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PUBLIC RECORD OFFICE

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TTIC.O. 882

كسسلسا

7 PUBLIC RECORD OFFICE, LONDON

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APPENDIX:

APPENDIX 6.

MEMORANDUM BY MR. ROBERT CAMPBELL.

The commercial importance of Singapore is largely due to its position as a trade entrepot. A large proportion of the trade of the Straits Settlements consists of the produce and manufactures of other countries which meet there and change hands for re-export.

Singapore holds this advantageous position by reason of being a free port, where imports and exports are subject to no taxation beyond the cost of handling, and it is evident therefore that any measure which would tend to handicap trade, whether by direct im posts or in other ways, should not be lightly adopted.

This consideration deserves the closest attention in dealing with so important a trade factor as currency, Hitherto the Straits currency has been on a natural silver basis, the Mexican dollar and British dollar cir. culating at their intrinsic value. These coins also cir- culate in most of the neighbouring silver standard coun- tries, while the Mexican dollar is current in Hong Kong, Trade adjustments are thus rendered simple and easy, an importer who desires to take away cash for his produce, receiving payment in dollers, and an exporter paying in the same medium for the goods he takes away. Any change which would dislocate this simple system by in- troducing a new standard of value for the Straits Bettle- ments materially differing from that in force all around, especially if it placed an artificial value on the now coin materially in excess of its intrinsic value, would be a risky experiment, and might have a prejudicial effect on the foreign or external trade of the Straits.

The Report of the Bub-Committee of the Singapore Chamber of Commerce on Straits Currency, of November, 1897, suggested fixing the sterling value of the dollar at 2s, and for convenience sake I will assume that this is what is now aimed at. Whether this assumption is correct or not is of no consequence, the extent of the enhancement being only a question of degree.

I also assume that if a fixed ratio is adopted the our- rency would become a monopoly of the Straits Govern- ment-that the latter would probably sell its drafts in London on the Currency Department in the Straits at 2. per dollar for any amount required, buying and coin- ing silver to the extent necessary to meet such drafts, the supply of currency being thus regulated by the public demand.

Steps would no doubt be taken to prohibit the im- port of the Mexican or the prosent British dollar, but however stringent the measures taken it might be diffi cult to exclude them altogether, or to prevent their air- culating, although no longer legal tender. They might thus materially interfere with the circulation of the Government dollar and might lead to two market quota- tions, one for settlement in Government and the other in Mexican dollars.

The suggestion of the Sub-Committee of the Chamber that Government Currency notes should be issued in exchange for the coin taken over until the new coinage was ready, say in three or four months, might work well enough in Singapore itself, but would soaroely suit the country districts or outside territorios, trade with which might in the meantime be seriously interfered with, a consideration which becomes the more important if it is believed that the change of standard is in itself calculated to accentuate such an effect.

Supposing the change to be decided upon, a start would presumably be made by calling in the existing dollar circulation and coining it into the now dollars. On this operation no profit would accrue to the Govern. ment, although the holders of the old coinage would benefit by finding themselves in possession of a coin worth 26. instead of about 1s, 7d.

The question would then arise, who is to guarantee its value at 28. P It is only natural to suppose that on a sudden advance of the dollar from, say, 1s. 7d, to 25., there would be a more or less general desire to realise the profit, especially as 2s. being the top rate, nothing better could be hoped for. To prevent break-down at the outset it would probably be necessary for, the Straits Government to borrow gold to tide over what they might consider the transition period. They might hold the gold thus acquired in London and offer to draw

on London against it from Singapore at 2s., or they might send it out in sovereigns to the Straits, and offer to give a sovereign for ten dolları. In either case, to the extent to which this was availed of, the result would be that the new dollars would find their way back to the Government Treasury, leading to a corresponding diminution of currency in circulation, and a stringent money market. Would these conditions keep sterling exchange up to the point which would then enable the Straite Government in London to sell its drafts on Singapore, again releasing the currency from its Treasury, and further to continue to sell to provide for the silver purchases necessary to maintain the Btraits circulation at its normal volume? That I apprehend would depend entirely on trade conditions.

Fixity of Value. This cannot be established by a Government enactment alone. Government may declare a coin to be legal tender at a fixed ratio to gold, and debar all other coins from circulating as legal tender within its own territories, but to make this effective either trade must acquiesce in and support the ratio (as in the case of India, where a substantial gold backing to the 1s. 4d. rupes has been acquired through trade influ- ences alone), or a gold reserve must be created by borrowing, or by the profit made on the silver coinage. The first is the only condition under which true success can be attained. A success which can only be main- tained by repeated borrowing would really mean failure. The only true test of fixity of value at 2. per dollar in, Can 28. be got for it? If and so long as the Government undertook to give 28. for a dollar, the dollar would of course be worth 28. Should the Government decline or cense to guarantee this, the test would be to take ten dollars to an exchange bank and ask for a draft on London for a pound sterling. The bank's answer would depend on its ability to get profitable cover in mercantile bills on London sufficient to meet all such demands; or, in other words, on whether the trade would support the ratio. The moment that ceased to be the case, fixity of value would disappear. The effect on the currency would then show itself. If sterling exchange in Singa pore were to fall below 2s., nobody would pay 29. in London for Government drafts on Singapore; the Government would be unable to buy silver for coinage, the supply of currency would therefore be stopped, resulting in monetary stringency. Even if this condition were to become severe enough to temporarily force ex- change up again to gold point, a gold standard which could only be maintained under conditions of monetary stringency could not fail to be injurious to Straits trade.

