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U. S. Commission on international exchange. 

Gold standard in Cliina and Panama. Report on tlie 
introduction of tlio goid-excliange standard into (Hiina, 
Panama, and other silver-using countries, and on the sta- 
]>i1ity of excliange. Sn1)initted to tlie secretary of slate 
October 22, 1904, by the Commission on international 
exchange. I high II. Hanna, Cliarles A. Conant, Jere- 

miah AVh JenlvS, commissioners. Wasliington, Gov’t 
print, off., 1904. 

20 p. 24"". 

T. Conant. Charles Artlnir, 1861- it. Hanna, Iliigh H., 1848- 
III. Jenks, Jeremiah Whipple, 1856- 

Vol of pamphlets. 

Library of Congress 

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‘t ' fTfc, 

Gold Standard in China and Panama 

Report on the Introduction 

of the 

Gold-Exchange Standard 


China, Panama, and Other Silver-Using Countries, and on 

the Stability of Exchange 

Submitted to the Secretary of State October 22, 1904, by the 
Commission on International Exchange 

Hugh H. Hanna 
Charles A. Conant 
Jeremiah W. Jenks 


Government Printing Office 




Gold Standard in China and Panama 

Report on the Introduction 

of the 

Gold-Exchange Standard 


China, Panama, and Other Silver-Using Countries, and on 

the Stability of Exchange 

Submitted to the Secretary of State October 22, 1904, by the 
^ ■ S, — Commission on International Excliange 

Hugh H. Hanna 
Charles A. Conant 
Jeremiah W. Jenks 


Government Printing Office 


f > 


Washington, D. C., October 22^ 1904. 

To the Honorable 

The Secretary of State, 

Washington, D. C. 

Sir: The Commission on International Exchange begs leave to 
submit herewith its report on the work done and the results ac- 
complished since its previous report of October i, 1903, together 
with supplementary material explanatory of its work and of the 

general subjects which, under your instructions, it has had under 

The work done during the last year covers especially certain 
investigations and suggestions in connection with the reform of the 
monetary system of China, the currency of the Philippine Islands, 

and the establishment of a new monetary system in the Republic of 

There are submitted herewith also some data showing a tend- 
ency toward greater stability in the price of silver bullion, appar- 
ently as a result of the direct action of governments with whom this 
Commission conferred last year, especially of the British Govern- 
ment in connection with the currency of India. This has in itself 
tended to produce greater stability of exchange, and thus to diminish 
one of the obstacles to trade between the gold countries and the 
silver-using countries which was the occasion of the appointment of 
the Commission. 

After its return from Europe in September, 1903, as explained in 
its previous report, the Commission designated Mr. Jenks as its 
representative to go to China to present to the Imperial Government 
a report on its work in Europe, and, in accordance with the request 
of that Government, to render it any further assistance that it 
might desire. The President approved the suggestion, and Mr. 
Jenks received special instructions for his work in the Orient. Inas- 
much, however, as the new Philippines currency was not vet fullv 
in operation, and certain questions regarding the currencv law were 
under consideration by the Philippine Commission, it was thought 



best that, before taking up this work in China, he should visit the 
Philip] unes in order to lay before the Government there suggestions 
regarding their money system which had grown out of the discus- 
sions i.i Europe as well as to gather the results of experience in the 
Philip )ines which were likely to prove of service to the Chinese 
Goveriment in the establishment of its system. 


Th i best assistance which could be rendered to China in response 
to her request, it was thought, was to cooperate with her in every 
way possible to adopt the wisest plans for the establishment of a 
new monetary system of her own, based upon a fixed gold value. 

In )rder to present the general ideas of the Commission on Inter- 
national Exchange on this subject to the Chinese Government and 
people as a basis for discussion, a pamphlet was prepared setting 
forth the main points of its plan as worked out in discussions with 
the European Government experts, with the reasons for making the 
sugge .tions. This pamphlet, printed in both English and Chinese, 
with tie approval of the Imperial Government of China, and in part 
by its aid, was widely distributed among the officials and most 
impor.ant business men of China. Some of the Chinese papers 
reprinted the pamphlet in full, while other papers there, both native 
and fc reign, reprinted extracts from it as well as brief articles cov- 
ering special points which were especially prepared for this purpose 
by th( Commissioner. 

As soon as his credentials were presented to the Government at 
Peking, Mr. Jenks asked permission before taking up the detailed 
consic eration of the subject with the Imperial Government, to spend 
some time in visiting the more important treaty ports as well as 
some )f the interior Provinces, in order to study business conditions. 
The I uperial Government not merely gave its consent,’ but notified 
officials along the route chosen regarding the intended visit and 
aided the Commissioner in every way possible in making his observa- 
tions. The special purposes in mind in this study were: 

Fi "St. To secure a general view of monetary conditions in China 
and o; the methods of doing business under the various conditions 
found in different Provinces. In the interior many days were passed 
in localities where no money is employed excepting copper cash 
and c lunks of silver [sjcee) which have to be weighed out by scales 
whicl- each dealer or traveler keeps for the purpose. As oppor- 
tunity offered, conversations were held not merely with officials of all 
ranks but also with bankers, merchants, and even with day labor- 
ers, local traveling peddlers, roadside workmen, etc. In this way a 
reaso lably accurate idea was secured of the methods of conducting 





business without any generally 
probable ability of the people of 

recognized currency and of the 
all classes to deal with a new and 

uniform money. 

