The annual fluctuations in the gold value of the local money during the period 1891 to 1901 are shown in the following table.'

The Straits Settlements were not, like India, practically forced to the establishment of a fixed par of exchange by the existence of a large public debt payable in gold. The Straits government itself had no public debt, while the small debt of the Federated Malay States was a local interstate debt, payable in the local silver currency. Both governments, however, regularly had large sterling obligations to meet in the purchase of supplies, while the salaries of all the higher officials of the Straits government were on a sterling basis. Inasmuch as these charges remained relatively fixed regardless of the fluctuations in the value of the ocal dollar, while the gold value of the revenue received tended to fall rapidly with the fall of exchange, the government found itself handicapped in meeting its obligations.

The relative importance of the Straits Settlements' trade during the period from 1891 to 1901, with gold and silver countries

1 Minutes of Evidence and Appendices of the Straits Settlements Currency Committee, p. 143.

• Vide Colonial Office List, 1903, pp. 309-311, and August Huttenbach, The Silver Standard and the Straits Currency Question, Singapore, 1903, pp. 9 and 10.

respectively, may be seen from the following figures representing imports and exports of merchandise inclusive of intersettlement trade and exclusive of treasure.1

While the figures show a healthy growth of trade in general, it is noteworthy that the greater proportion of the foreign trade

1 Minutes of Evidences and Appendices of the Straits Settlements Committee, pp. 130 and 131.

at the close of the period was with gold standard countries, that the trade with those countries was a rapidly growing one, that its growth was more than commensurate with that with the silver standard countries, and that despite the severe handicap given to the import trade with gold standard countries by a falling exchange, the reported imports from those countries had been for some time larger than those from silver standard countries, while the growth of the former had been much the more rapid. As would have been expected on a falling exchange, the exports to silver standard countries lagged far behind those to gold standard countries.

While it is doubtless true that most of the trade with gold standard countries appears in the colonies' trade statistics, and that a considerable part of what Mr. August Huttenbach calls the "Hinterland trade" with silver countries does not appear, and that dollar for dollar the trade with the silver standard countries is somewhat more important to the colony than that with the gold standard countries, it is none the less true that the Straits' foreign trade both actually and prospectively should logically have placed it among the gold standard countries long before 1903.1

One of the most serious disadvantages of the existing silver standard, the committee believed, was the discouragement to the investment of foreign capital in the colony, due to the apparent, and in many cases real, decline in the sterling value of capital invested in the colony.

These facts, together with the element of uncertainty and speculation brought into business by a fluctuating exchange, the feeling that exchange had fallen to the point beyond which a further fall would cease to be profitable to the export trade, and the movement on the part of neighboring countries toward a gold basis, forced the committee to the conclusion that the time was ripe for placing the Straits Settlements, the Federated Malay States and Johore upon a gold standard.

Three principal methods of making the change to the gold standard were considered. The plan suggested by the Sing

1 Vide on this subject August Huttenbach, Memorandum on the Straits Settlements Currency Scheme, Penang, August 10, 1903, pp. 2–3.

apore chamber of commerce in 1897 was believed to be impracticable for the reasons already stated. The introduction of the Indian currency system, which was recommended by five members of the local currency committee in 1893, involving as it did a change in the unit of value from the dollar to the rupee, the adoption of a currency which would be largely controlled by another country, and whose bullion value was far below its face value, found comparatively few supporters in 1893, whatever might have been the merits of the plan ten years before.

The plan finally recommended by the unanimous vote of the committee may best be briefly stated in their own words:1

A special Straits dollar of the same weight and fineness as the British dollar at present current in the East [to be gradually substituted] for the Mexican and British dollars, the latter dollars . . . . [to be] demonetized as soon as the supply of the new dollars is sufficient to permit of this being done with safety. Under this plan it will be necessary for the Straits to obtain a considerable supply of the new dollars, and as soon as this is received, the new dollars should be made full legal tender concurrently with the Mexican and British dollars, and steps should be taken to put them into circulation. The first supply of new dollars might be obtained. . . . by remitting to one of the Indian mints a portion of the coin reserve of the currency commissioners to be melted down and converted into the new Straits dollars, and this process might be continued until practically the whole of the coin reserve is converted into new dollars. . .

Simultaneously with the arrival of the first supply of the new dollars and with the making of them legal tender, the import of Mexican and British dollars should be temporarily prohibited and the export of the new dollars should also be prohibited. As there is ordinarily a large import of Mexican and British dollars into the Straits, and subsequent export of them, we think it likely that when their import is prohibited there would be a tendency toward a considerable drain of these coins from the Straits Settlements, and if the new dollars are freely supplied, the change of currency might be completed without any great delay.

When the currency is so largely composed of the new dollars as to justify the measure, the Mexican and British dollars should be finally

1 Report of the Straits Settlements Currency Committee, May, 1903, pp. 12 and 13.

demonetized and the Straits Settlements would then be in the position in which India was when the change of standard was undertaken in that country, with, however, the very important advantage that there would not be an enormous proportion of the new coins either hoarded or circulating in foreign countries, which might, by being thrown into circulation, indefinitely delay the establishment of the gold standard.

After the Straits Settlements had arrived at this stage, the procedure might be exactly the same as it was in the case of India, i.e., after sufficient Straits dollars had been coined to meet the requirements of business in the colony and the adjoining States, the coinage of dollars would cease until the exchange value of the dollar had reached whatever value in relation to the sovereign might be decided on by the government as the future value of the Straits dollar. After this stage is reached the Straits Government would issue the new dollars in exchange for gold, and at the fixed rate.

When the gold standard is established, it would not be indispensable that any gold coins should be made legal tender in the colony and the States. But the government should be prepared not only to give in exchange for a sovereign such a number of dollars as are hereafter declared equivalent to a sovereign, but also to give sovereigns in exchange for dollars at the same rate so long as gold is available, or to give bills on the Crown agents in London based on the fixed rate of exchange.

The committee expressed the opinion that it was "desirable that the standard of value and the currency of the Straits Settlements and the Federated Malay States should continue to be identical, and they hold the same opinion with regard to Johore."

The above recommendations of the currency committee were first published in Singapore on May 7, 1903, and were adopted in toto by the legislative council on May 29, and accordingly represent the law under which the new currency is established.

On September 25, 1903, an ordinance was passed authorizing the governor in council, subject to the approval of the secretary of state, to issue an order prohibiting the importing, circulating or holding in one's possession of certain coins to be specified in the order, after a date fixed therein, under penalty of heavy fines and the forfeiture of the coins thus illegally used or held.

As soon as it became evident that the importation of Mexican and British dollars into the Straits Settlements was likely to be