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PUBLIC RECORD OFFICE

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C.O. 882

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ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH---NOT TO

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2. The whole matter hinges upon the favourable price which the Indian Government were prepared to pay for the dollars, and it would appear that the Hong Kong and Shanghai Bank was aware of this and that the Colonial Govern- ment had not the same information. The quotation furnished by our brokers in June last does not apply, as the quotation had reference to refinement here in respect of coin sent to this country for disposal.

3. If the business had been entrusted to us the Colony would have had the advantage of the same information as the bank possessed and this confirms the view expressed in our previous letter that London may usually be relied upon to afford the best market for negotiating such business. I may remind you that in our telegram of the 6th June we advised the Colonial Government not to ship This advice was coin to this country without previous communication with us.

given because we were aware that opportunities might arise of selling coin on advantageous terms for shipment direct to India.

4. We are unable to understand the last paragraph of your letter. It appears to us obvious that the Colonial Government lost interest by the manner in which the payment for the coin was effected.

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SIR,

No. 228.

TREASURY to COLONIAL OFFICE.

(Received 11th December, 1907.)

I have, &c.,

E. E. BLAK.

[Copy to Governor, 8th January 1908. Confidential. L.F.]

[Answered by No. 228.]

Treasury Chambers, 10th December, 1907. WITH reference to Sir C. P. Lucas's letter of the 24th May last (18171/07),* and previous correspondence, on the subject of the re-coinage by the Royal Mint of the Straits Settlements dollar currency, I am directed by the Lords Commis- sioners of His Majesty's Treasury to acquaint you, for the information of the Seare- tary of State for the Colonies, that they have been in communication with the Master of the Mint on the subject of the rates to be charged to the Straits Settle- ments Government for the coinage of half-dollar pieces.

The Master of the Mint proposes to charge (1) for re-coining Straits Settle ments dollars and half-dollars (old) into half-dollars of 156 grains each, £890 per million new pieces, and (2) for striking 156 grains half-dollars from blanks supplied by the Birmingham Mint, £100 per million pieces. My Lords see no reason to dissent from these rates, which are based on calculations similar to those on which the rates for re-coining the dollar pieces were recently fixed; but, before giving their sanction to them, they would be glad to know if the Secretary of State for the Colonies has any observations to offer on the matter.

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SIR,

No. 227.

I am,

&c.,

W. BLAIN.

CROWN AGENTS to COLONIAL OFFICE.

(Received January 3, 1908.)

Whitehall Gardens, London, S.W., 2 January, 1908. I HAVE the honour to acknowledge the receipt of your letter of the 4th of November, No. 37810/1907,† requesting our observations on a despatch from the

‡ No. 222.

• No. 215.

↑ No. 224.

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Governor of the Straits Settlements as to the manner in which the Depreciation Fund of the Commissioners of Currency has been invested.

2. In reply, I beg to say that the Governor is under a misapprehension in supposing that there is any rule requiring the investment of the Depreciation Fund in consols, and that in investing the whole of the fund in consols we have exercised the general discretion which is entrusted to us in such matters.

3. In arriving at the conclusion that consols were the best investment for the fund, we have been actuated by the following considerations. In the first place, wo have considered that being a Depreciation Fund it was desirable that the investments in the Fund should, if possible, be of a higher character than those in the principal fund (Commissioners' of Currency Investment Fund). Secondly, it appeared to us that to invest the Depreciation Fund in exactly the same class of securities as the principal fund was to emphasise the absurdity of the existing system by which two separate funds are kept where one fund would answer all requirements. thirdly, it appeared to us that consols were, upon the whole, a better investment than any other form of Imperially guaranteed security.

And

4. The Governor is quite correct in his statement that recent experience has shown that consols are not less liable to fluctuations than other gilt-edged securities, but the reasons for this state of things have been repeatedly explained in the many letters we have had occasion to write to the Colonial Office and to the Colonial Government with respect to the financial and loan requirements of the Colony. Briefly stated they are as follows:-During the war in South Africa large masses of consols and other Imperial Government securities were created, and the creation of such securities still continued after the close of the war although in diminishing quantities. Simultaneously, various Colonial Governments and municipalities which had been unable to raise loans during the war issued loans aggregating together very large amounts, and at the same time a highly active state of trade existed necessitating the use of large sums of money. As a consequence the money and stock markets became congested with large masses of securities which they had been unable to pass on to the public, and which, therefore, had to be financed by monies borrowed from the banks at much higher rates of interest than the securities themselves carried. In the result a severe depreciation of all securities, and more especially of those bearing a low rate of interest, set in, and consols, as bearing the lowest rate of interest, suffered the greatest depreciation, reaching, in the course of last summer, to the record low figure of 804 per cent.

5. This state of things at last brought home to the Government of this country the serious position of affairs, and the Chancellor of the Exchequer announced in the House of Commons last summer that no further borrowings would take place on the part of the Government, and that strenuous steps would be taken by means of a large sinking fund to endeavour to improve the price of consols. The effect of this announcement was at once felt. Consols ceased to fall in price, and have remained fairly steady throughout the period of financial stringency which has existed during the present autumn, and the general opinion is held that consols have reached the bottom figure, and that henceforward an appreciation of price may be expected.

6. In these circumstances it appears to us that further investments which may have to be made for the Depreciation Fund should continue to be made in consols. We go even further, and are of opinion that consols are an eminently desirable investment at present prices for any funds which bold consols bought at higher prices, and that the present opportunity should be availed of to lower and average the price of existing holdings by buying largely at the present low, and as we believe bottom, prices. We find ourselves, in fact, in the following position: that whereas in 1902-3 we deprecated the almost exclusive purchase of consols then advocated by the then Governor, Sir F. Swettenham, when the price was about 95 per cent., we now much more strongly deprecate refraining from buying consols advocated by the present Governor, Sir J. Anderson, when the price is 82-83 per cent.

7. There are, however, certain other and wider considerations, which we do not think can have been present to the Governor's mind when he wrote his present despatch. The two funds which form the reserve of the Currency Commissioners are liable to be called upon to meet at any moment a run against the note issue in the Straits Settlements, and it is essential that the funds should hold a considerable proportion of securities which may be relied upon to be realizable in a time of emergency. The only security, however, which can be relied upon absolutely to

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