Page images
PDF
EPUB

A REPORT ON COINAGE AND BANKING IN THE PHILIPPINE ISLANDS MADE TO THE SECRETARY OF WAR BY CHARLES A. CONANT, NOVEMBER 25, 1901.

SIR: In compliance with your commission to investigate and report upon the state of coinage and banking in the Philippine Islands, and to recommend proper legislation to be proposed to Congress with regard to the same, I have the honor to submit the following report: I visited the Philippine Islands and there took the views of representative business men and bankers in the city of Manila. I visited the city of Hongkong and took the views of leading bankers there upon the proper currency system for the Philippines and upon general monetary conditions in the East, and also conferred with the consuls of the United States at Hongkong and Nagasaki. In Japan, which recently adopted the gold standard, I conferred with the minister of finance and the vice-governor of the Bank of Japan.

After consultation with Judge Henry C. Ide, secretary of finance and justice under the Philippine government and a member of the Philippine Commission, projects were prepared relating to coinage and banking in the Philippines, which were submitted to the Commission and received their approval in principle and in detail. The outlines of the measures agreed upon are indorsed by the Philippine Commission in their annual report to the War Department. The reasoning in support of these principles presented in this report, while following the lines of discussion between the commission and myself, has not been submitted to them, as the report was prepared after leaving Manila.

The chief medium of exchange in the Philippine Islands at the present time is the Mexican silver dollar. The Philippines were for many years connected with the administrative system of Mexico, while both were Spanish colonies, and the financial and commercial relations thus set up were not entirely severed when Mexico achieved political independence. The Mexican dollar contains 416 grains of silver of the fineness of 902 one-thousandths. It has become to a large extent the standard money of China and certain other Oriental countries as well as of the Philippine Islands. It has not always, however, been the standard in the Philippines, nor is it the only form of silver money which has been in common use there. Several efforts were made by

the Spanish Government to establish a distinctive coinage for the Philippines, but they were not supported in all cases by proper measures for carrying out what was attempted. Gold was the standard for some years, while silver was more valuable than gold at the European coinage ratio of 15 to 1, and special gold coins were minted for the Philippines. The effect of the fall in the gold value of silver began to be seriously felt about 1880. Gold then began to be exported from the Philippines in considerable amounts, and within a few years practically disappeared from circulation and left silver money as the chief medium of exchange and the standard of value in the islands. The disappearance of gold and the confusion in the forms of money in use led the Spanish Government in 1897 to issue a distinctive Filipino peso, which has circulated in considerable quantities side by side with the Mexican silver dollar. The peso contains less pure silver than the Mexican dollar and has continued, therefore, to remain in the Philippine Islands, while the Mexican dollar has come and gone according to the demand for it in other countries. This Filipino peso is still in circulation, but constitutes only a small percentage of the amount of silver in use in the islands. The steady fall in the gold value of silver has affected prices and wages as expressed in silver in the form of a gradual advance in prices and a slower advance in wages, with the result of a serious loss to the wage-earner.

PRINCIPLES OF THE SYSTEM RECOMMENDED.

The principles governing the coinage system which I have the honor to recommend are the same as those set forth in the annual report of the Philippine Commission to the War Department last year. It was there stated:

It seems to be desirable that some substitute for the Mexican dollar, as well as for the Spanish-Filipino dollar, should be provided which would be uniform in its relation to the United States dollar, and would commend itself to general public use as being substantially what they have long been accustomed to. We have interviewed a large number of leading business men of the islands, and they substantially all concur in the opinion that it would be injurious to business to place the islands immediately upon an absolute gold standard.

As a solution to the problem it has been suggested, and the suggestion has met the approval of the business men here generally, that the United States dollar, or a theoretical United States-Filipino gold peso, of the value of half a dollar, like the theoretical gold yen which is the unit of currency in Japan, should be made the standard of value, but that a silver United States-Filipino peso, containing a small percentage less silver than the Mexican dollar, should be coined, which would be receivable in business transactions as the equivalent of 50 cents in United States money, together with convenient subsidiary coins of the same character. The amount of silver in the peso should be such a percentage less than that in the Mexican dollar that its intrinsic value would not at any time warrant its export from the islands, but its convertibility into American money at uniform fixed rates, guaranteed by the United States, would make it a convenient and useful currency for ordinary business transactions in the islands.

The general lines agreed upon by the commission and myself for carrying out this policy are as follows:

1. That there should be a distinctive Philippine coin of silver which should be legal tender for 50 cents in the gold money of the United States.

2. That this distinctive silver coin should be known as the peso, should contain 25 grams of silver of the fineness of 0.835, and should be divisible into one hundred equal parts, called centavos.

3. That this coin should be issued by the government of the Philippine Islands in such quantities, to be determined by such government, as may be required by the needs of trade.

4. That the distinctive coin should be maintained at par with gold by the limitation of the amount coined and by a gold reserve, to be constituted from the seigniorage derived from the coinage of silver bullion, and to be employed, in the discretion of the Philippine government, for the direct exchange of silver for gold, and in such other ways as may be necessary to maintain the parity fixed by law.

5. That the Mexican silver dollar and other coins now in use in the Philippine Islands should cease to be legal tender after specified dates, and that the new silver coins and the gold money of the United States, where not otherwise stipulated by the contract, should be the sole legal tender for public and private obligations.

6. That the new coinage should be executed as far as possible at the mint at Manila, and should bear distinctive devices expressing the fact that it is intended for use in the Philippine Islands.

