BANKS AND CURRENCY
The heading of this chapter is somewhat misleading, for, strictly
speaking, Cuba has neither banks nor currency--that is, of her own. The
basis of the money which circulated in Cuba before the military
occupation of the United States was Spanish gold, principally the
_centen_, or twenty-five-_peseta_ piece, the value of which had been
inflated to $5.30 by royal decree. Owing to the scarcity of this coin
and to the fear that it might leave the Island, in 1893 the French
louis, or twenty-franc piece was similarly inflated by royal decree and
made legal tender in Cuba at $4.24. The silver coins of Cuba were of
Spanish origin: the peso, or dollar, the _medio peso_, or half dollar,
the _peseta_, twenty-cent piece, the _real_, or dime, and the _medio
real_, corresponding to our nickel. There are also the usual bronze
coins. The silver money of Cuba has for some time been worth only its
market value, and that subject to daily changes. At various periods in
the history of Cuba the Spanish Government at Madrid has attempted to
force bank bills on the people of Cuba, and such attempts, as a rule,
have ended disastrously to the people of the Island. The Spanish Bank of
the Island of Cuba, a semi-official institution, whose governor was
appointed by the Spanish Government, has also at times issued bank
bills, and to the credit of this institution they have always been
redeemed ultimately. As much cannot be said of the Government, whose
repudiated bank bills, aggregating about $17,000,000, are at this moment
only worth six or seven cents on the dollar. The passing of the control
of the Island into the hands of the military authorities of the United
States has happily ended all the currency complications of Cuba, and the
order of President McKinley, which went into force January 1, 1899, will
in a short time not only bring order out of confusion, but gradually
reduce the currency systems of Cuba to a sound basis, making gold and
silver alike worth one hundred cents the world over--no more, no less.
The object of this order is not only to unify the Cuban currency, but in
time to replace the present system by the monetary system of the United
States.
There is no need for entering further into the history of Cuban
currency, but in the following pages will be given the reasons which led
up to the Executive Order of December 28, 1898. Considering that the
author was called upon by the President of the United States and the
Secretary of the Treasury to make a report upon this subject, and the
report was subsequently adopted and acted upon, therefore the facts
herein stated may be regarded as official. The real point at issue in
relation to Cuban currency and the only one which caused the United
States authorities any trouble was that arising from the inflation by
royal decree of the Spanish twenty-five-_peseta_ pieces, popularly known
as alfonsinos, or _centen_, and the subsequent inflation of the French
twenty-franc piece, the so-called louis, which, as we have seen, were
given a legal value of $4.24 and decreed since the end of 1893 as legal
money.
The Spanish authorities at Madrid, having thus inflated two gold coins
six per cent. above their current value and about ten per cent. above
their intrinsic value--for the mint value of these two coins at Havana
is $4.776 and $3.8208 respectively--the United States authorities at
Washington were now called upon to inflate a third gold coin and make
the American eagle worth $11 in Cuba and our $5 gold piece current there
at $5.50. As a temporary measure this might have had some justification,
and the statements in support of it from Cuban bankers, planters, and
business men had a certain degree of plausibility. The process,
however, is entirely artificial, and whatever was done in this direction
to-day must be undone some other day, and the only question the
Administration had to decide was whether the inflation should be taken
out when the United States authorities took possession or the operation
postponed to some more opportune time. The danger in following the
advice of some influential financiers of Havana lay in the adoption by
the United States Government of a bad precedent in Cuban financiering,
inaugurated by the Spanish Government, a precedent for which the United
States was in no manner responsible.
The reckoning day must come for all inflated values, whether of paper,
of silver, or of gold; and when that day comes someone will suffer.
Fortunately, in this case the degree of suffering was small, varying
only from six to ten per cent. The practical question would seem to be
how to disinflate these two coins with the least possible disturbance to
mortgages, contracts, notes, and all classes of existing agreements to
pay money.
Current matters will adjust and take care of themselves. It is generally
known that all transactions in Cuba since the close of the war have been
made with the belief that the United States would not continue the royal
decree of Spain, and that the inflations would collapse with the
disappearance of Spanish rule.
