in a position to exchange it for gold when presented for conversion to meet legitimate trade require- ments. As I have already mentioned, we hold in the gold reserve fund a sum of £3,810,730, and in the currency reserve we have about £9,073,853 also in gold. The gold in the currency reserve flows freely in and out, according to circumstances and monetary conditions, but the demand for the metal is generallj' small. Gold coins, though demanded by bankers, seemingly chiefly for remittance purposes, are apparently but rarely used in local circulation, and private demands for export are limited by the action of government in curtailing the sale of council bills whenever exchange approaches export point, gold being remitted, when necessary, to the secretary of state in substitu- tion for sales of council bills. The position of gold in the Indian cur- rency reserve may, I think, be compared with that of gold in the Bank of England, which is held at the free disposition of the public, the difference being that the demands in India are comparatively small for the reasons I have given. The gold in the gold-reserve fund is held under conditions more nearly resembling those under which gold is held by the Bank of France. It will only be when the temporary curtailment of council bills is found insufficient to check a fall in exchange, and when the gold in the currency reserve is exhausted, i. e. , when the balance of indebtedness is seriously adverse to India to an extent that we need hardly anticipate, that any serious demand can arise on the gold-reserve fund. There are both advantages and disadvantages in having a silver instead of a paper fiduciary currency. The silver always has an intrinsic value of high proportion to the nominal value of the circu-" lating medium, but that value is fluctuating and has an unfortunate present tendency to depreciate. A note has no intrinsic value and there can therefore be no question of fluctuation in its value. Appendix H. THE CURRENCY SYSTEM OF FRENCH INDO-CHINA. I. — Extract from United States Consular Reports, February, 1903. Mr. Paul Leroy Beaulieu, the eminent political economist, has pub- lished an article in which he recommends that the Government of France make a monetary change in the coin used in Indo-China simi- lar to that made by the British Government in India in 1893. He shows that the piaster of that colony, which ten years ago was worth 5 francs (96 cents), has fallen with the decline of silver until it is now worth less than half that sum. He advises that its value be placed at 50 cents. This is about 26 per cent more than its current value, but he thinks that with the cessation of coinage and the increase of population and business, it can be maintained at that figure. He asserts that during the last few years Indo-China has been inundated with Mexican coins. He advises that hereafter such coins should be outlawed and that all the piasters of the country, of domestic or for- eign origin, should be recast in 50-cent pieces. The finances of India are regarded as being on a gold basis, with the silver rupee as the unit of value, representing one-fifteenth part of the gold contained in the sovereign. A gold reserve of some £9,000,000 ($43,800,000) is held for the purpose of keeping the rupee at par with gold. It is altogether probable that the proposal of Mr. Beaulieu in regard to the finance of Indo-China will be adopted bj' the French Government, but he does not propose a gold reserve. John C. Covert, CoriRuJ. Lyons, January 10, 1903. II. — The Fall in the Price op Silver and the Monetary Question in Indo-China. [Report presented in the nam© of the committee on exportation by M. G. Laguionie, adopted and embodied in resolutions by the Chamber of Commerce of Paris in its sitting of May 13, 1903.] [Translation.] The monetary question in Indo-China has for some time provoked in France serious discussion. Special periodicals like the &onomiste Frangais, the Revue des Deux Mondes, the Journal des Chambres des Commerce; colonial papers, the Quinzaine Coloniale, the Questions Diplomatiques et Coloniales, the Depeche Coloniale; great Parisian journals, the Temps, the Debats, have explained and discussed it many times; well-informed monographs like Mr. Rueff's La Question du Metal- Argent; pamphlets such as those of Messrs. Denis Brothers and Albert Cornu have been published about it; learned societies, the Societe d'^ficonomie Politique, the Societe d'ficonomie Industrielle et Comerciale; meetings of specialists like the Union des Anciens Sieves des ificoles Superieures de Commerce de France have given it great attention. It was, moreover, part of the programme of the 379 380 STABILITY OF INTEBNATIOKAL EXCHANGE. colonial congress of 1903. Lastly, a commission made up of repre- sentetives of the different ministries, appointed by the mimster of ?he colonies, was directed to discuss it again and to prepare a solution On the other hand, the chamber of commerce of Lille has presented to our society a report, which it has embodied m a resolution, on the monetary situation in Indo-China, and we have been asked by the Chambre du Commerce d'Exportation to give our ^upport to t^e measures it recommended in order to counteract the fall of silver bullion and which are set forth in a very carefully prepared report which has been sent to us. +i,,.„,nn.-h It is because this question interests not merely economists through the special problems that it raises with reference to monetary systems and the coinage and the circulation of moneys, its solution has an intimate relation to the interests of one of our richest colonies as weU as to impoitant enterprises at home. . , ^ -, ■ ^ ^■ Therefore your Commission has thought that it might be interesting and useful to set forth the main points and the principles of the ease, and to offer from the numerous documents that are now published a general survey of the question with the conclusions that it suggests. It is this paper that its representative has the honor to submit to you to-day. ^.1-4. The monetary question in Indo-China is only a particular instance of a more general proposition— that of silver. The solutions adopted for the latter having an influence on the former, it is necessary to briefly set forth the elements of that problem. I.— Origin of the question of silver bullion anditsimportancefor France in particular.'^ For several years silver bullion has been suffering a decline, which in certain countries has involved a disquieting monetary crisis. From 1860 to 1868 the quotations were maintained at about 61d. the standard ounce. Toward the middle of 1876 they fell to 46|d., and to 42d. in 1889; and successively to 28||d. in 1894 and 27|d. in 1901, and at last to 21|d. in 1902; in other words, 40d. difference, or 66 per cent, in thirty-five j^ears.* Everybody is agreed on the principal cause and the origin of the crisis in the silver market. It is due, for the most part, to the over- production of the mines. In fact, the fall of silver has not prevented the production of this metal from maintaining itself at its extraordi- narily high point. Mr. Arnaune, the learned head of the mint, divides the history of precious metals into four great heads." "■ It is not the first time that the attention of the chamber of commerce has been attracted by this question of silver. As early as 1870, before a commission of inquiry established for that purpose, one of its members, Mr. Carlhian, made a statement in which he seems to have foreseen the present difficulties; and in 1874 Mr. Gustave Roy, who had become in 1872 the colleague of Mr. Carlhian in the chamber of commerce, of which he was to become the chairman, presented to our society a paper on bimetallism and the inconveniences of silver money, the conclusions on which to-day retain their full force. (Archives of the chamber of commerce. ) 6 The decline occurred in successive phases: l^^ from 1860 to 1872: 4i\ f rom 1873 to 1877; U from 1878 to 1882; 5|-| from 1883 to 1887; Z\\ from 1888 to 1892; 8tV from 1893 to 1897; 4| from 1898 to 1902. (M. Raffalovich, communications to the Society of Industrial and Commercial Economy, sitting of December 19, 1903.) ''Report to the minister of finances, 1903, by M. Ai'naune. director of the administration of coins and metals. (Library of the chamber of commerce.) STABILITY OF INTERNATIONAL EXCHANGE. 381 The first period, which ends with the Middle Ages and is interesting for students only. The second, which starts at the great discovery of Christopher Columbns and closes in the middle of the nineteenth century. The third, which would comprise exactly a quarter of a century if we fix its limits at 1850 and 1875. Finally, the fourth period, beginning in 1875, is the one during which the production of silver has reached tremendous proportions. From 1493 to 1851 production was estimated at 149,826,750 kilo- grams; 1851 to 1871, 31,000,000 kilograms; 1875 to 1891, 97,260,000 kilograms. The result is that the production of silver during these last twenty- five years equals more than half of that which has been produced in three hundred and fifty-eight years, or almost four centuries. However, overproduction is not the onlj' cause of the fall in silver. There are others (qxiite as important) — the closing of the mints to the unlimited coinage of silver in most civilized countries; England's sus- pension of free coinage in India; and the fact that silver has been relegated to the level of a subsidiary coin. Lastly, the clause of the recent treaty with China imposing upon that country the obligation of paying in gold the war indemnity and the establishment in Siam of the gold standard have not been without influence in bringing about the fall in the price of silver bullion. Whatever be the causes of this decline, there is at any rate an abnormal situation which might provoke, with us in particular, a serious crisis. In fact, the stock of silver currency of the Bank of France, which one may consider as representing the overflow of our monetary circulation, was estimated on December 4, 1902, at the sum of 1,100,000,000 francs ($214,000,000). « It is easy to understand, therefore, that economists should have been stirred up by this situa- tion and that some of them should have looked to the solution of the monetary question in Indo-Chinafor ameansof mitigating its danger. II. — Origin and importance of the monetary question in Indo-Cliina. The crisis in relation to silver could not but have an infliience on the situation in Indo-China, where silver currency is the principal instrument of transactions. «M. de Foville estimated in 1898 the probable value of silver currencies existing in France as follows: [Dictionary of Commerce, Industry and Banks , folio 825.] French. Foreign. Total. Francs. 1,380,000,000 205,000,000 Francs. 556,000,000 35,000,000 Francs. 1,935,000,000 240,000,000 Subsidiary coin . Total 1,585,000,000 590,000,000 2,175,000,000 At about tbe same time the stock in hand of the Bank of France was composed as follows: Francs. French pieces of 5 francs 795, 000, 000 Belgian pieces of 5 francs 332,000,000 Italian pieces of .'J francs . 173, 000, 000 Swiss pieces of 5 francs 4, 000, 000 Greek pieces of 5 francs 7, 000, 000 Total 1,311,000,000 382 STABILITY OF INTERNATIONAL EXCHANGE. Two monetary systems are juxtaposed, and to a certain degree com- bined, in Indo-China— the one of native origin, the other of European Accordino- to Mr. Arnaune the native system is of great theoretical perfection. It comprises coins of gold, silver, copper, and zinc which almost all correspond exactly with the systems of weights of Annam. The gold and silver coins have even the names of weights. On tue other hand, the government does not claim to fix the relative value of gold and silver. Some currencies have, indeed, the indications of their value in copper or zinc currency, but it seems that it is only to indi- cate their redeeming power for Ihe payment of taxes. The private citizens are free to accept them for a greater or less quantity of small coins." • N -1 ■ v-i. The saueques (alloys of copper, zinc, and tin) are made m the imperial mints. The gold and silver coins are also made m the gov- ernment mints, but individuals share with the Prince the right of melting gold and silver bars and putting them into circulation. Beside the native monetary system is to be found the system of the piaster, which is that of the French administration and of European commerce. The piaster does not circulate in Indo-China merely; it is the currency of foreign commerce in China and in the whole Far East. It was introduced by the Spaniards, who, having no commodity to present in exchange for the Chinese trade, offered their piasters. It is through the French army of occupation that the Mexican pias- ter, identical in weight and in standard to the old Mexican piaster, was, if not introduced, at least propagated in Annam for the needs of the troops, this currency, well known to Chinese commerce, being the only one that they were willing to accept in payment for the supplies delivered to the army. The sapaques of zinc were used at first, but that coin is extremely inconvenient. "It took an artillery baggage cart to exchange 1,000 francs of ligatures of sapaques, since they represented not less than the weight of a barrel and a half, and in the market a chicken weighed sometimes less than its price in coin." Since that time the Mexican piaster has been partly replaced by a piaster called commercial or Indo-Chinese piaster, coined at the Paris mint at the weight of 27 grams and of the standard of 0.900 fine. In 185!) the commercial piaster was worth intrinsically 5.31 francs, in taking 218.89 franks for the value of the silver kilogram. In 1892, silver bullion having fallen to 139 francs, the coin was not worth more than 3.38 francs; to-day, at the price of 80 francs, its intrinsic value is 1.911, and it is to be feared that it will decline still more if, as is the opinion of certain economists, the depreciation of silver is to continue. III. Consequences of the Indo-Chinese vionetary system. Of such a regime the inconvenience and even the dangers may easily be seen. It is a regime of monetary instability and insecurity, and is not less dangerous to the Indo-Chinese Government than to our local or home commerce and to the development of our colony. From the budgetary standpoint, receipts being calculated in piasters and the expenditures being largely calculated in francs, the equi- a See La Monnaie, le Credit et I'Echange, by M. Arnaung, from which we have horrowed these and the following details, Ch. VII, pp. 281 et seq. Felix Alcan, Paris, 1894. STABILITY OF INTERNATIONAL EXCHANGE. 383 librium disappears when the piaster falls. It may happen that the administration gets taxes at the rate of 214, for instance, and pays expenses at the rate of 233 in currency, thus a loss of several thousand piasters resulting.'* From the commercial and industrial standpoint the fluctuations of exchange make of the most carefully prepared operations mere specu- lations, which have no solid base and can be neither foreseen nor cal- culated. As to the imports, the cost of production of imported goods should be increased in proportion to the decline of silver from the date of purchase to the day of payment. But the selling price can not always be increased, at least immediately, in proportion to this decline. It follows, therefore, that the importing merchant runs the risk of meeting the difference. Moreover, inasmuch as cash sales ai-e not usual, if the piaster has declined between the day the bargain was concluded and the day of payment, the seller suffers a new loss when he wants to convert his money into gold in order to make pay- ments in Europe. Finally, when the merchant is able to raise his prices after the fall of the piaster, it is the consumer who pays the increase, unless he prefers to restrict liis purchases on account of the increase in prices; and in this case the imports fall off. And since these imports come mostly from France, it is, then, French industry and commerce which suffer. The exports of the colony into gold-standard countries may, when the white metal falls, be momentarily facilitated by the play of the same forces which paral.yze the imports from the same countries. But, on the other hand, as Messrs. Denis Brothers point out, the fall of the piaster is fatally followed by an increase of prices on the part of the producers, an increase which soon annuls this favorable influ- ence. This rise ha^, moreover, the consequence of hampering the exports toward silver countries.* Business men suffer another way from the depreciation of silver. Since they had to transform into piasters the capital that they brought from Europe when they settled in Indo-China, it follows that every decline in the value of the piaster results in a reduction of their capital. The employees and officials who invest their savings in France are exposed to losses of the same kind. It may happen that at the time thej' are sending what they saved on their salary the price of the piaster be below tlie price at which their salaries were paid to them. Lastly, as M. Paul Leroy-Beaulieu has strongly pointed out, in order to develop a colony it is necessary to bring into it the capital and technical capacity which are indispensable to the development of riches in a new country. Capital is brought into tropical colonies only with the intention of carrying it back again into the mother country, and therefore it is easy to understand that if one runs the risk of having only a depreciated currency at the time it is necessary to bring back this capital — a time, by the way, which one can not always choose and which is imposed by circumstances — he hesitates to send it abroad. « According to the Bulletin de la Chambre de Commerce de Saigon, the average rate of the piaster for the first four months of 1902 — January to April — was 2.32, while that of the last seven months — May to November — was only 2.14. (Denis freres — memorial to the ministry of the colonies, Quinzaine Coloniale, January 10, 1903.) * Quinzaine Coloniale, January 10, 1903. 384 STABILITY OF INTERNATIONAL EXCHANGE. This evil the causes of which we have explained, necessitated a remedy and economists, colonial writers, importers, and exporters have endeavored to find it. But if they are agreed on the existence of the evil, they are divided as to the means of conjuring it. IV. The solutions proposed. Three methods have been proposed, which it is proper to examine: 1. The status quo. 2. The introduction of the 5-franc piece into Indo-China,. .3. The adoption of a special regime based oq the stabilization of the price of the piaster. ^ -, -. (1) The status quo.— This system is in truth strongly supported by no one. Even those who, like M. le Myre de Vilers, refuse to look upon the situation created for Indo-China by the monetary question m a pessimistic light, admit that there are modifications to be made.« They merely point out that the evil in Indo-China is generally exagger- ated. Pessimistic accounts are contradicted by the growing prosperity of the colony. The inconveniences of exchange, undeniable as far as the importing merchants are concerned, do not exist in the same degree for the exporters. But if one sets apart the exceptional years like those through which we have just passed, when the sending of the materials required by great public works has caused a rise in importations, the balance is settled by a surplus in favor of exporta- tion. The equilibrium will be reestablished when the programme of public works, which, in the opinion of a few, have perhaps been pre- maturely and imprudently begun, shall be completely finished. The budget, it is true, might be difficult to establish with the pres- ent regime ; but why not modify the collection of taxes by decreeing that the general budget shall be paid in francs, while the local bud- gets shall be paid in piasters, taken at the quotations of the day? It might seem that this would not be overtaxing the natives.* This solution, or, rather, this absence of solution, leaves untouched the principal criticisms directed against the present regime, relating on the one hand to the monetary instability — which is as disturbing to commerce as tarifl: instability — and on the other hand to the timid- ity or abstention of capital tempted to seek investment abroad. Fur- thermore, if one were to seek for the situation a remedy in the increase of taxes, one would not merely attempt something that is easier to discuss than to realize, but also "treat too contemptuously the gen- eral interest of the country, with whose moral as well as economic welfare we are charged."" Lastly, from the purely theoretical standpoint the maintenance of the status quo, by maintaining an ill-defined silver monometallism, would leave our colony exposed to new crises in the future in the face of the Asiatic powers, like Japan and Siam, and of most countries that have adopted the gold standard or a true bimetallism. aM. le Myre de Vilers proposes as Ms plan to call an international conference to which the representatives of the diflferent silver countries would be invited (Questions Biplomatique, Jan. 1, 1903.) One will see that his idea has already been adopted by Mexico. ^According to M. Chailley-Bert, the population of Indo-China pays to-day less than 5 francs taxes per capita, and there is no power in Asia that does not ask more from its subjects. (Quinzaine Coloniale, Jan. 10, 1903.) cA. Comu, Memoirs to the Minister of the Colonies. (Quinzaine Coloniale Jan 10, 1903.) ' STABILITY OF INTERNATIONAL EXCHANGE. 385 (2) Introduction in Indo-China of the 5-f ranc j^iece -^This system is proposed by Mr. Jules Rueif, who, in a series of pamphlets, arti- cles in periodicals or newspapers, lectures or discussions, has explained and supported it with as much conviction as talent. Replace the coins presently in use by the 5-f ranc piece — such is the remedy that Mr. ReufE proposes for the monetary crisis of Indo-China. This radical measure must be accompanied by preparatory or subse- quent measures. 1. Suspension of the coinage of the piasters of commerce. 2. Constitution in the treasury of an important fund of 5-franc pieces and of subsidiary coins. 3. Prohibition of the introduction into the colony of foreign piasters. 4. Placing of a duty on silver in bars. 5. Counting the fiduciary currency in francs. 6. Fixation during the transition period of a rate of conversion for the piaster of commerce as well as for the Mexican piaster. 7. Introduction at the same time of the French subsidiary currency and then of the 5-franc pieces. This solution, which M. Rueff proposed as early as 1892, would solve, according to him, all the difficulties amidst which our colony is struggling. It would realize at once in a complete manner the object sought by commerce and the Government. Having a stable currency, the value of which is based on the credit of France, the merchants would not have to fear any longer the uncertainty of exchange nor the treasury have to fear any falling off in the revenue from taxes. The effects of the reform would not be less beneficial for the metrop- olis. The enormous stock of silver of the Bank of France, dead weight for the present, an incumbrance and a danger for the future, would be soon absorbed by Indo-China. M. RuefE estimates theoretically at fort}' years the duration of this work of absorption of the French sur- plus, but this time, according to him, would be greatly reduced in practice. Lastly, France would have made one more step toward monetary unity from which, up to the present day, our possessions in Indo- China, India, and the coast of Somales are alone shut out. These primary advantages would be supplemented by secondary advantages that are not, however, to be overlooked. The operation would not require the constitution of a special gold fund in Indo- China, the 5-franc piece, "atrue metallic assignat," being redeemable at sight from the gold fund of the Bank of France. This could be operated without a loan. It would not require any new coinage and would suppress the profit taken by the mines and the middlemen. The Mexican piasters having been driven to China or sent back to their own country, it would remain to get rid of the stock of the piasters of commerce. These piasters are doomed and destined to be melted into bullion. This is an inevitable necessity, but a happy necessity, according to M. Rueff,* if it were decided to act quickly. The fall in silver not yet having reached its term, the loss will be the greater as the moment of liquidation is further postponed. The loans of the colony reach the sum of 200,000,000 francs — that is, 9,000,000 of annual interest at 4| per cent. There remains to be issued a sum of 80,000,000, so that in a short time the annual debt of aEueff. La Question du Metal Argent, Paris, 1903. H. Doc. 1-i-i 26 386 STABILITY OP INTEBNATIONAL EXCHANGE. the colony will be, on that account, raised to 12,600,000 francs, with- ont countoTthe other expenses also to be settled xn fYoP^^^-^j^f^^ in crold Those are large liabilities, if one considers that Indo-Ohma haf to meet it with a currency which is every day more and more ""'luchSI'n its essential features, this system from ^^^i^h its^}^*^^ expects a rapid improvement of the monetary situation m lD.! of tlic UnHal States of America in Congress assembled, That- the unit of value in the Philippine Islands shall be the gold peso consisting of twelve and nine-tenths grains of gold, nine-tenths fine, said gold peso to become the unit of value when the government of the Philippine Islands shall have coined and ready for, or in, circulation not less than Ave million of the silver pesos hereinafter provided for in thi.s act, and the gold coins of the United States at the rate of one dollar for two pesos here- inafter authorized to be coined shall be legal tender for all debts, public and private, in the Philippine Islands. Sec. 2. That in addition to the coinage authorized for use in the Philippine Islands by the act of July first, nineteen hundred and two, entitled "An act temporarily to provide for the administration of the affairs of civil government in the Philippine Islands, and for other purposes," the government of the Philippine Islands is authorized to coin to an amount not exceeding seventj'-five million pesos, for use in said islands, a silver coin of the denomination of one peso and of the weight of four hundred and sixteen grains, and the standard of said silver coins shall be such that of one thousand parts, by weight, nine hundred shall be of pure metal and one hundred of alloy, and the alloy shall be of copper. Sec. 3. That the silver Philippine peso authorized by this act shall be legal tender in the Philippine Islands for all debts, public and pri- vate, unless otherwise specifically provided by contract: Provided, That debts contracted prior to the thirty-first day of December, nineteen hundred and three, may be paid in the legal-tender currency of said islands existing at the time of the making of said contracts, unless otherwise expressly provided by contract. Sec. 4. That section seventy-seven of the act of July first, nineteen hundred and two, is hereby amended so that it shall read : "Sec. 77. That the government of the Philippine Islands is author- ized to coin for use in said islands a coin of the denomination of fifty 404 STABILITY OF INTERNATIONAL EXCHANGE. centavos and of the weight of two hundred and eight grains, a coin of the denomination of twenty centavos and of the weight of eighty-three and ten one-hundredths grains, and a coin of the denomination of ten centavos and of the weight of forty-one and fifty-five one-hundredths grains; and the standard of said silver coins shall be such that of one thousand parts, by weight, nine hundred shall be of pure metal and one hundred of alloy, and the alloy shall be of copper." Sec. 5. That the Philippine peso herein authorized and the sub- sidiary silver coins authorized by section seventy-seven of the act of July first, nineteen hundred and two, as amended by the preceding section of this act, shall be coined under the authority of the govern- ment of the Philippine Islands in such amounts as it may determine, with the approval of the Secretary of War of the United States, except as limited in section two of this act, from silver bullion purchased by said government, with the approval of the Secretary of War of the United States : Provided, That said government may, in its discretion, in lieu of the purchase of bullion, reeoin any of the silver coins now in or hereafter received by the treasury of the government of the Philippine Islands into the coins provided for in this act or in the act of July first, nineteen hundred and two, as herein amended, at such rate and under such regulations as it may prescribe ; and the subsidiary silver coins authorized by this act and by the act of July first, nine- teen hundred and two, shall be legal tender in said islands to the amount of ten dollars. Sec. 6. That the coinage authorized by this act shall be subject to the conditions and limitations of the provisions of the act of July first, nineteen hundred and two, entitled "An act temporarily to provide for the administration of the affairs of civil government in the Philip- pine Islands, and for other purposes," except as herein otherwise pro- vided ; and the government of the Philippine Islands may adopt STich measures as it may deem proper, not inconsistent with said act of July first, nineteen hundred and two, to maintain the value of the silver Philippine peso at the rate of one gold peso, and in order to maintain such parity between said silver Philippine pesos and the gold pesos herein provided for, and for no other purpose, may issue temporary certificates of indebtedness, bearing interest at a rate not to exceed four per centum annually, payable at periods of three months or more, but not later than one year from the date of issue, which shall be in the denominations of twenty-five dollars, or fifty pesos, or some mul- tiple of such sum, and shall be redeemable in gold coin of the United States, or in lawful money of said islands, according to the terms of issue presci-ibed by the government of said islands; but the amount of such certificates outstanding at any one time shall not exceed ten mil- lion dollars, or twenty million pesos, and said certificates shall be exempt from the payment of all taxes or duties of the government of the Philippine Islands, or any local authority therein, or of the Gov- ernment of the United States, as well as from taxation in any form by or under any State, municipal, or local authority in the United States or the Philippine Islands : Provided, That all the proceeds of said cer- tificates shall be used exclusively for the maintenance of said parity, as herein provided, and for no other purpose, except that a sum not exceeding three million dollars at any one time may be used as a continuing credit for the purchase of silver bullion in execution of the provisions of this act. Sec. 7. That the Mexican silver dollar now in use in the Philippine Islands and the silver coins heretofore issued by the Spanish Govern- STABILITY OF INTEKW ATIONAL EXCHANGE. 405 ment for use in said islands shall be receivable for public dues at a rate to be fixed from time to time by the proclamation of the civil governor of said islands until such date, not earlier than the first day of January, nineteen liundred and four, as may be fixed by public proclamation of said civil governor, when such coins shall cease to be so receivable : Provided, That the public offices of the government of said islands shall give a preference for all public dues to the silver pesos and the silver certificates authorized by this act, and may at auy time refuse to receive such Mexican dollars and Spanish coins as may appear to be coiinterfeit or defective. Sec.:. 8. That the treasurer of the Philippine Islands is herebj' author- ized, in his discretion, to receive deposits of the standard silver coins of one i^eso authorized by this act to be coined, at the treasury of the government of said islands or any of its branches, in sums of not less than twent}- pesos, and to issue silver certificates therefor in denomina- tions of not less than two nor more than ten pesos, and coin so deposited shall be retained in the treasury and held for the payment of such cer- tificates on demand, and used for no other purpose. Such certificates shall be I'eceivable for customs, taxes, and for all public dues in the Philippine Islands, and when so received may be reissued, and when held by any banking association in said islands may be counted as a part of its lawful reserve. Sec. 0. That for the purchase of metal for the silver Philippine peso authorized bj^ this act an appropriation may be made by the govern- ment of the Philippine Islands from its current funds, or as herein- befoi-e authorized, which shall be reimbursed from the coinage under said sections. Sec. 10. That the silver Philippine pesos hereinbefore autliorized maybe coined at tliemintof the government of the Philippine Islands at Manila, or arrangements may be made by the said government with the Secretary of the Treasury of the United States for their eoinau'c or any portion thereof at anj^ of the mints of the United States, at a charge covering the reasonable cost of the work. Sec. 11. That the silver Pliilippine peso hereinltefore authorized shall bear devices and inscriptions to be prescribed by the government of the Philippine Islands, and such devices and inscriptions shall express the sovereignty of the United Stales, that it is a coin of the Philippine Islands, the denomination of the coin, and the year of the coinage. Sec. 12. That the Secretary of the Treasurj' is hereby authorized and directed, when requested by the government of the Philippine Islands, to cause to be made and prepared any drawings, designs, and plates, and execute any coinage, engraving, or printing of notes and certificates authorized bj' this act, and to make a proper charge for the same, covering as nearly as may be the actual cost, which shall be defrayed from the revenues of said islands. Sec. 13. That section seventy-eight of the act of July first, nineteen hundred and two, and all acts and parts of acts inconsistent with the provisions of this act, and all provisions of law in force in the Philip- pine Islands making any form of money legal tender after December thirtj'-first, nineteen hundred and three, except as provided in this act, are hereby repealed. Approved, March 2, 1903. 406 STABILITY OF INTERNATIONAL EXCHANGE. III. Acts of the Philippine Commission, No. 696. An act authorizing the issue of three million dollars of certificates of the indebted- ness under and by authority of section six of the act of Congress entitled "An act relating to currency for the Philippine Islands," approved March second, nineteen hundred and three, and making an appropriation of two million dollars in money of the United States immediately available for the purpose of pur- chasing silver bullion with which to coin silver Philippine pesos in accordance with section five of the said act of Congress approved March second, mneteen hundred and three. By authority of the United States, he it enacted by the Philippine Com- mission, thai: Section 1. With the approval of the Secretary of War there may be coined, under the direction of the Secretary of the Treasury, by the mints in the United States, two million silver Philippine pesos per month, of the weight of four hundred and sixteen grains each, with a standard such that of one thousand parts by weight nine hundred shall be of pure silver and one hundred of copper alloy, under and by virtue of section two of the act of Congress entitled "An act relating to cur- rency for the Philippine Islands," approved Marcli second, nineteen hundred and three, and said monthly coinage of two million silver Philippine pesos may continue, with the approval of the Secretary of War, until there shall have been coined twenty-four millions of said pesos. Sec. 2. The Secretary of War is hereby authorized, on behalf of the government of the Philippine Islands, temporarily to issue certificates of indebtedness to the extent of three million dollars in money of the United States, bearing interest at a rate not to exceed four per centum annually, payable at periods of three months or more, but not later than one year from date of issue, in denominations of one thousand dollars in currency of the United States, and redeemable in gold coin of the United States, which certificates of indebtedness shall be dis- posed of by the Secretary of War at such favorable rate of interest or premium as he may be able to secure, the proceeds thereof to be deposited with the Guaranty Trust Company, the authorized deposi- tory of the government of the Philippine Islands, to the credit of the treasury of the Philippine Islands. These certificates are authorized by, and shall be issued in accordance with, section six of said act of Congress approved March second, nineteen hundred and three, and shall state upon their face that they have been issued in accordance with the terms of said section for the purpose of purchasing silver bullion in execution of the provisions of said act of Congress and by authority of this act of the Philippine Commission. Sec. 3. The Secretary of War shall report to the auditor and the treasurer of tlie Philippine Islands the amount of such certificates of indebtedness as are described in the previous section which he has issued under the authority thereof, the numbers and denominations thereof, the rate of interest to be paid thereon, the time when payable, the premium, if any, at which they were issued, and the total proceeds therefrom, and the same shall be made a matter of record in the offices of the auditor and treasurer of the Philippine Islands. Sec. 4. By way of anticipating the proceeds of the foregoing loan and to avoid delay in the purchase of the silver bullion and the coin- age of the silver Philippine pesos, as provided in the first section hereof, there is hereby appropriated and made immediately available, STABILITY OF INTERNATIONAL EXCHANGE. 