MINERAL RESOURCES OF VENEZUELA
Before discussing the minerals of Venezuela we shall touch briefly on some of the predominant features of the topographical formation of the country, without, however, entering on a detailed description of the geologic aspects of the rocks and soil. The location of minerals is directly connected with geologic formations, and the findings of geologists should be consulted before we can take up the more intimate study of mineral ores for commercial and industrial purposes.
It has been stated that one of the most ancient land surfaces in the world is the Guayana Highlands, and from observation made on this point they may be said to offer many striking analogies to the western highlands of Scotland, which furnish such frequent opportunities for exalted poetical allusion in the writings of Robert Burns. The great, elevated platform, from which rises the peaks and mountain chains of Guayana appears everywhere to be composed of rock which during the process of integration and disintegration has preserved traces of a primitive land of long ages ago when living organisms, if there were any, had not reached such a stage in their development as to leave relics in the deposits of the time. The mountains are thought to be composed of similar rocks, gneisses, hornblendes, schists, and granite, all containing evidence of great antiquity in point of geologic time. This Guayana complex, as it is called, has been considered by geologists as more or less equivalent in age to the Lewisian gneiss of Scotland and therefore one of the oldest members of the Archaean system.
While in all probability northern Venezuela has no rocks quite as ancient as those of Guayana, the geological history of this part of the country has been much more eventful and the number of earthquakes suggest that even now the form of the earth's crust in this region is undergoing comparatively violent changes. As is commonly the case, to find the oldest rocks one must search the hills. The masses of gneiss, silvery mica, schist, marble, etc., which form the highest part of much of the mountain region, were first studied by Mr. G. P. Wall in the Caribbean Hills in 1860 and named by him the Caribbean Series. The silvery mica flakes of this region are sometimes mistaken for the precious metal and many valueless specimens have been offered for sale as silver to credulous fortune hunters.
The mineral wealth of Venezuela although not as extensively developed as conditions would seem to invite, is without doubt of very great extent, especially in the states of Bolívar and Yuruari. The principal mineral resources consist of gold, silver, copper, iron, zinc, lead, quicksilver, asphalt, petroleum, coal, sulphur and precious stones. There exists hardly any known mineral product that is not found in some part of the vast territory of Venezuela.
GOLD
The yellow lure that drew the early European venturers to the West is still one of the principal sources of wealth in Venezuela. Since the Conquest gold has always been one of the chief attractions offered by Venezuela to prospectors and capitalists. In 1904 Venezuela occupied fifth place in the production of gold in the American Republics and it is acknowledged that the evidence obtained in the various expeditions in search of this precious metal indicates that gold exists in greater quantities than statistics tend to show. The greatest output is in the region of Yuruari, which includes "El Callao." Lack of experience and carelessness of management on the part of early companies have led to the shutting down of mine after mine when once the accessible ore of the vein was exhausted, or lost by faulting. Among the earlier mines, the Callao was perhaps the most famous, though at all times the mining industry in this region has been hampered by the cost and difficulty of transportation, a drawback only to be removed through the construction by the government either of macadamized roads or railroads, at the outset preferably the former. There are rich veins in all the mountainous lands between the Yaracuy River and the cities of San Felipe, Nirgua, and Barcelona. Near Carúpano large mines are being exploited by New York capitalists, who have been able to extract seven ounces per ton out of the ore mined; besides these there are also mines in the vicinity which contain rich deposits of silver, copper and lead.
The value, in average years, of Venezuelan gold production since 1896 has been:
| 1896 | $948,500 |
| 1897 | 1,057,400 |
| 1898 | 1,089,300 |
| 1899 | 593,500 |
| 1900 | 321,200 |
| 1901 | 321,200 |
| 1902 | 433,800 |
| 1903 | 600,000 |
| 1915 | 1,280,217 |
| 1916 | 1,479,218 |
| 1917 | 898,431 |
COPPER
Copper ores are fairly common in the northern cordilleras, and likewise in the mines of Aroa in Yaracuy, 112 kilometers from Puerto Cabello. Here the pyrite veins occur in the Capache Limestone not far from the point where it has been crossed by a mass of granite. Copper ores are believed to exist in many other places in the mountains of Venezuela, especially in the mines of Seborneo and Bailadores. A rich deposit has recently been opened up near Pao in the northern part of the state of Cojedes. But the development of metals has been so retarded during the past year, that the South American Copper Syndicate Ltd., one of the principal concerns, has practically suspended operations and very little production has been realized since March, 1919. The normal output could not be maintained after the termination of the European war, which accounts for the disproportion observable between the years 1918-1919 in the production of gold and copper. In 1919, 653,456.77 grams of gold were mined as against 712,007.08 in 1918. In 1919, 2,090,290 kilograms of copper were produced as against 29,708,195 kilograms in 1918.
