PUBLIC RECORD OFFICE
Reference :-
PLEC.O. 882
سائلسا
COPYRIGHT PHOTOGRAPH-NOT TO
BE
7 PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE REPRODUCED PHOTOGRAPHIC-
118
APPENDIX:
lving, to European and Asiatic alike, increases: this results in higher wages for labour of all descriptions,. Juanual or mental, skilled or unskilled, increasing steadily the cost of handling our important entrepôt trade.
Opponents of a fixed standard profess to fear that fixity of exchange would hamper the export trade of the Colony and the F.M.S. Now, as the Colony produces practically nothing, but buys its exports from surround- ing countries, it would, if those countries continued to use silver, still be able to ship as cheaply on a fixed standard as on a silver basis, while it would be placed on a more advantageous footing than at present in pur- chasing from those surrounding countries which use gold. Moreover, nearly all the Colony's chief exports are specialties, produced only in countries surrounding the Straits Settlements, and shipped from Straits ports because those ports are the most convenient collecting centres in the neighbourhood, and are on the "main line" to Europe. "An alteration in the currency will not affect the geographical position of the Straits ports. The principal export of the F.M.S. is tin, which article, directly or indirectly, produces the greater part of the revenue of the F.M.S. If the prosperity and
success of the export traces of the Colony and the F.M.S. are dependent upon the fluotus- tions of silver (mostly downward), these trades must be in an unhealthy condition, and the capital sunk in them would be much better, and more safely, employed else where. If the said trades are healthy, then it follows that their well-being does not depend on the downward course of silver. The fear that the tin industry of th F.M.S. will be damaged by fixity of exchange is mani festly absurd, considering that the F.M.S. produce about two-thirds of the world's supply of the metal.
The Government establishment charges, both of the Colony and the F.M.S., are now practically paid in sterling, while the revenue is collected in silver (the same remark applies, to a less extent, to the municipali ties). These charges are, therefore, an unknown quan. tity in the estimates, and, as silver depreciates, become an ever increasing burden.
HiLerest.
Effect of Borrowing in Silver.
The Straits Government proposes to borrow largely for public works. To borrow in silver, even granted that the large amount nquired could be obtained on a silver basis, would mean a comparatively high rate of Thereafter, the Government, having secured most, if not all, of the capital available on a silver basis, the municipalities and trading concerns, such as the Tanjong Pagar Dock Company, would be forced to pay still higher rates for their borrowings. This would necessarily reset on the municipal rates and the trade of the Colony. Consequently it would be much cheaper for the Colony, the municipalities, and the trading com. panies to born in gold, and more advantageous to the trade of the Colony. But to borrow in gold while cul- lecting revenue in silver would be an exceedingly risky proceeding, and if the Government must raise a gold loan, they must have a gold revenue, which entails a gold, or fixed, currency.
Falling Exchange and Import Trade.
With regard to the import trade, the effect of a falling exchange on a trade in goods purchased in gold markets, hell for an indefinite period, and fold on credit, can only be disastrous. It is argued that the merchant can protect himself by covering exchange for ward. He can do so partly, but only partly.
The market never responds readily to a fall in ex- change. Cry in certain practically non-competitive lines of standard goods can prices be raised immediately to compensate for a fall in exchange; with most goods it takes a long time to get prices up to the currency equivalent of cost, and thus, in the case of a serious fall in exchange occurring between the ordering and arrival of goods, the merchant finds that goods ordered on a profitable basis result in a loss,
It may be argued that what is good for the import merchant is not necessarily good for the trade of the Colony as a whole. In the same way, what is bad for the tea and indigo industries of India is not necessarily bad for the trade of India as a whole, may even be good for it. But the first esential for a successful and healthy trade is that it shall be profitable; if it is not profitable, in the mass, it will eventually dwindle away. After efforts to carry m have been made, in hopes of better times, which efforts will probably and in a serious financial crisia.
To Sum Up.
As the existence of the Colony depends on its trade, anything which conduces to render the most important branches of that trade sound and healthy, and a priori profitable, is good for the Colony.
To sum up-
(1) A fixed and stable currency is good for trade,
and therefore for the Colony and the F.M.S.