In Santiago the author found the bankers and financiers in favour of
leaving matters as they existed and adopting similar methods in the rest
of the Island, namely, reducing the $5.30 gold piece to $5. This was the
view taken by Mr. Schuman, of Schuman & Co., Santiago.
On this question the Chamber of Commerce of Santiago, in a thoughtfully
prepared memorial, submitted to the President of the United States, say:
"It is frequently difficult in this market to effect change,
especially in small sales, for the want of fractional currency. As
this makes considerable difference in transactions, the chamber
considers it necessary for the American Government to remedy this
difficulty by sending sufficient silver fractional money, utilising
it to pay the army of occupation.
"This chamber has heard that the administration of the custom-house
of this port has solicited the Government at Washington to declare
American money legal and obligatory tender in all transactions
which take place in this territory, and we consider this movement
premature, as the political situation of the country is not
settled; and furthermore, prejudicial to commercial interests and
to the public wealth by the depreciation it would cause in the
Spanish gold in circulation and for the difficulty it will occasion
through the lack of American money in sufficient quantity for these
transactions. For this reason we beg that this petition will not be
considered, it being even more inopportune, since the resolution of
the civil governor of the province on the first of August last,
establishing the legal value of Spanish gold, is just and has given
satisfactory results."
Speaking to the author on the same subject, Mr. Brooks, of Brooks & Co.,
Santiago, a careful financier and capable business man, said:
"Regarding the currency question, we should also be inclined to
support the opinion of the Chamber of Commerce, to leave matters as
they are at present, _i.e._, the Spanish and French gold coins
having been disinflated, to leave them as current circulating
medium, including for the payment of custom-house duties. It is
also always a small advantage for the sugar estates to pay their
labour in Spanish gold as it represents a saving of three to four
per cent. as compared with paying them in American money, as where
a planter now pays $5 Spanish, he would, with a change in the
circulating medium, have to pay $5 American, which would represent
from three to four per cent. advance in wages without receiving any
compensation from his sugar shipped to the United States, from
which, in former years, and with inflated gold values, he derived
an advantage of ten per cent."
A partial adjustment of the question was suggested to the author by Dr.
Antonio Jover, director of the Spanish Bank of the Island of Cuba, and
as Dr. Jover is an authority on Cuban finances, the statement thus made
is quoted in full:
"The only way to settle all the difficulties of the present Spanish
monetary state of things is to declare legal tender the American
dollar and admit at par all Spanish gold coins.
"1. Thus the onza should be worth $16; the medio onza $8; the
doubloon, $4; the escudo, $2; the centen, $5--that is, pretty
nearly its intrinsic alloy and weight value.
"2. The English sovereign ought to be taken for $5, and the French
louis (which circulates in Cuba in great numbers) for $4.
"This arrangement, that slightly improves the value of the Spanish
gold,--for the centen is worth in the New York market $4.87 or
$4.90 at the utmost,--would tend to drive to Cuba the foreign coins
of this country, perfectly useless for circulation. As for the
Spanish silver, it is considered there almost as a merchandise or
stock value subject to daily quotation, and it is really
troublesome in its use. Therefore I would propose to give it a
fixed value in American gold, thus--
Value.
The peso....... $ 0.60
The medio-peso. .30
The peseta..... .12
The real....... .06
The medio-real. .03
"This value is a little less than the price of quotation to-day,
but it is much more than it was a few months ago, but I do not
think acceptable the use of any coin without a fixed, invariable
value. Now, as the American currency and the American silver would
stand at the par value, and, on the other hand, the Spanish silver
is at the present quoted higher in Spain, there too would likely go
a large quantity, if not all, Spanish silver coins; that
nevertheless would not be objectionable, but rather convenient to
both nations. Bronze or copper coins should be received just at
half their face value; the _centavo_ for half a cent American gold,
and the two-_centavo_ piece for one cent. But as this implies a
change in the standard value of the Spanish gold dollar, which up
to the present has been the basis of all contracts and dealings of
the country, it will be necessary to fix a date to implant the new
system, and that can be no other but the 1st of January next.
