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APPENDIX:

30. The Straits Settlements are a business entrepôt and a great distributing centre for the trade of the adjacent countries, while the principal ports-Singapore and Penang-are free ports in every respect. They enjoy also good trading facilities, but hitherto no regularly organised Customs service has been estab lished. This absolute freedom has contributed in no small degree to the gradual expansion of the commerce of the Straits and the Malay States, and to the general prosperity.

31. The Straits Government on 26th June, 1902, had dollar notes in circulation throughout the Straits and the States representing a face value of $12,305,000. In his recent annual address to the Legislative Council, the Governor of the Straits said:-

"On 1st May, 1899, notes were first issue. On the 1st January, 1900, the face value of the notes issued amounted to $4,165,000. By the 1st January, 1901, the amount had risen to $6,205,000. On the 1st January, 1902, the amount was $9,476,000, and on 26th June, 1902, the notes in circulation represented a face value of $12,395,000, at which figure the circula- tion has remained, the Treasury stock of notes being exhausted.

It seems probable that if no limit

is placed on the note issue, the normal circulation will not be less than $20,000,000."

Since the British dollar was legalised in 1804 the amount of silver coined at the Indian Mints into British dollars and shipped to the Straits Settlements and the Further East has aggregated, according to the latest official returns, upwards of $141,000,000.

32. The fluctuations and the decline in the gold price of silver are most inconvenient to Europeans, to traders, to merchants, and to all who have to make remittances to Europe, but do these disadvan- tages outweigh the benefits of a supply of the cir- culating medium sufficient at all times to meet the needs of commerce? Asiatics form about 99:12 per cent of the population of the Straite Settlements and 99.80 per cent of the Federated Malay States. They will assuredly be reluctant to accept a new coinage the silver in which is worth less than the intrinsic value of the coin.

33. The proposal to follow the example of India and to place the currency of the Straits Settlements on a gold basis might on the surface seem expedient, but the difficulties in the way of effecting such a change in territory situated like the Straits and the Malay Btates is much greater than, and the circumstances are elifferent in many respects from those which obtained, in India.

34. If it can be demonstrated that a change from the silver to a gold standard with a limited silver cur rency and Government note issue is expedient in the interests of the Straits Settlements and the Malay States, and will be conducive to their economic wel- fare, then the gold standard to be established should be effective and thorough. What the expense of effect- ing the change in the standard may amount to is quite impossible to accurately estimate, but by whatever method it is made, the cost will certainly be great. The change should be carried out by the Government, as it will be made in the interests and for the presumed benefit of the public and commerce of the Straits and the Federated Malay States; and as, moreover, the Government will derive the profit on the coinage of the new dollar, all the necessary expenditure to be incurred should be borne by the Government. Obligations and contracts entered into previously to, and current at, the time when the standard is changed should continue to be payable in the old standard silver dollars. That individuals, corpora tions, or any one or more sections of the community should suffer loss through the change would obviously be inequitable. For the Government to demonetias the present money without redeoming it would be unjust to the holders. The European population in the 8traits and the Malay Staten is 78 of 1 per cent, and 20 of 1 per cant., respectively of the total would no doubt protest against such an injustice. Having had a lengthened experience of the Chinese and Malays who form an over- whelming percentage of the population, I entertain grave apprehensions whether riots might not ensue, and large numbers of the natives possibly rise in revolt against such injustice as would be involved by de- monetising the present money and not redeeming it on a fair basis. To compel individuals or corporations to bear any portion of the loss would be nothing short of State robbery.

