CURRENCY (AMENDMENT) BILL

2.44 p.m.

The Minister for Finance (Dr Goh Keng Swee): Sir, I beg to introduce a Bill intituled "An Act to amend the Currency Act, 1967."

Bill read the First time.

Second Reading

Mr Speaker: Second Reading, what day?

Dr Goh Keng Swee: Now, Sir, I lay upon the Table a Certificate of Urgency signed by the President in respect of the Currency (Amendment) Bill.

Certificate of Urgency handed in.

Mr Speaker: The Certificate is in order. Are typed or printed copies of the Bill available for Members?

Dr Goh Keng Swee: Yes, Sir.

Typed copies of the Bill distributed to hon. Members.

Dr Goh Keng Swee: Sir, I beg to move, "That the Bill be now read a Second time."

This Bill, as everybody knows, has its origins in the dramatic events of the last fortnight since the devaluation of Sterling was announced, in its intent, the Bill serves a purely technical purpose of making clear beyond all doubt that the old currency, which was pegged to Sterling at the value of 2s. 4d. to a dollar, will circulate as legal tender and be exchanged for the new currency at the appropriate rates of exchange as determined by their respective gold parities, it will also absolve the Government from liability for losses sustained by anyone as a result of devaluation.

But I think, in moving this Bill, I should go beyond the mere technicalities involved. There has been much public debate on this subject, some of it enlightening, others less so. The whole issue of the devaluation of Sterling and the decision of the Singapore Government not to devalue the currency issued by the Singapore Board of Commissioners of Currency would have been a perfectly straightforward matter but for the fact that the old currency circulates side by side with the new one. The intention of the original Currency Act, 1967, was to strengthen confidence in the new currency as against the old currency, and one way of doing this would be to legislate that the new currency shall have at least the same value as the old currency.

Sir, history moves in a way which cannot be foreseen even by the most discerning persons, and the present instance provides yet one more melancholy example of the limitations of the human intellect. For those who drafted the Currency Act, 1967, never imagined that in a matter of months, some of the provisions of this Act would be inconsistent with those sections of the Currency Agreement of 1961 entered into between the Governments of Malaysia, Singapore and Brunei. This follows from the decision of the Governments not to devalue the new currency so that parity in terms of Sterling increases from 2s. 4d to a dollar to rather more than 2s. 8d., while the value of the old dollar under the Currency Agreement was backed at 2s. 4d. Had it not been for the fact that all the three Governments were caught at the time of devaluation literally in the act of changing horses in mid-stream, there would have been relatively little fuss over the decision to retain our respective gold parities.

I can hardly avoid the controversy over the differing values of old and new currencies, a subject which I had hitherto delicately avoided, because when people are in a state of great excitement, they are unlikely to listen dispassionately to the voice of reason. I therefore decided to leave the talking on this subject to bolder spirits than myself, thereby avoiding a great deal of public wrath. But now tempers have subsided and I think that this is the time for reason and logic to reassert their position. There are two curious aspects to this subject. The first is that the real irritation and resentment that developed over differing parities had their origins in old coins rather than in old notes. Only a small percentage of people had hoarded the old notes, while everybody had coins. With the fall in the value of the old coins, businesses, had to be conducted not in round numbers, as had hitherto been the custom for years, but in amounts like 17 cents and 22 cents. Since the one-cent coin had virtually disappeared from circulation, transactions became virtually impossible to carry out, with the result that tempers were frayed everywhere - in markets, in the shops, in street stalls, in buses, in cinema ticket booths and so on.

My officials and I had foreseen: these difficulties and on Monday, the 20th November, the day following the announcement of the devaluation of Sterling, we urged Kuala Lumpur to retain the parity of value as between old coins and new coins. Unfortunately, Bank Negara Malaysia was unable to' accept our views, though happily four days later both Governments agreed, that the one-cent, five-cent and ten-cent old coins should circulate at parity. This, immediately took the heat out of the situation and enabled day-to-day market transactions to be carried out without recrimination between buyer and seller as to who had been cheated.

The second aspect relates to the view that the old notes should not have been devalued and that any losses sustained by accepting the old notes at the value of 2s. 8d. instead of 2s. 4d. could and should have been borne by the Government. The more knowledgeable people say that since the old Currency Board, had a cover of 110 per cent and since some old notes are bound to be lost, through fire or other means of destruction, the loss that would finally be borne by the Government would be small. How much substance is there in this kind of argument? Sir, I am afraid I can see very little merit in it. People who are engaged on both sides of this debate have overlooked a basic point, that this is really not a question of transferring assets from government to holders of old notes. If this were so, then the questions one has to answer would be: Could Government have afforded it? How do we overcome the technical difficulties of the legally defined parity of 2s. 4d. for the old dollar? These can become relevant issues. However, I believe that the real truth is that to pay holders of old notes the same value as the new currency does not involve the transfer of assets between the Currency Board and the Government on the one hand, and the holders of old notes on the other. It involves nothing less than redistribution of assets between those who hold the new currency and those who hold the old currency.