IRON
Many signs of hematite and magnetic iron occur in the coast of the Cordilleras in the mountains above Cora, Barinas, Barcelona, Cumaná and in many spots in the mountains of Parima; the most valuable ore is found near the river Imataca, a tributary of the lower Orinoco, eighty-six kilometers from the mouth. At one point the iron is only 487 meters from the river. There are inexhaustible deposits of magnetic mineral which give 80% pure metal, easily accessible and presenting little if any difficulty in transportation. The veins are said to be numerous and extensive. In 1901 seven hundred tons were shipped to Baltimore where the ore was examined and described as magnetic with 60-70% of iron content. The main deposit is known as Imatoca, but there are several other well known deposits in close proximity such as El Salvador, Nicaragua, La Magdalena, El Encantado, Costa Rica and Yucatan.
Every natural advantage is afforded in the working and developing of iron ore deposits in Venezuela. In a metallic mine, value depends more upon its fertility and less upon its situation.
It is otherwise with coal. The value of a coal mine to a proprietor frequently depends as much upon its situation as upon its fertility; hence we may deduce the conclusion that the iron mines of Venezuela being both fertile and commercially well situated, should have a compelling interest for foreign capital, especially American capital, in its search for profitable fields of investment.
COAL
In many parts of the Caribbean Hills, the Segovia Highlands, the Andes as well as Maracaibo and the Coco Lowlands, deposits of coal exist, but have only been worked in a perfunctory manner in scattered regions. The coal mines west of Maracaibo have produced the best specimens, and seams of a similar nature have been opened near Coco by shallow workings. The most extensive coal mines are those of Naricual some fifteen miles east of Barcelona, where the partially explored area has revealed some hundred deposits of coal of regular formations measuring from 10 centimeters to 2 meters in thickness.
Coal, however, is not one of the great revenue paying staples, due to the fact that the mines are located in a country thinly inhabited, and without good roads or facilities for transportation by water.
SALT
Salt is perhaps the most profitable mineral for the government, due to the fact that it is a government monopoly. The State allows only certain specified companies to mine or otherwise obtain this staple. One of the richest deposits is the salina of Aroga, discovered by Nino in 1499. An extensive surface of pure sodium chloride is found here, which yields large annual incomes to the government. Salt is found in almost all regions of Venezuela as follows:
| States and Territories | Deposits and Mine |
|---|---|
| Zulia | 5 |
| Falcón | 20 |
| Carabobo | 5 |
| Anzoátequi | 7 |
| Sucre | 4 |
| Nueva Esparta | 10 |
| Guayana | 1 |
| Apure | 1 |
| Bolívar | |
| Goagira | 6 |
| Colón | 5 |
| 64 |
The states of Táchira, Trujillo and Mérida use great quantities of yellow salt, white salt only being consumed in the regions near the salinas of Zulia. From 1874 to 1904 this commodity yielded $2,753,761.44 in revenue to the government.
In 1918 the extent of the mining industry was so broad that a special directory service was suggested by the Minister of Fomento, separate from the present Union of Mines, Government Lands, Industry and Commerce. Mining concessions in 1917 included 9 in iron, 14 in gold, 1 in copper and iron, 8 in copper and 1 in mica. In 1918, 9 were granted in gold, and 5 in iron. The production totalled:
| Gold | 958,304 | grams |
| Copper | 42,270,900 | kilograms |
| Asphalt | 54,071,700 | " |
| Petroleum | 18,248,524 | " |
| Coal | 20,164,915 | " |
| Companies. | Metal. | Quantity. | Value. | |
|---|---|---|---|---|
| South American Copper Syndicate, Ltd. | Gold | 902,510 | grams | B. 2,669,599.19 |
| La Cumaragua Sindicato Buria | Copper | 43,701,500 | Kilograms | |
| Nat. Government | Asphalt | 47,124,000 | " | |
| So. American Co | ||||
| N. Y. & Bermúdez Co. | ||||
| Caribbean Petroleum Co. | Petroleum | 8,650,700 | " | |
The general mining output of Venezuela in 1918 exhibited the following characteristics:
The production of coal was 25,332 tons in 1918 against 20,165 tons in 1917, all from the two mines operated by the government. Considerable improvements were made at the Naricual mines, and plans have been formulated involving the installation of briquetting machines, and the electrification of the mine by means of the falls of the Neveri River as the power source. The cost of coal at the pit was 13 bolivares ($2.51) per metric ton, and 40 bolivares ($7.72) when delivered to private parties.
