Argentina and Uruguay

by Gordon Ross

THE ARGENTINE MONETARY SYSTEM

Is controlled by the Conversion law, above referred to, which fixed a ratio between the value of the paper and gold currencies and made these interchangeable at that ratio until the time should be judged to have arrived for the substitution of metallic coinage for paper.

The law was passed as the only available though drastic remedy for the state of financial chaos, nothing less, in which Argentina found herself for some years after the crisis of 1891. For the coming of this chaos Argentines blame the European Bankers who, at least, looked on whilst the country floundered into it. For this view they have considerable reason. The Bankers were men of great experience in Finance; of which the Argentines of that day had little or none. Argentina relied on the men who had taken her Finances in hand for the development of her vast natural resources. She awoke to find herself in a financial condition which would have spelt a century of ruin to any less nature-favoured land. And it was an Argentine, Señor Ricardo Pillado, now Director-General of the Division of Commerce and Industry in the Ministry of Agriculture, who devised the Law which, though it in effect involved a partial repudiation of the country’s liabilities, at any rate made possible the financial renaissance on which her present great prosperity was founded.

As has been seen, the Conversion Law said that a paper dollar should be equivalent to 44 cents gold and that conversely a gold dollar should be worth 2·27 paper dollars. This ratio was supposed to have been fixed by taking the average ratio of value between paper and gold over a certain period immediately prior to the passing of the Law.

This basis is now believed to have been fictitious, it being found that, had such an average of values been struck, a paper dollar would have become the equivalent to something much more like 60 cents gold. So that in fact a repudiation of 40 cents liability on every paper dollar in circulation was made to become one of 56 cents.

That, however, is past history; and the existing Law appears likely to remain in operation for an indefinite time to come.

It has its inconveniences. Institutions and traders are obliged by Law to keep their books in both currencies. There is no gold coin available as an equivalent to 1 paper dollar. One needs to have a clear 50 dollars’ worth of notes before one can get gold out of the Conversion Bank; so that all transactions involving odd amounts must be carried through with the aid of paper. In point of fact gold is only seen in the course of important transactions. Still, the gold is there, in the country, in the Conversion Bank; and cannot be withdrawn from the coffers of that Institution except as against paper dollars, nor can paper dollars be issued except as against gold actually in the Conversion Bank. For the absolutely strict observance of these rules everyone concerned, from the President of the Republic down to the humblest employee of the Caja is personally responsible under the law. By the operation of the law the Republic holds a usually ever-increasing stock of gold; the accumulation of which is aided by the inconvenience for practical exchange of the figures ·44 and 2·27.

There is no doubt but that the object which the framers of the Conversion Law originally had in view, the rehabilitation of the country’s Finance and credit, has been fulfilled long ago; and it is for other reasons that Foreign Capitalists and Banks, to whom Argentina must still look for the means of her fuller development, prefer to let the dual monetary system, with its several practical inconveniences, continue instead of encouraging Congress to declare the purpose of the Law fulfilled, by which declaration it would, by its terms, lapse ipso facto. On that happening there would be a period, momentary only, in all probability, but still a period, during which the coffers of the Conversion Bank would be open through the automatic lapse of the Law of its creation. And Capitalists and Bankers, grown very prudent indeed in their generation, prefer that those coffers should remain closed and safeguarded as they are; even at the cost of some few extra clerks to cope with a system which otherwise works very satisfactorily.

Shin-plasters, as the paper dollars are called by Anglo-Argentines, fulfil all the purposes of daily life as well as would silver or other metallic tokens. Paper dollars, guaranteed by gold, have also other advantages over a metal coinage which might not be so fully guaranteed.

Therefore the Conversion Law remains a live letter on the Argentine Statute Book.

It is, however, a vulgar error to refer to the time when other tokens might be substituted for paper as the time for “Conversion.” Conversion really took place with the coming into operation of the law which converted a fluctuating ratio into a fixed one.

The speculation in gold, referred to elsewhere, which had attained disastrous dimensions just prior to the passing of the Law, was another evil to which that Law put an end. Then as now all everyday transactions were carried out in paper; but, then, no man could tell from hour to hour what the paper he held was worth. Everyone was by force of circumstances practically a gambler whether he wished to be one or not. The paper tokens for which he had sold his wares one day might be worth much more or less the next. Everyone had to make his own forecast of probabilities before he could make or give a price for anything; and therefore became a constant speculator, a gambler in futures, in fact. The bad moral effects of such a state of things is obvious. Many other financial evils were rife at this time, which now have only historic interest, among them may be mentioned the Banks of Issue for which authority appears practically to have been given by the State to anyone able to procure and furnish offices. Stacks of the notes of these precious Institutions still occupy space as curious lumber somewhere in the cellars and garrets of Government House. Valueless and best forgotten by a prosperous and enlightened nation which no longer needs any such awful examples to deter it from lapse into irregular finance.

Uruguay has a gold, silver and nickel coinage, but, as in Argentina, notes are the most common tokens, especially for amounts of $1 and upwards. As will have been understood, Uruguay has no Caja de Conversión, her currency being and always having been on a direct gold basis.