402
PUBLIC RECORD OFFICE
Reference :-
mwimmmmimC.O.882/11
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-
COPYRIGHT PHOTOGRAPH-NOT TO
64
conference, over which I presided, took place at " Bel Retiro" in Penang. A proposal was then made to Sir Samuel Wilson and myself by my honourable friend, Mr. Bagnall, on behalf of the Unofficial Members of the Legislative Council, in the following terms:- (a) that the Colony of the Straits Settlements should offer to the Imperial Govern- ment the yearly sum of $4 millions for five years from the 1st April, 1933, as a fixed contribution payable by the Colony for the said period of five years in full return for the annual cost of the Imperial garrison and all other military, naval and air charges whatsoever.
(b) that, at the end of the first or any succeeding quinquennial period, the said yearly sum of $4 millions should be increased or decreased by mutual agreement between the Imperial Government and the Colony, but that except by such mutual agreement it should not be increased or decreased. For the purposes of this clause, agreement on the part of the Colony was to mean a resolution passed by a majority of the Unofficial Members of Legislative Council, that is to say. Official Members would abstain from voting.
(c) that the Colony should have the right, not necessarily to be exercised, to limit the contribution payable in any particular year to a sum equivalent to 20 per cent of the Colonial Revenues computed in accordance with the provisions of Section 3 of Ordinance No. 64 (Defence Contribution); and that a majority of the Unofficial Members of the Legislative Council should determine whether or not this right should be exercised.
(d) that payment to the Imperial Government should be made by monthly instal-
ments in the same manner as hitherto.
(e) that the revenues of the Colony, on which the above-mentioned 20 per cent would be computed, should be the subject of discussion, in particular in regard to the question whether or not interest or income arising from accumulated revenues of the Colony should be included therein for the purpose of such computation.
(f) that the expenditure on local forces, land, sea or air, should in no year
exceed $500,000.
The Unofficial Members also recorded that this offer was made on the assumption that there would be no material change in the working of the Currency Guarantee Fund of the Colony or in the disposal of the profits thereof, or in the fiscal policy of the Colony. But they definitely stated that these assumptions were not to be a condition of the agreement.
At the Penang conference, 1 pointed out that the proposal to limit the annual expenditure on local forces to $500,000 as a maximum must be understood to hold good for a term of five years in the same manner as the offer of $4 millions to the Imperial Government, and that there would have to be a proviso that at the end of each quin- quennial period the question of increasing or decreasing this limit of $500,000 would be settled by agreement between the Government of the Straits Settlements and the Unofficial Members of the Legislative Council. This view was accepted by all present I further pointed out that the questions of the Currency at the Penang conference. Guarantee Fund of the Colony and of the Colony's fiscal policy were quite unrelated to the Colony's defence and would have to be decided on facts and policies which have no concern whatever with the military contribution, and that Government must keep its hands entirely free in both these matters. Subject to these reservations, I expressed the hope that the offer made by the Unofficial Members would form the basis for definite settlement. Subject to the same reservations, Sir Samuel Wilson agreed to support these proposals and to place them before His Majesty's Government, when he returned to England.
"
The proposals made by the Unofficial Members have now received most careful consideration by His Majesty's Government, and I have been authorized to prepare the draft ordinance which is now before you, and the first reading of which will be moved to-day. This ordinance embodies the agreement between His Majesty's Government and the Unofficial Members of the Legislative Council as proposed at Penang. It is fully objects and reasons,' but it is desirable that I should make explained in the printed certain further explanations and give certain further assurances concerning it.
First of all, the Secretary of State for the Colonies authorizes me to give an assurance on his behalf, that he will not agree to any proposal for increasing or decreasing the yearly contribution of $4 millions, or for limiting the sum payable by the Colony in any particular year to an amount equivalent to 20 per cent of the Colonial Revenues, unless he is satisfied that such proposal is in conformity with the wishes of the majority of the
65
Unofficial Members of this Council. The Secretary of State is also prepared to accept this condition as regards the stipulation that expenditure on local forces should in no year exceed $500,000, with the proviso that this limitation shall not apply if the local forces are mobilized during an emergency, since the understanding is that in default of any special arrangement to the contrary the Colony will continue to pay for local forces when mobilized.