Second. Conference with the officials from day to day, both 
those of high rank, such as viceroys and governors, and those of 
lesser rank, such as local district magistrates, gave an opportunity 
to estimate the qualifications of those in whose hands would need to 
be placed to a greater or less extent the administration of the new 

system when it should be adopted. 

Third. The attitude of the people of various classes, officials, 

business men, and common people, toward a change in the system 
and toward the new monetary system suggested, was ascertained. ^ 

Fourth. Opportunity was offered to explain in part the main 
points of the system proposed to the viceroys and other leading men, 
officials, bankers, merchants, etc., so that thus valuable criticism of 
the plans from the point of view of those familiar with local condi- 
tions was secured, and in many cases opportunity was offered to 
remove from the minds of those who did not understand the pur- 
pose of the invitation of the Chinese Government or its attitude 
toward the United States in this matter the natural suspicion regard- 
ing the motive of the United States in understaking this work; and, 
furthermore, objections which would naturally occur to those not 
familiar with the administration of currency systems, were overcome. 

These inquiries covered the inland territory between Peking and 
Hankow on the Yangtse River, a typical part of the interior of 
China, which is removed from direct foreign trade; the \ angtse 
River from Hankow to Shanghai, with visits to the two most im- 
portant trading posts on the river; a visit to Shanghai, Canton, and 
Tientsin, the three most important treaty ports on the coast; as 
well as discussions with the governors at Soochow and Hangchow, 
the capitals of two very important Provinces, and interviews with 
the customs taotais at Amoy and Chefoo, important ports in two 
other Provinces. The subject was thus discussed with the governors 
or viceroys of ten, and with high officials of twelve out of the eighteen 
Provinces of China. At Shanghai, too, the subject was discussed 
in detail in several meetings with the treaty commissioners who 
have represented China in framing the important commercial treat- 
ies recencly negotiated with Great Britain, the United States, and 

Japan. _ _ 

The results of these investigations and discussions were that 

many new ideas regarding conditions in China and what was practi- 
cable for China were secured; that in many cases misconceptions 
regarding the nature of the reform and of the plans under discus- 
sion were removed, and that the experience secured and the knowl- 



edge gained enabled the Commissioner to understand much more 
readil ' the attitude of the higher Chinese officials toward their old 
systeni and the proposed new system. 

Or his return to Peking the subject was taken up for detailed 
discussion with the Imperial Government. As a result of the treat- 
ies wi h Great Britain, the United States, and Japan it has been the 
intent on of the Chinese Government to establish a uniform mone- 
tary system, and for the purpose of working out plans for that 
system, as well as for meeting the United States Commissioner, a 
Comn ission had been appointed consisting of the members of the 
Board of Revenue and several other officials, some of high and 
some )f lesser rank. Some of these had been especially designated 
to ha\e charge of the new mint and to devote their time to the con- 
sideration of monetary affairs. 

It vas found that as a result of discussions in connection with 
the tr ;aty with Great Britain, of various resolutions passed during 
the tv o or three preceding years by foreign chambers of commerce 
in Ch na, of arguments presented in the newspapers, and of their 
own ‘ tudy of the question, the Chinese Government officials had 
apparently informally, although not at all officially, reached the 
conch sion that they wished ultimately to place their system of cur- 
rency on the gold basis, but that at present they would establish 
a unilorm silver and copper currency without definite plans for 
reaching the gold basis. Although the Commissioner was treated 
throu ^hout with the greatest courtesy and consideration, it seemed 
at fir it as if the officials with whom he had to deal at Peking, 
though interested in the general subject had, relatively speaking, 
slight interest in the specific plans proposed by the Commission on 
Inter: ational Exchange. As the discussions went on, however, and 
as frcm the work of both the Chinese and American commissions 
the disadvantages and difficulties became more apparent of starting 
on a ‘ilver basis without clean-cut, definite plans for the change to 
the gold basis, and on the other hand, the advantages of having the 
new coins placed on the gold basis fi'om the beginning, both from 
the point of view of financial gain to the treasury and benefit to the 
busin iss interests of the country, keen interest on the part of 
the Chinese Commissioners was clearly awakened. In fact, before 
the c ose of the discussions the Chinese Commissioners themselves 
said that from this work not merely had their views to a consider- 
able extent changed, but that their whole interest in the plans of 
the A nerican Commission had greatly increased. 

