Overprints Mark the Demise of Private Banks in Paraguay

On May 14, 1811, The Republic of Paraguay gained its independence from Spain and carried on under dictatorship rule until the disastrous War of the Triple Alliance (1864-1870) that pitted Paraguay against the allied countries of Argentina, Brazil and Uruguay. The bloodiest conflict in Latin American history ended with the total defeat of Paraguay.

During the war, more than one-half of the country’s population perished through battle casualties, disease, and malnutrition — a heavy price to pay for Paraguay’s release from the grip of dictatorship rule. After the war, Paraguay’s economy was in a state of ruin that took decades to recover from. Economic activity was stifled by a lack of an adequate monetary system and of sound banking institutions.

By the 1880s, private banking institutions emerged, encouraged by bumbling government support and infusions of foreign capital. Built on the wealth of profits from exports of forest and animal products, daring entrepreneurs provided the foundations for a banking system despite unfavorable conditions. One such private bank was Banco del Paraguay which was started by two entrepreneurs with a mere 10,000 pounds sterling in capital. Banco del Paraguay issued two series of notes dated 1879 (Pick# S111 – S119) and 1882 (Pick# S121 – S129). The 1882 series is extremely popular among collectors due to its beautiful designs and scarcity.

At the same time that they were encouraging private banks to start operations, the Paraguayan government was simultaneously pursuing a dream to create a national bank through a combination of government and private funding.

On June 14, 1881, Congress authorized creation of the Banco Nacional del Paraguay, to be capitalized at 500,000 pounds sterling with the government planning to subscribe to one-fourth of the shares. However, sales of shares to the public was so poorly subscribed that Congress eventually tripled the bank’s capital to 1,500,000 pounds sterling and took two-thirds of the shares.

In 1883, Banco Nacional del Paraguay acquired the financially imperiled Banco del Paraguay under the law of October 31, 1883. Rather than withdraw Banco del Paraguay circulating notes and issue new notes, Banco Nacional del Paraguay chose instead the cost-saving option of guaranteeing Banco del Paraguay notes with a black oval overprint stamp bearing the coat of arms of Paraguay with text around the border “Banco Nacional del Paraguay – Ley de October 31 de 1883”.

1883-dated Banco Nacional del Paraguay Overprint Click image to enlarge.

For collectors, it is important to understand that Banco del Paraguay notes with 1883-dated overprints are actually Banco Nacional del Paraguay backed notes, while those without the overprint are true Banco del Paraguay issues.

1883 Banco Nacional del Paraguay overprint on 1882 Banco del Paraguay 5 Centavos Fuertes (Pick# S121a), front Graded PMG 30 Very Fine EPQ. Click image to enlarge.

1883 Banco Nacional del Paraguay overprint on 1882 Banco del Paraguay 5 Centavos Fuertes (Pick# S121a), back Graded PMG 30 Very Fine EPQ. Click image to enlarge.

1883 Banco Nacional del Paraguay overprint on 1882 Banco del Paraguay 10 Centavos Fuertes (Pick# S122a), front Graded PMG 35 Choice Very Fine. Click image to enlarge.

1883 Banco Nacional del Paraguay overprint on 1882 Banco del Paraguay 10 Centavos Fuertes (Pick# S122a), back Graded PMG 35 Choice Very Fine. Click image to enlarge.

1883 Banco Nacional del Paraguay overprint on 1882 Banco del Paraguay 20 Centavos Fuertes (Pick# S123a), front Graded PMG 30 Very Fine. Click image to enlarge.

1883 Banco Nacional del Paraguay overprint on 1882 Banco del Paraguay 20 Centavos Fuertes (Pick# S123a), back Graded PMG 30 Very Fine. On this pictured note, the 1883 official overprint is found sandwiched between two non-official rubber ink stamps. Click image to enlarge.

While Banco Nacional del Paraguay was authorized to print their own banknotes under the law of October 31, 1883, the first engraved notes bearing Banco Nacional del Paraguay’s name were not printed until January 1, 1886. These notes, Pick# S141 - S152, used the same design as the 1882 Banco del Paraguay issues, except that the bank name and issue dates were changed. All Banco Nacional del Paraguay notes bear both the 1883 authorization date and the 1886 issue date. The notes were engraved and printed by the American Bank Note Company.

1886 Banco Nacional del Paraguay 50 Centavos (Pick# S144a), front Graded PMG 35 Choice Very Fine EPQ. Click image to enlarge.

Unfortunately, economic depression in Argentina severely affected Paraguay and partly caused the Banco Nacional del Paraguay’s notes to depreciate by 50%. Many of its loans had been made to land speculators who simply refused to pay. Fears for the solvency of the Banco Nacional del Paraguay and the Banco del Paraguay y Rio de la Plata caused such heavy runs on both institutions that Congress authorized the Banco Nacional del Paraguay to suspend specie payments.

When Jose Segundo Decoud became minister of hacienda in 1890, he informed Congress that the bank’s capital was largely fictitious, with little to back the 894,565 pesos of bills in circulation. Congress placed the bank in liquidation on May 18, 1890.

In the grips of an economic crisis, by the law of July 25, 1890, The Republic of Paraguay government stepped in and acquired the Banco Nacional del Paraguay, with the result being that the bank was now 100% government owned. To mark this structural change in ownership and to guarantee the notes, 1886-dated notes of the Banco Nacional del Paraguay were overprinted with a black oval overprint stamp in 1890.

There are two known types of 1890 government overprint stamps; the first with text “Republica del Paraguay – Tesoreria General” and the second with text “Junta Inspectora de Bancos” (created by law of December 6, 1890). These same 1890 overprints can also be found on 1889-dated bank notes from El Banco del Paraguay y Rio de la Plata. It is small wonder that Teodosio Gonzalez, one of Paraguay’s foremost lawyers of the time, called his country “the classic land of misgovernment and anarchy”.

1890 Republic of Paraguay Government “Republica del Paraguay – Tesoreria General” Overprint on 1886 Banco Nacional del Paraguay 1 Peso (Pick# S145a), front Graded PMG 25 Very Fine. Click image to enlarge.

1890 Republic of Paraguay Government “Junta Inspectora de Bancos” Overprint on 1886 Banco Nacional del Paraguay 1 Peso (Pick# S145a), front Graded PMG 25 Very Fine. Click image to enlarge.

For collectors, it is important to understand that Banco Nacional del Paraguay notes with 1890-dated overprints mark the change in the bank’s ownership to The Republic of Paraguay government control, while those without the overprint are from the earlier time period when Banco Nacional del Paraguay was of combined government-private ownership.

By 1892, the public had no confidence in Paraguayan paper money and most business transactions were carried out with foreign currencies or by credit obtained from the few private banks remaining and the government-owned Banco Agricola. Ultimately, a new series of bank notes was issued under the law of September 24, 1894 bearing the name “Republica del Paraguay” (Pick# 87 – 94), which thereafter ended privately-issued bank notes in Paraguay.

For collectors, the surviving condition of the overprint stamps often makes it difficult to determine which overprint, if any, is present on a particular note. PMG has the research and grading expertise to properly evaluate your notes and make the identification determination — aided if required, by high-tech equipment that uses different light sources (UV, infrared, LED and side-lighting) under high magnification to help determine the overprint type.

References

• Mayans, A. P. (2019). Billetes del Paraguay (5th Edition).
• Seppa, D. A. (1973). Paraguayan Paper Money.
• Warren, H. G. (1985). Rebirth of the Paraguayan Republic – The First Colorado Era, 1878-1904.