The first and second groups of these South American countries are almost entirely under the domination and control of the European financier, the English being paramount, followed by Germans, French, Italians and Spanish, in the order named. Throughout Brazil, Argentine, Uruguay, Paraguay, Chile, Bolivia, Peru and Ecuador, in all the larger cities and ports, as well as in the interior and isolated towns, where business is to be had, may be found branches, agencies, or representatives of banking houses of these nationalities. They keep their fingers on the pulse of trade, know mine outputs, crop prospects, cattle productions, stability of governments, possibilities of revolutions or political unrest, the condition of business—in a word everything that has any bearing on banking or that could by any possibility reflect on the money market. Taking all these elements into consideration together with the important factor of the question of supply and demand, they decide the price of exchange each day or how much a merchant having a foreign obligation to meet, must pay for the necessary sum to liquidate his indebtedness. Very naturally a better price is quoted for the money required if payment is to be made in coin of the bank’s nationality for the reason that it necessitates less actual movement in the medium of exchange, the entire transaction as a rule being done on paper. This preliminary saving of a fraction of a per cent. in a big business means much in the course of a year and it has a strong tendency to make the buyer seek markets so situated that he might profit thereby. On the other hand the Latin American trader desiring to remit to the United States for goods bought in this country is forced because of lack of direct financial connection in South America to buy his exchange on London, Hamburg, Paris or some other European money center, thereby giving the European banker a profit of a fraction of a per cent. on every dollar of our foreign business. Furthermore, invoices and bills of lading are frequently attached to banking documents for custom house clearance and other purposes, thereby giving the European banker and through him, his clients and friends, an opportunity of learning our prices and terms. And so, not content with giving the foreign financier a chance to make money on our export trade, we also aid our greatest competitors by supplying prices and information to defeat our commercial purpose.
Some mercantile houses in the larger of these countries maintain for their own use accounts in New York against which they draw when liquidating bills in the States and do a general banking business as well, including the cashing of drafts and selling of exchange. Obviously only a large business concern could afford to do this and their natural tendency is to sell direct exchange on New York as high as the European banks. The dealer with small capital or the foreign merchant is invariably for one reason or another forced as a general rule to do business through the European banker when in need of American exchange.
In both Venezuela and Colombia, their nearness to the United States, a direct steamship service to our leading ports and the fact that we as a nation take the bulk of their products, combine to overcome all attempts on the part of Europeans to establish banks in these countries. As the local exporters ship their goods to our shores where they are disposed of they instruct their agents to deposit the moneys so received in local American banks, against which they issue checks in liquidation of indebtedness, thereby eliminating the necessity for the services of the international banker. Local banks in these countries, never very strong, and always subject to forced loans from financially embarrassed governments, do not enter materially into the business life of the community although they also maintain credits in New York and sell drafts against them. The consequence is that every leading merchant throughout these lands develops into a foreign banker, on a small scale, and buys and sells exchange. As long as this condition prevails, and it works most satisfactorily, the foreign bank will not be required to open its doors.
Practically the same state of affairs occurs in Central America, the general tendency to political unrest and the existence of an inconvertible paper currency in some of these countries, (similar conditions being current in Colombia) serve to emphasize distrust in local banks and concentrate banking operations in the hands of the larger mercantile houses.
Prior to the revolutionary troubles which are now convulsing Mexico, American, English, German, French and Spanish banks were to be found throughout that country. The presence of the American banker in this territory and the great bulk of trade movements between Mexico and the United States, kept the price of exchange within reasonable bounds.
In Panama, Cuba, Santo Domingo and Porto Rico, American banks exist and American currency is in use almost exclusively. All financial calculations are made in dollars and cents and a complete and perfect system of exchange on leading cities of this country is current so that the subject need not be further discussed.
As is to be supposed, the European countries having possessions in the West Indies and South or Central America, very naturally have banking facilities between these colonies and each mother country. In addition, prominent Canadian banks have successfully established branches in the largest of the British colonies for the purpose of building up direct trade with the Dominion of Canada, thereby eliminating the tribute London usually demands on exchange. Although we take much of the exports and sell these possessions most of their necessities, still the individual business done in each island or colony is relatively small and the field of operation too restricted to warrant other banking connections. Besides exchange on New York is cheaper here than elsewhere, owing to the fact that both Canadian and English banks maintain branches in that city. In the other colonies merchants, as a rule, have personal accounts in American banks in the States and are thereby enabled to handle their own transactions advantageously.
There are four monetary systems in use in Latin America: (1) the gold standard, wherein gold is the only legal tender, other forms of money being maintained at a parity with or without a government guarantee; (2) the gold exchange standard, wherein gold and other forms of money are legal tender, the conversion of the legal tender into gold being guaranteed by the government; (3) the silver standard, wherein silver is the legal tender, and (4) inconvertible paper, the value of which continually fluctuates and is dependent entirely upon the stability of the government’s credit.
The gold standard is used by Bolivia, Cuba, Costa Rica, Ecuador, Peru, Porto Rico, Santo Domingo, Uruguay, the British, French, Danish and Dutch West Indies and possessions.
The gold exchange standard is in use in Argentine, Brazil, Mexico, Nicaragua and Panama.