T1 e decision of any question of this importance in China is 
finalb' made by the Emperor on the advice of the Grand Council. 
The opinion of the Grand Council, however, is determined to a 




great extent, of course, by the high officials in the Government who 
have especially to do with the subject under discussion; and in this 
instance the responsibility for the recommendations which would 
doubtless prove conclusive, rested chiefly upon the Chinese President 
of the Board of Revenue, His Excellency Lu Chu’an Lin, together 
with their Excellencies the Manchu President, Yung Ching, and Na 
Tung, the distinguished official who had been designated the year 
before to report on the monetary system of Japan. Naturally the 
opinion of the senior President of the Board of Revenue would be 
of the greatest influence. His excellency, an official of ripe years 
and of extended experience in various high official positions, a man 
of upright and most positive character, had apparently reached the 
conclusion that the wisest plan for the Empire was to begin on a 
silver basis in the hope of ultimately reaching the gold standard; 
but the plan for the change to the gold standard had not been fully 
worked out by him or by others in the Commission. As there was 
relatively little opportunity for direct discussion with the President 
of the Board of Revenue on account of his absence at the summer 
palace in attendance on the Court, as well as from the pressure of 
his other duties (since, in his judgment, the matter was already 
settled), it seemed, until shortly before the American Commissioner 
was compelled to leave China on account of the limitation of the life 
of the Commission imposed by Congress, that the plans of the 
Commission would probably not be adopted or even thoroughly 
considered by the Imperial Government in the most important mat- 
ter of all— the prompt establishment of the gold basis— although in 
numerous minor particulars, even some of considerable importance, 
the opinion was freely expressed by the officials that they would 

accept the American suggestions. 

At length, however. His Excellency the President of the Board 

of Revenue, was transferred to the presidency of the Board of 
Works and a new President of the Board of Revenue was appointed. 
His Excellency Chao Erh Hsiin, the new President of the Board of 
Revenue, manifested immediately a great interest in the plans under 
discussion and himself personally honored the American Commis- 
sioner by meeting him repeatedly day after day for the discussion of 
the subject. Before Mr. Jenks was compelled to leave Peking for 
America, the opinion was expressed by several of the high Chinese 
officials whose positions would place heavy responsibility upon them 
in connection with the money system, that the American plans were 
practical if the cooperation of the viceroys of the more important 
Provinces could be secured; that the Chinese Government, could, 
if it seemed advisable, secure the financial means necessary lor the 
carrying out of the reform ; and that there would be no infringe- 




ment cf the sovereignty of the Empire or danger to its integrity or 
usefuliiess in the employment of such foreign expert aid as might 
be req lired for the establishment of a system in accordance with the 
Amerii an plan. 

The Commissioner was assured also by different governors, vice- 
roys, c nd commissions, that the American plans would have their 
suppoit, and some of the highest officials in Peking are of the 
opinio 1 that in a number of instances, at any rate, the support of 
the local authorities will be heartily given to the Central Govern- 
ment i; it undertakes these plans. A favorable judgment regarding 
the attitude of the Chinese Government seems to be quite general 
also anong those foreign residents most experienced in Chinese 
affairs The general opinion seems to be well represented by Mr. 
Conger, the minister of the United States, in his letter to the 
Depar.ment of State, as follows; 

I hi ve the honor to report that Professor Jenks left Peking for home on the 
27th ins tant. 

His task was a very difficult one, and at first the prospects were rather discour- 
aging, hut by patience, persistence, and clever presentation of his unsurpassed 
knowledge of the subject, he has made great progress. He has practically brought 
the Chi lese Government to believe that his plan is the correct one, and ought, if 
possible , to be adopted ; yet they greatly fear that so radical a change in their finan- 
cial sys em can not at present be carried out by a Government which has so little 
real po\ 'er over its separate provinces. However, they have promised to at once con- 
sult the leading viceroys and governors and see what can be done ; but whether or 
not Professor Jenks’s plan is adopted, his instruction and advice will aid the Chi- 
nese Gc vernment greatly in its efforts to adopt a uniform currency as required by 
the recent treaties, and his further assistance is most likely to be solicited by them. 

Professor Jenks has been treated with the greatest respect and consideration 
by the (Chinese officials. They feel that he has been of great service to them, and 
it is certain that much good will result from his mission, for all of which he 
deserve > great credit. 

Dcctor Morrison, the experienced, impartial correspondent in 
Pekin r for many years of the London Times, on the departure of 
Mr. Jf nks from Peking, cabled to his paper as follows: 


S T N D .A. R D A R G U M E N T S . 

Peking, August 2 q. 

Pre lessor Jenks, of Cornell University, the Commissioner delegated by the 
United States to confer with the Chinese authorities regarding the suggested intro- 
duction of the gold standard in China, left Peking yesterday on his return to America. 

He has been in China since January, and has been treated with exceptional 
honor. His mission was purely educational and not political. With untiring 
patienci Professor Jenks has been demonstrating to the Chinese the necessity of 
reform ng their currency and the immense gain that would follow the establish- 
ment o the gold standard. 

Un ioubtedly his mission left its mark. The Chinese Government is beginning 
to reali'e the vital importance of the question, and it is regrettable that Professor 




Jenks should be compelled to return to America when his work is only beginning, 
for experience teaches that between Chinese expression of approval of a reform and 
its actual introduction the distance often is considerable. 

Mr. Robert Little, the veteran editor of the North China Daily 
News and the North China Herald, for many years the most impor- 
tant foreign publication in China, writes in the North China Daily 
News, September 8, 1904, as follows: 


Prof. J. W. Jenks left Shanghai yesterday for the United States in the Mon- 
golia, and we are glad to know that he leaves these shores with the satisfac- 
tory conviction that his mission has not been altogether in vain. He has planted 
it is for others to water, and the increase will come. Thoroughly conversant as he 
is with his subject on every side, a clear and cogent writer, a very able speaker, 
and a man of winning personality', he was the best choice that the United States 
Government could possibly have made when the Chinese asked for a Commis- 
sioner to advise them how they might best obviate the loss which the continuing 
depreciation of silver was causing. His plan, as is generally known, is the adop- 
tion of the gold standard without a gold currency, to put it as concisely as possi- 
ble, and he has found the statesmen of Peking as well as the high provincial 
officials, with whom he has discussed the question in all its bearings, eager to listen 
to him, to understand, and to adopt in due time his suggestions. Many foreigners 
too, who were first indisposed to believe that the adoption of the gold standard by 
China was anything but an impossible dream, have been convinced by his argu- 
ments; and there is good reason if nothing untoward happens, to believe that 
something like the reform which has been so unexpectedly and promptly success- 
ful in the Philippines, will be adopted by China before long. Thus China will 
come into line with India, the Straits, the Philippines, and Japan, to the permanent 
advantage of all who do business with gold-standard countries. And mainly to 
the suave, unassuming, but thoroughly earnest Professor of Cornell University^ 
with his unexcelled mastery of facts and figures, this great and beneficial reform 
will be due. And there will be a general hope that circumstances will enable him 
to return to China and give his advice and assistance to those who will be charged 
with putting his recommendations in action. 

Of Still greater import is documentary testimony from Chinese 
sources, besides the favorable opinions referred to above which have 
been expressed informally by business men and officials. The Chi- 
nese commercial union of Hongkong took formal action. The 
president of this association (an active Chinese of the chamber of 
commerce) Mr. Feng \Va Chun, wrote to the American Commis- 
sioner on the 13th of August, 1904, stating that: 

A meeting of a committee of that institution was * * held on the ^th 

instant when it was unanimously agreed that it would be to the interest of China 
to adopt a gold standard, and that the Chinese residents of this colony would hail 
such a step with gratification. Inasmuch as it has been held that Hongkong can 
not go ‘gold’ so long as China*‘s currency remains unchanged. 

The letter concludes witli the hope that tlie American Commis- 
sioner’s mission will meet with the success it deserves. 


Mere important still, of course, is the official statement from the 
Chinese Government itself. The Prince of Ch’ing, the President of 
the G'and Council, who represents officially the Chinese Govern- 
ment, in response to a request for a definite statement of his opinion 
to be presented to the President of the United States, wrote to Mr. 
Jenks on the eve of his leaving Peking, as follows: 

1 hive the honor to state that your excellency having been commissioned by 
your gc vernment at this time to come to China, I found myself after conversation 
with yen in hearty accord with your ideas, and having read the various papers and 
memoranda which you have prepared, I note that they are all exhaustive in their 
discuss ons, and set forth plans covering all details, for all of which how can I 
sufficiently express my gratitude. As to your suggestions regarding the adoption 
of a ui iform monetary system, all are of great importance. China is just now 
considering the matter of deciding upon a new coinage system and is deliberating 
as to the establishment of a national bank, and it is most necessary that she should 
follow rour plans and that all those measures which need most urgently to be 
taken c p just now in accordance with those plans should at once be put into execu- 
tion w th earnestness and promptitude. As to the rest, it will be necessary to 
investiijate and consider the feelings of the people, and, as occasion may offer, take 
these n atters under advisement with the expectation that the suggested measures 
will bt developed one after the other in such a way as, I trust, will fulfill your 
genero is wishes for us and secure a good degree of success. 

Yo ir excellency is well known in China and abroad as a financial expert, and 
your el'orts to formulate plans in our behalf, so sincere and friendly, demand from 
me pre found and grateful thanks. 

I h ;ar that your excellency has made preparations for your return home and 
that th ; date of your departure is at hand. Should there be occasion in the future 
to ask he further benefit of your instruction, I shall then write a special note to 

inform you. 

I a /ail myself of the opportunity to wish you the compliments of the day. 

Tlie Commission feels, therefore, that there is every reason to 
belie\e that the mission for which it was established, to cooperate 
with he Chinese and Mexican Governments in establishing sound 
mone :ary systems which would fix the rate of exchange between the 
great ist of the silver-using countries and the gold-standard countries, 
has bi:en in great part satisfactorily performed. It remains to be seen, 
of course, how promptly and by what methods the Chinese Govern- 
ment will carry out its intentions as indicated in the letter of the 
Prince of Ch’ing, of adopting in the main the plans of the Commis- 
sion. This much, at least, is clear — that the Government officials who 
are ir the positions of chief responsibility have shown the greatest 
courtesy and consideration toward the United States Commission; 
that they have shown themselves open to the fair consideration of 
sound arguments on this most important and difficult question, and 
have manifested the open-mindedness and frankness in announcing 
a wil ingness to change their opinions which is characteristic of the 
greatest statesmen ; that the Chinese Government has the ability. 


financial and otherwise, if, on further consideration, it continues to 
have the will, to carry out with proper expert advice a good system, 
and that in the opinion of the best-informed persons in China, this 
intention and purpose will continue unless some hostile influence 


It is the opinion also of many of the best-informed foieign 
residents in China, as well as of some of the higher of the Chinese 
officials, that if, under the limitations of the act of Congress, the 
Commissioner could have remained a few months longer in China 
he would have had the opportunity of seeing the new system organ- 
ized and of cooperating with the Chinese Government in whatevei 
way might have seemed to it wise in the organization of the system. 
The Commission, however, has from the beginning taken the posi- 
tion that it was doing simply what it could to comply with Chinas 
request for assistance without in any way bringing any pressure 
to bear upon that Government in carrying out its plans; and it is 
convinced that, difficult as the task before China is (and no other 
country in modern times in its monetary reform has had a task so 
difficult), the good sense and wisdom of the Chinese officials upon 
whom rests the responsibility of the introduction of the new system 
may be trusted to secure the best expert advice and to take the 
wisest means of establishing the new monetary system on a sound 

gold basis. 


