The first issue of paper money in Mexico (1822–1823). An early experiment with fiat currency in independent Mexico

By: Cedrian López Bosch Martineau

Introduction

The first two issues of paper money in Mexico, between late 1822 and early 1823, are often described in historical and numismatic literature as a brief and unsuccessful episode, almost always attributed to a lack of public confidence and the political instability of the time. Classical authors such as Lucas Alamán and, later, José Yves Limantour, established an interpretation that has been repeated for decades: that of the inevitable failure of a premature experiment.

However, a detailed review of little-consulted primary documentation—particularly files from the Román Beltrán Collection held at the Center for Mexican History Studies (CEHM), as well as the so-called extracts prepared in 1825 by an official identified as Bermúdez—allows for a more nuanced view. While it was indeed a hasty issue, far from being a complete improvisation, the issuance of paper money by the Mexican Empire was a conscious attempt to resolve a profound fiscal and monetary crisis, employing relatively sophisticated administrative mechanisms for its time. Its fate was more closely tied to that of the regime that issued it than to its own merits or lack thereof.

The aim of this essay is not merely to provide an isolated normative, historical-economic, or numismatic account, as has been done until now, but rather to offer a critical analysis that brings together all these elements to explain how these banknotes originated, their physical appearance, how they were distributed and circulated, what problems they faced, and how they were ultimately redeemed and destroyed. More than judging their success or failure, the focus is on understanding how the first Mexican paper money actually functioned, even if only for a brief period.

Background: Fiscal crisis and monetary shortage in Mexico

The Bourbon reforms of the last decades of the 18th century had led to a considerable outflow of metallic currency from New Spain. This was compounded, from 1810 onward, by the devastating impact of the War of Independence: the abandonment and flooding of mines, a drastic reduction in the workforce, and the collapse of the viceregal tax system.

When Independence was achieved in 1821, the financial situation was far from improved. During the Regency period (September 1821–May 1822) and the first months of Agustín de Iturbide's Empire, the new state inherited an exhausted treasury and a population unenthusiastic about contributing. Although various taxes were abolished or reduced to gain political legitimacy, the cost of maintaining the army and administration made it impossible to sustain these measures.

Voluntary and forced loans, appealing to the patriotism of the wealthy, proved insufficient and generated social tensions. In this context, the issuance of paper money began to emerge as an alternative, already tested in Europe and the United States, and discussed in pamphlets and proposals presented by private individuals in Mexico.

The decision to issue paper money in Mexico

The Empire's second Minister of Finance, Antonio de Medina, initially requested authorization from Congress to issue paper money, which was denied. After Iturbide dissolved Congress and replaced it with the National Constituent Assembly, the situation changed. The Assembly's Finance Committee analyzed foreign experiences and local proposals submitted to the authorities or published in gazettes of the time, such as the National Bank project attributed to Francisco S. Maldonado or the Grand Bank of the Mexican Empire project by Francisco de P. Tamariz, which included issues such as issuing paper money to pay taxes or issuing "good bonds."

When Minister Medina again submitted the temporary issuance of paper money to the Board for consideration, it was finally authorized. On December 20, 1822, the Imperial Gazette of Mexico published a decree , consisting of only 14 articles, authorizing the issuance of up to four million pesos in banknotes , mandatory for administrative and commercial payments, with a validity limited to the year 1823. The issuance was structured in three denominations:

The authorized amount was approximately one-fifth of the estimated budget for 1823, calculated based on data from 1809, prior to the war of independence, but this was the last year with relatively reliable figures. Of that amount, it was determined that 1.75 million would be needed in the capital and 2.25 million should be sent to the intendancies, as described in the following table:

CEHM, Román Beltrán Collection Shipping figures for 1823 (VIII-4. 10. 468. 1)

Physical and administrative characteristics of identity cards

These banknotes were printed on one side only on white, medium-weight paper at the Government Printing Office. Their design was austere, featuring the Imperial coat of arms centered at the top; the denomination in the upper left corner and along the left and right margins; the serial number in the upper right corner; and below the coat of arms, the inscription: “The Mexican Empire promises to pay the sum of [one, two, or ten] pesos in accordance with the Decree of December 20, 1822, on this matter. Mexico City, January 1, 1823.” Below this appeared the initials and signatures of the Minister of Finance, the Treasurer General, Antonio Batres, and the Comptroller General, Rafael Mangino. According to the documentation, the serial number was added by hand when the banknotes were recounted, and the signatures were added as they were issued.

The decree stipulated that the identity cards must have security features and markings to prevent counterfeiting. In practice, these measures were minimal or ineffective, which would become one of the central problems with the issuance.

Territorial distribution and implementation

The decree, sent to all civil, military, and ecclesiastical authorities of the Empire with instructions to publish and enforce it, ordered that, starting on January 1, 1823—just eleven days later—one-third of civil and military salaries, as well as various payments made by the Treasury offices, should be made in paper money, with the remainder paid in cash (this became known as the Law of the Third). Similarly, one-third of certain tax and fee payments had to be made in these paper certificates, and although some authors have stated otherwise, notarial records confirm that they were used for civil and judicial payments, and those who failed to do so risked being fined.

Mariano de Larraguibel, Chief Clerk of the Treasury, was responsible for the countermarking, numbering, and control of the identity cards, and their production was entrusted to the Government Printing Office, headed by Juan Wenseslao Barquera. However, the short time between the decree and its effective date did not allow for a complex design, the incorporation of security measures, or the timely printing of the necessary volume. The day after the decree, Barquera delivered three reams of printed paper to Larraguibel and continued making daily deliveries until mid-January. By the date the decree came into effect, 360,000 identity cards had already been printed and numbered by hand before being sent. By February 6, more than a third of the 750 reams to be printed had already been printed, reflecting the slowness of the process and contributing to the difficulty in enforcing it.

But printing wasn't the only challenge; so was distributing the bonds across a territory of almost five million square kilometers with poor and unsafe roads. The bonds had to be sent in uncut reams to the provincial intendancies, generally by courier, which caused delays due to the long distances, poor road conditions, and risk of loss. Just getting them to Veracruz, one of the busiest routes, took 10 days, and naturally, in the most remote provinces, the mere notification of shipment arrived more than a month after the bonds had come into effect. The intendants, in turn, had to pass them on to the main treasury so they could be issued (put into circulation), collected, and their security guaranteed, as well as prepare monthly reports of their balances and the bonds redeemed.

The strict control of this issue led to multiple recounts, but for reasons that the available documentation has not clarified, on January 31, 1823, in addition to conducting a general count of the printed and issued paper money, an order was issued to collect both the uncirculated banknotes and the blank paper held by the Government Printing Office and by Larraguibel himself, who continued to oversee the operation. The figures from this count do not coincide with later tallies, revealing from the outset the administrative complexity of the process.

Report of Mariano Larraguibel as of February 6, 1823 VIII-4. 10,558

As can be seen, the distribution was neither uniform nor immediate; many provinces had not received the banknotes or not in sufficient quantities, which raised doubts, mistrust, and forced a temporary relaxation of the application of the decree.

Circulation, acceptance and discounts

In a society accustomed to payment in silver and gold coins, doubts and resistance arose in many offices and sectors from the very first days of circulation. Some institutions wondered if the new currency applied to them, such as the lottery and tobacco shops; even the Army and the pawnshop requested exemptions; some businesses questioned whether they should suspend procedures to avoid violating the decree until the new banknotes arrived, or whether they should withhold the corresponding third of the paper money; they asked if previous debts should be paid in this new form or entirely in silver; some offices refused to accept the banknotes; and day laborers, receiving them as part of their wages, were forced to sell them at a discount to cover minor expenses. The first month was a flurry of communications attempting to clarify its operation, and requests were almost always rejected. This led to further communications, such as a second decree from the Empire, this one dated January 10th, explaining the necessity of this payment method to address the situation. It emphasized that it should be adopted immediately and would have a short lifespan, as the bills would be fully amortized within the year when they returned to the treasuries and finance offices. That said, the proportion for the army was indeed changed, and only 20% of their salaries were to be paid in paper currency.

Although the government insisted that the paper currency should be treated on par with metallic coins, the reality was quite different: it quickly began circulating at a inflated rate. A relevant detail from the records, not mentioned in any current research, is that to mitigate the problem, nine merchants “of knowledge, integrity, and love of country” were commissioned to exchange the paper for silver, allowing them a maximum discount of four percent. That's right, the government itself authorized certain individuals to negotiate privately with them. While 50,000 pesos was allocated to each, they were only given a third of that amount. All except Ignacio Goitia of Oaxaca expressed their gratitude for the honor and placed themselves at the Emperor's service to carry out his decision, although some suggested sending the paper to other cities to facilitate its circulation or, in turn, seeking out reputable and wealthy individuals to extend distribution to the towns.

This system functioned in a limited and uneven way depending on the region, mainly in Guadalajara, Durango, Zacatecas and Guanajuato, and did not fully restore public confidence.

Forgery and the emergence of “papal bulls”

The simplicity of its design and rudimentary printing highlighted the technical and administrative limitations of the nascent Mexican state and led to the rapid emergence of counterfeit currency. This forced the government to take measures such as appointing experts to verify the authenticity of the banknotes or, in some cities, like Puebla, even confiscating all existing banknotes due to the impossibility of distinguishing genuine ones from counterfeit ones.

It is widely known that upon the fall of the Empire (see below), the new government introduced printed papal bulls to replace the existing royal decrees. Some say this was to capitalize on the population's religious fervor, while others believe it was a security measure due to the difficulty of reproducing the bulls. However, an inventory dated March 14, 1823, weeks before Iturbide's abdication, already mentions both blank printed paper and papal bulls. This would correct a widely accepted fact, and although further verification is still needed, it is reasonable to suggest that problems with counterfeiting influenced the imperial government's decision to replace the original blank paper with this more secure medium, leading to the collection of the blank paper a month earlier. The absence of known examples of imperial decrees printed on papal bull paper suggests that, if they existed, they never circulated and were destroyed before being put into circulation.

Amortization, exchange and destruction

The amortization system was meticulous: when a holder paid their obligations at the treasuries, finance offices or customs, they were rendered unusable by cutting into the signature of the Minister of Finance (many examples are known this way), to prevent them from returning to circulation, the number, amount and person who delivered it were recorded in books and, once certified by local authorities, they were burned.

The accounts taken between February and April 1823 reveal a complex process of control and destruction of what was called "dead paper," demonstrating the short lifespan of these certificates. Although they could circulate and be accepted in commercial transactions, they were quickly returned to the authorities for the payment of taxes or contributions, where they had to be rendered unusable while their replacement with "live paper" was arranged. Estimates of the monthly amortizations made by Francisco José Bernal calculated between twelve and fourteen thousand pesos for public treasury and six to seven thousand for other purposes. The Gaceta del Imperio reported 55,989 pesos amortized, specifically 18,686 by the general treasury; 23,238 by customs; 8,076 by the tobacco office; and 5,989 by the lottery office. 

But one thing that must be acknowledged is that the suspension of the mandatory use of paper money was not due to the rejection of the population, nor to counterfeiting, but rather it coincided with the collapse of the imperial regime that was already faltering at the beginning of March and culminated with the abdication of Iturbide on the 19th of that month. 

On April 3, 1823, just 93 days after the decree issuing these bonds came into effect, the provisionally appointed Supreme Executive Power decided to temporarily suspend all payments with paper money. On the 11th of that same month, another decree was published informing that the Sovereign Constituent Congress ordered the printing press to cease production; the treasuries to stop issuing paper money and return their stocks to the central treasury; and the printer to collect the stamps and paper in his possession. Likewise, the obligation to collect and pay was suspended until the holders had exchanged the bonds at the treasury. The Ministry of Finance was to report on the printed, issued and redeemed paper, and new banknotes would be printed on papal bull paper - with all necessary precautions to prevent counterfeiting - solely for the exchange of imperial certificates. A period of 15 days was established in the capital of the country and one month in the rest of the territory, where certificates would be given for later exchange.

Thus began the exchange process. Originally, this was to take place throughout the country; provincial treasuries and offices were to submit their existing stock and any new banknotes they collected. However, since this method led to the exchange of counterfeit bills, some officials were appointed as experts to verify the authenticity of the banknotes being exchanged . A systematic record exists of the exchange carried out in Mexico City, listing more than a thousand people who exchanged a total of 257,758 banknotes (213,761 one-peso notes; 40,151 two-peso notes; and 3,846 ten-peso notes), for a total of 332,523 pesos. This demonstrates that, despite criticisms from later authors, this means of payment was indeed used significantly.

By April 26, there were already 1,929,978 pesos in usable, useless, and amortized banknotes ready for incineration, and there are detailed records of multiple incinerations carried out from July onwards.

On May 16, the Sovereign Constituent Congress instructed that holders of paper money, exchanged according to the April decree, could use it to make up to one-sixth of their customs payments and authorized its free circulation for payments and contracts between private individuals. It also reaffirmed that the paper money must be rendered unusable upon redemption. The Treasury Ministry's communication reiterated the requirement to mark the signature of the Minister of Finance and to continue keeping a ledger of the number, value, and individual who surrendered each note. The exchange for new banknotes printed on papal bull paper continued well into 1824 and, according to some indications, even into 1825 in certain regions.

These changes again raised numerous doubts as to whether all payments to the Treasury (i.e., damage, municipal taxes and taxes for expenses of the Sovereign Congress, as well as whether it applied to both maritime and land customs) had to be made with one-sixth in paper money or only those corresponding to the public treasury, so it was decided that until the Congress stipulated it, only the latter, since in the absence of an explicit prohibition it was indicated that it was not mandatory that one-sixth of the payments be made with this means of payment. 

