January 1944 NEW MONETARY AND BANKING MEASURES IN PARAGUAY On October 5, 1943 the Republic of Paraguay State Department, for advisers in related fields; adopted a new law which effects several im- and Mr. E. C. Johnson of the Farm Credit portant changes in the Paraguayan monetary Administration, Mr. Ormond E. Loomis of the system. These changes include the designation Federal Home Loan Bank Administration, and of a new unit, the guarani, which is equivalent. Mr. George R. Taylor of the Office of Price to 100 of the old paper pesos, or 31.5 United Administration were designated, respectively, States cents; the establishment of the new unit by their organizations as experts in agricultural on a "composite exchange standard"; and credit, mortgage credit, and price control. allocation to the central bank of control over The representatives of the Board were in the entire monetary issue, including coin as Asunci6n, the capital of Paraguay, during well as notes. September and October, 1943. At the invita- The basic monetary law which the new meas- tion of the Banco de la Republica del Paraguay, ure supersedes had not been revised since its the Banco de la Republica of Colombia gener- enactment in 1885 and the Banco de la Republica ously lent the services of one of its officers, Mr. del Paraguay, a Government institution which Enrique Davila, to cooperate with the repre- had its origin in a previous "Oficina de Cam- sentatives of the Board and to assist in setting bios/' has been hampered in performing central up new operating procedures in accordance with banking functions by the absence of powers banking practice in Latin America. Mr. Davila adequate to meet the problems of the present was in Paraguay during October, November, rime. and December. In view of this situation, the Government of Preparatory work already undertaken in the Republic of Paraguay and the Directorate Washington served as the basis for discussion of the Banco de la Republica began preparations in Asunci6n of three legislative projects: a some time ago for a general banking and mone- monetary law, a central bank law, and a general tary reform. Mr. Harmodio Gonzalez, General banking law. These projects were developed Manager of the Bank, was seat to the United in consultation with the directors and managers States in 1942. under the auspices of the Co- of the Banco de la Republica, the Ministry of ordinator of Inter-American Affairs, and spent Finance, and the managers of the commercial about twelve months in all at the United. States banks. Dr. Carlos A. Pedretti, President of the Treasury, the Federal Reserve Banks of New Banco de la Republica, exercised an active York and of St. Louis, the Board of Governors leadership in furthering the work, and upon of the Federal Reserve System, and at other completion of the monetary law he and Dr. Government agencies in Washington. After Rogelio Espinoza, Minister of Finance, who Mr. Gonzalez' return to Paraguay, his Govern- also took a special interest in the program, ment asked, through the State Department, sponsored the measure in the Council of State. that two representatives of the Board of President Higinio Morinigo promulgated the Governors be designated to advise the central monetary law October 5, 1943 and it went into banking authorities of Paraguay in the revision effect November 8, 1943. Drafts of the central of their monetary and banking laws. In accord bank and general banking laws are far advanced with its wish to help promote sound fiscal and and it is expected that they will be ready in the monetary policies, especially as an aid to good near future for submission to the Council of relations, the Board was glad to comply and State. designated two members of its staff, Mr. Bray In establishing a new unit, the guarani, the Hammond and Mr. Robert Triffin. The Para- monetary law terminates a situation in which a guayan Government also asked, through the hypothetical t4gold peso" (peso oro sellado) FEDERAL RESERVE BULLETIN Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis January 1944 NEW MONETARY AND BANKING MEASURES IN PARAGUAY persisted as a unit of account while the unit in silver moneys of the Argentine Republic.'f The actual circulation continued to be the paper second article declared that "the gold pieces of peso Qpeso curso legal or peso fuerte); and in which 8 grams and 645 ten-thousandths (8.0645 grams) both were pegged to the Argentine paper peso. by weight and 900 thousandths fine shall be The new law has also the effect of eliminating worth 5 full pesos Qpesos juertes), the fractions the wide margin on dollar transactions which thereof having their corresponding value.