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Explain how money came to be what it was in Singapore at the beginning of the 20th century with reference to its function as a medium of exchange and store of value.

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Topic 2: Explain how money came to be what it was in Singapore at the beginning of the 20th century with reference to its function as a medium of exchange and store of value. Introduction In modern context, the use of money manifests in many forms. It is used extensively as a tool of monetary policies to adjust interest rates and influence growth. As compared to the past where the use of money was more rudimental, money has progressively developed to fulfill its various functions to suit the needs of people. In the days where Singapore thrived on entrepot trade, money was critically a medium of exchange that enabled traders from various economies to transact. The money of today is the result of many developments and changes coupled with global events. The historical events of the 19th century played a crucial role in developing the functions of money as well as the channels of distribution and control in Singapore. Functions of Money Simply put, money acts as a medium of exchange, a store of value and a unit of account. Its medium of exchange function facilitates the exchange of goods in the market, with payment made using a commonly desired good i.e. money, allowing people to circumvent the need to have a "double coincidence of wants". This in turn aids trade specialization since people can now concentrate on acquiring money instead of acquiring various commodities for one's consumption. Second, money is a store of value, which can be exercised at any time the person so chooses. Money's effectiveness at carrying out this function depends on its ability to redeem its full value later. In this sense, the silver dollar was not an effective store of value, as will be seen later. Lastly, money allows various goods and services to be quantified in a common unit, thus fulfilling its unit of account function. As the type of money used in Singapore evolved, money's ability to fulfill the above functions in turn changed. ...read more.


Under the VIII of 1897, the Asiatic Banking Corporation, the Oriental Banking Corporation (which later failed in 1866 and 1884 respectively due to a 'run on the bank' with quickly panicking Chinese merchants), the Mercantile Bank, the Chartered Bank, and the Hong Kong and Shanghai Banking Corporation that used to issue bank notes that were in use along with silver dollars and subsidiary coins, were replaced with Currency Board Notes; with the Board of Commissioners of Currency having the sole right to issue currency notes. The Currency Ordinance in 1899 made note issuing entirely the responsibility of the Straits Settlement Government. In 1903, the Straits Settlement Government began to mint its own silver coins. Consequently, a year later these became the sole legal tender. Considering a fixed exchange rate in order to avoid the trials such as added trade and foreign investment risk from a fluctuating silver currency and a depreciating value in relation to gold; and divorcing it from its bullion value to sustain a certain and regular supply of silver dollar coins, the exchange rate was fixed at an appropriate level according to market forces that the new dollar would be exchanged with sterling, the strongest gold standard currency, at a fixed parity at $60 equal 7 gold sovereigns or 2 shillings 4 pence sterling. The declining silver prices however appreciated from 1903-1907; generating the risk of the new dollar to be melted down by the public since its bullion value became greater than its exchange value. As such, the first Straits dollar was withdrawn and another was issued in 1907 at 312 grains and 900 fineness. But with the further increase in the price of silver during WWI (1914-1918), a third dollar of 260 grains and 500 fineness was issued in 1920 replacing the second dollar. Conversely, the Straits dollar never went on the gold standard itself as Britain, with WWI in 1914, went off the standard herself. ...read more.


Development of Chinese Local Banks in the early 20th century Another important development in 1903, besides the introduction of the silver Straits dollar, was the founding of the first local bank, Kwong Yik Bank. The establishment of local Chinese banks played a complementary role to the British Exchange Banks. The Chinese banks depended on the latter for public exchange transactions while the British Banks relied upon the former for deposits from the public. Many Chinese businesses depended on the Chinese banks because the Chinese merchants could not speak English and they did not appreciate the formality of the British Exchange banks. The Sze Hai Tong Bank was founded by the Teochew community was restrictive in its growth and development. Also, the establishment of three local Chinese banks by the Hokkien community: the Chinese Commercial Bank, the Ho Heng Bank and the Overseas-Chinese Bank popularized the use of current accounts and the writing of cheques for daily businesses at the beginning of the 20th century. Money's function as a store of value in the old days was kept in underground safes or beds rather than the bank accounts. Conclusion: The functions of money as a medium of exchange and store of value have come a long way. We saw a gradual development of money from silver coins for daily circulation and trade to a dollar base on the sterling standard. We also see the foreign banks, followed by the Currency Board, issuing bank notes and the advantages of such a Currency Board. Also, the development of banking from foreign banks to the local Chinese banks changed the way money is being stored. Hence, the essay covers the different factors (exogenous and endogenous factors) that had caused the evolution of money to what it was at the beginning of the 20th century. By discussing about the evolution of the exchange standards and the banking development, the essay covered both the functions of money as a medium of exchange and a store of value. 2 ...read more.

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