The immediate aftermath

After the major American companies resumed mining operations in June 1915 George Young from Cananea, Williams from Nacozari and Budrow from El Tigre individually argued with Calles for the desirability of paying in silver or its equivalence^{CCCC papers, section 1, subsection 1, folder 33 letter George Young to L. D. Ricketts, 22 December 1915}. Calles, whilst eager to enforce the circulation of Carranza’s currency, agreed to the scheme as a temporary measure but said he would appoint a commission to look into the matter.

In August 1915 it was reported that the Moctezuma Copper company at Nacozari would pay its employees in Mexican silver peso or their equivalence and that El Tigre would follow in September.  The effect upon the Moctezuma workmen would not be so great, in view of the company management, as the men had been allowed to purchase goods in the company store at the same price maintained in days when the Mexican peso was worth about two for one. The effect upon the general public would, however, be marked, as there would be a medium of circulation good for purchasers in any store at par value or something near it^{Douglas Daily Dispatch, 25 August 1915}.

At the beginning of September a Tucson newspaper reported that a few weeks earlier a Calles official had arrived at Cumpas from Agua Prieta armed with legal papers declaring all money worthless except the old federal bank bills. He warned the people, under heavy penalty, not to receive any of the various other issues of money which were in circulation, nor to tender any in payment for articles or debts of any kind. This was hard for the people to understand, as the principal kind of money in circulation was Carranza money, of different issues, but all of which was put out by the Carranza-Calles government and there was no Villa money in the neighbourhood. The justification for the new order was that the Carranza money had been counterfeited so much there was more bad money than good in circulation. It all passed as currency and was so similar that only an expert could tell the good from the bad. The new edict worked a great hardship on the small farmers of the Moctezuma district all of whom had just harvested and sold their wheat, receiving Carranza currency in payment. When this money was condemned it left them broke, and quite naturally indignant^{Tucson Daily Citizen, 3 September 1915}.

On 20 October circular núm. 10 of the Calles government stipulated that wages should be paid in silver pesos or their equivalence in any other money, according to the exchange rate^AGHES.

At the Cananea Consolidated Copper Company the mining unions effectively prevented the use of the paper currency and Manuel M. Dieguez, formerly a labour leader there, called the unionists "agitators”. Soldiers too, wanted their pay in metal coins, and in December 1915, their pay was doubled. The increase afforded little relief because merchants refused to take the fiat money^{SD papers, 812.00/17112. Border Reports 8 and 16 July 1916}.

After the climactic battle of Hermosillo on 22 November 1915, Calles turned his attention to the monetary difficulties of the state. By paying in silver the mining companies forced the government to pay its own employees in silver, which in turn led to some troops being paid in the same manner. George Young of Cananea was able to write in December 1915 that their action had resulted in making the silver peso the circulating medium of northern Sonora almost to the exclusion of other currency. To change the currency, he argued, would upset the economic situation^{CCCC papers, letter from Young to Ricketts, 22 December 1915}.

Calles had returned to the use of the silver peso as a tax basis and for salary payments because of the high cost of merchandise and the depreciation of paper money but it was not to the state's advantage to accept the paper money at face value. Calles was uncertain whether Carranza’s decree of 28 December 1913 making the paper peso the same value as the silver peso was still in force because of the lack of certain communications with Mexico City for over a year^{AGHES, tomo 3057-1. Governor to Secretary of Treasury, 11 December 1915}. However, Calles proceeded to usurp powers which presumably belonged to the central government. On 16 December in decree núm. 24 he announced that the silver peso was the equivalent of fifty cents United States gold or ten pesos in Constitutionalist paper^{AGHES, tomo 3057-1}.