Hence, from that date all money transactions will be understood to
be on the basis of American gold, with American currency; Spanish,
French, and English gold at par value; American silver to be
accepted also at its full value only in quantities not exceeding
$5; Spanish silver at the stated rate, and foreign silver coin as
merchandise.
"As for all contracts and stipulations in money matters standing at
present to be fulfilled after the appointed date of the 1st of
January, I believe it would be but right to be paid off with six
per cent. discount, which would simply disinflate them, because
they were made with the basis of gold coins which had six per cent.
premium; and discounting the same six per cent. when they were
settled with coins whose said premium had been taken off, although
the intrinsic value of which coins had remained unaltered during
the time, would only be common morality and fair equity. Lastly,
all those who would attempt to alter the value of money ought to be
severely punished, according to the law of the country."
With these supplemental facts, the case is fully and impartially before
the reader. To accept the proposition of the Havana bankers meant a
continuation of the inflated value of ten per cent. To concede the
proposition of Dr. Jover and the Santiago financier would reduce the
inflation about six per cent., still retaining Spanish and French gold
in circulation at a slightly increased value. (Dr. Jover even includes
the British sovereign at $5.) The other and only remaining course would
be to accept United States money at its full value for customs and taxes
and the foreign coins at their intrinsic or mint value.
After carefully considering all these facts, the Honourable Secretary of
the Treasury, Lyman J. Gage, prepared and submitted to the President the
following order in relation to the future currency of Cuba:
"EXECUTIVE MANSION, WASHINGTON,
December 28, 1898.
"It is hereby ordered that on and after January 1, 1899, and until
otherwise provided, all customs, taxes, public and postal dues in
the Island of Cuba shall be paid in United States money, or in
foreign gold coin such as the Spanish alfonsinos (centen) and the
French louis, which will be accepted in payment of such customs,
taxes, public and postal dues at the following rates:
Alfonsinos (25-peseta piece) $4.82
Louis (20-franc piece) 3.86
"That all existing contracts for the payments of money shall be
payable in the money denominated in such contracts, and where
French and Spanish gold shall be the stipulated money of payment
they shall be received in their present decreed inflated values,
_i. e._, alfonsinos (25-peseta piece) $5.30; louis (20-franc piece)
$4.24, or in United States money at the relative value set forth in
the above table, namely, $4.82 for alfonsinos (25-peseta piece) and
$3.86 for louis (20-franc piece).
"It is further ordered that on and after January 1, 1899, and until
further provided, the following Spanish silver coins now in
circulation in the Island of Cuba shall be received for customs,
taxes, public and postal dues at the following fixed rates in
American money:
The peso $0.60
The medio-peso .30
The peseta .12
The real .06
The medio-real .03
"Bronze and copper coins now current in the Island of Cuba will be
received at their face value for fractional parts of a dollar in a
single payment to an amount not exceeding 12 cents (1 peseta).
"WILLIAM MCKINLEY."
[Illustration: FIRE DEPARTMENT, SANTIAGO DE CUBA.]
In signing and promulgating the above order, the currency question of
Cuba has been settled for all time to come on a sound basis. In offering
to accept for the present the Cuban peso or silver dollar for sixty
cents, American money, the United States Government merely delays the
migration of the coin to Spain. At this price it is profitable to ship
them to Spain, but at fifty cents they would have disappeared so rapidly
that a commercial disturbance might have followed on account of scarcity
of silver dollars and fractional currency. It is not probable, nor is
it asserted that this adjustment can be accomplished without hardship to
some debtors and a slight financial disturbance. It is not, however,
apprehended that the trouble will be as great as some have anticipated.
In Santiago the first step to absolutely sound finance was taken last
summer and six per cent. of the inflation squeezed out. The business
interests in that part of the Island were opposed to a continuation of
the ten per cent. inflation, and merely asked of the United States
Government that the several gold coins in circulation should be left at
their face value. As one of the evils arising from disinflation, certain
Cuban bankers put forward the fact that it will mean an increase of from
four to ten per cent. in the wages of labour, which Cuban industries
cannot afford. Such a result, if true, cannot be regarded as an evil,
but, on the contrary, a benefit to the poorer classes, whose condition
in Cuba is deplorable beyond description.
