Currency Boards and Chinese Banking Development in pre-World War II Southeast Asia: Malaya and the Philippines

Abstract

This article examines the relationship between currency boards and the development of local Chinese deposit banking in pre-World War II Malaya and the Philippines. While in both countries Chinese banks filled an important gap in financial intermediation, the currency board system - an especially strict version of the classical gold standard - virtually ensured that these institutions remained small. Moreover, in the 1930s slump the currency board system's preclusion of a central bank and requirement to pay depositors in 100 per cent metropolitan currency, together with the volatility of highly staple-dependent export economies, pushed Chinese banks to the verge of bankruptcy or beyond. Examination of the 1930s crisis in Southeast Asia and role of banks in it reveals more differences from than parallels with 1990s experience.