Six days later he notified the municipal presidents that all future municipal taxes were to be collected in silver pesos or their equivalence as established in his decree ^{AGHES, tomo 3057-1, Circular telegram to all presidentes muncipales, 22 December 1915}. However, by circular núm. 14 on 30 December he altered the exchange rate, lowering the value of the silver peso to forty cents in United States gold but retaining the value of the paper at five cents United States' gold^{AGHES, tomo 3057-1}. Calles attempted to stabilize the currency by insisting on payment of wages and salaries in silver or its equivalent, but he was defeated by one important factor: the shortage of legal circulating currency. In the isolated and self-sufficient agricultural communities, where most of the population lived, salaries were paid in paper at face value, ignoring the ratio set for silver and paper. There was little circulating money because crops were usually subsistence crops with few saleable surpluses. For taxes Calles offered no alternative form of payment to silver and its equivalence in paper except United States gold^{AGHES, tomo 3057-2 Presidente Municipal, Baviácora, to Calles, 24 February 1916; reply, 11 March 1916{/footmote}. At Ures in December 1915 municipal taxes were being paid in banknotes since no other currency was in circulationAGHES.}

In line with this policy, Calles promised the federal workers in Sonora that their salaries would be paid in silver. To Carranza he explained that this was necessary because of the low value of paper money and the impossibility of living on their salaries^{AGHES, tomo 3057-1 Calles to Carranza, 14 January 1916}. He maintained that Sonora’s economic situation was unique. Carranza objected to his promise of paying in silver, and Obregón, who also had received a copy of the notice, proposed a monetary commission to study the economic situation in the state. Calles insisted that if federal government employees in the state were not paid in silver, services would be interrupted, because they could not exist on their salaries^{AGHES, tomo 3057-1 Calles to Carranza, 21 January 1916}. Carranza did not think Sonora' s situation was unique; Coahuila, Nuevo León, and Tamaulipas were all border states with similarly high costs of living. As to the salaries, he curtly answered, "If there are some who cannot continue serving as they have been, tell me and others will be substituted who can subsist on the assigned salaries."^{AGHES, tomo 3057-1 Carranza to Calles, 24 January 1916}. Calles was forced to notify the federal employees later in January that Carranza had dictated that they would continue to be paid in paper, contrary to what he had dictated as military commander of the state^{AGHES, tomo 3057-1, Circular telegram to all presidentes municipales The original of the telegram was slightly different from the one sent, and expressed Calles' pique at Carranza. It read: Notwithstanding pleas made by this governor, the First Chief as well as General Obregón has dictated that the offices and charges would continue to be paid in paper money, contrary to what I dictated as military commander of the state in this respect....}. The use of silver for the salaries of state employees continued to cause ill-feeling between Carranza and Calles, delayed economic recovery in the state, and caused labour unrest as most workers continued to receive wages in almost valueless paper. Federal border customs' employees refused to work until their salaries were doubled with an additional grant of rations for a family of five^{SD papers, 812.00/17592. Border Report, 11 March 1916}.

As the Constitutionalist money continued to decline in value, a new issue became inevitable. In February a paper peso brought only three to three and a half cents in Nogales^{SD papers, 812.00/17334 Special Border Report, 19 February 1916}; by late March it brought only two cents, and the troops were again complaining^{SD papers, Border Report, 22 April 1916}.

Carranza's new issue, the infalsificables, was to occur in May, but on 29 April the states were notified that the printing of the new money in small denominations would be delayed. To provide for fractional money, which was short because of metallic hoarding, the public offices were authorized to accept the old money of one or two peso values at one-half its face value for payments of less than five pesos. Another notice of the same date guaranteed the new pesos to be worth twenty centavos in national gold. The old issue could be used in commerce until June 30. A series of circulars of late April made laws for money the state did not have. Circular 77 stated that debts contracted before May 1916 were to be paid in the old money; circular 75 announced the new issue would be divided among the states on the basis of their monthly budgets and that it would only be used to pay employees^{AGHES, tomo 3057-2}. All metallic money in circulation was to be turned over to the treasury and would be covered by new money^{AGHES, tomo 3057-2, Flavio A. Bórquez to Calles, 16 May 1916}.

In a late bid to shore up the depreciated older issues Carranza ruled that it could be used in payment of import taxes, which only three weeks before he had ruled must be paid in gold. The old paper was to be used at the rate of ten paper pesos to one peso in national gold^{AGHES, tomo 3057-2 Circular 83 of 6 May 6, 1916}.