(2) Capital will be attracted to the Colony and the F.M.S. provided the currency is placed on a stable basis.
(3) The damage to the export trade, if the currency
is fixed, will be nil, or so little as to be negli gible in comparison with the benefits which will result
(4) The establishment charges of the Government, and to a less extent of the municipalities, are now paid in gold; it is irrational to collect revenue in silver to meet expenditure in gold. An unknown liability is incurred.
(5) A fixed currency will put the import trade on a
sound basis.
(6) A fixed currency will enable the Government, the municipalities, and the great trading com. panies to borrow at considerably lower rates of interest than at present, and will therefore accelerate their development, and that of their trade.
How to Secure Fixity. We now turn to the second part of the question: "Is it possible to establish a gold standard, or fixity of exchange, st cost which is not prohibitive, and if so, what form should the currency take?"
There are several methods by which fixity, or approxi- mate fixity, of exchange could be secured-
(1) Stop the free coinage of British dollars, and demonetise the Mexican dollar; etablish a gold reserve, and, in the same way as India has done with the rupee, force the value of the dollar, up to 25., or any other value which might appear convenient
(2) Throw overboard all dollars, and adopt the
Indian rupee.
(3) Throw overboard all dollars, and adopt the British sovereign, as unit, with a decimal sub- sidiary (token) coinage,
No. (1) is practically out of court, as it would entail either the co-operation of Hong-Kong, which is almest rertainly unobtainable, or the minting of a new Straits dollar, of the same weight and fineness as the British dular. This alternative would be dangerous, because, if the silver value of the new dollar ever went higher than its nominal value, every dollar would be swept out of the country.
No. (2) has not been found to answer in Ceylon, owing to the restriction of the Indian currency, and for the same reason would be very undesirable here, where the demand for currency is continually on the increase.
Decimal Coinage, based on the Sovereign. begin with, the argumente that a decimal coinage, based There remains No. (3), in favour of which stand, to on the sovereign, will, sooner or later, almost certainly replace the present British coinage, and that this method is equally practicable whaterar sate uf ræchange may be fired on for conversion.
Such a currency would fit the requirements of the Colony and F.M.S. admirably, entailing, as it does. practically no difference in system from the existing currency.
Taking the dollar at 1s. 8d.. the comparison between the suggested currency and that now existing would be as follows:-
=
£1.
.10 Florins
=
$12
1
1
++
I'20
0'1
= '1
12
00:1
= 01
་་
0'12
Subsidiary multiples of the direct decimals, on the same system as at present, could be coined as found convenient.
The florin (28. or £1) would naturally take the place of the dollar; in fact, the token coinage, for all prac tical purposes, would exactly fill the place of the exist ing currency with the minimum amount of ditu:banos
COMMITTEE ON STRAITS SETTLEMENTS CURRENCY,
Prices would readily adjust themselves, and all the con- veniences of a 28. dollar would be obtained without saddling the Government with an enormous loss, with- out running the riska att indant on fixing artificially the value of a silver coin, and without necessitating a permanent restriction of currency.
How to Bring it About.
Assuming that such a form of currency, simple, and easily understood by the native, there being no change in the system from that existing, is adopted, we hare now to consider how the change can be brought about with the minimum of loss both to the Government and to individuals.
The cost of effecting the change depends on the num- ber of dollars which the Government would have to take up on conversion. It is almost impossible to esti. zuate what this would amount to, because (1) the num- ber of dollars in circulation cannot be ascertained with any approach to accuracy, owing to the constant but un- known withdrawals to China, Siam, etc., and (2) be- rause it would be impossible to entirely prevent specu lative shipments, which will inevitably be made if it appears probable, that the conversion rate will be higher than the silver value of the dollar.
The most feasible method appears to be the following: (1) On a certain date the Government, having pre- pared a large supply of new notes of various denomina- tions, including notes for one florin, should issue a pro- elaination simultaneously all over the Colony and the F.M.8. demonetising the British and Mexican dollars as from another date, say five months aheal. For six months from the date of the proclamation these dollars would be received at the Treasury, at all Government office where taxes are payable, and at such other places as may be found convenient (arrangements could doubt- less be made with the banks), and notes in the new currency given in exchange at the conversion rate, which should be approximately the rate of the day of issue of the proclamation, or very slightly over that rate. Thus, supposing the conversion rate were 1s. 8d., everyone bringing twelve dollars to the Treasury would receive ten florins, or £1. If the conversion rate were 1s. 6d., twelve dollars would purchase nine florins.