*' had followed appreciation of the Argentine The Argentine gold peso to which this law peso and had reached a maximum of nearly 10 refers had been established in that country by per cent during the last year before the new law monetary law No. 1130 of November 5, went into effect. The margins between the 1881. It was defined as having a gross weight buying and selling rates of foreign currencies of 1.61Z9 grams, 0.900 fine, i.e. a fine gold are now unified and those on the more important * content of 1.45161 grams. On that basis, the currencies are quoted in the daily press in legal monetary unit of Paraguay would be Asunci6n.x Discussion of these and other equivalent to 0.9648 pre-1934 dollars, or about features of the law, including the mechanics 1.63 current dollars of the United States. of the "composite exchange standard/1 will Two different Paraguayan monetary units be found in the explanatory statement which is developed from the monetary law of 1885; one printed with the law in the following pages. was the paper peso, called the peso fuerte or Besides preparing the text of the new legisla- peso curso legal (peso c/1), i.e. peso of legal tion, the Banco de la Republica del Paraguay, in tender, and the other was the gold peso or peso consultation with the representatives of the oro sellado (peso o/s), i.e. peso of coined gold. Board and of the Banco de la Republica of Col- No Paraguayan gold coins were ever minted, ombia, has made many changes in administrative and very few silver coins, but. paper money was and accounting practice called for by the new issued under various regimes and constitutes responsibilities the central bank will have under today, together with subsidiary coins, the only the new legislation that has gone into effect or legal circulating money of the country. A is contemplated in the near future. These series of devaluations progressively lessened the include procedures for introducing the guarani value of the monetary unit. The last definition into circulation in place of the old peso, of the peso curso legal, or paper peso, February establishment of a clearinghouse in Asunci6n, 10, 1941, gave it an equivalence of — of the and preparation for a system of bank inspection. Argentine peso and this rate has been maintained The official statement on the monetary law up to this date by the Banco de la Republica. and the text of the law itself, as translated from The present dollar equivalent is about 308 pesos the original Spanish documents, are given per U. S. dollar, or 0.3x5 U. S. cents per peso. below. The gold peso, or peso oro sellado, became a mere money of account, born historically of two STATEMENT ON THE MONETARY LAW different factors: the actual circulation of Ar- gentine currency in Paraguay and the desire I- THE MONETARY SYSTEM OF PARAGUAY of creditors to protect themselves against the The basic monetary law of Paraguay dates progressive depreciation of the Paraguayan back to July 14, 1885. The first article of that paper peso. The peso oro sellado, as indeed the law gave legal tender quality to "the gold and peso curso legal, was originally equal to the Argentine peso. Contracts in gold pesos were, 1 The new rates as quoted by the Banco de la Republica on Monday, for all intents and purposes, equivalent to con- November 8,1943 were as follows in guaranfes per unit of foreign cur- rency: tracts in Argentine currency. Legal Buying Selling Rate Rate Rate This would have constituted a "gold clause" Argentine peso 0.7700 0.7620 0.7780 Cruzeiro 0.1615 0.1600 0.1631 if it had not been for the devaluation of the Dollar 3.0720 3.0410 3.1030 Sterling 12.3200 12.2000 12.4400 Argentine peso itself. In the same year 1885, JANUARY 1944 43 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis January 1944 NEW MONETARY AND BANKING MEASURES IN PARAGUAY however, in which Argentine currency of gold not gold, since its relation to gold fluctuated and silver was made legal tender in Paraguay, with the Argentine paper money. And, finally, Argentina suspended convertibility, and after it was never coined in Paraguay and it ceased the banking crisis of 1890 the Argentine peso to be coined in Argentina even before its estab- underwent a rapid depreciation which led to lishment as the Paraguayan currency unit by the currency reform of 1899. The Argentine the law of 1885. The term "oro sellado" has paper peso was officially fixed at 44 per cent generally been used to accomplish the purpose of the gold peso (4X.45 U. S. cents) and the of a foreign exchange clause protecting the Caja de Conversion was authorized to pay out creditor against the depreciation of the Para- gold in exchange for legal tender notes at the guayan paper peso vis-a-vis the Argentine paper rate of 44 centavos for one paper peso.