407 out of any funds in the insular treasury not otherwise appropriated, the sum of two millon dollars in money of the United States, or so much thereof as may be necessary, to be used for the purpose of pur- chasing silver bullion with which to enable the Secretary of the Treas- ury, through the mints of the Government of the United States, to coin the silver Philippine pesos of the size, weight, and fineness and of the character described and prescribed in section two of the act of Congress entitled "An act relating to currency for the Philippine Islands," approved March second, nineteen hundred and three, and in section one of this act, and the proceeds of the certificates of indebted- ness so issued, as authorized in section two hereof, when deposited to the credit of the treasury of the Philippine Islands, shall replace in said treasury the sum by this section advanced and appropriated for the purposes herein declared. Sec. 5. The public good requiring the speedy enactment of this bill, the passage of the same is hereby expedited in accordance with sec- tion two of "An act prescribing the order of procedure by the Com- mission in the enactment of laws," passed September twenty-sixth, nineteen hundred. Sec. 0. This act shall take effect on its passage. Enacted, March 23, 1903. IV. Act of the Philippine Commission, No. 702. AN ACT to authorize the issue of three million dollars of certificates of indebted- ness under and by authority of section six of the act of Congress entitled "An act relating to currency for the Philippine Islands." approved March second, nineteen hundred and three, in addition to the three millions of dollars of cer- tificates of the same character already authorized by act numbered six hundred and ninety-six; and amending section two of act numbered six hundred and ninety-six by striking out the requirement that the certificates of indebtedness already issued shall state upon their face that they were issued for the purpose of purchasing silver bullion . By auihority of the United Stutes he it enacted by the Philippine Com- mission that — Section 1. The Secretary of War is hereby authorized, on behalf of the government of the Philippine Islands, temporarily to issue certifi- cates of indebtedness to the extent of three millions of dollars, in money of the United States, bearing interest at a rate not to exceed four pel" centum annually, payable at periods of three months or more, but not later tlian one year from date of issue, in denominations of one thousand dollars, in currency of tlie United States, and redeem- able in gold coin of the United States, which certificates of indebted- ness shall be disposed of by the Secretary of War at such favorable rate of interest or premium as he may be able to secure, the proceeds thereof to be deposited with the Guaranty Trust Company, the author- ized depositor}^ of the government of the Philippine Islands, to the credit of the treasury of the Philippine Islands. These certificates are authorized by and shall be issued in accordance with section six of said act of Congress approved March second, nineteen hundred and three, entitled "An act relating to currency for the Philippine Islands," and the proceeds thereof are to be used as provided in said act. The certificates issued hereunder shall state upon their face that 408 STABILITY OF INTEEWATIONAL EXCHANGE. they liave been issued in accordance with the terms of said section and by authority of this act of the Philippine Commission, and that they are in addition to the issue of three millions of dollars of similar cer- tificates, issued under act numbered six hundred and ninety-six of the Philippine Commission, enacted March twenty-third, nineteen hun- dred and three. Sec. 2. The Secretary of War shall report to the auditor and treas- urer of the Philippine Islands the amount of the certificates of indebt- edness the issue of which is authorized in the previous section, which he shall issiie under the authority thereof, the numbers and denomi- nations thereof, the rate of interest to be paid thereon, the time when payable, the premium, if uny, at which they were issued, and the total proceeds therefrom ; and such facts shall be made a matter of record in the offices of the auditor and treasurer of the Philippine Islands. The certificates to be issued iinder this act shall be numbered con- secutively, the first certificate thereof bearing the number next after that of the last-numbered certificate issued under act numbered six hundred and ninety-six. Sec. 3. It appearing that the certificates of indebtedness for three millions of dollars, issued under act numbered six hundred and ninety- six, and already sold in the markets of New York, did not state upon their face, as required by section two of said act numbered six hun- dred and ninety-six, "that they have been issued in accordance with the terms of said section for the purpose of purchasing silver bullion in execution of the provisions of said act of Congress," the act of the Secretary of War in issiiing the certificates without the said statement is hereby confirmed, and said section is hereby amended by striking out the words " and shall state upon their face that they have been issued in accordance with the terms of said section for the purpose of purchasing silver bullion in execution of the provisions of said act of Congress." Sec. 4. The public good requiring the speedy enactment of this bill, the passage of the same is hereby expedited in accordance with section two of ' 'An act prescribing the order of procedure by the Com- mission in the enactment of laws," passed September twenty-sixth, nineteen hundred. Sec. 5. This act shall take effect on its passage. Enacted June 30, 1903. executive order. Executive Order, ) The Government of the > Philippine Islands, No. QV). ) Executive Bureau, Manila, August S, 1903. The following character will be used by all oflacials of this govern- ment as the designation for the new Philippine pesos in contradis- tinction to the $ mark for United States currency, and Pfs. for Mexican or Spanish currency : T- Wm. II. Tapt, Civil Governor. STABILITY OF INTERNATIONAL EXCHANGE. 409 V. The Gold Reserve Act op the Philippine Commission, No. 938. AN ACT Constituting a gold-standard fund in the insular treasury, to be used for the purpose of maintaining the parity of the silver Philippine peso -with the gold-standard peso, and organizing a division of the cun-ency in the bureau of the insular treasury through which such fund shall be maintained, expenditures made therefrom, and accretions made thereto, and providing regulations for the exchange of currencies and for the issue and redemption of silver certificates. By authority of the United States, he it enacted hij the Philippine Commission that: Section 1. All funds in the insular treasury which are the proceeds of the certificates of indebtedness issued under and by authority of section six of an act of Congress entitled "An act to establish a stand- ard of value and to provide for a coinage system in the Philippine Islands," approved March second, nineteen hundred and three, all profits of seigniorage made by the insular government in the pur- chase of bullion and the coinage therefrom, and the issue of the Phil- ippine pesos and the subsidiary and minor coins, all profits from the sale of excliange by the insular government between the Philippine Islands and the United States made for the purpose of continuing the parity of the silver Philippine peso with the gold-standard peso, and all other receipts in the insular treasury inuring to the insular gov- ernment in the exercise of its functions of furnishing a convenient currency for the islands, shall constitute a separate and trust fund in the insular treasury, to be known as the "Gold-standard fund" and to be used for the purpose of maintaining the parity of the silver Philippine peso with the gold-standard peso provided in the said act of Congress approved Mai'ch second, nineteen hundred and three. Such fund shall not be used to pay any expenses of the insular gov- ernment or to satisfy any of the appropriations of the insular govern- ment, except only those connected with the purchase of bullion, the coinage of the same into the money of the Philippine Islands, and those which are incident to the transportation of such mone}' to the Philippine Islands from the place of coinage, to the putting of the monej^ into circulation, including the preparation and issue of silver certificates, and to the carrying on of such financial transactions, by exchange and otherwise, as may be authorized bj' law to maintain the circulation of the currency provided for in the said act of Con- gress approved March second, nineteen hundred and three, and the subsidiary and minor coinage provided for by said act and by an act of Congress entitled "An act temporarily to provide for the adminis- tration of the affairs of civil government in the Philippine Islands, and for other purposes, "approved Julyfirst, nineteen hundred and two, and to the maintenance of the jjarity of value between the silver Phil- ippine peso and the subsidiary and minor coins, the coinage of which is provided for by the acts above mentioned, and the gold peso, which by the act of March second, nineteen hundred and three, is made the standard of value in the Philippine Islands: Provided, That when- ever the public interests permit, there may be withdrawn from the gold-standard fund such amount as the Philippine Government may deem proper to pay the principal and interest of all, or any part of, the certificates of indebtedness issued under section six of the said act of Congress of March second, nineteen hundred and three. Sec. 2. For the purpose of facilitating the more eificient discharge of the functions of the insular government with respect to the circu- lation of the currencj' provided for by the said act of Congress 410 STABILIT-y OF INTERNATIONAL EXCHANGE. approved March second, nineteen hundred and three, and for the pur- pose of maintaining the parity therein directed, there is hereby cre- ated a division in the bureau of the insular treasury to be known as the division of currency. The chief of the division shall be appointed by the civil governor, by and with the advice and consent of the Com- mission, and shall receive an annual salary of six thousand pesos, Philippines currency. He shall have under him to assist him m the discharge of his duty such accountants and clerical assistants as may be approved by the insular treasurer and as shall be authorized by law. Sec. 3. It shall be the duty of the chief of the division of currency, first, to examine the books of the treasurer and the auditor and to make report to the insular treasurer of the funds now m the insular treasury which, by virtue of the first section of this act, are to consti- tute a gold-standard fund and to be segregated as such under this act; and the insular treasurer and the insular auditor shall, if they concur in the recommendation of the chief of the division of currency, make the segregation on their respective books and in all future accounts aud reports. In the event of any difference of opinion between Ihe chief of the division of currency, the treasurer, and the auditor, the method of segregation shall be finally determined by the secretary of finance and justice. After the segregation has been effected the treasurer's receipts for all moneys coming into the treasury, which should be deposited in the gold-standard fund, shall be submitted to the chief of the division of currency for his initialing and the proper notation of the same in his accounts. When any money is to be with- draT\n from the gold-standard fund or transferred from the treasury at Manila to a depository elsewhere, or vice versa, the warrant or draft or the telegraphic transfer for the same shall specifically state that it is from the gold-standard fund and shall bear the initials of the chief of the division of currency and shall be noted in his accounts. Sec. 4. No transaction in the treasury with reference to the coin- age of money, the circulation of the same, the maintenance and pres- ervation of the gold-standard fund, the maintenance of the parity, or the issue and retirement of silver certificates shall take place with- out its being first submitted to the chief of the division of currency for notation. Sec. 6. It shall be the duty of the chief of the division of currency to keep a separate set of books dealing solely with the financial oper- ations of the government in coinage and currency matters and in the administration of the gold-standard fund, and to make a monthly statement of the same to the insular treasurer and the secretary of finance and justice. Sec. 6. Nothing herein is intended to change the actual custody and control of all insular funds, including the gold-standard fund herein constituted, now by law placed in the insular treasurer. All the duties of the chief of the division of currency under this act shall be performed under the supervision of the insular treasurer. Sec. 7. For the purpose of maintaining the parity of the Philippine silver peso with the Philippine gold peso, and of keeping the currency equal in volume only to the demands of trade, the insular treasurer is hereby authorized and directed : First. To exchange on demand at the insular treasury in Manila for Philippines currency offered in sums of not less than ten thousand pesos, or United States currency offered in sums of not less than five thousand dollars, drafts on the gold-standard fund deposited in the United States or elsewhere to the credit of the insular treasury, charg- STABILITY OP INTERNATIONAL EXCHANGE. 411 ing for the same a premium of three-quarters of one per cent for demand drafts and of one and one-eighth per cent for telegraphic transfers; and it is further made the duty of the insular treasurer to direct the depositories of the funds of the Philippine government in the United States to sell on demand, iu sums of not less than ten thou- sand pesos, exchange against the gold-standard fund in the Philippine Islands, charging for the same a premium of three-quarters of one per cent for demand drafts and of one and one-eighth per cent for tele- graphic transfers, rendering accounts therefor to the insular treasurer and insular auditor. But the premium charged for drafts and tele- graphic transfers in this paragraph mentioned may be temporarily increased or decreased by order issued by the secretary of finance and justice should the conditions at any time existing, in his judgment, require such action. Second. To exchange at par, on the approval of the secretary of finance and justice, United States Treasury notes, national-bank notes. United States notes, and United States gold and silver certifi- cates for Philippines currency, and Philippines currency for United States Treasury notes, national-bank notes. United States notes, and United States gold and silver certificates. Third. To exchange, on the approval of the secretarj' of finance and justice, for Philippines currency United States gold coin or gold bars in sums of not less than ten thousand pesos for five thousand dollars, charging for the same a premium sufficient to cover the expenses at commercial rates of transporting United States gold coin from New York to Manila. The secretary of finance and justice shall determine the amount of the premium required bj^ this subsection. Fourth. To withdraw from circulation until paid out in response to demands made upon it by the sale of exchange, as provided in para- graph one of this section, or by presenting of United States Treasury notes, national-bank notes, United States notes. United States gold and silver cei-tiflcates, and United States gold coin or gold bars at the Treasury, Philippines euri-ency exchanged and deposited iu the Treas- ury in the manner provided in paragraphs one and two of this section. Fifth. To withdraw from circulation United States Treasury notes, national-bank notes, United States notes, United States gold and sil- ver certificates, and United States gold coin and gold bars received in the Philippine Islands by the insular treasurer in exchange for Philippines currency, under paragraph two of this section, until called out in response to the presentation of Philippines currency as above provided, or until an insufficiency of Philippines currency shall make necessary an increased coinage, in which case the funds so withdrawn may be used under proper legislation for the purpose of providing such a coinage. The coin so obtained shall become part of the gold- standard fund. Sec. 8. The treasurer of the Philippine Islands and the treasurers of the several provinces are hereby authorized and directed to exchange Philippine pesos on demand for the silver coins of the Phil- ippine Islands of a smaller denomination than one peso, issued under authority of section four of the said act of Congress approved March second, nineteen hundred and three, and for the minor coins of nickel and copper issued under authority of section seventy -nine of the said act of Congress of July first, nineteen hundred and two; provided said subsidiary and minor coins are offered in the sums of ten pesos or any multiple thereof. The insular treasurer and the several pro- vincial treasurers are also authorized and directed to exchange on 412 STABILITY OF INTERNATIONAL EXCHANGE. demand for Philippine pesos ofEered in sums of ten pesos, or any mul- tiple thereof, the above-mentioned silvei- subsidiary and minor coins of nicitel and copper. Sec. 9. The issue and redemption of silver certificates according to the provisions of section eight of the said act of Congress approved March second, nineteen hundred and three, and subject to tlie limita- tions in said act of Congress and in this act contained, shall be con- ducted under the immediate supervision of the chief of the division of currency, and his books and reports shall contain detailed accounts of the issue and redemption of such certificates. Sec. 10. The silver certificates which the treasurer of the Philippine Islands is authorized to issue upon receiving deposits of the standard Philippine pesos, in accordance with the provisions of section eight of the said act of Congress approved March second, nineteen hundred and three, shall be prepared and delivered to the treasurer of the Philippine Islands, safeguarded, issued, withdrawn, and canceled or destroyed, and a record of such transactions be kept, in the manner in this section provided. (a) The necessary drawings, designs, plates, and engravings for such certificates, and the printing thereof, shall be made and executed through the Secretary of the Treasury of the United States, upon request of the government of the Philippine Islands, in accordance with section twelve of said act of Congress of March second, nineteen hundred and three, and the amount of such certificates and the denom- inations thereof shall be determined from time to time by resolution of the Philippine Commission. (b) Such certificates, when completed at the Bureau of Engraving and Printing at Washington, shall be delivered without the seal of the treasury of the Philippine government, and shall be to that extent incomplete. In such uncompleted state they shall be deliv- ered to the Bureau of Insular Affairs of the War Department at Washington, the Chief of which Bureau shall receipt therefor in the name of the government of the Philippine Islands, after having veri- fied the count thereof. The Chief of the Bureau of Insular Affairs shall thereupon transmit such certificates to the treasurer of the Philippine Islands, and shall also give notice to the auditor for the Philippine Islands of the denominations and amount of silver certifi- cates transmitted to the treasurer of the Philippine Islands. Upon the delivery of such certificates to the treasurer of the Philippine Islands the auditor shall receive from the treasurer of the Philippine Islands a receipt in duplicate of the denominations and amount of the certificates so received upon verifying the count thereof, and of the duplicate receipts so received the auditor shall retain one, and the other shall be transmitted by the auditor with his counter signa- ture to the Chief of the Bureau of Insular Affairs at Washington. (c) Upon receiving such certificates the treasurer of the Philippine Islands shall cause them to be put through a printing press, which shall imprint thereon the seal and omitted marks, if any, and shall cause the sheets thereof to be separated into single certificates of a uniform size and done up in packages of convenient size inclosed in paper straps upon which are printed the denomination and amount included therein, verifying the count in all cases, and employing such safe- guards in the printing, cutting, and making up of packages as shall preserve the certificates free from all opportunity for loss by theft. The bundles shall thereupon be deposited in a vault, called the reserve vault, where they shall remain until required for circulation. While STABILITY OF INTERNATIONAL EXCHANGE. 413 the certificates remain in the reserve vault they shall not be considered as available cash for the government, and shall not appear as such on the cash books of the treasury, though the treasurer shall be held responsible for the same as money. (d) From time to time the treasurer of the Philippine Islands shall withdraw such amount of silver certificates from the reserve vault as may be required to meet the demands for their purchase in accord- ance with the provisions of section eight of said act of Congress of March second, nineteen hundred and three. All certificates taken from the reserve vault thereafter shall be treated as available cash for the government. The pesos received in exchange for the certificates sold shall be deposited in the reserve vault, shall be held for the pay- ment of said certificates on demand, and shall constitute a trust fund to be used for no other purpose. (e) Upon the delivery to the auditor for the Philippine Islands of the receipt of the treasvirer for the uncompleted certificates trans- mitted to the treasury by the Chief of the Bureau of Insular Affairs at Washington, the auditor for the Philippine Islands shall enter on a book kept by him for that purpose the denominations, serial num- bers, and amounts delivered to the tre'asurer of the Philippine Islands. The treasurer of the Philippine Islands shall keep an independent set of books in which shall be recorded the amount, tlie denomina- tions, and the serial numbers of the certificates which are daily put into and withdrawn from said reserve vault. The treasurer of the Philippine Islands shall furnish a transcript of the foregoing daily entries to the auditor, who shall enter the same upon his books. (f) When certificates mutilated or otherwise unfit for circulation shall be paid into the insular treasury, thej' shall not be reissued, but shall be retained in the treasury for future destruction; and from time to time, when a sufficient amount shall ha^e been accumulated, the civil governor, the secretary of finance and justice, and a com- mittee of two accountants to be designated by said secretarj' shall, in the presence of the treasurer, the auditor, and the chief of the divi- sion of currency, after noting the amounts, denominations, and num- bers of such certificates, completely destroj' the same by burning, and thereafter the treasiirer shall be credited on his accounts in accordance with this action. The credit allowed shall be based uiion the written report of the committee of accountants, attested by the civil governor, the secretary of finance and justice, and the auditor for the PhiliiJ- pine Islands. Sec. 11. The chief of the division of currency shall be required to make to the insular treasurer an annual report covering the affairs and business of the division in detail, and such other reiwrts or recom- mendations as may be required hy superior authority. Sec. 12. All appointments in the division of currency, except the chief of the division, shall be made by the insular treasurer, as in the case of the other divisions of the insular treasury, in accordance with the provisions of the civil-service act. Sec. 13. The public good requiring the speed}' enactment of this bill, the passage of the same is hereby expedited in accordance with section two of "An act prescribing the order of procedure bj' the Com- mission in the enactment of laws," passed September twenty-sixth, nineteen hundred. Sec. 11. This act shall take effect on its passage. Enacted October 10, 1903. 414 STABILITY OF INTERNATIONAL EXCHANGE. VI. — The Execution of the Philippine Coinage Act. [Prom report of Col. Clarence E. Edwards, Chief of Bureau of Insular Affairs.] In anticipation of legislation, providing for a special coinage system for the Philippine Islands, the Philippine Commission, in December, 1901, adopted a resolution appointing Commissioners T. H. Pardo de Tavera and Benito Legarda a special committee to confer with compe- tent persons and obtain suggestions and designs from native artists, if possible, for the Philippine coins. The report of this committee, including photographic designs, was forwarded to this Bureau by the civil governor of the Philippine Islands soon after the appointment of said committee, and was retained here pending Congressional action. Among the same were designs by Mr. Melecio Figueroa, of Manila, who had taken a prize at a competitive examination in Madrid and who had studied art in Rome, which were preferred by the Secretary of War and officials of this Bureau, and which may be described as follows : There were two Figueroa designs for the obverse, to express "that it is a coin of the Philippine Islands," one for the silver and the other for the nickel and copper coins, and one design only for the reverse, to "express the sovereigntj' of the United States," the latter a shield surmounted with an eagle with outstretched wings, unmistakably American, and at the same time so different from the devices on the United States silver dollar, fifty-cent piece, and quarter as 'not to be easily confounded. This device is surrounded by the legend "United States of America. 1903." The first of the obverse designs is the entire figure of a Filipino woman lightly clothed in loose costume, with tresses floating in the wind. She holds in her right hand a hammer which rests on an anvil. In the background is seen the Mayon volcano, a perfect cone, there- fore typical in that none other of such symmetry exists. The legend for the peso, surrounding the figure, being, "One peso Filipinas." The other obverse design substitutes for the female figure as described the figure of a man seated by an anvil, with one elbow resting thereon, and grasping a hammer in the right hand, while the left rests on the left knee. Both figures are well proportioned, the pose natural and graceful, and the figures well modeled. The design conveys the thought that it is by earnest labor that the Filipinos must work out their des- tiny, under the guidance of the United States. It takes some six months to make the dies necessary for any consid- erable coinage, and a knowledge of this fact led the Secretary of War to urge upon the Philippine Coinmission the necessity of complying with section 82 of the act of Congress approved July 1, 1902, above quoted, which authorized the Philippine government to prescribe devices and inscriptions " which shall express the sovereignty of the United States, that it is a coin of the Philippine Islands, the denomi- nation of the coin, and the j'ear of the coinage." While the Philippine Commission decided to take no action under the law authorizing subsidiary coinage until a definite unit of value was fixed by Congress, the War Department, in anticipation that Congress Avould grant the frequently recommended currency legisla- tion, continued to urge upon the Commission the necessity of officially adopting such devices, and in the meantime took up with the Director of the Mint and the expert engravers of the Philadelphia mint the question of the preparation of the proper dies. STABILITY OF INTERNATIONAL EXCHANGE. 415 On December is, l'.)()3, the Philippiue Commission piescribed the Figueroa obverse design of the native woman for all the silver pieces and the other obverse design of the sitting Filipino for the copper pieces, the reverse being common to all. The final act of Congress — Philippine coinage system — was passed March 2, 1!)03. On March 7 the Secretary of the Treasury submitted for inspection and approval a specimen of the new peso coin for the Philippine Islands. In the desire not to deny to the I'hilippine government the use, expert advice, and machinery of the Mint Bureau of the Treasury Department, upon request of the Secretary of War, the Secretary of the Treasury consented to purchase the bullion reported necessary for the Philippine coinage. It was arranged that the superintendents of the two mints assigned to the Philippine coinage should i)ay for the bullion as delivered from the "bullion fund" and render monthly reports to this Bureau, which would reimburse the mints by deposit of an equivalent amount in gold in the United States Treasury. This plan has been satisfactorily followed by daily cooperation between the Bureau of the Mint of the Treasurj^ Department and this Office. At first the Treasury Department calculated and promised a monthly coinage of ^"2, 000,000, estimating the capacity of the San Francisco mint 1,000,000 and the Philadelphia mint l,uOO,00(). After careful consideration as to the cost of bullion delivered at the various mints, and particularly the cost to the insular government for th(^ transpor- tation of the finished coins to the Philippine Islands, and the fact that experience had shown that the San Francisco mint could turn out eacli month P'2, 000,000, it was decided to confine the coinage of pesos to San Francisco and the subsidiary and minor coins to the Philadelphia mint, which is specially equipped for this class of coinage. Purchases of silver bullion were made on ^Mondays and Thui-sdays on quotations submitted to the Director of the Mint, of the Treasury Department, who has kindly consulted and cooperated with this Bureau as to the desirability of such purchases. Bills to cover the same are paid by this Bureau. A contract was entered into with the Scoville Manufacturing Com- panj' to furnish blanks in nickel and in bronze for the 5-centavo, 1-centavo, and one-half centavo pieces, which require only the stamp of the United States Mint after delivery. The purchases of bullion were made and allotted to the respective mints according to the needs and as dictated by economj^ rURCHASE OP BULLION. The first purchase of silver was made March 2Ci, 1903, twenty-four daj'S after the passage of the act. The following amounts were ai3pro- priated and placed to the credit of the disbursing agent for expenses in connection with the Philippine coinage: Mayl,1903_. . _S2,000,000 Junes, 1903 1,000,000 July 9, 1903 1,500,000 August 5, 1903 1, 000, 000 September 19, 1908 500,000 September 80, 1903 500.000 October 20, 1903 .800,000 Total 6, 800, 000 416 STABILITY OF INTERNATIONAL EXCHANGE. The disbursements to date of this report, October 31, have been: For purchase of silver bullion, San Francisco $3, 963, 935. 20 For purchase of silver bullion, Philadelphia _ 3, 324, 589. 39 For blanks for minor coinage 99 108. 00 For coining, Philadelphia _' 81,' 861.' 63 For coining, San Francisco _ _ 99', OOO. 00 For advertising certificates of indebtedness . . , 1 ' 494. 63 For distinctive paper 9 570. 00 For insurance 9' 237I 26 For freight and express 7' 231! 54 For packages and packing . _ _ . _ _ _ . ] 4^ 685! 43 For miscellaneous coinage expenses _ _ l' 755. 86 For preparing silver certificates 13, 659. 48 Total 6,615,128.31 The blanks for minor coinage were furnished under a contract at a cost of (J. 2812 cents per pound for the bronze blanks and 0.5.388 cents per pound for the nickel blanks. The United States mints at Phila- delphia and San Francisco are paid a uniform rate of 1 cent per silver peso or 2 per cent for coining. The purchases of silver bullion have necessarily been made from a limited number of corporations, who practically control the output. During the period covered by this report payments have been made for the following: Kame of firm. American Smelting and Refining Co Anglo-California Bank Handy & Harmon United Metals Selling Co.. Selby Smelting and Lead Co.- Thanahauser & Co Baltimore Copper and Refining Co American Exchange National Bank _ J. & W. Seligman& Co... H. Wadsworth, cashier.. Wells, Fargo & Co. Bank Nevada National Bank of San Francisco . Total Ounces. Amount paid. 6,090,4.31.35 ^,726,931.51 1,024,495.04 545,906.90 775,204.79 412,515.01 541,046.96 286,279.35 2,586,191.91 1,401,376.86 11,827.86 5,894.12 97,969.76 48,788.94 140,029.05 75,804.92 770.93 419.77 60,337.80 27,383.76 209,942.84 118,275.23 62,671.89 32,824.40 10,590,920.18 5,677,400.77 In addition to the purchases above mentioned there should also be included $610,123.72, being amount expended for 1,115,234.52 ounces of fine silver contained in the Pius award fund of 1,420,682.67, Mexi- can, purchased from the Department of State at the London price at the time of delivery at the San Francisco mint. These Mexican pesos were melted, refined, and recoined into Philippine pesos, and have been shipped to the Philippines by United States army transport. There have also been accepted the following amounts, for which payment has not yet been made : Name of firm. Shelby Smelting and Lead Co . Number of ounces. Pi'ice per ounce. 100,000 75,000 150,000 100,000 100,000 100,000 175,000 80,000 .5990 .5970 .5975 .60125 .6047 .5950 .59 STABILITY OF INTERN AT] ONAL EXCHANGE. 417 Name of firm. Anglo-Califoraia Bank . Hongkong and Shanghai Bank - American Smelting and Refining Co . Handy & Harmon Total number of ounces l,80t),0(J0 Number of ounces 65,000 50,000 50,000 100,000 70,000 80,000 137,000 50,000 54,000 K5.000 2.->,000 125,000 2(1,000 75,000 Price per ounce. ,^..5970 ..5980 ..5980 ..5975 . 59R5 .mm .6045 ..5ft50 .59 ..5960 ..5975 .5984 . .5925 .5920 The prices at which silver has been ofEered and accepted ranged from 49.10 cents per ounce, which was the first rate paid, to 60.47 cents per ounce. The average price per ounce for the period has been 54.53 cents. COMPLETION OF BULLION PURCHASES. In pesos, subsidiary, and minor coinage there have been shipped to Manila a total of ^17,881,650, which tlie Philippine Commission have advised are ample for inaugurating the new Philippine coinage, when supplemented by the Spanish-Filipino coins in the islands, which are to be recoined. A recent careful estimate, after examination of the archives, shows, in the opinion of the Commission, that instead of the hitherto estimated Pfs. 6,000,000 to Pfs. 8,000,000 there are from Pfs.11,000,000 to Pfs. 12,000,000 of this Spanish-Filipino coinage of all deuominations in the islands. It is the purpose of the Philippine Commission to demonetize Mex- ican currency on January 1, 1904, on which date the Commission pur- poses to take steps to get into the treasury all Spanish-Filipino coinage, ship same to San Francisco for recoinage into new Filiijino coins, and reship to the islands by returning transport, thus giving an amount of about P"28, 000,000 in the new coinage, the minimum sum originally estimated as adequate for the initial circulation of the new coins, and which will, within the judgment of the Commission, furnish sufficient silver for recoinage to serve all purposes for a long time to come. The Commission has, therefore, with the approval of the Secretary of War, suspended further purchases of silver bullion. SHIPMENT OP COINAGE TO MANILA. This Bureau assumed entire charge of the delivery of these coins to Manila. The first shipment of Philippine coinage was made from the San Francisco mint by United States Army transport sailing May 1, 1903, consisting of PI, 200,000. The first shipment from the Philadel- phia mint was made on May 26, 1903, and forwarded via New York and thence by steamer to Manila, consisting of P"2,000,000. The shipment of this completed coinage was a matter fraught with much risk and responsibility, demanding serious attention to protect the Philippine government from the embarrassment which would fol- low a loss, and at the same time to secure its expeditious transfer to Manila at the minimum cost. In so far as shipments from San Francisco v.ere concerned, with the H. Doc. 144 27 418 STABILITY OF INTERNATIONAL EXCHANGE. cooperation of the military establishment, it has been the practice to designate some officer already under orders to proceed to the Philippine Islands to report to the superintendent of the mint at San Francisco thirty days prior to the date on which he had already been ordered to proceed to Manila. He is there required to daily superintend the packing of the Philippine coinage, and just prior to the monthly sailings of the transports the same is carried by him under military guard in Government wagons to the transport, where it is stored in a suitable compartment under proper guard, and upon arrival at Manila is delivered to the treasury of the Philippine Islands by the oflScer who has accompanied it from San Francisco. This practice has been satis- factorily followed with each monthly shipment. It was found that the express charges for transportation from Phila- delphia to San Francisco, in order to permit of the free water shipment via transports, were excessive. In view of the volume of the ship- ment and the condition of the insular revenues, it was necessary to provide, if possible, a more economical route. Thorough investigation and inquiry resulted in a method of shipment by express to New York and thence by steamer to Manila through the Suez Canal. The saving by the adoption of this route was approximately $5,000 for each million pesos, and when one considers that the probable ultimate coinage will exceed r50,000,000, the consequent saving on the amount shipped in this way, although the length of the voyage is some twenty-four days longer, can be appreciated. INSURANCE. It was also necessary that the Philippine government be safeguarded in every way possible against loss, as the loss of even one shipment, sometimes aggregating P2, 000, 000 to ^3, 000, 000, would seriously embarrass the Philippine treasury. An exhaustive investigation was made as to the best and most economical means of affording this pro- tection, and a special form of insurance has been placed on all ship- ments from San Francisco and Philadelphia, which guarantees the insular government against loss from all causes, including theft, from the time of the leaving of the vaults of the United States mints until the time of delivery into the treasury vaults at Manila. This form of insurance is also free from averages and other provisions generally contained in insurance policies, whereby payment is only made in case the loss exceeds a fixed percentage. The hitherto or ordinary rates for the insurance of bullion or standard moneys —treasure — would have entailed a large expense in the shipment of this coinage from the United States to Manila. In fact the best rate quoted to the Treasury Department was 55 cents per $100 bullion value, and it was necessary to finally go to the English Lloyds, where an insurance rate of 16f to 19 cents per $100 bullion value was secured for the first shipment, which, after competition between New York steamship lines, was for- warded as cargo at the usual rate of $5. 30 per ton. The weight of the first shipment was 65 tons. Subsequent shipments have been made from Philadelphia, via express to New York and thence by steamer to Manila, the transpor- tation cost of which since the first shipment has generally been based on a rate of one-'eighth of 1 per cent, bullion value, and insurance not to exceed 20 centa per $100, bullion value, according to the con- dition of the insurance market. Monthly shipments have been continued from San Francisco as STABILITY OF INTEENATIONAL EXCHANGE. 419 already outlined. At this time there have beeu coined and forwarded P°ll,355,000 from San Francisco, and from the Philadelphia mint coin- age of the denomination and value as follows: Value in pesos. Peso 3 . 