very same day Don Francisco Solano Lopez assembled the bishop, the
supreme judge, and the principal functionaries, and in their
presence opened the sealed envelope which contained the testament of
his father. In virtue of the law of 1856 Don Francisco Solano Lopez
was designated Vice-President, and in that capacity he convoked the
Extraordinary Congress.
As under such circumstances it is well to neglect nothing, young
Lopez prudently confided the command of the army to his brother, and
one of his uncles was already at the head of the clergy. Thus all
the avenues to power were guarded.
The Congress assembled under the presidency of Don Solano Lopez.
The result of the vote was certain. Every precaution had been
well taken. They were about to proceed to the ballot, when a
deputy, named Varela, commenced speaking. He began by eulogising
General Lopez, and assuring him of his personal esteem and
sympathy, reminded Congress of the express terms of the Act of
Independence—Paraguay shall never become the patrimony of a
family, and concluded with these words:—“I have the most
profound respect for General Lopez, but I have sworn to obey the
laws of my country. I hesitate between my affection and my
conscience.” The moment was a critical one. An unexpected
opposition manifested itself, and drew its force from the law,
for the first time invoked in the heart of a Congress. Lopez
tremblingly witnessed this episode, but retained his coolness
and self-possession. He made a sign to Father Roman, the Bishop
of Asuncion, who of right formed part of the Congress. The
prelate approached Varela, who humbly fell on his knees in the
midst of the assembly, and the bishop, placing his hands upon
his head, said with a loud voice—“_Ego te absolvo_; thou art
released from thy oath; this is not the case for its observance
(_no es este el caso de observarlo_).” Varela rose with delight,
and cried, “Then I will be the first to give my vote to his
Excellency General Lopez!” It need not be stated that the
President obtained unanimity, and that the people welcomed his
new master with transport. The Lopez dynasty was founded.
Lopez II., thus firmly seated in his place of supremacy, adhered to the
traditions of his father. His government has been equally despotic, and
the same policy of isolation and monopoly has been persistently
observed. Public opinion has no existence, and the only paper published
in Paraguay is the official organ, edited by the Dictator himself. The
commerce and industry of the people—their toil, their means, their
blood—are at the uncontrolled disposal of their tyrant. And how this
authority has been exercised we all know. Inflamed by ambition, and
desirous to extend his power beyond the limits of Paraguay, the greater
part of his reign—I use the word advisedly—has been devoted to the
steady accumulation of military and naval stores, the organisation of an
army out of all proportion to the number of inhabitants, and the
erection of strong fortresses on the riverine passages to the interior.
For what purpose? Let his acts of gratuitous invasion tell; let the
story of the present war with Brazil and her allies testify. I have
already placed the facts with respect to this struggle before my
readers, and I feel sure they will concur with me that the real object
of Lopez was to bring the whole of the River Plate under the terror of a
Guarani-Indian subjection. Happily this calamity has not occurred, but
it has only been avoided by a prodigious outflow of blood and treasure.
BRAZILIAN CURRENCY.
Like most new countries achieving their independence and establishing
constitutional government under circumstances of difficulty, internal
and external, Brazil has been subject to vicissitudes in her monetary
circulation, and has been affected by occasional aberrations from the
great truths of economical science in the emission of paper money. The
law of 1866 has, however, corrected the errors previously committed, and
when the restoration of peace shall afford the present President of the
Council and Minister of Finance, who, when holding the same offices in
1853, evinced both the capacity and determination to place the financial
condition of the Empire on a sound foundation, the Viscount Itaborahy
will, no doubt, achieve for his country even a greater financial reform
than that which secured for him in Brazil a reputation not dissimilar
from that of Sir Robert Peel in England.
The Brazilian standard of value is the gold oitava of 22 carats, of the
value of four milreis, the par value of each milreis being by law 27d.
sterling. The ancient mercantile par of the exchange of the milreis was
in sterling 60d. After the arrival of King Dom Joao VI. in Brazil the
exchange on England gradually rose, until in 1814 it reached 96d. This
rise was owing to the increase of its commerce, consequent to the freer
commercial legislation which was then first introduced and to the
depreciation of English irredeemable paper money consequent on Mr.
