I. BANKING AND FINANCE. The Mexican people have long shown a capacity for finance. In pre-Columbian the financial arrangements of the Aztec Empire were com plicated and extensive; and the keeping of the accounts of the tribute rolls was in itself a mat ter that required more than ordinary executive ability, in an age when the whole income of an empire several times larger than modern Ger many, and densely populated, was paid in prod uce of various kinds. This required vast store houses in Mexico City and substations for cus toms receipts in many parts of the land. The Spaniards, too, are keen financiers and the mingling of the two races has produced a blend and a nation which has made great financial ad vancement during the past quarter of a cell tury. The revolution of 1910 temporarily checked this financial expansion. The first financial establishment in Mexico that may be dignified by the name 6f hank, was founded, in 1776, in cormection with the charitable organ ization still known as the Monte de Piedad (National Pawnshop). It handled mortgages, issued loans on landed and other property and circulated notes in commercial transactions, for more than 100 years. Several times it was in difficulties, but so great was the aid it lent to the community in general, that it succeeded, each time, in getting again on its feet. The first real bank organized in Mexico to do business in accordance with modern methods was the Bank of London and Mexico, which was estab lished in the City of Mexico in 1864, with a capital of $500,000. Its reserve was finally raised to $30,000,000 shortly before the revolu tion of 1910, but was reduced to $10,000,000 in 1913 on account of the unsettled condition of the country. Previous to this date, the paper tateregeys 1w Circulation in the country had been issued by certain banks which had been granted concessions to this end. At first the National Bank of Mexico had a monopoly of this right, or claimed to have; but the government, disre garding it, gave concessions of a like nature to other federal and state banks. Finally an ami arrangement was made with the National Bank, whereby it waived the rights in this re spect which it had claimed. Then began an era of great prosperity in Mexican banking. Modern methods were introduced in the native institutions and foreign banking houses estab lished important branch houses. These repre sented c.apital and institutions from nearly every country in Europe and from the United States and Canada. None of these foreign banking houses, however, had concessions to issue paper currency. They formed one of the most power ful factors in the development of the finances and, the resources of the country and became the great medium of exchange between Mexico and the outside world.
As the Constitutionalist party began their cainpaign without money or credit, they were forced to issue paper money of many different kinds, which went as low as 1 per cent of its face value. As the military campaign became More extended and intensive more arms and ammunition were needed, and more paper cur rency was issued. The Madero revolution had
been financed with coin, for Madero, his back ers and his family were wealthy; but Carranza was npt in this fortunate condition. It was, therefore, after the disappearance of Madero from the political scene, that the finances -of Mexico began literally to go to pieces. Car ranza 44 possession, in the beginning of his career, of only two or three minor ports of entry upon which to depend for any financial assistance from export and import duties. Thus the Constitutionalist party piled up obligations 110 the extent of 700,000,000 pesos Mexican cur rency back of.which there was no assurance of redemption or any substantial backing of any kind. In addition to this, the country was flooded with the currency of other contending parties and with counterfeits of all paper afloat. Thus the amount of paper currency in circu lation in the republic in 1916 when the Car ranza government began to come on top will probably never be known. After the recogni tion of the Carranza provisional government by the United States, considerable attention was paid to the solution of the currency question. which had become of urgent importance. It was finally resolved to make a new issue of 500,000,00(1 pesos at the rate of 10 cents United States currency for one peso. This value was to be maintained by the sale of gold drafts in New York at the rate specified, in exchange for the new paper. It was to be received, at this rate, for duties, by the government. This was known as the Non-counterfeitable Issue, and was to be issued gradually in payment of salaries and other government expenses at the rate of about 50,000,000 pesos a month. How ever a very considerable part of the taxes im posed by the federal government had to be paid in silver. These included all export and import duties. The greater part of this went to swell the guarantee or reserve fund behind the new paper currency issue. At the same time that this new issue was being put into cir culation steps were being taken to retire all the former issues authorized by the Constitutional ist party, whether state or federal. To this end all the bills of 20, 50, 100 pesos were de clared (1 June 1916) no longer of compulsory acceptance and the holders thereof were noti fied to turn them in to the government, upon which they would get receipts promising re demption in specie, beginning 1 October, at the rate of five cents United States money (10 cents Mexican silver) for the peso. As the market value of this currency was only about two cents and as it had previously fallen as low as one-half a cent, the offer was a very liberal one and had the desired effect. In order to further facilitate the retirement of the old paper currency, all railway and telegraph dues were made payable in it up to 1 Jan. 1917. Owing to this clever campaigning on the part of the government, the metal currency, which had gone into hiding shortly after the outbreak of the revolution, began to reappear in 1916, with the increase in confidence in the stability of the Carranza government.