PUBLIC RECORD OFFICE
Reference :-
CO. 882
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ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
PUBLIC RECORD OFFICE, LONDON
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APPENDIX:
worth 3., that is, 21 rupees of ls. 4d. each. The rupee prices of commodities are now only slightly higher than they were in 1892, whereas the silver prices of commodities were at 174 in 1902, as compared with 104 in 1892. The former gold value of the rupou was 22.8d., and the value is now 16d., that is, about 70 per cent of its former gold value. But gold prices ars at 60, so that the ls. 4d. basis for Indian currency at 70 is nearly on a par with the 69 of commodities, and thus does justice to both debtor and creditor in India. This opportunity of adopting the rupee system was lost, and the substituting of the rupee for the dollar would now only take place at a much lower valuation in rupees and in sterling than would have been the case in 1893.
The rupee could be coined by the Straits Government of exactly the same weight and fineness as the Indian rupee, and it could then be proclaimed that Mexican and British dollars would be received by the Govern ment in exchange for rupees at the rate of 5 rupees (at Is. 4.) for 4 dollars (at ls. 8d.) The Mexican and British dollars could then be demonetised in the two Colonies, and the latter would get the profit derived from exchanging 5 rupees for every 4 dollars, that is, after providing 1 rupees for overy dollar presented for exchange they would have about 45 per cent. on hand of all the dollars thus presented. The effert of this would be to fix 1s. Bd. as the future price of the dollars as stated in rupees without any hope of a further rise from any change in the gold value of silver in the future. This plan would substitute for the dollars at 1. 8., that is, at nearly their prosent bullion value, 1 rupees for each, and the rupee would be a token coin circulating at a money value of 1s. 4d., while the intrinsic value of the silver in the rupee would be a little more than 8d. with silver at 221d.
For every 100 dollars tendered 125 rupees would be given in ex- change, but to coin and supply rupees in that proper- tion would require only about 54 dollars out of 100 dollars delivered for exchange, that is, 544 dollars would coin into 125 rupees, as there are 166 grains of pure silver in a rupee and 377 grains in a Mexican dollar. On the other hand, with the dollar at 18. 8d... an article that would sell for 100 dollars, would under the rupeo system sell for 125 rupees.
The Straits Government would get the whole of the surplus on this coinage, that is to say, they would have 451 per cent, of all the dollars delivered at their Treasury to dispose of, and after paying all expenses there would be a very large profit. But they would have to receive gold and give out rupees at 15. 41. exactly as is the case in India. Their rupee would not be legal tender in India, nor would the Indian rupeo be legal tender in the two Colonies, but they would be able to maintain the par of exchange between the two rupees.
In connection with this plan it is probable that the Indian Government might be willing to arrange with the two Colonies to coin their dollars into Indian rupees at a mere coinage charge, for the purpose of enabling the Indian rupee system to be introduced, and then the Indian rupees would be legal tender in the two Colonies, and would flow freely from and to Indian ports, and thus the value of the rupee in the two Colonies would be maintained by the Indian Govern- ment taking in gold in exchange for rupees at 1s. 4d. The rupee once established in this manner, the Straits Government would have no gold currency unless sovereigns came accidentally from India or Australia or Great Britain, and they would afterwards have nothing to do with the coining of the rupees or the profit to be derived from coining, though they would have had the profit on the coining of their dollars at the beginning.
New subsidiary coins would have to be struck off and introduced in the place of the present ones, and it might be well to follow the example of Ceylon and adopt decimal coins instead of the Indian subsidiary coins. The profit on the coining of these would belang
to the Colonies.
As, however, the dollar is only la. 7d. and not at 18. 8d., some allowance might have to be made for this fact, as 25 rupees at ls. 4d. are equal to 338. 4d., and that divided by 1s. 7d. the present price of the dollar would give just about 21 dollars as the amount to be exchanged for 25 rupees. But before the exchange could be affected the dollar might be at Is. 8d., and in that case 20 dollars would be tendered for 25 rupees. If the large holders of dollars, such as banks and others, had to give 21 dollars for 25 rupees, it is
evident that this proportion would have to be adopted for all deferred payments. The Government and the banks would then issue rupee notes, and hold the re- quired reserves and withdraw the dollar notes.
If any such plan was decided on, the importation of dollars would at once be prohibited, and the Govern- ment could coin their own silver dollars in the currency reserve, amounting to foro than $8,000,000, into rupees, or send them to India to be coined. They would then have a large stock of rupees to begin to ex- change for dollars, because $8,000,000 would be coined into 18,280,000 rupees. The $12,000,000 of notes issued by the Government would be worth Rs. 15,000,000, for which notes would be issued, and two-thirds of these, that is, Rs.10,000,000 would ha placed in the reserve, leaving a surplus of 8,280,000 rupees. They might similarly, if they thought it necessary as a precaution, take the silver dollars held by the banks and coin them into rupees or have them coined. In the Straits three or four months would le ample for the exchange of dollars for rupees, as the area in the Straits over which dollars are spread is very limited, whereas in the Federated Malay States longer notice might be required. But after the fixed dates dollars would no longer be legal tender, nor would they be redeemable in rupees.
