814.51/319
Professor Edwin Walter
Kemmerer to President Manuel
Estrada Cabrera
Guatemala,
September 6,
1919.
11
Honored Sir: Commissioned by you in June of
this year to make a study of the present currency system of
Guatemala and to report to you such reform measures as I might
consider desirable, I have the honor to submit to you the
accompanying report.
The report is necessarily largely limited to the broader phases of
the subject. Details will need to be worked out as the reform work
progresses, and in the light of the experience gained in that work.
If the reform is undertaken and the Guatemalan Government so
desires, the writer will be glad to render the Government any
assistance in his power in working out further details.
During his two months residence in Guatemala the writer has received
most hearty and painstaking cooperation on the part of government
officials, bankers and business men. The number who have so
cooperated is so large that it is impracticable to mention names.
For the assistance rendered by all these gentlemen the writer wishes
to express his hearty appreciation. The assistance rendered by three
persons however has been so great and so continuous that the writer
cannot refrain from specifically expressing his appreciation for
their cooperation. They are His Excellency Señor Guillermo Aguirre,
Minister of Hacienda and Public Credit; Señor Federico Sanchez de
Tajada, Chief of the Protocol; and the writer’s own secretary, Dr.
John H. Williams, Assistant Professor of Economics in Princeton
University, whose broad economic training and knowledge of Latin
America have been invaluable to the writer in his work.
With appreciation, Mr. President, of your own most helpful
cooperation, and of the many courtesies you have extended to me
during my stay in Guatemala,
I am [etc.]
[Page 280]
[Enclosure—Extract]
Report of Professor Kemmerer on Currency
Reform in Guatemala
H. Summary of
Conclusions
The principal conclusions of this Report may be briefly
summarized as follows:
- I.
- Among intelligent people interested in Guatemala, both
citizens and foreigners, the demand is practically
unanimous for a thoroughgoing currency reform that will
give Guatemala a fixed gold standard.
- II.
- The present unstable currency is a menace to
Guatemala’s healthy economic life arid an obstacle to
her economic progress. It is causing grave injustice to
many classes in the community.
- III.
- The present is an opportune time for currency reform,
and a reform could probably be carried through today
with less hardship than at any other recent date in
Guatemala’s economic history.
- IV.
- Anything less than a thoroughgoing reform that would
give Guatemala permanently a modern scientific currency
system as good as the best should not be
undertaken.
- V.
- The monetary unit should be a gold unit consisting of
50 centigrams of pure gold, which, when coined, should
be minted into coins .900 fine. It should be called an
estrada in honor of Guatemala’s president. With a
coinage charge of .3 per cent this new unit would be
equivalent to one third of a United States gold dollar.
It would fix the gold value of the peso at a rate of 30
to 1.
- VI.
- The new unit should be divided decimally into 10 pesos
or 100 centimos, making the peso equal to 10 centimos.
This would give the following table of
equivalents:
| E (estrada) 100 |
= |
P (pesos) 10 |
| P 1 |
= |
10ȼ (centimos) |
| $ (U.S. dollar) 100 |
= |
E 300 |
- VII.
- Guatemala should provide for the coinage at some
foreign mint of a small amount of Guatemalan gold
coins.
- VIII.
- The new Guatemalan gold coins, and United States gold
coins at the rate of E 3 to $1, should be unlimited
legal tender in Guatemala.
- IX.
- Guatemala should coin on government account new silver
coins at the ratio with gold of 15 to 1. These coins
should be minted at that foreign mint from which the
best terms can be obtained. Subject to the approval of
the highest mint authorities in Guatemala and abroad,
all the new silver coins should be .750 fine. They
should be of weights proportionate to their
denominations. The silver coins should be as follows: E
1, P 5, and P 2.
- X.
- Guatemala should coin on government account at a
foreign mint a nickel coin of P 1, and copper coins of
5ȼ, 2ȼ and 1ȼ.
- XI.
- Silver coins of the denomination of E 1 should be
legal tender in one payment to the amount of E 100;
silver coins of smaller denominations should be legal
tender in one payment to the amount of E 10; minor coins
of nickel and copper should be legal tender in one
payment to the amount of E 1.
- XII.
- Existing coins of nickel and copper should be
withdrawn from circulation as rapidly as possible and
recoined.
- XIII.
- A campaign of education should be carried on to make
the public understand the general character of the
currency changes that are being made, and the
equivalence of the new coins and bills in terms of the
old.
- XIV.
- For the present no action should be taken by the
government with reference to the circulation in
Guatemala of United States paper money.
- XV.
