monetary system to the investment of capital with the resulting increase in the taxable property and the revenues of the islands.

THE DANGER THAT GOLD WOULD BE HOARDED.

While the currency-reserve fund should be used freely and courageously by the finance minister of the Philippine government in maintaining the parity of the proposed currency, there are local reasons why the power to pay gold for silver at par should be in the discretion of the finance minister rather than that of all holders of the silver coins. In an advanced country, where the banking and deposit system is well developed, the option to demand gold should lie with the holder of the silver, because he acts from the legitimate motives governing the commercial movement of the precious metals. In the Philippine Islands, however, and other countries largely occupied by Chinese and other peoples who hoard and bury coin, encouragement should not be given to such persons to withdraw gold permanently from circulation. The danger that this might be done by the Chinese and other persons has been several times suggested in the course of inquiry as to conditions in the islands. Thus in the testimony of Mr. Edwin H. Warner, taken before the Schurman Commission (p. 194), Mr. Warner is thus quoted:

A. As a rule, gold in China commands a fairly good premium. The Chinese absorbed a good deal of the gold that was current here, and the Chinese very often, nstead of taking away drafts, would take away gold and sell it on the other side.

Q. To what extent was there such a use of gold by the Chinese?-A. I suppose the Chinese would take away in a year from here, in the old days-we calculated that they would take about $800,000 in gold, outside of what they took in jars.

It is to be said that the evil can not be so great in its effects as it is regarded by some, since no person can withdraw gold from use without rendering an equivalent in service or goods. The Chinaman leaving the Philippines, or hoarding gold within the islands, can obtain the gold only in exchange for labor or the products of labor. If he chooses to withdraw his means from active use in the channels of production he may withdraw them in goods or in silver coins. In taking gold he only withdraws a different commodity of equivalent value.

The chief reason for putting restrictions upon the withdrawal of gold is the fact that it is the most inviting form of wealth for hoarding, and its free issue in exchange for silver might stimulate hoarding instead of discouraging it. It seems to be the fact that nearly all the gold sent from the United States to the Philippine Islands has disappeared. It is not now found in general circulation. This would have been the case in any event under the policy pursued by the Philippine government in fixing an arbitrary ratio between gold and Mexican silver dollars, because this course has given a higher value to gold in comparison with silver in other markets than in the Philippines. With

the Mexican dollar at 47 cents in Hongkong every gold piece of $20 sent to Hongkong would bring more than $42 in Mexican silver, which would exchange when brought back to Manila for $21 in American money. The repetition of this process with large amounts would soon place the exporter in command of a fortune. It is probable that these influences, as much as Chinese hoarding, have resulted in the disappearance of American gold from the channels of circulation in the Philippines. The same influences would lead to the exportation of American paper money and have been tending to that result. If gold has disappeared more completely than paper, it is probably because of its tangible value to the Oriental mind and its superior advantages for hoarding derived from its capacity to withstand the dangers of fire, climate, and corrosion. As a measure of precaution against the encouragement of such hoarding it is recommended that the power to pay gold for silver be discretionary with the minister of finance of the Philippine Islands.

DISPOSITION OF THE MEXICAN SILVER DOLLARS.

It is desirable that the new coinage, if authorized by Congress, should be executed as rapidly as possible from silver bullion purchased in the open market and from such silver coins as may be received by the Philippine treasury for public dues. The question of disposing of the Mexican silver dollars, now in circulation in the Philippine Islands to the amount of some 30,000,000 pesos, is not likely to offer any serious difficulty if a reasonable time is allowed for the substitution of the new currency for the old. It is important that a sufficient amount of the new coinage should be executed and put in circulation, or be ready for issue, before the Mexican silver dollars cease to be legal tender for obligations in the islands.

It is obvious that the Government can not afford under any circumstances to treat the Mexican dollar as exchangeable for gold at the ratio to be fixed for the exchange of the new Philippine coins. The Mexican dollar is not a coin of the Spanish Government or of the government which has succeeded that of Spain in the Philippines. No obligation rests upon the existing government to treat it any more favorably than is necessary to prevent injustice in the fulfillment of contract obligations and embarrassments to business. The process of substituting the new coins for the Mexican can be carried on without shock or loss if a date is fixed at a reasonable distance in the future, from two to three years, when the Mexican coins shall cease to be legal tender for private debts or public dues. There is no doubt that the gradual introduction of the new coinage would tend to drive the Mexican coins to countries where they were still legal tender, without limit as to time, and would thus, without friction and almost unobserved, substitute the new coins for the old in general use. The

small amount of Mexican silver dollars in the Philippine Islands in proportion to the entire quantity in circulation in Mexico' and the Orient would prevent the change from exercising any material influence upon any other monetary center toward which the coins might be driven by their expulsion from the Philippines. The problem would be a serious one, if the quantity of money in the Philippines was as large as in the United States, how to expel the old coins without causing a redundancy of them in other countries; but the small amount and the considerable time allowed for the process would make the influence of the increased supply in other markets almost imperceptible. In so far as the change tended to make the supply of Mexican coins in the world redundant, it would be corrected by the ability of the owners of silver bullion to withhold it from the Mexican mints.

THE OPENING OF THE MINT AT MANILA.

