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APPENDIX :

rupees, it would have to withdraw also the amount of rupees which are now to be coined with our dollars, and * to bear on it the same loss as on all rupees coined in India before the closing of the mint in 1893, and against which there is no gold roserve, But I do not consider it probable that the rupee, as a token coin, will ever be withdrawn. In any case, if India should not con- sider the advantage of enlarging her circulation suffi cient to cover this risk, it could, and should, be taken over by our Government. It is exactly the same risk accepted by India in respect to all rupees existing be- fore the closing of the mint in 1893, and our Govern- ment could accept the same risk more readily, because the conversion proposed in this scheme would leave a profit (as I shall show later on), which could be used as a reserve against this risk.

14. I see, therefore, no reason whatever why India should refuse to help us in this matter. I think, on the contrary, that quite exclusive of the natural désire of a part of the British Empire to come to the assistance of one of its Colonies, when no inconvenience arises, India will find it convenient to her own interests to facili- tate our adoption of her currency.

15. As regards the advantages of my scheme to the British Government and to the Straits Government, I be to call attention to the following points:—

The British Government would benefit by the con- siderable increase of the gold value of our military con- tribution.

The Government of the Colony would greatly benefit, not only with regard to the home charges and ex- change compensation to its officers which could cease, but principally because, while the adoption of a gold standard, as recommended by the Chamber of Com- merce, would imply a heavy loss to the Government, the change advocated by me would, on the contrary, leave a handsome profit.

In fact, the metric weight of rupees and dollars is the following: Grammes, 11,664 for every rupee; grammes," 26,936 for every dollar.

That is to say, that with the weight of 100 dollars we can coin 231 rupees. Therefore, if the Government will only give two rupees for every dollar, there will be a profit of 31 rupees, or, say, 15 per cent. on the transao- tion, against which only the expenses of coinage, and freight, and insurance to and from India, are to be deducted. Thus, calculating the present circulation of the Straita Colony and Native States at, say, 20 mil. lions of dollars, there would be a net profit of over five millions of rupees.

16. This sum could be put aside, if necessary, and capitalised and form a reserve (silver or gold), which, after some years, would fully cover any loss, in case it should ever be decided to withdraw all rupees, and India should ask us to refund the loss of exchange on the amount of rupees now coined for the purpose of this conversion.

COMMITTEE ON STRAITS SETTLEMENTS CURRENCY.

APPENDIX 5.

ON CURRENCY REFORM. By JOSEPH HEIM. [Reprinted from the "Straits Chinese Magazine" for March, 1808.]

It is with a great deal of diffidence that I comply with a roquest to write an article on Currency for this Journal. So much has been said and written on the subject lately that many readers may be getting some- what tired of it, and may prefer to skip my scribbling, as I have not much to say which they may not have heard

or read before.

I addressed a letter on Currency Reform to the "Penang Gzette" last year, and no doubt to that letter I owe the flattering request above referred to. As I hold still the same views expressed in that letter, I cannot do better than reproduce that part of it which refers to a scheme of reform I suggested, and add a few

remarks.

The part of the letter in question reads:-

"When trying to find a remedy for an evil it is best to examine first into the cause of it. Why does our dollar decline in value? Because it is not a token of a fixed value, the coinage of which is controlled by Govern- ment, as it ought to be, but merely a piece of silver, which in the shape of a Mexican dollar can be bought in the London market, in the shape of a British dollar can be obtained, coined to order by the Bombay Mint, by every bank or private individual. Consequently the value of such a coined piece of silver falls when the value of silver falls. The process by which we get our dollars and which regulates our exchange is as follows:-The banks when short of dollars either buy Mexican dollars at about silver value in London or elsewhere, or they buy bar silver and have it coined by the Bombay Mint into British dollars, which they then import and sell in the Straits. The sterling cost of these coins (cost of silver, plus coinage, plus freight and insurance, plus es much profit as the banks can get out of the transaction) con- stitutes the basis of our exchange for sterling. Of course, it is not only when the banks actually receive or order a new shipment of dollars that a change in the sterling rate of dollars takes place, but the banks have to calculate from day to day how such a shipment would stand in each day, and competition forces them to sell at that rate, although the actual cost of their last ship- ment may be higher. Why must they calculate from day to day and sell under the price of their last impor- tation of dollars? Because, if they were to hold out for the cost of their last importation after silver had gone cheaper, other parties would import dollars at a cheaper price and undersell them.

