Bank on bank cheques

On 1 October 1913 Villa defeated the Federalist Army outside Torreón and Gómez Palacio. Amid cheers of jubilation from the masses of the population in these cities where he was very popular, he and his men entered Torreón. His troops had not been paid in months.

The next day, his financial representative, Lázaro de la Garza^{Lázaro de la Garza was a U.S. citizen born in Laredo who had established himself in Torreón, where he had become wealthy by selling mining properties and managing a mining enterprise. When Villa captured Torreón and levied a war tax of three million pesos against the city, he named a three-man commission, one of whom was de la Garza to collect the forced loan. (Carothers to Secretary of State, 17 October 1916, D. F. file no 812.00/19596, microcopy 274, RDS, RG 59, NARA; Blanford report, 17 June 1916, 7BI). Villa was so pleased with de la Garza’s performance that he appointed him his commercial and financial agent, with headquarters in Ciudad Juárez (El Paso Morning Times, 24 February 1914)}, called the representatives of all the six banks in the area ^{Banco de Coahuila, Banco de la Laguna, Banco Nacional de México, Banco de Londres y México, Banco Minero and Deutsche-Südamerikanische Bank (Banco Germanico de la America del Sur)} together for a meeting. By this time, all the gold and silver had been withdrawn from the banks and there was an acute shortage of circulating money, both for the army and for the townspeople. Lázaro de la Garza, on Villa's orders, demanded a compulsory loan of three million pesos from the banks. Villa was quoted as saying: "There is money in the banks and whenever our cause is in danger, that money is offered voluntarily or we take it." The problem was that the banks had no money, and would not until communications were restored with the rest of Mexico, but the simple printing of fiat money by the banks would not have worked if the banks failed to guarantee it. So señor Zunzuneguí (of the Banco Nacional de México) came up with an idea of "bank-on-bank" notes.

These were, in effect, mutual promissory notes which could circulate both among the townspeople and the revolutionary soldiers. These notes would be a loan from one bank against another, payable when railway traffic was re-opened with the capital of the Republic, as stated on the back of each of these notes. These cheques were printed by C. Montalrio y Valdez, in five different denominations.

On 3 October the leading businesses, including the six banks mentioned above and the Banco de Durango, were summoned to a meeting in the morning of the following day at the Casino de la Laguna ^{LG papers, 3-A-1: Memo from la Comisión de Hacienda (de la División del Norte) announcing a meeting ordered by Villa, 3 October 1913}. Following this, on 5 October, the Commission announced that the Ejército Constitucionalista had imposed a loan of three million pesos on various businesses but as actual cash was in short supply, it asked holders of any type of specie (silver, gold or bank notes) to deposit them in the local banks in exchange for the bank-on-bank cheques ^{LG papers, 3-A-2: Circular issued by la Comisión. 5 October 1913}.

The banks offered the following series:
(a) Banco Nacional de México drawn on the Banco de Londres y México,
(b) Banco Nacional de México drawn on the Deutsch-SüdAmerikanische Bank,
(c) Banco Nacional de México drawn on the Banco de Coahuila,
(d) Banco de Londres y México drawn on the Banco Nacional de México,
(e) Banco de Londres y México drawn on the Banco de la Laguna,
(f) Banco de Londres y México drawn on the Deutsch-SüdAmerikanische Bank,
(g) Banco de la Laguna drawn on the Banco de Londres y México,
(h) Banco de la Laguna drawn on the Banco de Coahuila,
(i) Banco de la Laguna drawn on the Banco Minero,
(j) Deutsch-SüdAmerikanische Bank drawn on the Banco Nacional de México,
(k) Deutsch-SüdAmerikanische Bank drawn on the Banco de Londres y México,
(l) Banco de Coahuila drawn on the Banco de la Laguna, and
(m) Banco de Coahuila drawn on the Banco Nacional de México.

Other cheques were issued by the Banco Minero in Gómez Palacio, across the border in Durango.

On 25 October Villa wrote to de la Garza about the urgent need for money for the army ^{LG papers, 1-A-7: Villa, Ciudad Camargo, to L. de la Garza, Torreón. 25 October 1913} and on 27 October de la Garza replied that the Commission has decided to levy a new forced loan on banks, industry and commerce ^{LG papers, 1-A-14, L. de la Garza, Torreón, to Villa, Ciudad Camargo, 27 October 1913}. So on 27 October Calixto Contreas, the Jefe de las Armas, gave notice to 63 different concerns immediately to hand over $146,450 (including $47,000 from the various banks) in gold, silver or small notes to be exchanged for bank-to-bank cheques^{LG papers, 3-A-16: 16: Memorandum issued by Calixto Contreras, Torreón. 27 October 1913: Announcing the amount of money demanded by Villa and the Comisión de la Hacienda from the commercial establishments listed}. The deadline was extended on 2 November to the following day^{(LG papers, 3-A-28: Memorandum issued by Calixto Contreras, Torreón. 2 November 1913: Extending the due date of the wartax imposed by Villa, with a list of persons who have partially fulfilled their quota and lists of merchants} . 

