In 1903, a dollar-sized coin in silver was minted specially for the Straits Settlements, and this became the standard unit of value.
The Straits dollar was the currency of the Straits Settlements from 1904 until 1939. At the same time, it was also used in the Federated Malay States, the Unfederated Malay States, Sarawak, Brunei, and British North Borneo. From 31 Aug. 1904, British, Mexican and Hong Kong Dollars would cease to be legal tender and would be replaced by the newly introduced Straits Settlements Dollar. The purpose of this action was to create a separate exchange value for the new Straits Dollar as compared with the other silver dollars that were circulating in the region, notably the British trade dollar. The idea was that when the exchange value had diverged significantly from that of the other silver dollars, then the authorities would peg it to sterling at that value, hence putting the Straits Settlements unto the gold exchange standard. This pegging occurred when the Straits Dollar reached the value of two shillings and four pence (2s 4d) against sterling.
Within a few years, the value of silver rose rapidly such as to make the silver value of the Straits dollar higher than its gold exchange value. In order to prevent these dollars from being melted down, a new smaller dollar was issued in 1907 with a reduced silver content.