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HONG KONG ANNUAL REPORT
as practically the sole medium of exchange, apart from sub- sidiary coinage. An Ordinance of 1895 restricted the issue of banknotes to specifically authorized banks—the Hongkong and Shanghai Banking Corporation and the Chartered Bank of India, Australia and China, the Oriental Bank having closed its doors and the Chartered Mercantile Bank of India having reorganized. In 1911 the reorganized Mercantile Bank of India was added to the list of authorized note-issuing
banks.
The rising price of silver from 1931 onwards forced China to abandon the silver standard in 1935. Hong Kong followed. By the Currency Ordinance of that year, later renamed the Exchange Fund Ordinance, an exchange fund was set up to which note-issuing banks were obliged to surrender, in exchange for certificates of indebtedness, all silver previously held by them against their note issues. These certificates, which are non-interest-bearing and are issued or redeemed at the discretion of the Financial Secretary, became the legal backing for the notes issued by the note-issuing banks, apart from their fiduciary issues. The silver surrendered by the banks was used to set up an exchange fund, which in practice keeps its assets in the form of sterling and operates in a similar manner to the normal Colonial Currency Board. The Ordinance also made the banknotes legal tender. At the same time the Government undertook to issue one-dollar currency notes to replace the silver dollars in circulation ; these are backed by a Note Security Fund, which maintains its assets partly in sterling and partly in Hong Kong dollar bank accounts. The Government also issues subsidiary coins to the value of 5 cents, 10 cents and 50 cents.
Since 1935 the value of the Hong Kong dollar has been maintained at approximately 1/3d. sterling, although the banks may deal with the public at a few points on either side of this rate, both to allow for a profit margin and, to a slight extent, to meet fluctuations in demand and supply.