silver down to our own day, because the great quantities of the metal exported to India, China, and other countries of the Orient, disappeared there in hoards, and were rarely returned to the civilized countries by reexportation. The tendency under modern conditions is to substitute gold for silver as the object of hoarding, even among the less advanced nations, and to diminish the special demand which so long operated upon the price of silver bullion in the London market. This tendency to hoard gold in preference to silver has already been noted in the Philippines among the Chinese, the subjects of the only great country where there is likely to be a considerable demand for silver for coinage purposes. There seems to be no doubt, therefore, that the margin provided in the proposed plan of coinage for the Philippine Islands between the face value and the bullion value of the coins is adequate to cover the temporary fluctuations of the silver market, and that no permanent and important rise in the value of silver bullion will occur within the limits of a future which it is now possible to foresee.

METHODS OF MAINTAINING PARITY.

There are two fundamental methods of maintaining a fixed ratio of value between two different metals. Experience has shown that the mere fiat of law, that two metals shall bear a fixed relation to each other when they come into competition in unlimited quantities under the system of free coinage of both metals, is incapable of maintaining this fixity of relationship. The two methods which will accomplish it, when combined with each other, are limitation of the amount of the coinage and the interchangeability of the cheaper metal with the standard metal at the ratio fixed by law.

Both these influences have operated in the United States in an effective manner to keep at par with gold a mass of currency much of which has been in bullion value far below its face value. Limitation of the quantity of silver coined under the acts of 1878 and 1890 kept the standard silver dollars steadily at par with gold, while their bullion value fell with equal steadiness until it stands to day at less than half the amount at which it formerly stood. The sensitiveness of the stock of coin to the law of demand and supply was demonstrated when the quantity of standard silver dollars after 1890 began to exceed the amount needed in the channels of trade. The surplus of currency began to go abroad in the form of gold, and the country was threatened with a plunge to the silver standard and the rupture of the parity between its silver money and the standard metal. The experience of 1893, which led to the repeal of the silver-purchase law, was not the first approach to this danger. A similar excess of silver beyond the amount demanded in the channels of trade threatened the Treasury in 1885, and was only averted by the authority given by Congress in 1886 to

issue silver certificates of the denominations of $1, $2, and $5. The demand for small notes being large, the new currency was rapidly distributed, and the marked excess of silver beyond the amount which could be absorbed in the channels of trade was postponed until the crisis of 1893.

Limitation of the quantity of any form of currency brings into play the same law which governs the value of other commodities-the law of monopoly or scarcity value. In this way it has been found possible in the United States to maintain $500,000,000 in silver at par with gold. In the same way it was attempted in British India in 1893 to give stable value to the silver rupee. That experiment was not entirely successful, because of the excessive quantity of the silver in circulation in India. The government succeeded at once, by suspending the free coinage of silver, in giving an artificial value to the rupee, which raised it above the value of the bullion which it contained, although it did not at once raise it to the value prescribed by the Indian treasury. These experiments, whether only partially or wholly successful, demonstrate the law that scarcity of supply governs exchange value. It is this law, coupled with the exchangeability of the silver coins for gold at the legal parity, which can be relied upon implicitly to maintain the value of a silver coinage in the Philippine Islands without regard to the fluctuations in the price of silver bullion. It is only necessary under these conditions that the quantity of the coins issued should be determined with good judgment. This can be left to the discretion of the finance minister of the Philippine government, who will always have the light cast upon the requirements of the situation by the demand upon his gold resources and by the character of the money paid into the public treasury.

PROVISION FOR A CURRENCY-RESERVE FUND.

While the adaptation of the quantity of the currency to the demands of trade will do much to maintain its value, the aid of other measures would be required under the conditions proposed for the Philippine Islands to maintain exact parity and full confidence in the proposed silver coins. The most essential of these provisions is the creation of a gold reserve. Such a reserve should be employed for the redemption of the silver coins at par, and for reducing the outstanding volume of silver coin when it becomes redundant. It is recommended that such a reserve be constituted to the amount of the seigniorage or profit derived from the coinage of silver bullion and from the recoinage of such Mexican dollars and Filipino dollars as may be left in the treasury when these coins cease to be legal tender in the islands. The profit upon the coinage of bullion at the rate proposed would be from 10 to 15 per cent of the face value of the coins issued, and upon an issue of 40,000,000 pesos would be from 4,000,000 to 6,000,000 pesos.

This would be equivalent to a reserve of $2,000,000 to $3,000,000 in gold against outstanding issues of the value of $20,000,000.

It is probable that a gold reserve of this amount, employed in the manner which is recommended, would be sufficient to maintain the value of the silver coins at the parity established by law. A reserve which was definite in amount would tend to regulate the volume of currency in circulation in substantially the same manner as it is regulated in gold-standard countries whose mints are open to free coinage of the standard metal. If the currency became redundant, demands would be made upon the gold reserve by the presentation of silver for exchange. This silver would be locked up in the reserve, while the gold withdrawn would be exported from the country. Thus, by the decisive influence of foreign exchange, the currency in circulation would be reduced and would be kept adjusted to the demands of business. If a change of business conditions created a new demand for currency, and made the stock in circulation less than the amount needed to meet the calls upon the banks, the remedy for such a condition would be the importation of gold and its presentation to the currency reserve fund for standard silver coins. Thus the system would work with the same automatic precision as the free movement of gold between gold-standard countries under the influence of the balance of trade and exchange. The amount of currency of all classes in the currency reserve fund would remain fixed. The amount of silver in the reserve would increase and the gold would be withdrawn, when the silver currency in circulation was redundant; the amount of silver in the reserve would decrease, and the gold would increase, when the demand for silver currency exceeded the supply in circulation. In case the currency reserve should consist wholly of gold, and be incapable, therefore, of meeting frequent demands for silver in exchange for gold, this condition would indicate that there was need for a permanent increase in the currency of the islands. Such a need would be met by a prudent minister of finance by a small additional coinage of silver.