Let me explain the position in simple terms to hon. Members, because the issue has been clouded by irrelevant arguments as to whether Government can or cannot afford to make this payment. For the sake of argument, let us assume that there are no excess funds in the old Currency Board's funds, and further that there are no reserves upon which the Government can draw to make the additional payments to holders of old currency notes. This additional payment would amount to some $30 million in Singapore and $60 million in Malaysia, if every old dollar were to be exchanged for one new dollar and not for 87 cents, the additional money must be obtained somehow, tinder the assumptions that we have made that there are no surplus funds in the Currency Board or in the Government accounts, this money must be obtained by new taxation. Therefore, to pay holders of old notes the additional sum, Government would have to raise some $30 million as taxes, and perhaps the most equitable form of taxation in this instance would be a once-and-for-all poll tax, say, at the rate of $15 per man, woman or child. This would mean that a working class family of man, wife and three children would have to pay $75 to the Government who would then pay this sum to holders of old currency notes - the dear old ladies who stashed away enormous sums under mattresses! If I were to act in this way, it is obvious that there would be howls of rage from the populace. There would be very few kind words spoken in the defence of the rights of holders of old currency notes. All this is perfectly clear, as is also the fact that the additional payment of $30 million to holders of old currency notes represents in this exercise a redistribution of assets from the rest of the population to holders of old currency notes. The argument would not be in the slightest way nullified if we were to make this payment out of reserves rather than from taxation. In the end Government reserves would go into expenditure and the present Budget session provides an apt reminder of this truth. We are not a trading concern where surpluses are divided as dividends to shareholders or bonuses to employees and fees to directors. Cabinet Ministers do not get additional pay, nor are Government employees paid a bonus should we reduce expenditure. Surpluses are transferred from the Consolidated Fund to the Development Fund to pay for projects like new schools, housing, roads, power stations, wharves, water supply, industrial estates and all the things which are of benefit to our citizens. The withdrawal of $30 million from the reserve fund to pay holders of old currency notes means that there will be just that less money to spend on these items and that this redistribution of assets from non-holders to holders of old currency notes is none the less real, even if there were no new tax to finance this.

I hope that what I say will remove the common but primitive method of thinking about public finance, i.e., when government withholds spending on something, the people are being deprived and the government benefits. All government funds are for the purpose of public expenditure, and the real argument is, what kinds of public expenditure are most conducive to the common good? I am not easily persuaded that paying $30 million to holders of old currency notes is conducive to the common good.

Sir, I beg to move.

Question proposed.

2.58 p.m.

Mr Ho See Beng (Bras Basah): Mr Speaker, Sir, it is difficult for me to support this amendment Bill as I have certain objections to make in respect of this proposed Bill which is to amend the Currency Act of 1967. The most significant point to which I wish to draw the attention of this House is not the amendment itself but the retrospective effect of the amendment. . Members of this House are aware that the currency notes and coins issued by the Commissioners of Currency, Malaya and British Borneo, are stated to be legal tender for their full face value according to the provision in section 14(4) of the Currency Act. Members of this House are also aware that the occurrence of an event beyond our control - namely the devaluation of the Pound Sterling - has resulted in the Singapore Government having to declare that the currency notes and coins issued by the Commissioners of Currency, Malaya and British Borneo, are to be depreciated in value by about 14 per cent in relation to the national currency of Singapore. I appreciate that this drastic step has to be taken by the Singapore Government because the old Malayan currency was fully backed by the English Sterling, which was devalued on Sunday, 19th November, 1967. But this depreciation in value has brought great hardship on those persons who have old Malayan currency in their possession, particularly the working class who cannot afford to operate banking accounts.

