THE heading of this chapter is somewhat misleading, for, strictly speaking, Cuba has neither banks nor currency—that is, of her own. The basis of the money which circulated in Cuba before the military occupation of the United States was Spanish gold, principally the centen, or twenty-five-peseta piece, the value of which had been inflated to $5.30 by royal decree. Owing to the scarcity of this coin and to the fear that it might leave the Island, in 1893 the French louis, or twenty-franc piece was similarly inflated by royal decree and made legal tender in Cuba at $4.24. The silver coins of Cuba were of Spanish origin: the peso, or dollar, the medio peso, or half dollar, the peseta, twenty-cent piece, the real, or dime, and the medio real, corresponding to our nickel. There are also the usual bronze coins. The silver money of Cuba has for some time been worth only its market value, and that subject to daily changes. At various periods in the history of Cuba the Spanish Government at Madrid has attempted to force bank bills on the people of Cuba, and such attempts, as a rule, have ended disastrously to the people of the Island. The Spanish Bank of the Island of Cuba, a semi-official institution, whose governor was appointed by the Spanish Government, has also at times issued bank bills, and to the credit of this institution they have always been redeemed ultimately. As much cannot be said of the Government, whose repudiated bank bills, aggregating about $17,000,000, are at this moment only worth six or seven cents on the dollar. The passing of the control of the Island into the hands of the military authorities of the United States has happily ended all the currency complications of Cuba, and the order of President McKinley, which went into force January 1, 1899, will in a short time not only bring order out of confusion, but gradually reduce the currency systems of Cuba to a sound basis, making gold and silver alike worth one hundred cents the world over—no more, no less. The object of this order is not only to unify the Cuban currency, but in time to replace the present system by the monetary system of the United States.

There is no need for entering further into the history of Cuban currency, but in the following pages will be given the reasons which led up to the Executive Order of December 28, 1898. Considering that the author was called upon by the President of the United States and the Secretary of the Treasury to make a report upon this subject, and the report was subsequently adopted and acted upon, therefore the facts herein stated may be regarded as official. The real point at issue in relation to Cuban currency and the only one which caused the United States authorities any trouble was that arising from the inflation by royal decree of the Spanish twenty-five-peseta pieces, popularly known as alfonsinos, or centen, and the subsequent inflation of the French twenty-franc piece, the so-called louis, which, as we have seen, were given a legal value of $4.24 and decreed since the end of 1893 as legal money.

The Spanish authorities at Madrid, having thus inflated two gold coins six per cent. above their current value and about ten per cent. above their intrinsic value—for the mint value of these two coins at Havana is $4.776 and $3.8208 respectively—the United States authorities at Washington were now called upon to inflate a third gold coin and make the American eagle worth $11 in Cuba and our $5 gold piece current there at $5.50. As a temporary measure this might have had some justification, and the statements in support of it from Cuban bankers, planters, and business men had a certain degree of plausibility. The process, however, is entirely artificial, and whatever was done in this direction to-day must be undone some other day, and the only question the Administration had to decide was whether the inflation should be taken out when the United States authorities took possession or the operation postponed to some more opportune time. The danger in following the advice of some influential financiers of Havana lay in the adoption by the United States Government of a bad precedent in Cuban financiering, inaugurated by the Spanish Government, a precedent for which the United States was in no manner responsible.

The reckoning day must come for all inflated values, whether of paper, of silver, or of gold; and when that day comes someone will suffer. Fortunately, in this case the degree of suffering was small, varying only from six to ten per cent. The practical question would seem to be how to disinflate these two coins with the least possible disturbance to mortgages, contracts, notes, and all classes of existing agreements to pay money.

Current matters will adjust and take care of themselves. It is generally known that all transactions in Cuba since the close of the war have been made with the belief that the United States would not continue the royal decree of Spain, and that the inflations would collapse with the disappearance of Spanish rule.

