The first of these mistakes was a measure making (January 1885) the currency inconvertible for a period of two years.
Instead of facing the difficulties, the president preferred to put off the day of reckoning by flooding the country with inconvertible notes, with the result that the financial crisis became more and more aggravated.
On the 31st of August of the same year a series of proposals upon the currency question was submitted to congress by the president, whose real object was to counteract the too rapid appreciation of the inconvertible paper money.
This large increase is to be accounted for by the fact that during the Napoleonic rgime the government steadily refused to issue inconvertible paper currency or to meet war expenditure by borrowing.
The success of the issue was undoubted, and, possibly, if the assignats had been restricted, as Mirabeau at first desired, to the extent of one-half the value of the lands sold, they would not have shared the usual fate of inconvertible paper money.
In 1878 depreciation had set in, and the inconvertible paper had by the close of 1881 grown to such an extent that it was then at a discount of 80% as compared with silver.
The country was still labouring under the curse of an inconvertible currency originatingwith the Legal Tender Act res - paperY g dncy.
The great struggle compelled every resource to be strained to the utmost: the issue of long-time bonds, continual borrowing in very large amounts on short-time inconvertible paper money, an elaborate and all-pervading system of internal taxes, and, finally, heavy import duties.
The notes, therefore, formed an inconvertible paper currency.
President Montt then took in hand the question of a reform of the currency, the abolition of inconvertible paper money, and the re-establishment of a gold basis as the monetary standard of the republic. This reform of the currency became the keynote of the president's policy during the remainder of his term of office.
Great opposition was raised by the representatives of the debtor class in congress to the suppression of the inconvertible paper money, but in the end President Montt carried the day, and on the 11th of February 1895 a measure finally became law establishing a gold currency as the only legal tender in Chile.
The president was advised that the only way of averting the financial ruin of the banking institutions of the republic was to suspend the conversion law and lend from the national treasury inconvertible notes to the banks.
At the opening of 1901 the country was chiefly interested in the forthcoming presidential election, for which the candidates were Don Pedro Montt (Conservative and Clerical) currency once more on an inconvertible paper money P P Y basis until 1902.
Political troubles in 1884-1885 led to a suspension of cash payments in 1885, and in 1886 Congress made the notes inconvertible and of forced circulation.