The inquiry therefore resolves itself into the question, Will the trade of the Straits adapt itself to the proposed artificial enhancement of the dollar, or will the carrying out of such a measure be likely to have a prejudicial effect on that trade?

The maintenance of a gold standard in a silver-using country essentially depends on ita command of a favour- able trade balance. So long as its exports exceed its imports, assuming no foreign indebtedness, it can com- mand coin or bullion in settlement of the balance in its favour, and may elect to take part of it in gold in support of its standard, while on the other hand the trade balance in its favour frees it from the necessity of exporting currency, on which it would lose the difference between its artificially enhanced and its intrinsic value, A favourable trade balance, therefore, and the certainty that that condition will not be interfered with by the proposed change of standard, would appear to be essen tial to the latter's success.

An analysis of the trade statistics of the Straits Settle menta is far from showing this favourable condition. The figures of the total trade with both gold and silver standard countries, specie included, show a large annual excess of imports over exports. For the five years 1897 to 1001 the average annual excess is no less than 40,924,000 dollars. This excess is altogether in the trade with silver countries, which shows an annual average surplus of imports of 43,206,000 dollars, leaving for gold standard countries a small annual surplus of exports of 2,282,000 dollars. To the general excess of

COMMITTEE ON STRAITS SETTLEMENTS CURRENCY.

imports over exports will fall to be added the Straits Government's sterling charges, the annual profits on European capital of all kinds employed in the Straits, European family remittances, etc., which would con- siderably swell the adverse balance, and would probably quite wipe out the small favourable balance with gold Standard countries.

These figures are difficult to understand. It will scarcely be suggested that the Straits Settlements are in the position of a creditor country to an extent which would command an annual surplus of imports of over 40,000,000 dollars. Those who are more closely in touch with the trade of the Straits may be able to throw another light on the figures, but on the surface they do not seem encouraging for the successful establishment of a gold standard on an enhanced silver basis,

As regards specie, the excess of imports over exports for the seven years 1895-1901 averages 4,905,000 dollars

■nnually. Allowing for movements across frontiers, etc., which do not figure in trade returns, this probably does not indicate more than is socounted for by wear and tear and the needs of expanding trade.

Suppose the Straits Government were to adopt a coin of the same weight and fineness as the Mexican dollar, and make it legal tender at a sterling value of 2a,, while the latter coin could be had for, say, ls. 7d., how would such a step be likely to affect the trade with surrounding countries, Hong Kong, etc., where the Mexican dollar ciroulates at its intrinsic value? The effect of the oil- hancement of the Straits dollar would, of course, be a corresponding fall in prices there; in other words, the same quantity of produce would realise fewer dollars than formerly. Would the produce of the neighbouring territories continue to be sent to Singapore to be ex- changed for fewer number of dollars than could be got for it, say, at Hong Kong, the dollar in each case being of equal intrinsic value? It may be argued that if pro- duce brought fewer dollars in the Straits the dollar's purchasing power there would be correspondingly in creased all round, and the seller of produce would get the advantage in his purchases of "commodities. He night, however, not be a buyer of other commodities,

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and, in any case, would probably wish to take part of the proceeds home with him in cash. He would natu- rally object to take Straits dollars which outside the Straits Settlements would have no more value than Mexicans. In 1901 the balance of export of dollars from the Straits to other silver-using countries (in- cluding 4,775,000 dollars to protected States), amounted to 11,663,000 dollars. To expect that instead of Maxican or British dollars at their intrinsic value, this large annual balance will be taken in a lesser amount of appreciated Straits dollars would be a dangerous Assumption. Outside merchants would be strongly tempted to seek direct relations with the European markets or to send their produce to places such as Hong Kong, where they could get its full dollar value. With the Mexican dollar available at Hong Kong, it might prove a dangerous experiment in the interests of the trade of the Straits Settlements to endeavour to force on her customers in the neighbouring territories a new and overvalued coin. Even the people of the protected States might be disposed to resent what they might look upon as an attempt to get their produce from them below its proper price, and try to find a better market elsewhere. The result might thus prove to be a marked diminution of the volume of trade and of the pros- perity of the Straite Settlements.

One important result of a sudden artificial enhance. ment of the purchasing power of the dollar would be a disturbance of the status quo between debtor and creditor. A debtor depending on the sale of his gooda or produce to meet his obligations would be injured by the sudden fall in prices, while the creditor would benefit by the greater purchasing power of the dollar he received. This is at least a reason for being well satisfied of the merit and practicability of the change before adopting it.

In speaking of a 2s, dollar and of Government draw- ing at 2s., etc., I, of course, do not mean a rigid 28. rate of exchange. In actual operation the dollar exchange might and would fuctuate a small fraction under and over that figure according as currency tended to flow out or in.

1st December, 1902.

R. C.

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APPENDIX: