Mr. Breckinridge to Mr. Gresham.
St. Petersburg, May 16, 1895. (Received June 1.)
Sir: An important change has recently been made, say April 18, in the Russian law relating to contracts; and it is possibly the distinct beginning of a policy designed ultimately to bring the circulating medium of the Empire to a gold basis. By this change there is permitted perfect freedom of contracts—that is to say, as regards the kind of money in which contracts are to be paid, while formerly all contracts and settlements were required to be paid in the silver (paper) ruble. This note is called the “silver” ruble, as it claims equality with the silver ruble and calls for redemption in that metal, yet for many years it has not been on a par with silver bullion. This change, made upon the recommendation of the minister of finance, M. de Witte, and unanimously approved by the finance committee and by the combined committees of the Imperial council, has produced, in connection with certain features related to the movement which will appear in the course of this dispatch, a deep impression in Russia. Its tendency to a gold basis is clearly recognized, dependent, of course, upon future steps in that direction.
The transactions of farmers and peasants are excluded from the operation of the law, and their engagements will continue to be made and liquidated as heretofore. Gold contracts may be settled in paper rubles if so desired by the contracting parties; but it must be at the gold value of such notes as shown by the St. Petersburg bourse upon the day of payment.
The announced purpose of this law is to introduce gold into active circulation. This would operate particularly at the large centers of trade. At present there is no money seen or handled in trade, except occasionally a fugitive silver ruble, but the paper ruble and undervalued fractional coin. As no other money was permitted to be used in the liquidation of debt, except in certain matters upon Government [Page 1124] account, there has been a great lack of elasticity in the supply of money to meet special needs, such as the movement of crops and the like. To meet this the Government has been accustomed to make special issues of paper rubles, disposing of them through the agency of the state bank. But this recurring issue of notes, redeemed in nothing, unsettled the money market, discredited the Government, and inflicted evils on the masses of the people even more hurtful than monetary stringency. Now it is thought that the Government can give greater stability to the paper ruble, as indeed it must, to work its scheme, and by permitting gold to be used that metal will flow in from other countries when needed, returning back when the special demand is over, and that the paper ruble and minor coins will be more fully available at such times for the smaller transactions of the masses of the people, which likewise increase in volume during the seasons of special activity.
Newspaper discussion upon the subject continues to be spirited, both pro and con, and I am told that the minister of finance encourages both sides to a full expression of opinion, as the best means to accustom the public to the measure.
The total gold reserve of the Government is given in these discussions at 650,000,000 rubles. This is generally estimated as being about equally divided between a credit to the redemption fund and a credit to the emergency fund. Personally, I doubt if they have this much gold, which is over $500,000,000. But that they have an enormous reserve of idle gold I do not question. A very intelligent financier of this city, with whom I have conferred about these matters, thinks it may be between 300,000,000 and 400,000,000 rubles, say 350,000,000 rubles, equal to, say, $280,000,000.
All state the amount of paper rubles outstanding at about 1,000,000,000. But as this is the only circulating medium, except fractional coin, for this great country of 120,000,000 of people, I am inclined to think it an underestimate.
But under the new law the Government can use its own gold through the state bank as it has heretofore used its special issues of paper rubles, a very considerable advantage, while a more conservative policy in regard to issuing the paper ruble, combined with the fact that the gold is really as much behind it as it ever was, should tend to the stability of these notes.
Generally the essence of a financial policy of a Government is expressed by what is printed in its bonds and upon its notes. As lying, therefore, at the root of this situation, I give you what is said upon a ruble note.
Upon the face it is as follows:
Imperial credit note.
On presentation there will be paid at the exchange room of the Imperial Bank 1 ruble (or more) in silver or gold.
Upon the reverse side it says:
Extract from the Imperial manifesto concerning credit notes:
- First. The Imperial credit notes are guaranteed by the whole property of the realm without detention at any time, to be exchanged against ringing (hard, pure) metal out of the above-mentioned fund.
- Second. These credit notes enjoy the right of circulation within the Empire on an equality with silver coin.
- Third. For the counterfeiting of credit notes the guilty party is subject to the loss of all rights, and will be sentenced to hard labor.
Extensive discussion is being elicited as to how contracts and the domestic debt can be justly settled upon the gold basis. Before the [Page 1125] Crimean war only fractional coin and gold circulated in Russia, or, at least, in the interior of the country. There are still some thousand millions of domestic bonds, called Oriental war bonds, contracted in 1877–8, in existence. These are paper ruble, or what we would call “greenback” bonds. The basis of their exchange is discussed, and with it all the adjustment of wages, etc., under the change. At the same time, it is very properly pointed out that the present measure does not necessarily anticipate the future, but simply permits gold to circulate and become a “citizen,” without disfranchising paper (for practically there is no silver in Russia), and the future can take care of itself. From all this I conclude as follows:
- First. Russian finances are under the control of a minister of great ambition and ability, who has done distinguished service in funding public debt and is giving stability to the currency, and is extremely desirous of doing more.
- Second. There can be no real or lasting stability to the currency until it is brought to the international standard of the commercial world.
- Third. Wages being relatively high, in a cheap currency, the laborer and the masses have the vantage ground in the matter of a change of standard, that being just the reverse of the case with us.
- Fourth. Guarding the issue of paper rubles with the large reserve of gold, with the facility of legislation by imperial decree, with equitable decision about contracts, and with the power of capital under such conditions to care for itself, it need not be difficult or surprising for Russia to pass to a gold basis after a few years’ familiarity with that coin as now provided for.
- Fifth. Our country need not count upon Russia for the absorption of an ounce of silver in the proposed ratio at about one-half of the bullion value of silver. She provides for the redemption of “silver” paper with gold reserves only. She invites the influx only of gold; and being herself a large producer of the metal from mines of increasing richness, she seems to have no fear of scarcity or expectation of any other except for subsidiary coin.
I may add that it is understood that the Imperial mint, which has long been idle, will now actively begin operations, the purpose being to coin 600,000,000 gold rubles, mostly 10-ruble imperials, within the next three years.
I have, etc.,