According to Carranza's instructions, all federal and state employees were to receive their salaries in the new issue. The Secretary of Treasury was to set up an account for each state and would credit to that account all the old issues turned over to the treasury. The national government would advance to each state the money necessary to cover salaries. The governors were to pay the salaries, taking into account the reductions the state could make because of the high value of the new money. The state government would continue to receive taxes in the old money, but Carranza recommended that the governors raise local taxes in order to obtain at least twice the total they would spend in the new money. The old money thus obtained was to go to the Treasury for credit to the state accounts and retirement from circulation.

The Secretario de Estado, Enrique Moreno, warned the municipal presidents that speculators and some businessmen would try to take advantage of the monetary confusion to try to discredit the new paper money. If they raised the prices excessively on essential consumer items, thus disobeying the legal rates fixed for the money, the presidentes municipals were empowered to punish them.

In May 1916 Carranza named Adolfo de la Huerta governor in place of Calles who was to remain in charge of military operations. In a later Informe to the local Congress, de la Huerta complained:

It was vital to get the economic situation back on course by bringing it as quickly as possible into line with financial conditions in the rest of the Republic, and I soon learnt that whoever tried to do this in Sonora would have to suffer all the bitter reproaches and the strongest protests on the part of the inhabitants of a region such as this that had a deep antipathy for the Ejército Constitucionalista currency and a marked repulsion towards the financial system that the revolutionary government, through dire necessity, had imposed. As our people were used to carrying out all their transactions in specie while the Revolution, for its part, needed to maintain the infalsificable currency at its official rate, I had to undertake a formidable struggle to bring Sonora into the general scheme of the Republic, and it was unjust that General Calles, who had fought so hard in his native state for the Constitutionalist triumph, should take on this new task, so positively distasteful but so vital for the success of the Revolution, and so I had to resign myself to obeying the orders of the Jefe Supremo....at the same time as, as a friend, avoiding countless obstacles from General Calles over this action, so very essential to avoid the economic imbalance that the use of the dollar and of silver in one of our states would cause to the rest of the country^{Antonio G. Rivera, La Revolución en Sonora, Mexico, 1969}.

By June 1916 Mexican officials in Sonora were declaring that the monetary situation was grave and anarchy certain unless Calles, the military commander in the state, obtained some immediate adjustment. Calles was expected in Hermosillo for a conference with Governor de la Huerta, out of which would come either a solution of the financial problems or a definite break between Calles and Carranza. Arrivals from Cuchuia and Fronteras reported that soldiers were mutinous over being paid in the new Carranza currency. “When the official paymaster visited the camps, scenes of disorder followed. One captain, upon receiving his pay in the currency, tore it up, spat on it, then ground the pieces under his heel, cursing the paymaster and demanding real money, according to men who claim to have been eye witnesses.” It was reported that Calles would demand of de la Huerta that exchanges be established with ample funds to redeem all Carranza currency in gold, or that the customs houses should be empowered to exchange gold and silver for the currency at the rate of 10 cents gold on the peso^{Albuquerque Journal, 7 June 1916}.

On 12 July Carranza decreed^{[text needed]} that all merchandise must be priced, all salaries, rents, etc., paid in the new currency and the presidente municipal of Hermosillo issued an oficio[^{text needed]} to that effect. However, on 21 July Calles practically repudiated the Carranza currency, when he issued an order^{[text needed]} that no merchant would be forced to accept it in exchange for goods. Since Adolfo de la Huerta had been governor of the state merchants had been compelled to accept Carranza currency at the stated rate of 10 cents gold on the peso, although it could be purchased on the American side of the border for less than half as much. As a result merchants all over the state were forced out of business, while company stores which remained in operation perforce allowed their stocks to run down to the minimum. An order from the Mexican treasury department, waiving both consular and customs duties on the importation of Mexican silver coinage, indicated that the order of General Calles was given with the sanction of the national government. Payrolls at Cananea, Nacozari and El Tigre had been met for several months with silver money or its equivalence in gold. Soldiers were receiving their wages in the almost worthless Carranza infalsificables at the rate of 10 cents gold on the peso and it was not known whether they would also be paid in silver, but it was believed that the new order would cause discontent among the soldiers as it completed the destruction of any value that the Carranza money in Sonora had had^{Albuquerque Journal, 22 July 1916}.

In a circular (núm. 39) on 24 July 1916 de la Huerta told authorities to punish people using foreign currency and to make shops publish their prices in oro nacional and accept Constitutionalist currency.