In Santiago the author found the bankers and financiers in favour of leaving matters as they existed and adopting similar methods in the rest of the Island, namely, reducing the $5.30 gold piece to $5. This was the view taken by Mr. Schuman, of Schuman & Co., Santiago.

On this question the Chamber of Commerce of Santiago, in a thoughtfully prepared memorial, submitted to the President of the United States, say:

Speaking to the author on the same subject, Mr. Brooks, of Brooks & Co., Santiago, a careful financier and capable business man, said:

A partial adjustment of the question was suggested to the author by Dr. Antonio Jover, director of the Spanish Bank of the Island of Cuba, and as Dr. Jover is an authority on Cuban finances, the statement thus made is quoted in full:

With these supplemental facts, the case is fully and impartially before the reader. To accept the proposition of the Havana bankers meant a continuation of the inflated value of ten per cent. To concede the proposition of Dr. Jover and the Santiago financier would reduce the inflation about six per cent., still retaining Spanish and French gold in circulation at a slightly increased value. (Dr. Jover even includes the British sovereign at $5.) The other and only remaining course would be to accept United States money at its full value for customs and taxes and the foreign coins at their intrinsic or mint value.

After carefully considering all these facts, the Honourable Secretary of the Treasury, Lyman J. Gage, prepared and submitted to the President the following order in relation to the future currency of Cuba:

FIRE DEPARTMENT, SANTIAGO DE CUBA.
FIRE DEPARTMENT, SANTIAGO DE CUBA.

In signing and promulgating the above order, the currency question of Cuba has been settled for all time to come on a sound basis. In offering to accept for the present the Cuban peso or silver dollar for sixty cents, American money, the United States Government merely delays the migration of the coin to Spain. At this price it is profitable to ship them to Spain, but at fifty cents they would have disappeared so rapidly that a commercial disturbance might have followed on account of scarcity of silver dollars and fractional currency. It is not probable, nor is it asserted that this adjustment can be accomplished without hardship to some debtors and a slight financial disturbance. It is not, however, apprehended that the trouble will be as great as some have anticipated. In Santiago the first step to absolutely sound finance was taken last summer and six per cent. of the inflation squeezed out. The business interests in that part of the Island were opposed to a continuation of the ten per cent. inflation, and merely asked of the United States Government that the several gold coins in circulation should be left at their face value. As one of the evils arising from disinflation, certain Cuban bankers put forward the fact that it will mean an increase of from four to ten per cent. in the wages of labour, which Cuban industries cannot afford. Such a result, if true, cannot be regarded as an evil, but, on the contrary, a benefit to the poorer classes, whose condition in Cuba is deplorable beyond description.

In the iron mines at Santiago the large American enterprises have already adjusted themselves to the new conditions and are paying their labour seventy-five cents per day American currency instead of a Spanish dollar worth sixty-five cents in Cuba and only sixty cents in exchange for United States currency. The author, when in the mining districts of this province, heard no complaints, either from the proprietors or the labourers. Stress was laid in the arguments before the President and Secretary Gage upon the loss to the debtor who has borrowed on a fictitious value and must pay the premium, and the unfortunate Cuban sugar-planter is especially singled out for sympathy. That the planter will suffer cannot be denied, but the advent of the United States into Cuba will lighten so many of his burdens that his condition is not without hope. All the customs duties on his imported food supplies, as will be seen in the chapter on the tariff, have been reduced, and many important commodities put upon the free list. The duty on his sugar machinery has been reduced to ten per cent. ad valorem; on his locomotives and railway supplies to twenty per cent.; and all along the line the taxes have been cut down. It is not probable that his land taxes will be collected during the present fiscal year, and the return of peace, establishment of law and order, and protection of property will immeasurably improve his lot. If, therefore, the sugar-planter of Cuba will gauge his present outlook by a glance backward and compare it with his condition last year at this time, he may face the new year with less gloomy premonitions as to his future than some of the testimony taken by the United States Government on the effects of disinflation would indicate. The action of the President, by and with the advice of the able financier at the head of the Treasury Department, will give Cuba a sound currency, which must be the foundation of her future fiscal prosperity.