In the iron mines at Santiago the large American enterprises have
already adjusted themselves to the new conditions and are paying their
labour seventy-five cents per day American currency instead of a Spanish
dollar worth sixty-five cents in Cuba and only sixty cents in exchange
for United States currency. The author, when in the mining districts of
this province, heard no complaints, either from the proprietors or the
labourers. Stress was laid in the arguments before the President and
Secretary Gage upon the loss to the debtor who has borrowed on a
fictitious value and must pay the premium, and the unfortunate Cuban
sugar-planter is especially singled out for sympathy. That the planter
will suffer cannot be denied, but the advent of the United States into
Cuba will lighten so many of his burdens that his condition is not
without hope. All the customs duties on his imported food supplies, as
will be seen in the chapter on the tariff, have been reduced, and many
important commodities put upon the free list. The duty on his sugar
machinery has been reduced to ten per cent. ad valorem; on his
locomotives and railway supplies to twenty per cent.; and all along the
line the taxes have been cut down. It is not probable that his land
taxes will be collected during the present fiscal year, and the return
of peace, establishment of law and order, and protection of property
will immeasurably improve his lot. If, therefore, the sugar-planter of
Cuba will gauge his present outlook by a glance backward and compare it
with his condition last year at this time, he may face the new year with
less gloomy premonitions as to his future than some of the testimony
taken by the United States Government on the effects of disinflation
would indicate. The action of the President, by and with the advice of
the able financier at the head of the Treasury Department, will give
Cuba a sound currency, which must be the foundation of her future fiscal
prosperity.
The proof of the poverty of Cuba is a scarcity of capital, manifest in
many different ways. The difficulty, not to say the impossibility, of
selling sugar plantations proves the scarcity of capital and at the same
time the precarious situation of the sugar industry. The decrease in the
price of property is a natural consequence of lack of disposable
capital, and this is why the rate of money is so high; it can only be
caused by lack of capital, and not of money, since scarcity or abundance
of money has only a limited influence on rates of interest. Nearly all
the banks established for the last twenty or thirty years in Cuba have
disappeared, owing to the losses experienced by the gradual increase of
the poverty of the country; the want of resources rendering it
impossible to start these banks anew or establish new ones with Cuban
capital.
A few years ago there were in Havana, besides the Spanish Bank and the
Bank of Commerce, the Industrial Bank, the San José, the Alianza, the
Maritime Security Bank, and the Caja de Ahorros (savings bank).
Excepting the first two, all have stopped working, and if the two
surviving ones have outlived the others, it is because the Spanish Bank
enjoys official privilege, and because the Bank of Commerce, though
compelled twice to reduce its capital, owns valuable property, as, for
example, the Regla warehouses and the United Railroads, which property,
if the Island were prosperous, would be worth several millions more than
it is to-day.
It is almost incredible that, having such extensive relations with
foreign countries, the condition of banks in Cuba should be so
precarious, especially as the Island feels more every year the need of
banking facilities, without which no modern country can prosper.
Although not as important as regular banks, savings banks are a gauge of
public wealth, since their object is to gather the economies of the
working classes and create capital for the promotion of industries. The
only savings bank in Cuba failed in 1884, ruining in its fall not only
those who had deposited their funds, but also the shareholders; and to
this day no other institution has been established to take its place,
and at the present moment there is not a single public institution where
money can be deposited in large or small quantities earning interest!
In foreign countries the thrift of the working classes is the
corner-stone of new industries. Are there in Cuba any economies or
annual profits that can be capitalised? The sugar industry, the base of
Cuban wealth, yields to-day no profit save in exceptional cases. The
tobacco industry since 1895 has been in a critical condition, and as all
the other industries depend on these two, or are of comparatively
limited importance, it may be said that work and capital yield no profit
in Cuba at present; since either no profits are realised, or, if they
are, they leave the Island. This aspect of the present economic
situation of Cuba is of immense importance and not only explains the
actual situation at this moment, but shows that the hope of improvement
alone lies in the prosperity of these industries.
