Abstract
The chapter analyzes monetary and banking policy in Brazil between 1866 and 1889, a period when the Treasury exercised a monopoly of note issues. Initially—and amid the demands on the imperial budget stemming from the war with Paraguay—issues of paper money were made in conjunction with the floating of debt, domestically and abroad. Recourse to seignoriage would reappear, albeit to a lesser degree, in the late 1870s, in connection with expenditures with drought relief. Throughout, government policy in the monetary realm sought to institute a fully convertible circulation, an objective that was eventually achieved in mid-1889. The attainment of the “mythical” 27 pence/milréis parity paved the way for the Ouro Preto government to reintroduce plurality of gold-backed note issues by private banks. A generous program of subsidized credit to planters was not enough to secure the survival of the constitutional monarchy, which was toppled by a military coup in November 1889.
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Notes
- 1.
A lecturer in Political Economy at the Law School of São Paulo, Carrão was a moderate Liberal representative for that province. In the report presented to the Assembly in May 1866, he stressed that at some 28,000 contos Treasury notes could not be deemed excessive, given that they had to meet the needs of the Empire as a whole, including the twelve provinces not served by the Bank of Brazil. However, he would go on to add that their ‘existence, even in this amount, (could) not fail to be an evil, a fact that ha(d) been repeatedly recognized by the powers of the Empire’. For the Minister, ‘present experience must have convinced all spirits that while paper money remained in circulation credit institutions with issuing (rights) must be reputed dangerous’. RMF 1865, pp. 6–7.
- 2.
See “Representação da Directoria do Banco do Brasil” and “Representação dos Lavradores” in Proposta do Poder Executivo sobre o Meio (1866).
- 3.
Ibid., p. 29.
- 4.
Ibid., pp. 31 ff.
- 5.
Ibid., p. 46. Regular interest rates charged by commissários to their planter clients varied between 8% and 14% p.a. See Sweigart (1987, pp. 120–1).
- 6.
A contemporary pamphlet urged the government to follow a different path and create a new mortgage bank outside the Bank of Brazil. ‘Let us effectively organize rural credit, which only exists on paper in the current mortgage legislation, and in the embryonic development of rural bonds, that presently obstruct the channels of mercantile circulation. Let mortgage credit have a powerful center, just as commercial credit has the Bank of Brazil’. Ao Visconde de Itaborahy (1866, p. 10).
- 7.
According to a director of the Bank of Brazil, over a period of ‘ten or fifteen days (they) were called upon to pay upward of £1000,000 in deposits’. Banker’s Magazine, Vol. 27, February 1867, p. 166.
- 8.
This was the Paula e Sousa bill, discussed below. The bill was credited with ‘hastening by a material measure the (restoration) of confidence (in the Rio market)’. The Brazil and River Plate Mail and South American Journal (hereafter, SAJ), 23 July 1866, p. 316.
- 9.
See also SAJ, 7 July 1866, p. 292.
- 10.
Banker’s Magazine, Vol. 27, February 1867, p. 166; and SAJ, 23 July 1866, p. 316.
- 11.
Paula e Sousa was accused of serving as a figurehead for Carrão, his bill presumably bearing the handwriting of the Minister of Finance. See session of 12 June 1866, in ACD, Tome II, p. 88.
- 12.
See also the “Annual Retrospect for Brazil”, translated from the Jornal do Commercio and published in SAJ, 7 March 1867, pp. 8–9.
- 13.
As pointed out by Pacheco, it was as though the Olinda cabinet had four different Ministers of Finance: Dias de Carvalho, later replaced by Carrão, Paula e Sousa (Agriculture), and Ferraz (War). See Pacheco (1979, Vol. II, pp. 296–9).
- 14.
Pacheco disputes the version that the bill was at the sole initiative of Silveira da Mota. Instead, he claims it had been, at the very least, inspired by Silveira da Mota’s conversations with Itaboraí and Torres Homem, as well as by the reading of articles that they had been publishing lately in the press. At the time, accusations of plagiarism were made against the author of the bill, charged with taking excerpts right out of earlier documents from the Council of State. See Pacheco (1979, Vol. II, pp. 308–9).