The proof of the poverty of Cuba is a scarcity of capital, manifest in many different ways. The difficulty, not to say the impossibility, of selling sugar plantations proves the scarcity of capital and at the same time the precarious situation of the sugar industry. The decrease in the price of property is a natural consequence of lack of disposable capital, and this is why the rate of money is so high; it can only be caused by lack of capital, and not of money, since scarcity or abundance of money has only a limited influence on rates of interest. Nearly all the banks established for the last twenty or thirty years in Cuba have disappeared, owing to the losses experienced by the gradual increase of the poverty of the country; the want of resources rendering it impossible to start these banks anew or establish new ones with Cuban capital.

A few years ago there were in Havana, besides the Spanish Bank and the Bank of Commerce, the Industrial Bank, the San JosÉ, the Alianza, the Maritime Security Bank, and the Caja de Ahorros (savings bank). Excepting the first two, all have stopped working, and if the two surviving ones have outlived the others, it is because the Spanish Bank enjoys official privilege, and because the Bank of Commerce, though compelled twice to reduce its capital, owns valuable property, as, for example, the Regla warehouses and the United Railroads, which property, if the Island were prosperous, would be worth several millions more than it is to-day.

It is almost incredible that, having such extensive relations with foreign countries, the condition of banks in Cuba should be so precarious, especially as the Island feels more every year the need of banking facilities, without which no modern country can prosper. Although not as important as regular banks, savings banks are a gauge of public wealth, since their object is to gather the economies of the working classes and create capital for the promotion of industries. The only savings bank in Cuba failed in 1884, ruining in its fall not only those who had deposited their funds, but also the shareholders; and to this day no other institution has been established to take its place, and at the present moment there is not a single public institution where money can be deposited in large or small quantities earning interest!

In foreign countries the thrift of the working classes is the corner-stone of new industries. Are there in Cuba any economies or annual profits that can be capitalised? The sugar industry, the base of Cuban wealth, yields to-day no profit save in exceptional cases. The tobacco industry since 1895 has been in a critical condition, and as all the other industries depend on these two, or are of comparatively limited importance, it may be said that work and capital yield no profit in Cuba at present; since either no profits are realised, or, if they are, they leave the Island. This aspect of the present economic situation of Cuba is of immense importance and not only explains the actual situation at this moment, but shows that the hope of improvement alone lies in the prosperity of these industries.

The history of banking in Cuba is sad with financial disasters. The only bank which has survived during half a century is the Spanish Bank of the Island of Cuba. This concern was originally chartered as the Spanish Bank of Havana, and although it was a private institution, owned by shareholders, the Spanish Government maintained the right of appointing the governor, and in many other ways controlled its actions. At various times this bank has itself issued bank bills, and at other times it has been the medium through which the Spanish Government endeavoured to circulate its own paper money. The notes of the bank itself, as already stated, have never been repudiated, though during hard times, as a result of the Ten Years’ War, the bank bills of the Spanish Bank were at a small discount. Sixteen years ago the Spanish Bank of Havana was reorganised and the name changed to the Spanish Bank of the Island of Cuba. At the present time this bank has no bills in circulation; the paper currency now valued at but a few cents on the dollar, which was issued during the war by the Spanish Government through the Spanish Bank of the Island of Cuba, is not regarded by the shareowners of the bank nor by the public as the issue of the bank itself. The history of these bills is briefly as follows: In order to meet the expenses of the last war, the Spanish Government arranged to issue $20,000,000 worth of paper money. As a security and partial fund for redemption of the same, the Madrid authorities deposited in the vaults of the Spanish Bank of the Island of Cuba $6,330,000 in silver against this issue. For a while this bullion, together with the mandate of the Spanish Government that these bills must be accepted as legal tender, kept the currency floating somewhat below par. The people of Cuba, however, had been deceived so many times in relation to paper money that they were suspicious of these bills from the beginning, and when in due course of time Spain gradually and dishonestly absorbed from the bank all silver upon which the paper money had been issued, the bills depreciated until they were absolutely refused in all business transactions. This entailed considerable loss, as the street railways and cabs of the city were compelled to take them in spite of this great depreciation in value. Finally, they were repudiated on all sides. A temporary value was given this paper by accepting ten per cent. in the payment of customs dues. This raised it up to twelve to fifteen cents on the dollar. Immediately upon the military occupancy of the United States the value of these bills fell still lower, and they are to-day worth but a few cents on the dollar, and are held chiefly by Government contractors and speculators.

