CO882-(8-9) — Page 230

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

9 PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE

BE REPRODUCED PHOTOGRAPHIC-

| COPYRIGHT PHOTOGRAPH—NOT TO

224

frequently practicable to import sovereigns, into the Straits Settlements at 2s. 4d per dollar, and even at times at rates ranging down to 2s. 3fd., at which last-mentioned rate Government themselves laid down 90,000 sovereigns in Singa- As the Commissioners cannot buy telegraphic pore early in the present year " transfers below 2s. 4d, it is obvious. if the statement in paragraph 6 is correct, that gold must flow into Singapore, where a dollar can always be obtained from the As a matter of fact the only circumstances Currency Commissioners for 2s. 4d. in which gold can be laid down in Singapore at less than 2s. 4d. are the rare occa- sions when it is being shipped from the Far East to London, and the Government transaction referred to was a purchase by the Currency Commissioners of gold from Hong Kong, not in exchange for local currency as the protest implies, but for On rare occasions when Australían exchange a telegraphic transfer on London.

is very unfavourable, it might be possible to lay down gold here at 2s. 4y'd., but I have never heard of any transaction at that rate, and when gold has been imported here for purchase of local currency exchange has been at 2s. 41d. or upwards.

6 At any rate, except for Government remittances, the Currency Commis- sioners will not purchase gold in London at 2s. 4d., nor even at 2s. 4 d., unless for strong reasons it is considered desirable to have the gold laid down in London in preference to its being brought here. As a general rule it will be sufficient for the Commissioners to buy telegraphic transfers at 2s. 4d., a rate which with the present low prices of tin and all other produce is not likely to be reached for some time to come.

7. The statement in paragraph 6 that the average exchange value or the midway point between the extreme fluctuations of exchange is the standard of value shows a confusion of thought. It is the standard of value that limits the extreme fluctuations of exchange, not the extremes of exchange which determine the standard of value. The fact that transfer from London to Singapore or vice versa adds to the value by the cost of transport is ignored. The rate of exchange depends on the supply of, and demand for, bills on London, and may be less than 2s. 4d. even when the supply of local currency is inadequate..

8. The opposition of the banks is easy to understand, as they stand to lose in so far as the Government does its own remitting through the Currency Commis sioners and also by the reduction in the limits within which, and of the pace at which, exchange will fluctuate. A very few merchants also still sigh for the old days of silver currency and a widely and rapidly fluctuating exchange, but the bulk of the community clearly recognize that stability of exchange is the public interest, and that the measure adopted by the Government will tend to secure that.

9. I concur in the view expressed in paragraph 2 of the Treasurer's minute that the proportion of our reserve in securities should not be more than one-third or, at the most, two-fifths. With a gold reserve of a million sterling in London, there would be no difficulty in keeping exchange between 2s. 41d. and 2s. 3fd., and that is what we should aim at, rather than attempting to make a large income from Currency Commissioner's investments.

Enclosure in No. 277.

I have, &c.,

MEMORANDUM BY TREASURER.

JOHN ANDERSON.

I am afraid it will not be much good reiterating the arguments I have already used with reference to Mr. Baker's contentions, but as be persists in misunderstand- ing the position it will, perhaps, be as well to give some further explanation. The support he has received from the other unofficial members is due to a mistaken feeling of loyalty to their colleague. It is well known (and they admit it) that they do not understand the question.

2. With regard to paragraph 2 of the protest, the intention of the Govern- ment is not to obtain gold in London instead of in Singapore but to obtain gold in addition to what is tendered in Singapore. The Currency Commissioners are bound to accept gold and issue notes in Singapore. They are not bound to issues notes in Singapore for gold tendered in London. The initiative rests with them and they will not exercise it unless circumstances justify them in doing so. It is perfectly obvious that under the Ordinance as amended some part of the gold in the coin

225

portion of the fund must be held in Singapore. We can now hold against the note issue in the guarantee fund securities, gold, and silver in the following propor- tions:-

50 per cent. 33

Securities Gold Silver

17

11

The amount we are enabled to hold in securities is much too great under present conditions, and it will be found that in actual working we shali keep our securities within safe limits, say 33 per cent., so that we shall work up to having 50 per cent. in gold against our note issue. Part of it must be held here, as 17 per cent. in silver (and token coin at that) is manifestly insufficient as a local reserve for the note issue. The gold held locally in the coin portion of the fund will be liable to depletion more easily than that held in London, as it will not be so strongly protected. The question is, how are we to guard this gold? Should we refuse to give out gold and tender silver on the occurrence of a demand, or should we let the gold go and buy it back if circumstances justify it? I prefer the latter process. The condi- tions of trade may be such that letting the gold go might not create a stringency and raise exchange but simply strengthen the market. In such a case the Com- missioners would not be justified in refusing to give out gold and tendering silver, especially as they would not be in a position to determine beforehand whether the demand is a legitimate one or not. If, however, letting the gold go creates no rise in exchange the Commissioners may safely conclude that there is no need for inter- ference and that the export of the gold is necessary for the health of the trade of the Colony. On the other hand, if the issue of the gold results in exchange going up and in hard money, there is abundant justification for the Currency Commis- sioners to step in and relieve the tension.

4. The banks say that it should be left to them entirely to relieve the tension by importing gold, and that whenever the currency gets curtailed they do import gold, as it is their only way of getting local currency. My answer is that before the banks are able to relieve the situation much hardship is done, and as the Govern- ment have now sole control over the currency it is their manifest duty to maintain it as near the standard value as possible and to create as little hardship as possible. 5. His Excellency the Governor's argument as to the difference made between remitting for the purchase of investments (which at present may extend to 50 per cent. of the Note Guarantee Fund) and for the purchase of gold (which may only extend to 33 per cent. if our investments are up to the limit) has not been answered, and is unanswerable.

6. Paragraphs 3, 4, 5, and 6 are based on a misconception of the policy of the Government which is not shared by the principal brokers, and at least by one of the banks. Fluctuations will take place whether under the old system or the new according to the exigencies of trade; the minimum will be the same, but the present maximum will not be allowed to be reached, or, if reached under exceptional circum- stances, to be maintained. The exchange value of the dollar can only be kept within certain limits as near the standard as possible. What we are trying to do now is to limit the margin of fluctuations over 2s. 4d. and to prevent it causing any injury to the produce or export business of the Colony.

J. O. ANTHONISZ.

538

SIR,

No. 278.

CROWN AGENTS to COLONIAL OFFICE.

(Received 6 January, 1909.)

Whitehall Gardens, London, S.W., 5 January, 1909.

IN continuation of our letter of the 4th of December last, I have the honour

to state that since then the following telegraphic correspondence has passed between

us and the Government of the Straits Settlements:--

CROWN AGENTS to SECRETARY, Straits Settlements.

30th December. "Eight. Pay Martan on account of Aird $80,000."

$1104

• No. 275.