- 15.
The Silveira da Mota bill contained six articles, while the committee’s version had ten. Their essence was the same, however: to end the issuing activities of the Bank of Brazil; create a mortgage department; to promote the purchase, by the government, of the Bank’s metallic fund; and the progressive withdrawal of the Bank’s outstanding circulation. For the Silveira da Mota bill, see Cavalcanti (1893, Vol. 2, pp. 287–8); for the text of the Committee’s bill, see Pacheco (1979, Vol. II, pp. 310–4).
- 16.
The smaller Banco da Bahia, Banco Novo de Pernambuco, and Banco do Maranhão would retain a residual note circulation until the end of the Empire. However, given the volume of their total outstanding notes (less than 4000 contos in February 1867), and the fact that they were not accepted in payment of taxes and debts to the State, their impact on the money supply was marginal.
- 17.
Quoted in Nabuco (1997, Vol, I, p. 636, footnote 9).
- 18.
See also the “Annual Financial Retrospect for Brazil - 1866”, in SAJ, 22 March 1867, pp. 6–7.
- 19.
Decree 3720, of 18 October 1866, laid down the finer points for the proper execution of Law 1349 as regards the issues of the Bank of Brazil and the repayment of Treasury debts. On 23 November, the Bank’s new statutes were approved (Decree 3739). For details, see RMF 1866, pp. 17–9; and Pacheco (1979, Vol. II, pp. 353–4). Zacarias, in charge of the Ministry of Finance during the early days of implementation of the 1866 Law, preferred to stress what he saw as the beneficial effects of the innovation of the agreement between Bank and government. Removal of the Bank’s issuing powers, he argued, far from being a liability, actually ushered in a new era for the establishment. Free from the ‘false idea that an issuing bank had as its main task the rescue of every victim of the forced expansion of credit, at the expense of its own private fortune’, the Bank would henceforth be in a genuine position ‘to meet the needs of commerce and agriculture’. See RMF 1866, p. 19. Under the new statutes of the Bank of Brazil, its president would no longer be appointed by the government but, instead, would be elected by an assembly of shareholders. Accordingly, on 10 December, former Minister of Finance, Francisco Sales Torres Homem, who had been in command as the last officially appointed president, was elected.
- 20.
The breakdown of Treasury notes issued in conjunction with Law 1349 is as follows: 3800 contos in payment of Treasury bills belonging to the Bank of Brazil; 25,800 contos for its metallic reserves; and 11,000 contos corresponding to government notes that the Bank had retired from circulation, in accordance with its statutes. RMF 1872, Annex, Table 30. The remaining note issue of the Bank, after allowing for the swap for Treasury notes (and their subsequent retirement), was estimated at 45,600 contos as of 16 March 1867. On that day, Decree 3814 (Art. 3) determined that the Bank withdraw each year, beginning in June, 5% of this amount, so that after twenty years none of its notes should remain in circulation. See Pacheco (1979, Vol. II, pp. 358–9).
- 21.
Figures calculated from Table 5 in the Annex to RMF 1872.
- 22.
For a summary, see Pacheco (1979, Vol. II, pp. 371 ff).
- 23.
Additionally, a major overhaul of the tax system was undertaken. This included, inter alia, a revision of the import tariff schedule (including the introduction of payment of part of the tariffs “in gold”), a head tax, and a new system for the tax on “industries and professions”. Law 1507, of 6 September 1867, provided an increase in the revenues of the imperial government in subsequent years. For details, see RMF 1867, pp. 41–4. Both the tax increase and the note issue received warm support from the South American Journal. In its leader column, it noted that ‘the war with Paraguay, to which alone the present financial difficulty (was) attributable, (had) not been of Brazilian creation, and it (made) it the more incumbent on the people to second the efforts of their excellent Sovereign to bring it to an honourable and successful issue’. SAJ, 22 October 1867, p. 12.
- 24.
Despite the fact that the imperial government had extended telegraph lines all the way South toward the frontline, news of the Brazilian navy’s successful crossing of the bend on the Paraguay River guarded by the Humaitá fortress, which took place on 19 February 1868, was only published in the Rio papers on 3 March, having arrived by steamer. On that day, the exchange rate (ninety-day bills on London) was at 16d, inching toward 17d on 7 March and 18d a few days later. Rates in the Jornal do Commercio, various issues.
