CURRENCY AND BANKING
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Bank of India had reorganized. In 1911 this reorganized Mercantile Bank of India (now the Mercantile Bank) joined 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. The Currency Ordinance of that year, later renamed the Exchange Fund Ordinance, set up an exchange fund to which note-issuing banks were obliged to surrender all silver previously held by them against their note issues, in exchange for certificates of indebted- ness. 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 sterling and operates in a similar manner to the traditional Colonial Currency Boards. The Ordin- ance also made the banknotes legal tender.
At the same time Government undertook to issue one-dollar currency notes to replace the silver dollars in circulation. On 12th December 1960, a dollar coin was re-introduced; it is of cupro- nickel and about the same size as a United Kingdom florin.-The dollar notes are backed by a Note Security Fund which maintains its assets partly in sterling and partly in Hong Kong dollar bank accounts; similar arrangements are being made for the backing of the dollar coins. The Government also at present issues subsidiary coins of the value of 5 cents, 10 cents and 50 cents, and notes of the value of 1 cent.
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The Hongkong and Shanghai Banking Corporation and the Chartered Bank both introduced new notes in 1960; they are of the same colour as the old but are smaller and have some modifications of design. The replacement of the old notes by the new was not complete at the end of the year.
Since 1935 the value of the Hong Kong dollar has been main- tained 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.
The total currency in nominal circulation at 31st December 1960 was:
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