Pitt's Bank Restriction Act. The war which the Argentines plunged the
Empire into immediately after their independence to deprive it of its
Cis-Platine province produced, however, great financial embarrassments,
and they were increased by the mismanagement of the paper circulation by
the then Bank of Brazil, which King Dom Joao VI. had founded, by
attempts at revolution in the northern provinces, by the intervention of
the Emperor Dom Pedro I. in the affairs of Portugal, by his abdication
of the Brazilian crown in 1831, and by serious and prolonged domestic
troubles. The consequence was in 1833 the reduction of the ancient par
to 43⅕d. the milreis. From 1831 to 1840 distracted regencies governed
Brazil. During one of the regencies a civil war broke out in the great
province of the Rio Grande do Sul, which only terminated in 1845, thanks
then to the efforts and capacity of Count (now Marquis) de Caxias, who
is at this hour as heroically fighting, in his old age, the battles of
Brazil in Paraguay with equal success. Then followed other provincial
and political difficulties of less importance, but all reacting on the
financial position of the Empire. So that again in 1846 the par of the
milreis had to be lowered to 27d., at which it has since been preserved.
And it is to the credit of the Empire, its Government, Legislature, and
people, that subsequently, neither the great financial and banking
crisis of 1864, nor the pressure of the war with Paraguay, which has
continued from 1865 to the present time, has produced any propositions
for its further reduction. The maintenance of the par of the milreis at
27d. is now the established fundamental policy of Brazil. This policy is
made especially and emphatically manifest in the financial measures of
Viscount Itaborahy, who is once more Prime Minister and Finance Minister
of the Empire, with the prospect, it may be hoped, of as long an
administration as that which distinguished his Government from 1848 to
1853, during which period he governed so greatly to the advantage of the
nation, terminating the slave trade, and introducing a financial system,
the departure from and disregard of which in 1857 undid the good which
he then accomplished.
The free trade legislation of England in 1845 opened the consumption of
this country to Brazilian sugar, one of the great productions of Brazil,
and the Revolution of 1848 in France was followed by the partial
admission to France of Brazilian coffee, then the largest item of the
agriculture of the Empire. Under these influences an immense impetus was
given to the productive capacity of Brazil. The firm and enlightened
Government of Viscount Itaborahy gave the Empire concurrently a period
of domestic repose, of which the planters made the most. Political
passions subsiding agriculture made huge strides. The termination of the
African slave trade gradually relieving agriculture from debts and
embarrassments, introduced better systems of cultivation, largely
increased production, augmented commerce, released for better purposes a
great amount of capital engaged in that abominable traffic, stimulated
honest improvements of every sort and kind, and the exchange on England
rose to 28¼d. the milreis. At this time Treasury notes were the only
paper money in circulation, and their amount was so insufficient for
business purposes that coin became more abundant than paper money, to
the inconvenience of trade and society in so vast an empire.
The necessity of a convertible paper money became apparent and it was
generally demanded. The result was the enactment, on the proposition of
Viscount Itaborahy, of the law of the 5th of July, 1853. Under it the
Bank of Brazil was established as a bank of issue to a limited extent;
other banks were merged in that great institution; branches of it were
established in the larger provinces, with similarly restricted powers of
issue in circumjacent districts; the privilege of issue was confined to
this one establishment, and Brazil was provided, as England now is, with
one great bank issuing convertible paper in connection with, yet to a
large extent independent of, the State, and the Executive Government had
virtually no authority or power to found other banks of issue. Thus
unity of banking was established so far as paper money was concerned,
and to the immense advantage of the country. An easy, cheap, and
convenient paper currency was provided, always convertible into coin,
yet preferable for the ordinary purposes of life to coin; and the
provinces and the metropolis were equally well supplied with this
currency. The consequences were still further progress in the Empire,
the Treasury was relieved from the trouble of regulating the currency,
the revenue and trade increased, and an impetus was given to activity
throughout the Empire. For all this Brazil had to thank the good sense
and statesmanship of Viscount Itaborahy.
The Viscount's Cabinet terminated in 1853 in the midst of the
improvement it had created. The progress thus produced by wise and
scientific legislation unfortunately rendered a powerful section of the
country impatient for further progress and misled succeeding Governments
into a policy of a very different kind, whence mainly have flowed the
subsequent financial misfortunes of the country. From the substantial
but slow benefits of sound legislation, Senhor Souza Franco, a successor
of Viscount Itaborahy in the Ministry of the Treasury, was led into the
evils of unsound banking. He became enamoured of the then American
system of free banking, as it was termed, and in 1857, misinterpreting
the real meaning of the law of 1853, established plurality of banks of
emission. Banking societies were then empowered to issue their own notes
convertible by law, it is true, on presentation into coin, but without
any corresponding security wherewith to furnish gold for their payment
on presentation. The Government sanctioned no fewer than six banks of
emission, two in Rio de Janeiro and four in the provinces, and assigned
to each districts within which the right of paper issue might by means
of branches be further extended. In the same spirit the Government
sanctioned the establishment of joint stock companies and anonymous
societies for all kinds of purposes throughout the Empire. The right
thus assumed by Government was superabundantly exercised. Speculation
spread apace in all directions, and fictitious prosperity for a moment
took the place of real progress; shares and pecuniary responsibility,
far beyond the means of those who assumed them, became the order of the
day; long credit and increased discount aggravated the evil; gold began
to leave the Empire rapidly, the rate of exchange to fall heavily, and
in 1859 pecuniary anarchy was the consequence of this policy.
Senhor Souza Franco had to retreat before this result, and he was
succeeded by Senhor Torres Homem, who soon found in the Chambers a
spirit opposed to those wiser measures he recommended which he was
unable to overcome during his short tenure of office. Then came Senhor
Ferraz at the Treasury; he was more fortunate in remedying the mischief
thus caused. The Empire and the General Assembly had recovered from
their delusions. So, on 22nd August, 1860, a new law of banking, &c.,
was enacted. Its principles were the resumption of cash payments by the
banks of emission and the withdrawal of all power from the Executive
Government to sanction powers of emission or of anonymous societies,
reserving such power for the Imperial Legislature. By this law the Bank
of Brazil was prohibited from further emission until it had resumed
payment of its notes in gold, the power of emission was reduced and
fixed, and no banks can now be established except by legislative
authority.
Immense as was the mischief caused by the measures of 1857, the law of
1860 to a considerable extent corrected it. The two banks of emission at
Rio de Janeiro resigned the privileges they had acquired; within two
years the Bank of Brazil resumed payment of its notes in cash; the Bank
of Pernambuco withdrew its notes from circulation; and the currency of
the Empire had undergone substantial improvement when—in September,
1864, suddenly a great “crisis” burst on Rio de Janeiro, immediately the
consequence of adverse European influences, but substantially the result
of unscrupulous and indefensible mismanagement of discount and private
bankers in that capital.
Their establishments were in the enjoyment of great credit. Their chiefs
were men of mercantile activity and public spirit, living _en evidence_,
pushing business, giving facilities to everybody, and dealing with money
as if possessed of boundless capital of their own. Their means for this
pecuniary profusion was, however, chiefly derived from money deposited
with them, for longer or shorter periods, or “at call,” sometimes in
large, but more frequently in small sums, on which they allowed interest
of, say, 8 per cent. Thus they became possessed of a greater part of the
floating and uninvested capital of Rio de Janeiro. Receiving money in
this way freely and largely, from the poorer public chiefly, it was the
duty of these bankers to place it out at higher rates of interest, but
on ample security always, and easily convertible into cash. By such
business they would have reaped substantial profits for themselves, have
assisted honest commerce, and have provided effectually for their
depositors. A run upon one of these houses in September, 1864, after the
arrival of bad financial news from Europe, resulted in its closing its
doors on its depositors. This stoppage alarmed the creditors of the
other houses, and they followed suit by demanding back their deposits.
With the same effect—the closing of doors and stoppage—until five of
these bankers suspended payment with deposits of £5,655,000.
Investigation into their affairs showed how reckless had been their
management, how disregardful of every rule of deposit banking. The funds
entrusted to them had been invested in houses, advanced on mortgages,
lent to planters on bills renewable; and thus Rio de Janeiro was by
their misconduct involved in unexpected ruin. The Government had to
interfere with the payment of bills of exchange, to direct the
administration of their insolvent estates. The Bank of Brazil was
involved in large advances to these houses and unable to assist the
community at the moment when assistance was most needed. The consequence
was a suspension of its cash payments.
This crisis once more raised the question of the currency and of
banking, and led, after a prolonged discussion, to further legislation
in 1866.
By the beginning of 1865 the paper circulation of the Empire reached the
enormous sum in sterling of £11,025,000, of which, however, only
£3,150,000 were notes of the Government having general circulation
throughout the country. For the balance of £7,785,000, the circulation
of which was limited to defined districts in which the issuing banks
were situated, the public, had no adequate security. The natural
consequence was disarrangement in the internal exchanges and general
disturbance of the money market. To remedy it Government proposed a
radical reform of the Bank of Brazil, and its separation in two
departments,—one of issue, the other of banking. The discussions on this
question continued through the legislative sessions of 1865 and 1866.
And during these discussions the adverse situation was illustrated by
further decline in the foreign exchanges and the augmentation of the
non-Government paper in circulation to £9,225,000, to which it had
swollen in May, 1866.
In the session of that year the difficulties of this state of affairs
were brought under the consideration of a Committee of the Senate, of
which Viscount Itaborahy was the most eminent member, and to which a
remedial measure of a radical character was referred for examination.
The result of its deliberations was the expression of an opinion that
the Bank of Brazil, having in two years doubled its circulation, could
no longer accomplish the essential objects of its existence. Thus
sentence of death was passed on that institution by the statesman who
had formed it, and legislation became inevitable after such a
condemnation.
Accordingly, on the 12th of September, 1866, a measure became law which
enabled the Government to abolish the contract under which the Bank of
Brazil existed. The principal provisions of this law were: 1. The
cessation of the bank's privilege of emission. 2. The division of the
bank into two departments—one for banking purposes only, the other for
mortgage loans, in order to effect a gradual liquidation of the
securities given by the agricultural classes, and so to form the
commencement of the operations of the law of September, 1864. 3. The
sale of the bank's stock of bullion, which amounted to £2,925,000 and
the application of the proceeds to a proportionate withdrawal of its
notes from circulation. 4. The annual contraction of its remaining paper
circulation. 5. The payment to the bank for the State notes it used in
accordance with its primitive contract, in withdrawing from circulation
about £1,237,500, by the substitution of bank notes by State notes, and
the discharge of an insignificant amount of treasury bonds cashed by the
bank. 6. The issue in payment of floating debt, and those treasury bonds
of State notes, to the amount of notes withdrawn by the bank.
Thus the Government were supplied with coin for remittances to the army
and navy engaged with war in Paraguay, and the Bank of Brazil was
reduced to a mercantile association. So it now remains, only a small and
scarce portion of its notes having a forced circulation, and that small
portion is being greatly reduced.
Thus, too, the exclusive functions of providing for the circulating
medium were restored to the State, instead of being confided to a bank
on which were at times painfully and mischievously exercised the
exigencies of internal credit, and the reaction in Brazil of those
crises in Europe and the United States, that affected the Brazilian
Empire while its currency was in so unsound a condition with great
violence.
In 1867, the increasing pecuniary requirements of the war compelled the
General Assembly to vote the Government a credit of fifty thousand
contos (£5,625,000) which have in great part been used by the
Government. But, inserted in the law which authorised the issue, is a
provision that on the termination of the war, the legislature will fix
in the budget of each year the necessary amount to be applied to the
withdrawal of this addition to the State notes.
It was not, however, only by further emissions of State notes that the
General Assembly in 1867 made provision for the extraordinary
expenditure of the Government. In that session old taxes were increased,
new sources of taxation opened up, and the whole system of taxation was
re-organised in a more rational and scientific way, greatly to the
increase of the general revenue of the Empire. So much so that in the
session of 1868 the budget for 1869-70 showed under the influence of
greatly enlarged receipts, and of economies effected in the various
departments of the State, an important surplus.
And while thus placing the paper circulation on the more solid basis of
national security, important reforms were effected in the same session
of 1867 in the coinage of the Empire.
Owing to the fineness of the silver coinage a fall in the foreign
exchanges was immediately followed by the exportation of silver from
Brazil to the great inconvenience of petty commerce. So in September,
1867, for the silver coinage of Brazil was adopted, in respect of the
coins of two milreis (4s. 6d.) and milreis (2s. 3d.) the fineness and
weight introduced by the International Convention between France and
other countries. And the Government substituted for the old copper
coinage bronze pieces of twenty reis (½d.) and ten reis (¼d.) of a
similar alloy to that of our present bronze coinage—viz., ninety-five
parts of copper, four of tin, and one of zinc. So that the Brazilian
coinage consists of gold pieces (of twenty and ten milreis of 917
milliomes,) legal tender for any amount—that is, of 27d. per milreis,
and of these silver and copper pieces for tokens. In addition, English
sovereigns and half-sovereigns are also legal tenders for any amount in
Brazil.
On the change of Ministry in July, 1868, which led to the formation of
the Cabinet over which Viscount Itaborahy now presides, the Chamber of
Deputies, by an unexpected and sudden combination of forces previously
adverse to each other, came to a resolution which left the newly formed
Cabinet no alternative but an appeal at once to the nation, and that
without the Chamber making full financial provision for the conduct of
the war. Left in this position by no fault of its own, the Cabinet in
September, 1868, had no alternative but the adoption of financial
operations on its own responsibility. But they have fortunately met with
the full approval of the country, and will, no doubt, be sanctioned by
the result of the now impending general election of deputies.
These measures were of an alternative character. First of all they
consisted of a decree authorising a further issue of State notes to the
amount of 40,000 contos, viz., £4,500,000. But this decree was followed
by another empowering the Treasury to raise a domestic gold loan of
30,000 contos, £3,335,000. The former decree was, however, only intended
to support the credit of the Government, in the event of the failure of
the loan authorised by the latter decree, and as it has been successful,
a further issue of State notes will, it may be anticipated, be averted
to any considerable amount.