Realising that a decided change would take place in banking as soon as the United States took charge of affairs, the shareholders of the Bank of Spain met some months ago in Havana and reorganised the bank, making it a private concern, and changing its by-laws so that it could do business as a private institution, untrammelled by Government interference.

Among other uses to which the Government of Spain put the Spanish Bank was that of a collecting agency for practically all taxes other than those of the custom-houses. The value of receipts for direct taxation that have been delivered for collection to the Spanish Bank of the Island of Cuba, from the fiscal year 1885-86, when this institution commenced the collection, with right of seizure, to 1894-95, both inclusive, actual amounts collected, deductions, and amounts pending collection as per vouchers, and accounts rendered to the Treasury by this institution, are as follows:

The above table gives a good idea of how this arrangement worked during normal times. There were two or three features in it, however, which were bad, and which the author is glad to notice that the United States Government in renewing the agreement of the Bank of Spain for the present fiscal year, that is, the year ending June 30, 1899, has obliterated. The Spanish Government paid the five per cent. on the receipts given the bank, and not on the money collected. This resulted in great abuses, because the delinquents during the years of war were fifteen, sixteen, and forty-three per cent. respectively. The punishment of delinquents has also been considerably modified by the United States authorities.

The following table gives the receipts for direct taxation that have been delivered for collection to the Spanish Bank of the Island of Cuba from the fiscal year 1895-96 to 1896-97, both inclusive, actual amounts collected, deductions, and receipts pending collection up to December 12, 1898, as per data at hand in the Spanish Bank:

This table and the one preceding it were prepared for the author by the governor of the Spanish Bank of the Island of Cuba and differ from the table prepared by the Spanish authorities which will be found in the chapter on the revenue of Cuba. In the report furnished by the officials, the face value of the tax receipts is given in one column and the actual amount collected in another, the third column showing, under the caption of “Total Delinquent Taxes,” the amounts uncollected, without any explanation as to why they were not collected. The governor of the Spanish Bank in the two tables given above includes a fourth column, namely, deductions for which the bank was not responsible. The bank authorities claim that the amounts represented in this column were receipts which were not valid, inasmuch as they were claims in many cases upon persons dead and upon property which had been destroyed by fire. The governor of the bank thinks it an injustice to the bank to add these under the general head of delinquent taxes, without this explanation.

It is easy to enforce and collect the customs duties; but the collection of internal revenue taxes is a much more difficult matter. The United States authorities found, on coming into possession of the Island of Cuba, January 1st, that all the receipts of taxes for the present fiscal year were in the hands of the Spanish Bank of the Island of Cuba; that this institution had not only six or seven branch banks in various parts of the Island, but also in the neighbourhood of 258 sub-district or collecting agencies. The bank assumed all the responsibility of these agencies, and it was decided to place in its hands for the present fiscal year this work, for the reason that it had all the machinery and there would be no loss in revenue. An agreement was entered into between the Spanish Bank of the Island of Cuba and the United States military authorities, and an order issued from Washington to the bank to make the collection, but the arrangement engendered such opposition among the Cubans that the order was revoked and the work was placed entirely in the hands of the American authorities under General Brooke.