The history of banking in Cuba is sad with financial disasters. The only
bank which has survived during half a century is the Spanish Bank of the
Island of Cuba. This concern was originally chartered as the Spanish
Bank of Havana, and although it was a private institution, owned by
shareholders, the Spanish Government maintained the right of appointing
the governor, and in many other ways controlled its actions. At various
times this bank has itself issued bank bills, and at other times it has
been the medium through which the Spanish Government endeavoured to
circulate its own paper money. The notes of the bank itself, as already
stated, have never been repudiated, though during hard times, as a
result of the Ten Years' War, the bank bills of the Spanish Bank were at
a small discount. Sixteen years ago the Spanish Bank of Havana was
reorganised and the name changed to the Spanish Bank of the Island of
Cuba. At the present time this bank has no bills in circulation; the
paper currency now valued at but a few cents on the dollar, which was
issued during the war by the Spanish Government through the Spanish Bank
of the Island of Cuba, is not regarded by the shareowners of the bank
nor by the public as the issue of the bank itself. The history of these
bills is briefly as follows: In order to meet the expenses of the last
war, the Spanish Government arranged to issue $20,000,000 worth of paper
money. As a security and partial fund for redemption of the same, the
Madrid authorities deposited in the vaults of the Spanish Bank of the
Island of Cuba $6,330,000 in silver against this issue. For a while this
bullion, together with the mandate of the Spanish Government that these
bills must be accepted as legal tender, kept the currency floating
somewhat below par. The people of Cuba, however, had been deceived so
many times in relation to paper money that they were suspicious of these
bills from the beginning, and when in due course of time Spain gradually
and dishonestly absorbed from the bank all silver upon which the paper
money had been issued, the bills depreciated until they were absolutely
refused in all business transactions. This entailed considerable loss,
as the street railways and cabs of the city were compelled to take them
in spite of this great depreciation in value. Finally, they were
repudiated on all sides. A temporary value was given this paper by
accepting ten per cent. in the payment of customs dues. This raised it
up to twelve to fifteen cents on the dollar. Immediately upon the
military occupancy of the United States the value of these bills fell
still lower, and they are to-day worth but a few cents on the dollar,
and are held chiefly by Government contractors and speculators.
Realising that a decided change would take place in banking as soon as
the United States took charge of affairs, the shareholders of the Bank
of Spain met some months ago in Havana and reorganised the bank, making
it a private concern, and changing its by-laws so that it could do
business as a private institution, untrammelled by Government
interference.
Among other uses to which the Government of Spain put the Spanish Bank
was that of a collecting agency for practically all taxes other than
those of the custom-houses. The value of receipts for direct taxation
that have been delivered for collection to the Spanish Bank of the
Island of Cuba, from the fiscal year 1885-86, when this institution
commenced the collection, with right of seizure, to 1894-95, both
inclusive, actual amounts collected, deductions, and amounts pending
collection as per vouchers, and accounts rendered to the Treasury by
this institution, are as follows:
---------+-------------+-------------+-------------+------------+----------
| | |Deductions | |Per cent.
Fiscal | Face Value. | Collected. |for which | Pending | of face
Years. | | |Bank was not |Collections.|value un-
| | |responsible. | |collected.
