Mr. Vinelli, economist in the Latin American Division (North), was educated at the University of Michigan. He was formerly a member of the staff of the Federal Reserve Board, and has worked as security and investment account analyst in private banking. He helped draft the Honduran monetary and banking legislation of 1950, and assisted in the establishment and early operations of the Central Bank and the National Development Bank of Honduras.
For an account of the early monetary history of Honduras, see J. Parke Young, Central American Currency and Finance (Princeton University Press, 1925), pp. 91-118.
The banks had the right to issue notes to an amount not exceeding 185 per cent of their paid-in capital excluding reserves. The amount of these notes in circulation was, however, only a small part of the total money supply.
In addition to the Honduran silver peso, Guatemalan, Mexican, Peruvian, Chilean, and other silver coins also circulated legally.
Half of the loan was underwritten by the two Honduran commercial banks, and the other half was made by the Canal Bank and Trust Co. of New Orleans, with the guarantees of both the United and the Standard Fruit Companies.
The first portion of these profits, however, was used toward the repayment of the contracted borrowing to cover the cost of coinage.
The 1937 banking law specified that reserves must be maintained in the vaults of the banks. This might be the reason why the banks never used gold as reserves. Aside from the heavy cost of importing it, they probably felt much safer maintaining the cumbersome lempira coins in their vaults, rather than the valuable gold bars.
A similar recommendation was made by a U.S. Technical Financial Mission to Honduras in July 1943.
Many UJ3. bank notes were introduced into Honduras, however, by U.S. ships in north coast ports, and in July 1950 the banks were authorized to purchase these notes at parity.