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No. 128.

THE SECRETARY OF STATE to THE ACTING GOVERNOR. [Copy to Treasury, 1st June, 1906. L.F.]

At the same time I must ask that no special action (beyond giving out gold, as in paragraph 5 above) may be taken without reference to me.

I have, &c.,

ELGIN

19952

(Confidential.)

SIR,

[Answered by No. 146.]

Downing Street, 31st May, 1906.

I HAVE the honour to acknowledge the receipt of Sir J. Anderson's despatch, No. 31, of the 31st of January,* on the subject of the currency.

2. The action which has already been taken under Ordinance No. 1 of 1906 fixes the maximum value of the Straits Settlements dollar relatively to gold, since the Government are prepared to give 60 dollars against £7 in gold at Singapore, but it is still necessary to consider what measures should be taken to prevent the dollar falling below seven-sixtieths of a sovereign at Singapore.

3 When a considerable gold reserve has been established, the matter will present little difficulty, since gold will be given out in exchange for notes (when it is specially applied for) and the rate of exchange cannot, therefore, fall appre- ciably below 2s. 4d. at Singapore. But until such a gold reserve has been accumu- lated that the Government is in a position to give gold freely for notes, when so desired, the following course should be adopted.

1

4. It appears from the telegram sent by the Crown Agents to the Colonial Secretary on the 1st February that the cost of sending gold from London to Singa- pore, including freight, insurance, and all charges would be 15s. per £100. This is equivalent to 21 of a penny in the dollar, and if the charge for interest is added, say, for one month at four per cent., the total cost is approximately 3 of a penny per dollar. When, therefore, the London exchange rises to about 2s. 4d., gold may be expected to flow from London to Singapore. Assuming the charges for sending gold in the reverse direction to be the same, when exchange drops to 25. 33d, gold might be expected to flow from Singapore if a stock of gold existed there.

5. When exchange on London drops to 2s. 34d., or, say, for convenience and to leave a small margin, 28. 34d., the Government should give out gold in exchange for notes, if desired, to the full extent of its reserve. see no need to retain a margin of £100,000, as suggested by Sir J. Anderson, since the whole object of holding gold is to prevent exchange falling below specie limit. The gold would, of course, be given out at the rate at which it was originally received, i.e., £7 for 80 dollars.

6. If this measure is insufficient, i.e., if the supply of gold is exhausted and exchange still does not rise above specie point, it may become necessary for the Government to sell telegraphic transfers on the Crown Agents at the market rate. If at any time you consider that this or any other special action is desirable you should telegraph to me giving the facts of the situation and your grounds for thinking that Government operation on the exchange is necessary and likely to be

effective.

7. The charges involved by any such telegraphic transfers on London would be met by an advance from general revenue, and would be debited to the Gold Reserve Fund. The advance would be adjusted when gold was again tendered at Singapore. Meantime, the dollars realised by the sale of the telegraphic transfers would be held in the Gold Reserve Fund. I see no great objection to the sugges- tion of Sir J. Anderson that investments of the Currency Commissioners might be pledged, if necessary, to obtain accommodation in London, but the arrangement would, of course, be purely temporary.

8. I consider that the Government, in the general interests of the community, is bound to take all reasonable steps to prevent the value of the dollar sinking appreciably below the rate of 28. 4d. at Singapore, or the exchange on London sinking below the specie limit based on this rate-though there is no need, any more than in India, for the Government to give any undertaking in the matter.

• No. 115.

↑ See Enclosure 2 in No. 111.

No. 129.

THE ACTING GOVERNOR to THE SECRETARY OF STATE. (Received 2nd June, 1906.)

[Copy to Treasury, 10th July, 1906. L.F.] [Answered by No. 137.]

(Confidential.) MY LORD,

Government House, Singapore, 10th May, 1906. I HAVE the honour to address your Lordship regarding the working of the Currency Commissioners' Department since the passing of Ordinance I of 1908, and to submit such information as I have been able to gather respecting the cir- culation of our currency.

2. At the date of the fixing of the dollar (29th January) the note circulation amounted to $17,451,710 and the silver in the vault to $10,919,255, thus leaving in circulation, in the banks and Government Treasuries, a sum amounting to $24,455,026 in Straits dollars. It has been ascertained by the Treasury that on the 31st December, 1905, the holdings by the banks in the Colony and the Federated Malay States amounted to $10,513,575, of which $6,437,892 was held in dollars, $3,988,145 in notes, and the remainder in subsidiary coinage.

3. The returns.of the Registrar of Imports and Exports show an excess on the 31st December, 1905, of exports over imports of Straits dollars to and from the countries prescribed by the Order in Council of the 16th January, 1905, of $5,570,026, the returns from Sumatra alone showing an excess of exports to, over exports from, that country of $6,040,370. These figures are suggestive as to the balance of trade between the Colony and the other countries referred to in this Order.

4. Notwithstanding the complaints of stringency of currency made by some of the banks, no advantage has been taken of the provisions of Ordinance I. of 1906 for the issue of notes against telegraphic transfers in favour of the Crown Agents. The rate fixed by the Treasury for such transfers with a view to covering the cost of bringing out to Singapore the gold received by the Crown Agents was 2s. 4 d., which was considered by the Lanks too high a rate to give them any relief.

5. The bank rates of exchange have since fixity been slightly higher than the Government rate, and have been steady and uniform, the buying rates varying from 2s. 4 d. on the 30th January to 28. 44d. on the 3rd May, and the selling rates between 28. 4 d. and 2s. 4 d. on the respective dates. The price of silver rose from 30% at the end of January to 3011, and then declined to 29 about the middle of March, and rose again with some variations to 30% (3rd May).

6. Gold was first tendered to the Currency Commissioners in exchange for notes on the 30th March, and since that day the vault has been opened almost every day for the issue of notes and the receipt of gold. The deposit of gold in the vault now amounts to £238,721, equivalent to $2,046,180 at the fixed rate, the notes in circulation to $19,245,885 (giving an increase of $1,794,175 on the amount of the note circulation on the 29th January) and the silver in the vault to $10,667,260.

7. Notice has been given to the Treasury of further shipments of gold to Singapore, and it is not unreasonable to expect that in the course of a month or two the deposit of gold in the Commissioners' vault will have reached a total of £500,000. So far, no demand has been made for dollars in exchange for the notes issued against gold, and from the information furnished to me it is evident that the banks prefer, for the present at least, to have their holdings in notes rather than in silver. As an instance of this I may mention that when the three lakhs of small coin were removed from the Currency Commissioners' vault into the Treasury the Hong Kong and Shanghai Bank protested against the payment being made in notes to the Commissioners.

PUBLIC RECORD OFFICE

Reference :--

C.O. 882

9ALLY WITHOUT PERMISSION OF THE

PUBLIC RECORD OFFICE, LONDON

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