File No. 812.516/111

Mr. Parker, representing American interests, to the Secretary of State


192. Banking situation is becoming more serious. Am informed that, acting on instructions received from Carranza, courts were authorized to accept judicial demands against banks of issue to force them to make immediate redemption of their bank notes in specie. The National Bank of Mexico has already received judicial demand for such redemption, but I am reliably informed that the action in this case has been stopped by order of Carranza until he arrives at Queretaro. Therefore such suspension is only temporary. Bank officials state that the desired redemption is impossible at present because of general acceptance of fiat money, but that if allowed sufficient time bank can redeem all notes in specie. Bank further protests against immediate redemption on ground that some twenty-five million pesos of its notes are held abroad; and as the metallic reserve, which it has in full, is by law required to be only fifty per cent of its emission, the local holders of its notes would exhaust the reserve before the more distant holders could present their notes, or even learn of the action taken. I am given to understand that the bank is entirely solvent, but that in the present circumstances would probably be obliged to close its doors temporarily if such demands are later enforced. Courts are feared because there is no federal court to which to appeal and no supreme court for final decision on constitutional proceedings. I understand that other banks in the Republic are in similar circumstances, although no formal demand has yet been made for specie redemption. The closing of these banks would aggravate an already serious economic crisis, as during the last ten days five more State banks have been put out of business by virtue of the decree of September 29. The French Minister, dean of the diplomatic corps, stated to me yesterday that the general opinion of the diplomatic corps is that the present Government is greatly exceeding its authority in issuing decrees and other instructions which have the force of law, and that in such cases as the one in hand, where the consequences are far-reaching and would entail unavoidable and heavy loss, most energetic representations should be made in order to avoid the disastrous results and the establishment of dangerous precedents. Further, diplomatic corps does not consider that a Government can be considered as constituted in Mexico when several of the Cabinet Ministers have not been yet appointed and when the Chief Executive has been for more than three months and is still at a distance of one thousand kilometers from the capital with hardly any means of communication.

If the Department deems advisable to make representations in that case matter, I have to suggest that they be made directly and immediately to General Carranza.