Ang Kar Yong (A0070877U)

SSA 2220 Question Sheet 2a

1. Why were there multiple currencies in Singapore?

This is mainly because different traders coming into Singapore for
trades brought with them different currencies. The Spanish ruled
Mexico and the Philippines; and from the Mexico mines, the Spanish
traded using silver. Thus the Chinese and most Southeast Asia
traders brought with them silver as well.
On the other hand, traders from Dutch East Indies used guilder,
which is based on gold; and the East India Company had its own
money the rupee, which is also based in gold.
Hence, as these traders from different part of the world came into
Singapore for trades, multiple currencies were brought into
Singapore as well.
2. Why did the East India Company permit the use of different
currencies?
This is because Asian traders who came to Singapore brought silver
with them from China, and Spain through the Philippines. The
Spanish paid the Chinese in silver for their porcelain, tea and silk;
and the Chinese then use these silver to pay for opium from the
Westerners. The EIC in turn wanted porcelain, tea and silk from
China, and paid them back in silver obtained from the exports of
opium.
As long as gold and silver had a stable price in terms of each other,
these difference currencies were permitted.
3. Why was silver a popular foreign currency? What currency did the
EIC prefer? Why?
Silver was a popular foreign currency as the Chinese used silver for
their trades; and due to the popularity of demand in Chinese goods.
The EIC preferred the Indian rupee because the Straits Settlements
that were run by the EIC were based in India, and all its accounts
were kept in rupee.
4. How is a country able to import more than it exports?
Singapore was able to import more than it exports, and run into a
deficit because of the free trade concept. During that period, the
traders brought coins with them for trades, and they were able to
pay the deficit with what they bought. The traders themselves were
responsible for their debts.
5. Why were coins replaced by notes?
The notes eventually replaced the coins because these coins were
inconvenient to the traders. The coins were heavy and easily visible,
thus creating a sense of insecurity among the traders.

Ang Kar Yong (A0070877U)

SSA 2220 Question Sheet 2a

6. Who issued notes?

The banks issued the notes. These banks include the British
exchange banks, the mercantile Bank (Chartered Mercantile Bank of
India, London and China); the Chartered Bank; and Hong Kong &
Shanghai Bank.
7. What problem/s did the issue of notes have?
These banks faced with the challenge of liquidity and profitability.
They need to ensure that these notes are kept sufficiently in the
banks so that when the traders request for their notes, the banks
are able to provide. On the other hand, keeping these notes in the
bank causes the banks to be not profitable. Thus the banks have to
balance between liquidity and profitability issue.
8. Why did traders want a government issued note and coin?
The traders wanted a government issued note and coin because
money started to move away from the metallic-based value; and the
note has no metal in it. The traders needed a form of trust, and they
trusted the government. During that period, the government is
strong and more trusted than the banks.
In addition, there was an unstable supply for gold and silver. The
banks were being caught between silver and gold. Hong Kong &
Shanghai Bank used silver, and the Chartered bank used gold.
These metals were no longer defendable, and the traders believed
the government was more secure.
9. What did the government set up to issue notes?
They set up the currency board to issue notes.
10. How did this government-issued note help start Chinese
banking? What was this note called?
This government-issued note was called the Straits Dollar. The
Straits Dollar was convertible to sterling, and this built up
confidence in the currency.
At the same time, when the Chinese came down to Singapore, this
note helped them to settle down. Eventually when they wanted to
send some money back to their own country, they faced linguistics
problems with the banks, as these banks did not understand the
Chinese characters.
Hence, this led to the Chinese eventually started Chinese Banking.