Copper production fell from 42,270 tons in 1917 to 29,708 tons of ore in 1918, probably owing to lack of vessels for transportation and the falling off of demand for the metal following the cessation of hostilities in Europe.
Twelve companies were engaged in mining gold, the output being 958,304 grams in 1916 and 712,007 grams in 1918.
Only one company produced commercial asphalt (46,453 tons). (See Report on Petroleum and Asphalt, p. 102.)
The number of mining claims of all kinds taken out was 97 in 1917, 119 in 1918 and 135 in the first three months of 1919.
James J. O'Neil.
[THE PETROLEUM AND ASPHALT INDUSTRY IN VENEZUELA]
[The writer of this report is much indebted to Mr. W. T. S. Doyle, a graduate of Georgetown University, now manager of the Caribbean Petroleum Company in Venezuela.]
The purpose of this report is to present a complete, yet concise, discussion of the petroleum and asphalt situation in Venezuela. The first part is devoted to petroleum and the second part to asphalt.
Señor N. Veloz Goiticoa, a prominent Venezuelan, says, "There is scarcely a mining product known that can not be found in some part of the vast expanse of Venezuela." This statement, intended to apply to all minerals, is particularly true of petroleum and asphalt in respect of which the great area of Venezuela has as yet hardly been scratched.
PETROLEUM
Some of the natives of Venezuela knew of the properties of petroleum as far back as 1856, and used the oil in lamps. Deposits were later discovered in the interior of the country, particularly near the banks of the Venezuelan lake of Maracaibo. In the year 1883 the Government granted the first concession to a local organization, called the "Compania Petroleo del Táchira," which installed a hand-drilled well in the state of Táchira; this plant is in operation at the present day, although old-fashioned methods are being used to obtain the oil from the ground, consequently the production is negligible. Immediately after this discovery several concessions were granted to various interests, but they lapsed because no work was started on them. No further interest was shown in petroleum until 1893, when a general mining law was enacted which included provisions for petroleum and asphalt. This law was in force until 1904 when a new code was enacted, containing special legislation relating to petroleum and asphalt. The main provisions were that claims could no longer be taken up by denouncement proceedings[16] but only under a special contract entered into with the Federal Executive, the President.
[16] Old Spanish law which provided that a person or party of persons could stake out any unowned piece of ground, and then establish claim for it.
In 1905, during Castro's administration, the mining law of 1904 was remodeled. The act was very short,—containing not more than 13 articles,—but it placed in the hands of the Executive a great deal of power that he had heretofore not possessed.
All dealings regarding concessions were to be negotiated directly with him. In the year 1906, pursuant to authority delegated to the Federal Executive, an Executive decree was formulated which provided for the whole procedure under which concessions were to be granted. Under this, important initial steps were taken and many concessions granted. Four of these concessions are in force to-day; namely:
1. The Colón District (Colón Development Co., Ltd.)
2. The Maracaibo and Bolívar District (Venezuelan Oil Concessions, Ltd.)
3. Buchivacoa District (British Controlled Oilfields, Ltd.)
4. Silva and Zamora District (North Venezuelan Petroleum Co., Ltd.)
Under the new code of 1909-1910, several new contracts were made. A roving concession was granted to John Allen Tregelles, an Englishman, to explore the whole northern part of Venezuela. He located and started to drill a well near Cumaná, but without result. The rest of his concession lapsed, after a period of two years, through non-performance. The next important concession under the code of 1909-1910 was granted to the Bermúdez Company which obtained a small area, not covered by the Tregelles concession; their efforts were rewarded with more success. The Pauji Company, a local organization, also obtained a concession for a small area, but their efforts met with but small success.
On the second of January, 1912, the Caribbean Petroleum Company started the first solid work in the exploitation of the petroleum fields. They obtained permission to explore over 1,000 different sections and was the first company to achieve substantial success. Drilling was begun in 1914, and three wells in Mene Grande, state of Zulia, and one in Perija turned out to be successful. In the same year the "Venezuelan Oil Concessions, Ltd.," a British corporation, drilled a successful well near Cabimas, and the "Colón Development Company," also a British concern, struck oil near the Río de Oro.