- 25.
In his report to the Assembly, Zacarias downplayed the influence of the recent (and substantial) issues of Treasury notes on the depreciation of the milréis. Instead, he attributed the drop in the rate of exchange to the exhaustion of the resources obtained with the 1865 foreign loan for £5000,000. See RMF 1867, p. 8. The 1865 loan had been contracted under the most adverse terms for the Brazilian Treasury, facing a discount of 26% and paying interest of 5%. The money thus obtained (68,850 contos) was entirely used in financing the military campaign in Paraguay. For details, see Bouças (1955, pp. 157–61).
- 26.
This decree would only be made public one month later, thereby drawing intense criticism from Parliament and the press. See de Holanda (1972, vol. 3, Tome II, p. 106).
- 27.
See also RMF 1868, p. 8. In the end, the government issued 23,390 contos out of the 40,000 contos authorized by the decree.
- 28.
Indeed, even “gold” issues, such as this one, were subject to default. The massive oversubscription to the 30,000 contos loan indicates that investors did not deem this likely. On the imperial government’s excellent reputation as a debtor among both domestic and foreign creditors, see Summerhill (2015).
- 29.
Interest payments on the foreign debt would also experience a marked increase in the period—to 10,000 contos—from an average of 4000 contos in the first half of the 1860s. This reflected both the growth of outlays in sterling and the drop in the rate of exchange (depreciation) during the Paraguayan War. Fiscal figures from Brasil, Ministério da Fazenda, Balanço da Receita e Despesa, various issues.
- 30.
The issue of 25,000 contos in 6% apólices on 28 June 1870, with a view to consolidate part of the floating debt, would further reduce the stock of letras outstanding.
- 31.
This dramatic rise in the value of the liabilities of the imperial government, as noted, went toward financing the costs of the Paraguayan War. At the time, two highly discrepant estimates were made of the total financial cost of the conflict. The lesser one, by the Ministry of Finance, came up with the final figure of 461,000 contos, while Treasury estimates put the total cost at 614,000 contos. The main difference in the two estimates refers to the actual amount of taxes directed to financing the war effort. Either way, in both cases, the issue of Treasury notes figures prominently. Treasury estimates from Peláez and Suzigan (1976, p. 114); Ministry of Finance data in RMF 1871, Table 15A, Annex.
- 32.
In light of the inflation of the war years, the real rate of growth of all variables discussed above would have been more modest. There are no reliable estimates of inflation in Brazil for the pre-1870 period. A composite index of the cost of living, which consists of an average of crude indices found in the literature, indicates an average inflation of 5.3% p.a. during the second half of the 1860s. See Goldsmith (1986, p. 29).
- 33.
Costa (1993). One has only to consider the campaigns in the period in favor of, inter alia, electoral reform, abolition, federalism, and the republican movement.
- 34.
Not without consequences, though, as attested by the outbreak of the Quebra-Quilos (“kilo-smashers”) revolt in the Northeast in the early/mid 1870s, with looting and popular unrest taking place in several municipalities in the region.
- 35.
According to the latter, new-born children of slave mothers would be free, although their masters were required to maintain them until their eighth birthday. From then on, the children could either be handed over to the state in exchange for financial compensation or provide labor to their masters until they were 21. Unsurprisingly, most slave owners opted for the latter, but the survival of slavery as a vital institution for the Brazilian economy and society was henceforth undermined.
- 36.
As remarked by Rio Branco in his first report submitted to the Assembly in 1871 as Minister of Finance, such large amounts of outstanding bills posed a burden on the Treasury, as they required that it keep in its vaults enough funds to honor payments which at any given month could amount to 6–8 thousand contos. This state of affairs made consolidation of the floating debt all the more necessary, leaving recourse to Treasury bills exclusively to ‘extraordinary and unpredictable emergencies’. See RMF 1870, p. 10.
- 37.