Now, if we consider this state of things, we naturally come to the conclusion that if the importation of dollars were suddenly prohibited by law, the reason given in the last sentence would disappear. The banks and other holders of dollars would not be obliged to reduce their price on account of silver having become cheaper, and they would not likely reduce it of their own free will. A further decline in the sterling value of dollars would at once be stopped, and as every article, when further supplies of it are shut off, naturally appreciates, our doilar would gradually and slowly appreciate.

Here we have, therefore, the first measure necessary to prevent a further depreciation of the dollar. It is not an original nor a new measure. The Indian Govern- ment has done the same with rupees, when circumstances were the same in India as they are now still in the Straits. Thus the first step to be taken is to prohibit by law the importation of any kind of coined dollars, British, Merican, and Japanese, for an indefinite period. Now, what next? Let us suppose that the prohibi- tion has become law, and let us review the change of position. We have then a certain amount of dollars of various coinages in circulation The amount may be supposed sufficient for the trade of the colony, because such amount has so far regulated itself under the law of supply and demand. New supplies cannot be brought into the colony. Exports of dollars to any notable ex- tent need not be feared, because they are worth more

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in the colony than out of it. Thus we have the necessary money to go on with, we have dissolved partnership between our dollars and silver, and we have now time to look round and put our house in order.

The next step which seems necessary is to transform the various kinds of dollars in circulation into one uni. form coin, which should be a Straits dollar, and the coinage of which must be controlled by our Govern- ment. This transformation must, of course, be done by Government, and it will be a very easy matter, the only expenses connected with it being the cost of coining the new dollar. The proposed Government Note issue will be of great help in this transformation. Govern- ment, having established their own mint, or having made suitable arrangements with the Bombay Mint, will then exchange the various dollars for notes. They will have these dollars, as they come in, melted down and coined into Straits dollars, of the same weight and fineness. They will issue the latter in exchange for notes, or, when they have a sufficient stock of Straite dollars, they will at once exchange the old dollar for the new. This exchange should preferably be done free of charge, as the item of coinage could well be borne by the Govern ment, but even a small coinage charge would do no harm. Thus, in the period of from six to nine months, all the dollars of the Straits would be exchanged into Straits dollars, and at a fixed date, previously advertised, the Government would stop exchanging, and declare the now Straits dollar the only legal tender, at the same time rescinding the prohibition of import of other dollars.

We shall then have taken a great step forward; in- deed, we shall have nearly reached the goal. We shall then have our own stable currency, which could no more be affected by importation of cheap dollars, and we shall be independent of other dollar-using places, like Hong- kong and Shanghai, which have so far been a drag on us. We shall be in the same position as India, and it will remain for us only to follow India's example. That is, to stop coinage of Straits dollars until the value of such dollars has risen to a certain limit. That limit should preferrbly be 3s, per dollar, this being in ac cordance with the rate of is. 4. per rupee fixed upon by the Indian Government. However, this point can be left open until the time when the present dollars cease to be legal tender, and even beyond that. When the Straits dollar has reached that limit in sterling value, the Government should, as the Indian Government does, offer to sell Streite dollars for gold and thus a stock of gold might accrue which would form the basis of a gold currency in future. However, that is music of the future which does not concern us now. Experience has shown us that a bock of gold is not essential, and that even without gold, and without any liability entered into by the Government, the currency of a country can be protected from further depletion, and its gold value raised and maintained, if a strong Government wisely controls the coinage.

Now let me pass in review the measures which should be taken.

1. Government to stop all importation of coined dol-

Iars until further notice.

2. Government to exchange all dollars circulating in the colony, after such stoppage of imports, for new "Straits dolism" during a fixed period.

3. After such period, Government to declare the Straits dollar the only legal tender in the colony, and to demonetise all other dollars, and to rescind the prohibition of the import of such dollars.

4. Government then to sit tight, and stop coining until the fixed limit of value is reached, and then only be coin silver dollars in exchange for gold.

If we look at these measures we shall and that they are all very feasible. They will not put the Govern- ment to any expense worth speaking of, and will not put any undue obligation whatever on the Government;

K