790, 000 Fifty centavo 1,550,000 Twenty centavo 1 , 070, 000 Ten centavo 510, 000 Five centavo . . _ 442, 500 One centavo 106, 000 One-half centavo 59,750 6,528,250 TEMPORARY CERTIFICATES OF INDEBTEDNESS. Section G of the coinage act authorizes the issuance by the Philip- pine government of temporarj^ certificates of indebtedness to the extent of $10,000,000, of which not to exceed 83,000,000 at anyone time can be used as a continuing credit for the purchase of silver bullion. Immediatelj' upon the passage of this act the matter of the prepara- tion of these certificates was taken up with the Treasury Department. The Secretary of War cabled to Governo"r Taft recommending that temporary certificates of indebtedness to the amount of SijOOOjOCtO, gold, be authorized by the Philippine government and disposed of bj' this Bureau, and on March 23, 1903, Governor Taft advised the Sec- retary of War that the Philippine Commission had on that daj^ passed an act authorizing an issue of $3,000,000, in conformity with the act of Congress, to bear interest not to exceed 4 per cent, paj'able quar- terly, in the denomination of |;1,000 United States currency, redeem- able in gold coin of the United States not later than one year from the date of issue, to be disposed of at such rate of interest or premium as might be secured. The enactment also required tluit a full report of the action taken thereunder be made to the auditor and treasurer of the Philippine Islands. At the re(iuest of the Secretary of War, the Secretary of the Treas- ury authorized the statement that the temporary certificates of indebt- edness of the Philippine Islands "will bo accepted as securitj' for United States bank deposits whenever further deposits may be made, and may at any time be substituted for Government bonds now held as security for deposits on condition that the Government bonds thus released be used as security for additional circulation." This statement, together with the fact that the act of Congress had exempted the certificates from all forms of taxation, led to the belief that a fair premium might be expected, in spite of the fact that they run but one year and bear 4 per cent interest. This belief was not shared bj^ inaiiy of the leading financiers of the country, among them some public spirited bankers, who, nevertheless, offered to underwrite the temporary certificates of indebtedness at par, or a slight premium, one-half of 1 per cent, and to market them without cost to the Philip- pine government. However, with the approval of the Secretary of War, it was decided to put this first issue of 83,000,000 of temporary certificates of indebtedness on the market to the highest bidder, giv- ing everybody a chance to purchase. On April 1, 1903, a formal notice to bidders was given of this $3,000,000 issue, to date from May 1, 1903, the bids to be opened in this office in the presence of bidders on April 20, 1903. In the meantime, by the expeditious cooperation of the Bureau of Engraving and Printing of the Treasury Department, 420 STABILITY OF INTEKNATIONAL EXCHANGE. the certificates were prepared and engi'aved in denominations of $1, 000, bearing the vignette of Washington, with three coupons payable quar- terly, bearing the signatures of W. H. Taft, civil governor, Frank A. Branagan, treasurer of the Philippine Islands, and attested, under authority of the Philippine Commission and the Secretary of War, by the Chief of this Bureau. The widest publicity of the proposed sale of the temporary certifi- cates of indebtedness was given by advertising in the leading Ameri- can dailies and financial papers, with the satisfactory result that when the bids were opened on April 20 it was found that the issue had been a number of times oversubscribed. The offer of Fisk & Robinson, of New York, of $102.51.3, or a premium of $2.51.3 per $100 worth of cer- tificates, for the entire issue was the most advantageous to the Philip- pine government, and they were consequently given the award. It was deemed proper that the proceeds of the sale of these tem- porary certificates of indebtedness should draw interest in the bank where deposited, and to that end tenders for the same were asked of the two New York depositaries for Philippine funds— the Guaranty Trust Company of New York and the International Banking Corpora- tion. The tender of the Guaranty Trust Company was the most advantageous to the Philippine government, namely, 3^ per cent on daily balances, and was accepted. The three thousand $1,000 certificates were sent to New York by two representatives of this Bureau to save the large cost of expressage, and on May 1, as promised, they were turned over by the Guaranty Trust Company of New York, insular depositary for Philippine funds in New York, to the successful bidders, who deposited therefor with said insular depositary $3,075,390. If this amount could have remained at the agreed rate of interest, 3| per cent on daily balances, there would have been a profit of $63,028.65 on this issue at the end of a year. On June 30, 1903, the Philippine Commission, in eomformity with the recommendation of the War Department, and within the discretion conferred by the Philippine coinage act, authorized a second issue of $3,000,000 temporary certificates of indebtedness. The proceeds of this second issue of $3,000,000 were to be used exclu- sively for the maintenance of the parity, as provided by the act author- izing the issue. With slight change in the language and modifications as to dates, the plates prepared for the first issue were found to be suitable for the second. Proposals to bidders under date of July 9, 1903, and similar to the first proposals, gave the information that the certificates would be dated September 1, 1903, and that bids would be opened in this Bureau in the presence of bidders on August 25, 1903, at which time it was found that the bid of Harvey Fisk & Sons, of New York, $102.24 per $100 for the entire issue, was the most advantageous, and the award was made accordingly. . The Guaranty Trust Company of New York had previously agreed to give the same rate of interest on daily balances — 3^ per cent — on the proceeds of this second sale. When one considers the comparative state of the market on the date of this sale, it is believed that the premium secured was as satisfactory as that on the first issue. The resulting profit in this second sale, should the proceeds of the same remain on deposit for one year, would be $54,522. . .■ * The result of these two sales is gratifying as a demonstration of the confidence of the public in the stability of the Philippine civil government. STABILITY OF INTERNATIONAL EXCHANGE. 421 SILVER CERTIFICATES. Among other provisions, the above-quoted act of March 2, 1903, sec- tion 8, authorized the treasurer of the Philippine Islands, in his dis- cretion, to receive deposits of the standard silver coins of 1 peso in sums of not less than 20 pesos, and to issue silver certificates therefor in denominations of not less than 2 or more than 10 pesos, and coin so deposited to be retained in the treasury and held for the payment of such certificates on demand and used for no other purpose. Provision was also made that these certificates should be received for all public dues in the Philippine Islands. This matter, upon the passage of the above act, was taken up bj' cable with the Philippine Commission with the result that the denom- inations of 2, 5, and 10 pesos were decided upon for issue, with the respective vignettes of Rizal, McKinley, and Washington. It was then actively taken up with th« Bureau of Engraving and Printing of the Treasury Department, as well as with the chief of the division of loans and currency. The Secretary of War directed that these silver certificates should express the sovereignty of the United States, as well as show that they were certificates of the Philippine government, as is required by the law with respect to the coins. It was also deter- mined to make the Philippine silver certificates distinctive from those of the United States Government in size and color. Blue was selected for the 2-peso note, red for the 6-peso note, and brown for the l()-pes(j note. Models were prepared along these lines, and received the approval of the Secretarj^ of War, and upon the cabled authorization of the Philippine government the Bureau of Engraving and Printing pre- pared the plates. The Secretary of the Treasury was re(iuested to prepare notes in thc^ denomination aud value as follows : P3,000,000 in 3's. 6,000,000 in 5's. 0,000,000 in lO's. With these silver certificates, as well as with the coinage, the ques- tion of their safe as well as economical delivery at Manila demanded serious attention. On account of the high rate of expressage to San Francisco it was decided that the certificates should not be completed in Washington, but forwarded to Manila without the seal of the Treas- urer and without the overprint, in color, showing the denomination of the note. To this end a separating machine to cut the notes in each sheet and the necessary dies and plates and Treasurer's seal, also presses for same for the completion of this paper money, were shipped by express to San Francisco and thence by army transport to Manila. The silver certificates were packed in tin-lined boxes, securely strapped, and with the cordial cooperation of the GeJieral Superin- tendent of the Railway Mail Service, who evolved a system of "pony express," these boxes were forwarded by special Railway Mail Service messengers from Washington to San Francisco and there turned over to the officer in charge of the monthly coinage shipment to Manila, to be carried by him, under proper guard, for delivery to the treasurer of the islands. Up to the present time there have been completed and forwarded to Manila silver certificates of these three denominations, aggregating: ¥=3,000,000 in 3's. 4,000,000 in 5's. 4,000,000 in lO's. 422 STABILITY OP INTERNATIONAL EXCHANGE. ISSUE AND EBDEMPTION OF SILVER CEETIPICATES. After careful study of the method followed by the United States Treasury Department in the issue and redemption of its silver certifi- cates, this Bureau made an exhaustive report thereon, accompanied by a supply of blank forms, which was forwarded to the civil governor of the Philippine Islands for his information. AID AND COOPEJlATION OP THE UNITED STATES TREASURY DEPARTMENT. It is a pleasure to recommend here, on behalf of the Philippine government, an official expression of thanlcs and appreciation of that government to the officers and various bureaus of the Treasury Department for their splendid cooperation, aid, interest, and expert advice in carrying out this great work. This is especially true of the Bureau of the Mint, the Philadelphia and San Francisco mints, and the Bureau of Engraving and Printing. Appendix K. THE GOLD-EXCHANGE SYSTEM IN OTHER COUNTRIES. I. The Monetary System of German East Africa. [Pre] Hired hy the German Foreign Office.] The eiiiTency in German East Africa up to the year 1890 consisted mainly of Indian rupees. In 1800 the German East Africa Company was permitted to coin silver and copper coins of the rupee Yaluation for German East Africa. These coins, of which the .silver coin bears the image of the German Emperor and the copper coin the German imperial eagle, had been put into circulation together with the coins issued in British India and had the same value as those Indian coins. These German coins were also in circulation in Zanzibar, which is a protectorate under the British Government. These condition.^ had not been changed when the government of British India, in Jirne, 1893, made their coins independent of their bullion value by suspend- ing their free coinage, and sought by this action to assure for them a gold value far in excess of their contents in bullion. As the German East Africa Company were subject to great restric- tions regarding the coinage to the extent that their own coins were less numerous in German East Africa than the Indian rupees, the rupee of the company kept the same value as the Indian rupees, and finally participated in the rise of the English rupee in gold value. But as it was felt that no sufficient guaranty was given for the con- tinued maintenance of the standard gold value of the rupee while the right of coinage for German East Africa was in the hands of a private company, the government of the colonies entered into negotiations with the private company, with the object of resuming the right of coining money. These negotiations led to the agreement between the imperial chancellor and this companj-, dated November 15, 1002, in which the companj' renounces, besides other privileges, the right of coining money. This agreement has been in force since April, 1903, so that from that date the government has again possessed the exclusive right of coinage. A few days prior to this time the English authoi'ities in Zanzibar refused the acceptance of further German rupees at the public pay stations. Through this action danger arose that the German rupee would lose value in comparison to the Indian rupee; but such a decline in value has been prevented by a contract made bj- the German administration of the colonies with the German East Africa Company (which latter had their principal headquarters in Zanzibar), to the effect that the company in Zanzibar should exchange the German rupee at par against Indian rupees, while, on the other hand, the 423 424 STABILITY OF INTERNATIONAL EXCHANGE. government of German East Africa should redeem from the company the rupees thus exchanged against gold drafts on the colonial office. This arrangement, of course, was only temporary, and was intended only to prevent a decline in the value of German East Africa money up to the time that the German Government should establish a stand- ard for the German East Africa coinage, which object has been attained to a full extent. No final decision has been reached regarding the establishment of a coinage system. The imperial Government has a plan under con- sideration involving the coinage of Government rupees for East Africa, which shall take the place in the future of the coin which is now in circulation in German East Africa, contemplating also that this Gov- ernment rupee shall bear a fixed ratio to the German gold standard, and, further, that this ratio shall be maintained through operations of the financial administration of the colonies, which is always in a posi- tion to draw gold drafts on the office in Berlin. II. — The Monetary Situation in the Khanate of Boukhara. [Note from Mr. Wischnegradski.] The monetary system of the Khanate of Boukhara is based on sil- ver, like that of otlier Asiatic states. The monetary unit is the tanga, containing about 72.2 doli of fine silver. The tanga is divided into 64 roulls, copper. Besides, there exist in small quantity a gold coin, the tella, of a nominal value of 20 tangas. The coinage of tangas is made either with silver purchased upon the market by the ameer or on private account. In the latter case there is levied a special tax. The quan- tity of tangas coined having been found to surpass by far the needs, and at the same time the price of silver bullion having fallen decid- edly on the world's market, the value of the tanga fell considerably. The situation created by this state of things took a character still more acute when, in order to prevent Russia being flooded by the depreciated metal, that country prohibited the importation into Rus- sia' of foreign silver moneys, even of the tangas of Boukhara which were in circulation in Turkestan. This measure has been effective so far as it affects the tangas, since the ameer has pledged himself to permit the coinage of tangas only so far as he shall receive the con- sent of the Russian Government. The suppression of the coinage of tangas bettered the situation only to a certain degree. The value of the tanga continued to be very unstable under the influence, it is true, of factors which were purely local. Thus during the fall in the cotton market the value of the tanga reached 17 kopecks, while the value which it contained would have fixed it at only 10 kopecks. With a view to improving positively the monetary circulation in Bokhara, of which the defects were injuring decidedly the commercial operations, the Russian Government took the following measures: In accordance with a decree determined in the committee of finance on the 16th of April, 1900, the ameer pledged himself not to reestablish the coinage of tangas. In agreement with him the value of the tanga was fixed at 15 kopecks. At this rate the tanga is received in all payments to be made to the imperial treasury and to the bank of the State. Everywhere in the territory of the Khanate of Bokhara and in a part of the territory of Samarcand at this same rate taxes and the rates due to the government of the ameer are payable. The payments may be made in Russian money or in Bok- hara money. In order to insure the stability of the rate of exchange STABILITY OP INTEKNATIONAL EXCHANGE. 425 the branch of the Bank of the State of Bokhara has opened a bureau for the exchange of Russian money in return for tangas, and vice versa, and this at the rate above mentioned of 1 tanga to 15 kopecks. To attain this object there has been constituted a fund of 45,000,000 tan- gas by way of purchase. For nearly two years now these measures have been applied, and experience has shown that the fund of tangas instituted, as has been said above, is entirely sufficient for the per- manent exchange, and that this operation, taken together with the measures mentioned, maintains the value of the tanga at the price which had been fixed. III. — Currency Changes in Siam. [From United States Consular Reports, February, 1908.] Yice-Consul-General J. P. Selden reports from Bangkok, December . 6, 1902, that Siam has closed the mint at Bangkok to the free coinage of silver, and has taken the initial steps to place her.self upon a gold basis. . Mr Selden adds : The tical, the standard coin of the realm, has up to this time had a fixed ratio value to the Mexican dollar of 60 to 100. The steady fall in the value of silver during the last six months has therefore greatly diminished the value of the tical until, during the latter part of the month of November, 1902, £1 was equal to 21 ticals and a fraction. On November 27, 1902, a notice appeared in the several local papers that the royal mint would no longer issue ticals to tbci public in exchange for gold, silver, or copper, whether presented in the shape of bullion or coins. At the same time the ratio of 17 ticals to £1 was fixed as the rate at which the Siamese tninister in London would issue demand drafts on Bangkok against pounds sterling in London. This change paralyzed the business interests for the time, as the banks were liable for large amounts. Under date of December 12, Mr. Selden reports that an arrangement has been made whereby the banks will sell drafts (ni London at 20 ticals per £1 and buy at 19.25 ticals per £1. IV — The Cold Standard in Peru. [From the Annual Report of the Director of the Mint for 1902, p. 333.] Mr. Neill, secretary of legation at Lima, under date of October 21, 1901, sends a translation of an editorial which appeared in El Com- mercio, of that city, regarding the establishment of the gold standard. The article says, in part : "More than four years ago the Government of Peru suspended the free coinage of silver as the first step toward the establishment of the gold standard on the basis of 24d. (48.6 cents) as the fixed value of the monetary unit. A decree was issued, in accordance with the law of October, 1897, ordering the payment of import duties to be made in gold, a pound sterling to equal 10 soles in the payment of import duties, a fine of 5 per cent being imposed on payments not made in gold. The first of these measures established by law the ratio of 1 to 10 between the pound sterling and the Peruvian sol, and the second facilitated the introduction of gold coin into the country. The law empowered the Government to use the amount derived from the 5 per cent fine to defray the expense of remelting the silver soles into bars. This measure, while it caused the amount of silver coin in circulation to diminish, also caused an increase in theamountof gold in circulation. 426 STABILITY OF INTERNATIONAL EXCHANGE. " In fact, the withdrawal of 2,500,000 soles and their conversion into pounds sterling (English gold) at an expense of but 350,000 soles was the introductory step toward the adoption of the gold standard. Since January 1, 1898, up to date over £600,000 (12,919,900) have been imported and £200,000 (1973,300) have been coined at the mint. The mint is thoroughly established, and a law has been passed mak- ing the Peruvian gold pound legal tender to any amount. Little gold has left the country, while the production of domestic gold increases year by year. " The anxiety which has prevailed during the past few daj^s on account of the hoarding of gold coin points to the advisability of put- ting an end to the transition period and of limiting the purchasing power of our silver soles by fixing a maximum, which may be reduced from year to year. By this means all doubts as to the higher or lower relative value of the two legal tenders, which have existed up to the present, will be settled and the absolute gold standard established in our monetary system. While the present order of things continues, any prospect of gain will lead to the hoarding of either gold or silver, thus causing a scarcity of circulating medium. Common sense suggests that we adopt an absolute gold standard. This was the intention when the monetary reform was begun, and to this end the project submitted to the Senate yesterday, declaring the Peruvian gold pound to be the monetary unit, has a direct tendency. V. The Question of Exchange in Italy. [Translation of extract from The Economic and Financial Situation of Italy, by Edmond Th6ry.] * * * In order to make up the enormous deficits of the period between 1861 and 1891, the, Italian treasury was not satisfied with appealing to foreign credit. It had also used and abused the fiduciary circulation of the National Bank of Italy (liquidated in 1893), and, independently of this circulation, its own issues of Government notes reached the sum of 340,000,000 lire on December 31, 1883; 400,000,000 on December 31, 1894, and 576,000,000 on December 31, 1897. On these three dates the total circulation of bank bills and Govern- ment notes in Italy was, respectively, 1,134,000,000, 1,526,000,000, and 1,662,000,000. On December 31, 1902, the circulation of the banks was 1,176,000,000, and that of Government notes 411,000,000, or a total of 1,586,000,000 lire. Between 1897 and 1902 the volume of Italian credit isvsues has, therefore, been reduced by 76,000,000 lire, and this simple reduction, when compared with the very real improvement in the ecomomic and financial situation of Italy, especially since 1899, explains the pro- gressive fall in Italian exchange, which to-day maintains itself at about par. The influence of the volume and the quality of the fiduciary circu- lation upon the premium on gold is no longer contested in Italy. As early as 1898 Commander Luigi Bodio, the learned secretary of the International Statistical Institute, taking as his guide the various phases of the Greek monetary crisis, of which he had made a study on the ground, had demonstrated that "the quantity of bills in circula- tion in a country with a depreciated currency is the prime factor which influences the premium on gold in that country, and that each time that the total of these bills increases exchange rises, and, inversely, the rate of exchange is always reduced when the total diminishes." STABILITY OF INTERNATIONAL EXCHANGE. 427 The results of the study of Commander Bodio may be stated as follows : "In a country with a forced legal-tender currency all merchandise has two prices — the price in paper money and the price in gold. The price in paper is governed by the quantity of bills in circulation and their value; this latter, in its turn, is influenced by the probability of the redemption of the bills at a given time, by the anticipation of pos- sible new issues, by the payments which the government must make to foreign countries, by the balance of trade, and bj' the general equi- librium of the rates of exchange with foreign countries. "Notwithstanding the violent fluctuations produced by the ijsyeho- logical element, the variations are continually brought back to a center of gravity determined by the quantity of the circulation, which, having a limited market, can not unload its excess in foreign countries." These conclusions have been admitted by Mr. Maggiorino Ferraris in the very interesting studies which he published, in LS'.is and lS'.i9, in the Nuova Antologia (studies which we have reprinted in the Economiste Europeen), and we know that they have been confirmed by Mr. Henri Germain, the eminent president of the board of directors of the Credit Lyohnais, who has established — in regard to the question of Spanish exchange, and guided bj"- careful study — "that there is but one factor that exercises a decisive influence upon the rate of exchange on paper money, it is the greater or less quantity of this paper. Every time its volume exceeds the needs of the circulation paper money depreciates, and its depreciation is in direct ratio to its superabun- dance. There is but one means, but one only, of restoring the rate of exchange on paper money to par, and that is to reduce the amount in circulation to the amount of which the public has need." The following table will demonstrate the progressive improvement which has resulted from this in regard to Italian e.xchange: Italittii e.vchttnge on Parh. Year. Highest rate. Lowest rate. Average i-ate. 1892 - ICfi. 12 Uo.'.r. 115.711 109. .Til 112.50 106.42 109.90 108.60 107.42 105.92 102. 75 100.17 102.27 103.69 1893 - . 104.(15 106.25 104.12 104.25 104.20 104. 75 105. 70 105.35 101.50 100.12 99.92 110.00 1894 - --- 110.97 1895 - - 106.84 1896 --- 108.37 1897 ire. 16 1898 107.00 1899 - - --- 107.34 1900 106.46 1901 -- -- - -- - 106.41 1902 - --- - 101.49 100.04 We have already stated that between December 31, 1897, and December 31, 1902, the circulation of the banks and of Grovernment notes had been reduced by 76,000,000 lire; during the same period the Italian treasury reimbursed about 70,000,000 in notes advanced by the banks, and the reserves of all kinds formed in these establish- ments increased by more than 120,000,000 lire. There has, therefore, been a reduction in the volume of credit issues and an improvement in its quality. It was at the end of 1893 that Italian exchange reached the highest point; the explanation of this has been given in our chapters on "The public debt" and on "Banks of issue." At that time Mr. Sidney 428 STABILITY OF INTERNATIOTSTAL EXCHANGE. Soimino, minister of finance in the Crispi cabinet, adopted various measures which had a marked influence upon the course of exchange and of which the most eflftcacious was, beyond doubt, the decree of March 28, 1894, directing that Italian duties should in future be pay- able in specie current in Italy. Italy belonging to the Latin Union and its silver crowns being received at their parity with gold by the French treasury (as also the crowns of all the other nations in the union), the decree of 1894 meant no more nor less than that the payment of Italian duties should be made in gold. I was directed by our minister of finance, Mr. Burdeau, to study the reasons which had induced the Italian Government to take this step, of which our commerce was complaining, and Mr. Sonnino, to whom I was introduced by Mr. Ferraris himself, gave me the follow- ing explanations, which I ask permission to reproduce: It appeared from an examination made at tlie instance of the min- isters of finance and of post-offtees and telegraphs, that the amount which Italy annually received from foreign countries, either through remittances by Italian emigrants, through foreigners who came there to visit the country, or through the coupons of foreigfi securities owned by Italian capitalists, was at least equal to, if not greater than, the sums which it owed foreign countries, either on account of the trade deficit, or for the payment of that portion of the national debt due foreign countries, or for Government expenses. Theoretically, Italian exchange should liave been at about par. Why had it risen by almost 16 per cent? And why did it have a marked tendency to rise still higher? "Because," Mr. Sonnino told me in substance, "as our circulation possesses no more specie, and as our banks of issue, owing to defect- ive organization, are not in a position to defend our exchange (Italy then had five banks of issue, of which two were bankrupt), the treas- ury, and Italian stock companies, and individuals who have payments to make abroad are the victims of the money changers. "It is they that appropriate the greater part of the gold that comes to this country, and as they know the needs of the country, they profit from the fact to sell their gold at prices manifestly exaggerated. "The interests of the Italian treasury, and with them those of the nation, are greatly injured by this state of facts and the Government is powerless against these money changers, as it would be necessary to formulate a special law in the matter, or to take steps of a particu- larly delicate nature. "But what the Government can very easily do is to take from them the principal element of their speculation, that is, the patronage of the treasury. As a matter of fact, nearly all taxes are paid in bank notes, and it is always precisely at the time the treasury begins its pur- chases for the purpose of effecting its remittances abroad that exchange goes up. And when it goes up a point or two it does not come down again, because the money changers know very well that the treasury will necessarily have to go through the same operation again in a short time. "Now, oitr receipts for customs duties represent about the aggre- gate of the sums which the treasury must pay each year abi-oad for all the departments of the State. Therefore, by requiring the pay- ment of these duties in specie, it would mean cash coming into the coffers of the treasury, and our foreign remittances would gradually be effected normally without the ruinous intervention of the money changers. STABILITY OF INTERNATIONAL EXCHANGE. 429 'These latter, becoming thus assured that the treasury — the amount of whose needs they know, as also the dates when its obligations fall due — would no longer enter the open market to purchase the exchange that it required for its foreign payments, would no longer expose themselves to the risk of holding it back, as they have, done in the past. They would sell it at a smaller profit as soon as they found an opportunity, being free, of course, to buy it back cheaper them- selves. There would necessarily result a progressive lowering in the rates of exchange, or, more properly, a new limit of fluctuation in the premium on gold, more in keeping with the real economic situation of Italy." I drew Mr. Sonnino's attention to the facts, first, that the payment of customs duties in gold had the disadvantage of indirectly increas- ing these duties by the difference in exchange ; second, that Italian importers might perhaps find it difficult to obtain gold, since none existed in the circulation of Italy. "There would be a disadvantage to Italian importation," answered the minister, " only in case the measure did not lower the premium in gold; but in the probable event of the lowering of exchange the importer would have a great advantage, since this decrease would reduce in an equivalent proportion the price, in Italian paper money, of all goods purchased abroad." As to the question whether the Italian importers could easily secure the specie required for the payment of customs duties, Mr. Soimino simply called my attention to the fact that these importers already secured it for the payment of goods purchased abroad, altliougli llie price of these goods was five or six times greater than the Italian cus- toms duties. He added that these importers were, therefore, in a better i^osition than the treasury to procure foreign exchange, since they had tlie practical experience of the market and the perse mal responsibility of the operation; that their needs had not the imprra- tive character of those of the government; that they could, according to circumstances, reduce their stocks, reduce the amouuTi of their purchases, or extend their terms of credit; that, being unknown and divided into innumerable parts, these needs could not be gauged by exchange speculation, as could so easilj' be done in the case of the treasury, and that for all these leasons their isolated action would certainly not have upon the said market the saine influence in the sense of athancing exchange as the purchases in bulk made by the treasury. The effect of the measure taken was immediate. We find the proof of this in the statement of the varioiis items of the budget of 180.5-06, which Mr. Sonnino presented to the Italian Parliament at the end of 1S04. After having indicated the means which he proposed for assuring the equilibrium of the budget — which Italy had not enjoyed for a great many years — and for regulating the monetary circulation of the country, Mr. Sonnino said : ' ' Let us provide for the budget ; let us maintain the equilibrium ; let us improve the conditions of the circulation and the treasury will be able to meet its obligations notwithstanding its imfortunate inheritance of the past. "The proof of this lies in what has been done since the month of January, 1804, up to this day (December 10 of the same 5'ear), dur- ing which time 90,000,000 in small coin were withdrawn from foreign countries, and thei-e were canceled, without reissuing, 28,000,000 of 430 STABILITY OF INTERNATIONAL EXCHANGE. treasury bonds, and 42,000,000 of gold due to Berlin — all this witttout disturbing the decreasing fluctuations of exchange, nor requiring any issue of public securities." And in terminating this summary review of the principal elements of the economic and financial situation of Italj'^ the minister added : " There has sprung from this a noticeable improvement since the month of January, and even since the month of June. Italian Gov- ernment bonds were quoted at Paris at 72 francs in January and at 78 francs in June, and to-day they oscillate in the neighborhood of 86 francs. During the same period exchange has gone down from 16 per cent to about 7 per cent." The average of Italian exchange, which fell to 105.16 in 1897, rose to 107 in 1898 and to 107.34 in 1899. This increase may be attributed, first, 10 the bad cereal crops of 1897-98; second, to the troubles of the month of May, 1898, which, beginning in the southern provinces, owing to the increase in the price of bread, spread rapidly in the north and in Milan itself, where a real political insurrection was suppressed by force of arms; third, to the increase in the fiduciary circulation of the Bank of Italy, which rose successively from 789,000,000 lire in 1897 to 831,000,000 in 1898 and to 882,000,000 in 1899; fourth, finally, to the repatriation during these last two years of Italian securities marketed abroad, a repatriation which was much too great for the actual resources at the country's disposal. According to the official statistics of the Italian treasury, the net payments made to foreign holders of Italian Government securities had risen to 102,339,000 lire in 1894-95, to 102,540,000 lire in 1895-96, to 105,331,000 lire in 1896-97, and to 106,607,000 lire in 1897-98. Dur- ing this period of four years Italy, far from repatriating its foreign debt, had thus, on the contrary, a tendency to increase it. In the budget of the fiscal year 1898-99 the net amount of foreign payments fell suddenly to 95,892,000 lire, and in the following fiscal year to 83,501,000 lire. In two years, therefore, Italy has repatriated 23,106,000 lire in interest on Government bonds, or a capital of about 580,000,000 lire. It is evidently not real savings that have realized all these foreign purchases, and this is demonstrated by the increase in the volume of the fiduciary circulation of the Bank of Italy, whose portfolio of discounts and advances on securities rose from 195,000,000 lire on December 31, 1897, to 367,000,000 lire on December 31, 1899. It can therefore be said that without the understanding effected at the end of 1898 between Italy and France — an agreement which had so happy an influence on the foreign credit of Italy, since the quota- tions on Italian 4 per cent Government bonds, which had been on an average in Paris only 91.98 francs in 1898 and 94. 15 in 1899, were above par at the end of 1901 and closed at 101.45 francs on December 31 fol- lowing—Italian exchange in 1898 and 1899 would certainly have reached the level of 1893-94. Appendix L. GENERAL DISCUSSIONS ON THE SUBJECT OF STABLE EXCHANGE. 1. The Influence of Falling Exchange Upon the Return Received for National Products. [Argument submitted to the monetary commission of the Republic of Mexico, April Is, 1903, by Messrs. Charlq^ A. Conant, Jeremiah W. Jenks, and Edward Brush.] [Reprinted from the Bankers' ^Magazine for INIay. 1903.] An important element in the influence of falling exchange upon national prosperity is its effect upon the real return received for tliat part of the national product which is sold abroad. Foreign trade is essentiallj' the exchange of the commodities of one natimi for those of other nations, rather than an exchange of commodities for money. Money serves chiefly as a means for facilitating exchanges of goods. The most important question is not how much gold nor how much silver is obtained for the products of a commuuily, but how much in foreign products is obtained in return for a given part of the product of national labor. If a nation in paymciit for forei.nii commodities produced by the labor of one man gives up domestic commodities produced by the labor of two men, it is suffering an economic loss, if its own laborers possess the same average productive efficiency as the laborers of other countries. The influence of a falling exchange upon foreign trade, it is gener- erally granted, is to reduce the gold price of the exports from a silver country. The fall in the gold price of silver permits goods to be sold abroad for a falling gold price so long as wages and the cost of mate- rials at home remain unchanged in terms of silver. It is this influ- ence wdiich enables a country with a depreeiat ing currency to underbid its rivals in selling its products in markets Avhcre gold is the standard. There are, perhaps, certain temporary benefits in this condition, in extending and developing the trade of the expin-ting countrj-. It is an important question, however, whether the continuous depreciation of the standard may not reach a point which will soon result in the surrender of a given quantity of domestic goods to foreign purchasers in excliange for a continuously declining quantity of foreign goods. When this occurs it is clear that the exporting country runs graverisk of suffering an economic loss, which is not compensated by the increase in its exports. This very increase in exports appears under these con- ditions to be the result of the conviction on the part of purchasers that the country having the depreciating standard is offering the products of its labor for a smaller return than competing gold countries. Applying these general principles to the recent monetary history of Mexico, the question is proposed whether Mexico is not paying loo dear in her own products for the foreign products which she imports, by reason of the low price of her o^^'n products, resulting from the fall- 431 432 STABILITY OF INTERNATIONAL EXCHANGE. 'ng gold price of silver. This can be determined, in part, by compar- ing the quantity of Mexican goods exported with the return at gold prices received for these goods from foreign countries. The following table shows the value in silver of the total exports of Mexican products and their gold value at the average rate of exchange for representative fiscal years during the past two decades : Value of exports from Mexico. In silyer. In gold. Value of peso, a Fiscal year ending June 30— $29,206,772 49,329,915 75,660,880 88,044,624 80,083,944 95,020,326 110,022,356 117,«e4,092 138,068,504 148,453,834 158,247,933 158,009,437 168,041,272 $26,110,854 38,970,633 63,328,157 57,845,318 43,165,246 48,840,448 58,971,983 59,127,614 61,854,690 70,070,210 75, .326, 016 77,266,639 74,106,200 $0,894 1887 .790 1892- .837 1893 .657 1894 .539 1895.- - .614 1896-- . - - --- . .536 1897 ..506 1898 .443 1899- -- - - .471 1900 .- -- .478 1901 .488 1902 .441 a Gold. One of the facts which first attracts attention in examining these figures is the relatively small increase during the last few years in the gold value of the national exports. The value expressed in the money of the country hfy? increased by leaps and bounds, from 29, 206, 772 pesos for the fiscal year ending June 30, 1882, to 75,660,880 pesos in 1892, 117,784,092 pesos in 1897, and 168,041,272 pesos in 1902. The ques- tion at once suggests' itself whether this increase in the silver price of the total exportations means that Mexican products have been exported in largely increased quantities, corresponding to their increase in sil- ver value, or whether higher prices in silver have been received for such products in order to maintain their gold price. In the latter case such increase in prices may be partly or wholly offset by the fall in the gold value of silver, or it may have gone beyond this and brought an actual increase in the gold value of the return obtained by the labor and enterprise of the country. If, on the other hand, it appears by comparison of the quantities exported and by their prices when reduced to gold that a larger volume of the products of Mexico has been deliv- ered up to foreign consumers for the same or less return in the prod- ucts of gold countries, then Mexico has suffered an economic loss. Leaving aside for the moment the question of the quantities of goods exported, some light is thrown upon one aspect of this subject by reducing the silver values of goods exported to a gold equivalent at the average rate of exchange prevailing for each year, as is done in the above table. This reduction shows that the increase in the gold value of the exports of Mexico within the past ten years has been comparatively trifling. The increase in gold value of the total exports was more than 100 per cent from 1882 to 1892, during which period the gold value of silver fell only from 89.4 cents in United States gold coin to 83.7 cents. From 1892 to 1902, however, the advance in the gold value of the exports of Mexico was only 18.38 per cent. This affords an average increase in the gold value of Mexican products exported of less that 2 per cent per year upon the basis of the exports of 1892. This is not a large increase in the gold value of the export trade of the country. It remains to be determined whether the increase in STABILITY OF INTERJSTATIONAL. EXCHANGE. J:33 the quantities of the goods exported has inerel}' kept i^ace with the small increase in their gold value or whether it has been greater or less. If it has been materially greater, then the conclusion follows chat a smaller gold return has been received for the labor and capital of Mexican citizens. Whether this diminished retiirn has been offset .by the diminished gold price of the products of gold countries imported into Mexico, is a question which will be considered in due time. For the present, however, we shall deal with that side of the problem relat- ing exclusivelj' to the quantities and values of the exports of lilexieo. In considering these exports the precious metals, gold and silver, may be eliminated for the present, in spite of the large part they play in the export trade of Mexico, because their export value is deter- mined by conditions somewhat different from those which affect other natural products and manufactured goods. The exports of Mexico, aside from gold and silver, consist chiefly of several metals, fibers, and natural pi-oducts. Among the more important of these articles are copper, coffee, beans, fresh fruit, ixtle, and dyewoods. The gold value of these articles exported in 1S02 was SCi,4:S:;,ss7. The gold value of articles of the same classes exported in 1902 was sit), 781,000. The exports of all classes from Mexico in 1SII2, reduced t(.) a gold value, were .