It is recommended that the mint at Manila be promptly equipped with the best machinery for coinage, and that one or more competent experts be sent from the United States to put it in operation as soon as the new coinage is authorized, if the recommendations of this report meet the approval of the Government of the United States. It seems to be highly desirable that as much coinage as possible should be executed at Manila, partly because of the gratification which this would afford to the Filipino people and also because of the greater promptness with which additional coinage could be executed when needed. It will not be possible, however, to strike all of the silver needed at Manila if the new system is to be in full effect within two years. It is recommended, therefore, that authority be given to the government of the Philippine Islands to negotiate with the Secretary of the Treasury and the Director of the Mint of the United States for the execution of a part of this coinage at the mints of the United States from devices and dies to be selected and adopted by the Philippine government. A special committee of the Philippine Commission was appointed during my presence in Manila to consider the subject of appropriate devices for a new Philippine coin, if one is authorized by the Government of the United States. When the new coinage system has once been fairly inaugurated, however, there is no reason why the facilities of the mint at Manila should not be adequate for such additional coinage as may be required from time to time to meet the growth of business in the Islands. An examination of the mint and a special report upon its condition were ordered by the Philippine Commission in 1900, and a report was made showing that work could be done with promptness and efficiency with the addition of some needed machinery.

In the purchase of silver bullion for the new coinage it is important that the government of the Philippine Islands should not be at the

mercy of speculators in the silver market. For this reason it is recommended that authority be given for the purchase of silver bullion from the Secretary of the Treasury of the United States by the government of the Philippine Islands, at a rate not less than the average market price of silver for the fiscal year 1900. This will give the option to the government of the Philippine Islands of buying in the open market, if silver falls below the price of 1900, or of buying of the United States Treasury if an attempt is made to force the market price above the price of 1900. A definite limit is suggested for the minimum price at which the Secretary of the Treasury may sell silver bullion to the government of the Philippine Islands, since the absence of such a limit might lead that officer to doubt his legal authority to sell below the market price. A provision of this character will almost certainly protect the Philippine government against a fictitious corner in silver bullion, to which it might be exposed if compelled to purchase a considerable quantity of silver within a fixed time in the open market. There is nothing in the amount required for the Philippines which should cause a serious and permanent advance in the price of silver. It is probable that a portion of the silver coins received by the treasury, or left on its hands when Mexican silver dollars cease to be receivable for public dues, will be available for conversion into the new coins. This will diminish the demand upon the bullion market, and future demands for increase of the currency of the Philippines will be too small to have any material influence upon the price of silver in London or New York.

PROVISION FOR SUBSIDIARY AND MINOR COINS.

The coinage of the silver peso should be accompanied by a coinage of subsidiary silver and minor coins corresponding to the needs of the community. There is at present a great dearth of small silver and a still greater dearth of minor coins in the Philippines. The coins in use are chiefly those which were coined from time to time by the Spanish Government in pieces of 50 centavos, 20 centavos, and 10 cenIt is recommended that these denominations be retained, because they are the denominations to which the people are accustomed. The piece of 20 centavos corresponds to the piece of corresponding size and dimension in all the countries of the Latin Union. It corresponds also with the coins used in China, Japan, and the French colonies in the East, where the decimal system is followed. Its continuance would accord more, therefore, with the customs of the people of the East than the adoption of a new denomination of 25 centavos.

Minor coins have almost wholly disappeared from circulation in the Philippines because they have a higher exchange value in Spain than in the islands. The currency of the Spanish Peninsula, while not

redeemable in gold on demand, is above the bullion value of silver and has been for sometime in the neighborhood of 75 cents in gold to 5 pesetas, of which the nominal value is 96.5 cents in American gold. Considerable sums in minor coin of this character are in the possession of the Government of the United States and of the Philippine Islands, which were seized from Spanish offices upon the occupation of the islands by the forces of the United States. It has not been thought expedient to put these in circulation because of the certainty that their higher exchange value in Spain would result in their exportation within a short time and leave the islands as bare of small money as before. These coins can be sold to exchange brokers for transmission to Spain at considerable profit over their face value in the Philippines, and such a sale has been recommended by the Philippine Commission in their annual report. The proper bullion for new coins, whether of copper, nickel, or bronze, can be purchased in the open market at a rate which will yield a considerable profit from the coinage. Full provision for such coinage can be made, therefore, without permanent expense to the government of the Philippine Islands.

The scarcity of minor coins is a greater hardship to the natives of small means than to Americans and Europeans in the islands, because of the small transactions in which natives engage in buying their food and other necessaries. These transactions require that money shall be in small subdivisions. The purchases made by Americans and Europeans are usually in multiples of 10 centavos, equivalent to 5 cents in gold, but it is essential that coins of smaller value be provided for the natives in order to avert serious loss and embarrassment in their daily life.

II. THE REGULATION OF BANKING.

One of the most obvious and pressing needs of the Philippine Islands is an increase of banking facilities and a larger supply of paper currency. Both of these needs are constantly forced upon one's attention in conversation with business men and by observation of the conditions of both retail and wholesale trade. There is a strong desire among Americans that encouragement should be afforded by legislation for the opening of American banks, which shall do business according to American methods, and afford a convenient means of increasing trade with the United States. Among the officers of the Army and Navy, and other public officials, there is also a strong desire for the creation of a legal depositary for United States funds in the custody of public officials. All these ends appear to be legitimate, and can be promoted by legislation so far as such legislation will tend to remove the obstacles imposed by law to the extension of banking facilities.

Such banks as are needed can not be created in the islands under