The Washington herald., 1916-10-05
Seen and Heard by George Miner.


New York, Oct. 1.-The closing of two banks
in Mexico City the other day started something
of a howl by people who did not understand the
conditions circumstances. Other people who
helped the howl along did 1t for the express pur-
pose of dscredting the Carranza government
l see now that the banks have been reopened,
with the agreement that they must comply win
the law and not issue paper money in excess OF
what they can take care of. So it t'seems that the
banks were the offending parties and not the gov
ernment.
This all seems rather grotesque. Here are our
business and inanciers complaining because
Mexican paper money has such deprecated
value. Then the financial writers in the news
papers complain because the Mexican govern
ment closed two banks Now it develops that
the banks were closed because they were unlaw-
fully issuing a lot of paper money they could
simply trying to do what American fnanciers are
demanding-put a stop to issuing valueless paper.
guess we are pretty hard to please
l have had several talks with the Mexican
peace commissioners concerning the currency
question. 1t is without question the most i'm
portant problem in Mexico today, but as it has
nothing to do with the commissioner mission up
here they cannot discuss it for publication. Still
they know great deal more about the situation
down there than we do and was able to CLEAN
a good deal of valuable information.
For instance doubt if many Americans know
that at the present time and for some months
past the receipts of the Mexican government are
much in excess of the expenditures That does
not look though it hopelessly bankrupt
country, does it?
The paper money issued by the government is
limited to total of five hundred millions. While
a first GLANCE this NAV larCe II
really is not so. The exchange value as estab-
lished and maintained by the government is 10
cents American gold and 20 cents Mexican specie
to the peso. The total issue thus represents a
gold value of $4,000, ,ooo-not large for so rich
country as is Mexico.
1t is not all emitted at once, but is gradually
being paid out by the government for salaries
and other public expenses, the emission being
limited to 5oooo,ooo pesos monthly. Behind this
paper is specie reserve sufficient to maintain
the gold value established by the government,
and which is constantly added to by the colec-
ton of taxes, large portion Of which are re-
quired to be paid in coin.
The only other paper currency that Mexico
has is that issued by some Of the banks. This is
protected by legal specie reserve of 50 per cent
Of the amount in circulation but the constitu-
tionalist government has been very lenient about
this The law says that the banknotes must be
redeemed upon presentation or the bank be de-
clared bankrupt None Of the banks has redeem
ed its notes for long time, yet the government
has refrained from closing them up. Several, in
Guiding the two closed last week, were found to
have issued notes far in excess of their specie
reserve, and their doors were closed but those
having the legal amount of coin in their vaults
were allowed to continue operations, even though
they did not obey the law regarding redemption.
In normal times, these banknotes were worth
50 cents American gold to the peso-as is all
Mexican money, coin paper. But they circu-
late at less than half that value owing to the
holders inability to obtain specie for them.
On the first of October the government prom
ises to begin the redemption of the old paper
money which repudiated last spring
AS this money was turned in and destroyed,
receipts given for it. These receipts are to
be redeemed at the rate Of cents American gold
to the peso and it is this redemption which be-
gins next month As for months this old paper
money had been exchanged for as low as half a
cent to ? 3 cents peso, its redemption at 5
cents seems pretty liberal and giving good, fair
profit to the holders for waiting a few months
for their money
Practically all of this old money has been
turned in and destroyed. Several hundred mil
lions of it was taken by the government for
the law to circulate it.
So, after all, the Mexican financial situation
seems to have a bright side, but it is a mighty
serious question for them just the same