The law of 1915 showed that the government was exhibiting a tendency to exert a controlling influence, much more than before, over the various oil fields. It was found no longer possible to obtain the enormous concessions that had heretofore been granted.
In 1918 still another new law was enacted. Just about this time greater interest was being displayed in Venezuelan petroleum, a condition brought about through the operation of the economic law of supply and demand. The European War, and the failure of some of the most important Mexican fields had a great deal to do with the shortage. The world naturally looked for new petroleum fields, and Venezuela seemed to be among the most promising prospects. Pursuant to the 1918 law, an Executive Decree was formulated on October 9, 1918, establishing the conditions required to explore and exploit petroleum, granting to prospectors all the necessary facilities, and, in a word, securing for Venezuela the efficient and profitable exploitation of her valuable deposits. In pursuance to said decree, the Fomento Department having passed several resolutions, opened for bids the zones which were free in the states of Zulia, Táchira, Trujillo, Mérida, Falcón, and Sucre.
In the spring of 1919 sixty-four contracts were made with the government by various interests, as follows:
1. West India Oil Company (Branch of Standard Oil Company.)
2. The Sun Oil Company, with subsidiaries as follows:
- a. Venezuela Oil Fields, Lt'd.
- b. Venezuelan Sun, Lt'd.
- c. Sucre Oil Fields, Lt'd.
- d. Trujillo Oil Fields, Lt'd.
- e. Merida Oil Fields, Lt'd.
3. Maracaibo Oil Exploitation Company with subsidiaries as follows:
- a. Mara Exploitation Company.
- b. Miranda Exploitation Company.
- c. Perija Exploitation Company.
- d. Paez Exploitation Company.
It will be noted that under both the Sun Oil Company and the Maracaibo Oil Exploitation Company there are various subsidiaries. The reason for these combinations are, that under the law of 1918, no one company or individual may control more than 80,000 hectares of land for exploration or more than 40,000 for exploitation (1 hectare = 2.471 acres).
In the spring of the year 1920 about 140 concessions were granted under the law of 1918, and the prospective fields were greatly extended. Whereas in 1918 they were restricted to the western part of Venezuela, by 1920 they had been extended to several sections of eastern Venezuela. In the western part of the country, at the present time, the whole Maracaibo Basin is covered with concessions, and most of these are being exploited by American capital.
At the present day there are five companies of importance operating in Venezuela. The Caribbean Petroleum company, a subsidiary of the General Asphalt Company, has completed eight wells, all of them producing, the combined capacity of which is about 6,000 barrels per day, and the average depth of the wells 1,200 feet. All these wells are located in Mene Grande, in the state of Zulia, east of the lake of Maracaibo. This company is now drilling two wells, also in the State of Zulia; they have already drilled nine dry holes in the State of Zulia, west of Lake Maracaibo. The Caribbean Petroleum possesses the only refinery in Venezuela, located at San Lorenzo, on Lake Maracaibo, with a capacity of about 1,200 barrels per day, intended for local consumption in Venezuela. A pipe line 10 miles long connects the wells at Mene Grande with the refinery at San Lorenzo. The large refinery at Curaçao, D. W. I., completed two years ago, is also refining for the Caribbean Petroleum Company, the crude oil being transported up Lake Maracaibo, and through the port of Maracaibo, in barges.
The Colón Development Company, a British Corporation, has completed four wells, two of 900 feet, one of 1,200 feet, and one of 1,600 feet and is now drilling a fifth well, all in the District of Colón, state of Zulia, south and southwest of Lake Maracaibo. Their four wells are believed to have a capacity of from 400 to 500 barrels a day. The British Controlled Oil Fields, Ltd., a British Corporation, is drilling a well in the State of Falcón, 30 miles east of the city of Maracaibo, and about 10 miles from the Caribbean seacoast. The Maracaibo Oil Company, an American corporation, organized in the autumn of 1919, has made four locations, all in the State of Zulia, with the principal locations in the Parija district. Camps have been established, and drilling material is arriving at the port of Maracaibo. The Bermúdez Company, a subsidiary of the General Asphalt Company, has been drilling for petroleum near Guanoco, for the past 23 months. It is understood that after drilling 3,600 feet, three-fourths of which was in black shale, the work was abandoned.
The petroleum now being produced in Venezuela is of an inferior quality. The wells at Mene Grande, controlled by the Caribbean Petroleum Company, produce petroleum which has a specific gravity of 960, with a heavy asphalt base, and contains about 15% light material, and 85% fuel.