Mr Speaker, Sir, as far as currency notes are concerned, I am of the opinion that the Government has some justification for devaluing the old Malayan currency because the new Singapore currency has been introduced since 12th June, 1967, which gave ample opportunity for every Singaporean to convert his or her holdings of the old Malayan currency notes into the new national Singapore currency. But in the case of the coins, Mr Speaker, Sir, the position is radically different because up to November 1967, no new coins had been introduced or circulated by the Government of Singapore. So by depreciating the value of the old Malayan coins in relation to the Singapore national currency, it would appear that the Government of Singapore sought to penalise the residents of Singapore through no fault of their own. As I see it the only way that Singaporeans could be blamed for holding old Malayan coins is that they had not changed the old Malayan coins for new currency notes between 12th June and 19th November, 1967. But if they had done so, then a most ridiculous situation would have resulted, that is, no one would be in possession of any coins at all. Mr Speaker, Sir, such a situation would have a disastrous, if not a totally paralysing, effect on our economy.

Sir, my purpose is to bring to the attention of this House the grievance of, if not the people of Singapore, at least the voters of my constituency, in respect of the old devalued Malayan coins which were the only coins in active circulation before the unfortunate event took place on 19th November, 1967, it is not so much to criticise the Government of Singapore but to show how ridiculous the situation had become. I appreciate that our Government, by reason of the fact that it is one of the three constituent members of the Board of Commissioners of Currency, Malaya and British Borneo, is not free to act in a way it thinks best for the interest of the people in relation to the question of depreciating the value of the old Malayan coins. It is also obvious, from the close economic link and proximity of West Malaysia to Singapore, that the Singapore Government cannot afford to take any unilateral action relating to the value of the old Malayan currency notes and coins. If our Government were to declare that old Malayan 20-cent and 50-cent coins are redeemable at their nominal value, Singapore would be flooded at present with all the 20-cent and 50-cent coins that were in circulation in West Malaysia.

I think the Minister for Finance will put up this argument, but I would like to inform Members of the House how many 20-cent and 50-cent coins are in active circulation. This is from the Report of the Board of Commissioners of Currency, Malaya and British Borneo, 1965. The value of the 50-cent coins is $767,037.50, and the value of the 20-cent coins is $485,870.00. Assuming that from 1965, these figures have been doubled, then the 20-cent and 50-cent coins by now in active circulation - assuming that every 50-cent and 20-cent coin is in active circulation - will amount to only $3,758,722.25. So it is really inconceivable to think that the three Governments, that is, Singapore, Malaysia and Brunei, cannot afford to redeem one-third of this amount.

Mr Speaker, Sir, I am given to understand that the Singapore Government played an important part in the subsequent reversal of the initial decision of the Board of Commissioners of Currency, Malaya and British Borneo, to depreciate the value of the Malayan coins of whatever denominations in relation to the respective national currencies of Singapore, Malaysia and Brunei. This decision, needless to say, had caused a lot of confusion among the people of the three territories, especially among the working class who are the ones dealing in terms of cents instead of dollars. Sir, it was a relief for everyone when the Board subsequently announced that the old Malayan coins of one-cent, five-cent and 10-cent denominations are redeemable at their par value, if the Singapore Government could obtain a partial reversal of the decision to depreciate the value of the Malayan coins, it is conceivable that if our Minister for Finance makes a greater effort to persuade the other two Governments, then the decision reached might be entirely reversed, that is, 20-cent and 50-cent Malayan coins would be redeemable at their par value.

The decision to devalue the old Malayan currency, particularly the coins, is bound to have a far-reaching effect on the morale of the people. Recently the three Governments made a joint statement that the old Malayan currency would continue to be redeemable (of course, at a depreciated value) with regard to the three respective national currencies up to 31st December, 1968. The question here is that with the devaluation of the Pound Sterling, there is a distinct possibility of the U.S, dollar being devalued - I am not saying right now, but assuming by next month - then what will happen if such a devaluation of the U.S, dollar occurs? It must not be forgotten that a substantial portion of our foreign exchange holdings consist of American dollars. Does it mean that devaluation of the American dollar will mean a further depreciation of the old Malayan currency? If such a depreciation should occur within the next month, it might cause greater confusion, particularly in respect of the old Malayan coins. After two weeks of its issue, new Singapore coins are hardly in evidence.

Sir, I wish the House would consider seriously the question of depreciation of the old Malayan currency and its effect on the economy. With the devaluation of the Pound Sterling, there is much speculation about the possible devaluation of other currencies, particularly the American currency. In this context, I am also requesting the House to pay much more attention to our nearest neighbour, Malaysia. Although it has not devalued its national currency in line with the Pound Sterling, there is much speculation that it might have to devalue its national currency within a year or two. Since the Singapore Government has agreed with the Malaysian and Brunei Governments that their respective national currencies are to have customary tender in one another's territories, the Government should take steps to inform the people that they hold Malaysian and Brunei national currencies at their own risk.

