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2. We are therefore paying the sum of £63,146 to the Hong Kong and Shanghai Banking Corporation to-day.

3. I take this opportunity to enclose a copy of a letter which we have received from the Colonial Government with regard to the advances which have been made from loan funds to meet telegraph transfers. This letter is a reply to our letter of the 24th January, a copy of which was enclosed in our letter to the Colonial Office of the 28th January,* paragraph 4.

Enclosure in No. 246.

I have, &c.,

E. E. BLAKE

13198

SIR,

No. 248.

CROWN AGENTS to COLONIAL OFFICE.

(Received April 14, 1908.)

Whitehall Gardens, London, S.W., 13 April, 1908. IN continuation of our letter of the 10th instant,* I have the honour to report,

for the information of the Secretary of State, that we have received a further telegram from the Government of the Straits Settlements as follows:-

13 April, 1908.-" Have sold Hong Kong and Shanghai Banking Corporation £42,319, delivery 16th April, on account of Currency Commissioners."

I have, &c.,

The COLONIAL SECRETARY, Straits Settlements, to CROWN AGENTS. GENTLEMEN,

Colonial Secretary's Office, Singapore, 20 February, 1908.

I AM directed to acknowledge the receipt of your letter of the 24th ultimo, stating that you propose to treat the amounts which have been trans- ferred from loan account to meet telegraph transfers as advances against the securities held on account of the Currency Commissioners, and to inform you that there is no objection to the procedure proposed in paragraph 2 of letter.

your

I have, &c.,

12830

A. H. LEMON, for Colonial Secretary,

Straits Settlements.

15247

SIR,

No. 249.

CROWN AGENTS to COLONIAL OFFICE.

(Received May 1, 1908.)

E. E. BLAKE.

Whitehall Gardens, London, S.W., 30 April, 1908.

I HAVE the honour to report, for the information of the Secretary of State,

in continuation of previous correspondence, that we have received the following telegram from the Government of the Straits Settlements, viz. :-

"Have sold £9,250 Hong Kong and Shanghai Banking Corporation, delivery 2nd May, on account of Currency Commissioners."

We are making the necessary arrangements to meet this payment.

(No. 95.) MY LORD,

No. 247.

THE GOVERNOR to THE SECRETARY OF STATE. (eceived April 11, 1908.)

[Copy to Crown Agents, April 27, 1908. L.F.]

Government House, Singapore, 18 March, 1908. I HAVE the honour to acknowledge the receipt of your despatch, No. 48, of the 13th February, 1908,† on the subject of the investment of the Depreciation Fund of the Currency Commissioners.

2. I agree with the views of the Crown Agents as expressed in paragraph 7 of their letter of the 2nd January, 1908, that when the reserve of the Currency Com- missioners is liable to be called upon to meet at any moment a run against the note issue, 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.

3. The circumstances have, however, been altogether exceptional, owing to the temporary inflation of the currency in connection with the payment of the Tanjong Pagar Dock award, and the demonetization of our dollar in Šumatra; it is contemplaced that we shall not, in future, be required to realize any large blocks of securities, and also it is intended to seek legislative authority to keep with the Crown Agents a part of the coin portion of the Note Guarantee Fund.

4. This course will be adopted as soon as it is possible to realize our surplus silver and the Crown Agents may, as the exceptional circumstances have passed, consider it advisable not to invest in future to so large an extent in Consols.

5. I entirely agree in the views of the Crown Agents as to the inadvisability of having two separate funds as at present. There is apparently no power to realize the Depreciation Fund securities unless and until the ordinary securities are exhausted, and the economic administration of the funds of the Commissioners in obviously hampered by the restriction.

I have, &o.,

JOHN ANDERSON.

15248

SIR,

No. 250.

I have, &c.,

E. E. BLAKE.

CROWN AGENTS tó COLONIAL OFFICE.

(Received May 1, 1908.)

[Answered by No. 265.]

Whitehall Gardens, London, S. W., 30 April, 1908.

