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C.O. 882

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98

APPENDIX:

The net imports of gold in the 18 years from 1858 to 1876 were £4,575,053 per annum, while in the 21 years from 1877 to 1897 the net imports of gold only amounted to £2,086,500 per annum. Then it must be remem. bered that about the year 1886 Soetbeer estimated the consumption of new gold in the arts in the United Kingdom at £2,106,000 per annum (see Appendix to First Report of the Royal Commission on Gold and Silver, 1888, page 171), so that the arts absorbed mora than all the net imports of gold. The result of this scarcity of gold becomes apparent in the index number of 1896 at 61. the lowest in a century-that is, £61 then purchased of the average of 45 commodities what had been worth £100 in the period from 1867 to 1877. The Director of the United States Mint estimates the consumption of gold in the arts in the United King. dom in 1899 at £3,033,760, and the average net im- ports of gold for the 26 years from 1877 to 1902 were

only £3,181,176 per annum-that is, including the large net imports of the last five years, as shown in Table IV.

By the process of contraction in the currencies of the gold money countries, thousands of millions sterling have been transferred from the producing claere, and the landed and propertied classes, etc., to the holders of Government and other securities, to banks, annui- tants, mortgages, etc.

The stooks of gold and silver money in the world in the gold countries were in 1896 deficient by 39 per cent., as compared with normal supplies in the period from 1867 to 1877, and in 1902 with the gold index number at 69, they are still deficient by 31 per cent. The fol- lowing table shows the stocks of gold and silver in the principa gold money countries as calculated from a table in the Report of the Director of the United States Mint for 1901:-

TABLE V.

Stocks of Gold and Silver Money in the principal Gold Standard Countries as at 1st January 1901.

000's omitted.

Limited

Gold.

Ratio 1 to

Silver-

Silver- Unlimited Legal Limited Legal

Tender. Tender.

Legal Tender. Legal Tender.

Unlimited

Ratio 1 to

£.

£.

£.

United States

15'08

14'95

222,160

113,780

17,380

France -

151

14:38

162,120

72,380

11,800

Germany

151

13.96

144,220

16,160

25,520

Netherlands -

15

15'13

6,680

9,700

740

Russia -

23'24

144,860

20,500

Austria-Hungary

13'69

45,880

14,760

Belgium

15)

14:38

3,560

6,120

880

Italy

15

14:38

19,600

3,200

5,580

United Kingdom

1:28

102,200

23,300

£.

851,180

221,340

120,580

£. 851,180,000

341,920,000

TOTAL STOCKS OF GOLD

11

11

SILVER -

The stock of gold and of silver passing as gold in the principal gold money countries as stated above are £1,193,000,000, and as Mr. Sauerbeck's index num- bar is 69 for 1902, it is evident that to raise prices of commodities to their former level of 100 would require an addition of metallic money of about £536,000,000. If the par of exchange had continued at 1 to 15 during the last thirty years, it is doubtful if enough gold and ilver would have been provided maintain the level of prices at 100, and it may be regarded as certain that gold will never be produced in sufficient quantity to reise prices to 100 again.

It is important also to observe that considerably more than one-quarter of the metallic money in the western gold countries consists of silver, namely, 2342,000,000, of which £221,000,000 are unlimited legal tender. The intrinsio value of this at present does not exceed £120,000,000, so that its value as money is about £222,000,000 greater than its bullion value. This in a most unsatisfactory position for such an enormous amount of money, and the leading statesmen of the wost have allowed their currencies to drift into it, believing that silver would right itself, even when most countries were discriminating against it. But in this they have been entirely mistaken, and their failure to act has worked incalculable injury, not only to the Asiatic countries, but to the gold countries as well.