Still, Treasury bills (letras), which acted as a partial substitute to paper money, saw their amount in circulation decrease by half during Paranho’s tenure as Minister of Finance from 40,000 to 20,000 contos. As such, this may have helped appreciate the currency.
- 38.
Money held by the public fell by approximately 10% during the whole period, being offset by the growth in the volume of sight deposits held in commercial banks. See Table A3 in Peláez and Suzigan (1976).
- 39.
As will be discussed in greater detail in Chap. 5, estimates of the traditional monetary aggregates such as high-powered money (or monetary base), M1 and M2 for the second half of the nineteenth century in Brazil must be approached with extreme caution. The estimates of the monetary base made by Peláez and Suzigan (1976) and cited in this paragraph refer to a subset (consisting of Treasury and banknotes) of the total monetary base. As such, they leave aside metallic circulation and promissory notes (vales ) issued by a host of market agents. Depending on the period, specie and vales in circulation could reach a significant amount, rendering the Peláez and Suzigan figures as an indication of a lower bound for the total amount of money put into circulation.
- 40.
Money supply (M1) averaged 220,000 contos from 1870 until the first quarter of 1875, after which it would drop by almost 10%. This monetary contraction was a direct consequence of the 1875 financial crisis to be discussed below. Data in Brasil, IBGE (1990, p. 534).
- 41.
Average rates of discount charged by Rio-based banks in 1870 were 10.5%, while non-bank loans carried average rates of 12.4%. By 1880, these rates had dropped to 6.8% and 11.6%, respectively. Figures in Ryan Jr. (2007, Tables 3.1 and 4.1).
- 42.
See also Sweigart (1987, p. 138).
- 43.
Sweigart (1987, pp. 194–5) thus explains this mechanism: ‘If a creditor wanted to foreclosure on a mortgage, he called for a judge to establish an open auction in the county in which the property was located. The judge first appointed appraisers to establish the property’s value, yet the appraisal could never be less than the value of the original loan. If bids were not high enough to cover the appraised value, the creditor had to buy the property at four-fifths of the appraised value. Control over the appraisal lay with the judge who appointed the evaluators, often landowners and evaluators themselves, sympathetic and easily influenced by the debtor, who was often a relative. Planters arranged for their properties to be appraised well above their true value, and came out ahead in the settlement, after reimbursing their creditor for the original loan and any penalties assessed for late payments. (…) Since the creditor lost control over the adjudication process as soon as he initiated proceedings, coffee factors and mortgage banks avoided foreclosure altogether, and preferred to refinance the debtor’s original loan indefinitely, in hopes of retrieving their initial investment through the proceeds of future coffee sales’.
- 44.
Over the course of the Second Reign (1849–1889), there were 18 different Legislatures, of which 11 were dissolved. On three of those occasions, the Emperor followed the wish of the incumbent Prime Minister and called for new elections in an attempt to secure a parliamentary majority for the party in office. The dissolution of the 11th Legislature in May 1872 was one such occasion. See Ferraz (2017, p. 76, footnote 18).
- 45.
In December 1874, the Bank of Brazil would start issuing mortgage-backed bonds, prompting an increase in its loans to the rural sector, which would peak in 1880. Thereafter, and amid depressed coffee prices and the momentum gained by the abolitionist campaign, mortgage loans outstanding reached a plateau and started to contract. See Sweigart (1987, pp. 190–2).
- 46.
Bank rate would go on to peak at 9% in 1873. See Homer and Sylla (2005, p. 206, Table 23).
- 47.
- 48.
Further (qualitative) evidence of the modest impact of the 1873 panic in Brazil is given by the fact that not a word about the crisis in Europe and the United States appeared in the 1873 report (published in May 1874) of the Minister of Finance to the Assembly. Annual reports of the Ministério da Fazenda would always begin with a summary of the main events in the economy in the previous year.
- 49.