From December 23, 1903, to January 16, 1904, was spent by 
Mr. Jenks in the Philippine Islands and in conference with the 
Philippine Commission over proper measures for transition from 
the old currency svstem to the new one provided by the Act of 
Congress approved March 2, 1903. Immediately following these 
conferences and public discussions of bills proposed, two acts were 
passed by the Philippine Commission which seem to have removed 
most of the difficulties in the way of the successful inauguration of 

the new monetary system. 

It was found, as a result of experience in the islands, that many 
business men, especially exporters who were buying in the interior 
products for exportation, and the large employers of laboi who 
expended considerable sums of money regularly in the payment 
of wages, as well as other people wdio employed labor on a small 
scale and purchased supplies for their daily consumption, weie 
making use by preference of tlie Mexican dollars and the othei 
local currency because it was cheaper, and they were thus hindering 
seriously the general use of the new^ coins. Moreover, under the 
influence of these classes in the community, whenever the rate of 



exchr nge turned slightly in favor of the islands, there was a tend- 
ency :oward the reimportation of Mexican dollars which had pre- 
vious y been exported. 

To meet these difficulties the Philippine Commission, as has 
been suggested, passed two laws; the first, a measure prohibiting 
absol itely the importation of Mexican currency, Spanish-Filipino 
curre icy, or any other metallic currency which is not upon a gold 
basis, with proper exception of small amounts in the pockets of trav- 
elers: the second, an act restricting after a certain fixed date in the 
future the use of all moneys excepting the legal-tender currency by 
impo .ing a tax, which was to increase in rate as the months went by, 
upon all checks, drafts, notes, bonds, bills of exchange, and other 
written contracts of every description made payable in whole or in 
part ' n the former local currency, as well as a tax upon bank deposits 
and i pon the conduct of business of any description in the old local 
currency, proper exceptions being made, of course, for contracts 
previiusly entered into, deposits for the payment of old contracts, 
bills )f exchange, or checks or other contracts for the purpose of 
expoi ting Mexican dollars, etc. 

Ir the Manila American of September 22, 1904, is the following 
edito'ial covering the same ground fully: 

Vic 2-Governor Ide, secretary of finance and justice, has given out in his finan- 
cial sti.tement for August that there is sufficient Philippines currency in circulation 
in the islands to meet all demands and that the government is prepared to supply 
all needs in the conduct of insular commerce on the new basis. 

WI ile the work of introducing the new currency has been attended by many 
discou 'agements and vicissitudes, it is remarkable how successfully the war against 
the fia money has been waged and in a few months to what extent the new currency 
has fo ind its way into circulation. 

Th ; success attained is largely due to the fi.xed purpose of the government to 
carry iito effect the currency policy and the fact that no avenue for the distribution 
of the new coin and no course for the discouragement of the old one has been 
overlojked in the campaign. 

Th s success is worthy of special deference, since the great mass of the people 
offeree little or no encouragement or cooperation and rather assumed a prejudiced 
positic n against the passing of the fiat money. This prejudice is being rapidly 
overcc me and the bright, new * * * dollar is to-day the favorite where a choice 
is offe ed, even of the most ignorant. 

It seems clear, however, that no further legislation will be needed 
beyond minor measures to meet special needs, such as small changes 
in thi rate of buying or selling exchange, of receiving old copper 
coins etc. The government of the Philippine Islands is certainly 
to be congratulated upon having established in full vigor a gold- 
stancard system adapted to the needs of the people within about a 
year from the time when the new coins were first introduced into 
the islands. Rarely has any country accomplished so great a reform 
so promptly and with so slight disturbance of business. 




The completion of negotiations between the United States, the 
French Canal Company, and the Republic of Panama for the con- 
trol by the United States of the construction of the I anama Canal 
made it important, in the opinion of the Commission on International 
Exchange, that some action should be taken to ensure the use of a 
sound currenev in the construction of the canal. The matter was 
considered to be of considerable importance from the standpoint of 
the cost of the canal, because uncertainty as to the character of the 
currency employed would not only involve the risk of injustice in 
the wages paid to labor, but might add greatly to the amounts 
charged by contractors for services rendered in order to protect 
themselves against the consequences of fluctuations in the gold value 
of the money employed by them in local expenditures on the Isthmus. 
The fact that the work of constructing the canal w^ould bring the 
officers and employees of the United States into frequent contact 
wdth the citizens of Panama made it desirable also, in the opinion 
of our Commission, that some degree of harmony should be brought 
about between the currency employed in the canal strip under the 
control of the United States and that employed in the Republic of 

