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As regards the case of daya, cited by Sir d Anderson, their Lordships' own information is that the conditions are not sufficiently parallel to allow of much weight long attached to the comparison, nor, so far as they are aware, have the arrangements there ever been subjected to any of those exceptional strains against which thowever remote may be the probability of their occurrence) the Board of Treasury have always held that a sound currency system should contain adequate Safeguards,
be met
My Lords entirely agree that the manner in which telegraphic transfers should whether by calling in cash at call or by draft on the actual gold coin held an London should be settled on each occasion in consultation with the Bank of England The suggestion made in the Treasury letter of the 5th May last* was not intended to be applied as a hard and fast rule without regard to the monetary condi- tions at the particular moment, and my Lords can (without committing themselves to Sir J. Anderson's views on the subject) readily conceive that in certain circum Stances it might be desirable to liberate specie rather than to call in short loans.
I am, &c..
T. L. HEATH.
satisfied that their Lordships are under a misapprehetision as to the circumstances of the Colony,
9 The Treasurer, Mr Anthonisz, and the leading local bankers are in complete agreement with my views on this point, and I trust that on further consideration their Lordships will not insist on the condition of a silver reserve of one-third of our note issue, and will agree to the recommendations in paragraph 37 of my memorandum.
10
If your Lordship approves of my recommendations, I will have a draft Ordinance prepared. repealing the existing Currency Note Ordinance and re- enacting it with provisions as to reserves on the lines suggested in the memorandum.
I have, &c.,
JOHN ANDERSON.
30183
No 47
THE GOVERNOR to THE SECRETARY OF STATE.
(Confidential)
MY LORD,
(Received 1 October, 1910.)
[Answered by No. 51.]
Government House, Singapore, Sth September, 1910. IN your despatch.f Straits Settlements No. 193, of 12th August, 1909, further amendment of the Currency Note Ordinance was recommended, and a draft Bill to give effect to your Lordship's instructions has accordingly been prepared by the Treasurer and Attorney-General.
2. I have delayed submitting this draft to your Lordship and the Legislative Council because I think that the time has arrived when the whole of our currency note legislation should be reconsidered.
3. The position of our note issue has been entirely changed by the adoption of a gold standard in the Colony and the Malay States, and the assumption by the Govern inent of complete control of, and responsibility for, the currency.
4. On 31st July last our note circulation amounted to $32,359,860, whilst our standard silver circulation was only just under eight million dollars, so that four- fifths of our circulation is now a paper money circulation, and as there is practically no demand for our standard silver coins the proportion of paper money in our circulation is certain to increase, as it has been doing steadily even before the gold standard was adopted.
5. There is obviously therefore a wide difference in the situation from what Silver was then the it was when the Currency Note Ordinance was framed. standard. We had no control over the amount which might be coined. Our note issue formed about the same proportion of our circulation as standard silver coin does now, and a demand for silver for export might at any time have reduced our note issue indefinitely.
6 I have discussed the matter at some length in the accompanying memo- randum, especially as regards the all important question of reserves, and I would invite your Lordship to consider the suggestions in paragraphs 48 to 52 of that memorandum as to the lines upon which new legislation should proceed.
7. On the question of the proportion of legal tender silver which ought to be held by the Currency Commissioners, I have already recommended in my confidential despatch of the 14th July last that it should not exceed one-fifth of our note issue, and in view of the decided and growing preference of the public for notes, I regard even that proportion as unduly high, and have only done so in deference to the views of the Lords Commissioners of the Treasury.
8. I have had now over six years' experience of local conditions, and the question has during that time occupied much of my time and attention, and I am
• No. 35.
↑ No. 12.
‡ No. 43.
Enclosure in No 47
NOTES ON THE QUESTION OF CURRENCY RESERVES
The treatment of the question of reserves against fiduciary currency differs Canada, for instance, has a Government note issue widely in different countries. with only 25 per cent. reserve, of which 15 per cent. is gold and the remainder in Canadian securities, so that 75 per cent. of its notes have no backing whatever except the general credit of the Government. But for any notes above 30 million dollars it must hold gold. At present it has 60 million dollars in circulation, so that at present if the law is observed it has $34,500,000 gold, $3,000,000 in Canadian Govern- ment securities, and nothing beyond, save the Government credit, against $60,000,000 liability for its notes. In other words, 37 per cent. of its issue is not secured by any reserves or investments. and its subsidiary silver, which is legal tender for $10, is also not secured. Yet Canadian currency is amongst the soundest in the world.
2. I do not think that it is an example for us to follow, as it has bank notes to the extent of nearly seventy million dollars in circulation, part of the reserves against which are held in' Government notes, and at any rate the Government has With only a partial direct liability for maintaining the parity of its currency. the exception of our dwindling bank note issue, the Government here is solely responsible for the currency, and the law requires us to maintain cash or securities Our liabilities are the whole of our note issue and the difference between the bullion and face value of our legal tender silver (in circulation).
for the whole of our liabilities.
3. While we were responsible only for the note issue and silver was our standard, the investment part of our reserve was fixed at half of our liability, though at any time the whole of our notes might have been presented without our circula- tion being in any degree lessened, as there was no limit to the coining of silver, which In other words the whole of our reserve could came in freely in unlimited amount.
have been exhausted without in any way diminishing the circulation in the hands of the people or the Banks.
4. At the present time our reserves, ie., our effective reserves in gold or investments, cannot be drawn upon to the extent of a single dollar without a corres ponding reduction in the circulation in the hands of the people. In other words, while we had a silver standard, the only limit to a run upon our reserves was the preference of people for notes to silver coin. Silver dollars are now tokens as much as notes and equally controlled by Government, and what we have to do is to give gold for either notes or silver whenever a contraction of the local currency is required Formerly an by bad times or an adverse balance of trade calls for settlement. adverse balance of trade tended to the export of dollars, and we had to be prepared to supply dollars in exchange for notes for this purpose. Our present dollar is useless As gold is demanded, the cur- for this purpose, and gold only will be demanded." rency will be contracted until it reaches the absolute limit caused by the necessity of a circulating medium for the ordinary business purposes of the community. To what extent the ordinary circulation can be contracted by bad trade and such incidents it is difficult to say. Here it is probably greater than in Europe, as there is more hoarding, but in any case it is obvious that if it was safe to invest up to half when the whole of our notes might have been ousted by silver, it is far more safe now.
21005
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PUBLIC RECORD OFFICE
Reference :-
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