By August few stores in southern Sonora were doing any business owing to being forced to take Constitutionalist money. Those which were operating had allowed their stocks to run down to a very low point and but for the municipal warehouses where foodstuffs were sold to the poor at bargain prices, suffering would have been intense. Rumours reaching Cananea that the mining companies of that district would be forced to discontinue paying employees in Mexican silver and pay in Carranza currency caused a lot of arguments. Meetings were held by Mexican employees who determined they would go on strike before accepting the currency^{Albuquerque Journal, 22 August 1916}.

In September it was rumoured that Carranza’s order that his new infalsificable currency should be used in all business transactions in every part of Mexico would not be enforced in Sonora. According to a report, de la Huerta had decided that the people could continue to do business with any sort of money they wished although the Carranza currency must still be accepted where tendered. It was thought that to force the use of the currency would mean strikes in Nacozari, Cananea and El Tigre, as well as all other camps where silver was being paid. The employees were understood to have met and decided that they would resist any attempt to change the silver standard in the various camps by a walkout. Such strikes would mean that the government would have to employ troops, and bloodshed and looting might be expected to follow. A verbal message said to have been received by Agua Prieta merchants from Calles, the military commander of Sonora, instructed them that they must accept the Carranza issue at its government-made value of 10 cents gold on the peso, but should set their prices sufficiently high to prevent themselves from being wiped out. Acting on this authority merchants raised their prices substantially. They were said to have adopted the plan already in use further in the interior of the state of quoting articles at a very reasonable price for gold or silver money but to quote a price of several hundred pesos for the same articles where the Carranza currency was offered. For that reason nothing was marked and no prices quoted until the merchant learnt what kind of money his customer had^{Tucson Daily Citizen, 5 September 1916}.

The process for the retirement of the old issues from circulation was complicated and confusing. Certain taxes were payable only in metallic money, some only in paper. Beginning on 5 June the one-hundred peso, fifty peso, and twenty peso notes were to be retired, but they would be accepted in the payment of taxes payable in paper. If they were not needed to pay those specific taxes the notes should be taken to the Treasury, the principal stamp offices, the Comisión Monetaria or its branches, or the National Treasury for deposit, but only during June and July. The one, two, five and ten peso notes and the old fractional coinage would circulate until 30 June; after that they could not be used in private transactions, but could be used to pay the nonmetallic taxes or deposited. The deposited money was to be verified in triplicate and removed from circulation. Certificates of deposit were non-transferable. In October 1916 the government would begin redemption of the certificates in national gold at the rate of ten centavos national gold for each peso deposited. The debt incurred was to be amortized over five years at par. After the end of 1916, the old issues would no longer be legal tender^{AGHES tomo 3057-1 Clrcular telegram to all presidents municipals, 31 May 1916}.

The states were bombarded with decrees and circulars explaining and limiting the use of the new money. On 9 June decree núm. 58 announced that all municipal taxes, state taxes, import-export taxes, or business taxes were to be paid in the new money^{AGHES, tomo 3057-2}. Already, on 5 June, the qualified departments had been notified to exchange the old issues of twenty, fifty and one-hundred peso notes for the new notes at the rate of eight old for one new peso; but only for the needy classes, only in quantities not to exceed one hundred pesos and only until 10 July. Certain import-export duties were payable only in metal, such as those on ore concentrates, petroleum and explosives, all of which were of vital importance to the state mining industry. Some taxes could be paid only in the new paper, some in either metal or new paper^{AGHES, tomo 3057-1, Notice from Tax Department, 28 June 1916}. By 1 July all transactions were to be made in the new money, and prices were to be set in terms of it^{AGHES, tomo 3057-1, Notice from Dept. of Credit and Commerce, 28 June 1916}. The dates for the redemption of the lower value notes was set back to 30 November ^{AGHES, tomo 3057-1, Notice 16 October 1916} and municipal taxes could not be paid in gold^{AGHES, tomo 3057-1, Notice 11 July 1916}.

There was immediate resistance to the new issue, and immediate depreciation. Uncertainty over what must or could not be paid in metal was widespread; the federally run telegraph and post-office in Guaymas refused to take paper money^{SD papers 812.00/18549 USS Chattanooga to Commander in Chief, USPF, 6 June 1916}.

