It is akin to something akin to universal law: During times of peace a government’s need for money (often no matter what its real value) is merely chronic; during a revolution the need is bottomless. Throughout history as the turbulent winds of revolution raged across Mexico, countless state, municipal and national governments were rearranged. With each shift of rebellious wind, the more temporary of the affected governments were barely able to keep city and pueblo shops open. The more canny (and sometimes shifty) businesses lasted long enough to come to shrewd grips of their dilemma and began, quite literally, making money – of their own.
At one time historians claim that nearly two billion pesos in revolutionary paper money was in circulation throughout the Republic. And about the same time – 1910 through 1920 – the mint in Mexico City continued to strike coins every year, although the normal flow slowed to a trickle in 1915 when only one, two or five peso centavo coins were produced.
Although the problem peaked between 1913-1916, when emergency money was issued by revolutionary forces – governmental as well as private enterprise – the basic cause went back to 1905. That was when the world price of gold and silver was fluctuating to such an extent that Mexico tried to solve it by devaluation. The consequences were disastrous: Between 1905 and 1909, Mexico struck a little over 45 million pesos in silver but exported 86 million pesos, stripping the banks of silver and automatically forcing them to hoard gold reserves to back their output of paper money.At this time, paper money was not issued by the federal banks under federal charter. In the Porfirio Diaz era (which lasted from 1877-1911), five, ten, 20, 50, 100, 500 and 1,000 denominations were issued and stamped with some familiar names: Banco de Jalisco, Banco Oriental de Mexico, and Banco Nacional de Mexico. During this time banks were required to have one peso of hard cash for every two pesos in bills. By the time of the 1910 Revolution ignited by Francisco I. Madero took place, there was a sharp shortage of money in circulation.
The Madero regimes fell heir to 64 million pesos left by the departing Finance Minister Jose Limantour, a stringently insufficient amount to run the government. President Madero promptly borrowed another 40 million from foreign sources, then spent it all on programs designed to pacify a people suffering from shortages of just about everything, including cash. It didn’t work. The Revolution continued with the result that no one made investments, depositors withdrew and hoarded hard money. Records at the Banco Nacional de Mexico, for instance, show that its receipts dropped from 47 million pesos in 1910 to 18 million in 1913.
Revolutionary armies and the men who led them weren’t disposed toward lengthy discussions. Banks either gave them loans or they were looted outright. In not a few cases buildings were destroyed. In others, they were merely “damaged.” It wasn’t, of course, the best of times for depositors. They learned to salvage what they could, when they could.
Following the assassination of Madero in 1913, the infamous Victoriano Huerta took over and found he had to meet the government’s increased spending with all but nonexistent funds. Internal conditions made foreign loans all but impossible. Huerta forced the banks to finance the government, allowing them to print more notes with less metallic backing. The peso, worth 50 cents to the U.S. dollar, slipped to 36 cents. A mild panic ensued. People with money fled and took whatever they could of their wealth with them. A ten percent export tax on silver and gold proved futile, as did an eventual ban on exports.
Soon all warring factions, including ragtag self-declared “armies,” began printing their own money to meet payrolls as well as to underwrite troops and troop movements. The place and dates of issue on the bills, now largely in the hands of collectors, traces revolutionary activity. In the same year, 1913, coins were struck in Sinaloa and Chihuahua, the first of an avalanche of some 200 different emergency pesos.
The word went out from Huerta’s headquarters: Accept his newly issued paper money or else. There may have been a few dissenters, but historical documents since that period have described this time (1913-1916) as “shoot first and investigate later.” Frequently troops of one revolutionary faction would take a town early in the morning, impose their paper money in payment for anything they wanted, only to be replaced in the afternoon by another faction which would force the acceptance of their equally new, and equally worthless notes.
Innovation was the byword of the time as materials of the revolutionaries and their notes were turned out with whatever was at hand. In Oaxaca, invaders produced bills on ledger paper. Cloth-backed money also turned up. Bills were usually run off by local printers and a few were signed by hand. Designs were often quite simple, even primitive. At other times they were elaborate.
In essence times may have been grim, but Mexicans usually have an irrepressible sense of humor. Pancho Villa’s bills, for instance, were printed on such large pieces of paper that they were called sabanas – sheets.
When General Venustiano Carranza’s troops rode into Mexico City in August of 1915, they brought with them bills from the Constitutionalist Army and people accepted them, usually at gunpoint.
Prior to this, only small coins and paper banknotes were in circulation. But now, even these disappeared, bringing commerce to a standstill. For two years, business and commerce within Mexico were chaotic.
The situation could not last forever, and the first corrective steps were taken in 1916 when all paper money not already declared null and void, was ordered out of circulation. It was replaced by non-counterfeitables printed in the U.S. The new notes carried an initial value of 20 cents per peso. By August of that same year, their value had dropped to four cents and before the end of the year it was useless.
A decree on September 16, 1916, placed Mexican banks in liquidation. Two years later, 20 of 26 banks were considered bankrupt and the others were in terrible shape. Paper money did not circulate again until after the formation of the Bank of Mexico in 1925, bringing at least the fitful beginnings of financial stability.