Papers Relating to the Foreign Relations of the United States, Transmitted to Congress with the Annual Message of the President, December 5, 1870

No. 196.

Mr. Bancroft to Mr. Fish.

No. 108.]

American-Legation, Berlin, July 2, 1870. (Received July 21, 1870.)

Sir: Your No. 199, on the reform of the coinage of the world, was received on the 28th of June, and was immediately communicated to the governments of Prussia and of North Germany. I have received in reply the communication which I inclose. The Diet of North Germany, at its last session, directed inquiries to be made to establish a uniformity of coinage and currency for North Germany. The customs parliament went further and requested that the inquiry might extend to all the States included in the customs union. Good results may be hoped for from these inquiries, because the policy of North Germany requires uniformity in the coinage for all the States; and if the States of South Germany join in the inquiry, it must lead either to no action or to a most thorough reform. The tendency here is strong toward the adoption of the five and twenty-franc gold piece, with decimal divisions; but nothing is decided.

Your dispatches to No. 202 have been received.

GEO. BANCROFT.

The efforts to reform the coinage in Germany are designed: 1. To introduce a uniform national system of coinage with decimal divisions. 2. To introduce circulable gold coins, and that either (a) by the adoption of a simple gold coinage, in such a manner that silver money shall be coined above its value; or (b) by the introduction of a so-called double coinage, with an unchanging ratio of value between gold and silver, such as exists in France; or (c) by adopting the double coinage only as a transition to a pure gold coinage, with a ratio of value either of 15½ to 1, or of 15.55 to 1, or of 15¾ to 1, between gold and silver. 3. To bring the coinage unit of Germany into a simple ratio or relation to the coinage unit of other countries, and that either (a) by a simple adoption of the French franc system; or (b) by the introduction of a gold coin of the value of 25 francs as a basis, with decimal divisions, so that a unit of reckoning may be reached, viz., (a,) the gold thaler, at 5 francs; or (ß) the gold florin, at two-thirds of a thaler; or (?) the mark, at one-third of a thaler; (c,) by the introduction of the gold crown, as being a coin which is akin to the metrical system of weights, and therefore suited to be the basis of an international system; also, by a decimal division of the same, so that the gold thaler = one-tenth of a crown = about 28 silver-grosehen, may form the unit of reckoning, and one one-hundreth of a gold thaler may form as a kreutzer, the smallest unit belonging to the decimal system.

The following questions now arise:

I. In arranging the system of coinage, shall the silver coinage alone be retained?

An affirmative answer to this question would greatly facilitate the establishment of a uniform coinage in Germany, but would necessitate a, renunciation (1) of the introduction of a legal gold currency; (2,) of the establishment of a simple relation between the German system of coinage and that of those nations which have a gold coinage or the so-called double coinage.

It must, therefore, be determined (1) whether the retention of the simple silver coinage would be attended with such great advantages that the introduction of a legal gold currency would be advisable; (2,) whether the establishment of a simple relation of the German standard to that of the countries having a gold or double coinage would be attended with such advantages that, in the arrangement of the system of coinage, the establishment of such a relation would be indispensable.

But these advantages and disadvantages must be considered from the standpoint of internal and international trade.

II. Should a simple gold coinage be at once introduced?

In relation to this question two things must be considered: 1. The advantages of a gold coinage over a simple silver coinage, (already considered under I,) and over, the so-called double coinage. 2. The difficulties and expense of the change.

With regard to 1, the following questions arise: (a.) Which offers greater guarantees, a gold coinage or a double coinage, that the price of the circulating media will not be liable to sudden and great fluctuations? (b.) Which will give rise to greater confusion, a simple gold currency or the double currency, when the relation of the respective market values of the two precious metals becomes changed? (c.) Which offers greater convenience, a simple gold coinage or a double coinage, for internal and international payments?

With regard to 2, the following questions arise: (a.) What would probably be the price of gold if the gold necessary for this change had to be purchased? (b.) At what price would the silver money now in circulation have to be purchased, payment being made in the new gold currency, in order to avoid the disastrous consequences of a sudden diminution in the value of the. circulating medium? (c.) What relation of value between gold and silver would it be proper to place as the basis for a change of existing obligations payable in silver to obligations payable in gold? Or (d) would it be better to make no such legal change, and to leave the conversion simply to private agreement? (e.) What precautions ought the state to take, in the event of a legal conversion of existing obligations, in order to obviate the danger of a general repudiation of existing obligations? (f.) To what extent could the exchanged silver currency be used in making new silver coins, and how high a coinage tax might be laid thereupon? (Here it should be considered for how high amounts payment in gold should be made obligatory.) (g.) At what price would the silver that could not be used probably have to be sold? (h.) How great would the expense of the change be to the state?

