Readings in Money and Banking Part 24

SWEDEN--NORWAY--DENMARK (SCANDINAVIAN UNION)

These have the gold standard and have for their unit the _krone_, equal to $0.268 United States currency; their subsidiary silver has various fineness; paper currency of Sweden is issued by the Royal Bank, owned by the Government; notes are legal tender and may be issued to a fixed amount in excess of gold on hand or in foreign banks, but must at all times have gold to the extent of at least 10,000,000 _kroner_.

Norway has a single bank of issue, controlled by the State, which owns a majority of the stock; notes are legal tender and may be issued to twice the amount of gold on hand and in foreign banks.

Denmark's paper money is issued by a privately owned bank, but under strict control by the Government; the notes are legal tender and may be issued to a sum 30,000,000 kroner in excess of the gold on hand.

RUSSIA

Russia is on a gold basis and has for its unit the _ruble_, of 100 _kopecks_, equal to $0.51456 in United States currency; the silver coins in common use are the ruble, one-half and one-fourth ruble; paper money is issued by the Imperial Bank, which is owned by the Government and managed as part of its finance department; the law requires the coin reserve to equal two-thirds of the note issue....

j.a.pAN

j.a.pan maintains the gold standard and its unit is the _yen_, equal to $0.498; the yen is divided into 100 _sen_, the sen into 10 _rin_. The yen equals 11.574 grains of pure gold.

The Bank of j.a.pan may issue notes to the extent of $120,000,000 upon securities, any amount upon specie, and also may issue further sums in excess of specie, subject to a tax of 5 per cent. The stock of the bank is all privately owned. j.a.pan first copied the national banking system of the United States and after trial abandoned the same for a central bank. She has managed her finances and her banking with wonderful ability and great success. Besides the Bank of j.a.pan, there are many strong private banks, notably the Yokohama Specie Bank.

CHINA

China, silver basis, had for its unit the _tael_, divided into 1000 _cash_; there are said to be sixteen different kinds of tael in the different states of China; the most valuable is the "Haikwan," or "_customs tael_," the one in which customs dues are reckoned, and this equalled $0.664 United States currency, October 1, 1914. The cash is of base metal, with a square hole punched in the centre and is worth less than a mill in our currency.

In the last years of the Empire a new system of coinage was established and since continued by the Republic. The unit is the _yuan_ of silver, worth $0.477, but varies with the price of silver; one-half, one-fifth, and one-tenth yuan are also coined in silver and smaller coins in copper and bra.s.s....

PHILIPPINES

The unit of value is the _peso_, equal to $0.50 in United States currency. The fiscal affairs are administered by the United States and the currency is safe and maintained on [essentially] a gold basis.

ARGENTINA

At a time when the cultivation and development of trade relations with South America seem most alluring, we find a princ.i.p.al embarra.s.sment in the currency and credit conditions which obtain in most South American States, but Argentina, one of the most favored of South American States, has a stable and sound currency system. Her unit is the _peso_, of 100 _centavos_. The gold peso is equal to $0.9647 in United States money. In 1889 the Government took measures to acquire gold and fixed the relation of paper to gold at 227.27 per cent., and it has since been maintained at that level without fluctuation. This made the paper peso equal to about $0.44 gold. They have a very large gold reserve in their _caja de conversion_, 262,000,000 pesos gold, which protects the paper money and gives it stability. Gold payments were suspended temporarily at the commencement of the European war (1914), but paper money seems to have remained at par....

BRAZIL

Brazil was formerly a colony of Portugal, and naturally copies the parent country in her currency system. Her unit is the _milreis_, of 1000 _reis_. Nominally the gold standard prevails, but depreciated paper is the currency of her commerce. The milreis contains 12.686 grains of pure gold and is worth in United States currency $0.546.

In 1898 the Government a.s.sumed the sole power to issue paper money, and strove to bring the same to a parity with gold; the arbitrary valuation put upon the milreis by the Government was 15_d._ or $0.30.

On December 20, 1910, the value of a milreis was raised to 16_d._ The Government acc.u.mulated a conversion fund, understood to be $60,000,000 to $70,000,000, but owing to crises at home and abroad it has not yet been able to make gold and paper notes interconvertible.

Brazil possesses an enormous area, and is wonderfully rich in undeveloped resources. Her coffee and rubber are especially valuable and should take care of her international trade balances. In the near future her currency should become stable and free from fluctuation. Brazilians receive important service from foreign banks and bankers.

CHILI

Chili has the gold standard, but her paper currency is not maintained at a parity with gold; her unit is the _peso_, of 100 _centavos_, of the value of 18_d._...

FOOTNOTES:

[89] The following table, from _The Monetary Systems of the Princ.i.p.al Countries of the World_, compiled in the office of the Director of the Mint, Washington, 1912, gives the weight, fineness, etc., of the coins of Great Britain:

GOLD -----------------+-------+------------+-------+--------+--------+-------- | | | | | Pure |Value in Denominations. |Weight.| Fineness. | Fine | Weight.|gold or | United | | |weight.| |silver. |States |Grams. |Thousandths.|Grams. |Grains. |Grains. | money.