The geographical situation of Venezuela makes particularly interesting the various petroleum enterprises which should contribute considerably to the economic development and prosperity of the country. Furthermore, the Panama Canal is not far distant, and vessels that cross through it,—and they are daily increasing in number,—will be able to utilize easily the petroleum of the country.
As other industries have suffered, so has the petroleum industry been seriously handicapped in Venezuela by the lack of adequate transportation facilities. There are undoubtedly many rich fields of petroleum in the interior of the country, but it is clear that they are worthless without adequate means of transporting the product to the seaports or centers of consumption. The Caribbean Petroleum Company has had considerable difficulty in transporting its product to Curaçao from San Lorenzo, a difficulty due to the fact that at the narrow neck of Lake Maracaibo, there is a bar with only 12 feet of water above it. It is obviously impossible for ships of any great size to come over the bar and into the lake. All the petroleum that is shipped from the Maracaibo district at the present time is handled by shallow-draft barges, but with sufficient capital, and some good engineering, this difficulty could undoubtedly be overcome, and it would then be possible for tank steamers to come into the lake and receive cargoes of crude petroleum from the various producing points. The principal port in this section is Maracaibo, in the state of Zulia, and all petroleum for export is handled through it.
There are numerous opportunities offered for foreign capital in Venezuela in the exploitation of petroleum. As noted before, the surface has as yet only been scratched, and indications to-day point out that there are many possibilities as yet untouched.[17] Geologists say that there are signs on all sides of the existence of petroleum, but just where the big producing fields of the future will be located is difficult to ascertain at the present time.
[17] Senator Lodge, addressing the Senate of the United States on April 13, 1920, declared that what are probably the largest oil fields in the world are at the point of development in Venezuela and Colombia.
On the 26th of June, 1920, a new law pertaining to petroleum and asphalt was enacted. A full copy of the act, in Spanish, is presented with this report. (On file in School of Foreign Service.)
The following table gives the names of the principal petroleum and asphalt companies operating in Venezuela, with capital invested:
| Names of Companies | Capital in Bolivares | Capital in Dollars |
|---|---|---|
| Caribbean Petroleum Company | 20,782,482 | 4,156,496 |
| New York and Bermúdez Company (asphalt) | 8,914,932 | 1,782,986 |
| Colón Development Company, Ltd. | 4,747,000 | 949,400 |
| Bermúdez Company | 4,319,820 | 863,964 |
| Venezuelan Oil Concessions, Ltd. | 2,316,996 | 463,399 |
| British Controlled Oilfields, Ltd. | 1,500,000 | 300,000 |
| Total | Bs. 42,581,230 | $8,516,245 |
There are in addition several small local companies operating in Venezuela; these together with the above companies represent probably a total investment of Bs. 50,000,000 ($10,000,000) in petroleum and asphalt.
It will be interesting to note at this point that during the year 1919 over Bs. 2,000,000 were paid to the Venezuelan Government by North American corporations for the right to exploit concessions.
The following table shows amounts (in metric tons) of petroleum exploited and exported during the last three years:
| 1917 | 1918 | 1919 | Totals | |
|---|---|---|---|---|
| Exploited | 18,248 | 24,153 | 22,957 | 65,358 |
| Exported | 8,650 | 11,101 | 1,084 | 20,835 |
It will be noted that production and exportation greatly increased in 1918 over 1917. In 1919, production was decreased and exportation greatly decreased in proportion to exportation of 1918. In 1918, almost half of the production was exported while in 1919 the amount exported was about one-twenty-second part of the amount produced. This was due to the fact that a greater amount was being consumed locally in Venezuela.
ASPHALT
The age of asphalt is at hand. This important mineral already has many applications in our lives, and with a greater knowledge of its possibilities, its utility will be largely extended. Asphalt is very old. It was the material that welded together the stones of the Tower of Babel; it was found on the shores of the Red Sea, and the Egyptians used it in the preservation of their dead. The etymology of the word asphalt ("α" privitive and σφαλλω, to slip) indicates its cementatory properties, and the actual ingredients of the substance are common scientific knowledge. Asphalt, asphaltum, bitumen, maltha or mineral pitchmene,—different names for the same substance,—is an amorphous, pitch-like material, black or brownish in color, and lustrous, being composed of various hydrocarbons, whose proportions vary widely according to the locality from which the material is obtained. It is a product of the decay of vegetable matter, and commonly,—perhaps always,—occurs in connection with rocks containing bituminous matter. It melts at a heat of from 195 degrees to 212 degrees Fahrenheit, and burns with a bright, smoky flame. While the pitch-lake of Trinidad, a surface a mile and a half across of pure asphaltum, is perhaps the most remarkable occurrence of this mineral in nature, still the lake of Bermúdez, which covers 1,000 acres in the state of Sucre, Venezuela, is fast equaling the former in commercial importance. Asphalt is also found in the Pedernales district, in the state of Monagas, as well as on the shores of Lake Maracaibo. As an indication of the value of Venezuelan bitumen, we may cite the fact that this special variety is used to protect the tunnels of the New York subway from moisture.
