The system thus introduced gave commercial security till the year 1903.
The result of these and other laws was an improvement in financial Reform of the Currency. conditions, which enabled the government at last to take in hand the long-delayed task of reforming the currency. Hitherto the currency had been partly in silver (gulden), the "Austrian currency" which had been introduced in 1857, partly in paper money, which took the form of notes issued by the Austro-Hungarian Bank. This institution had, in 1867, belonged entirely to Austria; it had branches in Hungary, and its notes were current throughout the monarchy, but the direction was entirely Austrian. The Hungarians had not sufficient credit to establish a national bank of their own, and at the settlement of 1877 they procured, as a concession to themselves, that it should be converted into an Austro-Hungarian bank, with a head office at Pest as well as at Vienna, and with the management divided between the two countries. This arrangement was renewed in 1887. In 1848 the government had been obliged to authorize the bank to suspend cash payments, and the wars of 1859 and 1866 had rendered abortive all attempts to renew them. The notes, therefore, formed an inconvertible paper currency.
The bank by its charter had the sole right of issuing notes, but during the war of 1866 the government, in order to raise money, had itself issued notes (Staatsnoten) to the value of 312 million gulden, thereby violating the charter of the bank. The operation begun in 1892 was therefore threefold: (1) the substitution of a gold for a silver standard; (2) the redemption of the Staatsnoten; (3) the resumption of cash payments by the bank.
In 1867 Austria-Hungary had taken part in the monetary conference which led to the formation of the Latin Union; it was intended to join the Union, but this was not done. A first step, however, had been taken in this direction by the issue of gold coins of the value of eight and four gulden. No attempt was made, however, to regulate the relations of these coins to the "Austrian" silver coinage; the two issues were not brought into connexion, and every payment was made in silver, unless it was definitely agreed that it should be paid in gold. In 1879, owing to the continued depreciation of silver, the free coinage of silver was suspended. In 1892 laws introducing a completely new coinage were carried in both parliaments, in accordance with agreements made by the ministers. The unit in the new issue was to be the krone, divided into 100 heller; the krone being almost of the same value (24-25th) as the franc. (The twenty-krone piece in gold weighs 6.775 gr., the twenty-franc piece 6.453.) The gold krone was equal to .42 of the gold gulden, and it was declared equal to .5 of the silver gulden, so much allowance being made for the depreciation of silver.
The first step towards putting this act into practice was the issue of one-krone pieces (silver), which circulated as half gulden, and of nickel coins; all the copper coins and other silver coins were recalled, the silver gulden alone being left in circulation. The coinage of the gold four- and eight-gulden was suspended. Nothing more could be done till the supply of gold had been increased. The bank was required to buy gold (during 1892 it bought over forty M. gulden), and was obliged to coin into twenty- or ten-krone pieces all gold brought to it for that purpose. Then a loan of 150 M. gulden at 4% was made, and from the gold (chiefly bar gold and sovereigns) which Rothschild, who undertook the loan, paid in, coins of the new issue were struck to the value of over 34 million kronen. This was, however, not put into circulation; it was used first for paying off the Staatsnoten. By 1894 the state was able to redeem them to the amount of 200 million gulden, including all those for one gulden. It paid them, however, not in gold, but in silver (one-krone pieces and gulden) and in bank notes, the coins and notes being provided by the bank, and in exchange the newly-coined gold was paid to the bank to be kept as a reserve to cover the issue of notes.
At the same time arrangements were made between Austria and Hungary to pay off about 80 million of exchequer bills which had been issued on the security of the government salt-works, and were therefore called "salinenscheine." In 1899 the remainder of the Staatsnoten (112 million gulden) were redeemed in a similar manner. The bank had in this way acquired a large reserve of gold, and in the new charter which was (after long delay) passed in 1899, a clause was introduced requiring the resumption of cash payments, though this was not to come into operation immediately. Then from 1st January 1900 the old reckoning by gulden was superseded, that by krone being introduced in all government accounts, the new silver being made a legal tender only for a limited amount. For the time until the 1st of July 1908, however, the old gulden were left in circulation, payments made in them, at the rate of two kronen to one gulden, being legal up to any amount.
This important reform has thereby been brought to a satisfactory conclusion, and at a time when the political difficulties had reached a most acute stage. It is indeed remarkable that notwithstanding the complicated machinery of the dual monarchy, and the numerous obstacles which have to be overcome before a reform affecting both countries can be carried out, the financial, the commercial, and the foreign policy has been conducted since 1870 with success. The credit of the state has risen, the chronic deficit has disappeared, the currency has been put on a sound basis, and part of the unfunded debt has been paid off. Universal military service has been introduced, and all this has been done in the presence of difficulties greater than existed in any other civilized country.
Each of the financial and economic reforms described above The Ausgleich with Hungary. was, of course, the subject of a separate law, but, so far as they are determined at the general settlement which takes place between Austria and Hungary every ten years, they are comprised under the expression "Ausgleich" (compact or compromise), which includes especially the determination of the Quota, and to this extent they are all dealt with together as part of a general settlement and bargain. In this settlement a concession on commercial policy would be set off against a gain on the financial agreement; e.g. in 1877 Austria gave Hungary a share in the management of the bank, while the arrangement for paying the bonus on exported sugar was favourable to Austria; on the other hand, since the increased duty on coffee and petroleum would fall more heavily on Austria, the Austrians wished to persuade the Hungarians to pay a larger quota of the common expenses, and there was also a dispute whether Hungary was partly responsible for a debt of 80 M. gulden to the bank. Each measure had, therefore, to be considered not only on its own merits, but in relation to the general balance of advantage, and an amendment in one might bring about the rejection of all.