keeping accounts in two different currencies, and was prevented the loss by fluctuation as between the intrinsic value of silver and gold. The agreement was accepted by the fiscal commissioners and was brought to the attention of the Panamanian authorities. The Panamanian convention, which had failed to adopt the law, by a tie vote, took up the matter again and enacted the law. I append this law as Exhibit 8. The law was not at once executed, however. This delay was one of the many which were incident to the Panamanian feeling of resentment at the Dingley Act order of June 24, to which I have already referred. As a result of the order of December 3 and its modifications, however, the President of Panama put into operation the currency law, and the new coins were minted at the Philadelphia mint and were put into circulation on February 12, 1905, on the Isthmus. The Panamanian Government made the deposit required by the contract with the Bankers' Trust Company of New York, by an agreement of May 3, 1905. The Colombian silver was all purchased at a satisfactory premium and the new coinage easily substituted for the old. Previous to this time it had been necessary, in the operations of the Commission on the Isthmus, for General Davis to advertise for Colombian silver in exchange for United States currency. The following, from a report of the acting general auditor, shows the fluctuating prices at which General Davis was obliged to buy the Colombian silver for issue on the Isthmus:

(During the reading of the above table the following occurred.) Senator KNOX. What do these figures mean-2 per cent and 10%, or what?

Secretary TAFT. Yes; 2 per cent.

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Senator TALIAFERRO. Does it mean a premium on the silver? Secretary TAFT. It means a premium on the silver, and it varied between the gold dollar and the silver dollar. It is what they express as exchange.

Senator KNOX. Yes.

Secretary TAFT. And of course as it is higher it is less expensive to the Government.

Senator KNOX. For $1 in gold you get $2.12 in silver?

Secretary TAFT. That is it.

At this time, in the spring of 1905, I received overtures from the International Banking Company, with which I had been familiar in the

Philippines. It had a branch in Manila, and is one of the depositories of Philippine funds in this country. It proposed to do the banking business of the Commission on the Isthmus, and asked to be made a fiscal agent of the Government by the Secretary of the Treasury at Panama. I was not inclined to yield to their proposal, for the reason that I doubted their ability to furnish all the silver money which we would need, to pay off the native laborers. I knew that there were on the Isthmus three or four business firms which did a general merchandising and commission business and, in connection with this, a considerable banking business. These were the firms to whom would go, in the course of their business, a great deal of the silver expended by the employees of the Commission; and unless I could secure the cooperation of substantially all the bankers on the Isthmus, I was afraid that it might be difficult for an American bank, just established, to secure the supply of silver needed by the Government. I knew that there is nothing which more demoralizes a body of ignorant laborers than a failure to pay wages on the dot, and that we must at all events be certain that the money would be there on the Isthmus for this purpose. As the Panama Railroad Company was interested equally with the Canal Commission, and as Mr. Cromwell, counsel for the railroad company, had a wide acquaintance with the Panamanian merchants of the Isthmus and the bankers, I sent for him and asked him whether he could not secure cooperation between all the bankers on the Isthmus, so that there would be no exclusion of any proper interest in an agreement to do the business of the Government.

The task was a difficult one. I talked with Mr. Brandon, one of the bankers, and with Mr. Hermann, another of the bankers; but after a time Mr. Cromwell succeeded in getting them together and agreeing upon the percentage of the Government business which each should receive. I indicated what I thought to be the proper form of agreement as between the Government and the bankers, and the agreement was sent to me for examination and correction. It was thought wise to make as parties to the agreement not only the Canal Commission and the Panama Railroad Company, but also the Republic of Panama, in order that the business to be done might be large enough to furnish a good motive for a union of the bankers in the agreement. The agreement was signed on the 29th of April, 1905. Without stating the agreement between the bankers themselves as to meeting the obligations on their part to be performed, in effect it provided:

First. That, upon ten days' notice, the Commission and the railroad company and the Panama Government, in exchange for drafts on New York, could obtain all the Panamanian silver they needed every fifteen days at the flat rate of 2 Panamanian silver pesos for each American dollar in the draft. In other words, the exchange of silver for the draft on New York was without expense to the Commission or the Panama Railroad Company.

