Free banking

The free-banking frame

Before 1870 the Republic had no modern commercial bank the market broadly accepted. Credit sat with ecclesiastical censos and a few merchant houses; the money supply was metallic — gold, silver, nickel, copper — and foreign specie. Moving bullion across broken country was costly and dangerous, and that constrained inland and export trade.

The Constitution of Rionegro (1863) created the United States of Colombia and gave the sovereign states wide autonomy. In that radical federalism, Law 35 of 1865 ended the state’s monopoly of issue and let private houses put notes into circulation against their own metallic reserves. Between 1870 and 1886 more than three dozen banks were founded; financial histories speak of about 34 major institutes in that window, and of a longer trail — nearly a hundred credit entities, large and small — if the count runs into the early twentieth century.

This page follows the mechanics of the system, the houses by region, the material culture of notes engraved abroad, and the historiographical debate on stability, through the dismantling under the Regeneración. It does not replace the case records: it frames them.

Institutions and mechanics

Free banking was not a market accident: it grew from the Radical project to loosen colonial credit. Earlier attempts — the Compañía de Giro y Descuento (1841) or the planned Banco de la Nueva Granada (1847) — did not take. The 1865 frame did: it authorized bearer notes convertible on demand into gold or silver. Trade accepted them when the house showed reserves and a prudent book.

Paper circulated mainly in the issuer’s regional domain. That was a feature: it cut the cost and risk of packing metal over mule tracks. Banks discounted bills, took deposits, and lent short and medium term to agriculture, mining, and trade. By replacing heavy specie with a convertible note, they supplied liquidity for coffee, tobacco, and quinine exports.

The commercial vanguard

The Banco de Bogotá was constituted on 15 November 1870 and is the first modern commercial bank the country broadly accepted. House histories give an initial capital of 500,000 pesos and a circle of merchants, landowners, and politicians — among them Bendix Koppel, Carlos Schloss, Manuel Murillo Toro, and Eusebio Bernal — with Salomón Koppel as first director-manager. It issued from the start. By 1888, once the capital market had consolidated, it is credited with more than 80 percent of the metallic reserves of Bogotá’s banks and more than half of the country’s. Later expansion absorbed or merged houses such as Banco de Santander, Banco del Huila, Banco Social del Tolima, Banco del Cauca, Banco Republicano, Banco de Pamplona, Banco Central, Nuevo Banco de Boyacá, and Banco de Pereira.

The Sovereign State of Antioquia authorized the Banco de Antioquia by Law 194 of 1871; it opened in 1872. It was the country’s second private issuer: a joint-stock company, a contract with the regional government for funds, customs, and infrastructure, and close backing from gold mining. Banco de Colombia, of 1875, began with 181,400 pesos, sought branches, and survived the end of the era, the Thousand Days’ War, and twentieth-century legislation.

Regional roster of banks (1870–1887)

Decentralization marks the period. Geographic barriers produced banks in regional capitals for local credit. The peak founding year in the syntheses is 1883, with thirteen new houses. The tables below group issuers cited for that window; they are not an exhaustive Hernández census or a Pick catalogue. A match of name and date is not a specimen in this collection.

Antioquia: mining and family houses

Antioquia is the most studied case of endogenous stability. The terrain isolated it; gold supplied metal and surplus. Between 1872 and the twentieth century regional counts speak of 36 banks, with a cluster of foundings in the early 1880s. Merchant houses — Vicente B. Villa e Hijos, Botero Arango e Hijos, Restrepo & Cía — moved from trade into credit and issue. Banco del Zancudo served as treasury for the mining company of the same name. The average life those studies calculate is about 17.5 years.

Several houses in Antioquian indexes — Banco Botero Arango e Hijos (1890), Banco de Yarumal (1898), Banco Republicano (1901), Banco Alemán Antioqueño (1912) — were founded after 1887. They belong to the long tail of regional credit, not to the strict window of convertible private issue.

Caribbean coast: ports and foreign houses

Barranquilla, Cartagena, and Riohacha were the arteries of overseas trade. Capital came from merchant houses and foreigners tied to tobacco, cotton, coffee, and European imports. Barranquilla names include J. J. Senior, Jacob Cortissoz, Sola, Stevenson Bros, and Senior y Correa. Cartagena accumulates, on the wider arc, nine banks.