35. To insure that the change in the standard shall be effective, it is imperative that the Government should gradually withdraw from circulation

the silver dollars now in use in the Straits and the Malay States, and substitute a new dollar with dis- tinctive marks and effigies completely different from the Mexican and British dollar. If the Government does not withdraw the old when introducing a new coin- age, to which it is giving a gold value higher than its commercial value, a large number of the British and other dollars now circulating in adjacent countries would assuredly be smuggled back into the Straits and the Malay States, and to permit the possibility of false dollars being imported would defeat the object in view, viz., to limit the number of dollars in circula- tion in the Straits and the Malay States, such restriction and limitation being an inseparable condition of giving them a fixed artificial gold value to the dollar. Whether the new coinage is given the name of the Straits dollar or whatever other title is not material, but it appears indispensable that the coin itself, as well as its name, should be different from any of the present dollars.

36. The Government of the Straits Settlements can- not escape from the circumstances by which it is sur- rounded, and the fact has to be faced that there are British and Mexican dollars to the extent of hundreds of millions now circulating in the adjacent islands, in the Colony of Hong Kong, in Indo-China, in China, and in the Philippine Islanda, similar to and of the same weight and fineness as the British and Mexican dollars which are now legal tender in the Straits and the Malay States.

37. A large proportion of the silver dollars now in circulation in the Settlements and the States should be withdrawn by Government from circulation, demonetised, and redeemed on an equitable basis BO soon as the new dollar is ready to be issued. importation of dollars beyond those

The

route to

the Straits, and the further amounts required to fulfil contracts already legally entered into for immediate and forward delivery when the standard is changed, should forthwith be prohibited. To effectually stop the further importation and the smuggling of Mexican and British dollars into the Straits, the creation of a Customs' service or the equivalent thereof will be necessary. When a sufficient amount of the new coin- age for currency requirements on the restricted basis has been issued, the Government should give notice that after a certain given date, the old dollars still remaining in circulation would be demonetised and redeemed on a just basis.

38. The Government should possess the exclusive power to coin the now dollar, to limit and restrict its issue, and should be the only legal agency through which it may be issued or exchanged for gold. The new silver dollars should be unlimited legal tender, in the same way as the dollars of the prosent standard; as the natives would be unable to understand any alterations in those conditions, and would lack con- fidence in the new standard.

39. It might be well to bear in mind that if the Straits Settlements do change from the silver to a gold standard, the decision will almost certainly cause a further serious fall in the gold price of silver. What ratio the new dollar should have to gold requires most serious and careful consideration.

40. If the new dollar is to be given a fictitious gold value of 2s. the equivalent gold price of silver would be about 28d. per ounce as against the present market price of about 22d. per ounce, which makes the dollar worth about la. 7d. For the Legislature to instantly impart a value of 2a. to a coin whose intrinsic value is about 18. 7d., would be to cause an immediate increase of 27 per cent. in the present measure of value. Any such violent change would cause serious disturbance in the relations existing between debtors and creditore to the extent of involving many persons now solvent in grave fitencial difficulties, if not in bankruptcy.

41. If the new dollar were given a fixed gold value of la 8d. the equivalent gold price of silver would be 23. per ounce, as against the present market price of about 22d., which produces the dollar at la 7d. This would only cause an increase of about 6 per cent. in the present measure of value, to which commerce would sooner or later accommodate itself.

COMMITTEE ON STRAITS SETTLEMENTS CURRENCY

42. But if for reasons now unforeseen and unknown, the new dollar was given a fixed gold value of ls. 8d., and if the gold price of silver in the world advances from 224. per ounce, or about 1s. 7d. per dollar, to, say, 28d. per ounce, or about 2a. per dollar, a largo proportion of the silver dollars in circulation in the Straits and the Federated Malay States, whether of the old or the now standard, would be sent to markets in which they could be disposed of at a handsome profit to the holder as compared with their gold value in the Straits, even if Govern- ment imposed a duty on the export. No machinery or preventative service would effectively stop the exodus of dollars across the Straits and the States frontiers, and in every probability a monetary crisia would ensue. The great efflux and influx of Chinese and natives would alone tax the powers of the Customs to the breaking point. Upon the application of the Chambers of Commerce and the Exchange Banks, the Indian Government found it necessary during 1900 and 1901, to purchase bar silver to the extent of about £6,000,000 for coinage into rupees to meet the require ments of trade, and thus a monetary crisis was averted, These purchases were mainly instrumental in causing an advance in the price of silver from about 27d. to 30d., or an increase of 11 per cent. It is not unlikely that the Indian Government may have to repeat the opera- tion to a greater or less extent, and the American Government may at no distant date also be required to resume purchases of silver for coinage purposes. When buying is resumed the price of silver will advance.

