REPORT OF THE PHILIPPINE COMMISSION. 101 in popular use the Mexican silver dollar, as well as the Spanish peso, without any sudden shock to values or to the denominations of currency to which the people have been long accustomed. It is proposed that only such amounts shall be coined as would meet the needs of trade in the islands at the parity fixed by law. It is recommended that further measures be taken similar to those adopted in the United States for securing the parity of gold and silver. The most obvious of these measures is the creation of a gold reserve from which gold could be paid for silver, if necessary to maintain confidence. There is some disposition among the Filipinos and Chinese in the Philippines Islands to hoard and bury gold coin, but this is likewise true to an extent as to silver coin. For this reason we recommend that authority be given the Philippine treasury to exercise discretion in paying gold for silver, in order that it may pay gold only when necessary, in its opinion, to maintain the parity of silver coin. This will permit the treasury to provide gold for export and to meet other legitimate demands from the commercial community, but to refuse it when asked for the mere purpose of hoarding. The creation of such a gold reserve would involve no cost to the government of these islands if a coin is adopted somewhat below its face value in silver. The margin between the value of 50 cents and the bullion value of silver will represent a profit or seigniorage to the treasury, which, in our opinion, should be set aside as a gold reserve. This course would assure the public that, while the actual circulation consisted of token coin, the gold necessary to cover the difference between the bullion of these coins and their par value would be kept as a sacred fund for their protection, and that it was no part of the plan of the government of the Philippine Islands to debase the coinage and appropriate the fictitious profits to its own use. We think it is desirable, if a gold standard is thus established, that some additional power should be given to the government of the Philippine Islands to maintain the parity between gold and silver in case it should be threatened. The power to sell drafts for gold at par on deposits of the Philippine treasury in the United States and the power to issue temporary certificates of indebtedness similar to those authorized in the United States by the act of June 14, 1898, are among the methods by which strength might be given to the currency system and confidence be maintained in the commercial community. It is to be said in favor of such powers that the mere authority to exercise them would greatly diminish the necessity that they should be exercised. The fear that the government might permit the two metals used as money to depart from their legal ratio and the absence of power to take steps to maintain this ratio would invite danger which would rarely or never arise if it were known that the government was clothed with every necessary power to maintain the monetary standard unimpaired. 102 REPORT OF THE PHILIPPINE COMMISSION. It seems to be desirable, as a tribute to Philippine local feeling, that the mint at Manila should be used as far as possible for the execution of the new coinage. Attached to our former report was an exhibit, stating in detail the size, facilities, capacity, and condition of the local mint and all the machinery therein. We would therefore recommend that proper experts be sent here at an early date and that adequate machinery be set up in the local mint, so far as its capacity will warrant. We think it would be wise to provide, however, if sufficient coinage can not be executed at the mint at Manila to meet the requirements of the new currency, that the mints of the United States be authorized to aid in the work, with proper compensation from the government of the Philippine Islands, as in the case of coinage for foreign governments. It is the purpose and expectation of the commission, in case a distinctive coin is adopted for the Philippines, to introduce that coin as rapidly and completely as possible into the currency system of the islands. It is believed that the Mexican dollars will rapidly disappear if they cease to be a legal tender for debts after a prescribed date. They contain more silver than the proposed Filipino dollar if the plan of the commission is adopted. This will tend to expel the Mexican dollar and keep the new Filipino dollar at home for the use of the commerce of the islands. The new coinage system should provide for subsidiary coins, onehalf peso; 1 peseta, or twenty centavos, which is one-fifth of a peso; a media peseta, or 10-centavo piece; and coins of other metals should be provided, so as to furnish 5-centavo and 1-centavo coins, the latter being of the value of one-half cent United States money. An adequate supply of these small coins is indispensable for the transaction of ordinary business among the poorer people of the islands, who make their purchases in very small amounts and need small coins for that purpose. All questions of exchange between the islands and the United States, which have caused much annoyance to the disbursing officers of the Army and Navy, will come to an end under such a system, except so far as they concern the legitimate cost of transporting the money. It is hoped that Congress will see fit, if this recommendation has your approval. to fix a short period within which all preparations shall be made for the adoption of a new and distinctive coinage, in order that proclamation may thus be made that the currency of the Philippine Islands is fixed beyond question upon the standard of other commercial nations, and that capital may safely come here for the purposes of trade and permanent investment. BANKS AND BANKING. On the 23d day of November, 1900, act No. 52 was passed, providing for the examination of banking institutions in the Philippine Islands by the insular treasurer, or authorized deputy by him appointed, at REPORT OF THE PHILIPPINE COMMISSION. 103 least once in every six months, and at such other times as he might deem expedient; and for a report of such an examination by him to the chief executive, to the commission, and to the Comptroller of the Currency of the United States, and for reports by all banking institutions, whether doing business as branches of a principal bank in another country or not, on or before the 15th day of January, April, July, and October in each year, to the treasurer of the islands, which reports should conform as nearly as might be to those made by national banks in the United States under the laws of the United States and regula tions of the Comptroller of the Currency, which reports should specifically state all the details of the business conducted during the preceding quarter in the Philippine branch of foreign corporations conducting a banking business here and the financial condition of its principal bank at the latest practicable period prior to the date of such reports, and that such reports should also contain such further and other data as might be called for by the insular treasurer. Examinations and reports have been made in accordance with the law at the periods required. Copies of the most recent reports of all the banks doing business in the islands, the Hongkong and Shanghai Banking Corporation, Chartered Bank of India, Australia and China, El Banco Espanol-Filipino, and the Monte de Piedad are hereto annexed and marked Appendices R, S, and T. Deposits of insular funds have been made in the two institutions first named. The