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How Franco banked on victory

Money, as well as military strategy, played a key role in outcome of the Civil War

Economist’s study reveals Nationalist moves to devalue the Republic’s peseta

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General Francisco Franco addresses troops in Castellón, during the Spanish Civil War. AP

The life of the economist José Ángel Sánchez Asiaín took several turns before he was able to close a door that opened half a century ago, when he was head of analysis services at Banco de Bilbao. The bank’s director, who had been a boardmember at the Bank of Spain during the Civil War, entrusted him with some documents containing information about the Spanish economy between 1936 and 1939. In them, Asiaín saw how the war had created two different currencies, two Banks of Spain, two inflationary trends and two antagonistic ways of looking at society.

From time to time, as he climbed the rungs of the financial ladder, Asiaín would take another look at the documents in his care. It was this material that provided the basis of the speech he gave on the day he was admitted as a member of the Royal History Academy, in 1992: La banca española en la Guerra Civil (or, Spanish Banking during the Civil War).

Two decades later, Asiaín has published La financiación de la guerra civil española (or, The financing of the Spanish Civil War), a 1,000-page volume that addresses how both warring sides secured funding; the role of commercial and savings banks; how Republicans and Nationalists managed their finances; and the financial independence of the Basque Country and Catalonia.

What emerges from the book is that money is also a weapon during times of war. It may not kill, but it can sink an entire faction. The Republican peseta plummeted as a result of a carefully planned operation by the Franco side that enabled it to circulate its own pesetas, to remain independent from a monetary system whose heart it would not control until 1939, and to demoralize the enemy.

“They designed a detailed operation, the success of which rested on a so-called ‘Fund of paper currency put in circulation by the enemy,’ a fund that collected all the Republican banknotes that ended up in the hands of the Burgos [Nationalist] government,” writes Asiaín. Through this fund, the Republican currency “became a powerful weapon against its own issuer” because it was sent to the fifth columns infiltrated in Republican territory and also sent abroad to force a drop in its international value. By July 1937, the Republican peseta was worth three times less in French francs than the other peseta issued by the rebels.

This monetary war is one of the least explored aspects of the Spanish Civil War. The other is the role of the banking sector, which displayed an amazing ability to adapt to those unstable times by creating “financial commandos” that accompanied troops on their marches. Asiaín’s book delves into both issues at length.

The Republican peseta was worth three times less than the rebels’ currency

“A case study is Banco Zaragozano, who went so far as to send its chairman to the battle fronts so he could enter the cities together with the military leaders and directly embark on the financial reorganization of the bank branches,” says Asiaín, who had exceptionally valuable material to work with: recorded interviews with 150 branch directors during the war. He also consulted the files of the BBVA (which he chaired for years), the Bank of Spain, the Economy Ministry, the Academy of Moral Sciences and the Spanish University Foundation.

Sánchez Asiaín will not say how much the war cost — he’s working on it, although he warns that he can only venture a comparative figure with respect to the GDP in 1935. But he will say one thing: “The Republic paid for the Civil War with past savings (gold reserves at the Bank of Spain) while the Burgos government financed it with future savings (foreign indebtedness).”

Both sides, he adds, also had financial support from people who made voluntary contributions (subscriptions) or involuntary ones (asset seizures). Ultimately, as the Socialist leader Indalecio Prieto liked to say: “War is won with money, money, money.”

So is that why the Republic lost the war? “It wasn’t that,” says the scholar. “They didn’t lose for lack of money, but because they didn’t know how to spend it.”

Generous Duce, tight-fisted Führer

Basic goods. In June 1937, a kilo of bread cost 1.25 pesetas in Barcelona and 0.70 in A Coruña. Milk was three times more expensive in the Catalan city (Republican) than in the Galician one (Nationalist).

Mussolini’s pardon. When the war ended, the Italian government established Spain’s debt for the purchase of war supplies at five billion lira, but it forgave over 1.9 billion lira.

Condor costs. Germany figured that Spain owed it 372 million marks, of which 99 corresponded to military support from the Condor Legion. Spain’s new government, however, claimed that this air support constituted aid in “the fight against Communism.”

The gold reserves at the Bank of Spain were the main source of Republican wealth — and this gave rise to one of the most exaggerated myths that circulated during the dictatorship — but so was the seizure of Franco supporters’ assets. According to the first inventory of seized goods stored at the castle of Figueres, their estimated value was in excess of four billion pesetas. Some of the goods that were taken out of the castle before the Franco troops marched in ended up on a ship called the Vita, which sailed off to Mexico. Its cargo was used to provide financial assistance to Spaniards living there in exile.

Meanwhile, the Nationalists found funding abroad and made use of a special legal authority known as “political responsibilities,” which extended beyond April 1939. Sánchez Asiaín remembers the case of Ramón de la Sota, one of the wealthiest people in the Basque region, who remained loyal to the Republic. Even though he died in 1938, legal action against him and his relatives continued. The family was fined over 360 million pesetas, “the highest penalties that Francoist authorities ever imposed on Republican sympathizers in Spain.”

Before the war, the military coup plotters already had generous financial support from the Italian and Portuguese dictators, Mussolini and Salazar, from the wealthy financier Juan March and the conservative politician Francisco Cambó, as well as from the regional government of Navarre, which used war taxes to help the Nationalist combatants. Without this help, “the uprising would not have succeeded and would have fallen apart in a matter of weeks,” says the author.

The business tycoon March, Asiaín notes, offered General Mola — the man who designed the coup against the Republic and who went on to lead the troops in northern Spain — the sum of 600 million pesetas, the equivalent of the 1935 budgets of the War and Navy ministries combined. With this kind of support for the conspirators, the prediction made by the treasury minister came true: “Either he submits to the Republic, or the Republic submits to him.”