It must be borne in mind, however, that 45 per cent. of all dollars tendered for exchange would not be coined into rupees, as 541 per cent. of them would be sufficient for the coinage of rupees representing the sterling money value of all the dollars in the two Colonies. The 45 per cent. of surplus dollars would require to be disposed of, and their sale would have the effect of depressing the value of silver. One objection that will be raised against this system is that it substitutes a small coin for a large coin in the cur rencies of the Colonies, and the small coin is nearly as valuable as the large one. But the fact cannot be got
over that the rupee has a high money value for the silver contained in it, and the dollar has a low money value for the silver in it. It is therefore impossible to have a rupee standard and large coins. As the popula.. tion in the Straits is largely composed of Chinese, I judge from an experience of seven years in business in Shanghai that the rupee would be unpopular with the Chinese, while the dollar would be entirely satisfactory.
(3.) The Government might introduce a new dollar of the same weight and fineness as the Mexican and British dollars, and make it a token coin circulating at a higher money value than the value of the silver contained in it. It is practically impossible to deal either with the Mexican or the British dollars except as coins cir- culating at their bullion value, because there are hun- dreds of millions of them circulating in the Far East. and so they are beyond control in a scheme requiring artificial scarcity. A new dollar is, therefore, neces- sary, and it must be coined in limited quantity so as to enable the coins to pass at a somewhat higher value than their bullion value. It is a practical question for the Government, merchants, bankers, officials, and the people generally in the Straits, whether they wish to have a highly contracted currency or one not so much above the bullion value of the coin. The Govern- ment would immediately prohibit the importation of dollars. They could then coin in advance all the $8,000,000 old dollars they have at present as the re- serve against their outstanding notes, and this would give them $8,000,000 of new dollars, which could be exchanged for about $8,400,000 old dollars, that is, at the rate of 19 new dollars for 20 old ones. This would give them a profit on the redemption of the $8,400,000, but the profit on the original $8,000,000 in the reserve would come from the redemptio of the notes. They might also, if necessary, coin in advance the dollars held by the banks. It would be desirable, as a tem- porary measure, to make the Government notes legal fender until the conversion was completed, and they might also issue legal tender notes against old dollars delivered for exchange into new dollars until the latter could be coined. If necessary the bank notes might also be made legal tender until the dollars held by the banks could be recoined and returned at 19 new dollars for 20 old ones. This would give a margin of profit from the redemption of dollars and notes of more than 5 per cent, and would pay all the expenses of con- version.
Three or four months' notice to present the old dollars might be given in the Straits, and a longer period in the Federated Malay States, after which dollars would
COMMITTEE ON STRAITS SETTLEMENTS CURRENCY.
not be legal tender, and the prohibition of the impor- tation of dollars would be withdrawn. In this way if all the dollars in the Colonies were presented, the Government would only give 95 new dollars for every 100 old dollars presented, and thus there would be s contraction of about 5 per cent. Government bank notes of 100 old dollars would be redeemable by 95 new dollars, whatever the gold value of the two might be. To fix is. 7d. or any other rate for the redemption of the old dollars might work injustice, though if the notes were withdrawn with as little delay as possible they would be all practically cancelled within a very short time.
It would be a question then whether any distinction should be drawn between old dollars and new dollars for deferred payments generally, as the variations in exchange have been very much greater than 5 per cent.; and, therefore, to demonetise the old dollars and to make the new dollars universal with as little delay as possible, would be an immense advantage.
The Government notes and the bank notes, as being a large part of the currency of the Colony, stand in a different position from ordinary debts. With regard to the notes, it must be pointed out that together they amount to about $18,000,000. Now in order to adjust the gold value of the new dollar at about 5 per cent. above the gold value of the old dollar, the present cur- rency must be to some extent contracted, and for this purpose it would be necessary to diminish the number of notes in circulation by at least 5 per cent., a decrease of about $900,000. It will readily be seen that the Government proposal to lower the percentage of reserva from two-thirds to a half would release from the reserve against notes $2,000,000 of the $8,000,000 now there. This would be a very unwise step at the present time, when the difficulty of the currency is already the ex- cessive number of dollars in circulation.
