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APPENDIX:

APPENDIX, No. 15.

Sundry Notes on the Question of Placing the Currency of the Malay Peninsula on a Gold Basie. (By Mr. CHANTREY INCHBALD, representative in London of the Russo-Chinese Bank).

The suggestion to send in a memorandum on the above subject having only come to me after the taking of verbal evidence had already been closed by the Straits Currency Commission, I am at the disadvantage of writing against time.

I propose, therefore, to pass over altogether, or touch very lightly upon, those pros and cons which are certain to have been alrealy placed before the Commission by the various witnesses who have been examined, and to limit my notes to points of view which are less likely to have been brought forward.

Note 1. The immediate cause of the recent fall in the

price of silver.

As a starting point, I would like to draw the attention of the Commission to the history of silver during the past five years. Firstly, because that history contains the fons et origo mali, the cause of the more immediate troubles of which the Straits merchants complain; and, secondly, because it also shows that there is to- day a strong factor working for steadiness in the silver market which did not formerly exist, and which has not perhaps received sufficient attention.

If we look at its gold price during the past 4 years, from June, 1898, onwards, we cannot but be struck by the fact that over nearly the first two years of that period silver only fluctuated within 3 per cent. of a central price of 27 d., whilst in the third year, 1900, it rose suddenly to 304d., only to gradually fall away ever since, until to-day's quotation is as low as 21. per ounce.

The steadiness during the two years from June, 1898, to June, 1900, was undoubtedly due to several of the large smelting works of the United States having formed themselves into a syndicate for the purpose of keeping the price of silver at a fairly steady level; adjusting the supply on the London market week by week to the demand, and thereby preventing, as far as lay in their power, violent fluctuations. This syndicate is known as the United Metal Selling Company, of New York; and during the two years I have mentioned their efforts were crowned with a very fair measure of success; in fact, had it not been for an event which completely upset all calculations, I believe the more or less steadiness of those two years might have been continued to the present day. The price might have fallen, but the fall would have been so gradual as to interfere but little with trade, whilst it is doubtful if the extent of the decline would have been anything approaching what we have actually scen.

This unforeseen, upsetting factor was the buying by the Indian Government in a single year (from March, 1900, to March, 1901) of no less than half the average annual supply on the London market, viz, some £6,000,000 worth of silver, being their first purchases since the closing of the Indian Mints in 1883. During the first six years of the 1s. 4d. rupee. the Indian Government only accumulated about £1,500,000 of gold; whereas, in the next following year, gold was tenderel to the extent of some £6,000,000 to £7,000,000; the stock of coined silver rupees in the Treasury being thereby rapidly diminished, until, in October of 1900, with the active export season approaching, there were only some eight crores of silver coinage left to meet ny further gold tenders; and this in spite of the fact that the Indian Government had already in the spring of that year purchased about £2,000,000 worth of silver for coinage. What then happened is well known; the Chambers of Commerce and the exchange banks pointed out to the Government the extreme gravity of the monetary situation, and petitioned them to safeguard their position by further urgent purchases of silver for coinage. Over the remaining five months of the Indian

financial year,

the Treasury bought a further £4,000,000 of silver, making a total of about £6,000,000 in a single twelve months.

Under pressure of this kind, any attempt to keep a level of price was impossible. Silver, under the in fluence of the first purchase of £2,000,000, rose from 274d. in March, 1900, to 284d. in June; remained at about that level throughout the summer, and then, when the Indian Government again began buying in the autumn, the price rose further from 284d. in Septem. ber to 30 d. in October; the market, apart from the bona fide demand, being also inflated by wild speculation. As the purchases of the Indian Government slackened, the price began to fall; and, when they altogether ceased the downward movement was accelerated, and has continued uninterruptedly to the present day. In the meantime the confidence that silver had found its level for the time being (engendered by the steadiness of the years, June, 1898, to June, 1900), had com- pletely disappeared; and, up to now, the syndicated smelters of New York have been quite unable to regain the control of the market which they undoubtedly beneficially exercised during the two years immediately preceding the action of the Indian Treasury.

But this controlling influnce still exists, ready to be used when the opportunity comes. The London agents of the syndicate (which was reformed and considerably strengthened some eighteen months ago) are Messrs. C. S. Henry and Co., Limited, of 12, Leadenhall Street; and the views of Mr. Charles Henry, the senior partner in London, would be of the greatest interest.

