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can and foreign capital by the assurance that investments there can be realized upon at any time in the standard money of the world. For this important result of bringing into the islands the means of developing their great natural resources even some temporary benefits might well be sacrificed, if such benefits pertained to the existing system or to a special silver coinage. The system proposed, however, is substantially the system of two other important oriental countriesBritish India and Japan-and conforms to the standard of the European countries with which the chief trade of the Philippines has heretofore been conducted. By continuing the use of silver upon substantially the present basis the consequences of any jar attending the adoption of a new system will be avoided, and all the benefits will be attained which would be derived from either the silver standard alone or the complete introduction of American currency.

The maintenance of the gold standard in a country of small resources depends to some extent upon the state of its trade relations with other countries. In the case of Japan large imports of merchandise undoubtedly had something to do with the loss of gold in the year 1900. The effect of this pressure for gold was intensified by the absence of a well-regulated stock market, which serves in every country as a buffer between the market for merchandise and the market for gold, lightening the shock of any special demand for either class of commodities by affording another acceptable means of exchange and permitting the adjustment of international balances without strain upon the currency system. In the Philippine Islands the course of business in the future should be such as to preclude any pressure for gold and to increase the supply of metallic money.

If American capital comes to the Philippines in large amounts for investment it will come chiefly in the form of agricultural, mining, and manufacturing machinery, railway equipment, and supplies for the maintenance of laborers. Investments of capital in undeveloped countries are inevitably made in these forms in the ultimate analysis, since the money advanced by the investor is expended by promoters for these necessary elements in carrying on their enterprises. So long as these investments exceed the demands upon the islands there will be an excess of imports of merchandise, which will not require to be paid for by a countermovement of merchandise or gold. On the contrary, the only compensation made to the investor will be in the form of printed certificates of bonds or shares, whose issue will not for the time being impose any burden for repayment of the principal upon the productive resources of the islands. Contented with a small portion of the net produce of the islands in the form of interest, the whole body of investors, including those entering the market with new savings, will steadily send more to the islands then they take

away.

If any danger is to be feared in the influence of the balance of trade

upon the maintenance of the gold standard, it would arise only at that distant date at which new capital would cease to enter the islands and the profits of existing enterprises would be continuously withdrawn under a system of absentee ownership. This condition is too problematical and too far in the future to call for legislative provisions at the present time except such as will tend to keep capital in the islands and encourage its continuous investment and the investment of the interest upon it in new enterprises. This continuous reinvestment of capital was the history of British investments in Australia, until a shock was given to confidence in 1893 by excessive loans by the banks upon landed security, which deprived them of the power to meet their demand obligations. The drain of the precious metals from a country suffering from unfortunate economic conditions will affect either metal which may happen to be the standard, whether that metal be silver or gold. Against such unfavorable conditions it is not the function of currency legislation to make direct provision, but such provision is indirectly made in a manner which is highly effective by the adoption of a system which insures the stability and sufficiency of the circulating medium in all its forms, and holds out the inducement of security and opportunity for the continuous reinvestment of capital. The disturbing influence of demands upon the stock of metallic money is greatly mitigated in any country by a flexible and unfettered bank-note currency. Such a currency automatically takes the place of coin in meeting pressing demands for the tool of exchange, and the demand for it throws upon the banks the obligation of restoring the supply of precious metals in order to maintain the reserves required by law. A bank-note currency such as is recommended in this report is capable of indefinite expansion as the demand increases for additional credit facilities and for a larger volume of money. It is a necessary forerunner of the system of checks and deposit accountsthose more perfected forms of credit which tend to supersede it in advanced commercial communities. If the duty is imposed upon the banks, as proposed, of maintaining specified reserves against every increase of their issue, they will be led by self-interest and the interest of the business of the islands to supply a sufficient volume of paper currency and at the same time to protect it by an increase in the metallic stock adequate to the expanding needs of trade. Such an auxiliary to a proper coinage system will do much to promote its successful operation, to lighten the burden of interest charges upon the Filipino people, and to hold out the inducement to the large investment of American capital so essential to the prosperity of the country and the justification of American sovereignty both to the people of the islands and the citizens of the United States.

All of which is respectfully submitted.

WASHINGTON, D. C., November 25, 1901.

CHARLES A. CONANT.

EXHIBITS TO ACCOMPANY APPENDIX G.-REPORT ON COINAGE AND BANKING IN THE PHILIPPINE ISLANDS, BY CHARLES A. CONANT.

EXHIBIT No. I.

Interview with Mr. J. T. B. M. MacLeod, manager Compañia Maritima, Manila, P. I., September 23, 1901.

Mr. CONANT. Mr. MacLeod, you have given considerable attention to currency matters here in the Philippine Islands. You have been familiar with the different forms of currency and the rates of exchange in connection with your business, have you not?-A. Yes, sir.

Q. What do you think should be the policy of the United States in regard to the coinage in these islands?-A. For the coinage here it would certainly be, in one way, a great benefit to have what we might call a "standard insular dollar" of the fineness of the Mexican, which is 900, weighing, I think, 415 or 416 grains.

Q. Four hundred and sixteen, is it not? The American is 412, nine-tenths fine, and the Mexican is a little heavier than the American.-A. I will not be sure about its weight; its fineness is 0.902. That is with regard to what would be a good thing here as a standard, if it is considered necessary to have any standard coinage. So far we have gotten along with the Mexican dollar, but I do not think that it is altogether healthy, as it takes away from the currency standing of the country. It was found necessary in the Straits Settlements and Singapore to establish their own dollar..

Q. Then you think it is better for the trade and finances of the country to have its own coinage?--A. Yes; for the reason that it makes a solid standard.

Q. I believe you stated that a good dollar would be a dollar like the Mexican. Do you think it would be any objection to have a dollar of less value?-A. As long as you make it a token there might not be any objection to making a dollar of less fineness, but you would lay yourself open to the risk of a want of confidence of the people of the

country.

Q. Would there be a want of confidence if you took measures to maintain parity by means of a gold reserve?-A. Perhaps not if you have a gold reserve to maintain the silver, as it would not matter so long as the quantity is limited.

Q. You require here, so far as I can learn, for circulation in the islands, taking normal times, about thirty-six millions?-A. That is about what we should require. It would now be very difficult to size up what would be required after the changes we have undergone and with a new influx of capital and new developments of

commerce.

Q. But that could be regulated by the finance minister here if he

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studied the needs of trade, if he had authority to purchase and coin silver? A. Yes; but there ought to be at least forty millions of the 2 to 1 dollars, and there ought to be a sufficient supply of subsidiary coin, which we have not at present. That is one of the big defects we are laboring under now.

Q. You do not believe it would be wise to introduce American currency? A. Certainly not; because there would come up the question of labor. The native here looks upon a dollar as a dollar, and while in Manila, Iloilo, and Cebu the natives who are more experienced in handling money may consider the American dollar as worth two Mexicans, the native of the country, who forms the great mass of the population, thinks they are the same, and merely considers a dollar a dollar. The wages of the Filipinos here in agricultural districts must certainly be one of the greatest things there is to consider in the country. The country or provincial native earns his money by receiving so much a week and so much rice. If you pay the native a dollar a week, or 874 cents, as they used to pay them, and offer him 47 cents, he will think that is not enough and that he is getting the worst of it. You would raise the cost of the country's products as a result.

Q. On the other hand, would not shopkeepers raise their prices, and undertake to mark as dollars what was formerly sold for pesos?-A. In this respect it must be taken into account that the native here buys nothing but rice and the cheap goods; the very cheapest and nastiest grade is what he wants. So far the Americans have not been able to make a sufficiently cheap and nasty grade of goods to supply the natives with clothing. As long as the native has his rice and has enough to buy his fish he is quite happy. That is speaking of the seven millions of provincial natives. It is different, of course, with the natives of the cities. The city natives buy some finer goods, but the cheap goods, the turkey red cloth and the cheap cotton stuffs from Manchester, will for a long time be the prevailing stuffs here.

