No. 471.
Mr. Morgan
to Mr. Blaine.
Mexico, August 24, 1881. (Received September 9.)
Sir: During the last session of Congress agents of the Franco-Egyptian Bank of Paris submitted a proposition by which said bank should be permitted to establish a branch at this capital, to be entitled “Banco Nacional Mexicano.”
The proposition failed in the senate, although it was supposed to be favored by the President.
During the recess of Congress, the parties in interest applied themselves vigorously to obtaining a concession from the President. They have succeeded, and the “Diario Oficial” of yesterday publishes the contract. I inclose copy of the same. I have not translated it, as the synopsis which I have made will sufficiently enlighten you as to its prominent features.
The bank is to be located in Mexico, with authority to establish branches and agencies in the principal mercantile centers of the Republic. [Page 799] Its capital is to be from $6,000,000 to $20,000,000; but it may commence operations when it shall have $3,000,000 paid in, Mexican or foreign coin, or its equivalent in bullion.
For each million of dollars of capital paid in or its equivalent in bullion, the bank is authorized to issue three millions in paper; the notes to be of the denomination of $1, $2, $5, $10, $50, $100, $500, $1,000 payable to bearer.
The notes are to be signed by one of the directors of the bank, by the manager of the same, and by one of the government superintendents. They are to bear the seal of the bank, and a revenue stamp of one-half cent on all notes of $1 to $50, and of one cent on notes of $1,000.
No notes are to be issued until they have been registered by the government directors (two in number), whose duty it shall be not only to register the notes of the bank, but also to verify the deposits as regards its correspondence with the amount of notes issued, without giving them the right, however, to interfere with the private business of the bank.
The bills of the bank are to be received at those points where the bank has an agency by the federal officials as current money. They may also be received in payment of State taxes, with the consent of the governors of the States, and the secretary of hacienda.
The bank (art. 8.) agrees to open an account with the treasury, in accordance with the separate contract entered into by it with the secretary of hacienda. In consideration whereof the government obliges itself during the whole term of the concession (thirty years) not to receive the notes of any other bank established, or which may be hereafter established, nor any other paper money, with the exception of the notes issued by the “National Monte de Piedad.”
Once each month (and oftener if necessary) an inspection of the bank is to be made by the government directors in the presence of the chief accounting officer of the treasury.
The ordinary business of the government is to be transacted through the bank, at the rate of one-fourth per cent. on each transaction; and in exchange, the current market rates. The government has the option of intrusting the bank with such of its negotiations as cannot be conducted by its own officials.
Everything being equal, the bank shall be preferred in all negotiations of a banking character. To accomplish which the government, is to inform the bank of the most favorable conditions which may be offered to it in every transaction, with liberty to the bank to undertake it on the same terms, its decision to be made known within ten days from notification thereof.
The capital of the bank, whatever may be the amount thereof, as well as its bonds, shall during the period of the concession—30 years—be free from every species of taxes, ordinary or extraordinary, now in existence or which may hereafter be created, with the exception of patent rights, predial and stamp duties; the stamp duties are modified, however, as provided for in the article which fixes the amounts to be affixed to its bills.
The bank is authorized to export free of duty silver and gold shipped in payment of dividends to foreign shareholders.
In case of war or interior disturbance (trastorno) no property, real or personal, of the bank is liable to seizure, and still less to confiscation, nor is its capital, deposits, assets, property which may be in its depots, bills, books, or bills receivable, nor shall it be liable to any extraordinary contributions, nor shall its employés be liable to military service; [Page 800] and the government pledges itself, as far as it may be in its power, to give to the bank every assistance, to the end that under all circumstances the bank may be entirely separated from politics, and to inspire the confidence of the community that their rights and interests will be properly protected.
All property deposited with the bank as security, if not redeemed in accordance with the contract of the depositors (pledgers), may be sold by auction fifteen days after the obligations thereon have fallen due.
The “Banco Nacional Mexicano” is to be a Mexican corporation, subject alone to Mexican laws; its rights and privileges cannot be transferred to any foreign government; and no diplomatic intervention is to be allowed under any circumstances in its affairs.
The bank is to go in operation within six months from the publication of the contract.
Within three months thereof $50,000 is to be deposited in the “Monte de Piedad,” as security for the carrying out of the contract.
By the special contract entered into between the bank and the government, the bank is to open a credit in favor of the government of from $200,000 to $400,000 per month, the amount never to exceed in one year $4,000,000. The interest to be paid shall never be less than 4 nor more than 6 percent.
For many days past the press of the metropolis has been writing about this contract and calling for its publication. It has come at last to light, and seems to justify the assertion of one of the papers that it is likely to prove one of the plagues of Mexico.
There is no, security whatever for the compliance on the part of the bank with the provisions of its concession, beyond the insignificant deposit of $50,000 which is to be made with the “Monte de Piedad.”
It has the power to issue $60,000,000 in paper. None of its assets are liable to taxation. Its bills, except those of the “Monte de Piedad,” is the only paper money which the government can receive, and its issues are to be received wherever a branch of the bank exists.
The government is obliged to give it the preference in all business transactions in which it proposes to engage.
There is nothing to prevent the country from being flooded with its notes, and nothing whatever to guarantee the bill-holders beyond the required one dollar in coin for every three of paper which it may issue.
As for the deposit of twenty, or six, or even three millions of dollars in coin or bullion, it is safe to say that it will never be made. Whatever sum the bank may require for the monthly inspection can easily be obtained for a day.
These are only a few of the objections which suggest themselves to the scheme. Others of equal importance are apparent. For instance, the bank will, naturally, issue as many bills as the law allows (and more, too, should their interest require it). These bills will never be at anything like par. They cannot be, under the constitution, a legal tender; as they are to be received in all the public offices, customs duties will be paid with them, and they will be purchased at greatly reduced rates. In point of fact the government will see very little of any other currency. It will attempt to pay its current expenses with it; its engagements to the railroad companies will be paid with it. The money which it borrows from the bank will be the currency of the bank. It will attempt to pay its troops with it; in fact, it will have nothing else to pay with. And all this, it occurs to me, will only bring on trouble. The notes, as you will observe, are only a legal tender to the government, and it cannot refuse them.
[Page 801]Some time ago I had a conversation with Señor Mariscal upon this subject. It was a short time after Congress adjourned, and when, as I had been informed, the agents of the bank had commenced to press the President to grant their concession. I endeavored, on that occasion, to point out to him the objectionable features of the scheme. I went so far as to assert that if the Government of Mexico desired the establishing of a bank in this city, capital in any required amount could be obtained from the United States, and a bank established upon the basis of our national banks, its notes secured by a deposit of United States bonds.
Señor Mariscal appeared greatly in favor of the suggestion and said he would speak to the President upon the subject. My purpose in making this suggestion was to get this business, if possible, in American hands. American money is being spent here in large sums. I thought some of it should find its way back in the shape of exchange. I considered that such an institution would greatly favor the extension of commercial intercourse between the two countries. I did not make my conversation with him the subject of a dispatch, as it was of an entirely casual character, and I did not think it worth while to say anything about it until the Franco-Egyptian plan had been finally disposed of. As to the proposition of the bank, I endeavored to obtain a copy of it, but could not. The opposition to it in the cabinet was, I have been told, very serious, particularly from the secretary of hacienda. Its strongest advocate was the President. I am assured that one of the arguments used in favor of the scheme was that it would counterbalance in some sort the influence of the United States in the country.
The proposition has still to receive the approval of Congress which meets on the 16th of next month. It will be violently opposed, but if the President insists upon its approval, he will be obeyed.
I am, &c.,