Withdrawal of the Gobierno Provisional de México notes

On 21 July 1915 the Constitutionalist Secretario de Hacienda, at Veracruz, declared that unification of the currency was the most important step to restoring monetary stability. This could be accomplished by withdrawing the old paper currency from circulation and replacing it with a new paper currency. After Carranza authorised the infalsificable issue on 21 July he therefore, a week later, made provisions for the withdrawal of the Mexico and Veracruz Gobierno Provisional currency.

The withdrawal of the old money and the introduction of the new infalsicables was effected in three ways: though its receipt in payment of taxes; through the exchange of the money for provisional gold certificates; and finally through direct exchange.

The first method was through the receipt of the old money for taxes. The 27 April decree placing the infalsificables into circulation contained a provision stating that all federal, state and municipal taxes not required in national gold should for the time being continue to be made in Veracruz and Ejército Constitucionalista paper money and that this money should also be receivable for telegraph and postal fees. The decree stated that all the old money taken in by the tax offices was to be marked immediately with a stamp stating that they had been withdrawn (con un sello bien visible que indique que quedan retiradas de la circulación) and sent to the Tesorería de la Federación.

In May the government, in order to confront the activities of speculators, resolved to acquire Veracruz and Ejército Constitutionalista notes, paying for it in national gold, at the current rate. The Secretaría de Hacienda set up offices in the Comisión de Cambios y Moneda (in the Banco Mexicano de Comercio e Industria building. in 2a. calle de Capuchinas); the Nacional Monte de Piedad; the Comisión Algodonera de La Laguna (at Gante número 1); the Ferrocarriles Constitucionalistas de México (at the corner of Bolivar and Cinco de Mayo.) and the Caja de Préstamos para la Irrigación y Fomento de la Agricultura (also in the Banco de Comercio e Industria building)^{El Pueblo, Año III, Tomo I, Núm. 549, 4 May 1916}.

An official circular (núm. 103) of 16 June declared that the old notes would continue to be accepted until 30 June at their nominal value in payment of taxes that were not made specifically payable in metallic money, and that they would be acceptable as equivalent to five centavos national gold per peso in payment of certain past due taxes and surtaxes in connection with mining and as the equivalent of ten centavos gold to the peso in payments of imposts which were payable in gold. An order of 23 June 1916 announced that for the fiscal year beginning 1 July, the old paper money would be accepted in payment of common revenue stamps at the rate of ten pesos of the old money to one peso of the new infalsificable money.

On 28 June a tax department decree stated in what kinds of money the taxes for the new fiscal year would be payable, some only in gold, some in metallic money or its equivalent in infalsificables (20 centavos national gold to the peso), some exclusively in infalsificables, and some in infalsificables or their equivalent in Veracruz or Ejército Constitucionalista money at the rate of ten to one.

Carranza decreed on 31 May 1916, that from 5 June, the $20, $50 and $100 notes would be retired from circulation, but that such notes would be accepted during the remainder of the year in payment of obligations which did not require metallic money. Holders were instructed to deposit their notes with the Jefaturas de Hacienda, Administraciones Principales del Timbre, in the Comisión Monetaria and its branches or in the Tesorería General de la Nación during the months of June and July. Lower value notes and the old fractional money were to be permitted to circulate until 30 June, after which they would not be valid for private transactions but would continue to be accepted in payment of taxes where metallic payment was not required until 31 December. Those individuals who did not wish to use these notes for private transactions or for taxes were required to deposit them with the agencies mentioned above from 1 June onwards. From 1 October the Tesorería General would begin to exchange the provisional certificates of deposit of such notes for definite National gold certificates at a rate of ten centavos National gold for each paper peso^{Cabrera argued that any injury caused by the exchange would be temporary, that the public should wait a bit to recover the value of their money and that the government would compensate for the delay. The market value at the end of May 1916 was 4 centavos oro nacional so the certificates at 10 centavos oro nacional offered a gain of 150%, and the old money was likely to continue to depreciate (El Pueblo, 9 June 1916). The decree was modified on 4 September 1916 to state that the certificates would be paid in five annual payment, from 30 June 1917 to 30 June 1921 (CEHM, Fondo XXI, leg. 9245), though only the first was actually paid. It has been calculated that in this way about $50,000,000 in Ejército Constitucionalista and Veracruz paper was collected (Edwin Walter Kemmerer, Inflation and Revolution: Mexico's Experience of 1912-1917, p. 192)}. There was to be no direct exchange.