-----------------+-------+------------+-------+--------+--------+-------- 5 pounds |39.9410| 916-2/3 |36.6125|616.3720|565.0080|$24.3325 2 pounds |15.9764| 916-2/3 |14.6450|246.5488|226.0032| 9.7330 Sovereign | 7.9881| 916-2/3 | 7.3225|123.2744|113.0016| 4.8665 Half sovereign | 3.9941| 916-2/3 | 3.6612| 61.6372| 56.5008| 2.4332 -----------------+-------+------------+-------+--------+--------+-------- SILVER -----------------+-------+------------+-------+--------+--------+-------- Half crown |14.1379| 925 |13.0775|218.1760|201.8119| $0.6083 Florin |11.3103| 925 |10.4620|174.5405|161.4495| .4866 Shilling | 5.6551| 925 | 5.2309| 87.2695| 80.7232| .2433 Sixpence | 2.8275| 925 | 2.6154| 43.6339| 40.3008| .1216 Fourpence (groat)| 1.8850| 925 | 1.7436| 29.0893| 26.9071| .0811 Threepence | 1.4137| 925 | 1.3076| 21.8162| 20.1788| .0608 Twopence | .9425| 925 | .8718| 14.5446| 13.4536| .0405 Penny | .4712| 925 | .4358| 7.2715| 6.7252| .0202 -----------------+-------+------------+-------+--------+--------+--------

[90] A. Barton Hepburn, _A History of Currency in the United States_, pp. 450-473. The Macmillan Company. New York. 1915.

CHAPTER XV

THE NATURE AND FUNCTIONS OF TRUST COMPANIES

[91]The trust company supplements the bank. Through a long process of evolution the bank has developed as a means of facilitating the exchange of commodities. The trust company is a still further step in the same process, and, in a highly organized society, it meets needs which the bank is not able to supply.

In a new community the general store forms the centre of the business life of the place. With growth and increasing trade, the private banker sees room for the profitable employment of his funds. The state or national bank meets the needs of further growth. Success and the acc.u.mulation of wealth pave the way for the trust company. The bank is organized primarily to serve the needs of active commercial life; the trust company handles funds in less active circulation.

It is customary for the courts to designate or approve certain trust companies as depositories for funds paid into court, and the effect of such designation or approval would be to relieve executors, trustees, or others acting in a fiduciary capacity and depositing with these companies from liability for loss through their failure. A person charged with due care in the selection of a depository could not be held to have been wanting in such care in choosing as a depository a trust company which the court has itself approved.

The powers of trust companies vary in different states, and when they are created by special legislation, local companies are found with different charter privileges. The capital and surplus of these inst.i.tutions are liable for their acts in fiduciary capacities, and in some states they are required to deposit with one of the state departments a fund as a special guarantee. The liability a.s.sumed is generally accepted by the courts in lieu of the bonds which individuals acting in similar capacities are required to give.

The development of trust companies in the United States has been remarkably rapid. Since 1882, when the first legal authority was given for the exercise by corporations of fiduciary powers, they have steadily grown in number until there are now more than fifteen hundred, distributed as follows:

Alabama 30 Arizona 9 Arkansas 38 California 24 Colorado 16 Connecticut 31 Delaware 12 District of Columbia 5 Florida 9 Georgia 25 Idaho 10 Illinois 75 Indiana 108 Iowa 29 Kansas 4 Kentucky 42 Louisiana 22 Maine 39 Maryland 21 Ma.s.sachusetts 56 Michigan 6 Minnesota 4 Mississippi 19 Missouri 49 Montana 7 Nebraska 13 Nevada 1 New Hampshire 4 New Jersey 86 New Mexico 10 New York 78 North Carolina 38 North Dakota 5 Ohio 60 Oklahoma 10 Oregon 20 Pennsylvania 260 Rhode Island 11 South Carolina 17 South Dakota 12 Tennessee 73 Texas 52 Utah 9 Vermont 26 Virginia 19 Washington 20 West Virginia 22 Wisconsin 9 Wyoming 5 Hawaii 5 ---- Total 1555

Their business in all departments has shown a steady increase, and the trust companies of the United States to-day carry deposits amounting to over $3,858,300,000. Net deposits in the 7397 national banks aggregate $5,891,670,000.

In some states commercial banking and trust powers are exercised by the same companies. In such cases, separate departments are maintained for the various cla.s.ses of business. Another method is for the same individuals to organize a national bank and a trust company, the former under national and the latter under state laws.

The securities company or trust company organized under state laws and controlled by a national bank with the stock interest in the former distributed among the owners of the stock of the bank and evidenced by indors.e.m.e.nt on its certificates is still another expedient which has been resorted to in order to enable a closely affiliated and controlled organization to exercise legitimate functions which are, however, outside the province of a national bank.

The earning power of trust companies has equalled and even exceeded that of the banks, and the stock of those companies which are well established and doing a flourishing business sells at such a premium that investment in it at its market value gives a very low return.

Trust company failures have been few and far between, and where they have occurred they can be traced to a disregard of sound banking principles and to the a.s.sumption of unwarranted risks. Even in the case of companies which have failed there is no record of any impairment of trust funds, whatever loss there was having been borne by the stockholders and, to a less degree, by the depositors. This fact, the result of the absolute separation of trust a.s.sets from a.s.sets belonging to the company, is the strongest argument for the employment of trust companies in fiduciary capacities, and explains their rapid growth in popular favor.

The literature put out by these inst.i.tutions invariably recites the advantages to be gained by dealing with them instead of with individuals. The following is a good example of such reasoning:

THE ADVANTAGES OF A TRUST COMPANY AS TRUSTEE

A trust company is preferable to individual trustees, because it possesses every quality of desirability which the individual lacks, to wit:--