£. 1,193,100,000

In considering the currency of the Straits and the Malay States, the only thing that can be done now is to devise a special remedy for that particular case. But though a gold standard may be adopted in the Straits and Malay Statos, that settles nothing beyond their boundaries. The Philippines may also adopt a gold standard but there is no universal par of exchange be tween gold and silver. China cannot adopt the gold standard, because it cannot get rid of its surplus silver, and this groat lone land seems destined to bear the burden of the failures of Western statesmanship. The nations of the West can hardly feel satisfied at having discriminated against silver, and at having now saddled China with the difficulties arising from their desertion of the white metal, when they themselves could easily have derived great advantages from it by its assistance in counteracting the disastrous results of the contrac tion of the currencies of the gold money countries. To China they owe a duty which nothing can adequately fulfil but the establishment on an equitable basis of a par of exchange between the two metals.

If some plan to open the Western mints to silver at

■ ratio with gold were adopted, there would be no need for a gold currency or standard in India, which is naturally a silver money country, or in the Straits, or in the Malay States, or in the Philippines, or Hong Kong, or China. The tie between gold and silver would be effected in the West, and the teeming millions of

COMMITTEE ON STRAITS SETTLEMENTS CURRENCY.

Asia would never know that there was a tie, because silver would maintain the par with gold, and gold money would be unnecessary in Asia.

This, however, is here only a suggestion in connection with this Committee, as the proposal is hardly at pre- sent in the field of practical polítics and finance. But the necessity for it is always staring us in the face a a final and complete solution, and it is not creditable to our civilisation and our statesmanship that in the last 30 years a par of exchange has not been established. Recommendations.-I recommend in the first place Proposal (3), and in the second place Propoas! (4).

Note to Memorandum of January 27th, 1903. In the course of my examination on the 27th January on the details connected with proposal (3) in my memorandum, a brief discussion arose as to the method by which the currency of the Straits Settlements could be kept on a gold basis without the use of gold in the currency reserve. It was suggested in the memoran- lum that a gold rate of exchange should, as a be- ginning, be fixed at about 5 per cent. above the price of silver, and that might, for instance, be at le. 8d. per new dollar, though I favour the plan of having the gold value of the dollar rise in case of increased supplies of gold on the world's markets. If a rate of exchange were fixed, it would tend to rise by the process of con- traction, and if it was desired to keep it at 1s. 8d., a method must be found of adding new dollars to the circulation to keep the rate down to is. 8d.

If, however, gold was adopted, the only use of it would be to exchange for new dollars, and when the gold increased too much in the currency reserve in pro- portion to the dollars held there, it would be sold for silver in order that the new dollars might be coined and placed in the reserve. Gold would not be coined and would not be legal tender. The question, then, is what would be the best method of adding new dollars to the circulation, so as to maintain a given rate of ex- change without the use of gold in the currency reserve? The plan I propose for accomplishing this object is to authorise the Agents-General for the Straits to sell orders for dollars on the currency reserve in Singapore at the fixed gold rate plus the expense of shipping silver or dollars to Singapore. No bank or merchant can afford to pay this price, unless the exchange is at a rate that will give a profit over and above 18. 8d. and the expenses. In fact, they will offer in London to buy orders for dollars to be received in Singapore when the exchange is at the shipping point of gold, though, of course, no gold will be shipped. By this method all the advantages of a fize:1 gold rate of exchange will be gained by the two Colonies, and whatever profit the banks would derive from sending gold from London and tendering it at Singapore, in order to obtain possession of so many new dollars, they would equally obtain by taking the money which they would, under a gold system, invest in gold, and pay this money to the Agents General, and receive an order on the currency reserve for the dollars they desire to obtain.

It would then be the duty of the Agents-General to purchase silver and send it to the Mint in London to be coined for transmission to the currency reserve, or, if a Mint were to be established in Singapore, they would ship the silver to the Straits Government to be coined there.

99

On the other hand, the same result might be ob- tained in a simpler manner. An arrangement might be made by which the banks or the merchants in London, when they wished to receive dollars out of the currency reserve in Singapore, would offer a price for the ordere for dollars based on 1s. 8d., and the price of the day for silver, and the banks would undertake the purchase of the silver and its delivery either here or in Singa pore, or its transportation in dollars, if the latter were coined here. The Agente-General acting for the Straits Government would get the difference between the price of the day for silver and 1s. 8d. to the dollar, and they would pay the expense of coining. To the banks would be left the same margin of profit as under a system where actual gold was sent out, because their profit would lie solely in the fractional rate above 1s. 8d., just as is the case with gold shipped to India to exchange for rupees out of the currency reserve. There would be a quotation in London for orders for dollars to be received at Singapore whenever the exchange rose to the shipping point above la. Bd., as that would be a proof that new dollars ought to be added to the currency to keep the rate at le, Bd.

If the Mint was established in Singapore, the silver would go out at the same time as the orders for dollars, to be coined into dollars to take the place of those that would have been withdrawn from the currency reserve. If the dollars were coined here, they would be taken as part of the currency reserve, to which they would be sent with as little delay as possible. From the moment an order for dollars was issued, the silver for an equal amount of dollars would be under the control of the Agente-General, though the banks might effect the pur- chase and transportation as their agents.

This method could be adopted in my Proposal (4) also. When the rate of exchange rose above 28., the Agents-General could sell orders for dollars at 25. per dollar, plus the expenses of transporting silver or dol- lars to Singapore, and the banks could purchase the silver and transport it on the same terms as are above set forth for Proposal (3).

If a mint was established at Singapore, silver could be taken in there and dollars given out on somewhat similar terme as those explained for Proposal (3) in London.

It may not be out of place to point out that the above method would be exceedingly well suited to India, where too much gold has already accumulated in the currency reserve, and part of it has had to be withdrawn and sold for silver, so as to substitute rupees for gold withdrawn. In the future, gold may be expected to be sent to India in considerable quantities for the purpose of obtaining rupees from the currency reserve, and it would seem simpler for the India Office to sell orders for rupees on the currency reserve at the rate of 18. 4d. and the expenses of transmitting the silver, than to withdraw gold from Europe unnecessarily only to encumber the currency reserve, and then re- quire the gold to be withdrawn and rupees to be sub. stituted. There is enough gold there for all purposes of a fixed gold reserve, and not an ounce of it need be withdrawn, nor indeed can it be withdrawn unless it is by the deliberate choice of the Indian Government. All additions beyond this fixed amount of gold ought to be in rupees.

J. BARB ROBERTSON,

Oriental Club, London, W.,

January 27, 1903.

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100

APPENDIX:

APPENDIX, No. 15.

Sundry Notes on the Question of Placing the Currency of the Malay Peninsula on a Gold Basia.

(By Mr. CHANTREY INCHBALD, representative in London of the Russo-Chinese Bank),

The suggestion to send in a niemorandum on the above subject having only come to me after the taking of verbal evidence had already been closed by the Straits Currency Commission, 1 am at the disadvantage of writing against time.

I propose, therefore, to pass over altogether, or touch very lightly upon, those pros and cons which are certain to have been already placed before the Commission by the various witnesses who have been examined, and to limit my notes to points of view which are less likely to have been brought forwardl.

Note 1. The immediate cause of the recent fall in the

price of silver.

As a starting point, I would like to draw the attention of the Commission to the history of silver during the past five years. Firstly, because that history contains the fons et origo mali, the cause of the more immediate troubles of which the Straits merchants complain; and, secondly, because it also shows that there is to- day a strong factor working for steadiness in the silver market which did not formerly exist, and which has not perhaps received sufficient attention.

If we look at its gold price during the past 4 years, from June, 1898, onwards, we cannot bat be struck by the fact that over nearly the first two years of that perio silver only fluctuated within 3 per cent. of a central price of 27 d., whilst in the third year, 1900, it rose suddenly to 30 d., only to gradually fall away over since, until to-day's quotation is as low as 21 d. per ounce.

The steadiness during the two years from June, 1888, to June, 1900, was undoubtedly due to several of the largo smelting works of the United States having formed themselves into a syndicate for the purpose of keeping the price of silver at a fairly stealy level; adjusting the supply on the London market week by work to the demand, and thereby preventing, as far as lay in their power, violent fluctuations. This syndicate is known as the United Metal Selling Company, of New York; and during the two years I have mentioned their efforts were crownod with a very fair measure of success; in fact, had it not been for an event which completely upset all calculations, I believe the more or less steadiness of those two years might have been continued to the present day. The price might have fallen, but the fall would have been so gradual as 10 interfere but little with trade, whilst it is doubtful if the extent of the decline would have been anything approaching what we have actually seen.

This unforeseen, upsetting factor was the buying by the Indian Government in a single year (from March, 1900, to March, 1901) of no less than half the average annual supply on the London market, viz., some £6,000,000 worth of silver, being their first purchases since the closing of the Indian Mints in 1893. During the first six years of the 1s. 41. rupce, the Indian Government only accumulated about £1,500,000 of gold; whereas, in the next following year, gold was tendervi to the extent of some £6,000.000 to £7,000,000; the stock of coined allver rupees in the Treasury being thereby rapilly diminished, until, in October of 1900, with the active export season approaching, there were only some eight erores of silver coinage left to meet vay further gold tenders; and this in spite of the fact that the Indian Government had already in the spring of that year purchased about £2,000,000 worth of silver for coinage. What then happened is well known: the Chambers of Commerce and the exchange banks pointed out to the Government the extreme gravity of the monetary situation, and petitioned them to safeguarıl their position by further urgent purchases of silver for coinage. Over the remaining five months of the Indian

financial year, the Treasury bought a further £4,000,000 of silver, making a total of about £6,000,000 in a single twelve months.

Under pressure of this kind, any attempt to keep a level of price was impossible. Silver, under the in- fluence of the first purchase of £2,000,000, rose from 274d. in March, 1900, to 28 d. in June; remained at about that level throughout the summer, and then, when the Indian Government again began buying in the autumn, the price rose further from 284d. in Septem- ber to 30 d. in October; the market, apart from the bona fide demand, being also inflated by wild speculation. As the purchases of the Indian Government slackened, the price began to fall; and, when they altogether ceased the downward movement was accelerated, and has continued uninterruptedly to the present day. In the meantime the confidence that silver had found its level for the time being (engendered by the steadiness of the years, June, 1898, to June, 1900), hari com- pletely disappeared; and, up to now, the syndicated smelters of New York have been quite unable to regain the control of the market which they undoubtedly beneficially exercised during the two years immediately preceding the action of the Indian Treasury.

But this controlling influnce still exists, ready to be used when the opportunity comes. The London agents of the syndicate (which was reformed and considerably strengthened some eighteen months ago) are Messrs. C. S. Henry and Co., Limited, of 12, Leadenhall Street; and the views of Mr. Charles Henry, the senior partner in London, would be of the greatest interest.

The foregoing leads me direct to:

Note 2.

One of the most important difficulties in deciding on any particular basis of exchange fixity. Supposing, for the sake of argument, that Mr. Bryan had been returned as President of the United States when he first offered himself for election some six years ago and supposing as a direct consequence of such election that silver had been brought into greater use as money in the United States, and that the price had risen to over 45d. per ounce.

It is clear that, under such circumstances, the silver in a rupee would have been worth more than 16d.; that it would have therefore paid to throw them into the melting pot; and that the Indian Government would have had to contemplate a sudden serious con- traction of currency.

This consideration, as applied to India, may be far- fetched, but is it so when applied to the question of the Straits currency? It is hardly possible, I think, to go back to a past and much higher value of exchange; the basis of fixity, in order to disturb existing conditions of trade as little as possible, would presumably be not much above existing quotations; in fact, 1s. 8d. seems to recommend itself as a fair rate.

But what guarantee have we that there will not be in the future a rise in silver to a price at which it would pay to demonetise any such new Straits coinaga? The Indian Government may be forced to make another audden raid on the London silver market; China may. as a possible, if not probable, contingency, be later on allowed to carry out her proposal to collect export and import duties in gold, and such collection might con. ceivably place her in a position to bring out a fresh loan in Europe, and thereby, under a fresh arrange- ment with the Powers, in large measure relieve the silver market of its greatest incubus at the present moment, viz., the payments by China of the half-yearly instalments of the war indemnity. The United States are not far off from having to resume silver purchases for coinage to meet the needs of a rapidly expanding

COMMITTEE ON STRAITS SETTLEMENTS CURRENCY.

circulation; and it may even be found that, at the present level of prices, a large proportion of the silver mines may be no longer able to pay their way.

In a word, where would the Straits Government find itself if, having called in the present currency-an absolute sine quả non, in my opinion, to the success of any scheme providing for exchange fixity-having demonetised it, and reissued in its place a special 1s. B. coin, the silver in that coin rose in value to, say, 28.? All the controlling machinery in the world, Customs or otherwise, would not enable the Government to prevent the new currency from disappearing out of circulation from the moment that the silver in it was worth considerably more than its face value.

The rupee may be safe from any such contingency, but I cannot see the same security as regards a new Straits coinage, unless its face value is put so far above the intrinsic value of the silver in it as would clearly make the change inimical to the entire commerce of the Malay Peninsula.

1 should not like to turn to a larger consideration of the question as concerning British interests from a general standpoint, and no longer from the specific one of a single component part of the Empire.

Note 3. The probable immediate effects of the Straits

currency being placed on a gold basis.

1 believe I am right in saying that, during the 33 years preceding the closing of the mints, India ab- sorbed an average amount of £7,000,000 sterling worth of silver; whereas since the closing of those mints sho has only taken an annual average of about half that

amount.

The deduction is that we may see a similar falling-off in the consumption of silver in the Straits, should their currency be also placed on a gold basis, with more or less fixity of exchange.

Such falling off in consumption can only mean a further heavy fall in the price of silver; and tho question arises whether the Central Government of the British Empire can afford once more to place the interests of any one individual part of that Empire in front of other equally important British interests else- where.

A further decline in silver cannot but be prejudicial to Manchester, to the Bombay cotton milis, and to It much other British export trade to the Far East. moans a further diminution in the value of the hoard- ings during countless years of our Indian subjects in the value of the silver bangles and other ornaments which the very poor have still managed to retain after the recent years of Indian famine. It will hit more and more hardly the Colonial Government of Hong Kong and all British residents there, in Shanghai, and through- out the Treaty Ports of China. It will hit, perhaps, hardest of all those who have thought, after a life of work in the Far East, that they had enough to live upon at home, and who have come back to the old country, and are to-day living on an income derived from their investments in China. What those investments amount to can be gathered in part from the enclosed lists* of Hong Kong and Shanghai stocks; and many whose savings of a lifetime are in- vested therein are hoping against hope that they will be saved from a still further diminution of tho income on which they have retired (or are hoping to retire), and which is already reduced to a mere pit- tance in reward of a lifelong exile. Surely they also have some right to be considered in the question that has been placed before the Straits Commission; for they, as also the natives of India, are members of the same Empire under the same paternal Home Govern-

ment.

An immenso amount of British capital (aggrogating many millions of pounds sterling) is invested and em- ployed in the shipping of the Far East; in landed pro- perty, and in local industries. A further fall in silver would further depreciate such invested capital in Hong Kong and at all the Treaty Ports in China.

The remaining points which occur to me I will men- tion very briefly, for they are almost certain to have been already brought before the notice of the Committee. Note 4 Further considerations against a change to

gold basis.

101

country, in spite of all the remarkable skill and ability with which the gold standard was originally introduced. (2) But for India's gold indebtedness to the mother country, it is hardly conceivable that she would have closed her minta to silver. The Straits and Federated Malay Statos have no gold debt, and cannot even coin- plain of trade being dull or unprofitable. On the con- trary, during the past ten years, the entire Malay Peninsula has developed its commerce in one continued forwari movement of chronic prosperity, and there are no signs whatever of this prosperity being in any way

on the turn.

As far as I know, the year just closed has been no exception to the general rule.

(3) Do the merchant firms who have signed these petitions realise that fixity of exchange may not impro- bably mean a very much increased competition, and a cutting down of margins to a point which may take away all cho imagined advantages of the gold basis they are asking for?

(4) It is noticeable that since the Commission was appointed the Committee of the Hong Kong Chamber of Commerce has by a unanimous vote decided against the advisability of any alteration of their monetary system.

I notice, too, thas the feeling in the Straits in favour of a gold basis is by no means universal: for the "London and China Telegraph," of the 19th January, has a para- graph, page 41, to the effect that "the Miners' Associa- tion discussed the currency question at a meeting at Kuala Lumpar, and passed a resolution in favour of holding on to a silver basis."

(5) Should the Straits Settlements and Federated Malay States adopt a gold basis, it is almost certain that the French Government will legislate in the same direction for their Colonies in Indo-China. In fact, if the "Siam Free Press" is to be credited with accurate in- formation, the sole reason why Siam took this sudden plunge for gold was to forestall the Straits Settlements and Indo-China, because it is alleged that, if they, the Straits and Inclo-China, took the lead, Siam's financial position would be irretrievably ruined." (Fide "London and China Telegraph," of the 12th January, page 21.)

In conclusion, even if the evidence put before the Commission has convinced the menibers that it is both expedient and practicable to legislate for the putting of exchange on a more stable basis, is it not exceedingly doub.ful whether this is quite the right moment to carry any such change into effect?

Personally, I think it would be wise to remember the excellent maxim "Festina lente," and for this reason. The more recent fall in silver, say below 23d., may have been very largely due to sontiment and irrespon sible newspaper talk. It has appeared over and over again in print that (1) Mexico, and (2) the Straits, would decide in the near future for a gold basis of currency; those statements have created lack of confidence, and have helped to produce a panic; all buyers have con- final purchases to their absolute necessities, and silver has become a medium for bear speculation.

It is clear to-day that Mexico does not contemplate at the present moment any immediate change in her currency laws. Let it be made equally clear that the Straits Government has also no present intention of tampering with the existing money system, and silver would in a very short time find once more its approxi- mate level of price, a level which, as I have endeavoured to show, the Smelters' Syndicate actually did arrive at, and at which their controlling influence kept the price for a period of no less than two years, from the spring of 1898 to the spring of 1900, when the Indian Govern. ment upset all possible equilibrium by their sudden large purchases to save a threatened shortage of the silver rupee coinage.

Would it not be well to give the merchant firms of the Straits an opportunity of reconsidering the whole question, having placed before them the various argu- ments for and against, the advantages and disad- vantages, the simplicity on the one side of signing_s petition in favour of a gold basis, and the extreme diffi- culty on the other of successfully carrying such a sug- gestion out. The Malay Peninsula has managed un- commonly well in the face of a fluctuating exchange during the past quarter of a century, and there surely can be no such very pressing need for a sudden and immediate and radical change in its monetary system.

Should the mercantile communities, after reviewing the whole question calmly and dispassionately, still think this question of exchange an intolerable burden, it would be time enough then, I submit, to insugurste an era of exchange fixity, which, whatever its ultimate

* Not printed.

(1) Japan's going on a gold basis can only be con- sidered up to the present as a qualified success. In fact, At one time it has seemed doubtful whether she could retain her gold; and it is conceivable that events may yet in the future produce a monetary crisis in that

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