In August 1914 it was reported that 119,000 cheques in different denominations to a total value of almost a million pesos had been issued ^{AMS, fondo Presidencia Municipal, caja 157/1, legajo 34, expediente 7 - Cheques emitidos en Torreón}.

On 30 November 1914 the Carrancista Comandante Militar in Saltillo, General Luis Gutiérrez, issued a circular nullifying the bank-on-bank cheques and the sábanas (los billetes emitidos por la División del Norte, comúnmente conocidos por “Villistas”)^{AMS, Decretos y Circulares, caja 10, exp. 614. Strangely, in the notes that he decreed of forced circulation he included the dos caritas. There could be several reasons for this curiosity (1) he meant the Ejército Constitucionalista, also datelined Chihuahua, though these would have been included in the first group “Billetes Constitucionalistas”; (2) he meant just the earliest dos caritas that Carranza has authorized; (3)he did not realize the dos caritas were “Villista”, or (4) there were too many in circulation and their nullification would have caused trouble}. Gutiérrez’s circular will have been superseded by Carranza’s decree nine days later.

In February 1915 Villa included these cheques in his decree núm. 4 listing issues and in a list of notes of forced circulation that he sent to Benito Díaz, governor of Aguacalientes^{Periódico Oficial, Aguascalientes, Tomo I, Núm. 11, 6 March 1915}. This list was copied in a notice published by the Presidente Municipal Interino of Guadalajara on 15 March 1915 ^{La República, Núm. 40, 19 March 1915; El Estado de Jalisco, Tomo LXXX, No. 32, 16 March 1915} and a few days by the government in San Luis Potosí^{Periódico Oficial, San Luis Potosí, Tercera Epoca, Num 7, 24 March 1915} but this does not mean that they actually still circulated at that time and in those places. On 29 May 1915 the Tesorero Municipal of San Luis Potosí reported that of $306 in invalid notes in the Comisión de Acueductos y Paseos’ funds just $2 were billetes de Banco a Banco ^{ASLP, Ayuntamiento 1915.1, exp. s/n}.

In December 1915 a Torreón newspaper carried adverts from brokers offering to buy bank-on-bank cheques^{El Pobre Diablo, Torreón, 9 December 1915}.

On 3 February 1917 the Juez de Primera Instancia of Viesca, Torreón, sent to the Juez Correctional in Mexico City details of a complaint, made by J. Refugio Cárdenas, of counterfeit cheques^{ACoah, Fondo Siglo XX, 1917, caja 5, folleto 2, exp. 1} but no other facts are known.

In June 1917 Lázaro de la Garza still had $10,000 in Banco de la Laguna bank-on-bank notes^{The Banco de la Laguna issued notes against the Banco de Coahuila and Banco de Londres y México as well as the Banco Minero} in the Rio Grande Bank & Trust and wanted to sell. He asked Raymundo Navarro who was in El Paso what was the best price he could get ^{LG papers, 6-I-43, telegram L. de la Garza, Los Angeles, to Navarro, El Paso, 4 June 1917}. Navarro replied that they were priced at 30c, but with no buyers ^{LG papers, 6-I-45, telegram Navarro, El Paso to L. de la Garza, Los Angeles, 6 June 1917} though a few days earlier they had stood at 35c ^{LG papers, 6-I-54, letter Navarro, El Paso to L. de la Garza, Los Angeles, 6 June 1917}. De la Garza was still trying to sell them six months later ^{LG papers, 6-J-52, letter L. de la Garza, New York, to Navarro, El Paso, 21 December 1917}. Navarro could not find a buyer ^{LG papers, 6-J-53, telegram Navarro, El Paso to L. de la Garza, New York, 27 December 1917} but de la Garza found one in New York and the notes were sent to him there on 27 December ^{LG papers, 6-J-54, telegram de la Garza, New York, to Navarro, El Paso, 28 December 1917: 6-J-55, telegram. Navarro, El Paso, to L. de la Garza, New York. 28 December 1917}.

After 1918 the issuing banks were still redeeming their cheques, at the rates established by the ley de Pagos of 13 April 1918, namely $0.72 oro nacional for cheques dated 1913 and $0.74 for cheques dated 1914.