43. Great Britain's share in the foreign trade of China is still larger than the aggregate of all the other foreign Powers put together. China is still on the silver standard, and still collects her revenue in silver, but she has borrowed largely in gold, as sufficient loans in silver to meet the Government's requirements could not be obtained in China, and consequently now suffers enormous loss through the serious fall in the gold price of silver. Should any further substantial decline tako place owing to the monetary policy of the British Govern- ment in the Straits, the Chinese Government will suffer a further loss, and will probably become so embarrassed as to be forced eventually to collect export as well as import duties on a gold basis Such a course of action would only be adopted in self-defence, because China will not willingly begin to contemplate repudiation or even delay in the repayment of her foreign indebted-

nese.

At present it is scarcely possible for the Imperial Chinese Government to adopt a gold standard. The outlay required to make the change of standard effective would in all probability prove prohibitive. It might be anything between £20,000,000 and £50,000,000.

44. The divergence between gold and silver is not unnatural. One country after another since 1870 has degraded and legislated against silver in favour of gold. Any increased divergence between the two metals must cause further estrangement to commerce between the Western and Eastern hemispheres. In all pro- bability it would seriously injure, if it does not alti- mately destroy, the trade in British and Indian manu- factures with China and the few countries still remain-

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The fall in gold price

ing on the silver standard. of silver is a grave calamity to British and Indian com- merce and industries, and inflicts most serious loss on the colony of Hong Kong, the Government there having in recent years raised loans in gold for public works while its revenue is collected in silver, though it could have borrowed in silver locally at a higher rate of in- terest.

45. As to the desirability of fixity of value in the monetary standard there can be doubt, and after nearly six years of trial the new monetary experiment in India has given fixity to the gold value of the rupee. But it does not necessarily follow that a similar experiment in the monetary standard in the Straits and the Malay States will be attended with the like result within the same period of time. The local circumstances are so very different that the experiment would be tanta- mount to a leap in the dark. Should it be decided to give the proposal a trial, previous experience teaches us to regard as inevitable that a further serious fall in the gold price of silver would take place, and that would adversely affect tens of millions of His Majesty's subjects in British India who have already endured loss by the closing of the Indian Mints, whereby the value of their silver hoardings has been materially reduced, with painful effects, in years of famine. Other calamit ous results would ensue, and in all probability the French Government would be led to alter the monetary standard in Indo-China also from silver to gold.

46. Whether the welfare of the population and the commercial prosperity of the Straits Settlements and the Federated Malay States would be promoted by a change from a silver to a gold standard, with a limited silver currency given an artificial gold value, is extremely doubtful. I do not think it would be judicious to venture on an experiment the outcome or cost of which cannot be gauged with any degree of ac curacy. The present does not appear to be an oppor- tune time to make any change. On economic grounds it would not seen to be wise, because economic law possesses superior force to law enacted by any legislative assembly. I believe the results which would ensue the change would be most injurious to Imperial British interests.

This conclusion has been arrived at after careful con- sideration of all aspects of the extremely complicated problem, and of the far-reaching consequences insepar- able from the proposed change.

47. Attached is a copy of Section Nos. 56 to 60 of the report of the Sub-committee appointed by the Com- mittee of the Singapore Chamber of Commerce, "to inquire into the local currency with a view of calling attention of Government to the question of converting the Straits currency to a gold standard," and dated Singapore, 6th November, 1887.

T. H. WHITEHEAD.

Hatton Court,

Threadneedle Street,

London, E.C. 16th January, 1903.

See Appendix 17 (p. 109).