In the light of what I have outlined for the consideration of this House, I would suggest that the Singapore Government make a further effort to have the decision to depreciate the value of the old Malayan 20-cent and 50-cent coins completely reversed. Such a reversal is urgently required as there were no new coins available on 19th November of this year, when the devaluation of the Pound Sterling was announced. The obligation to redeem the 20-cent and 50-cent coins at their par value is moral and not legal. But our Finance Minister is going to make it legal by introducing this Bill with a Certificate of Urgency. But from the political and social point of view, failure to carry out a moral obligation is much more damaging than failure to carry out a legal obligation.

3.12 p.m.

Mr P. Govindaswamy (Anson): (In Tamil): Mr Speaker, Sir, the Minister for Finance has tabled the Currency (Amendment) Bill in this House.

The exchange rates have been mentioned in the Bill, but the one-cent, five-cent and ten-cent coins have been accepted at par value and the 20-cent and 50-cent coins have not been accepted at par value. No explanation has been given for this. The old currency has been devalued by 15 per cent. The people have lost as a result of such exchange rates. They have not been given enough time because, after separation, Singapore has stated that a dollar for a dollar will be given for the old currency, but no time limit was imposed at that time. So what will the common people do? The Minister should think about this. Moreover, there is no justification to say that the exchange rates are fair. For example, if the Pound Sterling is further devalued tomorrow or after a few months, we think that the value of the currency will still go down. No assurance has been given that the same rate will prevail. What will the Minister do if the Pound Sterling is devalued further?

Dr Goh Keng Swee: Sir, the first point that I want to make in reply to the last two hon. Members is this. The value of currencies and their international backing are not matters upon which one should lightly embark in public address, because these are very delicate matters and what responsible people say in public will have some effect on the confidence which is so necessary in the smooth running of currencies. Unfortunately neither of the speakers has shown the slightest evidence that they understood the subject. There is no reason to believe that the U.S. dollar is going to be devalued next month. In fact, if the Member for Bras Basah really believes that, then he can make a small fortune!

Mr Ho See Beng: I am saying that there is a possibility of the American dollar being devalued but not that it will be devalued.

Dr Goh Keng Swee: Sir, it is loose talk of this kind that creates all sorts of trouble. If you do not believe that it will be devalued, then you should not say so.

Sir, I cannot follow the figures quoted by the Member for Bras Basah. I have taken down notes of what he has said about 20-cent coins and 50-cent coins. He says that the total value in circulation is not large. In 1965 it was $760,000 worth of 50-cent coins and $485,000 worth of 20-cent coins. Adding these two figures up, he gets a total of $3.2 million. I do not quite follow this kind of arithmetic. May I urge the Member to read the report more carefully? Now, he cannot have it both ways. If he says that the value in circulation of these 20-cent and 50-cent coins is very small, then it does not inflict much hardship if they are devalued, as they have been. The fact of the matter is, in my estimation, that the one-cent, five-cent and ten-cent coins would total something like two-thirds or more of the total coins in circulation. In fact, by accepting these coins at their face value, the Singapore Government has to sustain a loss of $2 million. And if we were to take on the other two sets of coins, the 20-cent and 50-cent coins, at their face value, we would suffer a loss of another million dollars or so; not an awfully big sum, but obviously in these matters it is necessary for all concerned to act together.

I am very glad to note that the Member for Bras Basah agrees that we acted correctly in not accepting the old notes at their face value. I do not think that the Member for Anson has raised anything new, and I think that my remarks about the comments of the Member for Bras Basah also apply to him.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved it-self into a Committee on the Bill. -[Dr Goh Keng Swee].

Bill considered in Committee.

[Mr Speaker in the Chair]

3.20 p.m.

Clause 1 ordered to stand part of the Bill.

Clause 2 -

Question proposed, "That clause 2 stand part of the Bill."

Mr Ho See Beng: Mr Speaker, Sir, can I seek clarification from the Minister for Finance?

The Chairman: Certainly, Mr Ho, if you can relate it to the provision of the clause that I have called.

Mr Ho See Beng: It does not relate to the clause, but I feel that this clarification is very important.

When the Pound devaluation was announced, I remember two days later Tunku Abdul Rahman said that he knew many months before that the Pound would be devalued. I just want to know whether the Tunku had communicated with the Singapore Minister for Finance.

Dr Goh Keng Swee: Sir, not even Almighty God knew "many months ago" when the Pound would be devalued. If the Tunku knew the actual date, then he would be very remiss in not making a large fortune on that information!

Mr Ho See Beng: It was published in the papers on the 23rd November.

Question put, and agreed to.

Clause 2 ordered to stand part of the Bill.

Clauses 3 to 5 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.