The Government finally saw that its plan was useless; and hastened to explain itself by the mouth of its Minister of Finance, who declared that “the executive power recognises that the withdrawal of eight millions of piastres per annum cannot fundamentally alter the price of our paper; but what it does affirm is that this quantity will be sufficient, provided the production of the country increases, provided that the exports exceed the imports; that is to say, provided that the international balances are in favour of the Republic.”
We may say in passing that these two desired factors were realised; but not the expected advantage, for the Government again made the mistake of issuing 15 millions of internal stock, bearing interest (£1,320,000), while at the same time it extinguished another debt, also domestic, which did not bear interest.
All these details prove in a conclusive fashion that the original and organic functions of the Caisse de Conversion were inverted from the time of its creation; converting that institution into a factor of depression in all that concerned the paper currency, instead of being the instrument of increasing its value.
After this date the Caisse operated as a secondary and harmless department of the public Administration; leading an almost forgotten existence, until the year 1899, when the law of monetary conversion was passed, which entrusted it with two missions of great importance, which were destined to exercise a beneficent influence upon the fiduciary circulation, and therefore upon the economic life of the Republic.
One of these two missions had as its object the establishment of an office for the exchange of paper into gold and vice versa, at the rate of 2.2727 piastres in paper for 1 piastre in gold. The other consisted in forming a Conversion Fund, to which more or less important resources were assigned. This fund amounted in 1902 to £2,400,000 in gold, but at a moment when an international complication was believed
to be imminent this sum was placed at the disposal of the Government by authorisation of Congress.
The Government eventually returned £2,000,000 of this sum, and since then the fund has constantly increased, amounting in 1907 to £5,100,000, as we stated when speaking, in the passages relating to the issues of paper money affected by the Caisse de Conversion, of the results of the application of this new law.
The law to which we are referring was put into execution on the 9th of December 1899. On that day the first transaction under the new law was effected; the Caisse received 100 piastres in gold, in exchange for which it returned the equivalent in notes, in the proportion of 44 centavos of gold to a piastre note. The balance drawn on the 31st of December showed the existence of £292.6 in gold. At this same date the fiduciary currency in circulation amounted in all to $295,149,735.
Let us now look into the operations of the Caisse de Conversion after this date.
During the year 1900 $18,398,449 (£3,679,690) in gold was received; but as this sum was eventually withdrawn the fiduciary circulation soon reached its former figure.