During the period of conversion local monetary transactions would have to be conducted to a great extent in paper currency. Meanwhile, immediately after the proclamation the Government would set about the manufacture of the new coinage, and as soon as it was ready could redeem all notes presented. Until the new coinage was ready the liability of the Government to redeem their notes in coin would have to be Bus pended.
(2) From the date of the proclamation the importa tion of dollars would be prohibited, shipments already afloat and contracts already entered into excepted, the banks and others being required to furnish declara tions of contracts; the bona fides of shipments would b proved by date of bills of lading.
(3) An ordinance should be passed, at one sitting, making all debts in dollars recoverable in the new currency at the conversion rate.
(4) The new currency, including the new Government notes, should be legal tender from the date of the pro- clamation, and the British and the Mexican dollars would remain legal tender at the conversion rate up to the date of demonetisation. This for public con- venience, and to avoid, as far as possible, a short supply of coin during the conversion period.
(5) The present note issue, and the subsidiary coinage, excepting the copper, which would fit into the new cur- rency, would have to be called in at the conversion rate, but no time limit need be imposed in their case,
119
(6) A high limit, or no limit at all, should be fixed for the maximum legal tender in forins and Govern- ment notes. This would tend to minimise the drain on the gold reserve, and further, the more florins or other tokens go into circulation, the greater the profit to Government.
On the conclusion of this operation the Government would have a large stock of silver on hand, possibly 30,000,000 or 40,000,000 dollars, or more, on which it would probably make a loss. In order to mini. mise this loss as much as possible the silver might he sold forward as collected, reserving enough for at least the first year's issue of the token coinage.
A Gold Loan Necessary.
In order to finance the operation and provide the gold reserve it will be necessary to raise a gold loan, which should be done immediately after the issue of the pro- clamation. This loan should be apportioned between the Straits and F.M.S. Governments, in what propor- tions it is unnecessary to discuss at the moment. This loan should be temporary, for, say, one year.
If the suggested florin" were made the same weight as the British florin the profit on the token coinage would be about 150 per cent. If a larger coin were decided on, as suggested by the Sub-Committee of the Chamber of Commerce in 1897, the profit would be about 100 per cent.
In either case the profit on the first year's issue, to replace the called-in dollars, would be a very handsome sum. This sum, plus the proceexis of the sale of the surplus stock of silver, would be avail- able for the following purpose:-
(1) To wipe out the loss on conversion (i.e., the differ ence between the conversion rate and the proceeds of sale of the dollars).
(2) To pay one year's interest on the temporary loan. (3) To repay part, or, if possible, the whole of the loan.
If the sum available was insufficient to pay off the whole loan the balance would have to be converted into a permanent loan, the interest and charges on which would probably be about met by the profit on subse- quent issues of token currency.
The Question of False Coin.
All
With a token currency there is always the danger of quantities of false coin being put into circulation the gold currency countries, however, use silver tokens of much lower intrinsic value than the value they repre- sent, and, with the possible exception of Java, they seem to be able to keep down the manufacture of false coin. There does not appear to be any reason why this Colony could not do the same. In this connection inquiry might be made as to whether modern metallur. gical science could not devise an alloy which the coiner would find it difficult, if not impossible, to manufac
ture.
The new currency notes should be distinctive, both in form and design, from the present notes, and the various denominations should be clearly differentiated from each other by means of their colouring, as in the case of postage stamps.
The 1897 Scheme.
The above schme, it is suggested, is free from the objections there were to that put forward by, the Sub- Committee of the Chamber of Commerce in 1897. This article is already too lengthy to permit of these objer- tions being dealt with now, but some of them were pointed out in Mr. T. E. Earle's criticism published along with the Sub-Committee's Report.
J. GRAHAM.
F. W. BARKER,
6849.
9-2
120
APPENDIX: