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the Isthmus, and at times, although the exchange was only 5 per cent normally, it ran up to 75 and 80 per cent. A similar experience with the fluctuations in the Mexican dollar in the Philippines had produced great trouble for us in paying the civil servants of the Philippine government, and it seemed to me of the utmost importance that, if possible, we should secure a uniformity of monetary standard between the United States and the Republic of Panama.

The proposal to introduce into the Zone a different currency from that used in the Republic in Colon and Panama, which are the markets of the Zone, would result in great confusion and, as such differences in currency always do, would bring about loss to those least able to take care of themselves-the laboring class. For that reason I took up the matter with Mr. Conant, and my impression is that he submitted his proposition to some members of Congress. It was so late in the session that nothing could be done by Congress. He also conferred or corresponded with General Davis on this subject, and followed the proceedings of the Panama convention, which was then in session and engaged in considering a currency law. On the 7th of May Mr. Conant came to Washington and had an interview with the President on this subject. I was present. He submitted his views on the matter, and my recollection is that it was at that time that he advised me that the fiscal commissioners of Panama were in New York with authority to act. Perhaps it was earlier. At any rate, through him the fiscal commissioners came to Washington to visit me, and were accompanied by their counsel, Mr. Cromwell.

The conferences were held in my office between Admiral Walker and myself with Mr. Conant as our monetary adviser on the one side and Señor Arias and Señor Morales, the fiscal commissioners, with Mr. Cromwell, their counsel, on the other. I append the conversations, which were taken stenographically, leading up to the making of the agreement, together with the agreement, as Exhibit 7. This agreement was made the subject of a resolution introduced by Senator Bailey at the present session of Congress, and I appeared before the Finance Committee, to whom the resolution was referred, to testify in regard to it. The resolution covered also the bankers' agreement of April 29, 1905, to which I shall subsequently allude and which has been discussed at considerable length before this committee. There crept into the agreement, which took the form of a letter from me, a stipulation on behalf of the Commission as a legislative body that it would make the Panamanian currency legal tender in the Zone. This I am quite sure was done at the instance of Mr. Conant, as it is suggested in his memorandum and correspondence, already referred to. The Panamanian representatives did not insist upon this clause, and after the agreement had been signed, I carried in my mind the impression that that particular provision had been stricken I was wrong in this, but when I went before the Finance Committee, I freely admitted that the insertion of that particular clause was improper, and I did not assert the power on the part of the Commission to obligate itself to pass such a law, or, in fact, the authority to pass the law whether it had agreed to do so or not. As a matter of fact no such legislation was ever adopted, and Panama never requested it. The clause was ignored. After this disclaimer before the committee, I understood the result of the informal conference of

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the committee to indicate their unanimous opinion that the remainder of the currency agreement and the bankers' agreement were within the competency of the Commission.

The stipulations of the currency agreement of June 20, 1904, were conditioned on the enactment of a law which had been before the Panamanian convention and which, my impression is, Mr. Conant had something to do with framing. Whether this be true or not, it was one of which Mr. Conant fully approved. It provides (for it is still in force) a gold coin as a monetary standard which is exactly the same weight as our gold dollar. It also expressly makes the gold dollar of the United States and its multiples legal tender in the Republic of Panama. It provides for the coinage of a silver peso, which by law it makes equal in value to 50 cents of American money. This coin was to be the most valuable coin in actual use and the one generally in use. The weight and purity of the silver in this coin made it about equal in intrinsic value to our standard silver dollar, and less by 7 or 8 cents than its legal value.

Under the agreement the Panamanian Government was to coin three millions of silver pesos for issue on the Isthmus. This, it was thought, would take up all the Colombian silver, and in fact it did. That Government also agreed to issue three million pesos more at the request of the United States Secretary of War, should the operations of the Commission on the Isthmus require it. It further agreed to deposit in a New York bank 15 per cent in value of the first issue of three millions of pesos to maintain the parity of the coins with their legal value of 50 cents gold. It further agreed, in case the coinage of more pesos was required by the Secretary of War, to deposit as security to maintain the parity of those additional coins, the seigniorage or profit made by the Pananfanian Government in their coinage and issue. This was intended to secure upon the Isthmus a currency having the same monetary standard exactly as the currency of the United States and at the same time to give a currency with the chief coin in use of about the same size and value as that to which the natives were accustomed. Thus was avoided the necessity for the Commission of keeping accounts in two different currencies, and was prevented the loss by fluctuation as between the intrinsic value of silver and gold. The agreement was accepted by the fiscal commissioners and was brought to the attention of the Panamanian authorities. The Panamanian convention, which had failed to adopt the law, by a tie vote, took up the matter again and enacted the law. I append this law as Exhibit 8. The law was not at once executed, however. This delay was one of the many which were incident to the Panamanian feeling of resentment at the Dingley Act order of June 24, to which I have already referred. As a result of the order of December 3 and its modifications, however, the President of Panama put into operation the currency law, and the new coins were minted at the Philadelphia mint and were put into circulation on February 12, 1905, on the Isthmus. The Panamanian Government made the deposit required by the contract with the Bankers' Trust Company of New York, by an agree ment of May 3, 1905. The Colombian silver was all purchased at a satisfactory premium and the new coinage easily substituted for the old. Previous to this time it had been necessary, in the operations of the Commission on the Isthmus, for General Davis to advertise for Colombian silver in exchange for United States currency. The fol

lowing, from a report of the acting general auditor, shows the fluctuating prices at which General Davis was obliged to buy the Colombian silver for issue on the Isthmus:

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At this time, in the spring of 1905, I received overtures from the International Banking Company, with which I had been familiar in the Philippines. It had a branch in Manila, and is one of the depositories of Philippine funds in this country. It proposed to do the banking business of the Commission on the Isthmus, and asked to be made a fiscal agent of the Government by the Secretary of the Treasury at Panama. I was not inclined to yield to their proposal, for the reason that I doubted their ability to furnish all the silver money which we would need, to pay off the native laborers. I knew that there were on the Isthmus three or four business firms which did a general merchandising and commission business and, in connection with this, a considerable banking business. These were the firms to whom would go, in the course of their business, a great deal of the silver expended by the employees of the Commission; and unless I could secure the cooperation of substantially all the bankers on the Isthmus, I was afraid that it might be difficult for an American bank, just established, to secure the supply of silver needed by the Government. I knew that there is nothing which more demoralizes a body of ignorant laborers than a failure to pay wages on the dot, and that we must at all events be certain that the money would be there on the Isthmus for this purpose. As the Panama Railroad Company was interested equally with the Canal Commission, and as Mr. Cromwell, counsel for the Railroad company, had a wide acquaintance with the Panamanian merchants of the Isthmus and the bankers, I sent for him and asked him whether he could not secure cooperation between all the bankers on the Isthmus, so that there would be no exclusion of any proper interest in an agreement to do the business of the Government.

The task was a difficult one. I talked with Mr. Brandon, one of the bankers, and with Mr. Hermann, another of the bankers; but after a time Mr. Cromwell succeeded in getting them together and agreeing upon the percentage of the Government business which each should receive. I indicated what I thought to be the proper form of agreement as between the Government and the bankers, and the agreement was sent to me for examination and correction. It was thought wise to make as parties to the agreement not only the Canal Commission and the Panama Railroad Company, but also the Republic of Panama,

in order that the business to be done might be large enough to furnish a good motive for a union of the bankers in the agreement. The agreement was signed on the 29th of April, 1905. Without stating the agreement between the bankers themselves as to meeting the obligations on their part to be performed, in effect it provided:

First. That, upon ten days' notice, the Commission and the railroad company and the Panama Government, in exchange for drafts on New York, could obtain all the Panamanian silver they needed every fifteen days at the flat rate of 2 Panamanian silver pesos for each American dollar in the draft. In other words, the exchange of silver for the draft on New York was without expense to the Commission or the Panama Railroad Company.

Second. It provided that the Commission, the Railroad company, and the Panamanian Government could deposit United States currency with the bankers and obtain drafts on New York for it at one-half of 1 per cent. Of course this provision did not affect the Commission or the railroad company particularly, because it was quite unlikely that they would have any United States currency which they would desire to transmit to New York. The Panamanian Government might perhaps desire to use this clause, though even that was unlikely.

Third. It provided, in effect, that if the Commission, the railroad company, or the Panamanian Government desired to obtain from the bankers United States money in exchange for a draft on New York, they could do so at the rate of three-fourths of 1 per cent. I was informed that the expense, without insurance, of transmitting currency from New York to Panama was three-eighths of 1 per cent. What the insurance would be I do not know, but probably this rate would give the bankers some profit, which they certainly were entitled to for the trouble and annoyance of furnishing free the large amount of silver which they were likely to have to furnish to the Commission under the first provision of this agreement.

Fourth. The agreement provided, in order to save the American employees of the Commission who wished to send part of their pay to the United States, that the bankers should not charge them an exchange rate for money thus transmitted exceeding 1 per cent. This, of course, was not intended to prevent competition between the bankers with respect to the rate of exchange for employees, and, in fact, it did not do so, for I have been reliably advised that except at short intervals the exchange on New York was much lower and at times was given to the employees for nothing. This might readily be the case, in view of the fact that the banks were receiving so much exchange on New York through this agreement from the Isthmian Canal Commission and the railroad company.

The operation of the agreement has been in every way satisfactory, except that it has thrown a great burden of responsibility on the disbursing officer in drawing out about one-quarter of a million dollars' worth of silver every fifteen days and the maintaining of the custody of it in his own safe. More than that, the increasing operations of the Commission have made it more and more difficult for the banks to obtain the silver which the Government needs. In June, 1905, I found it necessary to exercise the privilege given me by the currency agreement of June 20, 1904, to request the issuance of 1,000,000 more pesos by the Panamanian Government, and this request was complied with. When I was on the Isthmus, in November, 1905, I was visited by

a committee of bankers, who stated to me that the silver was getting scarce and requested that I exercise the privilege again of demanding another issue of 1,000,000 pesos, but I was not convinced that the necessity existed and I thought it wise to be conservative, so as not in any way to imperil the parity of the coins with their legal value.

The total cost under this agreement to the Government of the United States for the transfer of $6,000,000, during the life of this monetary agreement, to the Isthmus, and its exchange into silver, has been $16,350. To show this I append a statement by the acting general auditor, marked "Exhibit 9." This is at the rate of a little more than one-quarter of 1 per cent. It seems to me that the cheapness with which this has been done vindicates in every way the wisdom of the agreement when made.

I have been advised, however, in a number of different ways, that the bankers on the Isthmus have not been satisfied with the profits which they have made with the operations under this agreement. They complain that the increase in the operations of the Government has produced a scarcity in silver which requires a longer preparation than ten days for them to accumulate the amount needed for the semimonthly pay roll.

I should be willing to make an agreement with them advancing somewhat the rates of exchange and also request the coinage of the remaining 1,500,000 pesos, which it is my privilege to ask under the currency agreement with the Panama Government, were it not that I deem this to be only a temporary remedy, and it seems to me that the time has arrived for a more permanent arrangement, so that we shall not be subjected at any time to the possibility of stringency on the Isthmus in our financial operations.

I am in receipt of a letter from Mr. Shonts, written while he was en route to the Isthmus and inclosing a report from Mr. Williams, the disbursing officer on the Isthmus, in which Mr. Williams makes certain recommendations. I append Mr. Shonts's letter and Mr. Williams's report as Exhibit 10. Mr. Williams shows an entirely natural impatience with some features of the present bankers' agreement because it throws a great burden of responsibility upon him. His estimate as to the cost of the agreement with the Government, should it continue, is, I think, an error, if I understand it; but what he says, especially in respect to future arrangements, is worthy of consideration. On the 10th of this month I received from Mr. Shonts the following. telegram:

SECRETARY OF WAR, Washington:

We are to-day drawing our last draft for funds under bankers' agreement expiring April 29. While this agreement has worked fairly satisfactorily there has been constantly increasing scarcity of Colombian silver latterly. The bankers have notified our disbursing officer that they required more than ten days' notice because of this scarcity. We have therefore been fearful each pay day that the bankers would be absolutely unable to furnish the money required for next pay day. This would mean disaster to us as we could not explain our failure to have funds for meeting payments to class of labor here.

In case another agreement is entered into with these bankers we should reserve the right to bring in any part or all of funds necessary from the United States in case bankers do not have the money in possession a reasonable length of time before each pay period. The present agreement provides no penalty, but penalty would be of no practical use in case of failure; therefore it is necessary for us to know that the money is actually here and available a sufficient time before pay period, so that in case monev should not be available we should have time to bring in ourselves.

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