In the next place, His Majesty's Government observes that the contribution is pay- able in dollars. They do not wish at this stage to press for payment in sterling, but they consider that there should be an understanding that the rate of contribution will be subject to review in the event of any material change in the sterling value of the dollar. At the same time I am authorized by the Secretary of State to give you an assurance that no change in the sterling value of the dollar from its present value has been, or is at present, under contemplation.
Thirdly, the Secretary of State wishes it to be clearly understood that his approval to a settlement of this vexed question on the lines proposed is not to be held to be in any way contingent upon the continuance of the Colony's present fiscal policy, or the policy in regard to the Currency Guarantee Fund, with neither of which can it, in his opinion, reasonably be linked.
Honourable Members will observe that no reference whatever is made in the Bill objects and now before them to a voluntary contribution by the Colony in respect of Imperial defence. The matter is, however, touched upon in the eighth paragraph of the " reasons "attached to the Bill. The offer of a voluntary contribution would be welcomed by His Majesty's Government, if initiated by the Unofficial Members of this Council, but such a proposal is not in any way linked to the new Bill.
In speaking of the Colony's defence contribution I have touched upon two other important subjects, namely, the Colony's fiscal policy and the Currency Guarantee Fund. On our fiscal policy, including the proposal for a Malayan Customs Union, I have nothing at present to say, because consideration of the matter has been postponed pending receipt of the report of the Colony's Trade Commission, over which Mr. W. S. Gibson presides, and which is still in session; but I come now to the Currency Guarantee Fund
When the establishment of a Government paper currency for the Straits Settlements and the four States now forming the Federation was under consideration in 1895 and 1896, it was originally suggested that the note issue should be jointly and severally guaranteed and managed by the Straits Settlements and by the four States. The Secretary of State for the Colonies found himself unable to agree with this proposal, as he considered that it would be ultra vires for a Colonial Law to pledge the revenue of the Malay States and that in addition it would lead to unnecessary complications, if the Governments of the Malay States were in any way made legally responsible for the note issue. One difficulty cited was that of the distribution of the profits, which might ultimately accrue, owing to the difficulty of discovering what proportion of notes had been used in each State and in the Colony. It was, therefore, decided, although the four Malay States wished to participate and the Colony had agreed to their participation, that the Colonial Government alone should guarantee and control the note issue and should alone receive the profits, if any, which might accrue therefrom.
During the first eighteen years of its existence the Currency Commission produced no actual profits for the Colony. On the contrary during that period there was a con- tingent liability and on two occasions it was found necessary to make contributions from the Colony's general revenue, in order to maintain the credit of the issue. Since 1917, however, the Commission has shown steady progress to an extremely strong financial position and the Currency Commissioners have been able from time to time to transfer considerable sums to the general revenue of the Colony, the most recent instance being a transfer of ten million dollars in 1932.
Representations have been made on various occasions within the last ten years by the Government of the Federated Malay States that it derived no pecuniary benefit from the paper currency which was legal tender in its jurisdiction, and the present financial position of the Federated Malay States has again drawn attention to this potential source of revenue and to the possibility of substantiating a claim to compensation for being deprived of it. The fact that the Colony has in the past borne the whole of the risk and expense involved in guaranteeing the note issue may, it is contended, be a valid answer to a claim by any Government other than that of the Straits Settlements to a share in the surplus which has accrued to date, but it does not constitute a valid argument in favour of the Colony being allowed to continue in sole enjoyment of such profits indefinitely.
I am convinced that the time has come when steps should be taken to place the whole question on an equitable and, as far as possible, a permanent basis. The matter has been A reply put before the Secretary of State with the suggestion that a careful investigation by an absolutely independent authority of high standing would be the proper course.