31
20
our reserve is that for the main purpose of a reserve in the case of a currency like that of this Colony it is useless
12 The object of having a reserve in our case is to be in a position to contract the circulation when in times of depression it becomes redundant and exchange goes heavily against us As the dollar has ceased to be an international coin, and has become a promise to pay, like the note, we cannot contract our circulation by giving out dollars for notes, and the larger the proportion of dollars we maintain, the weaker our reserve Lecotnes, and the more liable we are to have to sell securities at a time when others are doing the same and the price is therefore low.
13 A reserve of silver dollars while the dollar is so much overvalued as to be pratically a promise to pay is useless in case of a panic due to causes affecting the credit of the Government It might be of some use in case, say, there was a large issue of forged notes in circulation, but it is improbable that such an occurrence would affect notes of more than one denomination, and, if so, it would more probably Take the form of a demand for notes of other denominations than of a demand for silver coin which, as already stated, is more liable to be counterfeited than notes.
14 The only practical use, therefore, of a silver dollar reserve is to be in a position to meet an expansion of the silver circulation without having recourse to further minting For that purpose a reserve of one-fifth is ample. In existing circumstances I submit that a ilver reserve of one-fifth of our note issue is ample for all possible requirements, and I trust that on further consideration their Lord- ships will agree to allow that limit to be fixed instead of one-third.
25232
SIR.
No. 45.
COLONIAL OFFICE to TREASURY.
[Answered by No. 46.]
Downing Street, 30 August, 1910. WITH reference to your letter of the 5th of May,* I am directed by the Earl of Crewe to transmit to you, to be laid before the Lords Commissioners of the Treasury, copies of two despatchest from the Governor of the Straits Settlements on the subject of currency.
In view of the arguments contained in the earlier of these despatches, Lord Crewe agrees with the Governor that the silver reserve may safely be reduced to one-fifth of the note issue.
As regards the manner in which telegraphic transfers in redemption of notes should be met, his Lordship considers that it might be well to instruct the Crown Agents to guide themselves by the advice of the Bank of England, as the Governor suggests, He observes that their Lordships seem to have felt some doubt as to the manner in which these transfers should first be met, since the remarks in your letter of the 5th of May would seem to be somewhat at variance with the purport of the antepenultimate paragraph of your letter of the 15th of November‡ last.
I am, &c.,
C. P. LUCAS.
I have, &c.,
JOHN ANDERSON.
29524
No. 46.
25232
No. 44.
THE GOVERNOR to THE SECRETARY OF STATE. (Received 15 August, 1910.)
(Confidential)
MY LORD.
Government House, Singapore, 18th July, 1910. Is paragraph 7 of the Treasury letter of the 5th of May, copy of which accompanied your Lordship's Confidential despatch of 18th May.* on the subject of the Currency Note Reserves, I observe that their Lordships recommend that in case it should be necessary for the Currency Commissioners to sell telegraphic transfers on London to redeem notes, such transfers should be met in the first instance from the funds lent on call or short notice, and the specie reserve should only be drawn upon where these are exhausted.
2. So long, of course, as the amount so lent is comparatively small, the question does not appear to me to be important. But in a few years we shall, there is every reason to believe, have very considerable sums in England to the credit of the Currency Commissioners, and it is practically certain that the only occasions when these are likely to be drawn upon largely will be at a time when there is a drain of gold to London and a high bank rate. To call in our short loans at such a time would afford no relief to the general condition of the money market, and conse- quently would tend to prolong the drain upon the Currency Commissioners, unless in circumstances in which it might be desirable to assist the Bank of England to make its rate effective by reducing the supply of call money in the market.
3. It appears to me that the best course for us would be to be guided by the advice of the Bank as to whether the source from which transfers should be met should be money on short loan or specie reserve. The specie reserve would be gradually replaced by non-renewal of short loans or the sale of investments, if it is drawn upon.
4. I am confident that by co-operating with the Bank of England in the manner suggested we shall run far less risk of violent fluctuations in exchange than if we follow a hard and fast rule as recommended by the Treasury.
I have, &c.,
JOHN ANDERSON.
SIR,
TREASURY to COLONIAL OFFICE,
(Received 26 September, 1910.) [Answered by No. 48.]
Treasury Chambers, 24th September, 1910.
I HAVE laid before the Lords Commissioners of His Majesty's Treasury Sir C. Lucas's letter of the 30th ultimo (25232/1910)§ further on the subject of the currency in the Straits Settlements.
My Lords regret that they are unable to concur in the opinion of the Governor of the Colony that the silver reserve may safely be reduced to one-fifth of the note issue. They assented with some hesitation to a cash reserve equal to only one-third of the note issue instead of one-half, which had previously been the minimum But they coupled required to be held against any Colonial Government Note Issue.
this assent with the stipulation that this one-third should be held entirely in legal tender silver coin actually available for the payment of notes presented. They pointed out that it is upon this silver reserve that the convertibility of the notes practically depends, seeing that the sovereign (though legal tender) does not circu- And in their letter of the 5th May late in the Colony to any appreciable extent. last* they reiterated the importance of ensuring the maintenance of this silver specie
reserve.
Sir J. Anderson's despatch of the 14th July last, which accompanied the letter under reply, appears to overlook the fact that the Colonial Government is under a legal obligation to redeem currency notes on presentation in legal tender specie, and that its credit is involved in its ability to carry out this undertaking. There is, of course, no similar obligation with regard to the silver dollar, which cannot in any sense be described as a "promise to pay."
My Lords entirely agree that the local dollar reserve is of no value towards This is, however, not its object. Its sole securing the stability of the exchanges. object, as already pointed out, is to secure the local convertibility of the note into legal tender specie, and, however improbable it may appear that anything like one- third of the notes in circulation should concurrently be presented for conversion, their Lordships' experience of what has occurred in other parts of the world in times of unreasoning panic has led them to the conclusion that it would not be consistent with prudence to reduce the reserve below that proportion.
• No. 36.
• No. 35.
↑ Nos. 43 and 44.
* No. 23.
§ No. 45.
| No. 43.
1
PUBLIC RECORD OFFICE
Reference :-
TTIC.O. 882
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PUBLIC RECORD OFFICE, LONDON
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