Foreign trade data, however, suggest a possible channel linking the crisis in Europe to the Brazilian economy, as export earnings (in sterling) decreased by 8% between 1872–3 and 1873–4. Still, most of this resulted from a 30%-plus drop in sugar exports (totaling just over £ 1 million), therefore, not reflecting export activity as a whole. See Holanda (1972, Tome II, vol. 5, p. 153). Coffee exports and prices in Sweigart (1987, Table E.2). Central government (ordinary) receipts did contract 6% between the 1872–3 and 1873–4 fiscal years, but this was accounted for, basically, by a fall in the collection of import duties brought about by a new, more liberal, tariff schedule. In the same period (1872–3 to 1873–4), the value of imports in sterling remained roughly constant, having increased 5% in milréis. See Brasil, IBGE (1990, p. 569). Meanwhile, taxes collected on internal activities—and which tended to be correlated with the overall state of the economy—remained constant in 1873–4 compared to the previous fiscal year. See Diniz (2002, Annex D.1).
- 50.
Irineu Evangelista de Souza set up the The Mauá Bank in January 1867 in place of his earlier partnership (Mauá, McGregor), founded in 1854 in the aftermath of the merger of his Banco do Brasil with the Banco Commercial do Rio de Janeiro. In the occasion, this made for the creation of the “third” Bank of Brazil. By 1873, the Mauá Bank maintained seven branches in Brazil, one in London and six in the River Plate region. For a discussion of Mauá’s banking activities in the River Plate, see Kunioshi (2005); his interests in Uruguay, see Millot and Bertino (1991, Tome II); his (flawed) business strategy, see Bertero and Iwai (2005).
- 51.
In the occasion, Mauá was able to obtain some support from the Bank of Brazil (to the tune of 700 contos, or £55,000) giving as collateral his (and his wife’s) private assets. This amount was supplemented by 600 contos secured by the Ponta de Areia ironworks (also belonging to the Mauá concern) from the Bank of Brazil in September 1869. See Mauá (1942, p. 248, footnote 228).
- 52.
Ibid., p. 249.
- 53.
The most detailed account available of the events surrounding the 1875 financial crisis in Brazil is to be found in the summary of the numerous meetings of the Board of Directors of the Bank of Brazil published in Pacheco (1979, vol. III). They will be used extensively in what follows.
- 54.
Deposits in RMF 1876, Annex G, p. 10.
- 55.
Present at the reunion at Paranho’s residence, the President of the Banco Nacional reported on the hardship under which his institution was laboring, with the bank under risk of having to shut its doors. The Minister reminded those present of the possibility that the other banks might join forces to help shore up the Nacional (ibid., p. 49).
- 56.
Ibid. In the occasion, the acting President of the Bank of Brazil raised the idea that the Bank be temporarily allowed to issue notes backed by its holdings of apólices . Yet, most of those present at the meeting agreed that provision of liquidity should be undertaken directly by the Treasury by means of loans to the banks. It would later emerge that the Treasury had been doing this for two months now, starting with an advance of 2101 contos to the Bank of Brazil on 5 March. See RMF 1876, Annex, Table 9.
- 57.
The Banco Alemão closed its doors on the 15th, two days before the Banco Mauá suspended payments, its manager having gone missing. It was later learned that he had committed suicide. See Holanda (1972, p. 170). Mauá would be made Visconde (Viscount) barely five weeks after his bank shut its doors to the public.
- 58.
This initiative by Rio Branco came on the eve of Mauá’s final request for funds from the Bank of Brazil and three days before his bank was forced to shut its doors.
- 59.
São Paulo’s largest private bank (casa bancária) at the time, Gavião Peixoto, with close links to the Mauá Bank, was also forced to shut its doors in May 1875. See Saes (1986, pp. 75–6).
- 60.
Coffee prices in RCJC 1877, p. 48, Table 7. Average rates of exchange in RMF 1876, p. 28. The firmness displayed by the foreign exchange market was to an extent helped by the government’s successful floating of a £ 5 million loan in London in January.
- 61.
Rate of discount in RCJC 1875 (published as a supplement to that year’s Almanak Laemmert), p. 194. For the contraction in the volume of credit extended by Rio banks (and which would last until the end of the decade), see Ryan Jr. (2007, p. 156). Data on cash/deposits ratios in Peláez and Suzigan (1976, Table A4).
- 62.
