5
Currency and Banking
WHEN Hong Kong was founded in 1841, China's currency was based on uncoined silver. The normal unit for foreign trade throughout the Far East was the Spanish or Mexican silver dollar, and by a proclamation of 1842 Mexican or 'other Republican dollars' were declared to be the Colony's legal tender. However the Government kept its accounts in sterling until 1862, and there were several unsuccessful attempts to change the basis of the Colony's money from silver to gold.
A mint was set up in 1866 which produced a Hong Kong equivalent of the Mexican dollar, but the new coin was unpopular and the mint closed down two years later. The machinery was sold to establish the first modern mint in Japan.
An Order of the Queen in Council dated 2nd February 1895 authorized a British trade dollar, equivalent to the Mexican dollar, to be minted in India, and in Hong Kong this gradually replaced the Mexican dollar, although the latter still remained both legal tender and the standard by which other dollars were judged. The sterling or gold value of the dollar varied with the price of silver. This gave Hong Kong a variable exchange relationship with London and the world at large, but a reasonably stable one with China.
In 1845 the Oriental Bank issued the first banknotes in the Colony, and the Chartered Bank of India, Australia and China, the Chartered Mercantile Bank of India, and the Hongkong and Shanghai Banking Corporation followed suit. Although not legal tender, these notes became more and more the customary means of payment, because of the inconvenience of dealing with large amounts of silver, and by 1890 they had become established by convention as practically the sole medium of exchange, apart from subsidiary 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 (now the Chartered Bank); by then the Oriental Bank had closed its doors and the Chartered Mercantile