100 YEARS OF THE CONVERSATION LAW
Posted October, 2000
|
On November 4, 1899, during the second presidency of General Roca, Law No. 3871 was enacted that established the conversion of
fiduciary issues of the circualting legal tender banknotes to
national gold standard backing. it exchanged one peso of legal
tender gold standard money for 44 cents of sealed gold-based legal
tender money. Likewise, it authorized the Executive Power to form a
metal reserve called the "Conversion Fund" that might serve
exclusively as a guarantee for the conversion of paper
money.
In reality, it was not a real conversion law; rather the
legilator did not do anything else to promote it since it arranged
-- in second Article -- that the Executive Power, at its opportunity
would fix by decree the date, manner, and from that it would become
effective. Meanwhile, the mint would issue and deliver, to who may
have requested national legal tender sealed gold-based banknotes in
the proportion of one gold-based peso for 44 cents of sealed
gold-based money. The mint would deliver the gold that it would
receive through this medium, to whomever might request it, in
exchange for paper money.
The law did not arrange an equivalency between the gold-based
peso and the legal tender banknotes. The purpose of this law was
nothing more than to avoid the wavering of the paper peso with
respect to the gold peso. From there, the conversion that by right
was referred to by the law, may not have been carried out in
practice. In such a manner, this poorly named fiduciary conversion
law was not ever any thing more than a law for the stabilization of
the paper peso in order to avoid other consequences of its rapid
devaluation.
The conversion was nothing more than a promise destined to
convert in the future the fiduciary issue, but such a promise was
never fulfilled. The mission of the Mint was nothing other than to
absorb the existing gold without prohibiting participants that had
contracted for gold from obtaining it however they could or how it
might be more convenient to them.
The conversion was subject to barter, that is, to an actual
conversion that was not executed, nor did it exist on the part of
the participants who had a right to demand it. Furthermore, in spite
of the fact that Law No. 3871 established to counteract
depreciation, the payment of national taxes could be done using
legal tender money of 0.44 gold. The national treasury suffered such
serious injury that this led in 1902 to its abolition (Law No.
4029). It prescribed in the budget law that gold resources would be
paid in gold in cash or legal tender coin to the type of
quotation.
Nevertheless, in practice while the economic situation of the
country allowed a certain stability and growth, the conversion in
fact functioned, and the creditors to gold-based pesos could not
resist accepting paper money "as a representative of 44 cents
gold."
The conversion system operated up to the beginning of 1902
when foreign currency revenues superceded expeditures and the Mint
accumulated surpluses in gold and ended in 1914 with the outbreak of
World War I. In 1927 the conversion was re-established and lasted
until 1929 when it was suspended indefinitely facing the loss of
gold and foreign currency and the drop of international prices. In
these cases -- as it has happened every time -- paper money has
remained completely disassociated with gold, and its value rested in
the oscillations of the exchange market.
Source: El Telegrafo del Centro, Uno 4, Numero
16, Setiembre, 1999.
Courtesy: Carlos A.
Graziadio
|
|