REASONS FOR REJECTING OTHER PLANS.

This plan carries out one of the four principal suggestions which have been made in regard to the monetary system of the Philippine Islands. It has the merit of retaining silver money in use, in harmony with the present habits of the people, and of changing very little the weight and value of the coins used. At the same time it establishes the money of the country firmly upon the gold basis, which is now the standard of nearly all civilized nations, including the important Oriental countries of British India and Japan. There appears to be no doubt, in view of the experience of other countries, that the adortion of a system of this sort would promote the investment of capital in the Philippines and thereby stimulate their industrial progress. Some of the arguments for the adoption of the plan which is recommended will be illustrated by first considering the reasons for the rejection of the other three projects which have been suggested from time to time for adoption in the Philippines. These projects may be described in general terms as follows:

1. The introduction of American currency as the standard and sole legal tender.

2. The continuance of the present system of relying upon the use of Mexican silver dollars as a medium of exchange.

3. The adoption of a distinctive Philippine coin of the same weight and fineness as the Mexican dollar, to be coined by the government of the Philippine Islands, but without any fixed relation to gold.

THE PROPOSED ADOPTION OF UNITED STATES CURRENCY.

I. The introduction of American currency as the exclusive currency of the islands has upon its face the merit of simplicity and convenience to American officers and American business men. It is advocated by some public officers, who believe that it would greatly simplify their accounts with the departments at Washington. I can not find, however, that it is advocated by any considerable number of business men, or by anyone who has studied from a scientific point of view the monetary necessities of the Filipino people.

The fundamental objection to the introduction of American currency at the present time as the sole money of the Philippines is that it would create great confusion in retail prices and in rates of wages. The attempt to force the American dollar upon the people of the provinces, especially those distant from Manila, might have results, not only unfavorable from an economic point of view, but politically disastrous by checking the growing contentment so necessary to the progress of pacification.

The offer of 50 cents in gold, or an American silver piece of 50 cents, for a debt which is now discharged by a Mexican silver dollar, would undoubtedly be objectionable to such of the native Filipinos as have not learned by continued contact with Americans the fact that the American token coin of 50 cents possesses the same value in exchange as the Mexican coin of twice its size and weight. Either the cost of labor would be raised by the necessity of paying more American money than the exact equivalent of the amount now paid in Mexican money, or the laborer would receive half as much silver as under existing conditions, and would, in many cases, fail to grasp the fact that he was receiving an amount equal in real exchange value to that which he formerly received. Even if the laborer understood this aspect of the new system he would be subjected to many petty impositions by retail tradesmen, who would tell him that goods which were formerly marked in Mexican dollars were now marked in American dollars, and that the two were substantially the same. The theoretical result of such a contention would be to double the real price of commodities. It is not probable that the advance in prices would be carried to this extreme, but it is probable that retail tradesmen would make a merit of putting their goods at a somewhat reduced price as expressed in dollars when the new price represented a material advance in pesos and in real exchange value. This was the

experience in Porto Rico in spite of the high degree of intelligence prevailing there and the small quantity of money to be dealt with. Letters appended to this report from leading bankers and business men in Porto Rico show that both prices and wages rose as expressed in American money, because of the attempt in many quarters to create the impression that the American gold dollar was the exact equivalent, or substantially the equivalent, of the silver peso which was converted into American money. The expressions of Prof. J. H. Hollander, in his report of April 1, 1901, as treasurer of Porto Rico, though dealing with a proper official reserve with a policy already carried out by the American Government, plainly indicate some of the difficulties experienced in the introduction of American currency. He says (First Annual Report of Charles H. Allen, governor of Porto Rico, p. 195):

Like the hurricane under the military government, the "canje" or exchange has been made to serve as the responsible cause for every subsequent disturbance or ill. It is undoubtedly true that the substitution of a higher for a lower unit of exchange, the brief period within which the exchange took place-even after extended through the intervention of the civil government-and the use in effecting the redemption of gold and notes of large denomination, rather than silver and small notes, worked injury to certain classes. On the other hand, it is proper to remember that an identical currency has fostered commercial intimacy between Porto Rico and the United States, that the period of redemption was a period of disturbance and instability which should, from every consideration, have been made as brief as practicable, and, finally, that it is an unfortunate but apparently inseparable incident of any change in the standard of value that undeserved injury should come to certain classes and unmerited gain should accrue to others. Were the redemption to take place at the present time, it is certain that changes in procedure would be adopted.

Even if all ground for misunderstanding were removed as to the relation between American money and the coins now in use in the Philippine Islands, the adoption of American currency would still be open to an important objection. This would arise from the relative size of the units. Wages are expressed in such small amounts in the Philippine Islands, and many articles of necessity to the natives are sold for such trifling sums, that for small transactions even the American cent is too large a unit. It is necessary that the lowest unit of value should be a very small one. The centavo which is recommended, equal to one-half of a cent, will meet this necessity. A native laborer accustomed to receiving a peseta, or 20 centavos, for a day's labor, would find an American 10-cent piece less suited to his wants, even though he was satisfied that it represented the same value. The reason would lie in the fact that the American coin would be less easily exchangeable for smaller subdivisions. The American 10-cent piece is the smallest silver coin which can be used with convenience, but the peseta, or piece of 20 centavos, is of twice its size and is divisible into two pieces of about the size of the American 10-cent piece, each representing an exchange value of 5 cents in gold. As this difficulty

« PreviousContinue »