Under pretence of extending the circulation of its notes throughout the republic, application was made to the General Congress[81] to sanction its conversion into a _national_ bank, with a nominal capital of _ten millions_ of dollars, towards which the government subscribed for shares to the amount of _three millions_, and very soon assumed the right to exact from it almost any accommodation they required. The consequences were soon apparent. The wants of the government increasing, the bank was obliged, in order to provide for them, to increase its issues, which, ere long, reached an amount obviously out of all proportion to its real capital[82]. The aid of the legislature was again called in:--the notes were declared a legal tender for their nominal value, and the bank was relieved by law from the obligation of paying them in specie on demand:--its credit fell to the lowest ebb, and its notes became proportionably depreciated.
The government, however, had then no alternative but to go on with the system it had commenced:--the precious metals having wholly disappeared as a medium of circulation, it was in this depreciated currency that it found itself obliged to continue borrowing such sums as it required, until, as may easily be imagined, the nominal amount of the public debt became fearfully increased. Before the close of the war with Brazil, the value of the paper dollar of the bank had fallen from 45_d._ to below 12_d._ sterling; and at the end of 1828, besides 6,000,000 dollars which had been added to the amount of the funded debt, the deficit on the general account of receipts and expenditure was 13,412,075 dollars, the whole of which was due to the bank; and this was independently of the English loan.
Nevertheless, when peace was signed, upon terms highly honourable to the republic, the public confidence immediately rallied. The value of the current dollar rose at once to 24_d._, and amidst the general rejoicings even the pecuniary prospects of the country put on a flattering appearance. Nor were the hopes entertained by the Buenos Ayreans of a speedy improvement in their finances without foundation. It was evident, as has been observed in the preceding chapter, that, although the foreign war had led to enormous expenses, the sudden suspension of the trade had locked up a large amount of foreign, as well as native, capital within the country, the investment of which, in a variety of ways, had greatly tended to increase its means of production, and consequently its national resources.