III. Is a change to a double coinage advisable?

With regard to this question, there is no need to consider whether a double coinage is to be regarded as the ultimate object of a reform in the coinage, since, even if it should now be regarded as the ultimate object, a change to a simple gold coinage would still remain feasible.

As reasons for a double coinage, the following are adduced: 1. The possibility of going on gradually with the preparation of the necessary gold coins, and of thereby diminishing the expense of the reform. 2. The possibility of using the silver coins hitherto in use in the new. system. 3. The possibility of an accurate conversion of existing obligations into obligations according to the new system, since such conversion would not be so far removed from the silver values, in which the obligations are payable. 4. The possibility of such an assimilation to the Frenceh system that, by a retention of the two systems of double coinage contemporaneously, a revolution in the market price of the precious metals would be avoided.

With regard to these points, it has been proposed to adopt the unchanging ratio now existing in France between gold and silver, taking the florin as a standard.

According to this, 1 florin = 2/3 of the thalers hitherto in use = 2½ francs, the unit of reckoning. One 25-franc piece = 10 florins = 6 2/3 of the thalers now in use, the chief gold com. The florin being divided into 100 kreutzers, the 1/6-thaler piece = 25 kreutzers, the 1/12-thaler piece = 12½ kreutzers, the 1/30 -thaler piece = 5 kreutzers. The 25-franc piece would have to contain 7.25 grammes of line gold.

According to the French relation of value of 1:15½, 10 florins, which = 6 2/3 thalers, would have to contain 15½ ×7.25 grammes = 112.375 grammes of fine silver. But 6 2/3 thalers contain only 111.111 grammes of flue silver, and therefore 1.264 grammes less.

If, therefore, in the conversion of obligations, 1 thaler of the present coinage shall be converted into 1½ florin of the new, the debtors would become indebted 1¼ per cent, more in silver, while the creditors would gain 1¼ per cent, in silver. It must therefore be asked: Is it allowable to ignore this difference, and that (a) in all claims for debt, (including state taxes, salaries, &c.,) or (b) in claims for debt to a certain amount, and to what amount?

If this question is answered in the negative, it is to be asked: Is a system to be recommended whose unit of reckoning in the conversion of existing obligations stands to the analogous unit of the present system (1 Austrian florin) as 101¼ to 100?

Precisely the same questions would arise if, instead of the florin, we should undertake to make the franc, or a multiple thereof, (5 francs,) the unit of reckoning. With regard to these propositions, the advantages of the franc or florin system would have to be considered (a) with respect to the value of the Rechnungsmünze or money of account, [i. e., imaginary coin, such as the pound sterling of England;] (b) with respect to the advantages or disadvantages of conformity of the small gold, silver, and copper coins, as well as of the various denominations of banknotes and paper money with those of the nations using the franc system.

A second system has for its basis the gold crown, which would be divisible into 100 thalers, at 100 kreutzers each.

According to the relation of gold to silver = 15.5: 1, this new thaler would contain 10x15.5/10=15.5 grammes of silver, and therefore, since the thaler now in use contains 500/30=16.666 grammes of fine silver, it (i. e., the new thaler) would be equal to 15.5/16.666=0.93 thaler = 27.9 silver-groschen.

As this ratio is an inconvenient one, it is proposed to let the ratio between gold and silver be as 15.55 is to 1, according to which the new thaler would equal 0.933 of the thaler now in use, or 28 silver-groschen; the kreutzer would = 3.36 pence = 98/100 South German kreutzers.

It is a question whether, in making a change, the ratio of 14 to 15 is a favorable one, and whether this system is calculated, through the cooperation of other nations, to become an international one, and whether, through this establishment of the reciprocal value of the precious metals, sufficient remittances of gold would be made to our market, or whether it would be more advisable to let the ratio between the two be as 15.75 is to 1.

Finally, it is proposed to take but one step, viz., to give the gold crown a fixed value of 9 thalers 10 silver-groschen, and to leave further developments to the future.

It may be questioned whether a satisfactory gold coinage may be thus reached, and a sufficient gold currency created, and whether, for the sake of this convenience, it would be well to renounce the other advantages to be obtained by a reform in the coinage.