The paper certificates do not alter the working of this mechanism, but operate merely as an intermediary between the silver coins and the reserve. The coins are redeemed in certificates and the certificates in gold or equivalent silver bullion. That is, silver coins are redeemed via paper. Yet the certificates are not a mere superfluous wheel in the system. They save the expense of buying the initial reserve in the usual manner. The reserve is to be created and the silver pesos recalled by the same operation, paper being issued for the pesos at par during a short preliminary period. This method of acquiring the reserve not only saves expense, but avoids any contraction of the currency. The only expense is the loss above mentioned, due to degrading the silver pesos and other silver coin to the bullion state. This expense must, of course, be met in the end by the usual methods of financiering. If the reserve be made large enough, and the government may be trusted to use and not abuse the novel machinery entrusted to it, all the elements of success seem to be present.

THE PROBLEM OF MONETARY REFORM IN

MEXICO.-A SUGGESTION.

EXICO is confronted with a very different set of monetary difficulties from those that have been faced by any other nation or colony in changing its currency system from a silver to a gold basis. The natural circumstances that bear powerfully upon the question of the change of standards are peculiar to the country. To such an extent is this true that the tried systems of other lands must here be scrutinized from an altered view-point and in a new light, and it is quite possible that none of them will be found to meet in their entirety the exigencies of the situation. This is at once an old and a new country. According to the stage of civilization upon which the vast bulk of the inhabitants rests, the resources of the land have been well exploited, especially in those large districts that have for uncounted years supported a moderately dense population. From the standpoint of the level of civilization represented by a part of the upper classes and by the commercial immigrant of alien race, the development of natural resources is still in its infancy. The notable advance in the production of wealth that the past quarter of a century has witnessed is due to the leaven of the new and higher civilization working for the rejuvenation of the stationary energies of the worn civilization of the past. The country is yet in the fore-part of this transition. The up-hill struggle to make the beginning is barely over. The self-carrying impetus of the consecutive achievement of results is hardly begun. Future progress will necessarily be more rapid and of much deeper and wider reach than that already attained, especially if the currency is stabilized in such a way as to afford security, now lacking, for the general investment of foreign capital.

In the complex atmosphere of this period of transition the laboring class forms an element foreign to the spirit of change. Ignorant, obstinate and stupid, the thriftless peon of the fields, and his shiftless brother of the cities, cling to the traditions of an environment that is slipping away. Accustomed to a hard currency of silver and copper, and suspicious, to a degree, of conspir

acy to rob him, the Indio would greet with sullen opposition any attempt to give him money of different weight or value from the money he has handled since the days of his earliest recollection. All that he knows of finance is that a peso is a peso of the full accustomed weight. If a light-weight coinage were forced upon him, his conviction would be unalterable that he was being cheated by his hereditary overlords. It is only fifteen or sixteen years since the great riots known as the nickel riots impelled the powerful Federal Government to recall an issue of nickel coins intended to take the place of the diminutive silver five-cent piece. The plebe seized upon the idea that this was but a device to pay them their wages in worthless money. The general monetary education has progressed somewhat since then, it is true. Still, even to-day, there are vast regions where a bank-note can not be changed or used. The people either do not know what it means or else they distrust its security. The historic silver peso that Mexico sent in the old days all over the known world is not merely a measure of value in the eye of the common people: it is the foundation of all values.

Under these circumstances the general introduction of a currency differing radically in material, weight or appearance from that now used would be a matter of extreme difficulty. It would be still more difficult to bring about the acceptance at an artificially appreciated valuation of a silver token coin of the peso's old accustomed weight. Wages are still largely regulated by tradition. Whatever change has been caused by the modern evolution has been in the direction of increase and not of decrease. The inflexibility of the Indian mind would oppose with impregnable obstinacy any cut in the nominal amount of the wage even though all other prices were proportionally diminished first. If a coin of appreciably increased purchasing power were substituted for the present peso, the costly gift of the whole hidden increment would have to be made to the laboring class. Insuperable conditions thus fix within narrow limits both the value and the weight of a reformed coinage and prescribe that much of the currency must be of silver. The ratio upon which Mexico may institute the use of silver in token coins is determined more or less closely by the commercial ratios of recent years between silver and gold.

Besides the understratum of animal-men, there is, however, an active and intelligent element urging on the birth of a higher material civilization. The attitude of the Indian, numerous as he is, does not influence the onward course of these moving spirits of trade and industry except as it presents an ethnic condition that must be used for, if not shaped to, the end in view. The progress this part of the community has made is too diverse and too involved with complications of poor labor and insufficient capital to be briefly characterized. The extent of the progress and its essentially modern nature are, however, indicated by the fact that the bank-note circulation has crept up in twenty years from absolutely nothing to over 60 per cent. of the total cash circulation. Deducting the coin held by the banks as security for their note issues, the active circulation of bank-notes is nearly equal to that of silver. This paper currency represents the commercial need for a more mobile and portable medium of exchange than that afforded by the bulky peso. It typifies the modern development of Mexican finance. Its use is inalterably linked with the growth of the quicker currents of commerce, industry, and enterprise, just as the use of the old peso, or of something substantially equivalent to it, is inseparably bound up with the stationary life of the masses. This other side of the dual nature of the circulating medium must be reckoned with in any project for currency reform.

In addition to this large part of the currency whose main characteristic is mobility, the increasing use of the modern forms of credit furnishes a still more volatile method of transferring sums of money from one place to another. Since the large foreign trade gives rise to a great volume of exchange transactions there has been a widespread tendency to use these immediate forms of money transfer as a means of speculating in the fluctuating exchange. The silver quotations are watched closely by all who have dealings abroad and the turn of the market is taken advantage of in the payment of foreign debts. Funds received for exports are brought into the country when the exchange is favorable, being often left in foreign banks for a considerable period of time awaiting the opportunity. Direct speculation in the currency, having no connection with other transactions, has

also arisen. In no nation is the habit of speculating in the monetary uncertainties more deeply rooted or of more serious consequences. Tight money or abundant money in Mexico are determined, more than by any other factor, by the set of this current of speculation in exchange, which changes direction as silver is relatively high or low.

Just as the immobility of the one part of the circulation establishes a lower limit of value for the silver in the silver coin and determines the necessity for a large continued use of the metal, so the mobility of the other part fixes an upper limit to the weight of silver in the token coins and demands that the gold that secures the monetary system shall be of most abundant measure. The great danger from the mobility is speculation in the currency itself. This danger is heightened by the atmosphere and the conditions.

Distrust of the lasting strength of the system adopted would lead to such a volume of exchange transactions, or other form of speculative hoarding, that there would be an overwhelming drain upon the stock of gold. Lack of confidence must be guarded against from the start with the security afforded by an unquestionably adequate stock of the standard metal. As for the other point, the worth of the silver in the token coins must not be such as to expose these coins to the risk of ever being more valuable for export as bullion than for domestic use as currency. The vicissitudes of the silver market must be taken into account beforehand. The speculative influence from either of the two sources would if given play be quite powerful enough to produce serious monetary derangement, if not to break down the system altogether.

In spite of this Scylla and Charybdis nature of the conditions governing the bullion value of the token coin, there is a certain moderate margin between market ratio and current ratio that the Government may avail itself of. The more recent descents in the price of silver have not yet had time to call forth new investments of capital, or to permit the readjustment of the old to the new basis of value. Injustice would not be done to vested interests except possibly to those of silver mining, by giving the token coin a currency valuation approximately equivalent to the