Historical Sketch

In the mid-17th century, the English East India Company began establishing trading posts and acquiring lands on the Malay Peninsula and the islands of Borneo and Sumatra. Singapore was founded in 1819 and became the center of the British possessions. In 1826, a unified government was established for the so-called Straits Settlements, comprising Singapore, Penang, and Malacca. After the end of the East India Company in 1858, the territory was administered as part of British India until a separate colony got established in 1867. The nine sultanates that neighbored the British colony on the Malay peninsula were gradually placed under British protectorate but retained their internal autonomy. During World War II, the entire Malay Peninsula and Borneo, as well as neighboring Netherlands Indies, were occupied by Japan, which ceded the four northern sultanates to its ally Thailand. The British rule was restored after the Japanese defeat of August 1945. The Straits Settlements were dissolved in the following year and the territories on the Malay Peninsula were reorganized into the Singapore colony and the Malayan Union of Penang, Malacca and the nine sultanates formerly under protectorate, re-constituted again as Federation of Malaya in 1948. Colonial rule on most of the Malay peninsula ended in 1957, when the Federation of Malaya attained independence. Singapore and the British possessions in Northern Borneo followed in 1963 and merged with the Federation, which thereafter changed name into Malaysia. A year later, however, Singapore withdrew again to become an independent republic.

Monetary History Overview

Traditionally, the economy on the Malay Peninsula and neighbouring Borneo was based on silver. In transactions, bullion was used, supplemented by small coins made of tin and lead or, occasionally, copper. The value of the so called "Pitis" against silver varied both regionally and over time. In the 17th and 18th centuries, the silver Spanish Dollar made its way into the Malay territories through trade with the Europeans. The East India Company introduced the accounting Sicca Rupee of the Bengal presidency, followed by the Indian Rupee. The circulating medium remained diverse, still dominated by the Spanish Dollar. However, copper coins from British India gradually displaced the ancient Pitis. With the British Crown taking over affairs in 1858, the administration started to regulate the monetary affairs. In 1867, the Straits Dollar was created as a unit of account equal to the Spanish Dollar. The trade coin circulated together with local subsidiary coins in silver and copper. In 1895, Britain started issuing its own "Trade Dollar" in an attempt to displace the foreign coins, and for a short period, the Straits Dollar was even minted as a silver coin. Already in the early 1860s, commercial banks in Singapore had started paper money issuance, the denomination "Dollar" was used before the 1867 Legal Tender Act. In 1899, the Straits Settlements Currency Commission began operations. Private paper money issuance was regulated and ceased briefly afterwards, replaced by government paper money. In 1903, the Straits Dollar became a gold currency pegged to the Pound Sterling. The silver Dollars continued circulating as bullion. In the late 1930s, a British commission recommended the unification of the currency throughout the Malay Peninsula, meaning that the nine Malay states not under British colonial rule should also adopt the Straits Dollar. This was agreed so, and in 1939, the now common currency was renamed into Malayan Dollar. The Japanese occupation in the Second World War suspended the Malayan currency. In January 1942, the Japanese military currency was introduced like in all the conquered territories. The Japanese Military Yen for the Malay Peninsula was called "Dollar". Since the occupation currency was at par with the Japanese Yen, the pre-war currency was devaluated by about 50%. After the Japanese defeat in September 1945, the pre-war currency was restored. The occupation notes were declared invalid without compensation. The war and occupation period had devastated the British territories on Borneo, as well as the independent Sarawak state. Both did not restore their distinct currencies but adopted the Malayan Dollar instead. In 1952, the extended scope of the currency was reflected through a name change into Malaya and British Borneo Dollar. It remained in place until well after the end of the colonial rule. In June 1967, finally, the common currency area was dissolved, and the three states of Malaysia, Singapore, and Brunei introduced distinct national currencies. The Malaysian Ringgit (the Currency Act defined the name as "Malaysian Dollar", which was not implemented, and the act got corrected in 1975) was introduced at par and remained pegged to the Pound Sterling, but repegged to the US Dollar when Great Britain floated its currency in November of the same year. In 1973, the Ringgit was floated. At the same time, the mutual recognition of banknotes and coins in Malaysia, Singapore and Brunei ceased. The Malaysian currency had remained stable for long time, but in the Southeast Asian currency crisis of the mid-1990s it lost one third of its value. Since then, currency stability could be maintained.

The Federation of Malaya joined the International Monetary Fund (IMF) on 07.03.1958.

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