Brazil and the River Plate in 1868

by William Hadfield

This crisis once more raised the question of the currency and of banking, and led, after a prolonged discussion, to further legislation in 1866.

By the beginning of 1865 the paper circulation of the Empire reached the enormous sum in sterling of £11,025,000, of which, however, only £3,150,000 were notes of the Government having general circulation throughout the country. For the balance of £7,785,000, the circulation of which was limited to defined districts in which the issuing banks were situated, the public, had no adequate security. The natural consequence was disarrangement in the internal exchanges and general disturbance of the money market. To remedy it Government proposed a radical reform of the Bank of Brazil, and its separation in two departments,—one of issue, the other of banking. The discussions on this question continued through the legislative sessions of 1865 and 1866. And during these discussions the adverse situation was illustrated by further decline in the foreign exchanges and the augmentation of the non-Government paper in circulation to £9,225,000, to which it had swollen in May, 1866.

In the session of that year the difficulties of this state of affairs were brought under the consideration of a Committee of the Senate, of which Viscount Itaborahy was the most eminent member, and to which a remedial measure of a radical character was referred for examination. The result of its deliberations was the expression of an opinion that the Bank of Brazil, having in two years doubled its circulation, could no longer accomplish the essential objects of its existence. Thus sentence of death was passed on that institution by the statesman who had formed it, and legislation became inevitable after such a condemnation.

Accordingly, on the 12th of September, 1866, a measure became law which enabled the Government to abolish the contract under which the Bank of Brazil existed. The principal provisions of this law were: 1. The cessation of the bank's privilege of emission. 2. The division of the bank into two departments—one for banking purposes only, the other for mortgage loans, in order to effect a gradual liquidation of the securities given by the agricultural classes, and so to form the commencement of the operations of the law of September, 1864. 3. The sale of the bank's stock of bullion, which amounted to £2,925,000 and the application of the proceeds to a proportionate withdrawal of its notes from circulation. 4. The annual contraction of its remaining paper circulation. 5. The payment to the bank for the State notes it used in accordance with its primitive contract, in withdrawing from circulation about £1,237,500, by the substitution of bank notes by State notes, and the discharge of an insignificant amount of treasury bonds cashed by the bank. 6. The issue in payment of floating debt, and those treasury bonds of State notes, to the amount of notes withdrawn by the bank.

Thus the Government were supplied with coin for remittances to the army and navy engaged with war in Paraguay, and the Bank of Brazil was reduced to a mercantile association. So it now remains, only a small and scarce portion of its notes having a forced circulation, and that small portion is being greatly reduced.

Thus, too, the exclusive functions of providing for the circulating medium were restored to the State, instead of being confided to a bank on which were at times painfully and mischievously exercised the exigencies of internal credit, and the reaction in Brazil of those crises in Europe and the United States, that affected the Brazilian Empire while its currency was in so unsound a condition with great violence.

In 1867, the increasing pecuniary requirements of the war compelled the General Assembly to vote the Government a credit of fifty thousand contos (£5,625,000) which have in great part been used by the Government. But, inserted in the law which authorised the issue, is a provision that on the termination of the war, the legislature will fix in the budget of each year the necessary amount to be applied to the withdrawal of this addition to the State notes.

It was not, however, only by further emissions of State notes that the General Assembly in 1867 made provision for the extraordinary expenditure of the Government. In that session old taxes were increased, new sources of taxation opened up, and the whole system of taxation was re-organised in a more rational and scientific way, greatly to the increase of the general revenue of the Empire. So much so that in the session of 1868 the budget for 1869-70 showed under the influence of greatly enlarged receipts, and of economies effected in the various departments of the State, an important surplus.

And while thus placing the paper circulation on the more solid basis of national security, important reforms were effected in the same session of 1867 in the coinage of the Empire.

Owing to the fineness of the silver coinage a fall in the foreign exchanges was immediately followed by the exportation of silver from Brazil to the great inconvenience of petty commerce. So in September, 1867, for the silver coinage of Brazil was adopted, in respect of the coins of two milreis (4s. 6d.) and milreis (2s. 3d.) the fineness and weight introduced by the International Convention between France and other countries. And the Government substituted for the old copper coinage bronze pieces of twenty reis (½d.) and ten reis (¼d.) of a similar alloy to that of our present bronze coinage—viz., ninety-five parts of copper, four of tin, and one of zinc. So that the Brazilian coinage consists of gold pieces (of twenty and ten milreis of 917 milliomes,) legal tender for any amount—that is, of 27d. per milreis, and of these silver and copper pieces for tokens. In addition, English sovereigns and half-sovereigns are also legal tenders for any amount in Brazil.