The markets anticipated the withdrawal of the higher values and as they were being consistently refused they were demonetarized on 3 June^{El Pueblo, 2 June 1916}.

The provisional certificates involved a lot of red tape so despite the last clause of the above decree an official order (circular núm. 97), on 5 June, authorised the various Treasury departments for five days to give to ‘the poorer classes’ infalsificable notes in exchange for Veracruz or Ejército Constitucionalista notes at the rate of one new peso for eight old in sums not exceeding 100 pesos. This rate represented a concession to the poorer classes since it was more favourable than the general rate of one to ten.

Due to the continuing scarcity of small denomination currency, the government issued an order (circular núm. 106) on 10 June providing that $1, $2, $5 and $10 notes of the old currency should continue in circulation at a fixed rate of ten to one in relation to infalsificables, and that at this rate, the former, as also the fractional cardboard currency, should be exchangeable for the latter in unlimited quantities. The circulation of the old higher values was discontinued at once, although these notes were to be accepted on deposit in exchange for provisional gold certificates until 31 July (this date was extended to 31 August, by a decree of 2 August), and were to be acceptable until further orders by railroads in payment for freight and passenger service. The above dispensations were modified by a decree of 28 June which declared that the new infalsificable currency should be established as soon as possible, discontinued the circulation of the old $10 notes and the fractional cardboard currency after 30 June, and ordered the Treasury offices throughout the country to give infalsificables in exchange for this money at the rate of one for ten until August 30. The same order extended until 31 October the legal circulation of lower value Veracruz and Ejército Constitucionalista money (by a decree of 16 October, the date was extended until 30 November), but limited their legal tender quality to a ten to one basis to payments not exceeding twenty pesos infalsificables: in other words, made them limited legal tender fractional money equivalent to fifty, twenty and ten centavos respectively of infalsificable money. This order also provided for their redemption at Treasury offices throughout the Republic in infalsificable money at the rate of ten to one. It reaffirmed the privilege given to the public by the decree of 31 May of exchanging this money at the rate of ten to one for provisional gold certificates. The decree of 16 October extended the period to 31 January 1917.

All these decree led to government edicts and circulars in the various states, either repeating Carranza’s decrees or attempting to enforce acceptance of the rapidly depreciating notes.

Thus, on 30 April 1916, the Governor of San Luis Potosí, Federico Chapoy, had to reassure people that the government was not going to repudiate the old money and that it would be accepted in payment of local and federal taxes until the end of the year^{Periódico Oficial, 10 May 1916}.

On 8 May, because businesses were refusing to accept the $5 and $10 Ejército Constitucionalista and Gobierno Provisional (Veracruz) issues, the Presidencia Municipal of Guadalajara, Jalisco, ordered that all the $1 and $2 notes were collected from government shops and offices so that they could be used to exchange the $5 and $10 notes^{Periódico Oficial, San Luis Potosí, 13 May 1916}.

By 7 June people in Querétaro were refusing the five and ten peso Ejército Constitucionalista and Veracruz, sometimes claiming not to have change and other times simply refusing to accept them and Governor Federico Montes had to issue another warning.

On 25 June the Secretaría de Hacienda announced that of the 250 million pesos of the Veracruz and Ejército Constitucionalista issues that had so far been collected fifty million were ready to be incinerated. These were on view in the offices of the Comisión Monetaria and the incinerations would be carried out daily in the Oficinas Impresoras de Hacienda^{La Tribuna, 26 July 1916}. Up to 30 September 1916 $176,946,300 in Ejército Constitucionalista and Veracruz paper had been destroyed, and from then until 12 October another $37,458,450 was destroyed, making a total of $214,404,750^{El Demócrata, 13 October 1916}.

By 24 October $240,000,000 in Veracruz and $10,000,000 in Ejército Constitucionalista notes had been received and checked by the personnel of the Departamento de Amortización de la Deuda, a branch of the Comisión Monetaria run by Angel Silva, and incinerated. Another $50,000,000 was ready to be burnt^{El Pueblo, Año, III, Tomo I, Núm. 727, 24 October 1916}.

In a report to Congress on 1 September 1917 Carranza reported that the incinerations by the Comisión Monetaria and other government offices had reached $547,471,960.06. In addition they had destroyed $48,658,355.00, in notes that came from the Oficina Impresora of the Secretaría de Hacienda and had never been put into circulation^{Periódico Oficial, Tamaulipas, Tomo XLII, Núm. 75, 19 September 1917}.