- For the purpose of maintaining the parity with gold of
the new silver coins and the coin of nickel and copper,
great care should be taken not to issue them in excess
of the normal demands of the public for coins of their
respective kinds and denominations, and a gold reserve
fund to be known as the Gold Standard Reserve should be
created by the government. With the same purpose, all
these coins should be receivable by the government in
payment of all taxes and other government dues.
- XVI.
- The Gold Standard Reserve should be a trust fund
separate from all other government funds and used
exclusively for the purpose of maintaining the parity of
the fiduciary coins with gold. It should be not less
than 30 per cent of the fiduciary coins in circulation,
and should be constituted from the following funds, all
of which should be turned into the reserve at the
beginning, even though this would make a larger reserve
than 30 per cent: (1) seignorage profits realized on the
coinage of all kinds of money; (2) interest realized on
that part of the reserve kept on deposit abroad; (3)
premiums realized from the sale of exchange against the
reserve.
- XVII.
- The government should obligate itself to redeem in
gold or its equivalent on demand its fiduciary coins
when offered in amount not less than a stated sum; but
should reserve for itself the option of making
redemption in (1) gold coins of Guatemala or the United
States; (2) standard gold bars; (3) drafts on New York
(or some other important foreign financial center) at
which most of its reserve would at the beginning be kept
as an interest bearing bank deposit. When redemption is
made in foreign drafts a premium should be charged
equivalent to the normal expense of shipping gold
between Guatemala and the city in which the draft is
payable. Fiduciary coins thus redeemed should be
withdrawn from circulation. The government should also
authorize its foreign depositary to sell drafts abroad
on the reserve in Guatemala against gold deposits abroad
to the credit of the reserve. In other words, the
principle of the gold exchange standard should be
adopted by Guatemala.
- XVIII.
- For the purpose of permanently placing the currency
and banking system of Guatemala upon the most modern
scientific basis, a National Bank should be established,
having the powers and duties that are usually possessed
by national banks in other countries. The bank should
have an authorized capital not less than E 30,000,000
and a paid-up capital, before beginning business, of not
less than E 15,000,000. This capital should be
subscribed chiefly by foreigners and should represent
the broadest financial interests practicable. The bank
should be subject to reasonable government supervision,
and the government should participate in all profits
realized by the bank above a certain percentage on
capital.
- XIX.
- The National Bank should be given liberal rights of
note issue which should ultimately become exclusive. The
note issue privilege, however, should be subject to such
restrictions as would prevent the notes from being
issued in excess, and as would assure the convertibility
of the notes at all times on demand in gold or gold
drafts.
- XX.
- The National Bank should lend money, in the form of
its own notes, to the government at a reasonable rate of
interest for the payment of the government’s debt to the
banks.
- XXI.
- Subject to certain qualifications, the present banks
should be required to retire at once outstanding notes
to an amount equal to four fifths the sum paid them
respectively by the government in the settlement of its
debt; provided that notes to that amount are
outstanding, and provided further, that a limited note
circulation should be allowed banks of issue whose
charters have not yet expired, for the remaining years
of their respective concessions. After the expiration of
existing charters the National Bank should be given the
exclusive right of note issue in the Republic. Notes of
the National Bank should be unlimited legal tender so
long as they are redeemable in gold or its equivalent on
demand.
- XXII.
- The National Bank should be authorized to make loans,
discounts, and rediscounts, of short maturities, for the
purposes of current production, but should not be
permitted to make capital loans on real estate or other
non-liquid securities.
- XXIII.
- The National Bank should be permitted to receive
demand deposits against which it should be required to
hold the same percentage of cash reserves as against its
outstanding notes. It should be permitted to keep three
fifths of its legal reserve in the form of demand
deposits in approved foreign banks of high standing.
Guatemalan banks should be permitted to keep part of
their legal reserves in the form of deposits in the
National Bank, but the National Bank should not be
permitted to pay interest on such deposits.
- XXIV.
- The National Bank should be a depository of government
funds, and the fiscal agent of the government.
- XXV.
- The National Bank should be required to act as a
clearing house for other Guatemalan banks if they so
desire.
- XXVI.
- The bank should establish branches as soon as
practicable in the principal cities of the
Republic.
- XXVII.
- The bank’s charter should be limited to a period of 30
years.
In concluding this Report the writer wishes to say that the
recommendations herein made are not made dogmatically. The
problem is a complex one, and the conditions are continually
changing. New and unforeseen conditions are likely to arise as
the work of reform progresses. The details of preconceived plans
should not be held too rigidly, but should be modified to meet
unforeseen situations and varying conditions. The general
principles of currency reform laid down in this Report, however,
the writer believes are sound in theory, well supported by the
experience of other countries, and thoroughly applicable to
Guatemala.