Indeed, in the report presented by Paranhos to Parliament on 8 May 1875, there is only passing reference to a ‘shortage of currency in the Empire’s major commercial centers (praças)’, in the section dealing with the £ 5 million loan floated in London. Four days later, the crisis would be laid bare as the Banco Nacional failed, followed by the Mauá Bank and the Banco Alemão. See RMF 1874, p. 29.
- 63.
The same Law provided a dividend guarantee of 7% to investments made in the establishment of central sugar mills. On the latter, see Eisemberg (1974).
- 64.
The Emperor’s decision to invite the Liberal Party to form a new government stemmed from his desire to push for a reform of the electoral system, a policy long advocated by Liberals. See Nabuco (1997, Vol. II, pp. 996–8). Given that the Conservative Party dominated the Chamber, the latter would be dissolved in April 1878 and new elections were called. As expected, the Liberals would take the majority of the seats in the new legislature.
- 65.
Unlike most of the Presidents of the Council of Ministers in the Second Reign, Sinimbu would jointly exercise the role of Minister of Agriculture, Trade and Public Works instead of Minister of Finance. Gaspar Silveira Martins, followed by Afonso Celso de Assis Figueiredo (the future Visconde de Ouro Preto), would hold the latter portfolio. When Sinimbu took charge of the Ministry of Agriculture, it was firmly endowed with the second largest share of the imperial budget, after Finance.
- 66.
In the memorandum presented to the Emperor in support of the requested permission, the cabinet showed alarm over the dire state of the Treasury and deemed the proposed note issue a lesser evil compared to the alternative of resorting to either a domestic or external loan. See RMF 1877, Annex B.
- 67.
The obviously unconventional nature of the measure was fully acknowledged by the government, as Article 3 of the Decree stated that ‘as soon as the General Assembly convenes it shall be informed (of the decision) by the Minister, who will seek approval of this measure’.
- 68.
On a different front—and in an effort to bring the planter class closer to the reformist agenda championed by the party that he headed and away from republican propaganda—in July 1878 Sinimbu sent out an invitation to their representatives to attend an Agricultural Congress to be held in the capital. Debates in the Congress ended up being dominated by two concerns: labor (slavery) and capital (the cost of credit). Although little came out of the gathering in the way of concrete policy, the imperial government would have to engage with both issues for the rest of the monarchical period. On the 1878 Agricultural Congress, see Sweigart (1987, pp. 150–3), Schulz (2013, chapter 5), and José M. de Carvalho, “Introdução”, in: Anais do Congresso Agrícola (1988).
- 69.
In practice, this current account provided the government with an overdraft facility, as the Treasury had been incurring in deficits of late and, therefore, its balance was negative.
- 70.
For details on the three National Loans issued by the imperial government (the final one would be floated in 1889), see Summerhill (2015, pp. 96–9).
- 71.
The Budget Law for the 1879–80 and 1880–1 fiscal years, passed in the twilight of the Sinimbu government, revoked the 1875 Law 2565 that had authorized the government to issue up to 25,000 contos in either Treasury notes or bills with a view to assisting deposit banks in distress. See Law 2940 of 31 October 1879, Art. 24, paragraph 2.
- 72.
Coffee prices displayed a similar trend. Having peaked at around 20 US cents/lb. in 1875, average coffee prices in New York consistently fell over the next decade, reaching 7.5 cents in 1885. Just like the milréis, it would start to recover thereafter and into the early years of the Republic. Coffee prices in New York in Sweigart (1987, Table E.2).
- 73.
Law 3150 of 4 November 1882, regulated by Decree 8821 of 30 December 1882.
- 74.
- 75.
Proceeds from the loan would be kept in London in order to meet expected outlays in the next two years, while also not exercising undue pressure on the foreign exchange market in Rio. For the railways’ significant impact on the economy of imperial Brazil, see Summerhill (2003).
- 76.
For the dispute among regional elites for central government investments in “material improvements” in the closing decade of the Empire, see Carvalho (1988, chapter 1) and Mello (1984). Villela (2007) discusses the growing share of outlays in infrastructure projects in the central government budget in this period.
- 77.
In this report, Lafayette would also suggest that, in light of the quotation of 6% apólices at above par, the government should consider a conversion of its consolidated debt to a 5% basis (ibid., pp. 29–32).
