Pricing Race, Circulating Anxieties, and the Fate of Malaya's Currency Reserves at Independence

The notion of privilege was not a purely economic one but was psychological and cultural too.

—Albert Memmi, Dominated Man

Fabian Muniesa comments that it is one thing to show that cultural factors are important to economics and another, more significant thing to show how cultural factors make a difference to the material outcome in economic matters.¹ This essay examines the factors that lay behind the creation of policies for Malaya's formidable currency reserves in the years leading up to political independence in 1957.² The Malayan government-in-waiting, facing a large currency reserve, chose to peg the Malayan currency to British sterling despite the apparent downward trajectory of its value. The size of a country's foreign currency reserves influences the ability to qualify for loans or attract capital investment in that the larger the reserves, the greater the international community's confidence in the currency. Confidence in a country's currency also affects its worth on the international market by determining the cost of imports and the price of its exports. More significantly for Western popular-media depictions of decolonization, conventional wisdom holds that, once freed of external rule, ex-colonies are responsible for their poor decisions; their failures become vindications of colonialism.³ Thus, the fledgling Malayan government's decision became a silent rebuttal to its claims of being a competent successor to the colonial rulers.

I argue that the fledgling Malayan government's decision to exchange its export income in U.S. dollars for sterling, which resulted in a loss of value for the Malayan currency, was less the product of poor economic judgment than of the racial anxieties that underpinned its understanding of the value of its currency reserves. I am not claiming that the decisions had no material basis, but, as we shall see, the negotiations took place against the domestic backdrop of the military conflict labeled the Emergency, and the international backdrop of the Cold War. Given the resource-based wealth of colonial Malaya, the influence of class conflict on the negotiations was already apparent and was the platform of one major combatant, the Malayan Communist Party (the MCP). The racial dimension of the conflict was everywhere present and, although never openly acknowledged, hovered just below the narrative surface. This essay attempts to understand the links between postcolonial and financial discourses by examining the latent racial politics of the currency negotiations.

When is an economic decision bad? In neoclassical economics, decisions are assumed to be determined by the rational preferences of individuals who wish to maximize profits, which, if not monetary, must be some other tangible gain. Intuitively, if a party incurs a loss of income, then the decision leading to that loss is bad. Assuming that the party was free to choose, why did it make a bad decision? Did the decision maker lack the knowledge to choose wisely, or was the "commodity" purchased other than the one represented? The difference between the two situations is relevant to our discussion of the discourse underwriting media analyses of economic failures in developing countries, which are, coincidentally, largely former colonies. In the first situation, the decision maker lacks the intellectual skill to make the right choice, thus reinforcing the trope of ignorant natives. The second situation requires a historically contextualized analysis of the decision maker's perception of possibility.

This essay examines how the negotiations over the fate of Malaya's currency reserves were framed and presented to the interest groups involved based on the evolving social relations among them in the volatile post–World War II geopolitical arena. From the rational perspective of neoclassical economics, the Malayan elite's decision to maintain its foreign exchange reserves in sterling can be seen as bad because it resulted in low economic growth and social tension that culminated in the race riots of 1969. The question, then, is why did the elite choose to invest in sterling? Who benefited from this policy, and what were the perceived benefits? Money is a symbol of value; therefore currency pegs—investment choices affecting...