I HAVE the honour to acknowledge the receipt of your letter of the 13th of March, No. 9387/1908,† having reference to the telegram, dated the 3rd of March, from the Governor of the Straits Settlements as to the extent to which the Colonial Government is being made use of by the banks for remittances to London, and requesting our observations on the subject.

2. In accordance with the Governor's request I have discussed the subject with Mr. Anthonisz, recently Acting Treasurer of the Colony. I have also discussed the subject with our bill brokers, and I now beg to state the conclusions at which I have arrived in the matter. I desire, however, to say that these conclusions are based solely on business considerations, and that I have not attempted to regard the question from the abstract currency point of view.

3. It appears to me, then, from a purely business point of view, that the position of affairs in the Colony is what might have been expected to arise in the circumstances which have occurred. A time of active and profitable trade has been succeeded by a time of depressed trade, and the currency of the Colony, which expanded rapidly during the time of prosperity, has since become redundant. The banks have accordingly found their resources in excess of their requirements, and have apparently availed themselves of every opportunity of moving their monies from the Colony to places in which better opportunities have existed for the employ- ment of money on profitable terms.

• No. 233.

↑ No. 235.

1 No. 227.

91104

• No. 246.

↑ No. 242.

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PUBLIC RECORD OFFICE

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9 PUBLIC RECORD OFFICE, LONDON

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PUBLIC RECORD OFFICE

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PUBLIC RECORD OFFICE, LONDON

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186

++ The position of allairs would appear also to have been aggravated by the creation of credit in the case of the expropriation of the Tanjong Pagar Dock Company, and further by the demonetization of Straits currency in Sumatra, and these circumstances in conjunction with the depression of trade, which has caused an adverse trade balance against the Colony tending to drive down the exchanges against the Colony, has apparently resulted in the Government finding itself forced into the position, with the view of maintaining the exchange, of giving telegraph transfers on us to the extent of no less than £957,565 since the beginning of October last. In other words, that amount of money which was redundant in the Colony has been moved to this side at the expense of the Colonial Government in order to keep up the mixed rate at which the silver currency of the Colony has been fixed on a gold basis.

5. The inflation of the currency, owing to the expropriation of the Tanjong Pagar Dock Company and the demonetization of Straits currency in Sumatra may apparently be treated as abnormal, but periods of inflation and contraction of the currency corresponding with the trade of the Colony must be expected to recur, and the practical question for solution would appear to be in what manner can the Colonial Government best protect itself against the consequences of such periods of contraction. The present contraction has been met by the use of loan funds which happened to be in our hands, but such a contingency cannot be relied upon, and it would appear to be essential that the Colonial Government should establish some well-considered system which will enable it to deal with such periods of contraction in the future.

6 I am not aware of the circumstances in which the Colonial Government decided to attempt to keep a gold reserve in the Colony, but I gather from Mr. Anthonisz that, although this reserve amounted at one time to about £1,000,000, it has since dwindled to very small proportions, and it has apparently been in order to protect the local gold reserve that the Colonial Government has granted telegraph transfers on us. The question, however, arises as to the value of a reserve which is not made use of in case of need.

7. I agree with Mr. Anthonisz in thinking that it would have been desirable that the gold reserve should have been kept in this country, rather than in the Colony, and I would point out that if it had been kept here it would have been available to meet the telegraph transfers given upon us, and until so required could have been lent out at interest, whereas the gold in the Colony has apparently been lying idle. The question, indeed, arises whether it is necessary to keep a gold reserve in the Colony. Gold does not seem to be required for currency purposes, and the only use which has apparently been made of it would appear to have been when the banks found it to their advantage to move it to India, an arrangement which apparently could have been equally well effected by telegraphic transfers on us if the Government wanted to maintain exchange, as London is the settling market of the world for purposes of exchange. The whole effect, therefore, of a gold reserve in the Colony would appear to have been in the interests of the local banks, and not of the Government.