$f).'J,32S,157, of wliich $30,041.(150 represented silver coin, bullion, and ore at the gold valuation of that year, and about «1,Oik),O()0 the gold jji'oduct of Mexico. This left the total exports of merchandise at about $22,500,000 gold value, of which tlu' articles enumerated con- stituted about 20 per cent. For the fiscal year 1002 the gold value of total exports was .4i74,10(!,200, of which ^^2i;,275,(;o4: was silver and about $0,000,000 gold, leaving the gold A-alue of exports of inei-i-han- dise at about $30,000,000. The exports of the six articles above enumerated made about 27.5 per cent of merchandise exports. It is net'Cssai-y, in order to detei-mine wliether the country is now giving up a larger i)roportion of its own jiroducls for foreign products than was the ease ten years ago, to ascertain whether the quantilies of the articles exported have increased in a gi'cater or less ratio than the increase in theii-gold value. Examination, of the principal of Ihese articles shows that with ouc^ exception the jjcrcentage of incr(.'ase in the quantity exported is much greater than the percentage of inci'case in their gold value. In other words, every unit of 3Iexican product ion in these articles, upon the average, was sold for a. less gold price in foreign markets in the fiscal year 1002 than in the fiscal year 18'.i2. This appears from the following table, giving the percentage of increase in quantities and gold value for all these articles: Quantities (iiid gold values of principal art id' s. ISO? and 190-. Copper: 1891-: 1901-: Per rent of incre Coffee: lS!ll-:3. 1901-2. Per eent of increase. Beans: 1891-2. 1901-3. Per cent of increase H. Doc. lU 2S Quantity exported. Gold value. V,ilu© pi.T unit. l.iU-^.Tie :x!,(;ni;.ini.5 sr:Js.507 4, .57:^.842 .Ji.p;7 . y.r, iirj.rs .527.70 ll,n,-)8,:.'79 4,61.0.51.". 4, .505, 82:3 .416 :;2.ai3.:n9 Mir.i 100.78 -2.as j .1,2:*;.I«T 96, run 244, 378 . 0782 r,,i.w,8;» .0474 : 317.i5 . 1.52..5ti 434 STABILITY OF INTERNATIONAL EXCHANGE. Quantities and gold values of 2^1'incipal articles, ISOS and 1903 — Continued. Quantity exported. Gold value. Value per unit. Ixtle: 1891 2 Ki'oqrams. 6,602,136 12,475,362 $516,680 769,578 $0. 0782 1901-2 .0617 88.96 48.95 Dyewoods: 1892-3 3:3,186,137 40,626,944 438,210 568,348 .0132 1901-2- - .0140 22.42 29.70 Fresh fruits: 1891 2 2,524,239 5,364,553 88,215 119,921 .0349 1901 2 .0224 Per cent of increase 112.52 35.94 The variation between the rates of increase in quantities exjjorted and in gold valuations in the above table I'ednces to somewhat con- crete form the fall in the gold prices of Mexican products during the past ten years. In the case of copper 2 pounds were given by Mex- ican miners in 1902 for the same gold retui-n which was brought in 1892 bj' 1 pound. The character of the loss to Mexican industry by these changes is made even more precise by the following table, which computes the value of the exports of these leading articles at the gold prices of 1892 and compares with this value the gold values actually returned. Principal articles exported from Mexico, 1002. Article. Reported gold value. Value per unit. Gold value at unit price of 1892. Copper.- S1,5T,2,842 l..ill5,823 244, .578 769, .578 568,348 119,921 SO. 1360 . 2CJ30 .0474 .0617 .0140 .0224 $5,612,218 9,233,539 403,499 975,573 536,276 187,223 Coffee.. - Ixtle Dyewoods Fresh fruits Total .._. 10,781,090 16,951,328 These figures represent a decline in the gold price of these impor- tant Mexican exports amounting to about 36 per cent. It would be desirable on many grounds to include in this calculation other leading articles of export from Mexico. The most important of other articles are lead and sisal, which, -with the articles enumerated, would bring the total articles dealt with up to about two-thirds of the value of the merchandise exported. If the e:^-ports of lead were taken at the prices officially reported for the fiscal year 1892, they would show a decline in gold value on the quantity exported in 1902 which would amount to more than 116,000,000. This comparison can not properly be made, however, because in 1892 and up to 1895 the silver and lead contained m argentiferous lead were not carefully separated and classified for statistical purposes, and the values declared for the small volume of lead reported were not the commercial valuations of pure lead. In the case of sisal there is an increase in the gold value per unit of the exports of 1902 as compared with the values of 1892, which is due to special circumstances affecting the demand for this product. The war between Spain and the United States and the long-continued dis- STABILITY OF INTERNATIONAL EXCHANGE. 435 order in the Philippines reduced the supplj' of manila hemp in a way which reacted iipon the demand for the similar product of Mexico and other countries. Taking the average of the articles given in the table, it appears that upon merchandise other than silver there was a lossof §(), 170, 2o8 upon a volume of exports amounting to about27.5f)er cent of general exports of merchandise. If the same ratio of loss had extended to all exports of merchandise from Mexico it would have amounted in the aggregate to about 822,59,57H,04« 1901-2. - -- ; 59, 581i •■*'''■* Sfi.837 s;ei,9n,flriii ..jllU , ;«I,1-U1.491 .441 I :;ii,:.'7,-),604 The silver exports of 1902, if they had fetched the gold price of 1892, would have represented a gold value of nearly 850,000,000, against an actual gold viilue at recent i^riees of about •'s2(j,.'!00,000. Tlie loss in gold price, thert'fore, on the .silvci- exi)orte(l from Mexico was about '$2:3,700,000 for the flscal year 19(J2. If this amount is added to the similar loss in the gold value of otlier products exported, estimated at si5,000,000, it appears that the total loss sulTrred l)y Mexico in the gold value of her exports in llio2 as compared witli 1S!)2 can not be less than .$40,000,000 gold. This loss, moreover, is not an isolated event of a single year. It has been going on ever sinei/ the fall of silver began, and its proportions have grown rapidly in amount in every j-ear since 1892. There remains another side to the problem which, while thus far ignored, is vital to its intelligent consideration. The return paid by foreign countries to Mexico for her exports is ultimately not gold, but foreign goods. If the prices of these goods imported into Mexico have fallen in gold in the same degree that the prices of Mexican products exported have fallen, no real loss has been suffered on Mexican prod- ucts exported, and the entire argument made up to this point falls to tlie ground. The fall in prices must then be due either to improved methods of production on both sides, which adds to the productive- ness of the labor of the individual, or to a change in the relation of gold to human labor and its products. It becomes necessary, therefore, to inquire whether Mexico is pay- ing lower gold prices for her imports in a sufBcient ratio to offset the lower gold prices which she receives for her exports. It is less easy to determine this side of the problem than the export side, because the articles imported into Mexico are of much greater variety and are divided much more minutely into classes by the tariff classi- fication than in the case of the exports. In many cases, moreover, the imi:(orts are of such a character that it is impossible to classify 436 STABILITY OF INTERNATIONAL EXCHANGE. them by quaii titles, and they are entered in the offioial returns only by their values in money. A few representative articles which are largely consumed b}- the Mexican people may, however, be compared as to the ratio of quantities and prices ten years ago and at the present time. The following table, taken from the official returns of Mexican imports at gold values at the nearest dates available, throws light on this side of the problem : Cost of imports into Mr.i-iai, in gold, at prices of 1S93 and 1902. Article. Gold valtie, 1902. Value of same at prices of 1893. Percent- ago of change In price. a S2, 006, 927 ■ a 815. 266 4,53,203 2,293,863 8,490,721 2,1.56,998 243,992 1,999,817 1,058,409 518,384 ,$2,223,858 822,691 453,440 1,760,590 3,9:34,762 2,837,3:33 197,043 4,346,581 1,247,623 664,341 - 9.75 - .90 - .05 +30.29 -11.29 -23.98 +23.83 Coal ^ - -- -- -53.99 -15.17 -21.97 Total 15,037,.5.'?409, 275, 000, would have brought at the prices of 1899 only .$319,232,000, or §90,000,000 less than was actually received. On the other hand, the average import lirice of coffee dropped from 14.04 cents for the five years ending with 1 S'.i7 to (1.89 cents for the five j-ears ending with 1902. The correspond- ing decline in sugar was from 2.47 cents to 2.26 cents, and of tea from 438 STABILITY OF INTEENATIONAL EXCHANGE. 14.10 cents to 12.79 cents. The imports of these three articles into the United States for 1902 were actually entered at the gold value of $134,801,500, while at the prices of 1897 the same quantities would have been entered at $191,078,600. The United States, therefore, obtained these three important tropical products at $56,000,000 less than it would have obtained them at the prices of five years ago, while at the same time obtaining a considerablj'' enhanced price for its own products. It is not essential for the purpose of this discussion to consider whether the articles upon which the United States received so large a profit went largely to Mexico or to other countries. The essential point demonstrated is that a gold-standard country succeeded in obtaining, even foi' agricultural products, which have fallen so greatly in value in silver countries, higher prices in 11)02 than the average of previous years, while the gold prices of the exports of countries using a silver currency have heavily and almost continuously fallen. It must be freely admitted that the changes which have taken place in prices in the products of silver countries and in the products of the gold countries can not be assigned exclusively to the character of their monetaiy systems. Changes in the prices of an aggregate of arti- cles are produced by an almost infinite variety of causes. In manu- factured goods improvements in machinery and the economies result- ing from the consolidation of industries should have brought about a relative decrease in cost in recent years. Competition and the state of credit are also vital factors in determining price, even where actual cost of production is unchanged. Other things being equal, however, the intensity of competition should be at least as powerful in the manufacturing countries, with their large excess of plant in many cases, as in the agricultural countries, according to the Avell-recognized principle of economics that manufactured goods are capable of rapid and almost indefinite multiplication, so long as a supply of raw mate- rials remains available, while agricultural products are capable only of the slow multiplication resulting from natural causes or from the careful culture of years. If, therefore, the effect of competition under similar conditions has been to depress the gold value of the exports of Mexico in a much larger ratio than the same cause has depressed the gold value of the imports into the country or the exports from gold countries, then strong color is lent to the presumption that the monetary system has been influential in the matter. The contraction or expansion of credits within the exporting country might contribute to contract values at one period and inflate them at another, and this has undoubtedly been a potent influence within the last few years in raising the gold prices of articles exported from the United States. If Mexico had been subject during this period to depression in trade, the cnmparison between prices in Mexico and in countries under different conditions would have only a limited value. The fact appeai-s to be, however, that business conditions in Mexico have been favorable, that there has even been a special stimulus applied to certain lines of production by the fall in silver, and that prices in silver have considerably risen. If this justifies the conclu- sion that credit conditions during the last few years have been parallel in the gold and silver countries, or at least in Mexico and the United States, the conclusion may reasonably be drawn that if prices have fallen in an undue degree in Mexico, while in many cases they have risen and in others have not fallen materially in the United States, STABILITY OF INTEKNATIONAL EXCHANGE. 439 then the argument is strengthened that this condition is related in some degree to the difference in monetary systems. Conclusions upon so complex a problem as that here considered conld not be drawn with certainty if the facts were not striking enough to point strongly in one direction. In economic problems, where they come into contact with practical life, there are always many elements of nncertaintj' whicli make it imprudent to be dogmatic in drawing conclusions. Some of these exterior influences, like the increased productive power of machinery and the changes in credit conditions in gold-standard countries, have alreadj' been referred to. It may be added that neither the exporters of Mexico nor those of any other one country are in a position to dictate prices in the markets of the world. There ai'e many separate causes ad ing upon the import and export value of each separate article, and it is possible that the operation of these causes would counteract the effect of such a general cause as the tendency to undervalue Mexican products under a dej^reciating currency. In the case of sisal, the one article of importance where the gold price has risen, the war between Spain and the United States and the subsequent resistance to American authority in the Philip- pines were influential in cutting off the supply of liemp from Manila, and thus contributed for a time to reduce tlic supplj' and raise the price of the product which came to market. In the casr of coll'ee, the great fall in price is probably due in part to conditions in otlier couu- 1 ries than Mexico, and it miglit have ]H'rn impossible foi' ^[exiran exporters to have obtained a mucli liigher price if the country had lieen upon tint gold standard. It is proper to maintain, however, if Mexico should contribute a large part of the supjiiy t)t' any ai'tit'ie, t hat her production and the price flxed upon it would have much influence upon the market price throughout the world. It is proper also to observe that in the case of sevei-al of the princi- pal articles exported from Mexico other countries where thej* are pro- duced have also been upon a silver or paper standard, and have been subjected to the sanu' influence as 3Iexico in the depreciation of their currency and in the low gold price for which their exports have been exchanged for the products of the gold-standard manufacturing coun- tries. This fact would seem to strengthen the conclusion that the ability to reduce gold prices afforded by a depreciating standard, whether of silver or paper, tended everj-where to impoverish the economic forces of the countries having such a standard in their relations with the countries having a more stable standard. Observation from a variety of points of view, therefore, of the prob- lem of JNIexican foreign trade seems to justify the conclusion that Mexico has in recent years given up a growing proportion of the products of her own labor and intellectual efificiency in return for for- eign products. If this is due even in part to the monetary system, it is an evil of the most serious character, because it involves a pro- gressive impoverishment of the economic resources of the country and the needless enrichment of those with whom Mexico trades. On the one hand, fewer foreign products in many cases are received in Mexico for the same amount of gold as in former j'ears, representing a greatly inci'cased expenditure of the resources of the 3Iexican people, while, on the other hand, Mexican products are being given up in increasing quantities for tlie same gold return at the cost of a burden steadily growing heavier upon the productive power of Mexican capital and labor. II. — Eepoet on Certain Economic Questions in the English and Dutch Colonies in the Orient. rExtraots from report by Prof. Jeremiah W. Jenks, special commissioner of the War Department, September, 1902.] Chapter II. — Currency Systems. INDIA. Suspe?isio7i of silver coinage. — lune 26, 1893, the government of India passed an act withdi-awing the power of individuals to claim free coinage of tsilver, reserving to the government the right to coin rupees. On the same dav notifications were issued arranging for the receipt at the mints (extended in 1897 also to the reserve treasuries) of gold coin or buUion in exchange for government rupees, and of sovereigns and half sovereigns at the treasuries in payment of sums due to the government, and also for the issue of currency notes in exchange for gold, the rate adopted in each case being 15 rupees to the sovereign, or 16 pence to the rupee. The chief reason for this act of the government of India was the apparent necessity of checking in some way the falling rate of exchange of silver as compared with gold. During the preceding year (1893-94) the amount which the government had to remit to England in dis- charge of its- gold obligations was £16,532,215, which, at the average 'rate of exchange in that year, viz. Is. 2.985d., required the payment of Ex. 8,700,000 more than if the exchange had been at the rate of 1873-74. If it had appeared that the rate of exchange would not fall still lower, the government would have preferred to meet its obligations by some increase in taxation, with certain restrictions and reductions of expenditures. Owing, however, to the fact that the International Monetary Conference at Brussels, for the consideration of measures for the increased use of silver for currency, had come to no conclu- sion, and that it seemed probable that the purchasing clauses of the Sherman law of the United States would be soon repealed, with the effect of lowering still more the value of silver, the government felt compelled to stop the free coinage of silver, and to take measures to prevent the further fall in exchange between India and England, and gradually to put the Indian currency on a gold basis. It y/ould be needless repetition of well-known arguments and opin- ions to gi\ e in detail the points brought out fully in the report of the Indian Currency Commission of 1893, commonly known as Lord Her- schell's committee, and in that of Sir Henry Fowler's committee, which reported, in ls99, on the effects of the closing of the mint', with further recommendations for placing India on a gold standard." « Report of the ('(^mmission appointed to inquire into tlie Indian currency, com- monly known as the Herschell re])ort on the coinage of silver in India, with the accdijipiiiiying: correspondence and testimony, reprinted under resolution of Con- gress, WashitjjJtoi), (idveniment Printing Office, 1893. Report of the committee appointed to inquire into the Indian currency, together with minutes of evidence, etc., London, Eyre and iSputtiawood, lS9!i-99. 440 STABILITY OF INTEENATIONAL EXCHANGE. 441 Sulsequent acts tmiyxrd the adojition of tJie gold standard. — A brief summary of the .subsequent governmental measures, together with the results of these actions, as gathered from certain late reports and especially from interviews with English governmental officials and leading bankers and business men interested in commerce in India, Diay ))(■ of service. It has long been customary for the government of India to effect its gold settlements in England, to a considerable extent, by the sale in London of council bills on the Indian treasury to those who had remittiinces to make to India. The rate at which these bills could be sold fixed substantially, of course, the rate of exchange for silver. In anticipation of the act suspending the free coinage of silver, the rate of exchange ran up from 14f|d. on the 2lst of June, 1S93, to IGd., the rate which the Government wished to establish, on the '2~t\\, but it fell again immediately. The Secretary of State for India, having refused to sell bills at a lower rate than 15/^d., there were few sales between the 6th of July, 1893, and the i!4th of January, l-SlJi, while imports of all kinds into India in settlement of balances due increased very largely. After the repeal of the purchasing clauses of the ."Sher- man Act, which tended to lessen still more the value of silver, the Secretary of State gave way and sold bills at whate\er rate li(> could obtain. In Alay the rate had fallen to li'j^d., and on the i'3d of Jan- uary, ISIt.j, stood at the lowest point readied, l-ijid. During IS'Jij, 18l>6, and lSi»7, with the demands of increasing business and no increase in coinage, the rates of exchange gradually rose, until at length, in is'.tT, the rate of ICid. was reached. From that time to the present the rate has remained at that point, with slight changes- due entirely to commercial reasons. In liS'.lT, owing especially to objections coming from the government of India, proposals of the ^Volcott coumiission from the United States, which involved the reopening of the Indian mints to silver, were rejected. January 21, ISiiS, in pursuance of the policj' to establish a gold standard for India, a second act was passed authorizing the i.-^sue of currency notes on the security of gold held by the Secretary of State in England. On March 3 the government of India proposed further measures for hastening the effective estal)iishment ot a gold standard, and soon after Sir Henry Fowler's committee was appointed to consider them. July 7. 18'.i!», the committee reported unanimously in favor of a gold standard, and all but three recommended that the rate of 16 pence to the rupee be adopted. July i.") the Secretary of State sent a dispatch directing that the mints be kept closed to the unrestricted coinage of silver and that steps be taken for making the sovereign a legal tender and a current coin, and for the coinage of gold, the rate of 16d. to the rupee being maintained. September 15 an act was passed making sovereigns and half sov- ereigns legal tender, at 15 rupees to the sovereign. During the years 1894 to 1899, inclusive, no rupees were coined for the government of India, although during the years 1897-98 and 1898-99 some rupees were coined for the native states in India. Duj'ing the year 1899-1900 the scarcity of rupees began to be felt strongljr, and 867,812 rupees were coined. In lnoo the demand for rupees became 442 STABILITY OF INTERNATIONAL EXCHANGE. stronger than e^ei- before, so that on the 5th of March the govern- ment, after purchasing in India all the silver that it could obtain there for coinage, was obliged to telegraph to the Secretary of State in London to buy and send out more silver. On the i!l»th of June an act was passed enabling currencj' notes to be issued against silver bullion, as well as against gold coin or bullion, when held by the Secretary of State, or when in transmission to India for coinage into rupees. In the year 1900-1901, 11,424,477 rupees were coined, more than ever before in the same length of time. The profits on this coinage have been paid into the gold reserve fund. While there is no strong demand for gold for circulation in India, the government seems to have succeeded in establishing a gold basis for the currency and in maintaining, without serious dilBcultj^ a fixed rate of exchange. Erononiic eif'erts of the change. — Perhaps no act of government in late 5rears has furnished occasion for keener criticism or for greater differences of opinion regarding its effects than this act of the Indian government in closing its mints to silver. The discussion has dwelt, on the one side, mainly on the success of the government in finally establishing and maintaining its rate of 1 shilling and 4 pence for the value of the rupee. On the other hand, it has been claimed that the checked decrease and later the increase in the value of the rupee have brought great hardships upon the people of India. It is clear that any satisfactorjr discussion of the change in the svstem must consider the effects upon several of the leading classes in the community, and that some effort must be made to determine the relative importance of these classes. It is certainly possible that the act may have been a benefit to some and an injury to others. The social effects of this change in the distribution of wealth must be clearly seen before one can give any opinion upon the wisdom of the government's action. The classes which perhaps need to be kept most clearlj? in mind are, first, the bankers; second, the exporting and importing merchants; third, the l^roducers of goods of various classes; fourth, the consumers of goods of various kinds; and, fifth, government officials and others working on fixed salaries. Banl-ci's. — According to the opinions of both business men and bankers in India, the fixing of the rate of exchange has lessened the opportunity of the bankers for gain from their exchange business. Owing to tlie fact that their attention was given especially to the sub- ject, they had, generally speaking, the opportunity of 'securing an advantage from the fluctuating rate of exchange, although at times they lost. The business of the banker is now much less exciting, pos- sibly less interesting, and, so far as the exchange business goes, prob- ably somewhat less profitable, than it was before the rate was fixed. It seems to be generally conceded, however, and was emphatically asserted by several business men, that as the gains of the bankers from exchange business have lessenedsince the rate of exchange has been fixed, they have been bringing more money into India for regu- lar banking business, suitable loans, etc. Business men think that in consequence the banks are doing more for the development of the real interests of the country than thoy did when the exchange business was more profitable and they kept a large part of their capital at home. STABILITY OF INTEENATIONAL EXCHANGE. 443 E.i'purterx. — The exporters also hare lost part of tho profit which came from the falling rate of exchanoe. But, on the other hand, according to the testimony of some, this loss is not so great as it ajipears to be. While it is true that when goods are sold at gold prices a falling rate of exchange gi\-(\s for the same price in sterling a larger number of rupees in India than was the case under th(» higher rate, there is felt, as a counteracting force, the hesitancy of the Lon- don buyers \w the face of a falling I'ate of exchange. If they think that exchange is going to continue to fall, they are likely to postpone buying as long as possiljle and to make small purchases from time to time in order to get for themselves the benefit of the falling rate. Some of the business men of Calcutta stated that they had felt in their own business this hesitancy on the part of London buj'ers to a V(n-y great extent, and they were of the opinion that this influence was enough, in the long run, to offset fullj' the advantages gained from the falling rate. When the rate is fixed, people buy in much larger i|uantities and much more readilj'. ['rcdiici rs. — The tea planters, however, and the cotton manufac- turers pretty generally feel that thev have lost seriously l)y the increased rate of exchange. A large number of business men not con- nected with the tea industry, and one or two who ai-e prominently connected with it — for example. ~S\y. Mitchell, of Colombo — are of the opinion that the gain to the tea planti4's from the falling rate of exchange led to very coarse picking and also to a too rapid extension of the area of tea planting. The consequenci^ has be(>n an overpro- duction, which has led to the price falling so low that there has been really a crisis in the ivx industry. Without the artificial value given to the rupee by the closing of the mints the falling prices «-oulil not have been felt so severely or so soon, but in the long run, they think, the overproduction might well have been wt)rse. The hard tinu's of the last two or three years, thus broxight about by this overproduction, which came, in part, from the falling rate of exchange, has now led to much more careful plucking, with the consequent improvement in the quality, and has perhaps prevented the tea industry from what might have l)een almost a complete collapse, had the speculative overproduc- tion continued nuich longer. Mr. ^Mitchidl was of the opinion that if this overproduction could have been avoided it would have been much better for the country to remain on the silver l)asis. but, considering that element, which is a real one, and which, in his judgment, was largely brought about by the fall in exchange, it is perhaps as well for the tea industry, in the long run, that this speculative stimulus was withdrawn. A(iricHJfural cJaxsrs. — The bulk of the population in India is agri- cultiu'al, and the matter of prime importance for consideration is the wa_v in which the fixing of the rate of ext'hange has affected the agri- cultural t'lasses. These need to be considered in two separate groups: First, the agricultural landlords who have large numliers of laborers w orking under them; and, second, the small cultivators who cultivate and sell their own produce. These two groups have also to be divided ilito (1) producers of grain for export, especially wheat, and i'l) pro- ducers of produce consumed in the country itself. So far as the large producer is concerned, who employs labor, there can be no doubt that the check in the fall of exchange, if he has been a producer of export goods, has been a source of loss. While exchange was falling he received veiy generally an increasing number 4-14 STABILITY OP INTERNATIONAL EXCHANGE. of rupees for produce, whereas he paid to his laborers ordinarily, for a time at least, the same number of rupees as before, though there were some variations. (See Appendixes III and IV.) There can be no doubt at all that the rate of exchange did affect continually, and almost instantaneously, the prices of many export products. These products are bought throughout India, offers being sent to subagents by telegraph from purchasing centers, and fluctua- tions in the rate of exchange were taken account of at once in making these ofl'ers. On the other hand, goods produced for consumption inland do not have their value afl'ected immediately, if at all, by the change in the rate of exchange, inasmuch as they are sold and paid for with reference to silver alone. The fluctuations in their prices are mainly due. of course, to local causes. The same principles hold true with reference to the small agricul- turist, who produces with practically no hired labor and who sells his own produce. So fai' as he produced wheat or other goods whose prices for export were fixed by the London market, and so far as he was on lines of railwa}^ or near enough to lines of communication so that his goods were really affected by the world's market, he shared in the gain in rupee prices which came from the falling rate of exchange. The purchasing middleman probably took part of this profit, but the competition for these export products was sharp enough, in most sections of the country, so that tne producer received part of the bene- fit. So far as the small agiiculturist was a produce]' of millet or sesame, or other material not exported, the shifting rate of exchange affected him as a producer comparatively little, if at all. The nmsuvicr. — So far the question has been considered from the point of view only of production. The matter assumes a somewhat different aspect when considered from the standpoint of consumption. A large proportion of the landlords who produce wheat or other goods for export employ laborers whose food for consumption is largely millet, jawar, gram, or some other grain whose price is not so affected. In consequence the employer has gained by the falling rate of exchange; but it can not be said that the laborer has lost acoi-responding amount, even though his wages in rupees have remained the same. So far as he has consumed export grain he, of course, has lust, unless his wages have advanced in proportion to the price of the grain. So far as the small producer consumes export grain which he niniself produces, he gains in rupees from what he sells, and the loss which comes from his consuming dearer goods, while in one sense a real one, is probably not much appreciated by him. If he both produces and consumes goods not affected by the world's markets, he is, so far, neither a gainer nor a ioser by the shifting rate of exchange, even though the prices may vary under local conditions. So far as he is a consumer of imported goods or goods regularly exported, he naturally is the loser by the falling rate of exchange, inasmuch as it will take more rupees to pay for "those goods than it would before. In the case of the great mass of the poor cultivators, their consump- tion is made up only to a very small extent of imported goods. They, in consequence, may gain considerably more than they would lose by the falling rate of exchange. On the other hand, Europeans, whose consumption is largely made up of imported goods but whose income may be determined by entirely different considerations — as, for example, STABILITY OF INTEENATIONAL EXCHANGE. 445 salaried officials — must stand a countervailing loh;s. This fact has doubt- less had much to do with the agitation in favor of checking the fall. Gorcrntni lit oJfi<-iid.->. — There can he little doulit that a prominent influence leading to the closing of the mints to the free coinage of silver was the fact that the Government officials and others on fixed salaries suiiered very greatly from the falling value of the rupee. Tho}' were receiving a certain fixed number of ruj^ees jier month. Very many of them remitted a large proportion of their salaries to England for the support of their families, the education of their chil- dren, the payment of life insurance premiums, and for investment for their own needs in the future. As the value of silver fell, they wei'e receiving continuallj' less and less in sterling. iMoi-cMiver, so far as they were consuming export goods, they found that the prices of export goods went up, to the decided advantage, in some cases, of the local producers, Imt the cost of living for the officials was proportion- ately increased, and they suffered accordingly. So far as they were consumers of imported goods, they found the tendency whs for the value of these goods to increase in terms of silver, so that in all direc- tions they were the losers. The fact that v(n-v man_v of them had a direct personal interest in checking the fall of the value of the rupee in addition to their official interest in lessening the ))urden on the Indian treasury naturally led them to be more active in bringing their influence to bear toward the stoppage of the coinage of sih'cr. The effects of the increase in the value of the rupee has, of t'ourse, con- trarywise, been all in their favor. Not nierelv have their remittances to England increased in value, but likewise tlic relative fall in the price of goods, both of J;hose exported from India and thcis(> imported, has been in their favor. Probably no other class in the comnuiijity can be said to have profited so directly and to have had so few counteract- ing evil effects to offset the good effects that have come to them. The question of compensation in th(> way of increase of salaries, etc.. lies outside our field of discussion. Scari'iiij of ciirvi'ni'ii. — An evil which all classes in thi> community felt — more particularly, perhaps, buj'ers of produce, and merchants — came from the scarcity of rupees, brought about by the stoppage of the coinage and the deliberate checking of the supply of rupees in order to raise their value. This dearth of rupees at seasons of the 3'ear when crops were to be moved has bej'ond doubt proved a note- worthy source of embarrassment to business for some years. Each season money has become so scarce that the rate of interest, instead of remaining normal at some 4 or 5 per cent, rises to S or 9 per cent, or even above that. This evil has been in part checked during the last year or two by the increase in the coinage permitted by the Gov- ermuent. But the evil is one that is still felt at these special times and one not so likely to come with free coinage. Some additional measures should be taken to prevent this evil. The f((v iurdc/i. — From one point of \'iew, it would seem as if prac- tically every cultivator, lai'ge or small, as well as all other taxpayers, must have lost by the increasing value of the rupee; and this loss was doubtless contemplated by the government, of India when it proposed to fix the rate of exchange. The taxes are regularlj- levied in rupees and must be paid in rupees. If, therefore, the value of the rupee increases as compared with gold, and especially as compared with products, it is certain, other things equal, to become more difficult 446 STABILITY OP INTERNATIONAL EXCHANGE, to get the requisite number of rupees to pay tlie taxes. In order for the Indian government to get money enough to meet its obligations in gold, it was neeessarj' either to stop the fall in the value of the rupee, so that the same number of rupees would pay sterling obliga- tions as before, or to raise the taxes, so as to get more rupees. It seemed, on the whole, as a matter of practical politics, easier to adopt the first method. As a matter of fact, for some years after the stoppage of the free coinage of silver in 1893 the rupee continued to fall, and then it was gradually, by scarcity, forced back up to the value of 1 shilling and 4 pence contemplated by the Indian government. This forcing up of the value of the rupee, other things equal, was beyond any doubt a kind of indirect tax upon the people of India, and primarily upon the agricultural classes, as thej' are the ones who pay the great bulk of the taxes. This fact is one that is very generally recognized, even by those who favor the government's policy" as a matter of political neces- sity. Very many of. the ablest business men and some of the high ^government officials do not hesitate to say that the act of the Indian government in stopping coinage to raise the value of the rupee was practically one of indirect taxation. Some few of those who keep in mind the fact that the government's intention was not to increase the value of the rupee, but to prevent its further fall, say that, instead of speaking of the act as an additional indirect tax levied upon the cultivator, it would be more accurate to say that the act was one which prevented the cultivator from escaping, through the falling rate of exchange, the burden of the tax as it was first levied, which it was proper and just for him to pay. To sum the matter up from this point of view, we may, perhaps, saj'^ that, although the salaried classes and some others gained, and although the government of India was practically forced by political considerations to adopt the policy which would check the fall in the rate of exchange, and although from that point of view the policy has been entirely successful and justified, it did deprive large classes in the community from keeping profits which thejr were temporarily getting from the falling rate of exchange, and so far as it increased the value of the rupee, as it did during u period of two or three years, it placed an added burden upon great numbers of the people. Those who have suffered most are those who were engaged in the pro- duction of goods intended for export. But indirectly it probably placed something of a burden even upon those whose goods were not produced for export, inasmuch as, other things equal, the tendencj^ would be for them to secure the rupee required for taxation onlj^ with a greater expenditure of energy than would otherwise have been the case. Everyone of the class under discussion must get his income either from the exchange of some products that he raises or from his own personal exertions. While wages, as we have already seen, are, speaking generally, very stable in India, especially outside the great cities, the fall in the rupee value of products intended for export would naturally bring considerable pressure to bear toward the lower- ing of wages. We may be certain that, even if money wages were not directly lowered, somewhat greater care would be taken to restrict the laborer in the use of land or in securing other perquisites, or at any rate there would be no increase in his wages. Appendixes III and IV show that either from the fall in exchange or from some other STABILITY OF INTERNATIONAL EXCHANGE. 