- 78.
The first “quinquennium” corresponded to the six consecutive cabinets led by Liberals between 1862 and 1868.
- 79.
Subsequent withdrawal of these notes from circulation meant that, after a modest increase in 1886, the stock of government paper money in circulation reverted to the same levels obtained at the start of the decade (188,000 contos, on average).
- 80.
This new version of the bill would go down in history as the “Law of the Sexagenarian” (or the Saraiva-Cotegipe Law). It included the provision that slaves thus liberated would have to perform unpaid labor for another three years or until they reached the age of 65. Costa (1993, pp. 200–2).
- 81.
See footnote 43 above.
- 82.
Interestingly, Belisário failed to note that the milréis had made significant progress since the end of 1885 when it was quoted at 18d. In May 1886, the exchange rate was approaching the 22d mark.
- 83.
The Budget Law submitted to Parliament in the occasion earmarked 5000 contos for that purpose.
- 84.
In May 1887, as the report was presented to the Assembly, the exchange rate on London was 22d. By then, it was in the early stages of a rally that would take it to par by October 1888. For Shulz (2013, p. 41), Belisário’s motivation for suggesting that convertibility be adopted at the 24d parity derived from the desire to safeguard the profitability of the coffee sector, which had been benefiting from a rebound in the commodity’s international price (after an equally protracted slide in 1875–85). A milréis left to appreciate unimpeded would erode profits (in domestic currency) in the export sector—hence, the suggestion that the currency be fixed at a rate below the “mythical” 1846 parity. If true, this motivation would anticipate by decades the rationale for Brazil’s adherence to the gold standard in 1906 when the rate of exchange would also display a markedly appreciating trend. For a detailed discussion, see Fritsch (1988, chapter 2).
- 85.
At the time, this corresponded, roughly, to the combined outstanding circulation of (Treasury) paper money and banknotes.
- 86.
Thereafter, the stock of Treasury letras in circulation would decline dramatically. At the start of the João Alfredo government, in March, it stood at 31.4 thousand contos. One year later, it was down to just 77 contos (see Table A7, in the Appendix).
- 87.
Meanwhile—and in a further effort to ease planters’ burdens during the transition to wage labor—the government signed three contracts with the Bank of Brazil and the Banco da Bahia involving advances from the Treasury to bolster these banks’ mortgage portfolios. See RMF 1888, pp. 29–30. These operations foreshadowed the ambitious loan program carried out by the next cabinet, led by Ouro Preto.
- 88.
The Retrospecto Commercial do Jornal do Commercio was less than enthusiastic about the benefits that would follow from the banks of issue envisaged by the Senate bill. The foreign loan, however, was hailed as a ‘laudable (…) measure’ on the part of the government, especially in light of the excellent terms involved. See RCJC 1888, p. 4.
- 89.
See also RCJC 1889, pp. 5–6. Balance of payments estimates in Franco (1991).
- 90.
Ouro Preto’s bold reformist agenda followed the program outlined earlier in May at the Liberal Party congress. This included the broadening of the political franchise, devolution of powers to the provinces, mandatory civil marriage, full freedom of worship, set mandates for the Senate, reform of the Council of State, support for large-scale (subsidized) European immigration, and the extension of credit to agriculture. See Lynch (2018).
- 91.
- 92.
To that list may be added the failed attempt in 1875, through Law 2687, to set up a mortgage bank funded abroad.
- 93.
See footnote 87 above.
- 94.
See also Shulz (2013, pp. 161–2).
- 95.
Ouro Preto also succeeded in securing Brazil’s largest foreign loan until then. Totaling £ 19,837,000, it allowed for the conversion of bonds of the 1865, 1871, 1875, and 1886 loans (all bearing 5% coupons) into new 4% bonds. For details, see Bouças (1955, pp. 172–4), Abreu (1985), and Summerhill (2015, pp. 64–6).
- 96.
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Villela, A.A. (2020). The Treasury as a Monopolist Note-Issuer: 1866–89. In: The Political Economy of Money and Banking in Imperial Brazil, 1850–1889. Palgrave Studies in the History of Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-32774-3_4
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