The Government of Panama showed from the beginning a dis- 
position to meet the w'ishes of the United States and to establish a 
sound currency upon the gold basis. The evils suffered under the 
fluctuating currency previously in circulation in Panama had already 
led to a large use of United States money on the Isthmus and to a 
strong realization of the importance of establishing a monetary sys- 
tem based upon gold. Several bills on the subject w^ere pending in 
the Congress of Panama during the spring, but failed of enactment, 
because of differences of opinion in regard to the rate at wdiich the 
old silver currenev should be converted into the new, and in regard 
to other details of the proposed change. The fact that the Govern- 
ment of the United States should interest itself promptly in securing 
harmony between the currency systems of the canal strip and the 
Republic of Panama was set forth for the first time in a memoran- 
dum regarding the currency of Panama wdiich was submitted by the 
Commission on International Exchange to the Secretary of W ar 
under date of March 26, 1904, and which will be hereafter printed 

f as an appendix to this report. 

This memorandum did not undertake to decide betw'een sexeral 
different systems which were suggested, but simply to emphasize 
the importance of cooperation between the Governments of the 
United States and the Republic of Panama. Subsequently, in the 
latter part of April, the Commission, through one of its members. 



was re luested by the President and Secretary of War to prepare a 
definit ; project on the subject. This project was submitted in a 
memoiandum entitled “Suggestions regarding the system of cur- 
rency :o be established in the Panama Canal Zone,” which was 
transrritted to Secretary Taft under date of May 19, 1904. The 
subjec was taken up actively by the Secretary of State and the Sec- 
retary of War early in June because of the pending departure of 
Mr. Jo in Barrett, the minister of the United States to Panama, who 
desirec to know what representations he should make on the sub- 
ject tc the Government of the Republic. As a result of several 
confer mces at the State Department and the War Department, the 
Gover iment of Panama was asked to designate a commission to 
confer with the authorities of the United States on the subject, in 
accordance with the suggestion originally made b}’’ the Commission 
on Int irnational Exchange. 

The Government of Panama promptly complied with this request 
by de: ignating as its commissioners the Hon. Ricardo Arias and 
Dr. Eusebio A. Morales, who were already in New York in connec- 
tion with the disposition of the money paid by the Government of 
the United States for the canal franchise. Acting under authority 
of the r government and by invitation of the Secretary of War, the 
Comrr issioners of Panama met several officials of the Government 
of the United States at the office of the Secretary of War on Satur- 
day, Jane ii, 1904. There were present at this conference the Sec- 
retary of War; the two Commissioners of the Republic of Panama; 
their counsel, Mr. William Nelson Cromwell; the minister of the 
United States to Panama, Mr. Barrett; the chairman of the Canal 
Comrr ission. Admiral John G. Walker; the legal adviser of the 
Canal Commission, Judge Charles E. Magoon; the Chief of the 
Burea 1 of Insular Affairs of the War Department, Col. Clarence R. 
Edwa ds; and Mr. Conant, as a representative of the Commission 
on International Exchange. 

The desirability of harmony between the United States and the 
Republic of Panama in establishing a sound monetary system on the 
Isthm IS was forcibly set forth by the Secretary of War, and was 
cordia lly admitted by the Commissioners of the Republic of Panama. 
A geniral discussion followed as to the best method of establishing 
and maintaining a monetary system acceptable to all parties in in- 
terest. The Secretary of War emphasized the importance not merely 
of esti blishing the gold standard, but of providing for an adequate 
gold reserve to protect any subsidiary silver which might be issued. 
The Cammissioners of Panama objected to setting aside a large sum 
upon he ground that the money was not available. Of the $10,000,- 
000 received from the United States they stated that $6,000,000 was 



» I » 

dedicated by their new constitution to posterity. It was the inten- 
tion, they declared, to invest this money in a permanent form and to 
apply only the interest to current expenditures of the Government 
of Panama. The remaining portion of the money paid by the 
United States for the Panama Canal franchise, they declared, was 
already appropriated for education, important public works, and 
similar purposes. The Secretary of War insisted strongly, however, 
upon the setting aside of a gold reserve to protect the subsidiary 
silver, if the money adopted by the Republic of Panama were to be 
employed by the Panama Canal Commission. The Commissioners 
of the Republic asked time, therefore, to consult their government 
on this subject and an adjournment was taken for one week. 

At the conference of June 18 the Commissioners of Panama sub- 
mitted a proposal that the reserve to be set aside should be 15 per 
cent of the face value of all the silver to be coined. It was suggested, 
on behalf of the Commission on International Exchange, that if so 
small a reserve were provided it should at least be strengthened by 
the addition of the seigniorage profits on the coin minted from new 
bullion. This proposition was supported by the Secretary of War 
and was accepted by the Commissioners of the Republic. At a 
final meeting on Monday, June 20, a letter was drafted by the Sec- 
retary of War, addressed to the Commissioners of the Republic of 
Panama, stating that he understood that a measure was pending in 
the national convention of the Republic, conforming in its general 
terms to the plan which had already been discussed between himself 
and the Commissioners, and that if this plan was adopted as outlined 
in this letter, the War Department would agree to employ the cur- 
rency of the Republic on the Isthmus and to cooperate with the 
Government of Panama in so arranging drafts upon the canal funds 
in the United States as to prevent excessive fluctuations in exchange. 
This proposal was accepted by the Commissioners of Panam^a on 
behalf of their Government, and an act was approved by the Presi- 
dent of that Republic on June 28, 1904, embodying this agreement. 