447 reason there was a rise in average wages in many places about the middle of the nineties. While in certain cases, with the late i^icrease in the rate of exchange, there has been a fall in wages, in other cases the other influences have more than counterbalanced, and there has been an actual rise. It is also probably true, in the long run, that when people are dealing with the poorer classes in a communitj- the dealer has some- thing of an advantage. In consequence, if the wholesale prices of goods have a tendency to rise, he is likely to be able Co increase his prices on most articles. Of course, if the articles are such as matches or well-known brands of goods put up in special packages, which sell for a round sum, like 1 anna or 6 annas, it may not be possible for him to change his prices. Ordinaril}' speaking, however, the dealer does not meet with loss from an increase in the wholesale price of the goods which he is selling, excepting as the price becomes high enough to check the amount consumed. On the other hand, when wholesale prices are falling he is not likely to lower his price to the consumer so promptly when his price as purchaser falls. In the course of time, naturally, competition among dealers will bring about a fall in the selling price, but for the time being the dealer gets the advantage. There can be little doubt that as regards the prices of goods imported into India under the rising rate of exchange there has been this experience; and the native, so far as he is a consumer of imported goods, has not felt the benefit of the rising rate of exchange, as has his dealer. The j^robability is that in very many cases he has not felt the benelit at all. It is probably' not at all an exaggeration, therefore, to say that the benetits of the increase in the rates of exchange, so far as they exist, have been rather specialized, and that they, as yet, have not come to the benefit of the masses so much as they may be expected to do after considerable more time has passed. Cdu lit cruet ing iiifluciu'cs. — These conclusions seem to be absolutely certain so longas we keepstrictly in mind the condition that other things are to remain equal, and they are generally conceded even by those most in favor of the governmenfs policy. Fortunately as it may seem for the Indian government, and interesting as it is from the point of view of the investigator, however, this increase of burden, or, to put it from the other side, this lessening of the prospective profit from the increase in the exchange value of silver, has, in many cases, not been felt at all, owing to the fact that other things have not remained the same. A somewhat careful statistical study of prices (see Appen- dixes I and II) seems to show that, on the whole, prices of products consumed in India have ruled upward during the last two or three years, and higher than during part of the period when the rate of exchange was so very low, although in l.SOT prices were unusualh' high. Each year should be considered'by itself. A comparison only of the five-year a\erages, as in the tables, would be unfair, as the lowest exchanges ran from 1893 to ISUT, thus overlapping two periods. The tables do not show with possibl}' sufficient clearness that other factors have had more influence on prices of grain for local consumption, and at times even on wheat, than that of exchange, but such is the fact. The conditions are to be accounted for in part by the shorter crops, in part by the increased demand from elsewhere. In certain sections of the country, as, for example, in Burma, where so large quantities 448 STABILITY OP INTERNATIONAL EXCHANGE. of lice havQ been produced, the very great prosperity of the last two or three years seems to have been brought about in part by the famine in other parts of India, which tended to strengthen the demand for Burmese rice, and thus to keep up its price. Although, therefore, the tendency of the increasing rate of exchange of the last few years would have been to place a burden upon the producer of Burmese rice, other influences have apparentl}' more than offset this tendencj^ so that the Burmese rice producer has perhaps never been so well off as he is at present. The same argument holds with reference to the producers of some other classes of products, notably those consumed in India itself. It is also to be kept in mind that a large proportion of the Indian cultivators are entirely unlettered and utterly ignorant of all questions connected with public finance. These men have, therefore, borne the burden, so far as it has been an added burden, without any knowledge of the reasons for any change in their conditions. Their taxes in rupees have nominally remained the same, and if there has been any added difficult}' in their acquiring the rupees to pay the taxes, they have not been able to trace the difficulty to its cause. In consequence, there has been little or no dissatisfaction with the government on their part. Hoards and ornamevts. — In one other particular there has been from the increased value of the rupee a serious loss to very many of the poorer classes in the community, a loss which it seems impossible for them to recover in any way. This is the lessened value of their silver ornaments and of their hoarded silver as compared- with the rupee. Before the fixing of the rate of exchange rupees could be melted into ornaments .and ornaments reconverted into rupees with practically no loss. Those persons who melted down rupees into orna- ments while the value of silver was low find that they can not now secure anything like an equivalent number of rupees for their orna- ments should thej' desire to sell them. A loss of i^erhaps one-third of their value would perhaps be felt were they needed to pay taxes. There seems also no way of their recovering this loss. It has some- times been urged that while ornaments are now worth less in rupees than before, it is correspondingly easy for those who now wish to buy ornaments to secure them. While this is true, this does not lessen the loss of those who were possessors of ornaments before the change was made. People buying ornaments now will be able to reconvert them into rupees with no loss, provided exchange remain- fixed, but those who bought with a lower value of the rupee have met with a loss which seems final. It is their sacrifice to aid the government to meet its burdens and to j^revent the officials from further loss. It is sometimes said that there is no complaint on the part of the people in this particular, and that is, in most cases, probably true. Probably a large proportion of them have not found out the loss which, in fact, they have met with, and those who have felt the loss have probably never been able to understand the reason— to them inscrut- able. They have probably accepted it, as is their wont, without com- plaint, as part of their hard fate. Mr. LiiidmifsjiJnn for rstahlishing In India a gold utandard vyitlioid a gold cuvi'cnaj. — Inasmuch as it seemed at first difficult to provide for India a sufficient gold reserve to maintain a fixed rate of exchange by STABILITY OF INTEEffATlONAL EXCHANGE. 44'.) redeeming silver with gold, the followino- plan, ^Nhich is very sug- gestive, WHS proposed hy :\Ir. A. Isl. Lindsav, of the Bank of Bengal, Calcuttii: "Five to ten- millions sterling should be raised in London hva lony-- term loan (say fifteen ye:irs' currency), and should be deposited in the Indian office or the Banli of England. The fund might be stvled the gold-.standard reserve, and the otiice ilealing with it "might be called the London gold-standard office. "'2. It should be announced that the London gold-standard office will be prepared to s(dl to all applicants rupee drafts for sums of Rs.15,000 and upward in exchange for sterling money at the rate of Is. 4Vj;d. per rupee. These drafts should l)e drawn on two offices, to be opened either in the Indian mints or in the Calcutta and liomlia.y presidency paper currency offices. These offices might he styled the Indian gold-standard offices. The drafts should lie niade payable on demand whenever there are rupees available in the Indian gold-standard offices. If not, and there are no rupees available in tlje Indian gold- standard office at the time, the drafts should lie drawn at a currency affording time for coinage in India of silver bullion purchased in Lon- don with the sterling money. This currency might lie shortened were the paper currency department authorized, as formerly, to issue notes against tiie silver bullion on its arrival in India. "3. It should be announced that the Indian gold-standard offices will be prepared to sell to all applicants sterling drafts on the London standard offie(>, ]iaya])le on demand, in sums of £1,(100 and upward, in exchange for rupees at the rate of Is. ."ri'd. per rupee. "4. All rupees received by the Indian gold-standard offices sliould be held in these offices to meet the rupee draft.^ drawn by the London gold-standard office. "6. All gold received under- notifications Xos. 20(;L'-L'(;(i4 of June, 1893, "* should be made (iver to the Indian gold-standard offit'es. on their requisition, in exchange for rupees at the rate of Is. 4d., and should be S(Mit ))y them to the London gold-standard office. "(i. If the gold-standard reserve should decrease at any time to 'apprehension point,' i. e., show a likelihood of becoming exhausted, it would indicate that the rujiee currency was seriously redundant, or, in other words, that there were too many rupees in circulation, and it would be the oh\'ious duty of Government to curtail the currency. They should take the step contemj^lated liy the Dutch Government in 1884, and melt a portion of the rupees held in the Indian gold-standard offices, dispatching the bullion to London for sale there for sterling monej', which should go to strengthen the London goM-standard i'(\serve. The U)ss on the operation would not necessarily be perma- nent, as it could be recouped aftcu-wards by buying siher and coining it. "Even these sales of silver might prove to be insufficient to preserve the gold-standard reserve from extinction, and in such an event it would be necessary to strengthen the fund by bori-owing further on a temporary footing. "7. The scheme should be started shortly before or during the early part of the busy export season, say, in January or February. "8. Sales of council bills might be continued on their present foot- ino-. although it would be desirable to insure more competition for the bills." "Providing for furnishing l.'i rupees in exchange for a sovereign, IT Hoc. 144 21) 450 STABILITY OF INTEENATIONAL EXCHANGE. This plan is substantially the one that was followed for half a cen- tury with success in fixing the sterling value of Scotch currency in the absence of gold coins. The Scotch banks kept reserves in London, against which they drew when necessary. It resembles somewhat also the practice of Holland, where gold is given freely for export, but is granted very sparingly for local-pay- ment purposes. It is also similar to the Java system. It is possible that an adaptation of this plan, permitting the Philip- pine treasury to sell drafts upon Washington, would enable the gold standard to be maintained more easily without necessitating the holding of any very large gold reserve in Manila, provided it should be thought best to place the currency of the Philippine Islands upon a gold basis. BUEMA. Burma has, of course, the same monetary system as that employed in the rest of India. The discussions that have already been given regarding the general situation in India apply in the main to Burma. But some slight distinctions ought to be noticed. Burma has, of late years, not suffered from anj^ failure of crops or from any other economic disaster, so that its inhabitants are much more prosperous, as a rule, than are those in most other parts of India. In fact, the failure of the rice crop in other parts of India has, in many instances, led to increased prosperity in Burma, inasmuch as it has created a demand for Burmese rice at vevy satisfactory prices. Burma is largely a rice-producing country, and this prosperity among rice producers has practically extended throughout the whole country. In consequence of this the ill efi'ects mentioned from the change of the currency in India have not been practicall}' perceivable in Bui'ma. It is doubtless true that the evil tendencies have been more than ofiset by the counteracting forces just mentioned. One hears n^ complaint whatever of the fall in the value of silver hoards or of increased difficul- ties in meeting tax obligations or any other complaints which are expressed with much vigor in some other parts of India. The only complaint in connection with the financial obligations of the government or of citizens that one hears is that Burma, on account of its prosperity, is compelled by the Indian government to pay far more than what its citizens consider its share of the burdens of India in providing for military and other expenses. They would like to have Burma made a separate colony, with an independent budget, in order that it might escape many of these burdens which are considered unjust. CEYLON. The euriency system. — The currency system of Ceylon is the same as that of India, with the exception of the minor coins. Instead of the anna, pice, and pie, which are the minor coins of India proper, Ceylon has the rupee divided into 100 cents, and there are minor coins representing these cents. The rupee is the same as in India, and the amount used in Ceylon is determined by business needs, rupees being imported from India whenever necessary. The government of Ceylon issues paper money redeemable in rupees. The action of the Indian government, therefore, in stopping the free coinage of rupees and in taking other measures to fix the rate of STABILITY OF INTERNATIONAL EXCHANGE. 451 exchange between the rupee and the sovereign afi'ects Ceylon much as it does India. Report of xjirc/id ami mlnstoii. — In 1894, the 5'ear following the clos- ing of the Lulia mints, the government of Ce^'lon appointee! a special commission to report upon, first, the probable efiect of the action of the Indian government in putting an artificial value on the rupee, and, second, upon measures which it might be expedient to take to protect the interests of Cej^lon under the altered nature of the cur- renc3'. The commission was composed of government officials and leading business men; testimon}^ was taken from persons of various classes in the community, and information was gathered from the Straits Settlements and elsewhere regarding the elfects of the action of the Indian government upon the prices of certain goods miported into Ceylon and upon wages. Effertx on I'.rpaiis. — Two or three of the commission's conclusions are of importance. First, it expressed the positive opinion that the fall in the value of silver, before the action of the Indian o-overnment had resulted in increasing the value of the rupee, had decidedlj^ increased the exports of the colony and had brought about "" a general progressive increase of prosperity amona- the jiroducing classes and those dependent upon them." EfftvtK on hilior. — In this connection it was stated also that '"the rate of wages paid to unskilled Tamil labor on the estates has not increased during the past eighteen years." While the connnission thought that tln' sterling value of some of the estat(>s had pro])ably fallen, it was still of the opinion that the European and native owners of estates whose expenditure was largely on unskilled labor had benefited bv the low exchange w'.ich had ruled of late years. The investigation seemed to show also that there had been an increase in the number of laborers for hire and in the demand for labor. This had resulted in certain provinces in a slight increase in the rate of wages, contrary to results found in other parts. In certain cases it seemed probable that the falling rate of exchange would have been to the disadvantage of the laborers so far as they were consumers of imported goods, since the silver jDrices of such goods, other things equal, would have risen. In this connection, how- ever, it was shown that, in spite of this intiuence, the silver value of imported cloths, which were used by the laborers, had fallen, owing, of course, to improved methods of production in Europe. But it was likewise shown that the cloth used was inferior in quality to that which had been earlier used. The total result would seem to be that the fall in the value of silver had been, in fact, to the real disadvantage of the laborers, but that their changed conditions had so disguised this efi'ect that the laborers themselves nad not perceived it. So far as the consumption of other goods, for example, rice, is con- cei'ned, the laborers in most cases had not sufi'ered because the plant- ers had found it advisable to furnish rice to the laborers at a fixed valuation, even when they themselves had to pay more for it. The commission recognized, of course, the decided loss that had come to the civil servants from the fall in silver, but thought that it was the duty of the government to make due compensation for that. Ett'ccts on ffoiv/'uiin'/tt. — As regards the government itself, the com- mission recognized that it had been placed at a disadvantage in meeting its gold obligations; but it believed also that the increased prosperity 452 STABILITY OF INTERNATIONAL EXCHANGE. of the colonj^ under the falling exchange had been probably enough to offset this disadvantage. It thought that the direct saving from a change to the gold standard, should the change be made, might not be sufficient to compensate for the probable shrinkage in the revenue, which had become very large owing to the colony's increased prosperity. The commission was also clearly of the opinion that the fall in exchange had "not prevented the introduction of necessarj^ English capital, and it is stated that there is more capital offered for invest- ment on reasonable terms than has ever been the case before." Their general conclusion was that a bullion silver currency with a falling rate of exchange had had advantages which had exceeded the disad- vantages. IlMKiiiiHciidatlon. — In spite of this fact, however, it was found advisable to recommend that the government of Ceylon should not sever its connection with the cui-rency of India. The commission thought that the risks inseparable from such a change .would be as great, if not greater, than those which were to be expected from inaction, which would lead to the fixing of the rate of exchange and the placing of the country, in this sense, upon a gold standard. The opinions of business men and of government officials in Ceylon at the present day seem, on the whole, to agree with those expressed by this commission, and one can not say that there is at the present time any indication of a desire to revert to the silver standard. NETHERLANDS INDIA. C'lirri-iicij sysfeiii. — The currency of Netherlands India consists nom- inally of gold and silver coins, together with minor coins bt silver and copper and notes of the Bank of Java. Although the standard is a gold standard, and although the exchange has been kept substantially fixed throughout the entire period of the relative fall in the price of silver, gold is practically not at all in circulation in Netherlands India. A gold coin, even an English sovereign, is rarely seen; the bank notes of the Java Bank and silver, which is legal tender for all amounts, M'ith a few minor copper coins, constitute the currency. The Java Bank holds a large reserve in gold, but it is not paid out on demand. Some j'ears ago — in the late eighties — there was a vigorous agitation in favor of a change from the gold to the silver standard, it Ijeing felt by many that the country needed to be brought into line with the other oriental countries, practically all of which at that time were on a silver basis. Many being unwilling, however, to divorce the cur- rency system of the Indies from that of the mother country, no change in the system was made. Nufure i>f pojmldtion (UiJ nflusincsK. — The population of Java and Madura, the two islands most thickly settled and the farthest advanced in business methods and in civilization of Netherlands India, consisted, December 31, 11)00, of L'S,74.5,698 people. Of these, bv far the largest number (2.S,384,731) are natives of the islands, although thev mav be divided among themselves into three groups — the Sundanes'e, mostly in the west part of JaAa; the Javanese proper, in central Java; an'd the Madurese, in Madura. The number of Chinese in Java and Madura is very considerable. They are, practically all of them, either skilled workmen— carpenters, shoemakers, saddlers, machinists, etc. or else merchants. Very large numbers of them come to Java with STABILITY OF INTERNATIONAL EXCHANGE. 453 almost no means, begin their life as traders by peddling goods about the streets, and later become merchants, some of them of great wealth and influence. Besides the Chinese traders, there is a somewhat large class of Arabs (18,051) who are also engaged in trade, and to whom the intri- cacies of exchange are no mystery. The \-ery large majority, therefore, of the population have been brought up under the present currency system; they know the pres- ent coins, and they have no knowledge of any other system of coins of which tile bullion auIuc determines the face value. So far as the Chinese population is concerned, the situation in Java is materiallj' ditferent from that in the Federated Malay iStates, or in Deli, the east coast of Sumatra. In the two last-mentioned countri(\s the greater jiart of the C'hinese population is merely transitory, the Chinamen expecting to return to China after a few years' lal)or. The Chinamen, moreo\er, nearly all of them, are of the ignorant coolie class. They have become more or less accustomed to the lai'ge silver dollar whose \'alue is in strict accordance with the weight and which can always be disposed of without serious difficulty in China. These coolies also know practically nothing of the principK^s of exchange, and in consequence they prefer the lai'ge dollar to, relatively speaking, the small amount of silver which would be reijuired to make in the Dutch currency an amount of ecpial value. Considering the pref- erences of these Chinese^ coolies for the large silver dollar, it is doubtless true that they can be persuaded to work for rates that cost their Eui'opcan employers nuich less than would be possible, for a time at any rate, if they were to be paid in the Dutch guilder. Java has, therei'ore, a gold standard so far as the rates of (exchange are concerned; its sihcr guilder is maintained at a fixed rate of exchange, witli gold, and its business men are free fi'om the spi^culative influenc<'s and other disadvantages which accompany a viok'iitly fluc- tuating rate of exchange. Owing to the hnig time that the colony has Ix'cn under the present currency, prices and wages have gradu- ally adapted themselves to the rate of exchange as compared with that in other countries, st) that, while in all probability there is some little loss often to the exporters, as compared with the situation in the silver-standard countries sinci> silver has been so rapidly falling, that loss is so slight that Inisiness men do not feel themselves seriously hampered. Though some English trading houses in »Suigapt)re feel that their silver standard has given them a decided advantage over the Dutch traders in Java, especially in the copra trade, the Dutch traders do not seem to have felt any disadvantage from their gold standard. AMiile it is possible that the Dutch have made less money from ex- changes than their English competitors m the Straits .Settlements, and earlier in Ceylon and India, there seems at present to be no more signs of commercial depression among them. They have also made much profit in the long run, possi))ly through devoting attention more exclusively to the methods of production and sale, without having their attention distracted by the speculatiAC demands of a fluctuating exchange. CoKntcrfelting. — One disadvantage which has come from the over- valuation of the silver coin in Java has been the temptation to counter- feiting by making the counterfeit coin of full weight and of the proper quality of silver. There can be no doubt that there are large numbers of such counterfeit coins in circulation. On the other hand, the esti- 454 STABILITY OF INTEENATIONAL EXCHANGE. mate I'egarding such counterfeiting- i,s, in very many cases, too high. According to the statement of jNIr. Reysenbach, president of the Java Bank, the number of counterfeit coins taken up b}^ that bank during the last sc^■en years has been only 10,540 2i-guilder pieces, 2,953 guilders, and 17 half guilder pieces. Of course the greater number of counterfeits never reach the bank. Edxt Sidiuifra conditicns. — On the oast coast of Sumatra, as has been intimated, the situation is decidedlj' different. This coast is much more closely associated phj'sically with the Straits Settlements and the Federated ^lalay States than with Java. In consequence, before the Dutch had made man}' settlements on this coast, the British dollar (as, indeed, had been the case in Borneo and C'e]ol>cs also) had become a more or less current coin auiong the natives and traders. When the tobacco plantations liegan to be developed, and the need was felt of bringing Chinamen in large numbers into the colony, it was perhaps natural that many of the Chinamen should come through Singapore and Penang, where they had become accustomed to the use of the Straits dollar, or that they should be persons more or less closely associated with those who were faoiiliar with the dollar in either these states or in China. The Chinamen, therefore, who went to work on the tobacco plantations, and who represented by far the most productive and prohtable laborers in Sumati'a, preferred the sil- ver dollar, and would work to better ad^-antagc if they were paid in that coin. The Dutch Government, on the other hand, when its resident became settled in Aledan, the capital of East Sumatra, and it established more completely its governmental control, naturally continued the legal cur- rency of Netherlands India. The consequence is that one finds two systems of currency circulating side liy side in this part of Sumatra. The officials' salaries and the taxes due to the government are payable in Dutch guilders. Likewise in some of the shops that are patronized most by the Europeans, and especially by officials, whose pay comes in guilders, the Dutch currency is used. On the other hand, the planta- tions, for the payment of their coolies, use the British dollar, and, in fact, that has become the t-urrent coin of the great masses of the people. So strong is the demand for this coin that during the year 1901 not less than 5,103,132.16 florins' worth were imported, " as compared with 3,607,264.3s florins' worth of all other coins, including gold. Of this larg^e amount, 1,728,342. 75 florins entered the one port of Belawan, in East Sumatra, where it doubtless went at once into circulation, as was the case with much of that entered at other ports. Of course a goodlv number of these dollars are hoarded by the natives in the somewhat more remote districts, and large quantities of them are doubtless car- ried by poorer Chinamen liack to China. In order to favor the Cliinamen returning to China it is custom- ary for the proprietors of large estates to give Chinamen bills of exchange payable in China without charging them commissions. The Planters' Association, which represents 74 plantations, has itself alone given,_within the last twelve years, $^1. 912, 945. 88 of these bills. The habit is growing among the Chinamen of taking pay in this form instead of taking silver dollars, but doubtless a great manv silver dollars are.in this way, through returning Chinamen, still exported. Xrtlni'hdulH TniiVmci Cniiijtam/s ;/rVr.v.— So strong has tlie demand for a dollar currency become, in fact, that the Netherlands Trading Company, one of the strongest banking concerns in the East has STABILITY OF INTERNATIONAL EXCHANGE. 455 found it profitable to issue a kind of bank note in the form of an order from the manager on the cashier to pay a certain amount to the l)earer. The demand for these so-called notes instead of the more cumbersome silver is so great indeed that the bank has found it profitable to issue them well up into the hundreds of thousands of dollars' worth (in Java one hoars that notes of the value of 2,(,MH),(.)U0 guilders are out), and one finds them in circulation not merely in Sumatra, but likewise in Penang and elsewhere. It must be kept in mind, of course, that neither these notes nor the British dollars are legal tender or are even legally recognized money in Sumatra. They are, in fact, merelj' cus- tomary money which the people prefer, and which the goxcrnment, under the circumstances, finds it wise not to interfere with. So far as one is able to gather opinions from the business men and from the bankers concerning the importation of silver dollars and the importa- tion of Dutch guilders, the silver currency in a good part of Sumatra is, on the whole, more in demand than the gold standard currency, and the silv(M- curreiu'y is, moreover, that M-liich comes naturally into the country as the result of the normal demand, whereas the Dutch currency is practical!}' forced there by go\-crnmontal agency. It seems a peculiar and most interesting example of two currencies in the same country — does it illustrate Gresham's law '. It is the opinion not merely of many of the plant(>rs themseh'os, but also of hankers and other business men — in fact, of practicallj^ all whom one has an oppor- tunity to consult on such matters — that if a change were made, even with considerable warning, from tlije sil\-er to the gold standard, especially with silver coins at the high Dutch rates, the result wuuld be the inevitaljle failure of many business concerns, as well as of many large planting companies. It is recognized that the conditions are exceptional and that the chief adAantage of the siher currency comes from the fact that the Chinese coolie is determined to have his full weight of silver, and that he is too ignorant to rely on any stand- ard which is merely supported by government fiat, or, perhaps one should say, by wise goverimiental regulation. To the planter who receives the pay for his products in gold, and who for so many year's has been able to pay his laborers in silver and to pay likewise a large part of the other expenses of his establishment in silver', the silver standard seems especially good. BiHiiirial ejfcctx of nil re i- ciu'vcncy. — There is probal)ly no reason to doubt that under the somewhat peculiar circixmstances of this colony of the east coast the silver currency is, for the present at any rate, decidedly beneficial, not merely to the planters, but also to the produc- tive and mercantile classes in general, while it would probably be difficult to show that the Chinaman, the laborer, is seriously, if at all, injured l)y his use of this coin, although it is he chiefly who bears the l)urden. Even, however, if it could be shown that the silver standard was maintained at his expense, it is still an open question as to whether the country should endeavor to enlighten the Chinaman, with the t'crtainty that it would be deprived of a considerable part of his services if it were to undertake the task of enlightenment. It should be borne in mind that he is not a citizen; he is an exploiter in a small way who comes to take back to China with him most of his earnings. The conditions in Java have already been set out in probably sutfi- cient detail. It must be noted that the remarks which apply to Sumatra would not of necessity apply to Java, and, in fact, the con- ditions in Java are so difi^erent that they can not be made to apply 456 STABILITY OF INTERNATIONAL EXCHANGE. there. So far as one can judge from testiinon}^ from sereral sources, as well as from the monetary principles generally accepted, Java itself is not hampered by the gold standard, as it would be, provided its situ- afion were similar to that of Sumatra. THE STKAITS SETTLEMENTS AND THE FEDERATED MALAY STATES. Ctiri'i ncij .si/.s/ri/i. — Aner what has boon said regarding the monetary situation in Sumatra, it becomes much easier to understand the situa- tion in the Straits Settlements and the Federated Malay States. So far as the Straits Settlements themselves are concerned, especially Singa- pore and Penang, the circumstances are somewhat peculiar. Both of these places, and especially Singapore, are great entrepots for the pur- chase and sale and the reshipment of goods from the East to the West and the West to the East. They ha\'e large dealings, with both gold- standard and silver-standard countries, and it is not possible under any standard for many of the important firms to avoid the speculative effects of a fluctuating rate of exchange. Even if their own gold and silver currency were maintained at a fixed par of exchange, their deal- ings with countries on a sih'cr basis would make the item of the bul- lion value of sih'er an important one in ver}^ many of their transac- tions. So far, however, as the European traders are concerned,. whose business is largely with Europeans, it is probai)le that the fixed rate of exchange would be, on the whole, satisfactorj' to a large majority of them, provided the rate of exchange were kept low. JIi>rrtiirnf in. favor of gold utandnrd. — In 1897 a committee of the Chamber of Commerce of Singapore was appointed to prepare a report regarding the change of standard. A majority of the committee reported in favor of the adoption of a gold standard, with the English sovereign as a basis, with a Straits silver dollar equivalent to two shillings in value, and in favor of some means of maintaining this fixed rate of exchange. The report was discussed at some length in the chamber, and was fiuall}^ adopted by a small majority. The opposition came in part from the bankers, who have probabh' gained from the fluctuations in exchange, and in part from others who felt that a change to the gold standard would deprive producers and exporters of the bounty which they had been receiving through the falling rate of exchange. The Chine.se merchants favor the fluctuating silver currency. At the present time the feeling on the part of many of those who still favor a change to the gold standard is that the most favorable time has gone by. In 1897 a dollar of 2 shillings in value Avould have been nearly at the bullion rate of their present dollar. The govern- ment officials at that time were also sufl'ering from the falling rate of exchange, as has been explained regarding the officials in India. So strong a minority, however, against the report, even at that time, made the government feel that it ought not to take up the proposition for a change. At present the exchange has fallen so low that the bul- lion A'aiue of the p-esent dollar would be far less. ^Moreover, the salaries of the government officials have now been placed on a sterling liasis, so that they have not the intei'est in the change that they for- merly had, and business men feel that there is no likelihood, in the immediate future at any rate, of any change being made. Likewise, judging from the testimony of business men thtmiselves, not all are dissatisfied with the present system. They ha'\'e become STABILITY OF INTERNATIONAL EXCnANGE. 