No. 526.
Mr. Jewell
to Mr. Fish.
St. Petersburg, May 11, 1874. (Received May 28.)
Sir: The tendency towards inflation in the United States, which I notice with regret, has led me to observe the financial condition and prospects of this country with some care, as Russia and the United States are in one particular similarly situated, both being in a state of suspension of specie payments.
The value of a metallic ruble is. 38 3/64 pence sterling. To-day the market value of a paper ruble is a trifle over 33 pence, thus making specie about 15 per cent, above paper. The paper ruble was a few years ago down to 25 pence, thus making gold, as we should call it, over 150. This was when the government was building their first railroads and importing all their materials. Exchange has steadily gone up for several years. Since my arrival it has advanced from 32 to 33¼. While it fluctuates somewhat, the tendency decidedly is to advance. When it gets to 38 3/64 paper will be on a par with gold.
The only currency of this country is government paper, which is issued by the Imperial Bank alone. There is no gold or pure silver in circulation. This Imperial Bank issues ruble notes in denominations of 1, 3, 5, 10, 15, 25, 50, and 100 rubles, and for small change, 5, 10, 15, and 20 kopek pieces, which are of silver alloyed sufficiently to keep them in circulation.
The financial business of the empire is managed by the Imperial Bank. The capital of this bank is 20,000,000 rubles, with a surplus from its earnings of 3,000,000 rubles. This 20,000,000 rubles appears to have been set aside by the imperial treasury on which to do a general banking business for the accommodation of Russian citizens. While it is entirely owned and controlled by the state, it is a bank of discount, exchange, deposit, and circulation. The amount of notes now in circulation is about 785,000,000 rubles, though the amount varies from day to day, like that of the Bank of England. These notes are issued at the pleasure of the minister of finance, and there is no limit to or control over them except such as is exercised by him. This bank always keeps a reserve of bullion in its vaults against the issue of notes, but is governed by no rule which is known to the public. This bullion at present amounts to about 212,000,000 rubles, so that the government gets the [Page 833] benefit of the entire circulation in this country over and above the bullion kept in this bank. These notes have always been below par, and amouut to about 9½ rubles per capita of the population, or about one-third the per capita circulation in our country.
While our population is but one-half that of Russia, the amount of the business of our country is doubtless three or four times as great. But a small proportion of the business of this country is done by bills of exchange, checks, or notes. Paper rubles are mainly the medium of exchange, and assistances here are very great, these notes are absorbed very rapidly, and yet, there appears to be plenty of notes in circulation for the use of the nation. Nobody talks or cares about specie. All taxes and customs-duties are paid in paper. There is no price for gold, as such; it is not wanted by the public, and is therefore not bought, sold, or quoted. Still, paper and gold are, and have been, constantly neariug each other for years, and if peace continues and crops provegood the natural growth and development of the empire must necessarily bring the ruble notes to a specie value at no distant date, provided the minister of finance does not increase the circulation, which, however, unfortunately for the country, is not kept within any particular limits, though it is much less now than at some former periods. I believe, during the Crimean war, there were issued one or two hundred millions more than are at present in circulation, so that the general tendency is to reduce rather than to increase the currency of the country.
The business of this Imperial Bank is enormous, the deposits amounting at the present time to about 200,000,000 rubles. It pays interest at the rate of 3 per cent, on large current accounts, which amount to about 100,000,000 rubles of credit balances, and pays 3, 4, or 4½ per cent, on certificates of deposit, which amount to about 40,000,000 rubles, and the balance, or about 60,000,000 rubles, is made up of small accounts, on which no interest is computed. The plan of issuing bills appears to to be, that when the government is short of money for its current expenses, it directs this bank to issue more currency and deliver it to the treasury department, the bank simply charging it up to the treasury.
If paper be in excess of the wants of the community, it apears to go to this bank for redemption in the way of current business, and to be filed away in the vaults and credited to the circulation-account of the treasury.
It also buys gold and bullion at all times, but these purchases do not appear to be on its own account but on account of the treasury department, so that it charges up to circulation-account the entire circulation, and credits the same account with the bullion which it buys with the government money. Thus showing at all times the exact amount of circulation and bullion which it publishes at stated periods for public information. To-day the total amount of circulation in the entire Em-pire of Russia is 785,279,669 rubles, against which the Imperial Bank holds in its vaults on circulation-account, to the credit of the government, 212,193,273 rubles 77 kopeks of bullion.
Besides the regular business of banking, the Imperial Bank acts as a sort of safe-deposit bank, i. e. for a very small consideration it receives and gives receipts for and places in its vaults for safe-keeping any valuable papers or public funds which owners wish to deposit with it. At the present time, by the published reports, the Imperial Bank has in these vaults belonging to the public, on which it has made no advances, bonds amounting to more than 363,000,000 rubles.