The fact that Venezuela has sent 43,000 tons of asphalt to the United States in one year, is an indication of the future wealth to be derived from the systematic exploitation of asphaltum there.
At the present writing there is but one company producing asphalt,—The New York and Bermúdez Company, a subsidiary of the General Asphalt Trust. This company is working a pitch lake at a point near Guanoco, in the state of Sucre, adjacent to the Gulf of Paria, in the extreme northeastern part of Venezuela. The concession held by this company is known as the Hamilton Concession,—obtained in 1886 for a duration of 99 years, and including about 960 hectares. The grade of asphalt is excellent, and in many respects better than the Trinidad variety, as it tests at a grade of 98% asphalt and 2% water and waste. The pitch lake is only 7 miles from the Rio San Juan and the company is particularly fortunate because the deep water in the river permits ocean steamers to come alongside the company's docks. A railroad, controlled by the New York and Bermúdez Company, is in operation between the lake and the docks, and over this all asphalt produced in this region is transported. The transportation situation here may be contrasted with that in the Maracaibo district in western Venezuela, where transportation conditions are none too good.
The South American Asphalt company of Philadelphia has obtained an asphalt concession in the vicinity of Mene Grande, near the eastern shore of Lake Maracaibo, but as yet no results have been obtained.
The following table shows the capital of the New York and Bermúdez Company, and the amount of asphalt exploited and exported for the last three years:
| 1917 | 1918 | 1919 | Totals | |
|---|---|---|---|---|
| Exploited | 54,071 | 46,453 | 45,936 | 146,460 |
| Exported | 47,124 | 43,347 | 42,459 | 132,930 |
Official Trade Statistics of Finance Department for 1918-1919 show that during budget year, Venezuela exported more than Bs. 1,000,000 ($200,000 American gold) worth of asphalt.
The law of June 26, 1920, referred to in the last part of section one of this report, applies likewise to asphalt. The photographs attached show several phases of the petroleum industry in Venezuela and the accompanying map shows in a general way the petroleum and asphalt concessions and the areas of production.
William H. Johnson.
CHECKS, DRAFTS, BILLS OF EXCHANGE AND TRADE ACCEPTANCES IN VENEZUELA.[18]
"In the primitive ages of commerce, article was exchanged for article without the use of money or credit. This was simple barter. As civilization progressed, a symbol of property—a common measure of value—was introduced to facilitate the exchange of property. This might be iron or any other article fixed by law or by consent, but it has generally been gold or silver. This certainly is a great advance beyond simple barter, but no greater than has been gained in modern times by proceeding from the use of money to the use of credit.
[18] In the discussion of commercial paper in Venezuela, it will be noticed that very few statistics are presented. It was found by the writer that very few articles had been written on this subject and those available were lacking in statistics. The Chamber of Commerce, however, interested itself in the topic under consideration and as a result statistics are to be compiled for the year 1920.
"Commercial credit is a creation of modern times and belongs in its highest perfection only to the most enlightened and best governed nations.
"Credit is the vital air of the system of modern commerce. It has done more—a thousand times more—to enrich nations than all the mines in the world. It has excited labor, stimulated manufacturers, pushed commerce over every sea, and brought every nation, every kingdom and every small tribe among the races of men to be known to all the rest.
"All bills of exchange, all notes running upon time as well as the paper circulation of the banks, belong to the system of commercial credit. They are parts of the one great whole. We should protect this system with increasing watchfulness, taking care, on the one hand, to give it full and fair play and, on the other, to guard it against dangerous excesses."
(Speech of Daniel Webster in U. S. Senate, March 18, 1834.)
These weighty words uttered by the great Webster, more than four-score years ago, indicate the importance of the functions of commercial credit, the red blood which flows through the veins of commerce. It is of vital importance, therefore, when studying the commerce and conditions of a country to consider, as we are about to do, the credit system.
