South American countries had had a banking experience widely different in character from that of Europe prior to the outbreak of war in 1914. None of them was an active participant in the struggle and hence none was subject to such serious distortion of its banking system as was true of European countries, although changes and disturbances have none the less been significant.

A representative South American country, in so far as banking and credit are concerned, is Argentina. Her banking system had before the war been developed very largely after the English plan, its central support being the Banco de la Nacion, a central government bank. Associated with this institution was a national land-credit bank whose function it was to lend on land mortgages and issue bonds to investors, out of whose proceeds the mortgage loans were provided for. Foreign banking has always had an important status in Argentina, British, French, and German institutions organizing branches which did an active commercial business. American banks, after the organization of the Federal Reserve system, likewise established branches in Argentina, so that the credit needs of the population in export and import trade were largely supplied through the efforts of outside institutions. Domestic banking needs were met by the national bank and its branches. At the close of the war the national bank was in possession of about $36,000,000 in gold and about $300,000,000 in paper, the amount of government notes and deposit accounts being about $777,000,000. Gold and gold obligations, amounting to about $484,000,000, were held by the government. No serious alterations of the prewar system occurred as the result of monetary disturbances, but transfers continued to be made on the basis of actual payment, although the export of gold was forbidden, save under special license, with a view to protecting the monetary supply. An advance in prices that took place in sympathy with prices in other countries did not, on the whole, bring the banking and currency position into jeopardy.

In Chile, a system somewhat similar to that prevailing in Argentina, and on the whole modeled upon British lines, has been in process of development for many years past. The Banco de Chile, with a capital of $120,000,000 subscribed, of which $60,000,000 has been paid up, has been the central factor in the financial organization of the country, issuing notes and creating deposits. Several other local institutions, organized with native capital, have done a good business, their relations to the Banco de Chile being somewhat similar to those between the British joint-stock banks and the Bank of England. Several foreign banking houses have also operated in Chile, as they have in Argentina, and to them has been committed in large measure the financing of the exports and imports of the country. An issue of government notes has been in circulation for more than thirty years, the amount of the issue gradually increasing up to $150,000,000 in 1914. Special issues of notes were provided for at the outbreak of the war in order to facilitate the development of the nitrate industry, but there has not been, either before or since the war, any issue of genuine bank notes, the sole circulating currency being the government issues already referred to. Immediately after the war the gold holdings of the Chilean banks were probably in the neighborhood of $103,000,000, or about the same as at the opening of the contest.

In other South American countries systems of banking are in large measure similar to those of the two countries already described, except that in some the participation of foreign banks has been much greater than in the more stable and powerful South American states. Where foreign capital has succeeded in acquiring a foot-hold it has occasionally come to exercise a practically dominating influence in the local financial institutions, oftentimes through the control of the central bank even when such bank possessed a monopoly of note issue.