---------+-------------+-------------+-------------+------------+----------
| Pesos C.| Pesos C.| Pesos C. | Pesos C. |
| | | | |
1885-86 | 5,021,271.25| 4,561,976.18| 438,029.78 | 21,265.29| 0.423
1886-87 | 5,240,651.50| 4,655,776.10| 547,435.19 | 37,440.21| 0.714
1887-88 | 5,386,627.83| 4,758,446.22| 575,840.11 | 52,341.50| 0.971
1888-89 | 5,316,367.75| 4,694,829.26| 549,628.25 | 71,910.24| 1.352
1889-90 | 4,878,047.21| 4,304,196.24| 497,220.89 | 76,630.08| 1.570
1890-91 | 5,336,611.25| 4,659,477.26| 571,994.17 | 105,139.82| 1.970
1891-92 | 4,242,982.34| 3,696,877.74| 428,374.80 | 117,729.80| 2.774
1893-93 | 5,357,928.97| 4,635,278.61| 572,890.51 | 149,759.85| 2.795
1893-94 | 5,092,200.41| 4,505,426.32| 432,163.62 | 154,610.47| 3.036
1894-95 | 5,163,321.70| 4,421,631.99| 534,492.41 | 207,197.30| 4.012
+-------------+-------------+-------------+------------+----------
|51,036,010.21|44,893,915.92|5,148,069.73 | 994,024.56|
---------+-------------+-------------+-------------+------------+----------
The above table gives a good idea of how this arrangement worked during
normal times. There were two or three features in it, however, which
were bad, and which the author is glad to notice that the United States
Government in renewing the agreement of the Bank of Spain for the
present fiscal year, that is, the year ending June 30, 1899, has
obliterated. The Spanish Government paid the five per cent. on the
receipts given the bank, and not on the money collected. This resulted
in great abuses, because the delinquents during the years of war were
fifteen, sixteen, and forty-three per cent. respectively. The punishment
of delinquents has also been considerably modified by the United States
authorities.
The following table gives the receipts for direct taxation that have
been delivered for collection to the Spanish Bank of the Island of Cuba
from the fiscal year 1895-96 to 1896-97, both inclusive, actual amounts
collected, deductions, and receipts pending collection up to December
12, 1898, as per data at hand in the Spanish Bank:
-------+---------------+-------------+-------------+-------------+---------
| | |Deductions |Pending |Per cent.
FISCAL| Face Value. | Collected |for which |Collections. |of face
YEARS.| | |bank not is | |value un-
| | |responsible. | |collected.
-------+---------------+-------------+-------------+-------------+---------
| | | | |
1895-96|$ 4,802,936.66 |$3,460,998.24|$ 579,002.52 |$ 762,935.90|15.88
1896-97| 4,589,735.08 | 3,283,286.51| 547,975.70 | 758,472.87|16.52
1897-98| 4,341,112.87 | 2,250,806.74| 223,119.47 | 1,867,186.66|43.01
+---------------+-------------+-------------+-------------+---------
|$13,733,784.61 |$8,995,091.49|$1,350,097.69|$3,388,595.43|
-------+---------------+-------------+-------------+-------------+---------
This table and the one preceding it were prepared for the author by the
governor of the Spanish Bank of the Island of Cuba and differ from the
table prepared by the Spanish authorities which will be found in the
chapter on the revenue of Cuba. In the report furnished by the
officials, the face value of the tax receipts is given in one column and
the actual amount collected in another, the third column showing, under
the caption of "Total Delinquent Taxes," the amounts uncollected,
without any explanation as to why they were not collected. The governor
of the Spanish Bank in the two tables given above includes a fourth
column, namely, deductions for which the bank was not responsible. The
bank authorities claim that the amounts represented in this column were
receipts which were not valid, inasmuch as they were claims in many
cases upon persons dead and upon property which had been destroyed by
fire. The governor of the bank thinks it an injustice to the bank to add
these under the general head of delinquent taxes, without this
explanation.
It is easy to enforce and collect the customs duties; but the collection
of internal revenue taxes is a much more difficult matter. The United
States authorities found, on coming into possession of the Island of
Cuba, January 1st, that all the receipts of taxes for the present fiscal
year were in the hands of the Spanish Bank of the Island of Cuba; that
this institution had not only six or seven branch banks in various parts
of the Island, but also in the neighbourhood of 258 sub-district or
collecting agencies. The bank assumed all the responsibility of these
agencies, and it was decided to place in its hands for the present
fiscal year this work, for the reason that it had all the machinery and
there would be no loss in revenue. An agreement was entered into between
the Spanish Bank of the Island of Cuba and the United States military
authorities, and an order issued from Washington to the bank to make the
collection, but the arrangement engendered such opposition among the
Cubans that the order was revoked and the work was placed entirely in
the hands of the American authorities under General Brooke.