But st
Having effected the exchange of new dollars for old ones and new notes for old ones, the question is what provision would require to be made for the future of the new currency 1 The position would virtually be that the mints of the two colonies were closed to tho private holders of silver, and the new currency by the issue of new dollars and new notes had been placed on gold basis of 1s. 8d., or whatever rate of exchange might be decided on when the time came for conversion. If the production of gold increased in the world rela tive to the demands for it on the basis of the inder number of 69 in 1902, and it is highly probable there will before long be a rise due to increased supplies of gold, then the new dollars would become more valuable in gold and the gold exchange would rise. This would affect the gold value of silver also. But if silver rose through a cause affecting itself only, then it would not affect the new dollar, unless the increased gold value rose above the gold value of the new dollar. least if such a cause operated on silver, it would not work any injury to the new dollar, as the latter would be secured against any fall in its gold value, and a rise pari passu with silver would not be a cause of objection on the part of the Colonists. The principle is that the new dollars under the conditions of the new currency will gradually increase in purchasing power over gold, silver, and commodities owing to increase in population, expansion of trade, and destruction and loss of coins interfere if no other disturbing cause should arise with its natural course. When the Indian mints were closed this gradual increase in gold value was expected, and in the end the rate of exchange reached Is. 4d., When the though at one time the rate fell to s. 1d. mints were closed exchange was at 1s. 2d. That par ticular aberration to la, là. was not due to any failure in the rupee to keep its position, but to an increase in the purchasing power of gold. Mr. Sauerbeck's index number of commodities fell from 68 in 1893 to 61 in 1896; that is, 10 per cent.; and the rate for Council bills, which averaged is. 24d. in 1894, fell to 1. 1d. in 1895; that is, 10 per cent. In the eight years from 1891 to 1898 Russis, which before that period had in- variably been on balance with trifling exceptions an exporter of gold, imported on balance £83,955,000 during these years, besides absorbing about £35,000,000 produced in the Russian mines. In this way con- siderably more than the whole of the increased pro- duction of the world went to Russia. In 1890 there were net exports of gold from Russia of £447,924.
In the United Kingdom in 1896 we exported on balance £5,665,588, in 1897 out net imports were only £287, so that in these two years we lost by net exports and by consumption in the arts about £11,732,700. Our
6849.
total stock of gold was £102,200,000.
35
95
estimated in 1901 at
The above figures demonstrate very clearly that the cause of the fall in the gold value of the rupes was due to the increased value of gold. That it had nothing to do with the rupee is very evident from the index num- ber of commodities in rupees in India. The following are the figures: 100 for 1883, 101 for 1894, 105 for 1895, 103 for 1896, 101 for 1897, 93 for 1899, 97 for Beo 1900 107 for 1901, and 111 for January, 1902 Table II., column iv.
At the same time it ought to be pointed out that in 1899, when the rupee reached 18, 4d., Mr. Sauerbeck's index number had again risen to 68, the same as in 1893, so that the increased purchasing power of gold, which was greatest in 1896, had disappeared in 1899. To revert to 1893, the Indian Government closed their There mints and left the rupes to take its own course.
are reasons why contraction did not really begin till 1895, but at least it will not be disputed that when con- traction began to operate the gold value of the rupes rose and the silver value also.
If then the Government of the two Colonies were to establish a new dollar of somewhat higher value than the old dollars, and if they did not put any further new dollars into circulation, the gold value of the new dollars would gradually rise. It would be for the colonies to decide whether they wished the new dollar to be of higher gold value than the rate fixed for con- version. They cannot fix a gold value for the dollar, such as 18. 8d., with the certainty that it will not re- quire to be changed. If the production of gold was increased the gold value of the new dollar would rise, because gold would be less valuable, and the amount of new dollars would be stationary. The gold value of the new dollar would therefore rise owing to its relative scarcity, and it might rise from increased sup plies of gold. On the other hand, it might rise in gold value in consequence of decrease in the stocks of silver increasing the value of that metal beyond the 5 per cent. at which the new dollar was rated above gold. These are the causes that might bring about ■ rise in the gold value of the new dollar, though the scarcity of new dollars and increased supplies of gold are the causes that are likely to operate in the near future.
The
If, then, the colonies were to do nothing further, they would have a rising gold value for their new dollar. But if they do not wish a rising gold value they must adopt some method of keeping it from rising. Indian Government fixed là. 4d. as the rate at which they would stop the contraction, and as that was con- siderably above the bullion value of the rupee, they were safe in doing it. They have now the entire control of the position as regards gold, and silver bullion is at nearly half the gold value at which the rupee is cir- culating, so there is no danger from it. The colonies would similarly have the entire control of the relation between gold and the new dollar if they decided to give out a new dollar for every 2s. in gold, because when the exchange rose above 28. gold would flow in and keep it down to figures close to 28.
But if the colonies were to open their mints at le. 8d. and take in gold at that rate, the effect would, of course. be to stereotype this rate for all time. If supplies of gold were increased more gold would flow into the colonies, and diminish the purchasing power of the new dollar. The latter might possibly sink to the level of silver, but the 1s. Bd. rate would be maintained, though it would be a la. Bd. of less purchasing power than the 1. Bd. of the new dollar at the time of conversion. time might possibly come when new dollars would be melted down, so as to keep the new dollar from falling below the value of silver. On the other hand, a time might come when the old dollar might by a rise in the gold value of silver be worth more than 14. 8d., and then the rate of exchange at which gold would be received for the new dollar would have to be raised.
A
It would seem, therefore, that la. Bd. is too low a gold rate at which to stereotype the value of the new dollar, and yet in all probability the desire of the colonies would be to establish and maintain a 1s. 8d. rate without stereo- typing it, if that was found to be practicable,
If the method of accepting ls. 8d. in gold for a new dollar be considered, it will be found that no movement of gold would take place until the exchange rose above la. 8d. to a point that gave a profit on sending gold to Singapore. When it did rise to this rate, banks and bullion dealers would see there was a profit, and they would send gold to Singapore and get new dollars for it. The gold would be placed in the currency reserve, and
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