8. As regards the question of Government remittances to which Mr. Anthonisz refers in his memorandum,* we agree with him in thinking that it is

very desirable that every possible step should be taken with the view of emancipating the Govern inent from the control of the banks. We think, therefore, that it would be desir- able that all remittances from the Colonial Government or from the Tanjong Pagar Dock Board or from the Government of the Federated Malay States, should be in one hand-that of the Colonial Government or of the Currency Commissioners so as to prevent the banks playing off one customer against another. We do not, however, see in what way such a system will make the Government independent of the banks. In ordinary and normal circumstances, and when loan moneys are exhausted, all the Government requirements would be in the shape of remittances to this country, and we do not see how such transactions can be effected without the instrumentality of the banks, although the General Post Office and the War Office and Admiralty could, of course, be asked to co-operate. As showing, however, the difficulty of introducing outside sources of remittance, I subjoin copies of some recent telegraphic correspondence which we have had with the Colonial Government

• Enclosure in No. 241,

187

as to the possibility of bringing the two firms which are now carrying out large public works contracts in the Colony within the scope of such an arrangement.

CROWN AGENTS to COLONIAL GOVERNMENT, 25 March, 1908.

We are requiring to draw upon Federated Malay States for $200,000. Before doing so you might ascertain from Jackson's and Aird's representa- tives whether they require local currency. This could be paid for by them in gold here at 2s. 4d, and thus minimise the amount of drawing through the banks. Telegraph reply."

COLONIAL GOVERNMENT to CROWN AGENTS, 3 April, 1908.

"Referring to your telegram of 25th March, Aird and Jackson obtain money required locally at the rates of day, which for some time better than par. As their agreement with banks made at home, suggest your seeing their representatives in London as to Federated Malay States' giving them their local requirements."

No action in this direction would appear, therefore, to be possible at present, but it would seem to be desirable that the Colonial Government should consider whether it could not make some arrangement with the contractors by which they would carry out their exchange operations through the Government rather than through the banks.

9. I enclose a summary of some remarks made by the Finance Minister of India in his recent budget statement, which appeared in the "Times" money article of the 6th of April, from which it will be seen that the Government of India has recently found itself in similar difficulties to those which have existed in the Straits Settlements. Notices have also since appeared in the financial newspapers that the Government of India has been under the necessity of selling telegraphic transfers or demand drafts on London with the view of preventing the rate of exchange against India being forced down. That such a state of things will occur from time to time when trade is depressed appears to me to be inevitable in the case of countries like India and the Straits Settlements, where the onus of supporting the exchange has been taken off the shoulders of the trading community, and has been placed on those of the Government, i.e., on the community at large, and so far as I can see, from a business point of view, there is no remedy for such a state of things. All that can apparently be done is for the Straits Settlements to follow the example of the Government of India, and to accumulate a gold reserve on this side in times of prosperity to an extent sufficient to meet the drain on such resources which is likely to arise when a period of depression sets in. The manner in which gold can best be accumulated here is a matter on which the Colonial Government can probably form a better opinion than we can, but it appears to me that until such a reserve has been accumulated it would be desirable that the best of the securities held by us on behalf of the Currency Commissioners, viz., the consols and the Imperially guaranteed securities, should not be disposed of, as the Colonial Government has recently proposed, but should be held as constituting an easily realizable substitute for gold in case of emergency.

•

10. I enclose a report of the speeches made at the recent general meeting of the Chartered Bank of India, Australia, and China from which will be gathered the very serious questions which are involved in the position of affairs which has arisen in India, and in the Straits Settlements.

I have, &c.,

Enclosure 1 in No. 250.

"TIES," 6th April, 1908. INDIAN CURRENCY POLICY AND EXCHANGE.

E. E. BLAKE.

A correspondent sends us the following interesting summary of an official pronouncement on this subject:→→→

In the course of his Budget statement in the Viceroy's Legislative Council at Calcutta. Mr. E. N. Baker, the finance member, made an important detailed reference to the circum stances under which the exchange value of the rupee fell last autumn considerably below

$1104

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