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Gold Standard in International Trade

May 22, 2010

LETTER OF SUBMITTAL to The President :

I have the honor to submit herewith the final report of the Commission on International Exchange, constituted under the authority of the act of March 3, 1903, and continued last year by means of a special appropriation. The chief purpose of the Commission was to bring about, as far as possible, a fixed relationship between the moneys of the gold-standard countries and the silver-using countries. This result could be accomplished chiefly by the establishment in the silver-using countries of new monetary systems on the gold exchange basis, the ‘new silver and copper coins in those countries being given a fixed value in terms of gold.

The work of the Commission, considering the difficulties of its task, has been on the whole very successful. The new monetary system in the Philippine Islands, established under act of Congress approved March 2, 1903, which in the main has furnished the model for the further work of the Commission, was in operation, but serious difficulties were met with in the transition from the old currency to the new. A member of the Commission was sent to study the situation and counsel with the Philippine Commission regarding these conditions. Tavo measures were passed by the Commission, the results of which were immediately beneficial, so that within three months after they went into full effect the new coins were in great demand and the new currenccy system of the islands was firmly established upon the new basis.

Since the report of the Commission on International Exchange was presented to this Department the Republic of Mexico has passed a law carrying out the purpose announced by her Government in seeking the cooperation of the United States to establish a stable currency system for that Republic. This action was a natural sequence of the measures taken by the Commission on International Exchange while in Europe and by Mexico at home to facilitate the transition from the previous system of fluctuating exchange to one which would promote her trade with the United States and other gold-using countries. The beneficial effect of this law has already been felt in the exchanges between Mexico and New York. The giving to its silver coins a fixed value in terms of gold has been rendered much easier by the relative stability during the last year of the price of silver bullion. This relative steadiness has been brought about largely by the regularity of the purchases of the silver needed by the Government of British India, which method of purchase was suggested by the Commission on International Exchange.

The Republic of Panama had a silver currency of which the value, measured in gold, constantly fluctuated. Inasmuch as great expenditures would need to be undertaken in connection with the building of the canal, and as losses and confusion in making contracts would inevitably be incurred by the Government under such a system, it seemed extremely desirable, if not essential, that that country be placed upon the gold basis. On the suggestion of the Commission on International Exchange, the matter was taken up by our Government with the Government of the Republic. The result was the establishment of a new monetary system for the Republic of Panama in accordance with the terms of an agreement with the United States along the lines recommended by the Commission. It will now be-feasible for the United States Government, in its financial operations in connection with the building of the canal, to employ this new currency, therefore avoiding the risks which would come from fluctuations in the price of silver, while meeting local conditions by a currency similar to that which the people have for many years been accustomed.

In conjunction with the Republic of Mexico the Government of China at the beginning of 1903 also requested the assistance of the United States in the same direction. In consequence, after the commission had consulted the European governments, one of its members, Mr. Jenks, was sent to China to report the results and to give to the Chinese Government any further assistance which it might desire. The commissioner was received with cordiality. Every facility for investigation of the local conditions in China was given him, and the Chinese Government appointed a commission to study the question. The difficulties before the Chinese Government in the establishment of its new monetary system are of course enormous. Time will be needed to enable it to accumulate a sufficient gold reserve; to persuade provincial authorities to give up their present custom of independent coinage; to change the habits of the peojile regarding the use of bullion; to provide for proper expert assistance, and to overcome other difficulties. Yet before the commissioner was compelled to leave China, under the limitations of the act of Congress of last year, the opinion was freely expressed that very much had been done toward hastening the complete accomplishment of the desired reform. Prominent officials connected with the monetary system expressed favorable opinions, and the Prince of Ch’ing, the head of the Executive Government, stated in a letter to the commissioner, transmitted with this report, that their monetary reform, they were convinced, must in the main follow the lines suggested by the American Commission.

The movement toward the fixing of the rates of exchange between the gold and silver countries is one of great importance to the development of our international trade. The great difficulties in the establishment of such a system as the one proposed are by no means underestimated, but they have been overcome in different countries and can be overcome in China. Certainly nothing else so feasible as the American plan has been anywhere proposed. In spite of difficulties which may attend any such plan, it tends to remove obstacles to our export trade directly and to a still greater extent to stimulate it indirectly by promoting the building of railways and the extension of internal commerce in the countries adopting a stable system. This effect is already being felt upon the introduction of American capital into Mexico ; and similar effects, it is probable, would be felt in China with the adoption of similar measures. The work in China should therefore be persistently carried on until the new system is firmly established. As opportunity offers the matter should be brought to the attention of the South American States and to other countries whose monetary systems are not established on a sound basis.

It is recommended that an adequate appropriation be put by Congress at the disposition of this Department, for the continuation of this work in such manner as it may think proper.

RespectfuUy submitted.

Francis B. Loomis,
Acting Secretary of State.

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Washington, January 26, 1906.

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