The mining companies continued to pay in silver, although de la Huerta insisted that fiat money be used ^{SD papers 812.00/18420 Hostetter to Secretary of State, 7 June 1916}. The district court employees in Cananea complained that their salaries were inadequate; due to the depreciation of the new money they received only one-third to one-fourth of what they would be making if they were paid in silver. Their problem was that in Cananea, although the mine workers were paid in silver, the prices were set in the paper equivalent of silver. There was very little paper in circulation, since only the federal and state employees were paid in Constitucionalist money, and prices were very high. The complaint netted nothing^{AGHES, tomo 3057-2}.

The problems of Horcasitas were more typical of what was happening throughout the state. Town employees were paid in Constitutionalist paper at the official exchange rate of twenty centavos national gold for each paper peso. On the street those same pesos were worth only five centavos per peso. The merchants conducted their business in metal and then bought cheap paper pesos in Hermosillo or Nogales to pay their taxes. All town employees resigned because of the money problem, and finding new employees was difficult. The town wanted permission to use metal^{AGHES, 3060 Presidente Municipal, Horcasitas, to de la Huerta, 24 October 1916}.

United States consul Hostetter in Hermosillo reported that de la Huerta had issued a decree^{[text needed]} notifying the merchants that it was not necessary to take the new paper money, with a consequent improvement in business^{SD papers 812.00/18970 Hostetter to Secretary of State, 15 July 1916} but there was no truth in this widely-believed report. On the northern border Calles told the merchants that they did not have to accept paper money except in the case of soldiers and their families, and then, only when necessary for their daily needs. De la Huerta, who was in Cananea on an inspection tour, ordered Calles to report to him immediately in person, but Calles furiously refused to go^{SD papers, 812.00/18861 Border Report, 22 July 1916}. The state treasurer, Flavio A. Bórquez, a Calles man, ignored the legal rate; possibly it was his action which led the merchants and consuls to believe the decrees had been abrogated^{AGHES, tomo 3057-2}. Calles' defiance was useless; on 24 July de la Huerta decreed that prices had to be posted in national gold with the understanding that all transactions could be made in fiat, and he forbade the use of American currency, silver or gold. The exchange rate was pegged at ten pesos per American dollar, although the international exchange rate for that same peso was only three cents. Such an anomalous condition could not do other than affect business adversely; merchants were forced to sell a five-dollar imported item for fifty pesos, and those same pesos could be bought for one dollar and fifty cents on the border^{AGHES, tomo 3083, Circular núm. 39, 24 July 1916}. The strict enforcement gradually became lax as it became more apparent that nothing could keep the new money from depreciating, although government salaries continued to be paid in it, though not without protests. Teachers, telegraphers and soldiers all complained. Merchants refused to buy supplies which would be paid for in gold and sold in paper, and food prices rose. The federal government finally decided that it could not legislate to meet the wide variety of economic situations throughout the Republic. On 10 November Carranza authorized the governors to regulate the method by which government salaries and wages would be paid on a gold basis, when the current law was not considered equitable.

A new exchange rate of thirty-four fiat pesos per gold peso was set from 12 November; on 20 November 20 Carranza notified the governors that a new exchange rate would be fixed every ten days. By the end of December the rate was down to one hundred and fifty pesos fiat for each gold peso, and falling. The floating exchange rate complicated matters even more.

A law of 20 November authorized the governors to collect all local taxes on the basis of fifty percent national gold and the remaining fifty percent in any legal specie using the exchange rate set each ten days^{AGHES, tomo 3060 Notice 16 November 1916}. Since the municipal taxes were paid monthly or every four months the collectors constantly had to recompute tax rates. Budget planning became impossible. In December, pending the promulgation of the Constitution, debtors and creditors were granted a moratorium. Creditors did not have to receive paper money against their will, nor did debtors have to make payments, unless the contract had been made before September 1914 and specified metallic payment. All suits involving contracts then before the courts were suspended; and leasing contracts written in paper money could be rescinded by either party with previous notice. Mexico returned completely to the gold standard when the federal government finally decreed in December 1916^{[text needed]}, that with the beginning of the new year the salaries and wages of all private employees and general workers, would be paid in gold or its metallic equivalent, taking as a base the salaries and pay rates of the fiscal year of 1912-1913^{AGHES tomo 3060, decree 14 December 1916}. Federal salaries however, would be paid one-half in gold and one-half in gold certificates, which were merely paper money with a different name, at the same rate as in 1912 and 1913.

