File No. 812.516/129

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

[Telegram]

402. The most drastic blow that Carranza thus far has dealt to the banks and financial interests generally is contained in the decree published yesterday bearing date of September 15 and which cancels the right of banks of issue to emit bank notes and orders them within sixty days to cover the entire amount of their issues with metallic reserves. In his preamble to the decree Carranza declares that the note-issuing faculty hitherto granted to the banks is a monopoly and therefore illegal under Article 28 of the Mexican Constitution. This decree is probably preliminary to the assumption by the Government of the note-issuing power. Behind the decree local bankers think [Page 640] they discern an intention of the Government by this means to obtain possession of a large sum of metal now held by the banks of issue as security for their notes and which it plans to utilize as a reserve in an effort to secure an appreciation in value of the paper peso. According to the decree the Government has the power to take over the affairs of any bank of issue which does not wholly cover its issue with metal within sixty days. Probably many of the banks will be unable to comply. Until the present the banks have been allowed to issue at the rate of three pesos in notes against one peso in metal. The only banks capitalized with foreign money which are affected by the decree are the National Bank and the Bank of London and Mexico the control of which is owned largely in France. The decree virtually amounts to compelling the banks to redeem their entire issue within sixty days as the only alternative which they have to increasing their metallic reserve to the necessary amount is to lessen their liability in this direction by withdrawing as much of their circulation as possible. Either method will require the banks to pay out or to accumulate at once hundreds of millions of pesos in metal or to allow the Government to take over their affairs. Besides provisions above mentioned briefly the decree establishes councils of attachment for each bank for the purpose of safeguarding the metallic reserves or assuming charge of all operations for conserving the interests of the banks and for liquidating the banks in case they do not augment their reserves. The Finance Ministry is given power to decree all measures for the conservation of the interests of the banks and the operations of the councils of attachment and only by his order can the metallic reserves be distributed. M. [Murray3]

Parker
  1. Robert H. Murray.