Q. Then you do not think that the introduction of American currency as legal tender would be an advantage?-A. It would raise a serious disturbance in business; yes, a very serious disturbance. I think the introduction of American currency here would be taking a separate step in a different direction from what any other country in the Orient has done. I think it would be injustice to trade to make the standard other than 32 to 1.

Q. That brings up the question as to whether the creation of a gold parity here, making the new coin fixed in the ratio of gold to silver, would injure in any way the relations of the Philippine Islands with the silver-using countries.-A. Not if it is 32 to 1. But Japan is in financial difficulties to-day as a result of changing when it went to the gold standard.

Q. But is not that due to the great volume of business and the distribution of capital rather than to the standard?-A. They are, of course, in rather a different position to the United States. The Treasury is so good in the United States that it is on quite a different basis. Japan has not sufficient in its treasury. They bought up gold, and the gold has all gone out of the country. Here in the Philippines, since American occupation, a gold standard was practically made for treasury payments at 2 to 1, and the gold all went out of the country to Japan.

Q. That was one thing I wanted to ask you about-whether it would

be a wise thing or practicable to freely offer gold here in exchange for silver. Would it be hoarded by the Chinese?-A. It would be sent out of the country, as it was formerly. When I came here in 1880 I was cashier of the firm of MacLeod & Co., Cebu, and about that time Chinchilla, who was, I think, at the head of the revenue department, had a bill introduced letting in Mexicans free, and as a consequence in less than four years all the gold went out of the country.

Q. That was partly due to the change in the value of gold and silver throughout the world. Up to 1873 gold was the cheaper metal, and of course it would have expelled silver at that time. If you had free coinage of both gold and silver, the gold would have been coined and the silver would not have been coined.-A. The trouble was that they made the law at just the wrong time. We have been dealing in Mexican ever since.

Q. What I wanted to ask you was this: When that gold standard was in operation, was there then any strong tendency to hoard the gold or to export it to Japan or China? Was there any disposition to hoard the metal?-A. My experience dates from 1880. I practically arrived when the gold commenced to go out, and it went out very quick. Any gold that was hoarded was hoarded only in the same way that a miser would hoard it at home.

Q. But I have been informed that the Chinese preferred to hoard gold.-A. Every Chinaman who wished to go away from Manila wished to take the gold with him. Their custom, on leaving the country, was to fill a belt around their waist with gold coins; I have, myself, seen a Chinaman with four or five thousand dollars around his waist, and I have had them come to me when they were hard up and offer me their gold as security on a loan.

Q. Then they prefer gold for the same reason that the most civilized nations prefer it, because it is more convenient and less bulky. Would it be expedient, if we established here a gold reserve, to provide that it could not be obtained on demand, but could only be issued by the Treasury when it was thought it would tend to maintain parity? It would be used under such circumstances by legitimate bankers and exporters, but there would not be an opportunity for taking out small amounts that is, it would lie with the Treasury whether to pay gold on demand. The reserve would have to be available in some cases to maintain parity. If there was a legitimate export demand caused by the balance of trade or by the rates for the rental of capital--a demand which justified the export of $1,000,000 to London-it would be provided then that the Treasury should issue the gold rather than disburse its silver coin; but if it was optional they would only pay out when conditions justified it.-A. That might meet with approval. The Government must protect itself. I mean to say that if you start a gold standard here, under which, by using the silver circulation, anybody can come up and demand the gold when they wanted it, you would be liable to have a treasury being played with.

Q. That might be a possibility here. In the States we hold that gold ought to be paid on demand, as in the Bank of England.-A. But there are very different conditions here.

Q. Now, if the Government should decide to authorize a special coin here of silver at the ratio of two to one, what course do you think ought to be pursued with the Mexican dollars?-A. If you made it the same as the Mexican dollars you would compete with them-in

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