Tuesday, 23 August 2011

The History of Banking Part One

The first bank in Trinidad and Tobago

In the plantation system as it obtained in the colonies prior to the abolition of slavery, there was little need for money. Food, shelter and clothing were provided by the plantation. The existence of the plantation also meant that there was little room for the development oƒ a service or retail trade sector. Since there was no paid labour force on the plantation, there were no wages to be paid and transactions were mainly in kind.

Transactions between plantations and Europe were handled in the main by Bills of Exchange and book entries. The merchant-banker in London or Marseilles would provide ships to bring for example sugar from Trinidad, then sell the cargo in the foreign market. From the proceeds, he would pay the planter’s commitments like pensions and mortgages in Europe, buy goods for him and send it back on a ship to Trinidad. No cash was involved in the transaction at all.

The need for the creation of some type of banking institution in the British Caribbean colonies became increasingly evident following the emancipation of the slaves. Emancipation had the effect of requiring the planter to pay for many of the services which were hitherto rendered by slaves. The full economic impact of emancipation was, however, cushioned by the fact that it was accompanied by a six-year apprenticeship scheme which provided that the ex-slaves were only to be paid wages for work done in excess of 40 hours a week.

But in 1838, when Trinidad’s 20,656 apprentices (ex-slaves) were finally freed, the planters lost control of the labour force. Planters and their merchant bankers in London were aware that full emancipation, when it came, would increase the number of transactions for which they would have to pay in cash. Cash was needed to pay wages for services which had to be bought, thus the need for working capital which it was felt would best be met by the establishment of a bank.

Also, the expansion of bureaucracy and a consequent need for funds to pay the civil servants as well as for public sector projects were evident after emancipation. The former slave owners in the colonies had been given £20 million by way of compensation for the loss of their unpaid labour. All of a sudden, there was a significant increase in the money supply both in Britain and the colonies. Entrepreneurs started to realise that it would be good business to establish a bank to absorb some of this excess liquidity.

On the 1st June, 1836, the Colonial Bank was the first to be incorporated with an authorised capital of £2 million, divided into shares of £100 each. Subscriptions were sought from UK residents to the extent of £1.5 million, while the remaining half million was allocated to subscribers in the colonies in which the bank was to be established. The Colonial Bank was to be established exclusively in the British West Indies and British Guiana, but not elsewhere, not even in London! Its currency were dollars. The bank’s notes would be widely acceptable throughout the West Indies.

In Trinidad, Mr. John Shine was appointed to assume control of the Trinidad branch when it should open, but he died only 60 years of age just months before the bank was opened. The man actually appointed to be the first manager at a salary of £800 a year was Anthony Cumming, Esq., a merchant and plantation owner.

The Colonial Bank finally opened its doors on St. Vincent Wharf and King Street (now Independence Square) on May 15th, 1837, the same day as its principal (controlling) office opened in Barbados and in eleven other places in the islands and British Guiana. Four days before the official opening, Mr. C.A. Calvert, the secretary of the bank, had written to the Trinidad manager advising that seventy boxes of dollars had been shipped on board the ‘Harriet’. Each box contained from 3,000 to 5,000 coins, the total being $250,738.50. The Barbados branch received on 24th April, 1837 the first consignment of notes over $13,125,000 (£2,735,275). These notes would be the first and for many years the only examples of paper money freely to circulate in the West Indies. They were much needed to bring some order into the otherwise chaotic jumble of monetary systems in the Caribbean, where French, Spanish and American coins were used alongside British pieces.

(Pictures and lists of money)

In the early years of the Colonial Bank’s operations, the sugar cane industry was the mainstay of the economy. Quite naturally, therefore most of the bank’s transactions involved operations in that industry. In the post-emancipation era, the sugar industry came under severe pressure, and the bank’s fortunes rose and fell. One of the major problems which the industry faced was the shortage of cheap and steady labour. Freed slaves were naturally unwilling to work on the estates, preferring instead either to buy small plots of land or to squat on crown lands which were in abundant supply.

In 1846, the British government introduced the Sugar Duties Act, which called for the gradual equalisation of all duties on sugar. Thus West Indian sugar lost the advantage it had previously enjoyed over foreign sugar on the British market, having to compete with cheaper sugar from Cuba, Puerto and Brazil. The elimination of the preferential duty on sugar produced in the British colonies led to the virtual collapse of the colonial economy.

Many planters were seriously affected by the crisis. Several had borrowed heavily from merchants and from the banks to tide them over the period of difficulty. As money dried up, some planters were forced to borrow at rates which were as high as 45 percent. Many did not survive and went bankrupt, causing losses for the Bank. Also, many merchant houses collapsed.

The economic crisis led to the failure of one of the two banks then operating in the colonies: the West India Bank, which had been established in 1840, with head offices in Barbados, did not survive. The collapse of the West India Bank in December 1847, which had provided good competition for the Colonial Bank, ruined many of the newly freed slaves who had placed their faith in its viability.

To be continued!

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