CHECKS
The system used in Venezuela is the same universal check system common to the United States and European countries. Money is deposited in the usual manner on a checking account, in return for which bank credit is received, and the depositor thereafter has the right to direct the bank to pay to the order of a specified person any part of the capital therein deposited.
In regard to the period of time during which this method of payment has been employed in Venezuela it is difficult to secure definite information, although local bankers say that its history is very short. The period of real use is not longer than the last decade.
Considering the proportion of checks devoted to financing commerce, it is necessary to divide the latter into two main parts. First: commerce with the interior of the country, in the life of which checks are practically unknown, all payments being made in gold or silver. Second: transactions of the wholesale merchants and the larger retail dealers of important cities, who make ready use of this efficient and easy method of payment.
Although no statistics have ever been collected showing the amount of checks used in Venezuela, the following reliable data was obtained:
An estimate was made in 1920 by the National City Bank of New York City, sucursal of Caracas, showing that about 75 per cent of the business handled by them was done through the medium of checks. It may be well to note at this point that this bank handles the business of American firms in that city together with other foreign companies who have dealings with the United States. Another estimate made by the Bank of Venezuela, taking the month of January, 1920 as an average, showed that about 50 per cent of the business transactions passing through their hands for that month was similarly completed. It may be observed that this bank is the largest and best recognized national bank in Venezuela.
From these two estimates we may draw the conclusion that the foreign branch banks handle more checks than the old established native banks of the country, due to the fact that foreign firms in Venezuela use a greater amount of checks than the native dealers. But since business with the interior of the country comprises about one-half the commerce of Venezuela, we should divide our estimates and conclude that between 25% and 37%, (31% mean average) is the proportion of checks used in the commerce of Venezuela.
The system of clearing these checks is the same as was formerly the custom of the United States, before the days of the clearing house. The banks of the interior are all branches of the four main banks of Venezuela. They handle very few checks but when occasion arises send them to the main offices for final settlement. Each day the banks gather their checks together and send them by messenger to the respective institutions on which they are drawn. In this manner the clearing takes place, currency being exchanged to settle balances. The size of the country and the proportion of checks used does not necessitate a clearing house.
LAWS REGARDING COMMERCIAL PAPER
Article No. 2 of the National Stamp Tax Law, drawn up by the Congress of the United States of Venezuela in conference assembled in the year 1915 decrees:
"Will be subject to a national tax of stamps, all documents or writings which relate to things, services, laws or legal proceedings, whose value is estimated or determined, that circulate within the interior of the Republic, or that are expedited for foreign use."
"This tax will be collected with the following tariff:
| Bs. | 25 | to | 50 | Bs. | 0.05 |
| " | 51 | " | 100 | " | 0.10 |
| " | 101 | " | 200 | " | 0.20 |
| " | 201 | " | 300 | " | 0.30 |
| " | 301 | " | 400 | " | 0.40 |
| " | 401 | " | 500 | " | 0.50 |
| " | 501 | " | 1,000 | " | 1.00" |
DRAFTS AND BILLS OF EXCHANGE
Drafts and Bills of Exchange used in Venezuela may be classified and considered with reference to the following headings: International Trade and Domestic Trade.
We shall first consider the drafts used in foreign exchange. In most countries they may be classified as "clean bills" of exchange, and "documentary bills," i.e. those accompanied by bills of lading (full sets), invoice copy and insurance certificates. But this is not so in Venezuela, as according to the Banking Law of 1919 all drafts on Venezuela, in order to be collectible must have documentary evidence attached. At the termination of the late war many anxious dealers in North America shipped goods to Venezuelan firms, as a rule forwarding a draft to a local consul or bank for collection, only to find that it was useless without documents attached. Hence, if the merchant to whom the goods were sent chose to be dishonest, he might obtain the goods from the docks and sell them, and not be held responsible by law. Although this has very seldom occurred, it is always a wise measure for the drawer of a draft on Venezuela to acquaint himself with the banking laws of that country.
Another noticeable matter of considerable importance is the difference between the drafts drawn on Venezuelan merchants by American houses and those drawn by European houses. It is a commonly understood and most regrettable fact that the time on drafts from the United States do not exceed ninety days, while those from European countries, especially England, will bear six months' time. This fact was brought to the attention of the writer by the Chamber of Commerce and by every representative of banks, both American and Venezuelan, with whom he consulted. The Republic has expressed its desire to maintain and increase the present trade with North America but it demands the same credit from Americans as is granted by European merchants. To-day we live in an age of credit, and Venezuela must have that credit in order to develop her commerce.