MEANS OF MAINTAINING THE RESERVE FUND.

It has been stated that the seigniorage alone derived from the purchase and coinage of silver bullion and the reminting of existing coins would probably provide a gold fund adequate for all possible demands. In order, however, to give still stronger assurance of the security and permanence of the proposed system it is recommended that additional powers, to be used in case of need, be given to the government of the Philippine Islands to sell gold drafts, to transfer current funds temporarily to the currency reserve fund, to issue temporary certificates of indebtedness, and to buy gold coin or bullion at a moderate premium, not exceeding the reasonable charges for its importation from abroad.

These powers, while somewhat broad in their character, are substantially such as have been found wise in the United States, to insure the parity of their various forms of money. Reluctance and delay in the use of such powers have invited evils which would have been averted by prompt and energetic action. It is probable that the government of the Philippine Islands, dealing with a coinage stock of small amount, with a system founded from the outset on scientific principles and sustained by the whole moral power of the Government of the United States, would rarely, if ever, find it necessary to employ these reserve powers. The fact that the Government was armed with such powers would alone be sufficient to obviate the need for their exercise, just as the nation best prepared for defense is best assured of immunity from attack.

The authority to sell drafts on the United States or other countries, payable in those countries in gold, is a banking function which should not be exercised except in emergencies. The use of such powers would require a gold credit in the United States. Such a credit is likely to exist at any time, however, as the result of the deposit of the funds of the insular treasury in the United States to meet ordinary drafts, and could be created, if required by a sudden emergency, by a temporary loan arranged by cable. This power to sell gold drafts is one of the most useful and efficient weapons which can be placed in the hands of any banking institution or treasury for maintaining the soundness of the monetary system. The use of such drafts is the employment of the natural outlet for surplus currency by offering a means for transferring funds abroad in the standard money of the commercial world. It is this power which is relied upon chiefly by the Bank of Java, in the almost entire absence of a gold reserve, in maintaining the value of the silver coinage of that island. The coinage system of Java is based upon the old European ratio of 15 to 1, and the Bank of Java never carried more than a trifling amount of gold; but the sale of gold bills on Holland at the usual rate of exchange has for many years maintained the parity of the coins with the gold standard of the Netherlands. The difference has only been such as was justified by the cost of exchange between two distant countries. It would not be advisable, in my opinion, for the treasury of the Philippine Islands to usurp the functions of the banks, under ordinary conditions, by the sale of such drafts, but if any of the banks are disposed, for any reason, to refuse reasonable and proper cooperation in the maintenance of the monetary standard, they may be deterred from such a policy by the knowledge that it is in the power of the Philippine treasury to use a power similar to their own in the exchange markets of the world.

The other measures recommended for maintaining parity are such as naturally suggest themselves for such a purpose, and such as have

been employed in the United States when they have been needed. The issue of temporary certificates of indebtedness would be an improvement upon the issue of long-time bonds, because such certificates could be promptly retired and canceled when the emergency which led to their issue had passed, from the surplus of treasury receipts, and without saddling the Government with the interest on a permanent debt. The power to buy gold at a reasonable cost is the same as that conferred upon the Treasury of the United States by section 3700 of the Revised Statutes, which was reenacted in the gold-standard act of March 14, 1900.

AMOUNT OF THE CURRENCY-RESERVE FUND.

It is believed that the gold fund provided from the seigniorage, with the other weapons placed in the hands of the treasury of the Philippine Islands, will be sufficient to maintain the silver coins at par with gold without frequent resort to other resources. While this reserve is only 15 per cent of the silver circulation, there can be no doubt that nearly all of the silver coins would be absorbed in the wholesale trade of the commercial centers and the retail trade of the provinces, and there would be only a small percentage under any circumstances which could weigh unduly upon the money market and come upon the Treasury for redemption in gold. It would be really the small excess of coin above the constant demand with which the treasury would have to reckon in guarding its reserve, and this excess would not bear any excessive proportion to the reserve. Control of the volume of coinage by the government would prevent that steady drain upon the reserve which would follow the offer to exchange Mexican dollars for gold, or which occurred in the United States when there was a constant increase in the supply of silver after it had long passed the limit of safety.

If, however, the gold reserve provided from the profits upon silver coinage should prove insufficient for ordinary demands, the amount of the reserve could be permanently increased by transferring a definite sum from the current funds of the Philippine government to the currency-reserve fund, or by the purchase of the necessary amount of gold coin or bullion by a similar transfer of funds. The setting aside of the profits of coinage for a gold reserve permits the carrying out of the proposed system of coinage without cost to the government of the Philippine Islands. Any increase in the coinage from time to time would involve an additional profit, to be added to the currency-reserve fund. Even if it was found necessary to increase the currency-reserve fund by from $1,000,000 to $2,000,000, the interest upon the amount thus invested would impose but a trifling burden upon the budget of the Philippine Islands, and would be a small price to pay for the security afforded to commerce and the invitation extended by a sound