The substance of the plan agreed upon between the Commis- 
sioners of Panama and the Secretary of War was that a gold com, 
to be known as the Balboa, of the same weight and fineness as the 
gold dollar of the United States should be the standard of value in 
Panama; that the gold currency of the United States should be legal 
tender there; that provision should be made by the Republic of 
Panama for the issue of fractional silver to the face value of $1,500,- 
000 in gold; and that upon the request of the Panama Canal Com- 
mission, if the construction of the canal showed it to be necessary, 
there should be executed from time to time additional coinage of 
fractional silver to an amount not exceeding the face value in gold 

1 6 


of $1, = 00,000. Parity of all the silver coined is to be maintained by 
the de josit in some bank in the United States of 15 per cent of the 
nomin d value of such coin, with the addition to such deposit of 
the ne seigniorage on such amount as may be coined at the request 
of the Canal Commission. 

Th s plan departs from the recommendations of the Commission 
on Int ^national Exchange and from the currency system adopted in 
the Philippines in making the unit of value equal to one dollar in 
Ameri :an gold coin instead of fifty cents. The silver coins provided 
for, he wever, are nearly the same in size as those provided for in 'the 
Philip )ines. The largest of these silver coins will be of about the 
size of an American silver dollar, but will have in Panama the value 
of fift : cents in American gold. It will weigh 25 grams (385.8 
grains nine-tenths fine, and is therefore coined at about the ratio of 
30 to I. While it will represent fifty cents in Panama currency, 
instead of a complete unit of value, as in the Philippines, this coin 
is spe fifically denominated by the new law the peso, in conformity 
with t le existing coinage in circulation on the Isthmus, of which the 
peso is the unit, and whose present gold value, while fluctuating 
with t le price of silver bullion, is only a little below fifty cents in 
Unite(. States gold. Thus, while the American dollar has become 
the stmdard of value, the local subsidiary currency is so nearly 
adjust id to old conditions that prices and wages will not be affected 
in the drastic manner in which they might be by the adoption of a 
subsidiary coinage exactly the same as that of the United States. 

Thi Commissioners of the Republic of Panama have already 
made irrangements for the execution of proper dies for their new 
coinage by the officials of the United States Mint at Philadelphia. 
A pari of their new coinage will soon be executed, but it will not be 
necessary for the Canal Commission to use a large quantity on the 
canal vork until the surveys have been more nearly completed and 
contracts actually made for the execution of the work. By that time 
the coinage agreed upon for the Republic will probably be com- 
pleted and the officers of the United States will be in a position to 
determine whether additional amounts of subsidiary silver will be 
requirid to provide an adequate circulating medium under the 
agreement made with the Secretary of War. 


The essential object for which the present Commission was ap- 
pointed was referred to by the President of the United States, in 
his message to Congress, as being to procure “such measures as 
will t( nd to restore and maintain a fixed relationship between the 
monet s of the gold-standard countries and the silver-using coun- 


tries.” Of the several measures to secure this object which have 
been considered by the Commission, the one most important and 
most permanent in its influence has been, in their opinion, the 
adoption of the gold exchange standard in silver-using countries. 
Incidentally, however, it is obvious that any measure which should 
tend to promote stability in the gold value of silver bullion would tend 
to check the fluctuations in exchange between gold and silver coun- 
tries, which have been so disturbing to commerce for a generation 
and which proved especially demoralizing to the commerce of China 

and Mexico during 1901, 1902, and the spring of 1903. 

As pointed out by this Commission in its report of last year, the 
exchange between gold and silver countries now depends funda- 
mentally upon the fluctuations in the gold price of silver. Any step 
contributing toward stability in the price of silver bullion would, 
therefore, in itself tend to diminish the fluctuations of exchange, 
independently of the more important object of separating the mone- 
tary systems of the silver-using countries from the silver standard 
and placing them on the gold standard. Some misunderstanding 
of the objects of the Commission in this regard seemed to arise in 
some quarters because of failure to distinguish between efforts previ- 
ously made to raise the price of silver and the efforts made by this 
Commission to promote stability in the price. Stability in the price 
of bullion is important because it carries with it comparative sta- 
bility in exchange. In order, therefore, to prevent paralysis of 
trade between the silver-using countries and the gold countries, the 
Commission on International Exchange suggested-to the European 
powers with whose representative they consulted, an effort to re- 
duce the violent fluctuations in the bullion market by making such 
purchases of silver as are actually required for coinage purposes 
with greater regularity. As shown in our previous report, the sound- 
ness of this principle was generally recognized by the governments 

with whom consultations were held. 

It is gratifying to report that this policy had borne fiuit in 

diminishing fluctuations of exchange between gold-standard coun- 
tries and silver-using countries. The most important influence 
exerted in this respect has been by the Council for India, at London, 
in making its purchases of silver bullion to meet the coinage 
demands of British India. A letter from Sir James Mackay, a mem- 
ber of this Council, to the chairman of this Commission, states: 

I think you will observe from the prices which the Secretary of State for India 
paid for the silver which he bought that regularity has, as far as possible, been 

observed, so as to prevent extreme fluctuations. 