The foregoing leads me direct to:

Note 2-One of the most important dificulties in deciding on any particular basis of exchange fixity. Supposing, for the sake of argument, that Mr. Bryan had been returned as President of the United States when he first offered himself for election some six years ago; and supposing as a direct consequence of such election that silver had been brought into greater use as money in the United States, and that the price had risen to over 45d. per ounce.

It is clear that, under such circumstances, the silver in a rupee would have been worth more than 16d.; that it would have therefore paid to throw them into the melting pot; and that the Indian Government would have had to contemplate a sudden serious con- traction of currency.

This consideration, as applied to India, may be far- fetched, but is it so when applied to the question of the Straits currency 1 It is hardly possible, I think, to go back to a past and much higher value of exchange; the basis of fixity, in order to disturb existing conditions of trade as little as possible, would presumably be not much above existing quotations; in fact, ls. 8d. seems to recommend itself as a fair rate.

But what guarantee hay we that there will not be in the future a rise in silver to a price at which it would pay to demonetise any such new Straits coinage? The Indian Government may be forced to make another sudden raid on the London silver market; China may, as a possible, if not probable, contingency, be later on allowed to carry out her proposal to collect export and import duties in gold, and such collection might opn- ceivably place her in a position to bring out a fresh loan in Europe, and thereby, under a fresh arrange- ment with the Powers, in large measure relieve the silver market of its greatest incubus at the present moment, viz., the payments by China of the half-yearly instalments of the war indemnity. The United States are not far off from having to resume silver purchases for coinage to meet the needs of a rapidly expanding

COMMITTEE ON STRAITS SETTLEMENTS CURRENCY.

circulation; and it may even be found that, at the present level of prices, a large proportion of the silver mines may be no longer able to pay their way.

In a word, where would the Straits Government find itself if, having called in the present currency—an absolute sine qui non, in my opinion, to the success of any scheme providing for exchange fixity-having deinouetised it, and reissued in its place a special 18. 8. coin, the silver in that coin rose in value to, say, 28.7 All the controlling machinery in the world, Customs or otherwise, would not enable the Government to prevent the new currency from disappearing out of circulation from the moment that the silver in it was worth considerably more than its face value.

The rupee may be safe from any such contingency, but I cannot see the same security as regards a new Straits coinage, unless its face value is put so far above the intrinsic value of the silver in it as would clearly make the change inimical to the entire commerce of the Malay Peninsula.

I should not like to turn to a larger consideration of the question as concerning British interests from a general standpoint, and no longer from the specific one of a single component part of the Empire.

Note 3. The probable immediate effects of the Straits

currency being placed on a gold basis.

I believe I am right in saying that, during the 33 years preceding the closing of the mints, India ab- sorbed an average amount of £7,000,000 sterling worth of silver; whereas since the closing of those mints sho has only taken an annual average of about half that

amount

The deduction is that we may see a similar falling-off in the consumption of silver in the Straits, should their currency be also placed on a gold basis, with more or loss fixity of exchange.

Such falling off in consumption can only mean a further heavy fall in the price of silver; and the question arises whether the Central Government of the British Empire can afford once more to place the interests of any one individual part of that Empire in front of other equally important British interests else- where.

A further decline in silver cannot but be prejudicial to Manchester, to the Bombay cotton milis, and to much other British export trade to the Far East. It means a further diminution in the value of the hoard. ings during countless years of our Indian subjects: in the value of the silver bangles and other ornaments which the very poor have still managed to retain after the recent years of Indian famine. It will hit more and more hardly the Colonial Government of Hong Kong and all British residents there, in Shanghai, and through- out the Treaty Ports of China. It will hit, perhaps, hardest of all those who have thought, after a life of work in the Far East, that they had enough to live upon at home, and who have come back to the old country, and are to-day living on an income derived from their investments in China. What those investments be gathered in part from the enclosed lists* of Hong Kong and Shanghai stocks;

lifetime and many whose savings of &

are in- vested therein are hoping against hope that they will be saved from a still further diminution of the income on which they have retired (or are hoping to retire), and which is already reduced to a mere pit- tance in reward of a lifelong exile. Surely they also have some right to be considered in the question that has been placed before the Straits Commission; for they, as also tho natives of India, are members of the same Empire under the same paternal Home Govern-

amount to Can

ment.