457 used to it, and, in a great manj^ instances, especially during the period of decline in exchange, they were receiving the stimulating benefit "which comes to those who may pay their obligations in a depreciating standard, while realizing on obligations due them in part on a rising standard. Tiiosc, moreover, whose dealings have been mostly with the Chinese and with those countries that are on a silver standard naturally prefer that the Straits Settlements remain on the silver standard. The value of their coin will then fluctuate as compared with gold substantially in unison with that of the other countries with which they are dealing. On the other hand, so far as they are dealing dii'ectly with the nati\e Chinese coolie, as are many whose interests are in mines and in large estatrs in either the provinces or the Federated Malay Slates, they ha\'e the coin which, on the whole, suits the coolie l)est, and they can supplj' his needs in this coin at rates much more satisfartory to them- selves than if they were to adopt another coin not so well adapted to meet the Chinaman's peculiar wishes. It may be that, in the Ujng run, a gold system would adapt itself to the needs of the country, or, to put the matter from the other side, that in the course of time tlie Chi- naman would learn the actual mercantile value of the new coin and would adapt his demands to meet the needs of the (;ase. But such a process must necessarily lie slow, and for the time being both employer and Chinaman seem satisfied. Ojiinio)! of Chini'K,; incrcliniiin. — It seems to be the almost universal opinion among tll(^ influential Chinese dealers and producers in Singa- pore that the silver standard is the best. This comes in part, douljtless, from the fact the Chinese are directly interested in many cases in the production of tin, gambler, and other goods for export, and believe that with silver falling they mak(^ direct gains. In part, however, this preference comes from the natural liking of the Chinaman for specula- tion. One of the most influential Chinamen in Singapore has stated that in the discussion of such a question one should keep continually in mind the difference between the Oriental and the westerner as regards their methods of doing l)usiiies.s. The westerner, he says, likes to eliminate as far as possible the speculati\-e factor from business. He prefers to be able to count accurately on the future. On the other hand, there is always more or less of gambling risk in business, and the Oriental enjoys that. He is fond of gambling in any way, and likes business lietter if it has more of the speculative element. In the long run he thinks he is likely to win. On that account, therefore, the Chinaman will prefer the silver standard, even when he is dealing with a gold country. S'ttMiiton in Fideratal Jfiliij/ Stntcs. — In the Federated Malay States the situation is quite similar to that on the east coast of Sumatra, excepting that there is only the one system for officials and coolies, whereas in East Sumatra there are two. A very large proportion of the population in the Federated ]\Ialay States are Chinamen, March 31, 19Ul, 303,364, as compared with 313.703 native ^Malays, while the total population is only (i7i>,138. In Perak, the most important of the Federated States, "the Chinese outnumber the Malays by some lt!,t.iO(), and in Selangor by some Gs.t.Hii), these being the two great tin-producing States. A large proportion of the Chinamen in all the Federated Malay States are miners, who are work- ing the mines temporarily, with the expectation of returning to China as soon as thev have actaunulated a sufficient amount to enable them 458 STABILITY OF INTERNATIONAL EXCHANGE. to satisfy their future needs. They have the same expectation of tak- ing- dollars or an order for dollars to China with them as have the Chinese in Sumatra, and thej- also, like those in Sumatra are for the most part not colonists nor permanent settlers, but merely transitory workers, who after their brief task is done are going back to China to enjoy the fruits of their toil, and who believe that the large silver dollar has for them much more value than its equivalent would have were the rate of exchange fixed with gold at a rate as high as that of the Dutch guilder or even that of the Indian rupee. A good number of persons believe that the advantages of both sys- tems — the cheap money for the coolies and the fixity of exchange for the merchant — can be secured by establishing now a fixed rate of exchange at somewhat near the regular market bullion ratio and maintaining that rate. Of course the diflicultj' of such a plan is that of knowing beforehand what ratio to adopt in order to be sure that the ratio can be maintained without difficulty and without too serious danger from counterfeiting or other evils common in countries where the bullion value of the coin is very much less than its debt-paying value. So far as the Federated Malay States are concerned, with their min- ing and planting interests, there can be apparently no question that the silver dollar, for a considerable time to come, at any rate, is satis- factory; probably more satisfactory than an}' system based upon gold. It would not pay to change. If the Chinaman could be readih' educated so that he would not object seriously to changing the nature of the money in which he receives his pay, one might possibh' reach a different conclusion; but in dealing with such a question as this the opinions or sentiments, even the mere whims, of the money usei'shave a great deal to do in determining what kind of money it is best to use. FEENCH INDO-CHINA. With the exception of Indo-China, the French colonies have the system of currency used in France, with some slight modifications of no special economic significance. In Indo-China a French commer- cial trade dollar has been coined, similar to the trade dollar in the Straits Settlements, which circulates in international trade with the Mexican and Bi-itish dollar. The colony is on a silver basis; but for government transactions the Governor-General fixes a rate of exchange between the commercial dollar and the gold franc. This rate of exchange is made very near the commercial rate, and whenever the commercial rate varies materially the governor-general changes the official rate. A variation of more than 10 centimes would never be allowed; ordinarily the variation is only 1 or 2 centimes. It seems to be the habit of the governor-general to keep the rate a trifle higher than the commercial rate, so that in receiving the taxes, etc., there will be a slight gain to the government. Business men are said to complain of this continual variation between the two rates, because local dealers are likely to take advantage of the situation in their transactions with those who are more or less in their hands by taking whichever rate is most advantageous to the dealer himself. Some persons think that it would he advantageous to adopt the French standard for Indo-China also, in order to avoid this trouble- STABILITY OP INTKRNATIONAL EXCHANGE. *59 some variation between the two rates. Those who seem best informed, however, seem to think that it would be a wiser plan to adopt outright the silver standard and let the government take the commercial rate into its business. M. Simon, the Paris manager of the Indo-China Bank, a yevy well informed man on the subjeet, was of the opinion that the silver standard was far preferable for Indo-China, inasmuch as her chief commercial relations were with China, her rice being mainly sold there. ~Sl. ISLoufflard, who, a year or two ago, had visited, in behalf of the French Go\'erinnent, Madagascar and Reunion, as well as the British colony of Mauritius, had reached the conclusion, from what he saw in those islands, that the silver standard was far the Ijost for colonies situated as were those. He found that Alauritius had, some time ago, adopted the sih'er standard instead of gold, wh(>reas Beunion, also some time in the past, at the instance of the French officials who were suffering from the fall in the price of silver, had adopted the gold standard. He said that Mauritius had apparently flourished under the silver standard, whereas in Reunion there had been a continual depression in trade e\er since the adoption of the gold standard. From very careful study in connection with the whole situation, he had reaclx'd the conclusion that the chief cause of the difficulty was the gold standard, considering that the island was dealing largcdy with silver countries. He found, also, that in Zanzibar, and even in (rerman East Africa near Zanzibar, the silver standard was usi'd, though in the German colony it was apparently merely a mattiT of custom. He belie\'ed that an agreement with the nations concerned for a silver standard in the French, Dutch, and English colonies of the Far East and of East Africa with coins of the same weight, which should be practically interchangeable would l)e \ery beneficial. He thought also that it would be advisable for the Philippine Islands to come into such a convention. The standard to be adopted, in his judgment, should be either the Indian rupee or the ^lexican dollar. From his conversation it would appear that since the fixing of the rate of exchange in India, he would prefer the coins to be of the weight of the Mexican dollar. CONCLUSIONS. On the whole, the experiences of India, Java, Ceylon, the Straits Settlements, and the Federated INIalay States lead to the following conclusions: 1. It is perfectly possible in Oriental dependencies to maintain a fixed rate of exchange between gold and silver ^\'ithout the necessity of bringing gold, to any great extent, into circulation. 2. In countries where imported coolie labor is of great importance and where such coolie labor is mostly Chinese, it is jirobable that better terms (i. e., a lower ]icrcentage of cost in wages) can be made bj' using the silver standard than bj' using the gold standard. 3. When silver is declining in value as compared with gold, a silver standard, beyond doubt, afl:'ords a stimulus to the production of goods for export, es])etdally if the laborers emploj'ed are of the ignorant coolie type, the prices of whose purchases are largelj' customarj'. In the case of a newly developing countr}' where coolie labor is demanded, this stimulus may prove, for some time at least, of advantage without 460 STABILITY OF 1 NTEKNATIONAL EXCHANGE. disadvantages enough to offset. It is a question of degree of advan- tage and disadvantage. 4. The advantage to the producers of export goods are offset in part doubtless by losses of wage-earners, in part by losses of consumer's of imported goods; but this influence on the distribution of wealth may, quite concei\'ab]y for a considerable time, be beneficial to the country as a whole. 5. On the other hand, conditions may ))c such that this change in the distribution of wealth may be a disadvantage, and each country needs to consider M'hat the effect of the change in the distribution of wealth will be before settling its policy. 6. In the long run, it is probable that under any standard these changes in distribution will be gradually fixed, so that producers in a country with a gold standard will not continually be placed at any dis- advantage regarding wages and other costs of i)roduction as compared with those in the silver standard countries. 7. The silver standard, under present circumstances, and probably for a long time to come, })rings an element of uncertainty and specu- lation into business, which, speaking g(>iu'r:illy, is to be considered a decided disadvantage. 8. It is probable that in a country whose business is largel_y with gold-standard countries, the advantages of a fixed rate of exchange on a gold basis will more than offset the advantages which might come from a silver basis, unless the most important factor in connection with production is the introduction of cheap coolie labor. Even in the latter case, if there is a desire to develop especially the trade with gold countries, the fixed rate of exchange with gold is to be preferred. 9. The flow of capital for investment in a country is determined mainly liy the outlook for profits. Unless the chances are very good, an added element of speculation in business tends to check investment. Unless, therefore, conditions of labor or other special conditions are such as to more than offset the risks of a fluctuating rate of exchange, a fixed rate on a gold basis will encourage the investment of capital. 10. If the gold standard, together with a silver currcncj^, is to be adopted in any of these Oriental countries, the disadvantage which there may be in connection with it will be much less if the fixed rate of exchange be made as nc^ar as possible to the bullion rates, with the silver coin us a token, of light enough weight so that there will be slight danger of its being exported if a rise occurs in the value of silver bullion, and at the same time with the coin not too light so as to afford undue temptation to counterfeiting. A coin 15 per cent or 20 per cent below the fixed exchange value would probably be light enough. 11. A permanent rate of exchange can be easily maintained by a provision for the Government to sell exchange at fixed rates between the home government and the dependency. Such rates should be high enough not to interfere with ordinary business, but low enough to prevent extortionate business rates even temporarily in the dependency itself. A reasoiial lie gold reserve in the dependency, to ]»e used when large quantities are needed for export, may well be kept in conjunc- tion with the above plan. 12. Whatever the standard of value, the efficiency of the currency system is gr(>atly increased by the use of paper. An elastic bank-note system, with notes current throughout the country, has proved best. Chaptkr VII. — Summary and conclusion. L. CUKUiiNCY. Effect of (l«2->i'' <:i English and Dutch colonics durint;' the period of the depreciation of silver from about 1^73 to the present time seems to show that a currency which is rapidly depreciatinL;-, as compareil with gold, tends toward stimu- lating the export trade and the business of manufacturing for export. This comes about, of coui'se, from the fact that in these colonies the export trade has been mt)stly with gold-standard countries. In con- se(iuence. with a gold price remaining staljle. the amount of siher received for. the same quantity of goods in the colony was st(>adily iuci'eusing. The \\'ages of laliorers and the local cost of material employed in manufacturing being paid in silver, naturally remained more nearly stable. In consequence, manufacturers and exporters r(>ceived steadily a bounty in addition to what might he considered normal jirotits. It is, of course, true that the buyers in Europe, recog- nizing the situation, in certain cases, discountiMl this advantage in their oilers; but, genei'ally speaking, there can be little doubt that the depreciating currency actually stimulated and aided the exportei-s and manufacturers. Iff <-'t ill *S'/^///(/;f/v/. -Naturally this gain must have been paid by someone. In the case of the tobacco raisers of Sumatra, whose expenses were chiefly for labor, the gain was scV'ured mainl^y through increasing their silver )irices -without a corresponding increase in the wages of their coolie-laborers. On the other hand, inasmuch as the laborers consumed chiefly goods which were raided in the country itself, not for export, and inasmuch as these prices, largely fixed b\' custom, did not in many eases go up, they did not feel the loss as they would have done had they been compelled to buy imported goods. Aloreover, in many instances, where their goods were imported, as, for example, opium, either this came from siher-standard countries, or else, wnenever the price showed a tendency to increase, the tol)acco producers, in order to prevent dissatisfaction on tlie part of their laborers and the consequent possible demand for an increase of wages, sold opium to them at the previous rate, and themselves stood any loss that miglit come from its increased siher price. Jtlt'trfs in Iniliii. — In India, where wages were largely a matter of custom and where the pay also was at times partly in truck, the laborer usually did not feel any immediate loss from the depreciation of the coin in which he was paid. In that country the sufferers were chiefly ofovernment officials and others whose salaries were fixed in terms of o 461 462 STABILIT'? OP INTERKATIOKAL EXCHANGE. silver rupees, but who had to consume in part imported goods, or who were compelled to make remittances to gold-standard countries. With these classes should of course be classed the government itself, which, being heavily in debt to gold creditors in England, was com- pelled to remit from year to year a steadil}^ increasing amount of silver or of ssilver credits, as that currency depreciated. The determi- nation to fix the rate of exchange in India came about, of course, mainly from this necessity of the government itself. The result of fixing the rate of exchange with gold has been the relief of the government and of those who are compelled to live, to a considerable extent, upon imported or export goods, while it has taken away from the exporters and man- ufacturers and producers of export goods the stimulus which they were continually receiving before. So far as in iixing the rate of exchange there was an increase in the value of silver, that has come, of course, nominally at any rate, to the detriment of practicall}' all Indian con- sumers and taxpayers. But, on the whole, it is probable that, as they consume largely Indian products, this has not been materially felt by them. Conclusions from, en'pcrience. — It would seem, therefore, that if a country is upon a silver standard it might be well to maintain that standard if one wished to stimulate the internal development of the country in the matter of export goods, and were also willing that those who consumed import goods and the laborers, so far as thej' had the opportunity of getting either import goods or of securing gold credits of any kind, should carry the burden, unless the evils that are likely to come from the fluctuation of currency would seem to over- balance. It is a matter of doubt, however, at the present time whether silver is likely to depreciate any further. Many people ha-\'e been of the opinion that, owing to the new gold discoveries and to the probable increase in the output of gold in South Africa since the close of the Boer war, silver will be likely to increase in value rather than to lessen as compared with gold. Should that occur, this stimulus spoken of would be changed into a drag upon progress. The matter of stimulating the export trade also depends, to a con- siderable extent, upon the countries to which the exports are sent. If these are silver countries, the effect will not be felt. A country, therefore, might well consider whether it wished to stimulate trade with the gold countries or with silver countries before finallj- formu- lating its polic3\ CONCLUSIONS KEGARDING THE PHILIPPINES. To apply, now, this experience to the situation in the Philippines: Effects i>f de]ir(:Ciitting stmidiifd. — While it is desired on the part of the American Government to develop as rapidly as is consistent with just treatment of the Filipinos the resources of the Philippine Islands, it is by no means the desire to do so at the expense of either the Filipino laborers or the local Filipino producers, who would receive their \)&y in silver. At present the hemp plantations are largelv in the hands of small individual holders, who sell their product to the exporting houses, mainly English, for shipment to the chief importing countries, England and the United States, both of which are on the gold basis. The gain that would come from a fall in the rate of STABILITY OF INTERNATIONAL EXCHANGE. 463 exchange would naturally be kept chiefly b}' these European or Ameri- can exporters, and the Filipino producer would receive little or none of it. Even if he were to receive some slight gain through an increased silver price, he is certain to wish to consume more or less — and continu- ally more as time goes on — of imported goods. At present he uses some cotton, but as his income improves he will certainly use more in the way of tools, agricultural implements, and other articles of import. In all these matters, therefore, he would be losing if silver continues to depreciate; and, taking the matter as a whole, it is likely that the chief gain, if there were any gain, would come not to the Filipino, but to the American or European go-between. In the case of the large sugar plantations, the gain would come also to the exporting merchant, or later possibly to the individual or cor- poration owning the large plantation. iThe burden would fall upon the laborers, who, at the present time, are mostly Filipinos. If Chinese coolie lalaor were admitted, and the Filipinos engaged in other labor, it would be the Chinese coolies chiefly, in this industry, who would carry the Ijurden, and more, then, might be said in favor of the main- tenance of a silver standard. Effects offluvtiiatuivs. — On the other hand, as has been intimated, it is by no means certain that silver will depreciate steadily in the future. Moreover, it is perfectly certain that great embarrassments will come both to business men and to the government from the con- tinually fluctuating currency. During the three months of the spring of this year the government had fixed the oflicial rate of exchange between silver and gold at $2. 21 in silver for one American gold dollar. The rate at the time it was fixed was high enough. A rapid fall in silver, however, placed the market rate at consideral)ly above )?2.:^)(.>; most of the time it was as high as|i2.35 or $2. 36, and at times was even above $2.40. The consequence was that all government officials and all who had contracts with the go\ornment were compelled to receive money at $2.27, while in their outside purchases they were compelled to pay from $2.35 to $2.40. Practically all of the leading business houses in Manila at once changed their prices from the silver basis to the gold, and in making the exchange naturally took advantage of the consumer. Wage-earners in general, whose wages had been fixed in silver, were compelled to take their pay in that metal, and sufiered accordingly. Difficulties of government. — To the suggestion that the government change the rate more frequently whene\'cr the market rate changes, the important objection is, aside from the hampering effect on busi- ness, that it is practically a matter of great difficulty for the govern- ment treasiuy officials to make these frequent changes in their rates. Many of the officials in outlying districts can not be communicated with oftener than once a month, or even once in two months in some cases, and a change made in Manila on, say. the 1st of September, if attempts were made to make adjustments, might cause two months afterwards, in some outl3ang province, a payment of additions to sala- ries not fullj' paid, or might involve the cutting of a subsequent salary in order to make even the government loss of the preceding months. It might even in special cases involve a practically impossible attempt on the part of the government to collect back money already paid out. If the prospect of gain to the common man were great, we might readily demand that the government take upon itself the trouble in- 464 STABILITY OF TNTEKNATIONAL EXCHANGE. volved in the fluctuating rate; but as such gain is not probable, inas- much as at the present time nothing can be more important than for the government to riui with as little friction as possible, and to avoid all possible causes of controversy with the people, it seems of the higliest importance that the government he spared the difficulties of the fluctuating rate. Enc(iar(i>jnembers, and the warm aid of Germany, so confidently expected, was withheld. Oh the whole, we may consider this as fortunate, but it is an interesting incident now that the whole sub- ject has been thrashed out and settled. 488 stability of international exchange. Practical Bimetallism. [Sioux City (Iowa) Journal, November 28, 1903.] The International Exchange Commission, which returned recently from a visit to the European capitals, has filed its report with Presi- dent Roosevelt, and the substance of the report has been made public. The Commission was appointed by the President last spring, with the authority of Congress, in response to a request from Mexico and China that this Government should take measures to secure a permanent relationship between the moneys of gold and silver using countries. During the summer the Commission visited the capitals of Great Britain, Russia, France, Germany, and the Netherlands. So far, no government has been committed to any plan for bringing about the desired result. President Roosevelt will lay before Congress the information secured by the Commission, and it will rest with Congress to decide whether further action shall be taken. The Commission found no difficulty in interesting the foreign gov- ernments in the proposition submitted. There was unanimous accept- ance of the principle that it would be to the advantage of all the nations engaged in world commerce if the moneys of the silver-using nations could be given a fixed exchangeable value with gold. The American Commissioners argued especially in favor of such an arrange- ment in China, but it was also urged that the European nations apply the principle to coinage in their dependencies, with the view of event- ually making possible the transaction of all international business practically on the gold basis. The system of coinage adopted by the United States for the Philippines was pointed out as an object lesson in this direction. The American Commissioners report that on the main point there is unanimity of sentiment. All the governments consulted acknowledge the desirability of establishing a gold-exchange monetary standard in the silver-using countries. It is admitted that such a policy Avill make for the economic progress of the countries directly affected and will facilitate profitable trading between the gold and silver using nations. There is agreement also that such a system must provide for the continued extensive use of silver coins, to conform to long-estab- lished custom and existing scales of value. There is unanimity of opinion also as to the necessity for discontinuing the free coinage of silver and letting the state control the quantity of silver coined, in order to give it a fixed relation to gold. That makes the agreement unanimous as to general principles. In regard to the application of the principle specifically a slight dif- ference of opinion developed. Germany, the Netherlands, France, Mexico, and the United States declared in favor of issuing the new currency at the outset at a fixed gold ratio, presumably that of 32 to 1, which now prevails in the Philippines. Great Britain and Russia declared in favor of beginning on the silver basis and, after estab- lishing a uniform currency on that basis, giving it a fixed relation with gold. The question at issue is merely a matter of expediency, with the probability that the plan favored by the majority would prove the most satisfactory. However, it is admitted that either plan would offer improvement over the existing situation, which leaves the oriental currency open to constant fluctuations of value.' On the question of ratio all the nations except Russia accept 32 to 1 as the ratio upon which it is advisable to make silver exchangeable with gold. Even Russia admits that ratio would do for China, but suggests that STABILITY" OF INTERNATIONAL EXCHANGE. 489 in other countries economic needs and local monetary conditions might make a different ratio desirable. The question now to be discussed is whether the interested nations shall proceed to a combined effort to effect the important reforms pro- posed. The differences over details are not irreconcilable, and if all the nations have been in earnest in subscribing to the general princi- ple there is no reason why an international monetary conference should not undertake the task. The immense value to the commer- cial world of facilities for transacting world commerce by means of a uniform and stable currency system should make the game worth the candle. The Orient and the Gold Standard. [CWcago Post, October 27, 1903.] There has been much unintelligent and unfair criticism of the pur- pose and work of the Commission on International Exchange, which was appointed early in the spring in response to a request from the Governments of Mexico and China. These Governments desired the cooperation of the United States in the promotion of measures tend- ing to restore and maintain a fixed relationship between the money of the gold-standard countries and the money of the silver-using peoples. Some jumped at the conclusion that the move meant a revival of schemes for international bimetallism, and either denounced or ridi- culed the appointment of the Commission. As a matter of fact the business of this body was not the conversion of gold-standard countries to bimetallism, but the conversion of silver- standard countries to the doctrine of a circulation based on the gold standard. Its general proposition to the powers visited was that the adoption of a gold-exchange standard by oriental countries and colo- nies would greatly contribute to their economic progress. Surely American sound-money advocates will readily indorse this suggestion. And they will naturally rejoice to learn that its soundness was acknowledged by every finance minister to whom the subject was presented by the Commission. But what are the silver-using countries expected to do? The Com- mission says in the report just published: " There was agreement upon the principle that such' a system must involve the continued large use of silver coins in order to conform to long-established cus- toms and existing scales of values, biit that free coinage of silver should be suspended and the determination of the quantity of the coins taken under the control of the State, in order that measures might be promptly taken to give them a fixed relation with gold." Several questions arose upon the acceptance of this fundamental proposition. First, should the gold standard be established at the beginning, or should it come after the introduction of a uniform national currency upon the silver basis? Second, what should be the fixed ratio between the silver in circulation and the gold unit? As to the first question, the Commission tells us that " upon the part of five powers — Germany, France, the Netherlands, Mexico, and the United States — there was agreement that the best method was to begin the issue of the new currency at a fixed gold par, while upon the part of Great Britain and Russia there was a disposition to favor the view of first supplying the country with a uniform currency and then giving- it within a short interval a fixed gold value." With regard to the ratio all powers agreed that 3i2 to 1 corresponded to actual economic conditions and would prevent the exportation of 490 STABILITY OF INTERNATIONAL EXCHANGE. the coins by the rise in the price of silver. At the same time Russia contended that eacli country should be allowed to fix its own ratio. This would neutralize to a considerable extent the advantages of the whole reform. As no action has definitely been promised, there is room for further discussion. China is not likely to hurry. The gospel of strenuosity has scarcelj^ touched her. We hope to convert her in time. Important Movement. [Buffalo Express, October 28, 1903.] The excellent work done by the Commission on International Ex- change, which has j ust made p ublic its report in presenting to the powers the necessity for a gold standard in China, should be gratifying to American commercial interests. This Commission was appointed by President Roosevelt last spring in response to an invitation from Mexico and China to take up the matter. It was accompanied on its European mission by a committee of Mexicans, who participated in the conferences with I'epresentatives of foreign governments. It was not expected that the conference would do any more than to obtain the views of the gold-standard nations on the subject of creating stability in international exchange. All the governments approached heartily supported the general proposition. The only important dis- agreement was as to the time when China should make the change. The commissioners for the United States, Mexico, Germany, France, and the Netherlands believed that China should go on a gold basis at the same time the movement was started to establish a uniform currencj' system in that country, while the commissioners for Great Britain and Russia thought it would be advisable first to establish uniformitj' in the currency and make the change to the gold standard as soon there- after as practicable. It is obvious that the creation of a uniform cur- rency system in China will be attended by many difficulties. It seems equally plain that the creation of a gold standard would not add materially to the perplexities — that is, it would not cause enough additional trouble to offset the manifold advantages which China and the great commercial nations would derive from the establishment of such a standard. In its report the Commission points out that if the uncertainties in international exchange could be eliminated trade with China would probably grow very fast. At the beginning the increase would be due to the investment of foreign capital in China rather than to an increase in the consuming power of the people themselves. Later the consuming power would develop. The results of a change to the gold standard in Russia and Japan are cited. In the case of Russia imports rose from a value of $210,000,000 in 1890 to 8315,000,000 in 1900, while the respective figures for Japan were 640,000,000 and .$150,000,000. It is not to be expected, however, that the showing for China Mould be as favorable as for either of these countries, but there is no question that the change would be important. It is for this rea- son that manufacturers in all gold-standard countries should approve the work of the Commission and do all they can to further the move- ment. There is no desire on the part of any of the Commissioners to interfere in any way with the silver market. They are working for the encouragement of international trade in all branches. stability of international exchange. 491 Stabilization of Exchange. [The Providence Journal, Monday, October 26, 1903.] The members of the American Commission on International Ex- change, a synopsis of whose report to the Secretary of State is printed elsewhere in this paper, give good reasons for their contentment with the results of their conferences with the representatives of European governments during the past summer. The object of the Commis- sion, it may be recalled, was to induce the other leading commercial nations to join the United States in giving moral encouragement, and such practical assistance as may be feasible without getting into troublesome entanglements abroad or jeopardizing domestic interests, to the establishment of a gold exchange standard for silver-using countries, whereby those countries, still retaining the use of a silver coinage which they can not dispense with, may stabilize exchange between themselves and countries which have the gold standard — in other words, may permanently maintain that coinage at a fixed gold par above its bullion value. This object has naturally met with the general approval of the nations approached. "The character of these approvals," we read in the report, "warrants the statement that the work of the Commis- sion up to this time has been entirely successful." Differences of opinion in regard to details have of course arisen, and the form in which the ultimate opinions of the various national representatives were expressed has also differed. But it appears that all the nations are agreed as to the commendableness of the main purpose and that five of them — Germany, France, the Netherlands, JMexico, and the United States — agree that the best method of procedure is to begin the issue of the new currency for the silver nations at a fixed gold par, while two of them — Great Britain and Russia — favor beginning on a silver basis, with the view of first supplj-ing the countries with a uniform currency and then giving it within a short time a fixed gold value. With such encouraging assurances the Commission is amply justified in sending one or more of its members to China to lay the proposition formally before the Pekin Government. Mexico seems able and willing to go ahead with the work of stabilization in her own case without any further solicitation or assistance; a project of law is alreadj^ in preparation there which contempletes the adoption of the gold exchange standard and it will probabl3^ be enacted at the present session of the Mexican Congress. What is there in this movement for us? This is a question which will of course be asked in the United States, where the majority of the people are apparently so indifferent to their own domestic monetary deficiencies that they can with difficulty be made to see the importance of reform suggestions for other countries. In realitj^ there is much in it for us if the exchange standard of silvei'-using countries can ulti- mately be stabilized. For one thing, Avhat it is now proposed that Mexico and China shall do is essentially what we ourselves are trying to do in the Philippines, and we can not be indifferent to the assist- ance which would be given us by the wider adoption of the same plan by other nations as it has alreadj' been adopted by the Dutch in the East Indies, the Russians in Bokhara, and the British in India, and as it is about to be adopted b}^ Britain for tlie Straits Settlements and France for Indo-China. The larger the number of governments that are directly interested in the maintenance of considerable volumes of silver coin at a fixed parity with gold the easier must be our task in 492 STABILITY OF INTERNATIONAL EXCHANGE. our Pacific dependency, as also, in a way, in our own land, where sil- ver is likewise practically a token coinage. But beyond this and more important is the commercial benefit which must follow the stabilization which is aimed at. In that benefit we should share with the leading manufacturing and exporting nations of Europe, whose interest in the project has doubtless been chiefly aroused bj' this consideration. The present uncertainties, due to fluc- tuations in exchange, in regard to the profits on commercial operations between gold countries and silver countries are a hindrance to trade which everybody can understand. Remove these uncertainties by the establishment of a stable rate of exchange and importations from gold countries like the United States into silver countries like China would inevitably be greatly increased. If there were any doubt of this it would be dispelled by the experience in the cases of Russia and Japan when they adopted the gold standard. Russian imports rose in value 60 per cent in the ten years between 1890 and 1900; Japan imports 200 per cent in the same time. A corresponding ratio of increase would within ten years open a market for 8400,000,000 worth of European and American products in China. That is something worth trying for. It gives us an obvious interest in the efforts of the Commission which is seeking to establish the conditions for so promising a com- mercial opportunity. To Steady Gold Exchange. [New York Times, Monday, October 2fi, 1903.] Early this year a Commission, consisting of Messrs. Hugh H. Hanna and Charles A. Conant and Prof. Jeremiah W. Jenks, was sent out by the Department of State to discuss in the capitals of Europe the introduction of the gold exchange standard into China and other silver-using countries. They have Just made their report to the Sec- retary of State. The Commission is an able and authoritative one. Mr. Hanna is well known for the excellent work he has done in promoting the adoption of the gold standard in the United States and in advocating reform of the currency. He is chairmti,n of the committee of the monetary con- ference to -which the sound financial legislation of the first term of Mr. McKinley is due. Mr. Conant is the ti-^asurer of the Morton Trust Company and a writer of high reputation on matters of finance and currency. Professor Jenks holds the chair of political economy at Cornell University. The appointment of the Commission was sug- gested by the application of the Governments of Mexico and China for cooperation on the part of the United States in securing the gen- eral adoption of a policy that would steady the value of silver in rela- tion to gold, maintain reasonable stability in the rates of exchange between'the silver countries and the gold countries, and forward the adoption of the gold standard in countries not now having it. The American Commission, accompanied by a commission from Mexico, visited the capitals of Great Britain, France, Holland, Germany, and Russia, and were in each case met by commissions from these Gov- ernments. They report a general agreement as to the desirability of the objects sought and the principles on which it was suggested that they should be pursued. No definite policy was proposed, but there was free and thorough discussion of what might be accomplished and the means suitable. The suggestions as to the introduction of the gold standard in China, STABILITY OF INTERNATIONAL EXCHANGE. 493 as in other silver-using countries, involved the adoption of silver coins to be kept at par with gold by means of the following three measures, which are the essentials of the policy of the Dutch East Indies, of that of the United States in the Philippines, and of that about to be put in force in Mexico, in the Straits Settlements by Great Britain, in Indo-China by France, in Bukhara by Russia, and in Peru: 1. Government control of the amount of the issues, so as to keep them within the demands of trade for legal-tender money. 2. Acceptance of the coins at their legal value for public dues and private debts. 8. The sale of drafts at or near par upon gold-exchange funds kept at the financial centers of the world. That silver coinage can be kept in circulation at par, though its bullion value is less than par, provided that the volume is sufficiently limited, is shown plainly in our own case. The other difficulty which may present itself is the rise in the bullion value beyond the face value, when the coin will tend to go to the melting pot. The preven- tion of this suggested by the Commission is the suspension of pur- chases for purposes of coinage when the price tends to rise too high, and this, to be effectual, would require a general understanding between all the silver-using governmenls. With the ratio of 32 to 1, which has been adopted in the Philippines, there would be a margin for possible rise from present values of about 15 per cent, and it is the opinion of the commissioners that a general understanding with the other governments is not impracticable. The whole scheme is an extremely important one, and the lines on which the Commission has proceeded are very promising. If they can be pursued with reason- able success, the practically universal adoption of the gold standard and the gradual abolition of the evils and losses attendant on fluctu- ating exchange between the silver-using and the gold-standard coun- tries is within calculable distance. Stability of Exchange. (New York Tribune, Monday, October 26, 1903.] When Mexico and China made their request last January for the aid of the United States in regulating the fluctuations in the value of silver and establishing a fixed ratio between the currency of the silver- using countries and gold, the Tribune declared in favor of the enter- prise, provided it abandoned all schemes of bimetallism and concerned itself with securing a more perfect system of exchange and putting the silver countries on a gold basis without interference with local prices and popular habits by the introduction of gold as the principal circulating medium. This is just what has been done by the Com- mission on International Exchange appointed by the President in response to the Mexican and Chinese invitations. Hugh H. Hanna, Charles A. Conant, and Jeremiah W. Jenks, the commissioners, have visited the principal countries of Europe, discussed the subject with representatives of Great Britain, France, Holland, Germanj', and Russia, in cooperation with the Mexican commission, and have reached agreement with them all as to the desirability of the proposed reform and as to the wisdom of the essential features of their plan. The report of the Commission to the Secretary of State, a summary of which is published in another column of this issue, is concerned chiefly with the introduction of the gold standard into China. Mexico is expected shortlj', on its own motion, to undertake a policj- in har- mony with the Commission's plan, by bringing its silver circulation 49 i STABILITY OF INTERNATIONAL EXCHANGE. to a fixed parity with gold. This means the adoption of the gold standard without gold eircnlation, and the transformation of the silver circulation into a token money with a legal value not far removed from its buUioTi value and exchangeable at a fixed rate into gold for foreign payments. The Chinese pro blem is more complicated, because there is no national currency now, and only gradually could one be extended beyond the treaty ports. The plan proposed is for currency of silver and copper token money, put at once on a gold basis, though Great Britain and Russia alone among the powers favored, first, a uniform national silver currency, to be brought subsequently to a fixed gold value. The Commission believes that the gold standard, with a silver currencj^, could be established at the great commercial ports without serious business disturbance, and then the system could be gradually extended in its perfection to other parts of the Empire where there is now no system at all. The parity of the currency is to be maintained by coining silver solely on government account and strictly limiting the amount to the demands of trade, by the acceptance of the coins at their legal value, first for public debts and then making them legal tender for private debts, and by the sale of drafts at or near par upon gold exchange funds kept at the financial centers of the world. It is not thought that the gold reserve for this purpose need be large. There would be no local demand for gold, and under proper regulations the depletion of the gold stock could be prevented. Any tendency to drain gold could be met by raising the discount rate under fixed rules. Neither need the government obligate itself to sell exchange unless tlie commercial rate for gold exchange advance 1 per cent or more above normal charges. Then its sales would serve merel.y to restore the rate and maintain its silver at par. The ratio proposed for China is 32 to 1, as most likely to enable the coinage to be kept at par with- out any undue burden or drain on gold reserves and at the same time keep the money from being withdrawn from circulation for the arts. How far the Commission is from any desire "to do something for silver" is shown in the recommendation that when the bullion value of silver equals its legal value government purchases shall cease. This is necessary to prevent loss, but its tendency is o keep silver prices down at least to a fixed figure, since a large market for it is closed when it goes higher. This proposition is, of course, purely academic. The United States can not give China a monetary system, and it is not intended by treaty or otherwise to modify our own system or assume any responsibility with respect to the currency of any other country. It is manifest, however, that oriental trade would be greatly benefited by stability of exchange. At present all transactions are subject to loss through extreme fluctuations. The plan proposed to remedy the difficulty appears to be perfectly sound. No departure from the gold standard is to be made, but the gold standard is to be extended, and countries which have permitted the free coinage of silver, exchangeable only at its varying bullion value, are to adopt a token money like the silver money of the United States, but without any attempt, such as was made here, by large purchases to maintain an arbitrary price of silver as a commodity. If China wants this system, China, not the United States, must adopt it. But the United States may give sympathy and advice, and it has done a valuable work in securing European agree- ment on the subject. When China is ready to act, it may be sure that the powers will put no obstacles in the way of a monetary reform which is in the interests of general oriental trade. stability of inteknational exchange, 495 The Stability op International Exchange. [The New York Journal of Commerce and Commercial Bulletin, Monday, October 36, 1903.] The report of the Commission on International Exchange, which is made public to-day, necessarily deals almost solely with the question of the ChiDese currency. China is the one great silver-using country where the obstacles to be encountered in the establishment of a gold- exchange standard seem almost insuperable, and whether regard be had to the stupendous diificulty of the task or the impressive magni- tude of the advantages to be gained, a discussion of the means neces- sary to accomplish it assumes a character of world-wide interest. It is not only a matter of vital concern to the great commercial nations to have a stable ratio of exchange established with China; it is a question of national self-preservation for China itself to introduce order into the chaos of the currency. The adoption of the gold stand- ard by India, Japan, Siam, the Philippines, the Straits Settlements, and Indo-China makes it certain that in future the whole of the for- eign trade of China will be with gold-using countries. When to this fundamental change in their commercial relations is added the still more important thing in their financial relations involved in the cre- ation of a large national debt payable in gold to foreign creditors, the regulation of the currency becomes obviously the most imperative of the duties pressing on the central and provincial governments of China. It was in recognition of this fact that Article II of the new British commercial treaty was made to read: "China agrees to take the necessary steps to provide for a uniform national coinage which shall be legal tender in payment of all duties, taxes, and other obli- gations throughout the Empire by British as well as Chinese sub- .iects." It was at least a partial recognition of it which prompted tlie Government at Peking to join with the Government of Mexico in ask- ing the friendly cooperation and support of the United States in an effort to bring about a fixed relationship between the moneys of the gold-standard countries and the silver-using countries. The appoint- ment of the United States Commission on International Exchange was made in response to this request, and the first nine months of its labors must be held to have advanced the problem several steps nearer to solution. Not the least of the dangers to be apprehended by China from the continued instabilitj^ of her basis of monetary exchange is the almost indefinite increase of her indebtedness. Should Chinese exports prove insufficient to pi-ovide bills for the payment of her gold debts, recourse must be had to the export of silver to make good the deficiency. But if China becomes a seller instead of a buyer of silver, the market be- comes at once subject to a new influence of depression and a circle of fatal import to the financial stability of the Chinese Government becomes at once established. That is to say, the lower silver falls the more silver China will have to export; the gi'eater the quantity exported the more silver will fall. Thus, at any moment, an unfa- vorable turn in the export trade of China might precipitate another downward movement in the price of silver and bring to an acute stage the question of China's ability to continue to discharge in gold the liabilities incurred under the indemnity. But the fact has to be recog- nized that the immediate effect of the introduction of a new currency system to China would be an addition to the existing foreign debt of the Empire. That is to say, adequate financial resources would have 496 STABILITY OF INTERNATIONAL EXCHANGE. to be found for the creation of a gold reserve and the preliminary purchases of silver for the new coinage, and these could be provided only by a foreign loan secured by sources of revenue sufficient to yield the amount required for interest and redemption. While the American Commission was not specially authorized to discuss questions relating to the indemnity, it found them almost necessarily forced on its atten- tion, and in visiting the capitals of the powers chiefly interested it took them up with representatives of the dejjartment of the respec- tive governments having control of the subject. The essential ques- tion presented was whether, in view of the considerably increased burden imposed upon China by the recent fall in silver, the powers would not agree to accept payment of the indemnity on a silver basis for a term of years if the Chinese Government would bind itself to make up the difference at some future time. The Commission found that, with a single exception, there was a disposition to make this concession if it appeared that China would take effective steps, accept- able to the powers, to give stability to her monetary system. Having received on this head all the assurances that were expected, the American Commission did not deem it desirable to go further until the project of a national currency for China had assumed such a definite form as to admit of a precise understanding of the use to which the Imperial Government would put the amounts remitted on the indem- nity payments. As for the outlines of the project submitted, they are, briefly, that the Chinese Government should adopt a standard unit of value of a fixed denomination in grains of gold, to be worth, approximately, the gold value of a tael, or somewhat more than a Mexican dollar, and that provision should be made for the free coinage of gold pieces of five to twenty times this unit. That China should coin, as rapidly as possible, 200,000,000 silver coins about the size of a Mexican dollar, for circulation in the country, and that these should be maintained at par with the standard gold unit at a ratio of about 32 to 1. That both the gold and silver coins should be receivable at par in payment of all obligations due to the central government in any of the prov- inces, and that the latter may, at its discretion, in conjunction with the viceroys of the respective provinces, from time to time declare the new coins legal tender for debts incurred after a date fixed in the proclamation. The seigniorage profit from coinage should be kept as a separate fund, and provision should be made for a banking law under which bank notes kept at par with the legal-tender currency may be issued by responsible banks under the supervision of the comptroller of the currency. This latter officer is to be a foreigner appointed by the Chinese Government, and should have general charge of the entire monetary system of the Empire. He is to have acceptable associates in charge of the mint, or of such other work as he may prescribe, and his accounts are to be open to inspection by accredited representatives of the powers interested in the indemnity. The only radical divergence between the scheme submitted by the Commission and that which has found favor with other experts con- sists in the proposal to place the Chinese currency on a gold basis at once, instead of beginning with a silver basis, with the intention of establishing the silver coinage later on a parity with gold. The rea- sons urged in defense of that position appear to be eminently sound, and present a valuable contribution to the general discussion of the question which is likely to follow the publication of the report. stability op international exchange. 497 International Exchange Commission. [Dun's Review, New York, September 19, 1903.] So much uncertainty and misapprehension has existed regarding the Commission appointed to investigate the international monetary situ- ation that a brief statement of the facts may have value. In select- ing Messrs. Conant, Jenks, and Hanna there was no mistake. It is extremely doubtful whether three better posted students of the sub- ject could have been found. Mr. Conant's writings on financial topics are well known, and his recent appointment to a high office in a promi- nent trust company emphasizes his practical as well as theoretical fit- ness. Professor Jenks has occupied the chair of economic study iu one of the large colleges, and Mr. Hanna rendered signal service in connection with the monetary convention at Indianapolis in 1898. These gentlemen have spent several months in travel, meeting the leading financiers and legislators of many countries, and increasing their own store of knowledge, while greatly enlarging the interest in the subject throughout the civilized world. Although frequently alluded to as the Silver Commission, their chief purpose was to extend the gold standard to China and other countries still on a silver basis. Cooperation of leading nations was obviously necessary in order to accomplish the desired result, particularly as to China, where domestic conditions are peculiarly unpropitious, owing to the low rate of wages and general cheapness of commodities, which give gold coin little opportunity for use as a circulating medium. The plan of the Commission was to present to all interested nations the great advantage accruing to commerce of a monetary system in China somewhat similar to that which the United States has arranged for the Philippines. A radical change being out of the question, the arrangement was in the nature of a compromise, looking ultimately, perhaps, to a further improvement. The interdependence of the great nations in their colonial possessions in the Far East and in the trade of those colonies with China made the step more imperative. With this country's financial policy for the Philippines, Great Britain's plans in the Straits Settlements, and the French system in Indo-China, there is closely associated the necessity of similar conditions in China. As a long step in that direction can be made by putting silver bul- lion in as steady a position as possible, the ' proposition was made to the leading governments that wide fluctuations in the price of the white metal might be avoided bj' regulating the purchases for coin- age. Within the past year we have had silver at the lowest point on record, followed by a recovery of over 5d. per ounce at London, which was largely due to buying bj^ this country for Philippine coinage. In order to maintain the compromise silver coin at a ratio of 32 to 1 it is essential that these erratic variations in the silver-bullion market be checked. The American Commission found that leading authorities recognized the importance of this fact, and it was agreed that the dif- ficulty might be obviated to a large extent by distributing purchases of silver for coinage with certain regularity as to quantity and time. In other words, the market would not be depressed by long periods of inactivity and suddenly inflated by an unexpected demand from one of the great nations. If the dealers know that France will buj- cer- tain amounts on definite dates, the United States other quantities also at fixed intervals, and similarly for other countries, the natural effect would be less fluctuation in price. H. Doc. lU 32 498 stability of international exchange. Work of the United States Commission. [New York Bankers' Magazine, October, 1903.] The Commission on International Exchange, composed of Messrs. H. H. Hanna, Charles A. Conant, and Jeremiah W. Jenks, have returned to the United States, and some official announcement regarding the results of the work accomplished ought soon to reach the public. There seems to have been more or less misunderstanding on the subject of their mission, growing probablj^ out of its somewhat tech- nical character and the fact that it differs considerably from that of previous commissions on monetary problems sent to Europe by the United States. Many people have jumped to the conclusion that another effort was being made "to do something for silver" from the bare fact that a commission had been appointed. There is force, however, in the suggestion of one of the memliers, in a recent com- munication to the press, that the present body is essentiallj' a gold commission, because its chief object has been to introduce the gold standard into China. It would be of great economic and commercial importance, as has been several times pointed out by the Bankers' Magazine, if China could be put uijon the gold basis. The project is a somewhat novel one, but its discussion has been stimulated within the past year by the adoption of the gold standard in the Philippines and by the vio- lent fluctuations in the gold price of silver. It is these fluctuations which have upset exchange and almost demoralized the trade of China with foreign countries. If the fluctuations of exchange could be cured commerce woiild be encouraged, loans could be made in China without the present probability of shrinkage in their gold value, and perma- nent investments would become profitable for the same reason. The Philippine government has taken the bull by the horns, and its new silver currency, issued on a gold basis, is rapidly coming into circula- tion. The British Government has taken the first steps toward a similar policy in the Straits Settlements by calling in the old coin and preparing for a new one, and the French Government has entered upon the same path in Indo-China. The adoption of a gold standard in China is a more difficult task than in the dependencies of the European governments, and has seemed to some to be too difficult to be undertaken. There can be no doubt, however, that the tendency of the times is toward gold, and that sooner or later China must follow Europe and America and their colonies in the East if she is to become a progressive commercial country. Even if the solution of the problem proves slow and difficult, however, the American Commission are probably justified in their belief that the time has come to make a beginning. The point has been several times made in discussing the request of Mexico and China for the cooperation of the United States that they were asking cooperation upon a subject on which independent action each for herself would alone meet the requirements of the case. There are reasons, however, of a diplomatic and economic character which, according to their published statements, governed the American and Mexican Commissions in their negotiations in Europe. In regard to C^hina the problem presents diplomatic difficulties as well as those of a purelj' monetary character. If the United States should undertake of her own motion to put China on a gold basis, through the offer of expert advice and financial assistance, it is prob- STABILITY OF INTEENATIONAL EXCHANGE. 499 able that she would find, herself confronted with the opposition, open or concealed, of every other leading power. They would justly feel that any one nation which undertook without consultation to prepare a plan for the finances of China was likely to prejudice the diplo- matic and commercial prestige, if not the rights, of other powers. It has been chiefly, we presume, to remove this obstacle that the Amer- ican and Mexican Commissions have discussed the problem of the Chinese currency in Europe. Apparently they have been successful in their essential object of securing indorsement for the principle of a gold-standard system in China. It does not matter so much whether ditferences of opinion have developed in Europe over the details, because the details are not likely to be settled until the subject has been much more thoroughly canvassed than it has yet been. The American Commission has apparently bent its efforts to con- vincing the European governments that the action of the United States was disinterested, that it would involve important economic benefits to the exporting nations by affording them an easier access to Chinese markets, and tiiat the adoption of a stable standard was practicable. In these objects the Commission seems from all reports to have been eminently successful. Professor Jenks is going to China as the delegate of the American Commission to endeavor to crystallize the progress already made into a definite and workable plan accept- able to the Chinese Imperial Government. "While his mission will undoubtedly meet with difficulties and delays, the spirit tlius far shown by China and her diplomatic representatives seems to augur well for ultimate success. Mexico is capable of looking after her own monetary affairs, "with- out the aid or consent," as Mr. Bryan would say, "of any other nation." Her leading statesmen have practically decided to establish the gold standard. Their desire to discuss the matter, however, with the rep- resentatives of other countries is normal and reasonable. There are strong reasons why a certain harmony of action should be secured in the coinage ratio of the oriental countries between gold and silver. Similarity of ratio does not imply similarity of unit, although there seems to have been confusion in some quarters on this point. In those countries which may give a low coinage value to silver, similarity of ratio is desirable in order to guard against the effects of fluctuations in tlie price of the white metal. If silver should rise in price above the coinage ratio, then the coins would go to the melting pot and the currency system would be destroyed. To prevent such a disaster in the Philippines, in the Straits, in Indo- China, or in Mexico, the American Commission seem to have taken the ground that a common ratio should be flxed and that purchases of sil- ver for coinage purposes should be suspended in all these countries when that ratio was reached. The suspension of purchases of silver would check the rise in price and maintain the equilibrium between supply and demand. It is within the power of Mexico or any other government of good credit to maintain a token currency far above its bullion value, as is done by theFuited States and the countries of the Latin Union, but there are strong reasonSj which have been urged in Europe, why steadiness in the price of silver, even under the limp- ing standard, contributes its share toward stability of the currency. Mexico has another interest of importance in the international dis- cussion of the question which the Unused States has not shared to the same degree. This interest of Mexico grows out of the fact that her exports of silver constitute about 40 per cent of her total exports. 500 STABILITY OV INTERNATIONAL EXCHANGE. When the discussion of the monetary reform began she had to con- front the problem whether her adoption of the gold standard would not exercise such a depressing influence on the price of silver as to impair the value of her exports and create an adverse balance of trade, which would drain away her gold and impair, if not defeat, the benefits of the reform. In seeking to avert such a catastrophe it is not surprising that she should look for new markets for silver. Mexican statesmen wisely rejected the belief that they could gain anything more through the channel of free silver coinage in their own country or any other. If, however, the monetary systems of China and other silver-using countries could be put upon a stable basis, which would result in the expansion of their trade and an increased demand for currency, a market would be created for silver for coin- age purposes larger than that which now exists. This consideration appears to be the only silver lining in the golden cloud of the Mexican programme. Sensitive as the American public has become to any plan to promote the interests of silver, it is not apparent that the policy of Mexico is open to serious objection. If new markets are created for silver by reason of the enhanced prosperity which demands an increased volume of currency in coun- tries where a large quantity of subsidiary money is required, there is no obvious reason why the strongest friend of the gold standard should object to this incidental benefit to the white metal. The gold standard has come to stay in Europe and America, through a succes- sion of victories in one country after another within our own genera- tion. If it can win further victories, even with some incidental enlargement of the demand for silver token coins, the result will be to promote commerce and investment opportunities throughout the world by giving to those countries which are entering the circle of commercial nations the common standard of those which have long had a place there. Stable Exchange with Silver Countries. a german view op the project op the american commission — how the economic problem has been modipied by the aban- donment op bimetallism — the silver countries cease to claim benepits prom palling exchange — the conditions which pace mexico and china. [From the National Zeitung, July 26, 1903.] The world during the last twenty-five years has seen a number of international monetary conventions whose purpose was the raising and fixing of the price of silver, for which end international bimetal- lism was proposed as the most suitable means . International exchange of views in matters of coinage, rehabilitation of the former price of silver, and bimetallism have therefore become nearly inseparable con- ceptions in the public mind. In consequence, the commissions lately sent to Europe by the Governments of the United States of America and the Republic of Mexico, and which during the last ten days have been discussing certain important problems of monetary science with certain delegates of the Government of Germany, have been called without further consideration "silver commissions." This designa- tion is nevertheless an entirely mistaken one, in view of the real pur- pose of the commissions appointed by the two American States. The STABILITY OP INTEENATIONAL EXCHANGE. 501 Americans themselves designated their commission as the "Commis- sion on International Exchange" (Kommission der Internationale Wechselcourse), and in this designation is in fact clearly expressed the real purpose of the commission. Not silver, but international exchange, especially exchange between the lands with the gold stand- ard and those with a silver circulation, forms the subject of the latest international discussions in the realm of monetary politics. Among the arguments which from the bimetallic side have continu- ally been brought against the existing systems of coinage and in favor of an international bimetallism based on treaties, attention has always been called — indeed as one of the most important reasons for the change — to the grave difficulties which arise from the great fluctua- tions in exchange between gold and silver countries. Solely in this one point lies the connection between the discussions which were com- pleted last Thursday in Berlin and the earlier international monetary confex-ences. The former objections to the existing monetarj'- sj'stems, especially the assertion that a scarcity of gold and an appreciation of gold exert an injurious influence upon the industrial conditions of the gold-standard countries, have in the meantime been so strikingly con- tradicted by facts that in these latest conferences they were indeed not even touched upon in a single word. The main problem, common to the earlier and to the present dis- cussions, of the abolition or limitation of the fluctuations in exchange between gold and silver lands has this time another form and con- tent than are found in previous bimetallic conceptions. According to the bimetallic views, the fluctuations in exchange brought about by the depreciation in the price of silver were looked upon in the first place as especially injurious to countries with the gold standard. It was over and over repeated that the lands which have such a depreciation in their monetary standard enjoy thereby important advantages in international competition; that their exports are encouraged by the depreciation of their standard; and that their internal production receives by this depreciation a desirable protection against importations from gold-standard countries. In this waj' every industrial advance which was made in India, Mexico, and other silver lands was ascribed to the healthful effect of the falling standard, while, on the other hand, the decline of European agriculture and even mere temporary depressions in industry were ascribed to the overpowering competi- tion of the silver-standard countries in consequence of the deprecia- tion of their coin. In short, with every degree of refinement the theory was built up that the worst standard was the best. To-day it is the silver-standard countries, Mexico and China, which have come first to the United States and then, in common with that country, to the governments of a number of the European gold-stand- ard countries with the request that they be assisted in the attempt to place their exchange upon a fixed gold paritj'. Bj the representa- tives of these countries there was explained in emphatic and con- vincing manner the severe injury which, in consequence of the fall in the value of their money, their industrial development had experi- enced and was still experiencing. Everything which earlier has been brought forward by us of the side that is friendly to the gold stand- ard against the bimetallic assertions of the blessings of a sinking standard has received in the latest discussions by the representatives of the silver-standard countries themselves full support, namely, that instability of the course of exchange burdens their trade with the lands that are richest and most able to buy from them, and that, 502 STABILITY OF INTERNATIONAL EXCHANGE. above all, the investment of capital by these lands for the purpose of opening up and employing the natural resources of the silver coun- tries is severely checked and limited; that, in fact, the fluctuations in exchange, far from increasing the ability of the silver lands to com- pete in the world market, exert a most depressing effect upon their industrial development. Indeed, now the fact is rightly emphasized, even by the representatives of the silver countries, that in this point there is a real solidarity of interests between the gold and silver coun- tries ; that the samei mprovement in trade which will benefit the pro- duction of the silver lands is also certain to extend to a like degree the opportunities for export of the gold-standard countries, and that the facility for attracting foreign capital for investment purposes which is so important for the silver lands is closely connected with new and promising opportunities for the investment of the capital of the gold-standard countries. Even more than in the conception of the important industrial effects of fluctuations in the monetary standard do the latest discussions differ from the customary views of the bimetallists regarding the means through which the removal of the fluctuations in exchange between gold and silver standard countries can be reached. Until very lately it was considered almost an axiom that a stable rate of exchange between gold and silver lands was only possible on the basis of a fixed ratio of value between the metals, gold and silver. In consequence the only means for the removal of the fluctuations of exchange between gold and silver was seen in international bimetal- lism, by which the fixing of a determined value relation between the two metals was to be brought about. The example of India and of some other countries has, however, shown that lands for which under their present industrial conditions silver can alone be considered suitable as their principal means of exchange, are in the condition, even while retaining a circulation almost exclusively silver, to reach by means of certain regulations the result that their money may enjoy on the world market a fixed rate of exchange with gold. These measures are principally the stopping of the free coinage of silver, a step which India, as is well known, took in the year 1893. So long as the State will for everyone turn silver bars into coin for a small charge, naturally the value of the coined metal will continually stand higher than the value of the fine silver which the coin contains only by the amount of this charge. If, however, the Government limits the coinage, it can in this way bring about a material increase of the value of the coined silver over its metal value. This measure may be supplemented in an important way by the creation of a gold reserve which should be kept in the most important banking centers of foreign countries for the use of the government of the silver coun- try. The gold reserve places the Government in a position to regu- late the rate of exchange, inasmuch as, in the case of a threatening depreciation of its money (which would become noticeable in an increase in the rate of gold exchange), it would sell gold exchange upon the foi-eign countries at a price exceeding by not too great a sum the parity rate, and inasmuch as, on the other hand, in the case of a threatening enhancement of its monetary standard would sell exchange upon its own silver money in return for gold, which would thus be added to the gold reserve. This is, speaking broadly, the system which, up to the present time, has been employed in India, has lately also been determined upon by the United States for the Philippines, and is now proposed by the STABILITY OF INTEBNATIONAL EXCHANGE. 503 American and Mexican commissions, first for China and Mexico, then, however, for all other silver-standard countries, especially for the Straits Settlements and for French Indo-China. No one supposes that the success of the sj^stem proposed is an unconditional one. The result i.s dependent upon the industrial and financial power of the lands which adopt this system; but this much, at any rate, remains unconditionally detei-mined by the entire ignoring in the discussions of a fixing of a value relation between the metals, gold and silver, namely, that the fixing of the value of the standard money of the sil- ver lands, if it can be done at all, is i^ossible only in the way proposed and already tried with success by India. The clifficulties in the way, especially of Mexico and of China, are not to be underestimated. Sil- ver is the most impcrrtant export product of Mexico, and a large part of the Mexican silver export consists of coined silver of the well-known Mexican dollars, which play so great a part in the commerce of the far East. The fixing of the gold value of the Mexican money by means of the repeal of the free coinage of silver, demands, beyond any doubt, a sacrifice from the Mexican mining interests, but the repre- sentatives of the Mexican Government are clearlj^ of the opinion that the advantages of a stable money clearly outweigh the burdens of such a sacrifice. Still noticeably greater are the difficulties in China. Although in certain provinces foreign silver coins circulate and souie of the vice- roys are authorized to coin silver, even to-day the official money of the country is represented by uncoined silver bars. A condition pre- cedent to the fixing of the rate of exchange is that it becomes possible to replace money bars by coined money, and that the administration of the new monetary system be concentrated in an effective way in the hands of the Central Government. It may appear even more than doubtful whether China will be in the condition to carry out, l)y its own authority, the proposed system. It is exactly on this point that she has asked for the assistance of the United States and of the Euro- pean powers. The organization of the administration of the imi^erial customs, under Sir Robert Hart, is in this regard a valuable jn-ece- dent by which the proposals of the American and Mexican commis- sions quite naturally must be judged. On account of this uncom- monly difficult point it appeared to the interested parties in China, Mexico, and the United States desirable to have a conference and an understanding with the parties in Europe whose opinions would have weight. (The New York Journal of Commerce and Commercial Bul- letin, Thursday, October 15, 1903.) Exchange Between Gold and Silver Countries. [Bradstreets, New York, October 31, 1903.] While immediately after their return from abroad the individual members of the Commission on International Exchange gave to the public some account of what they had accomplished, they could not, with propriety, give any such complete or detailed statement of the results of their labors ai] the European capitals as is containbd in the official report submitted to the Secretary of State, which has been made public this week. The appearance of this document has, there- fore, been awaited with interest, not only by those specially concerned with economic and financial questions, but als(j bj' manufacturers and business men generally who look forward to the development of 504 STABILITY OF INTERNATIONAL EXCHANGE. trade with the silver-using countries, now hamijered by uncertainties caused by the fluctuations in 'exchange. All such, we imagine, will be led to conchide that the Commission sent from the United States has performed a. very helpful service in putting clearly before foreign statesmen and economists the propositions involved in the reform of exchange relations between the gold countries and those still upon a silver basis. The first and most important task of the Commission was to secure from the leading powers of Europe interested in the Chinese indem- nity or in Oriental colonial enterprise approval of the principle of the introduction of the gold standard into China. It is gratifying to learn that the representatives of the Governments consulted, comprising those of Great Britain, France, Holland, Germany, and Russia, accepted the suggestion made by the United States in a general way as desirable and practicable. There were some differences of opinion as to details, which were overcome in many cases by discussion. The expressions of agreement also took different forms. In Great Britain and Germany there was an agreement upon certain principles which was signed mutually by the representatives of the countries engaged in the conference. The views of the French and Dutch delegates were expressed in reports expressing judgment on the propositions submitted by the American and Mexican commissions, and in Russia a statement prepared by the representatives of the Government was transmitted as an expression of the views of the latter. Speaking generally, there was universal agreement upon the general proposition that the adoption of a gold-exchange standard in the present silver-using countries would greatly contribute to their eco- nomic progress. It was accepted also that such a system must involve the continued large use of silver coins in order to conform to long- established customs and existing scales of value, but that free coinage of silver should be suspended and the determination of the quantity of the coins taken under the control of the State in order that meas- ures might be promptly taken to give them a fixed relation with gold, "^"hile the introduction of a uniform gold standard into China was agreed to be desirable, there was some difference of opinion upon the question whether the gold standard should be established at the beginning or should come after the introduction of a uniform national currency upon a silver basis. On the latter question the representa- tives of Germany, France, and the Netherlands agreed with those of the United States that the best method would be to begin the issue of the new currency at a fixed gold par, while the representatives of Great Britain and Russia were disposed to favor beginning on a silver basis. In regard to the question of a ratio, there was a general agreement in favor of the proportion of about 32 to 1 in every country except Russia. Even there the ratio of 32 to 1 for China was indorsed, but it was deemed best to make the reservation that each countj-y should determine its own ratio according to its monetary needs and economic conditions. There was general agreement, except in France, upon the proposal that there would be advantages in making the purchases of silver required by each government for its coinage purposes with as much regularity as possible, though doubt was in some cases expressed whether actual requirements could always be determined with regularity. The French and German representatives of their own motion declared that they would recommend to their Govern- ments the abolition or reduction of the present high internal taxes levied on manufactured articles of silver. STABILITY OF INTERN ATIONAI, EXCHANGE. 505 A necessary beginning has thus been made, but as the members of the Commission realize, it is but the first step toward the accomplish- ment of the work of the Commission, as indicated in the notes of Mexico and China. The work must be continued. In Mexico a project of law is in course of preparation which contemplates the adoption of the gold-exchange standard, which is expected to be passed. Owing to conditions in China the adoption of a sound monetary system there is a matter of much difl&culty. One of the American Commissioners has already gone to China to lay before the Government the results of the work accomplished in Europe. It is hoped that with the approval of the leading countries there and the active cooperation of the American Commission the details of a suitable system will be elaborated. After that the final step in the general plan will be attempted in the extension of the fixed exchange system in some prac- ticable form to all the other silver-using countries of the world. If the members of the Commission shall live to see that end accomplished, they will be able to look back with pride upon their share in one of the most serviceable movements in its influence upon international commerce of which modern economic history will take note. The Extension of the Gold Standard. [The Financial Ciironicle, New York, October 31, 1903.] The formal report of the Commission on International Exchange was made public early this week and throws a strong light on their work in Europe during the past summer. They state that their first task "was to secure from the leading powers of Europe interested in the Chinese indemnity or in oriental colonial enterprise approval of the principle of the introduction of the gold standard into China." In this mission they seem to have been completely successful. A com- mittee of eminent bankers and financiers was appointed in each coun- try to confer with the American Commissioners, and resolutions or reports were adopted at all the capitals visited in favor of the princi- ples which the Americans proposed. There were some differences of opinion as to details, but these are comparatively unimportant unless they result in opposition to the work of Professor Jenks, who has gone to China as the representative of the Commission. It was to forestall such opposition that the American and Mexican Commissions visited London, Paris, Berlin, and St. Petersburg. It is at Peking, however, that the details must be settled of the plan which is to be actually carried out, and Professor Jenks apparently has a free hand from his associates on the Commission as well as from European governments to bring the gold standard into operation in the best practicable way. The American proposals, as submitted to the various European com- missions, involve the issue of a coin having a fixed gold value from the outset, in accordance with the plan adopted by the United States in the Philippines. The commissions of Great Britain and Russia preferred the policy of first establishing a unif oim silver currency and afterwards taking steps, through control of the foreign exchanges, to raise the coinage to a fixed gold par. This is the policy which is being pursued by Great Britain in the Straits Settlements and by France in Indo-China. The French Government seems to have adopted this policy in Indo-China because it already has a silver currency in circu- lation there, but it has indorsed for the Chinese Empire the principle of the American plan. It is interesting to observe that Sir Robert 506 STABILITY OF INTERNATIONAL EXCHANGE. Hart, the eminent Englishman who has been so long at the head of the Chinese maritime customs, also gives his indorsement to the prin- ciple of the American plan of starting on the gold standard. The importance to the commercial world of restoring stability of exchange between the gold and silver countries was emphasized by the Financial Chronicle when the proposals of Mexico and China on this subject were received by our Government last winter. It was then pointed out that the policy of bimetallism was not suited to the solution of the problem and that a solution must be sought along other lines. The project of the Mexican and American Commissions, which now has the indorsement of the best experts in Europe, con- forms to this view. This project involves the establishment in China and other silver-using countries of the gold exchange standard on the model of British India, the Netherlands, and the Philippines. Such a sj'stem is the nearest approach to a gold currency which is practi- cable in countries where the scale of wages and prices is so low that a gold sovereign would represent in some cases the earnings of two months. Setting aside the chimerical project for linking together two different commodities of widely varying supply and demand which has gone under the name of bimetallism, the proposal to give a fixed value in gold to silver coins by adjusting the output to the demands of trade and providing for redemption in gold is the only available method for putting an end to the fluctuations of exchange between the Occident and the Orient, which during the last few years have tended to hamper so greatly the extension of trade and the investment of capital. The influence of the proposed plan upon the gold price of silver has been a subject of comment and even suspicion in certain sound-money journals. Silver has naturally become anathema in many quarters in the United States in view of the painful experiences which we have undergone by pandering to political and unscientific treatment of the subject. The sentimental effect of the suspension of free coinage in India, the repeal of the silver-purchase clause of the Sherman Act, and the successive announcements that Japan, Russia, the Philippines, Siam, the Straits Settlements, French Indo-China, and Mexico were going on the gold standard has been to depress silver. This has been the case in the face of a continued large absorption of the metal by India to an extent during the present aiitumn which seems to be caus- ing almost a famine in the silver market. There is nothing improper in the effort of the Government of Mexico to reverse this sentimental tendency by seeking to convince the world that the adoption of a gold exchange standard in former silver-using countries will tend to enhance their prosperity and increase the demand for silver for their token coinage. This was evidently one of the objects of the Mexican Gov- ernment in proposing joint action, but there appears to be no doubt that Mexico intends to set her face resolutely toward the gold standard whether silver falls or rises. Her explanations in Europe of the actual relations between demand and supply, according to present methods of production, seem to have counteracted the sentimental impression that the adoption of the gold standard would necessarily be the death knell of silver as a commodity, and in this respect to have cleared the air for carrying out her own monetarj^ reform. Whatever may be the merits or demerits of the project of the Amer- ican and Mexican Commissions, and whatever delay may be caused by unexpected obstacles in putting China on the gold exchange standard, there is no doubt that the ultimate tendency'of their plans must be STABILITY OF INTERNATIONAL EXCHANGE. 507 the extension of the gold standard throughout the world. This does not necessarily mean any worse position for silver as a commodity than it enjoys to-day, but probably means in many oriental countries a larger demand for the metal for subsidiary coinage by reason of an enlarged volume of exchanges. In the plans proposed by Mexico and China, however, there is provision for the automatic introduction of gold into the circulation as soon as local conditions become suited to its use. The mints will be open to the free coinage of gold, and it is highly probable that in Mexico, at least, this provision will be availed of by the bankers for strengthening their metallic reserves. In China the employment of actual gold in circulation will probably come more slowly, but under the plan of the two Commissions it will come as rapidly as the country requires it, gradually displacing silver in large transactions and strengthening the reserves of the banks, without change in the unit of value or any jar in the process of transition. The American and Mexican Commissions have undoubtedly done wisely in taking in hand the problem of establishing a par of exchange between East and West, even if it appears in the sequel that the diffi- culties to be surmounted in China will delay the execution of their programme. It was time for a beginning in the matter, and this fact seems to have been frankly recognized by the Chinese Government and its diplomatic representatives in Europe. That many practical difficulties will confront Professor Jenks in persuading the Chinese Government to adopt the gold-standard system and, having secured its formal approval, to give it practical effect, is frankly admitted by the report of the American Commission. They rightly suggest, how- ever, that the United States iu taking the lead in the matter is in a better position than any of the other powers to escape international jealousies, and that it will redound greatly to the credit of this country and to the extension of the world's trade if the project is carried out. Appendix N. STATISTICAL DATA. Production of gold and silver in the world since the discovery of America. [From 1493 to 1885 is from a table of averages for certain periods, compiled by Dr . Adolph Soetbeer. For the years 1886 to 1901 the production is the annual estimate of the Bureau of the Mint.] Gold. Period. Averageannualforperiod. Total for period. Pine ounces. Value. Fine ounces. Value. 1493-1520 . . 186,470 230,194 273,596 219,906 237,267 273,918 266,845 281,955 297,709 346,095 412,163 613,422 791,211 665,666 571,948 571,563 367,957 457,044 652,291 1,760,502 6,410,324 6,486,262 5,949,582 6,270,086 5,591,014 5,543,110 4,794,755 5,461,282 7,882,565 9,783,914 11,420,068 13,877,806 14,837,775 12,315,135 12,698,089 14,313,660 13,855,000 4,759,000 5,656,000 4,546,000 4,905,000 5,662,000 5,516,000 5,838,000 6,154,000 7,154,000 8,520,000 12,681,000 16,356,000 13,761,000 11,823,000 11,815,000 7,606,000 9,448,000 13,484,000 36,393,000 132,513,000 134,083,000 122,989,000 129,614,000 115,577,000 114,686,000 99,116,000 112,895,000 163,947,000 203,251,600 236,073,700 286,879,700 306,724,100 254,576,300 262,493,900 295,889,600 5,221,160 5,524,656 4,377,544 4,398,120 4,745,340 5,478,360 5,336,900 5,639,110 5,954,180 6,921,895 8,243,260 12,268,440 15,834,230 13,313,315 11,438,970 5,715,627 3,679,568 4,570,444 6,522,913 17,605,018 32,051,621 32,431,312 29,747,913 31,350,430 27,955,068 27,715,550 33,973,773 37,306,411 39,413,823 9,783,914 11,420,068 13,877,806 14,837,775 12,315,135 12,698,089 14,313,660 $107,931,000 114,205,000 1521-1544,. 1545-1560 90,492,000 90,917,000 98,095,000 113,248,000 110,324,000 116,571,000 123,084,000 143,088,000 170,403,000 253,611,000 327,116,000 275,211,000 236,464,000 118,152,000 76,063,000 94,479,000 134,841,000 363,928,000 662.666,000 670,415,000 614,944,000 648,071,000 577,883,000 572,931,000 495,582,000 564,474,000 814,736,000 202,251,600 236,073,700 286,879,700 306,724,100 254,576,300 262,492,900 295,889,600 1561-1580.- 1581-1600 . 1601-1620 1621-1640 1641-1660 - 1661-1680.... 1681-1700 1701-1720.... 1721-1740 - 1741-1760 1761-1780 1781-1800 1801-1810 . 1811-1820 1821-1830 1831-1840 1841-1850 - 1851-1855 1856-1860 1861-1865 1866-1870 1871-1875.. 1876-1880 1881-1885.... 1886-1890 . 1891-1895 1896 1897 1898 1899... 1900 1901 1902 Total 513,970,398 10,624,712,900 Silver. Period. Annual average for period. Total for period. Pine ounces. Coining value. Pine ounces. Coining value. 1493-1520 1,511,050 2,899,930 10,017,940 9,628,925 13,467,635 13,596,235 12,654,240 11,77B,,'J45 10,834,550 10,993,085 11,432,540 $1,9.54,000 3,740,000 12,952,000 12,450,000 17,413,000 17,579,000 16,361,000 15,226,000 14,008,000 14,212,000 14,781,000 42,309,400 69,598,320 160,287,040 192,578,500 269,352,700 271,924,700 253,084,800 235, .530, 900 216,691,000 219,841,700 228,650,800 $54,703,000 89,986,000 207,240,000 248,990,000 348,254,000 351,579,000 327,231,000 304,535,000 280,166,000 384,240,000 295,629,000 1531-1544 1545-1560 1561-1580 1581-1600... 1001-1620 1621-1640 1641-1660 1661-1680 1681-1700.. 1701-1720 508 STABILITY OF INTERNATIONAL EXCHANGE. 509 Production of gold and silver in the world, etc. — Continued. Silver. Period. Annual average for period. Total for period. Fine ounces. Coining value. Pine ounces. Coining value. 1721-1740... 13,863,080 17,140,612 20,985,591 28,261,779 28,74fi,922 17,385,755 14,807,004 19,175,867 25,090,342 28,488,597 29,095,428 35,401,972 43,051,583 63,317,014 78,775,602 92,003,944 108,911,431 1.57,581,331 157,061.370 160,421,082 169,055,253 168,337,453 173,591,364 173,011,283 166,955,639 $17,924,000 22,162,000 27,133,000 36,540,000 37,168,000 22,479,000 19,144,000 24,793,000 32,440,000 36,824,000 37,618,000 45,772,000 55,663,000 81,864,000 101,851,000 118,9.5.5,000 140,815,000 203,742,000 203,069,200 207,413,000 218, .576, 800 217,648,200 224,441,200 223,691,300 215,861,800 277,261,600 342,812,235 419,711,820 565,285,580 287,469,225 173,857,555 148,070,040 191,7,58,675 250,903,422 142,442,986 145,477,142 177,009,862 215,257,914 316,585,069 393,878,009 460,019,722 544,557,155 787,906,656 157,061,370 160,421,082 169,055,253 168,337,4.53 173,591.364 173,011,283 166,955,639 S3o8, 480, 000 1741-1760.... 443,232,000 1761-1780 .. 542,658,000 1781-1800... 730,810,000 1801-1810 371,677,000 1811-1820...- 224,780,000 1821-1830 191,444,000 1831-1840 247,930,000 1841-1850 ._ 324,400,000 1851-1855 184,169,000 1856-1860 188,092,000 1861-1866 228,861,000 1866-1870.. 278, .313, 000 1871-1875 409,322,000 1876-1880 509,256,000 1881-1885 .594,773,000 1886-1890 704,074,000 1891-1895... 1,018,708,000 1896 203, 069, 200 1897 207,413,000 1898 218,576,800 1899 217,648,200 1900 224,441,200 1901 223, 691, 800 1902 215,861,800 Total 9,168,497,971 11,854,213,500 Percentage of production. Period. By weight. By value. Gold. Silver. Gold. Silver. 1493-1520 11 7.4 2.7 2.2 1.7 2 2.1 2.3 2.7 3.1 3.5 4.2 4.4 3.1 2 1.9 2.1 3 3.3 6.6 18.4 18.2 14.4 12.7 8.1 6.6 5 4.8 4.8 5.9 6.7 7.6 8.1 6.6 6.8 7.9 89 92.6 97.3 97.8 98.3 98 97.9 97.7 97.3 96.9 96.5 95.8 95.6 96.9 98 98.1 97.9 97 96.7 93.4 81.6 81.8 85.6 87.3 91.9 93.4 95 95.2 95.2 94.1 93.3 92.4 91.9 93.4 93.2 92.1 66.4 55.9 30.4 26.7 22 24.4 25.2 27.7 30.5 33.5 36.6 41.4 42.5 33.7 24.4 24.1 25.3 83 35.2 52.9 78.3 78.1 72.9 70 58.5 53 45.5 44.5 44.4 49.9 53.2 56.8 58.5 53.2 54 57.8 33.6 1521-1544 44.1 1545-1560 69.6 1561-1580 73 3 1581-1600 . ... 78 1601-1620.. 75.6 1621-1640 74.8 1641-1660 72.3 1661-1680 69.5 1681-1700 66.5 17011720 63.4 1721 1740 . .. 58.6 1741 1760 57.5 1761 1780 66.3 17811800 75.6 1801 1810 75.9 1811 1820 74.7 1821-1830 67 1831 1840 .. . . 64.8 1841 1850 47.1 1851 ia55 21.7 1856 1860 21.9 1861-1865 27.1 1866-1870 . 30 1871 1875 41.5 1876-1880 47 1881-1885 . 64.5 1886-1890 ' 5.5.5 1891 1895 55.6 1896 50.1 1897 46.8 1898 43.2 1899 41.5 1900 46.8 1901 46 1902 ■ 42.2 Total 5.3 94.7 47.3 52.7 510 STABILITY OF INTERNATIONAL EXCHANGE. World's production of gold and silver for calendar years 1900, 1901, and 190S. 1900. Country. Gold. Silver. Kilo- grams (fine). Ounces (fine). Value. Kilo- grams (fine). Ounces (fine). Coining value. Commer- cial value. ITorth America: United States Mexico 119,126 13,542 41,951 13,048 110,591 80,312 3,223 99 3,829,897 435,375 1,848,720 419,503 3,555,506 974,537 103,615 3,192 $79,171,000 09,000,000 37,880,500 8,671,900 73,498,900 20,145,500 2,141,900 68,000 1,793,395 1,786,887 138,400 57,647,000 57,437,808 4,44,9,755 $74,583,500 74,263,000 5,751,900 $35,741,100 35,611,400 2,7,58,200 A frica. Australasia 415,014 4,458 61,871 168,350 5,377 1,928 23,374 99,095 cll9 31,472 4,423 6 244 14,067 6,896 1,178 841,295 6129,503 57,994 340 13,340,263 143,299 1,988,774 5,411,441 173,839 61,983 751,335 3,185,316 3,790 1,011,656 142,141 7,843 453,151 221,678 37,898 10,970,610 4,162,718 1,S(54,165 7,734 17,248,000 185,300 2,571,300 6,996,600 323,500 80,100 971,400 4,118,400 4,900 1,808,000 183,800 10,100 584,600 286,600 49,000 14,184,200 5,382,100 2,410,200 a 10, 000 8,271,000 Europe: Hussia __ _ 88,800 Austria-Hungary 1,233,000 3,855,100 Norway. .. 107,200 Sweden 88 53 13 3 2,845 1,704 418 83 58,800 35,200 8,600 1,700 38,400 Italy 465,800 , "1,974,900 Portugal 2,300 1627 200 Greece Turlrey c21 63 675 84 14, (MO 1,700 ■ 88,100 4 900 France 280 300 Great Britain Soutli America: Argentina Bolivia 415 66 180 2,449 1,798 162 4,176 483 3,063 698 2,378 1,633 46 752 1,808 8,387 6,771 14,197 860 654 13,360 2,112 5,786 78,735 57,804 5,208 134,260 15,538 98,487 22,439 76,468 52,498 1,492 24,188 58,127 269,662 217,687 456,444 27,648 21,043 276,266 48,700 119,600 1,627,600 1,194,900 107,700 2,775,400 331,200 2,035,900 463,800 1,580,700 1,085,200 30,800 500,000 1,201,600 6 5,674,400 4,500,000 9,435,500 571,400 435,000 137,400 23,500 6,801,800 2,580,900 1,155,800 4,800 Chile Brazil... Venezuela Guiana (British) . Guiana (Dutch) .. Guiana (Frencli) . Peru 336,973 25 31,533 53,809 7,295,825 800 1,013,285 1,729,603 9,433,000 1,000 1,310,100 2,236,300 4,523,400 Central America Asia: Japan . . . 628,200 1,073,400 Cliina Korea India (British).... East Indies (Brit- ish) East Indies (Dutch) 3,509 80,659 104,300 50,000 Total 383,049 12,315,135 254,576,300 5,400,418 178,591,364 234,441,200 107,626,400 1901. Country. Gold. Silver. Kilo- grams (fine). Ounces (fine). Value. Kilo- grams (flue). Ounces (fine). Coining value. Commer- cial value. ISTorth America: United States 118,367 15,475 86,305 13,677 115,679 34,383 3,215 90 3,805,500 497,527 1,167,216 439,704 3,719,080 1,105,412 103,363 2,893 878,666,700 10,284,800 24,128,500 9, 089, .500 76,880,200 22,850,900 2,136,700 59,800 1,717,705 1,793,692 168,099 55,214,000 57,656,549 5,242,697 $71,387,800 74,545,900 6,778,400 $33,128,400 34,593,900 3,146,600 Canada Africa 818,256 • 4,884 02,118 171,778 5,161 1,680 30,000 99,095 a 119 35,903 13,852 a 244 11,9.54 5,392 1,405 404,201 10,230,046 156,998 1,996,706 5,521,648 165,902 53,986 964,333 3,185,316 3,790 1,154,046 429,180 7,843 384,363 173,297 45,166 12,993,695 13,226,700 203,000 2,581,600 7,139,100 214,500 69,800 1,246,800 4,118,400 4,900 1,492,100 554,900 10,100 496,800 224,100 58,400 16,798,600 6,138,000 94,200 1,198,000 3,818,000 99,500 33,400 578,600 1,911,300 2,800 692,400 857,500 4,700 230,600 104,000 27,100 7,795,600 Europe: Austria-Hungary. Germany Sweden . ... 63 8 a 13 2 2,017 257 418 68 41,700 5,300 8,600 1,300 Italy Portugal Greece Turkey 87 2 1,185 63 24,500 1,800 France. Great Britain South America: Argentina Bolivia 175 45 180 5,626 1,4,51 5,786 116,300 30,000 119,600 n Estimate Bureau of the Mint. 6 Figures for 1899 repeated. o Figures for 1898 repeated. STABILITY OP IJSTTEEWATIONAL EXCHANGE. 511 World's production of gold and silver, etc. — Contirraed. 1901. Gold. Silver. Kilo- grams (fine). Ounces (fine). Value. Kilo- grams (fine). Ounces (flue). Coining value. Commer- cial value. South America—Con. Chile 1,606 4,215 165 4,176 483 3,666 610 3,009 865 47 963 1,808 13,680 "6,771 14,138 1,296 748 51,626 135,518 5,821 134,260 15,538 85,701 19,631 96,750 27,825 1,580 30,974 58,137 4:«,801 317,687 4.54,527 41,685 24,042 81,067,200 3,801,300 110,000 3,775,400 821,200 387,926 58, .537 a 240 9,255,130 1,881.649 7,734 811,968,200 3. 433, 800 10,0(K1 85,553,100 1,139,000 4,600 Colombia Ecuador Brazil Venezuela Guiana (British) . 1,771,600 405,600 . . j Guiana (Dutch) -. Guiana (French.. 2,000,000 575,200 81,700 640,300 1,201,600 9,091, .500 4,500,000 9,895,900 861,700 110,965 n25 27,365 a 53, 809 3,566,868 800 879,666 1,729,603 4,611,700 2,140,100 1,000 500 1,187,400 527,800 2,236,800 1,037,800 Uruguay Central America Asia; * China Korea India (British) ... East Indies (Brit- ish) East Indies (Dutch) 497, 000 3. 16.1 111,377 144,000 I 66,800 Total 894,962 12,698,089 262,493 900 '5 ^f& :«;ii 173,011,388 223,691,300 108 806 70(1 Country. 1903. Gold. Kilo- grams (flne) Ounces (flne). Value. Silver. Kilo- grams (flne). Ounces (flne). Coining value. Commer- cial value. North America: United States Mexico Canada Africa Australasia Europe: Russia Austria- Hungary Germany Norway Sweden Italy Spam Portugal Greece... Turkey Finland France Great Britain South America: Argentina Bolivia Chile Colombia Ecuador Brazil... Venezuela Guiana (British) . Guiana (Dutch) .. Guiana (French) . Peru Uruguay Central America Asia: Japan China Korea.. British India Bast Indies (Brit- ish) East Indies (Dutch) 130,373 15, 3r9 31,309 .58,716 122, 749 33,905 3,267 94 3 94 8 15 2 3,870,000 4in,l,56 l,fKIH,355 1,887,778 8, 941!. 374 1,090,0.53 10,5,1137 3,033 97 3,033 357 494 (80,000, (Hill ]0,1.5:1,1IHI 30,741,:;(HI 39.(Bi7(Hi 81,. 578,800 33, .5:^3. 41 HI 3,1T1,:-I(I(I 62,6U0 3,000 63, ,500 5,300 10,300 1,.300 1.72(!,(iie 1,873,1)111 133, .Sill 55,.500,000 871, 7.)7, 6110 60,176,604 7r,8(14,l(Kl 4,303,774 5, 564, .500 839,415,000 :il,.siB,6(.l(l 3,281,000 1,480 63 30,600 1,800 175 46 7 866 3,796 301 1,001 658 3,731 484 3,643 3,500 87 3,012 1,936 13,138 5,286 14,428 1,545 850 1,451 228 27,825 122,031 9,675 96,488 20,985 87,491 15, .577 117,077 113,525 3,796 96,842 62,3.59 422,401 169,313 463,824 116,300 3(1, OTi 4.71)0 575,200 2,5:J2,6(«I i 300. (HIO 1,994,(MI() 4:«.,S()() l,,sil.s.tM)0 33:;.(liKl 2,4,'ai,:aK) 2,3:-'fi.l(i0 5V. 800 2.001.900 1,287,000 8,731,800 3,500,000 9,588,100 :;49,690 4,937 5,-<,,533 178,0:fi 6,422 1,439 :30,00fl 115, 113 lis 33,915 14,949 269 11,956 5,387 1,174 404,201 110,962 55,269 240 8.0:26, (i:)7 lll,:377,100 1.58.(179 l,881,l:« 5,73:2,641 306,418 46, 226 964,339 3,700,189 3,773 1,090,188 480,586 8,679 884,339 173,208 37,730 12,993,641 3, .566, 793 1,776,604 7,7:36 205,200 3,432,300 7,399,000 266,900 59,800 1,246,800 4,784,100 4,900 1,409,500 621,300 11,200 496,900 223,900 48,800 16,798,600 4,611,600 2,297,000 10,000 4,2.53,800 84,100 997,000 8,033,000 109,400 24,500 511,100 1,961,100 2.000 .577,.S(K1 254,700 4,600 203,700 91,800 30,000 6,886.100 1,890,400 941,600 4,100 1,887 3,400 1,000 133. Bl>8 34 :30.317 13,151 :,264,.5:ls 5,518,700 7.5.J 1,000 971.:330 1,255,800 390,567 505,000 3,360,200 400 514, 800 307.000 Total 445,315 49,686 1,037,100 37,312 564,600 I 3,679 118,302 152,900 62,700 14,313,660 295,889,600 5,19:3,978 166,955,639 215,861,800 88, 488, .500 a Figures for 1900 repeated. 512 STABILITY OF INTERNATIONAL EXCHANGE. Highest, lowest, and average price of bar silver in London, per ounce British- standard (0.93S) , since 1833, and the equivalent in United States gold coin of an ounce 1,000 fine, taken at the average price. Calendax" years. Highest quota- tion. Lowest quota- tion. Aver- age guota- tion. Value of a fine ounce at average quotation. Calendar years. Highest quota- tion. Lowest quota- tion. Aver- age quota- tion. Value of a fine ounce at average quotation. 1833 d. 59} 60} 60 60} 60J. 60t m 601 60 59t 59} 59J 60i 601 60 60 m 614 aif 61} 611 m 62} 62} 61} 62} 62} 61} 62} 61} 62} 61i 62} 61} d. 58} 59} 59} 59i 59 59} 60 60} 59} 59} 59 59} 58} 59 58} 58} 59} 59} 60 59} 60} 60} 60 60} 61 60} 61} 61} 60} 61 61 60} 60} 60} 60} d. 59A ill 60 59A 59} 60} 60} ^. if 59} if '^ 60} 61} 61} 61ft 61A 61} 61ft 62iV 61 4 61ft 61} 61} 61ft 6ok 81.297 1.313 1.308 1.315 L305 1.301 1.323 1.323 1.316 1.303 1.297 1.304 1.298 1.300 1.308 1.304 L309 1.316 L337 L326 L348 1.348 1.344 1.344 L353 L344 L360 1.352 1.333 1.346 1.345 L345 L338 1.3.39 1.328 1868 1869 1870 1871 1872 1873.. 1874 1875. 1876 1877. 1878 1879 1880... 1831 1882. 1883 1884 1885. 1886 1887.. 1888 1889 1890 1891 1892.. 1893 1894 1895 1896 1897. 1898 1899 1900 1901 -. 1902 d. 61} 61 60} 61 61} 59M 57} 58} 58} 55} 53} ill^ 52} 51ft 51} 50 47 47} ^' 54} 48} 48} 38} 31} 31} 31il 28} 29 30} 29ft 26ft d. 60} 60 60} %f il 55} 46} 58} 49} 48} 51} 50} 50 50ft 49i 46} 42 43} 41} 4111 43} 43} 37} 30} 27 27ft 29} 23} 25 26} 27 21H d. 60} ^S 60} 58ft 56H 53} 54}t 524 51} 52} 51} 51« 50ft ^. 45 ■14}J 42} 4^ 35% 28-}| 29Jg 30}| 27ft 26H |ft 27ft $1,326 1834 L325 1835 1.328 1886 1.826 1837 1.322 1838 1.29769 1839 1.27883 1840 1.24233 1841 1.16414 1842 1843. . 1.20189 1.1535» 1844 1.12392 184B 1846 L 14507 L 13229 1847 1.13562 1848 1.10874 1849 1.11068 1850 1851 1.06510 .99467 1852 .97946 1853 .93974 1854 .93511 1855 1.04634 1856 .98800 1857 .87145 1858 .78030 1859 .63479 1860 .65406 1861 .67565 1862 1863 .60438 .59010 1864 .60154 1865 .62007 1866... .59.595 1867 .52795 Highest, lowest, and average price of silver bullion and value of a fine ounce each month, during the calendar years 1900-1903. Month. High- est. Low- Average price per ounce British standard, 0.925. Equivalent valueofaflne ounce with exchange at par ($4.8665). Average monthly price at New York of ex- change on London. Equivalent value of a fine ounce based on everage monthly price and av- erage rate of exchange. Average monthly 3^ew York price of fine bar silver. 1900. January February ... March.. Aj)ril May June July August September. . October November . . December.., Pence. 27} 27} 27iJ 27} ?§'''' 29} 30} 29}§ 29" Pence, 27 27ft 27ft 27ft 27} 27ft 37} 27}J ^' 29} 29ft Pence. 27.3088 27. 4765 27.5810 27.4150 27. 5625 27.8293 28.2375 28.2500 28.8375 29.5902 29.6634 .60015 .60460 .60096 .60577 .61005 . 61895 .61927 . 63215 .648a5 .65025 .65839 $4.8725 4.8748 4. 8591 4.8756 4.8806 4. 8696 4.8712 4.8786 i. 8689 4.8432 4.8470 4.8488 .60346 .60363 .60619 .61048 .61957 .61839 .632S5 .64551 .64760 .64849 .60602 .60611 .60395 .60682 .61120 .61935 .61865 .63343 Average . .62007 . 61979 .62065 1901. January ... February . . March April May June July. August September. October November . December . 28} 27}S 271 27} 27} 27} 27 25} 27} 27} 27ft 26}5 27ft 27} 25} 24}J Average . 28.9735 28.1592 27. 9495 27.2925 27.4189 27.4200 26.9629 26.9375 26.9650 26. 6157 26.0913 25.4475 27.1861 .63513 .61728 .61268 .60105 .60107 .59107 .59050 . 59110 .58344 .57150 .55783 .69595 4.8724 4.8780 4.8778 4.8817 4.8815 4.8820 4. 8752 4.8731 4.8485 4.8623 4. 8752 4. 8698 4.8781 .61858 .61422 .60014 .59130 .58949 .57360 .55820 .59691 .63485 .61693 .6ia36 .60033 .mm .60335 .59423 .59217 .58978 .58356 .57400 .55790 .59703 STABILITY OP INTERNATIONAL EXCHANGE. 513 Highest, loivest, and average price of silver bullion and rvalue of a fine ounce, each month, during the calendar years 1900-190S — Continued. Month. High- est. Low- est. Average price per ounce British standard, 0.925. Equivalent valueofafine ounce with exchange at par(S4.8865;. Average monthly price at New York of ex- change on London. Equivalent value of a fine ounce based on average monthly- price and av- erage rate of exchange. Average monthly New York price of fine bar silver. 1902. January February -_. March.. April May June July.. August September. . October November . . December .. 2oi 25/, 24| 24A 24/, 24# 23H 23i- 22S ^« 23A 23A 23H 24/« 23J! 23i 21H 2US 25.6250 25.4140 25.0078 24.3221 23.6990 24. 1850 24.3680 24.2259 23.8750 23.4004 22. 6925 22.2067 SO. 56173 .55711 .54820 .53316 .51950 ..53016 .53417 .53106 .62326 .51S96 .49731 .48679 S4.8716 4. 8749 4.S773 4. 8788 4.8731 4. 8764 4..' .5r)(IT6 ..58605 .60963 . .58745 Highest, loudest, and average value of a United Statca nilrer dollar, nua^nrLil by the market price of silver, and the quantity of silver purchasable with a dollar at the average London p)ricc of silver, cacli year since i,v;j. Bullion value of dollar. a silver Grains of pure silver at Calendar year. Highest. Lowest . Average. purchasable with a United States silver dollar. a 1873.. SI, 016 1.008 .977 .991 .987 .936 ,911 .895 .896 .888 .868 .871 .847 .797 .799 .755 .7.52 .926 .827 .742 .657 ..5.38 .5:32 .541 .505 .481 .491 .509 .501 .442 811.981 .970 .941 .792 .902 ..SW . 82.S .873 ..862 .847 .,S4S . 831) .794 .712 .733 .706 .711 .740 .7.38 .642 .517 .4.57 .461 .504 .400 .424 .451 .463 .42.3 .367 SI. 004 .989 .961 .900 .929 .892 . ,869 .885 .876 .878 .858 .859 .823 .769 .7,5,8 727 !723 .809 .764 .674 .804 .491 ..505 ..522 .467 .4.56 .465 .479 .461 .408 369.77 1874 376 38 1875 386 31 1876 412 50 1877 399. 62 1878 ... 416 20 18711 427 21 18811 419. 49 18 1 423.80 18 2... 18 ,i 422.83 432 69 1,S84 432.18 1885.. . 451.09 1886 - . 482 77 18( 7 489 78 188'i 510.66 513 48 18,^') . .... 18110 18111 189-' 458.90 485.93 560 81 1,8! '3 1894 756 11 1895 1890 - 1897 735.14 711.20 794 96 1898 814 14 1890 791 84 1900 1901 1902 774.10 805.43 909.17 a371.2o grains of pure silver are contained in a silver dollar. H. Doc. lU- -33 514 STABILITY OP INTERN ATIO]SI AL EXCHANGE. Coinage value in gold of an ounce of fine silver at the ratios 1 : 15-1 : Jfi. Eatio. Value of an ounce of fine silver. Eatio. Value of an ounce of fine silver. Eatio. Value of an ounce of fine silver. 1 tol5 SI. 3780 1.3336 1.2929 1.3919 1.2527 1.2159 1. 1811 1.1483 1.1173 1.0879 1.0600 1.0335 1.0083 .9843 .9614 .9396 .9187 lto23 §0.8987 .8796 .8613 .8437 .8268 .8106 .7950 .7800 .76.56 .7517 .7382 .7253 .7109 .7007 .6890 .6777 .6668 .6562 lto32 $0. 6459 1 to 15t 1 to23J- 1 to32+ .6360 1 to 15.988 (United 1 to24 lto33 .6264 States ratio) 1 to 24i 1 to33j .6171 1 tol6 1 to25 1 to 34 .6080 1 tol6} 1 to 251- lto34} .5992 ltol7 1 to 26 1 to 35 .5908 1 to 171 1 to 26+ 1 to 35+ .5823 ltol8 1 to 27" lto36' .5742 1 to 181- 1 to 271 1 to36} .5663 1 tol9 1 to28 1 to37 . 5587- ltol9l - 1 to 28} lto37} .5513 Ito20 1 to 29 lto38 .5439 1 to 20j 1 to 29+ lto38+ .5369 lto21 1 to30 1 to39 .5300 lto2U 1 to 30+ 1 to39+ .52.33 1 to22 1 to 31 1 to 40 .5168 1 to 221 1 to 31+ Monetary systems, and approximate stocks of money in the aggregate and per capita, in the principal countries of the world, on December 31, 1903. Countries. Mone- tary stand- ard. Monetary unit. Eatio be- tween gold andfullle- gal-tender silver. Eatio be- tween gold and lim- ited-tender silver. Population. Gold... .do. . 1 to 15. 98 1 to 14. 95 1 to 13; 69 1 to 14. 38 1 to 14. 28 1 to 14. 28 1 to 14. 28 1 to 14. 28 1 to 21. 90 1 to 14.28 1 to 14. 38 1 to 14. 28 1 to 14. 88 1 to 15.68 1 to 15. 50 1 to 14. 38 1 to 13. 95 1 to 14. 38 1 to 14. 38 1 to 14.38 1 to 28. 75 1 to 15. 13 1 to 14. 88 1 to 14. 09 1 to 14. 38 1 to 23. 24 1 to 14. 38 1 to 14. 38 1 to 14. 38 1 to 14.88 1 to 14. 38 1 to 15. 09 79,800,000 47.100,000 6,700,000 5,500,000 5,400,000 2,400,000 41,600,000 295,200,000 1,200,000 a 700 000 Austria-Hungary . Crown Rftlg^inm do Franc... Poundsterling. Dollar 1 to 15+ British Empire: ...do.... Canada ...do Cape Colony.. do Poundsterling. do.. .-.do.... India. ...do Poundsterling and rupee. Poundsterling. Lev 1 to 21. 90 Soutll African Eeputalic ..do Bulgaria do 1 to 15+ 1 to 15+ Cuba do 1,600,000 2,600,000 9,800,000 9 7m noo ...do Egypt .do Piaster Finland do Markkaa France do 1 to 15+ 38,900,000 56,400,000 2,400,000 1,000,000 32,500,000 47,600,000 5,300,000 2,200,000 5,400,000 6,000,000 130,900,000 2, .500, 000 38,800,000 18,600,000 6,200,000 3,300,000 24,000,000 4,2ai,000 330,100,000 13,600,000 6,300,000 5,100,000 ...do Greece Haiti ...do.... do Drachma 1 to 15+ ltol5+ 1 to 15+ Italy ...do... Japan .do Yen Netlierlands do ItolSi ...do.... Portugal - .do . Milreis Eoumania do Lei 1 to 15+ ...do.... Ssrvia ...do Dinar ' 1 to ioi Peso.. .1 ItolSj Peseta ....' 1 to lo> Crown Spain do Sweden . do .. Switzerland do Franc 1 to i5+ Turlcey ...do.... Central American States Silver!). ...do.... Peso Ciiina Tael.... Mexico do Peso ..1 ltol6+ Tical ! 1 to 16+ Siam Gold... Silver.. Straits Settlements / Dollar.. Total 1,285,600,000 ^Except Bolivia and Colombia. ftExcept Costa Rica and British Honduras, gold-standard countries. STABILITY OP INTERNATIONAL EXCHANGE. 515 Monetary systems, and approximate stocks of money in the aggregate and per capita, in the xwincipal countries of the ivorld, on December 31, 1903. Countries. Mone- tary stand- ard. Monetai-y unit. Stock of gold. Stock of silver. Pull tender. Limited tender. Total. United States. Austria-Hungary Belgiuna British Empire .. Australasia .. Canada Cape Colony . Great Britain India South African Republic. Bulgaria Cuba.,. Denmark Egypt Finland France.. Germany Greece Haiti Italy... Japan _ Netherlands Norway Poi'tiigal Roumania Russia Servia South American States. Spain Sweden Switzerland Turkey Central Ameri- can States. China Mexico Siam Straits Settle- ments 'i Gold. ..do.. ..do.. Total. ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... .do.... ..do.... ..do.... -.do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do.... ..do« .. ..do.... ..do.... ..do.... ..do.... Silver ff, ...do.... ...do.... Gold .. Silver ., Dollar 31,248,000,000 Crown 0283,000,000 Franc. ol6,000,000 a 128, 600, 000 b 33, 800, 000 6 37, .500, 000 !> .548, 100, 000 d 63, 200, 000 Pound sterling. Dollar Pound sterling do Pound sterling and rupee. Pound sterling Lev Peseta Crown Piaster Markka . . . Franc Mark Drachma . Gourd Lira Yen Florin Crown . . . Milreis Lei Ruble Dinar Peso Peseta aT.5,800,000 S.573, 200,000 6 20,000,000 a51o, 800,000 Sion,ioo,ooo 81,100,000 1-5,600,000 ae.KKl, 0(1(1 a 8, 7(.«.l. IK K I 61,(KKI,II(K) a 116, 800, 000 6 29,200,000 ol, b-i. a 15! 6 30: !>947, 6 763: c "l, »107, n62 a 21 "8, a 5, <-14, a 746, '■1, a 77 000,000 000,000 .500,000 000,000 100,000 700,000 500,000 200,000 000,000 700,000 600,0CKJ 300,000 200,000 300,000 300,000 200,0(10 900,000 "" 000 62,000,000 a .373, .500,000 "62,800,000 6 500,000 n 1,000, 000 616,000,000 a6,;.(i(IO. (-»«) "4,000,000 61,200,(KKI c2, 900, 000 61,. 500, 000 "5,900,000 "6,400,000 c 600,000 "46,300,000 "144,700,000 61,000,000 "1,200,000 «21,700,iHlo "30,400,000 "4,ooo,o(:ki "3,500,000 "6,500,0(KI fSOO.OIX) "104,(jll0,000 '■1,700,000 "16.200,000 Crown . Franc . . Piaster. Peso ... "17,800,000 6;»,900,000 6 50,000,000 "2,000,000 Tael... Peso .. Tical.. Dollar. : Ial73. 700,000 ....: "7,000,000 : /io,70o,ooo 6 30,000,000 I 610,000,000 "7,0(«l,iiO() - , $673,300,000 81,100,0(KI 6=25,600,000 "6,100.000 "6,70O,lllKI 61,000,000 "116,800,000 "515,800,000 61,200,000 6=4,900,000 61,500,000 "5,900,000 "6,400,000 f 000, 000 "419.800,000 "207.600,000 61,500,000 "2,2oo,aio "6 37,700,0110 "30,400,000 "56,600,aiO "3, .500, 000 "6,500,000 o 800. 000 "1II4,(>(H),(.KHI i'l,7(lO,000 "20,;;ilO,0(J0 "173.7(10,000 "7,000,000 cno,7(X),(KKi 6 40,000,000 "7,000,000 7.5(l,l>10,Oai I I 7.5O.IX)O.0O0 6,s,(i(lll.(l(l(l "106,000, (Km "10S.(KKl. IKKI 6 1,IK.KI,(K«I al»3,(K.KI.(KKI 1 u 193.0(KI,II(KI 'ai.(KK.I,0OO "«,9(-K.I,'KKI ":j6,tKJ(l,IKKJ 5,a'J2,600,000 2,737,400,000 I 926,800,000 3,664, 200,(KIO "Information furnished through United States representatives, 6 Estimate, Bureau of the Mint. c L'Economiste Europ6en, January, 1903 (stock in banks). d Report of head commissioner of paper currency, e Except Bolivia and Colombia. /C. Cramer Frey. Q Except Costa Rica and British Honduras, gold-standard countries. 't Includes Straits Settlements, the Malay States, and Johare (Straits Settlements Currency Eommittee, May, 1903). 516 STABILITY OP INTERNATIONAL EXCHANGE. Monetary systems, and approximate stocks of money in the aggregate and per capita, in the principal countries of the world, on December 31, 1903. Mone- tary stand- ard. Monetary unit. Uncovered paper. Per capita. Countries. Gold. Silver. Paper. Total. Gold ... ...do.... do Dollar $456,100,000 46,600,000 6108,300,000 $15.64 6.01 2.39 23.38 6.26 15.62 13.18 .21 24.33 .27 1.2.5 5.96 3.06 1.52 24.36 13. .54 .08 1.00 3.31 1.31 4.02 3.73 .98 2.38 5.70 .76 2.00 4.08 3.42 9.06 2.08 .48 $8.44 1.72 3.82 1.11 1.24 .42 2.80 1.75 1.00 .78 .94 2.27 .65 .22 10.79 3.68 .63 2.20 1.16 .64 10.68 1.59 1.20 .13 .80 .68 .53 9.34 1.35 3.24 1.67 1.66 2.27 7.79 30.6:3 7.23 ■ $5.71 .90 16.16 $29.79 Austria-Hungai-y Crown 8.72 Franc 22.37 British Empire: ...do.... do Pound sterling. Dollar 24.49 56,900,000 io.54 18.04 Cape Colony . ...do.... do.... Pound sterling. 16.04 0117,900,000 32,400,000 61,000,000 2.a3 .11 18.81 ...do-... Pound sterling and rupee. Pound sterling. Lev 2.07 South African Republic. ...do.... do 25.33 .27 1.32 Cuba do 07,800,000 2.19 do . 3.00 11.23 do 69,100,000 0158,200,000 0184,100,000 48,700,000 o 3, .500, 000 0171,300,000 61,300,000 ('20,800,000 07,900,000 63,000,000 68,100,000 3.71 ...do.... Markaa 3.37 4.07 3.26 20.29 3.50 5.27 1.29 3.92 3.59 11.67 1.35 5.U ...do.... 39.22 Grermauy do Mark 20.48 do Drachma Gourde Lira 21.00 ...do.... 6.70 Italy ...do.... 9.74 do Yen 3.24 do Florin 18.62 ...do.... Crown Milreis 8.91 Portugal ..do.... 13.85 do 3.86 do Ruble... Dinar Peso Peseta 04,300,000 01,082,700,000 142,900,000 029,000,000 20,700,000 6.50 ..do.... 1.72 27.90 7.68 5.58 6.27 3.16 South American States. ...dod... ...do.... 30.43 21.10 ...do.... 10.35 do 18.57 do 30,200,000 3.75 Silver e. do... Peco 7.19 9.33 can States. Tael 2.27 Mexico do Peso 054,000,000 02,600,000 04,100.000 .63 .16 3.97 .41 .80 12.89 Gold... Silver . . Tical.. 31.20 Dollar 8.03 ments./ Total 2,933,500,000 4.19 2.85 2.28 9.32 1 - ' a Information furnished through United States representatives. bL'Economiste Europeen, January, 1902 (stock in banks), c Estimate, Bureau of the Mint, rf Except Bolivia and Colombia. e Except Costa Rica and British Honduras, gold-standard countries. /Includes Straits Settlements, the Malay States, and Johare (Straits Settlements Currency Committee, May, 1903). Note.— The value of the monetary stock of silver-standard countries has not been changed to conform to the decline in silver values. The monetary stock of Mexico and other countries where the Mexican dollai* circulates is given in Mexican dollars. STABILITY OP INTEEKATIOWAL EXCHANGE. 517 Theoretical parities of the principal gold coins of the ivorld. Descriptive. United States. Russia. England. Latin Union. Ruble: Francs,^ I. Gold dollar and cents of the United States. (1 gold dollar= 23.22 troy grains of fine gold; 6,780 troy grains = ::)73.24195 grams; hence a gold dollar = 1.504631611 grams of fine gold) .. II. Russian ruble and kopecks. (1 ruble = -fe of an iihperial; 1 imperial = 261.36 doli, or 11.613.51571875 grams of fine $1.00 0. 514.5673 £4.866564 0.1929526 gold;!> 1 ruble=17.424 doU of fine gold) .-- - 1.94337999 1.00 9. 45758222 .37498022 III. English pence. (1 p6nny=5iij of a pound sterling, and 1,869 pounds sterllng=40 troy pounds of gold. H, 0.916J fine; 1 troy pound=373.24195 grams; a sov- ereign (£1) =7.32238532 grams of fine gold) 49.316 25.376464 240 9. 6157 IV. Francs and centimes. (The gold 20-franc piece contains Vi grams of fine gold) 5.18262 2. emuin 2.5 2215.5 1.00 V. German Empire. Mark and pfennig. (1 crown or 10 marks contains VVif grams of fine gold) 4.19Y92 2.160113 20. 4294.W .81 VI. Netherlands. Florins and cents. (The 10-fiorin piece contains 6.048 grams of fine gold) Vn. Austria. Crowns and hellers. (1 2. 4.S78 1.280141U 12.1071186 . 4^003072 crown=100 hellers; 10 crowns contain 3.04878 grams of fine gold).. 4.93619247 2.5394891 24.0174277 .9.522582 VIII. Portugal. (1 crown of 10 mil- reis=16.257083* grams of fine gold) . 92.5.5 . 476244 4.604 .178682 IX. Japan. Yen and sen. (20 gold y ens=16.6665 grams of gold OlIOO line; 1 yen contains 0. 74991^25 grams of fine gold) 2.006119915 1.0323228 .76327806 . 38rin0f;4 a One Russian poiind=409.5124 grams. iJOr Italian lira, new drachma; Roumanian lei; Finnisti mark, or Spanish peseta. 518 STABILITY OF INTERNATIONAL EXCHANGE. Tlieoretical parities of the principal gold coins of the world — Contimied. Descriptive. German Empire. Nether- lands. Austria. Portugal. Japan. Mark. Florin. Crovm. Crown. Yen. I. Gold dollar and cents of the United States. (lgolddollar= 23.22 troy grains of fine gold; 5,760 troy grains = 373.24195 grams; hence a gold dollar= I.o04«31611 grams of fine gold) . . II. Russian ruble and kopecks. (1 ruble = -h of an imperial; 1 imperial = 261.36 doli, or 0.23821 0.402 0.20262634 10.8047 0.498455 11.61851571875 grams of fine gold;n 1 ruble=17.42i doU of fine gold) .46293855 .78115879 .39377998 20.9976252 .9686892 III. English pence. (1 penny =^5 of a pound sterling, and 1,869 poundssterhng=&troy pounds ^ of gold, «, 0.916} fine; 1 troy pound=373.24195 grams; a sov- ereign (£1)=7.32238532 grams of fine gold) 11.74774 19.82305 9.99274373 '.5:52.84549 ■;4. 581907 IV. Francs and centimes. (The gold 1 1.2345679 r 100/81 }2.0832 20-franc piece contains -Vj" grams of fine gold) 1.050135 55.997 2. .58.33075 Y. German Empire. Mark and pfennig. (1 crown or 10 marks contains ff^ grams of fine gold) _ 1.00 1. 687392 .8506096 45.3572625 2. 092479075 YI. Netherlands. Floi*ins and cents. (The 10-florin piece contains e.O'lS grams of fine gold) .5926305 1.00 .5040974 26.880098 1. 24006696 VII. Austria. Crowns andhellers. (1 crown=100 hellers; 10 crowns contains 3.04878 grams of fine gold) 1. 1756274 1. 98.5744 1.00 53.323242 2. 45997599 VIH. Portugal. (1 crown of 10-mil- reis=16.257083i gi-ams of fine gold) .22047 .372022 1.87.55.3.55 10.00 .46133275 IX. Japan. Yen and sen. (20 gold vens=16.e665 grams of gold 0.900 fine; 1 yen contains 0.7499925 grams of fine gold) .47790203 .80640806 . 40650806 21 . 1)76327 1.00 *■ «.*'.*-»*-' ^^.*. **.AA\.^ tr^ ■ — ------- — __ a Or Italian lira, new drachlna; Roumanian lei; Finnish mark, or Spanish peseta. o