only security for the deposits, aside from the general assets of the banks, consists of $1,000,000 deposited by each of the two banks in United States Government bonds, in accordance with your orders issued before the commission came into these islands. Both those banks are, as stated in the former report, branches of great English corporations of many years' standing. The parent institutions are liable for every dollar of the Government deposits in the Manila branches. While there never was any doubt upon this proposition, yet in response to cable suggestions from the chief of the bureau of insular affairs, concurred in by the Comptroller of the Currency, we communicated with the parent institutions and received assurances directly that they were responsible for every dollar of insular deposits in the Manila branches. There is no reason now for doubting the entire safety of the insular deposits in those banks; but in response to the cablegram referred to we have called the attention of the local managers of those banks to the desirability of further security being given for the insular deposits. The manager of the Chartered Bank of India, Australia and China assured us that he would immediately communicate with their home office in London and request that office to open negotiations upon the subject directly with the Secretary of War at Washington. The local manager of the Hongkong and Shanghai Bank agreed that he would immediately communi 104 REPORT OF THE PHILIPPINE COMMISSION. cate with the home office of his institution and inform us at an early date as to what it would be willing to do in the direction named. It was suggested by both the local managers that if further security were to be given, arrangements might be made for the deposit of high-grade bonds other than bonds of the United States Government, whereby the loss of interest could be made less. The commission sees no reason why this suggestion might not be complied with, due care being taken as to the character of the bonds received as security. It would be entirely impracticable, if the banks should decline to give further security, immediately to remove the deposits from their custody. The Hongkong and Shanghai Bank, on the 2d day of October, 1901, has of insular funds $4,604,677.76 (pesos) on deposit, and $1,120,865.67 United States money; and the Chartered Bank of India, Australia and China has $4,577,409.43 (pesos), and $1,325,366.22 money of the United States. The insular treasurer has no place adequate for keeping this large amount of bulky Mexican or local currency. The insular treasury has, however, a new vault capable of storing several million dollars of currency of various kinds belonging to the Government; and it is proposed, as soon as the necessary facilities are completed, to transfer a considerable portion of the funds now on deposit in the banks to the insular treasury vaults and to make payment for insular disbursements directly from the treasury on proper warrants and checks instead of through the banks. It is considered that there will be an advantage in this course of business from the fact that the insular treasurer will at all times, without waiting for reports from the banks, know the exact amount of available cash and the precise condition of the treasury. In that event it is suggested that the deposits in the banks might be reduced to a specified amount, which should be allowed to remain in them for a short stated period, so that the banks could afford to pay a moderate rate of interest upon them as substantially fixed deposits. No determination has as yet been arrived at upon the matters here suggested. The two English banks above referred to are doing business in these islands under the general law enacted by the Spanish authority, authorizing the formation of general partnerships, limited partnerships, commercial associations, and banking and business corporations by voluntary associations on compliance with the requirements of law. The existing Spanish law upon that subject is fully and carefully stated in a communication bearing date September 24, 1901, to the commission from Hon. Gregorio Araneta, solicitor-general of the islands, which is hereto annexed and marked Appendix U. It will be seen from that exhibit that voluntary associations for the conduct of nearly every kind of commercial business, including banking, except the right of issuing bank notes, may be formed by any persons, native or foreign. Upon the theory that the letter of that law is still in force, there is REPORT OF THE PHILIPPINE COMMISSION. 105 nothing to prevent Americans or foreigners from forming banking associations and entering into a general banking business here, unless it should be held that the formation of such a corporation and its engaging in business under such general laws constitute such granting of a franchise as is forbidden by the terms of the amendment to the army appropriation bill passed by the last Congress. The commission has as yet had no occasion to pass upon that question. Corporations have been formed under those Spanish laws, since American occupancy, for the manufacture or sale of tobacco and cigars and for other commercial purposes and are now conducting their business under those laws. It is the decided opinion of the commission that Congressional action should be taken with reference to a banking system that shall prevail in the Philippine Islands, and recommendations will be made later under the present heading upon that subject. The existing law relating to the Spanish-Filipino Bank has heretofore been transmitted to you, so that it is unnecessary to make further statement upon that subject here. The amount of bank notes issued by the Spanish-Filipino Bank under its charter and outstanding on August 31, 1900, was $2,700,750 Mexican. At this date that amount has been reduced to substantially $2,100,000 and is constantly being reduced; but about $192,000 of these notes were issued prior to 1884, many of which have undoubtedly been lost or destroyed. But the demand for bank notes for ordinary usages is large, and it is difficult for the managers to make a rapid reduction of the amount of such paper. It is undesirable to contract the convenient and well-known local paper currency too rapidly. We have indicated to the managers of the bank that it was desired that the amount of its circulating notes should not exceed the amount of its paid-up capital, $1,500,000, and that their charter, which authorizes the issue of notes up to three times the paid-up capital, should be amended accordingly, and that provision should be made also by law that the obligation created by outstanding notes or bills should form a first charge upon the assets of the bank in case of failure, and that the exclusive right given to it to issue paper currency in the islands down to the year 1921 was one so nearly touching the sovereignty of the country, its powers of government, and control of its own currency that that exclusive right could not be recognized. A meeting of the stockholders of that bank has been called to consider the suggestions above referred to, but no action has as yet been taken, so far as the commission is informed. The problem of encouraging American trade by means of proper banking facilities in the Philippine Islands has repeatedly been discussed in reports made by civil and military officers to the War Department, but the commission has taken no legislative action looking to the establishment of a permanent system, because it was considered indispensable that Congressional action should be taken, and that the |