Considering that this government extends in an east and west line five or six thousand miles, and that its population is nearly 80,000,000 [Page 834] of people, and that the entire business of the empire is, outside the large cities, almost exclusively transacted in these ruble notes which pass from hand to hand, and that the only limit to the circulation of the Imperial Bank is the current demand for it, the present amount of circulation would seem to measure to some extent the actual needs for all business purposes of a circulating medium.
Banks have sprung up in different parts of the empire during the last few years with great rapidity, as a natural result of the system. Up to this date, none of them have failed, though some do not enjoy the best of credit and are engaged in enterprises which are decidedly speculative. None of these banks have any circulation, though one of the largest in this city is authorized by its charter to issue notes bearing 4 per cent, interest, but has never availed itself of the privilege. The modern system of finance which has made some inroads here, by which I mean the inflation of credit by accommodation paper, has helped to support these institutions and enable them to earn in some cases large profits.
The resources of this country resemble ours even more than its system of finance.
The indications are that Russia will import less and export more each year for the near future. The empire has plenty of the best of anthracite coals and iron, and will soon reach the most productive beds of each by railroad. When these are properly worked the importation of coal, which now comes in a great measure fromEngiand, must cease, and the production of iron be both increased and cheapened.
Great as are the mineral resources ol Russia, its agricultural capacity is perhaps still greater, and may equal, if not exceed, that of the United States.
The building of railroads across the steppe, which is as productive as, and not unlike, the prairies of our West, and which exists for thousands of miles in an east and west line, will enable this country to compete with the world in the exportation of agricultural products; so that, like the United States, all it need do to get on a firm specie-paying basis, and that very quickly, is to cease the inflation of the circulation of the country, adding to the development of its mineral resources, and as fast as the railways and population will permit, adding to its agricultural exports.
Coal oils also exist in the greatest abundance in many parts of the empire. Heretofore this material, which is in great demand, has come entirely from the United States, petroleum being by far the largest item in our shipments to this country, except cotton. The probabilities are that the Russians will find plenty of it on their own territory, and that our shipments will cease within a year or two at the most.
I inclose herewith a statement of the public debt of Russia, by which it will be seen to be about 2,030,000,000 rubles, or about $1,350,000,000, a paper ruble being worth about 66 cents. This is made up from the statistics for January 1, 1873, and probably has varied but little since that time. It is estimated that less than half the bonded debt is held in Russia. Their 5–per cent, bonds stand at 96, and the 6–per cent, at about 110. As it will be seen, these bonds are of two kinds, part on a metallic basis and part on a currency basis. All the bonds which are payable abroad are payable, of course, in specie, and the government not getting specie as we do for duties on imports, buys specie when it needs it in the market for the payment of specie coupons.
It appears to be the policy of this government to reduce their debt very little, if any. It is the policy of Russia to develop the resources of the empire by constructing railroads, which can only be done with government [Page 835] assistance. Most roads now in existence are thus sustained. The government guarantee 5 per cent, on their entile cost. But two roads in the empire earned this 5 per cent, last year; the average was about 3 per cent. The difference which the government made up to the stockholders was, in 1872, 15,888,972 rubles. The total amount on which this guarantee existed I am unable to state, but it must be very large, and is constantly increasing, and should be taken into account in estimating the public debt. The government hopes and believes that the roads will ultimately be able to earn this 5 per cent., when it will be relieved from this great burden, which, however, is compensated by the advantages which the roads afford. Concessions for new roads are being given out by the government at the present time. They now adopt the policy of paying this 5 per cent, interest from the time the stockholder pays for his, stock or bonds. Two roads not long since, which were placed upon the market, were largely over subscribed, in one instance about ten times, and in the other instance about forty-two times; and the last road, which was put on the market a few days since and which has created a great furore of speculation, was over-subscribed to the extent of more than one hundred and seventy-four times, thus causing to be paid into the public treasury on the day of the subscription to the stock, on which 10 per cent, was called in, a sum sufficient to complete the road seventeen times over. This money has, of course, been paid back to the subscribers where they were not permitted to have the whole amount of the stock for which they subscribed. All this not only indicates an abundance of capital, full faith in the government, and an approval on the part of capitalists of this plan for building railways, but shows that an abundant amount of paper currency is in circulation on which to do this tremendous speculative business, as well as the ordinary business of the country, though it is but just to say that, while these subscriptions and speculations have been going on, the mercantile and commercial houses have found it very difficult to obtain money on their bills at the imperial banks or discount-houses. Many of the subscribers to these roads had such faith that the stock would immediately advance upon the closing of the subscription-books as to be willing to pay from two to five per cent, per week for the use of the money with which to subscribe, but, like all such speculations, what was confidently anticipated was exactly the thing which did not occur. The stock of this very road which was so largely over-subscribed is now below par. The proprietors, however, expect to make their money by profits as contractors.
History is repeating itself singularly not only in railroad but in oil speculations in this country. One company is now placing its stock on the market for 7,500,000 rubles, and it is being rapidly taken up. I have, &c,