to mass currency where it is most needed, and by means of their power of note issue to equip every branch with ample resources for sustaining commercial credit without weakening their reserves of actual cash. The effect of the Canadian system has been to make the rate at the most distant interior branch not more than one or two per cent. higher than to the best borrower in Montreal or Toronto, while in the United States rates range between ten and twelve per cent. in the newer sections of the country while money is a drug in the market in the great reserve cities.' The effect of the comparative unity of Canadian banking without the evils of monopoly which sometimes accompany such unity, is to diminish failures and protect a bank against local losses by the profits in other localities. The management at the central office are able to keep a sufficiently close watch upon every branch to prevent reckless banking and bad management, but they are willing to conduct a branch in many cases at a rate of profit which would not justify the maintenance of a separate bank or even of a branch bank without the power of note issue. How the branch system and freedom of note issue depend upon each other has been thus set forth by one of the most acute students of Canadian banking':

The note-circulation privileges granted to the banks render possible the maintenance of branches at many small country points where otherwise the loss of interest on the cash required for till purposes would render a branch unprofitable. The bank-notes themselves with a small amount of Government notes and coin for purposes of small change, form the till cash of these branches, but, so long as the notes are held there, they involve no loss of interest nor any addition to the liabilities of the issuing bank. They are merely so much paper. On the other hand, the branches facilitate the successful operation of the bank-note currency by providing facilities for maintaining supplies of notes at the active rural centres where the notes are actually required to pay for the crops.

1 Cornwell, 16.

2 A. St. L. Trigge, in New York Bankers' Magazine, June, 1906, LXXII., 836.

The leading items of the accounts of the Canadian banks for representative years have been as follows':

DEC. 31ST. NO. BANKS. PAID-UP CAPITAL. NOTE CIRCULATION.

DISCOUNTS.

'The table gives only a general view of the progress of Canadian banking operations, without permitting absolutely exact comparisons, because of the changes in the form of the official reports which were made in 1870, 1872, 1880, and 1890. The figures for 1841 and 1851 are reduced from pounds sterling, in which the accounts were then expressed, and with those of 1861 cover only the Dominion of Canada, without including New Brunswick and Nova Scotia. The changes in the form of statement affect principally the item of discounts, which included substantially all loans in 1867, but excluded certain advances on securities and on current accounts between that date and 1890. The present form of statements includes under "current loans" somewhat more than was formerly included. In every case, however, these loans on bills discounted make up the bulk of the loan account. The private deposits in the banks payable on demand in Canada, on December 31, 1907, were $164,791,398; deposits payable after notice or on a fixed day in Canada, $402,964,565.

*July 31st.

CHAPTER XVII.

THE BANKING SYSTEM OF MEXICO.

Early Banking Establishments-Comprehensive Character of the Legislation of 1897- The System of State Banks of Issue-The Adoption of the Gold Standard-Difficulties which were Overcome- The Commission of International Exchange-Question of Establishing an Exchange Fund-Importance of Avoiding Injury to Mining Interests-Growth in Banking Business.

Τ TH

HE recent monetary history of Mexico is of peculiar interest, because the government has not hesitated to adopt, both in banking and in coinage, constructive policies differing in some respects from those of most other nations, but based upon careful study of general economic principles as adapted to the special conditions prevailing in the republic. Mexico was almost without banking and monetary organization prior to the second election of President Diaz in 1884, and it is due largely to his foresight and constructive ability that she has been dowered with both within less than a generation.

Before the revision of the Commercial Code in 1884 there had been no general banking law in Mexico and such banking institutions as did business there represented, not only foreign capital, but foreign management. Prior to 1864 such banking as was carried on was done by large commercial houses having foreign relations and often took the form of hazardous speculation. In 1864 came the first real bank in the form of a branch of the London Bank of Mexico and South America. This institution entered Mexico without authority or special privileges and, while it was subjected to many attacks, it succeeded by the conservatism and sound

ness of its operations in introducing to a limited extent the use of bank-notes.' In 1881 a concession was granted by Congress to some French bankers for the foundation of a bank of issue, which began business in 1884 under the name of the National Bank of Mexico and engaged to perform the banking business of the government. The capital at the foundation was $8,000,000, of which forty per cent. was paid up. The National Bank encountered violent competition from the Mexican Mercantile Bank, which sprang into being without special concessions and continued in business until 1893, when it was absorbed by the National Bank. This fusion was brought about by pressure from the government, and the capital of the National Bank was increased to $20,000,000.

The revision of the commercial code in 1884 provided against the further creation of banks without concessions from the government and limited the right to accord such concessions to the Federal authorities. Those banks already in existence, including several in the State of Chihuahua, were recognized as having certain vested rights and were afterwards referred to as the chartered banks in distinction from the banks which were given exclusive privileges in the states in which they were established. The regulations of 1884 were derived in part from the American law, and required the circulation to be guaranteed by a deposit of money or securities of the public debt to the amount of one-third of the notes. The defects of this system were soon recognized and a more scientific and complete code was substituted.'

Favre, Les Banques au Mexique, 9.

'The unit of value in Mexico is the peso or dollar, which before the decline in silver bore to the American silver dollar the proportion of $1.012 in value. As the value of silver bullion declined, the gold value of Mexican coins declined, approximately pari passu, until the monetary reform of 1905. Values herein given in dollars represent a corresponding number of Mexican pesos, without regard to fluctuations in their gold value.

* Señor Casasus, who wrote the masterly report upon which the law of 1897 was based, declared that "the very worst system under the empire of which banks of issue can be created is without doubt the

It was by the law of March 19, 1897, that uniformity was brought effectively into the banking organism of Mexico and a system adopted conforming, in the opinion of the government, to the diversified needs of the country. The law was one of the results of the constructive policies adopted by Señor J. Y. Limantour, who became Minister of Finance in 1893, having for their aim the erection of Mexico into a modern commercial state. Three classes of incorporated banks were recognized by the new legislation-banks of issue, mortgage banks, and banks especially designed for loans to agriculturists. Only the first class concerns us here, except to note the fact that Señor Limantour recognized the principle that banks issuing notes should deal only in short-term paper, while the mortgage banks were authorized especially for the purpose of issuing obligations for those enterprises which required time and the permanent investment of capital for their development.'

The principle of monopoly of issues was rejected, because it was in conflict with vested rights and because of the diversity of interests in different parts of Mexico. In the place of a central bank of issue the foundations were laid for a qualified monopoly in each of the thirty states of the republic, by giving to the bank first created in the state advantages over later competitors. Capital, dividends, and instruments of credit issued by such a bank were to be exempt from all taxes, federal or local, except the stamp tax, and even the latter was not to exceed five centavos in any case for the privileged banks, while it might be much higher for all others. These later comers in states already having banks of issue were subject not only to all local and federal taxes, but were required specifically to pay two per cent. annually upon their capital. Finally, it was prohibited to any bank American system, because it has made the state the sole body which issues notes and because it has provided the public debt as their guarantee."-Les Institutions de Crédit, 189.

2

1 Favre, Les Banques au Mexique, 20.

The New Banking Law of the Republic of Mexico, Articles 121129. The exemptions were only for twenty-five years from the date of the law.