Second. It provided that the Commission, the Railroad company, and the Panamanian Government could deposit United States currency with the bankers and obtain drafts on New York for it at one-half of 1 per cent. Of course this provision did not affect the Commission or the railroad company particularly, because it was quite unlikely that they would have any United States currency which they would desire to transmit to New York. The Panamanian Government might perhaps desire to use this clause, though even that was unlikely.

Third. It provided, in effect, that if the Commission, the railroad company, or the Panamanian Government desired to obtain from the bankers United States money in exchange for a draft on New York, they could do so at the rate of three-fourths of 1 per cent. I was informed that the expense, without insurance, of transmitting currency from New York to Panama was three-eighths of 1 per cent. What the insurance would be I do not know, but probably this rate would give the bankers some profit, which they certainly were entitled to for the trouble and annoyance of furnishing free the large amount of silver which they were likely to have to furnish to the Commission under the first provision of this agreement.

Fourth. The agreement provided, in order to save the American employees of the Commission who wished to send part of their pay to the United States, that the bankers should not charge them an exchange rate for money thus transmitted exceeding 1 per cent. This, of course, was not intended to prevent competition between the bankers with respect to the rate of exchange for employees, and, in fact, it did not do so, for I have been reliably advised that except at short intervals the exchange on New York was much lower and at times was given to the employees for nothing. This might readily be the case, in view of the fact that the banks were receiving so much exchange on New York through this agreement from the Isthmian Canal Commission and the railroad company.

The operation of the agreement has been in every way satisfactory, except that it has thrown a great burden of responsibility on the disbursing officer in drawing out about one-quarter of a million dollars' worth of silver every fifteen days and the maintaining of the custody of it in his own safe. More than that, the increasing operations of the Commission have made it more and more difficult for the banks to obtain the silver which the Government needs. In June, 1905, I found it necessary to exercise the privilege given me by the currency agreement of June 20, 1904, to request the issuance of 1,000,000 more pesos by the Panamanian Government, and this request was complied with. When I was on the Isthmus, in November, 1905, I was visited by a committee of bankers, who stated to me that the silver was getting scarce and requested that I exercise the privilege again of demanding another issue of 1,000,000 pesos, but I was not convinced that the necessity existed and I thought it wise to be conservative, so as not in any way to imperil the parity of the coins with their legal value.

Senator HOPKINS. In the hearings a question was raised as to whether the Government employees down there ought not to have exchange without any expense. Do you discuss that here?

Secretary TAFT. No, sír. They get the exchange now, as you will see when I get on, by postal orders.

Senator HOPKINS. Yes.

Senator MORGAN. By postal orders?

Secretary TAFT. Yes, sir.

Senator MORGAN. How long since?

Secretary TAFT. At the domestic rate.

Senator MORGAN. How long since?

Secretary TAFT. The order was issued the 1st of April. I had a cablegram several days ago asking me to transmit directions to the postal authorities here and complete the arrangements.

Senator MORGAN. So it has just now gone into effect?

Secretary TAFT. Yes, sir. Understand, Senator, I do not know that it has all been adjusted. I issued the order on the 1st of April. Senator MORGAN. That is the first provision that has been made for the transmission of funds by postal order?

Secretary TAFT. Yes, sir.

Senator TALIAFERRO. Is the rate the same as the domestic rate charged in this country on postal orders?

Secretary TAFT. Yes, sir.

Senator TALIAFERRO. Do you discuss there, Mr. Secretary, at all the question of giving these employees Treasury drafts for what they may desire to send to the States?

Secretary TAFT. No, sir; but I do not see any objection to doing it, if you follow the course that I recommend.

Senator TALIAFERRO. Yes. You think it is a proper provision? Secretary TAFT. I do. I think any encouragement to saving at home is a good one.

Senator HOPKINS. You reach that later on in your discussion? Secretary TAFT. Yes, sir. I do not treat of that specifically, but if you follow the recommendation that I make there will be no difficulty in making such an arrangement.

The truth is, Governor Magoon told me that he thought that probably 75 per cent of all the money that had come north now from the employees had been furnished to them for nothing, because they have this enormous mass of exchange on New York that they get every month or every two weeks. This agreement was only intended to fix a maximum to prevent abuse. That was all.

The total cost under this agreement to the Government of the United States for the transfer of $6,000,000, during the life of this monetary agreement, to the Isthmus and its exchange into silver has been $16,350. To show this I append a statement by the acting general auditor, marked "Exhibit 9." This is at the rate of a little more than one-quarter of 1 per cent. It seems to me that the cheapness with which this has been done vindicates in every way the wisdom of the agreement when made.