An immense amount of British capital (aggregating many millions of pounds sterling) is invested and em- ployed in the shipping of the Far East; in landed pro- perty, and in local industries. A further fall in silver would further depreciate such invested capital in Hong Kong and at all the Treaty Ports in China.

The remaining points which occur to me I will men. tion very briefly, for they are almost certain to have been already brought before the notice of the Committee. Note 4. Further considerations against a change to

gold basis.

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country, in spite of all the remarkable skill and ability with which the gold standard was originally introduced. (2) But for India's gold indebtedness to the mother country, it is hardly conceivable that she would have closed her mints to silver. The Straits and Federated Malay Statos have no gold debt, and cannot even com- plain of trale being dull or unprofitable. On the con- trary, during the past ten years, the entire Malay Peninsula has developed its commerce in one continued forward movement of chronic prosperity, and there are no signs whatever of this prosperity being in any way on the turn. As far as I know, the year just closed has been no exception to the general rule.

(3) Do the merchant firms who have signed these petitions realise that fixity of exchange may not impro- bably mean a very much increased competition, and a cutting down of margins to a point which may take away all the imagined advantages of the gold basis they are asking for?

(4) It is noticeable that since the Commission was appointed the Committee of the Hong Kong Chamber of Commerce has by a unanimous vote decided against the advisability of any alteration of their monetary system.

I notice, too, that the feeling in the Straits in favour of a gold basis is by no means universal: for the "London and China Telegraph," of the 19th January, has a para- grapli, page 41, to the effect that "the Miners' Associa tion discussed the currency question at a meeting at Kuala Lumpar, and passed a resolution in favour of holding on to a silver basis.”

(5) Should the Straits Settlements and Federated Malay States adopt a gold basis, it is almost certain that the French Government will legislate in the same directin for their Colonies in Indo-China. In fact, if the "Siam Free Press " is to be credited with accurate in- formation, the sole reason why Siam took this sudden plunge for gold was to forestall the Straits Settlements and Indo-Chins, because it is alleged that, if they, the Straits and Indo-China, took the lead, Siam's financial position would be irretrievably ruined." (Tide" London and China Telegraph," of the 12th January, page 21.)

In conclusion, even if the evidence put before the Commission has convincel the members that it is both expedient and practicable to legislate for the putting of exchange on a more sable basis, is it not exceedingly doub-ful whether this is quite the right moment to carry any such change into effect?

Personally, I think it would be wise to remember the excellent maxim "Festina lente," and for this reason. The more recent fall in silver, say below 23d., may have been very largely due to sentiment and irrespon aible newspaper talk. It has appeared over and over again in print that (1) Mexico, and (2) the Straits, would decile in the near future for a gold basis of currency; these statements have created lack of confidence, and have helped to produce a panic; all buyers have con- fined purchases to their absolute necessities, and silver has become a medium for bear speculation.

It is clear to-day that Mexico does not contemplate at the present moment any immediate change in her currency laws. Let it be made equally clear that the Straits Government has also no present intention of tampering with the existing money system, and silver would in a very short time find once more its approxi- mate level of price, a level which, as I have endeavoured to show, the Smelters Syndicate actually did arrive at, and at which their controlling influence kept the price for a period of no less than two years, from the spring of 1898 to the spring of 1000, when the Indian Govern- ment upset all possible equilibrium by their sudden large purchases to save a threatened shortage of the silver rupee coinage.

Would it not be well to give the merchant firms of the Straits an opportunity of reconsidering the whole question, having placed before them the various argu- ments for and against, the advantages and disad vantages, the simplicity on the one side of signing a petition in favour of a gold basis, and the extreme diffi culty on the other of successfully carrying such a sug- gestion out. The Malay Peninsula has managed un- commonly well in the face of a fluctuating exchange during the past quarter of a contury, and there surely can be no such very pressing need for a sudden and immediate and radical change in its monetary system.

Should the mercantile communities, after reviewing the whole question calmly and dispassionately, still think this question of exchange an intolerable burden, it would be time enough then. I submit, to inaugurate an era of exchange fixity, which, whatever its ultimate

• Not printed.

(1) Japan's going on a gold basis can only be con- sidered up to the present as a qualified success. In fact,

at one time it has seemed doubtful whether she could retain her gold; and it is conceivable that events may yet in the future produce a monetary crisis in that

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