Considering that the value of the silver bought by the Secretary of State since 
the 6th of March, 1900, up to the end of September, 1904, has amounted to twelve 
millions sterling, the variation in prices has, I think you will see, been e.xtreme y 




The figures presented by Sir James Mackay give only the aver- 
age pr ce paid for different lots of silver purchased. They show 
that while the prices paid in 1903 and 1904 were lower than those 
paid in 1900, the differences between the average maximum and mini- 
mum p "ices were less. The lowest average price paid in 1903 was 
23ft p ince between December 12 and December 19; the highest 
averag ; price for a given purchase was pence between Sep- 

tember 15 and October 2, 1903. The average of the prices paid 
during the period from September 15, 1903, to February 20, 1904, 
representing the purchase of 35,652,935 ounces, was 26|-| pence. 
Purchases were then suspended until May 2, 1904. The average 
price f( r 18,300,644 ounces purchased between that date and August 
27, 19(4, or nearly four months, was 26^!^ pence or about two- 
thirds )f a penny less than the average for the previous series of 

The figures just presented of the purchases for the coinage of 
British India show a steadiness in the price of silver which has been 
rare during the past decade. They are not absolutely conclusive, 
becausi they represent for each lot of silver purchased the average 
of slightly varying prices paid over a period of a week or more. 
More conclusive evidence of the comparative steadiness which has 
been a tained in the price of silver bullion is afforded by the actual 
maxim am and minimum quotations in the London market. These 
are presented by months in the table below: 

Quotations of silver at London. 


January ... 
Februar ^ .. 






August. ... 
Septemt er 
October ... 
Novemb ir 
Decemb ^r 

IQ02. iQC'S- ' 1904. 



Highest. 1 


Highest. 1 


Pence. \ 

1 Pence. 

Pence. \ 




25 | 

22 f 

2 iH 


\ 25^ 

25 i 


22 A 

2 l| 

27 i 

25 f 

25 ai! 

24 if 


22 | 

2 h| 



23 A 

25 tV 

22 f 

2 Si 1 

24 At 

24 s 

23 f\ 




25 i 


23 tI 


24 s- 


1 25A 

24 1%: 

24 A 

25 i 





24 f\ 




i 26A 

24 s 

23 A 

27 A 




23 xi 




28 1 
27 f 




; 26fV 






25 Aj 

1 1 


This table shows that the price of silver has varied from Jan- 
uary I 1904, to the date of this report within the limits of 27I 


pence and 24.^^ pence, and since April 26, 1904, has been uniformly 
above 25 pence. The fluctuations in 1901 were from a maximum of 
^9 tV P^^ce to a minimum of 24J-I pence; in 1902 from 26-:^ to 2i\^ 
pence; and in 1903 from 28^^ to 2i\^ pence, showing a variation this 
year of only about 10 per cent, as compared with variations of 20 per 
cent or more in other vears. 

The fact that exchange with the silver-using countries has been 
materially improved by this greater steadiness in the market for 
silver bullion is set forth in respect to China in the annual report of 
the American Asiatic Association, and credit is therein given to the 
recommendations of the Commission on International Exchange. 
The same tendency to greater steadiness has been true of exchange 
between London and the British and French dependencies in Asia, 
and between New York and Mexico. While these exchanges have a 
tendency to follow the bullion market, it often happens that an 
active demand for coined money may for a time raise the rate above 
the bullion value of the metal, while on the other hand an excess of 
such money may depress the exchange rate relatively to the price 
of silver bars. In spite of these modifying influences, exchange 
between New York and Mexico has fluctuated during the current 
calendar year only within the limit of 226 and 213, and for the past 
five months has not departed more than three points from 216. 
These conditions are in marked contrast with those of 1902 and 
1903, when the range of fluctuations was from 277^ to 214^, ora 
variation of more than 20 per cent. The maximum and minimum 
quotations in each month for the past three years are shown below: 

Quotations of Mexican exchange. 


January .... 











1902 . 

1903 . 


^ Maximum. 










22 lf 







' 241 

225 f 



! 2364 








240 I 

235 1 



1 2444 

240 f 













223 J 


269 ! 



222 ' 









The result of this greater stability of exchange has been that in 
the Ph lippines the transition from the silver to the gold standard 
has be ill facilitated, and in silver-using countries complaints have 
been much less acute than before regarding interruptions to trade 
with gild countries. In all these countries risk of loss has been 
diminished in making payments for imports, which threatened 
almost to paralyze trade at the close of 1902 and the beginning of 
1903, V hen appeal was made by the Government of Mexico to the 
United States to aid in stabilizing the exchange between Mexico 
and C lina on the one hand and the gold-standard countries on the 
other. It nevertheless remains true, as declared in the report of the 
American Asiatic Association, already quoted, that “the menace 
of the possibility of violent fluctuations continues, however, to hang 
over cc mmercial transactions between the gold-standard countries 
and the Orient,” and that this menace can be permanently removed 
only by definite and comprehensive steps in the silver countries for 
the ad( ption of a fixed gold standard. 

Hugh H. Hanna, a. Conant, 
Jeremiah W. Jenks,