Santander and the eastern corridors

The Sovereign State of Santander, with Bucaramanga at its head, benefited from coffee and from German houses. Credit had to cover long coffee and tobacco harvests.

The west, Valle, and the coffee axis

The west financed estates, early Valle agro-industry — cane — and the colonization of the axis later called Old Caldas. Banco del Cauca, in Cali, is cited with an initial capital of 300,000 pesos and with families such as Eder and Carvajal.

Other regional issuers

Other houses covered local credit in provinces cut off from the capital. Several were later absorbed by Banco de Bogotá in its geographic consolidation.

The material culture of the note

The shift from metal to paper had to overcome distrust left by independence vales and by Mosquera’s treasury notes, which the public discounted. Strict convertibility and the quality of the engraving were the answer.

Domestic lithography of that class barely existed. Most houses ordered plates from the American Bank Note Company in New York and, to a lesser extent, from Thomas De La Rue in London. Allegorical vignettes, regional portraits, and anti-counterfeiting work legitimized paper in the trade. Usual denominations were 1, 5, 10, 20, and 50 pesos, inscribed peso oro or, sometimes, peso plata, to underline convertibility. That aesthetic is not a holding: the ABNC proofs in this collection — Hipotecario and Riohacha — are printer’s objects with zero serials, not circulating notes.

The stability debate and the clearinghouse

Traditional historiography, often citing Guillermo Torres García, painted 1870–1887 as unstable and poorly regulated, and used that reading to justify the 1923 central bank. Adolfo Meisel Roca revised the narrative with quantitative series: the system was remarkably stable when civil wars and state fiscal policy did not strike it. The main risk was not endogenous over-issue but the political shock.

Antioquia is the example. With little formal regulation it sustained two decades of credit expansion without a documented systemic failure. Recent studies emphasize the clearinghouse: houses exchanged rival paper and settled the net in gold. A bank that over-issued faced a negative balance and had to deliver metal. That discipline aligned private incentive with regional liquidity, without a monopoly of issue.

The Regeneración and the close (1880–1887)

The dismantling did not come from a general market failure. It came from a political turn. As Radical hegemony waned, Rafael Núñez — tied to the Banco de Cartagena — and Miguel Antonio Caro pushed a unitary state that needed to centralize money to finance the treasury.

The first phase was Law 39 of 1880 and the Banco Nacional of 1881: state funds, fiscal policy, and credit to the treasury. At first it coexisted with private issuers, but they were required to take Nacional notes at par, mixing private metallic reserves with an increasingly fiduciary issue.

The 1885 civil war strained the accounts. The government used the Nacional as a campaign press. Some narratives date forced tender to Decree 260 of 1885. This case follows the thread already recorded in the Colombian chapter: in 1886 Decree 104 defined the paper as the monetary unit and Law 87 made it forced legal tender. Convertibility of Nacional notes into gold or silver was suspended, and the public — and the private banks — had to accept that fiat.

The Constitution of 1886 closed the federal frame. Law 57 of 1887 reorganized banking for the unitary state: it suspended private banks’ right to issue while the Nacional held the exclusive privilege, ordered private paper withdrawn, and exchanged it for legal fiat. It also gave the government inspection powers, with forced liquidation for non-compliance. The shift from convertible peso oro to Nacional paper set off inflation; that dynamic peaked in the Thousand Days’ War (1899–1902). Banco de Bogotá and Banco de Colombia could move into discounting and deposits; many smaller houses, especially in Antioquia and on the coast, were liquidated in the following decades.

Close

Free banking from 1870 to 1887 shows how decentralized credit and a convertible note covered a fragmented country. Private houses — more than three dozen in the classic window — supplied liquidity for export trade. Recent debate, with Meisel and the Antioquian clearinghouse studies, contests the thesis of endogenous chaos: the break came with political centralization, forced tender, and the 1887 monopoly. The institutional legacy remains in the houses that survived as deposit banks and in the paper this case records piece by piece, by serial or by plate proof.

Pieces published in this case

Only these specimens have records. The other houses in the tables are type context, not holdings. The 1901 Tolima 1-peso is wartime treasury paper, not a free-banking note of 1870–1887.

• Banco Hipotecario de Bogotá · 5 pesos, 1881 ABNC proof pair, Series Y, serial 00000.
• Banco de Riohacha · 5 pesos, 1883 ABNC proof pair, Series C, serial 00000.