In reaching that one-quarter of 1 per cent of course the rate was three-quarters of 1 per cent, but we paid nothing for the exchange from a draft on New York into silver money. That is a bank transaction, and ordinarily costs something. Therefore in getting at what the cost of the agreement was to the United States it is fair to take into consideration not only the percentage on what was charged in the agreement as percentage, but also the total transaction, which amounts to $6,000,000, transmitting that $6,000,000 from New York to Panama, its exchange into silver; and at that rate it is one-quarter of 1 per cent. I have been advised, however, in a number of different ways, that the bankers on the Isthmus have not been satisfied with the profits which they have made with the operations under this agreement. They complain that the increase in the operations of the Government has produced a scarcity in silver which requires a longer preparation than ten days for them to accumulate the amount needed for the semimonthly pay roll.

I should be willing to make an agreement with them advancing somewhat the rates of exchange and also request the coinage of the remaining 1,500,000 pesos, which it is my privilege to ask under the currency agreement with the Panama Government, were it not that I

deem this to be only a temporary remedy, and it seems to me that the time has arrived for a more permanent arrangement, so that we shall not be subjected at any time to the possibility of stringency on the Isthmus in our financial operations.

I am in receipt of a letter from Mr. Shonts, written while he was en route to the Isthmus and inclosing a report from Mr. Williams, the disbursing officer on the Isthmus, in which Mr. Williams makes certain recommendations. I append Mr. Shonts's letter and Mr. Williams's report as Exhibit 10. Mr. Williams shows an entirely natural impatience with some features of the present bankers' agreement because it throws a great burden of responsibility upon him. His estimate as to the cost of the agreement with the Government, should it continue, is, I think, an error, if I understand it; but what he says, especially in respect to future arrangements, is worthy of consideration. On the 10th of this month I received from Mr. Shonts the following telegram:

SECRETARY OF WAR, Washington:

We are to-day drawing our last draft for funds under bankers' agreement expiring April 29. While this agreement has worked fairly satisfactorily there has been constantly increasing scarcity of Colombian silver latterly. The bankers have notified our disbursing officer that they required more than ten days' notice because of this scarcity. We have therefore been fearful each pay day that the bankers would be absolutely unable to furnish the money required for next pay day. This would mean disaster to us as we could not explain our failure to have funds for meeting payments to class of labor here.

In case another agreement is entered into with these bankers we should reserve the right to bring in any part or all of funds necessary from the United States in case bankers do not have the money in possession a reasonable length of time before each pay period. The present agreement provides no penalty, but penalty would be of no practical use in case of failure; therefore it is necessary for us to know that the money is actually here and available a sufficient time before pay period, so that in case money should not be available we should have time to bring in ourselves.

We regard present situation as extremely serious, and in case a fair agreement can not be made with these people, believe we should control arrangement, either through some reputable banking company or through subtreasury.

The most essential thing is maintenance of parity.

I answered the above by the following dispatch:

SHONTS, Panama:

SHONTS.

Your cable of April 10 received, also your letter of April 1 and Williams's reports. Present bankers' contract does not prevent our importing gold or United States currency, if we desire, but my difficulty in making effort to renew it is more serious. It is quite evident that bankers are not satisfied with profits they have made out of present contract and that we can not renew it on same terms. I should be willing to renew on somewhat better terms for them, and request under our arrangement from the Government of Panama the issue of another million pesos to relieve increasing scarcity of silver if it offered permanent remedy for conditions we must anticipate. This would be less expensive, probably, than any other course, but it would not be permanent. Silver would again become scarce as our operations grew, and more would soon be needed.

Another remedy commends itself. By our currency arrangement with Panama, it has made our American gold dollar the legal monetary standard in the Republic. The Panama peso, although largest coin now actually in use, is by law equivalent to 50 cents gold, our money. No objection, therefore, can exist to actual introduction American gold dollars into circulation. Williams's reports show impatience with bankers' agreement natural in disbursing officer upon whom present arrangement places so much responsibility. He seems to be in error as to cost under renewed agreement. But he does show that gold can be used now with native labor, and that time has arrived for following his suggestion of abolishing distinction between gold and silver rolls. We can import gold from United States. On the Isthmus we P C-VOL 3-06-38