On the change of Ministry in July, 1868, which led to the formation of the Cabinet over which Viscount Itaborahy now presides, the Chamber of Deputies, by an unexpected and sudden combination of forces previously adverse to each other, came to a resolution which left the newly formed Cabinet no alternative but an appeal at once to the nation, and that without the Chamber making full financial provision for the conduct of the war. Left in this position by no fault of its own, the Cabinet in September, 1868, had no alternative but the adoption of financial operations on its own responsibility. But they have fortunately met with the full approval of the country, and will, no doubt, be sanctioned by the result of the now impending general election of deputies.
These measures were of an alternative character. First of all they consisted of a decree authorising a further issue of State notes to the amount of 40,000 contos, viz., £4,500,000. But this decree was followed by another empowering the Treasury to raise a domestic gold loan of 30,000 contos, £3,335,000. The former decree was, however, only intended to support the credit of the Government, in the event of the failure of the loan authorised by the latter decree, and as it has been successful, a further issue of State notes will, it may be anticipated, be averted to any considerable amount.
In explanation of these measures it is necessary to state that the pressure of the war expenditure going on since April, 1865, had led, under the previous Cabinet of Senhor Zacharias, to the creation of a large floating debt, represented by Treasury Bonds, issued for various short periods. There is always in Rio de Janeiro a large amount of loanable capital seeking interest on temporary investment, which it had found previously to the crisis of 1864 in the deposits of private bankers' establishments. This loanable capital deprived of such resource after the crisis of that year found better and safe temporary shelter in Treasury Bonds. And obtaining money in this way to carry on the war, the preceding Cabinet was able to avoid new permanent operations for supplying the means for its necessities. The wants of the Government so supplied, however, deprived commerce of part of its legitimate supplies of money and made the situation of the Treasury precarious and hazardous. The extent, too, of temporary resources of this kind had obviously reached their limit. It was, therefore, partly to extinguish a large amount of this floating debt, and so to relieve the Treasury from any embarrassment that might arise from failure in the renewal of Treasury Bonds when at maturity, and partly to provide for the exigencies of the war, that the Government in September, 1868, resorted to the internal loan of 30,000 contos, £3,335,000, issued at ninety percent., in bonds bearing six per cent. interest payable in gold, redeemable in thirty-three years by purchase when under par, and drawing when at or above par, in which last case payment to be made in gold. This loan was so favourably received that applications for it were received in Rio only to the extent of 105,000 contos, and it quickly rose to a premium of seven per cent.
Again, then, complete success has attended the financial policy of Viscount Itaborahy, and the Treasury has been provided with the means of discharging a large amount of floating debt and of prosecuting the war.
In spite of the provisions adopted by the legislation, and of the concurrent necessary activity of Brazilian commerce, the exchanges in London after the crisis of 1864, though high in reference to the over issue of inconvertible paper, had fallen, and in February, 1868, declined, as if in panic, to 14d. This fall was partly due to the remittances to England of bills for purchasing gold and honouring the Government commitments on this side, and still more to the large orders from the Plate for operations in exchange, and purchases of bullion here caused by the financial crisis of Monte Video.
This decline in the rate of exchange on London was, however, brief. Thanks principally to the financial measures just described, and to the improving prospects of the war, the rate has again risen, and is still rising.
Such, in necessarily brief and rough outlines, is the history of the circulating medium of the Brazilian Empire.
Everything, it will be seen, conduces to the conviction that with the close of the war and expenditure there will be a certainty of maintaining the standard of 1846, so solemnly reproduced in the laws of 1853, 1860, and 1867, and in the internal loan of 1868, and that the foreign exchange will once more rise, in the interests of commerce and of all domestic industries to above the legal level so fixed in 1846. When this has been accomplished it will be recognised, and be due to an intelligent and prudent administration of the finances, to the prodigious development of the external commerce and to the inexhaustible resources of the great American monarchy.[[8]]
[8]. In the preparation of this chapter we are indebted to several important and valuable Brazilian works—“Systema Financial do Brazil,” by Conselheiro C. B. de Oliveira; the Report on the Circulating Medium of the Empire, made in 1859-60, by a Commission presided over by Conselheiro Almeida Areas, now Brazilian Minister in London; the Report on the Crisis of 1864, by a Commission presided over by the late Conselheiro Silva Ferraz (Baron de Uruguayana); the Relatorios, from 1865 downwards, of the Ministers of Finance, and the Annals of the Senate and Chamber of Deputies for the same period.