From the law quoted herein it will be seen that all drafts on Venezuela are subject to a graduated stamp tax ranging from .05 bolivares for drafts valued at 25 to 50 bolivares up to one bolivar for drafts valued at from 500 to 1,000 bolivares.
Foreign drafts in Venezuela are always drawn in duplicate (first of exchange and second of exchange), each being forwarded by different steamers to insure safety, one becoming void when the other has been paid. Drafts may be drawn to the order of a specific payee, usually the collecting bank, or they may be drawn to the order of the drawers or shippers.
The discounting of drafts and other bills of exchange has developed greatly within the last two years. Commercial liquidation has been made possible by the buying and selling of drafts in all parts of the country at the same price. Funds have been transmitted by telegraph to places where the sending of specie would be extremely costly. Commissions range from ¼% of 1% to 1.
Recently there has been established by private enterprise that type of bills of exchange bearing 8% annual interest, or one per cent less than the current interest, at which wholesale dealers discount the invoices of their sales in the interior. This important branch of banking has been in operation for about two years and it has been noticed that the system, in spite of the short time in existence, has gained firm foothold and been generally adopted. The operations which have been carried on by the Bank of Venezuela in this branch show the following results:[19]
| Year | Semester | Amount |
|---|---|---|
| 1917 | 2 | Bs. 368,430.53 |
| 1918 | 1 | 752,118.52 |
| 1918 | 2 | 967,516.32 |
| 1919 | 1 | 1,243,576.79 |
[19] Report of Inter American High Commission, 1919
As may be seen from these figures the results have been satisfactory, and the system has also produced still greater results in the development of the commerce of the Republic.
As is natural, the foreign banks recently founded, have also discounted these acceptances of commerce and it is hoped that with their great influence and the cooperation of the banks of Venezuela, this method will continue to grow in use.
The handling of drafts is at the present day perhaps the most important dealing in commercial paper observable in the banks of the country.
TRADE ACCEPTANCES
As expressed in the circular of Feb. 8, 1915, it is the opinion of the Federal Reserve Board that: "the acceptance is still in its infancy in the field of American banking. How rapid its development will be can not be foretold but the development itself is certain."
The Federal Reserve Board in its circular of July 15, 1915, defines the term "trade acceptance": "A bill of exchange—drawn to order, having a definite maturity and payable in dollars in the United States, the obligation to pay which has been accepted by an acknowledgment, written or stamped, and signed, across the face of the instrument, by the company or firm, corporation or person upon whom it is drawn; such agreement to be to the effect that the acceptor will pay at maturity, according to its tenor, such draft or bill without qualifying conditions." An acceptance, therefore, may rightly be called a time bill of exchange which passes from hand to hand like money.
This acceptance differs from what is commonly termed such in Venezuela and also from drafts. The commercial document with bill of lading attached commonly called an acceptance in that country, may be drawn at sight, or may be made payable at a certain time after sight. This enables the title of the goods covered by the bill of lading to remain vested in the seller, the drawer of the draft, or the person to whom the bill of lading may be endorsed, until the draft is paid. Another form not in common use in Venezuela is the sight draft for collection, which is drawn on buyers previously sold on open account. It is generally used as a means of collection when ordinary means have failed to produce payment. The "trade acceptance," on the other hand, is an acknowledgment of obligation and a promise to pay it on a certain date.
Some objection has been made to trade acceptances in this country on the ground that the bidding of the banks in the market of discount, would deprive commercial houses of selling their own single-name paper. It has been proved, however, that the sale of the aforesaid paper has in no way been disturbed by the introduction of acceptances. All banks worthy of consideration have as a rule surplus capital to invest and this is usually attracted by the commercial paper of responsible houses.
The use of trade acceptances, therefore, not only does not impede but tends to increase the banking facilities of merchants.
This most important of all commercial papers has yet to be adopted in Venezuela. The first acceptances cashed in that country were handled by the local branch of the National City Bank of New York. These acceptances—twenty in number—were cashed during the last week of July, 1920. The foundation has thus been laid and it is expected that their use will grow in such numbers that they will eventually surpass all other instruments of commercial credit employed in the country.
The present need of the Venezuelan public, of the bankers and of the nation as a whole is the development of the great natural resources of the land. This, obviously, is an enormous undertaking and requires from all the nations with whom Venezuela has business dealings, especially from the United States, credit. And by what means can that credit be more satisfactorily granted than in that form wherein each party reaps a real benefit, by the instrument known as "trade acceptance"?
Nelson Hopkins.