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PUBLIC RECORD OFFICE

Reference:

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THILLICO. 882

PUBLIC RECORD OFFICE, LONDON

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

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Enclosure in No, 240.

CROWN AGENTS to COLONIAL SECRETARY, 21st February, 1908.

We have received £17.041 1s. 7d. from Union Bank. Is it on account of current requirements or Government Note Issue Depreciation?

COLONIAL SECRETARY to {'ROWN AGENTS, 22nd February, 1908.

In reply to your telegram of yesterday's date. Government Note Issue Depreciation

8387

SIR,

No. 241.

MR. JO ANTHONISZ to COLONIAL OFFICE.

(Received March 9, 1908)

[Answered by No. 243.]

Beverley, Richmond Road, Twickenham, 8 March, 1908.

In accordance with the request* of the Governor of the Straits Settlements, I interviewed Mr. Abrahams, of the India Office, and Sir Ernest Blake, and I have the honour to submit a memorandum to serve as a basis for discussion. It would be advisable to settle beforehand with the Crown Agents the particulars of the information required before approaching the India Office.

I have taken my passage by the mail leaving Marseilles on the 3rd April, and I can hold myself at the disposal of the Crown Agents until the end of the month.

Enclosure in No. 241.

MEMORANDUM.

I have, &c.,

J. O. ANTHONISZ.

As I understand it, the position in Singapore is as follows:-

1. The Currency Commissioners have been selling telegraphic transfers on the Crown Agents to the banks to a large amount (£600,000, Sir Ernest Blake tells me) with the object of contracting the currency and raising the rate of exchange. The Governments of the Colony and Federated Malay States have, on the other hand, I presume, continued to follow the usual practice of buying from the banks their remittances to London. This practically amounts to the Government buying back a part of their sales at a dearer rate. If the latter operation had been merged in the former, the payment of the bankers' profits would have been saved and the currency would not have been enlarged by the payments made to the banks for these remittances.

2. In the Straits Settlements and Federated Malay States all remittances for current expenses by the Crown Agents, investment of surplus revenue, adjust- ment of money orders, the Currency Commissioners' investment and depreciation funds, and for the Tanjong Pagar Dock Board's home expenditure, are made through the banks, usually through the medium of brokers, who receive a commission of

per cent, from them, and the bankers' profits cannot be less than 1 per cent.

3. I am informed that in India the Government has entire control over exchange operations and acts as the Exchange Bank. No remittances are made through the ordinary banks and there has been no occasion to sell telegraphic transfers to the banks there with a view to contract the currency and bolster up exchange.

The enormous disbursements in England of the Government of India, and the immense gold reserve which it is necessary to maintain here for that purpose, seem to be sufficient to secure the ends which the Straits Settlements Government has attempted to attain by the sale of telegraphic transfers on the Crown Agents.

4. Since fixity, the Government has debited the costs of all remittances at 28. 4d. Any profit made is credited to revenue, and any loss debited to expenditure.

* See No. 239.

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It was suggested by me that the profit and loss on these remittances should be carried to the Gold Standard Reserve Fund, but the suggestion has not been approved. In accordance with the Secretary of State's instructions the profit and loss on the Currency Commissioners' remittances are carried to the Gold Standard Reserve Fund Account.

5. The time appears to have arrived for the Government to acquire a fuller control over exchange operations and to release itself from its dependence on the banks so far as its own remittances are concerned. The Government would then keep the premiums realized on exchange sales, which now go to the banks, and thus strengthen the Gold Standard Reserve Fund. The main objection that the Colonial Government is not possessed of the necessary machinery for the conduct of a general exchange business will not apply here, and need not be considered. So far as the public are concerned the Government has already announced its intention of intervening only when the dollar is unduly inflated or depressed.

6.

Another argument in favour of the Government remitting through the Currency Commissioners will be that the money need not be thrown on the market and that it will be an additional help to the Currency Commissioners in the direction of restriction.

rate

7. I think that all applications for remittances by the Colony, Federated Malay States, and Tanjong Pagar Dock Board should be made to the Currency Commissioners and not to the banks, and the Currency Commissioners should be allowed to sell telegraphic transfers on the Crown Agents at a which would yield them a reasonable profit, which would, of course, go to the credit of the Gold Standard Reserve Fund. The rate could be fixed every month by the Colony after consultation with the Crown Agents, due regard being had

to the average Bank of England discount rates for the preceding month.

8. The question arises here as to how the Crown Agents should finance these operations. The great demands at present are met out of the Colony's loan moneys in the possession of the Crown Agents. In ordinary times they are met by borrow- ing on the security of the Currency Commissioners' investments. Under the pre- sent conditions, it is more than possible that the adjustment of these accounts would prove unfavourable to the Currency Commissioners, as it might become necessary to realise the investments at an unfavourable time and at a considerable loss, and, notwithstanding the Depreciation Fund, a considerable burden would be thrown on the general revenue of the Colony, which is ultimately responsible for the expenses of the note issue. Under the law as it now stands, the coin portion of the Note Guarantee Fund can only be held in the Colony (see Section 7 (1)), and the only other method open for adjustment would be by shipment of gold from Singapore. This is an expensive process and a high rate, which would operate harshly, especially in the case of money order transactions, would have to be fixed to protect the Currency Commissioners from loss. The remedy seems to be that the Crown Agents should be empowered to hold in London the bulk of the gold portion of the Currency Commissioners' coin reserve, and I am informed that this advice has already been given by the Financial Department of the India Office. Recent events have demon- strated the importance of keeping the main part of the gold reserve in this country. It will be easier to maintain this reserve at a sufficient strength here as it will not be liable to be raided by the banks and dissipated on occasions of financial stringency in other countries. My experience during the years 1906 and 1907 leads me to believe that the local demand for gold for circulation and for the requirements of meeting foreign trade balances is never likely to be large or to be embarrassing to the Currency Commissioners. The danger lies in the occurrence of financial stringency in other countries, when large profits can be made by the banks by the shipment of gold, and in the absence of any controlling influence like that of the Bank of England. It is true that the Commissioners have the discretion to tender silver instead of gold in exchange for notes, but the refusal to give gold. when gold is available, has generally a disquieting effect.

9. The currency is now probably sufficiently restricted, so that it may reason- ably be expected that with easier gold the time is near when gold will again flow into the Colony to relieve the tension. The question should be considered whether the law should not be amended so as to admit of gold being tendered to the Crown Agents for notes given in Singapore. It will be no more difficult to accumulate the gold here than in Singapore, and it would be easier to maintain the reserve. During my term of office as Treasurer I have frequently been approached by the banks as to accepting gold in London and as to taking over shipments of gold from

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