Banana money: Malaya’s wartime currency
After Japanese forces occupied Malaya early in 1942, they introduced new currency notes. Because the $10 note carried a picture of a banana plant, the wartime currency was referred to as banana money. For the first two years of the occupation, the Japanese maintained monetary discipline and kept circulation of this currency under control. However, with the country’s trading economy at a standstill, there was little to tax and, in order to fund the civil administration and purchase supplies for the military, the Japanese began printing more and more money. In December 1940, the active circulation of currency in Malaya was 120 million dollars. By the middle of 1945, the Japanese may have printed 4,000 million dollars, and the active circulation was 30 times greater than before the war. The predictable result was hyperinflation.
By the middle of 1945 Japan’s wartime currency had lost most of its value. Any refusal to accept Japanese currency at face value implied a lack of confidence in the Japanese administration and was very dangerous, but the population relied on the black market for supplies of routine goods, and there prices soared. The cost of food in Singapore shot up to 160 times pre-war levels, and there were similar rises in the price of clothing, transport and other basic expenses. In the final months of the occupation, the Japanese printed even more currency notes, including $1,200 million held in reserve in Singapore to meet contingencies during possible military operations. The Bank of England argued that some value should be given to the occupation currency, but in view of the vast amounts in circulation, the British Military Administration decided that it was preferable simply to give away supplies for free on an interim basis. The wartime notes were demonetized immediately after British rule resumed. With this measure pauperizing much of the population, the BMA acted quickly to get new money into circulation, paying civil servant arrears of salary and advances, buying stocks of rubber and rice, and hiring labour. At the end of September, $8 million had been paid out, and by the end of the year the figure was $160 million.
Banks held large quantities of occupation currency in their vaults. As the beneficiaries of Japanese forced savings campaigns, carried out in an effort to reduce the money in circulation, the banks had received large deposits. Lacking suitable opportunities to invest this windfall, they had simply stored this money in their vaults. When the occupation currency became valueless, it was destroyed. The sheer volume created logistical problems, and in one case a bulldozer was used to shove stacks of money into the sea.
To facilitate distribution of the new currency notes, the Financial Secretary on 15 September urged non-Japanese banks to resume operations. To provide the banks with working capital, the government opened interest-bearing accounts where they deposited funds amounting to 5% of pre-war deposits held by each bank, and offered the banks loans at 3% interest. Individuals proved to have hidden significant amounts of prewar currency, and much of it flowed into savings accounts when the banks began accepting deposits. The government had prepared new banknotes worth $234 million, but by the end of 1946 the amount of money in circulation was around $315 million.
The larger ramifications of demonetization took years to resolve. Individuals had repaid pre-war debts in devalued wartime currency and had incurred new debts; property had been bought and sold, and the wartime currency had been used for a myriad of other transactions. In some cases there was duress, and it seemed deeply unfair to allow them to stand. However, it was equally clear that re-opening wartime transactions would not only have been extremely complex but also would have created injustices. Pending a decision on such matters, the BMA imposed a moratorium on all existing debts that remained in place until 1949. By that time a new post-war economy was in place, and ultimately most wartime transactions were allowed to stand.
See also Kratoska 1998
Paul Kratoska is Publishing Director for NUS Press at the National University of Singapore
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Banana money