Conclusions

More than two centuries later, a detailed analysis of the first issuance of paper money in Mexico allows us to reconsider an episode that has long been simplistically described as a premature and inevitable failure. A review of primary sources shows that these banknotes were not an illogical improvisation, but rather a conscious, albeit hasty, attempt to provide the new state with a fiduciary instrument to confront a fiscal and monetary crisis inherited from the war and the collapse of the viceregal order.

Far from reaching the authorized amount of four million pesos, the actual issuance was considerably lower, probably closer to half, and a significant proportion of the printed paper was collected without ever circulating. However, these figures—often presented as proof of its failure—must be interpreted in light of two fundamental factors: the short lifespan of the regime that issued them and the very design of the system, which anticipated their rapid amortization through the payment of taxes and contributions. In this sense, the high rate of destruction of the identity cards is not necessarily a sign of rejection, but rather a logical consequence of their administrative function.

The forgery, although real and documented, does not in itself explain the outcome of the episode. Rather, it highlighted the technical and administrative limitations of the nascent Mexican state and accelerated decisions already conditioned by political instability. The early appearance of papal bulls as an alternative means of support, even before Iturbide's abdication, suggests a capacity for reaction that has been little recognized, although the absence of surviving examples indicates that these solutions came too late to take hold.

Taken together, the first issue of paper money in Mexico constitutes a turning point : it was the first exercise of a fiduciary instrument backed by the authority of the State in a society deeply accustomed to metallic currency.

More than an isolated failure, these bonds represent an early experiment in monetary sovereignty, whose limitations and problems foreshadow many of the debates that would accompany Mexican fiduciary issues throughout the 19th century. Understanding them in their proper context allows us not only to appreciate their numismatic value, but also to recognize them as material evidence of the country's first efforts to build its own financial system under extraordinarily adverse conditions.

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1 The fact that the first documents still refer to Intendancies, a territorial subdivision from the pre-independence era, later called provinces, shows that in the transition not everyone was already accustomed to the new nomenclature.

2 CEHM, Ramon Beltrán Collection VIII-4.11-558

3 CEHM, Ramón Beltrán Collection, VIII-4.11.503-504

4 CEHM, Ramón Beltrán Collection, VIII-4.10-481

5 Gazette of the Imperial Government of Mexico, Volume I, No. 35, March 11, 1823, p. 130

6 In Mexico City, they were Manuel Araoz, Joaquín Piña and Mariano Larragibel

7 Circular No. 70, CEHM, I-2.14-38 1145

8 Circular No. 73, CEHM, I-2.14-38 1153

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Sources and bibliography

Archive of the Center for Studies of Mexican History (CEHM), Román Beltrán Collection.

General Archive of the Nation, Public Finance Branch-Mint and Government Branch - Extracts on paper money prepared by Bermúdez, 1825.

Numismatic studies

Cervantes, Manuel, “Money in Mexico” Conference given on June 22, 1954 on the occasion of his reception as an active member of the Mexican Society of Geography and Statistics”, pp 24-37

Charteris, Rogelio. (Unpublished)

Jara Carlos, Mexican Currency of Iturbide in Mexican and Latin American Newsletter, January-February 2015;

Prendergast, Simon. Paper money of Mexico (online) https://papermoneyofmexico.com/

Rosovski, Eduardo, “Iturbide’s Paper Money” in Bulletin of the Numismatic Society of Mexico No. 70, pp 20-32

_____, “Post-Iturbides: Printed Banknotes on Papal Bulls” in Bulletin of the Numismatic Society of Mexico No. 71, pp. 69-83, respectively;

Studies and works of economic history

Álvarez Nieves, Roxana, First Experiment in Issuing Paper Money in Mexico (Thesis to obtain the degree of Bachelor of Economics), Mexico, Faculty of Economics, 2008

_____, The empire arrived… and so did paper money (online) http://www.terra.com.mx/articulo.aspx?articuloId=823283   

_____, Book of Exchange of Paper Money (and comments) , (online) http://www.economia.unam.mx/hm/estadisticas.html  

_____, “of Banks and Failures: Three examples for the Mexican case (1774-1837)” in Legajos , 7th Era, Year 1, No. 3, January-March, 2010. pp 74-98

Ludlow, Leonor, The first issue of paper money of the Iturbide empire: foundations and criticisms (December 1822-January 1823), General History Series - Institute of Historical Research. UNAM, Mexico, 2007 No. 22, Pages 211-239

Olveda, Jaime, “Banking and Bankers of Guadalajara”, in: Cerruti, Mario and Marichal, Carlos (2003), Regional Banking in Mexico (1870-1930), Mexico, El Colegio de México-FCE., 294 pp.