With the shortage of gold coins American money became the circulating medium in northwest Mexico. By April 1917 it was estimated that eighty percent of the available money in Sonora was from the United States, both notes and gold, and a few fractional coins. Merchants and tax collectors could refuse to accept American money because it was not legal; and the buyer or taxpayer had no recourse except persuasion in areas where this was the only money in circulation.

On 24 January 1918 the managers of the Cananea Consolidated Copper Company, the Moctezuma Copper Company and the El Tigre Mining Company met with the governor, Cesário G. Soriano. The managers said that it was impossible to import either Mexican or U. S. gold coins as the U.S. government had banned gold exports, so the governor agreed that they could pay in U.S. silver or U.S. banknotes and ordered the Administración Principal del Timbre to accept them at a rate of 2:1. On 25 February the Administrador de Rentas in Cananea was reporting that people could not pay their taxes, as required, in gold, as only American bank notes were circulating and on 9 May Ignacio Hopkins, President of the Cananea Chamber of Commerce, reiterated this complaint and asked the Tesorería General to take action. On 9 June the Presidente Municipal of Cananea

Carranza faced the problem only partly when on 14 May 1918 he legalized^{[text needed]} the use of foreign gold money in the North and West due to the shortage of metallic Mexican money caused by irregular communications.

In June 1918 the use of American money was so prevalent in Sonora and Sinaloa that the state offices began receiving the dollar bill in payments at the rate of two gold pesos to one dollar, but federal offices would not take it. Governor Soriano pleaded with Carranza to permit the federal stamp offices to accept dollar bills but Carranza reminded him that their use was illegal. Numerous towns wrote of their difficulties in collecting taxes because there was no gold available for payment, so Soriano took matters into his own hands. In July he decreed that, in view of the scarcity in the state of both Mexican and American gold and all silver, tax administrators, the fiscal agencies, and other tax offices should accept and keep on deposit the federal tax in silver or American dollars until the central government resolved the problem of circulation in Sonora. Soriano was quickly informed that the central government was not pleased with his decree, and he was ordered to withdraw it^{AGHES, tomo 3189 Pesqueira to Calles, 25 July 1918}. By then, however, Calles was back in office. The Governor may have officially withdrawn the decree, but he notified the tax office in Guaymas in September that they were to accept American notes in payment of taxes^{AGHES, tomo 3193-1 Calles to tax collector, Guaymas, 10 Sept. 1918}.

On 6 December 1918 a group of workers from the Cananea Consolidated Copper Company wrote to the President complaining about the company’s system of payment. The company had restarted operations over a year before, offering to pay in coin, since paper money was so discredited. However, all the mining companies in the area in fact paid most of their wage bill in American dollars.

In July 1921 the El Tigre mining company sought permission to continue to pay its workers with American money for amounts below twenty pesos because of a shortage of Mexican coins^{AGHES, Fondo Oficialidad Mayor, tomo 3441}. Other companies also experienced similar trouble and the use of American coinage, although prohibited, was common.

The Compañía Bancaria Mercantil y Agrícola de Sonora

To fill the banking vacuum after the revolution the Compañía Bancaria Mercantil y Agrícola de Sonora, S.A. was established by Francisco Suárez Elías, General Plutarco Elías Calles and other shareholders^{Francisco S. Elías y Hermanos, S. en C., Hilario G. Gabilondo, Edgardo J. Gabilondo, Rafael Gabilondo, Roberto P. Pesqueira, and Ignacio Soto} from the north of Sonora in 1917. The bank was capitalised at $200,000 (2,000 share of $100 each).This Compañía Bancaria Mercantil y Agrícola de Sonora, S. A. reformed as the Banco Mercantil y Agrícola, S.A. Refaccionario with a capital of $500,000 (oro nacional) (5,000 shares of $100 each) in 1927.