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I propose to assume that, at an early date, the exchange value of the Dollar will have fallen a further three pence; this is of course an arbitrary figure, and the depre- ciation may stop far short of this limit, but it is, in my opinion, sufficient to satisfy all prudent requirements.
9. Such a fall of three pence means a cost to the Colony, on the annual remittance of £15,000, of £1,065.
10. On the other hand, the local borrowing involves an annual charge of interest of £10,000, against £8,000, the interest charge on borrowing here, giving an excess on this account against the local borrowing of £2,000 a year.
11. It will be perceived, therefore, that even supposing the Dollar should depreciate immediately to the full extent which I have assumed, and should experience no recovery during the whole currency of the loan, the Colony will save £935, a year by borrowing in this country; and it is obvious that the annual saving would be greater in proportion as the conditions fall short of the unfavourable standard I have adopted.
12. The objection raised by the Legislative Council to borrowing in this country, so far as it is based on a possible depreciation of silver, appears to me to be untenable.
13. So far as the present low rate of exchange affects the question of remit- tances between the Colony and England, the only effect of borrowing here will be to relieve the Colony of that form of remittance which is disadvantageous to it, viz., the transfer of money to England to meet the Crown Agents' requirements, which pro tanto will become available for local expenditure in the Colony on account of the purposes of the Loan.
14. In their 2nd resolution, the Committee recommend the issue of 5 per cent. debentures from time to time from the local Treasury, "thus avoiding costs and commissions of every kind as well as the risk of loss on exchange," but my despatch of the 30th of June last pointed out that a loan could be raised in England at 44, possibly at 4 per cent. per annum interest, and that the commission on its issue would be per cent. with an additional cost for printing bonds and similar expenses, which would be incurred whether the loan were issued in London or Hongkong, and it therefore appears that, in order to avoid paying a commission of a per cent. together with possible loss on exchange hereafter, it is proposed that the Colony shall pay at least and possibly 1 per cent. per annum on the whole amount and during the whole currency of the loan.
15. As regards the 3rd resolution of the Committee, I do not understand how the stamp revenue of the Colony will be increased by the local issue of the loan; for, as the borrower in this country, and I conclude in Hongkong also, pays the stamp duty, the duty must be paid by Government, before it can be received as
revenue.
16. With reference to the redemption of debentures, the time within which they shall be redeemed must be governed by the amount which the Colony is prepared to pay, and the Draft Ordinance which was enclosed in Lord DERBY'S Despatch of the 6th of March last could, with very slight alteration, have been adapted to a higher sinking fund; but in the absence of special information on the subject as to the views of the Colonial Government, the usual course was followed of making the sinking fund 1 per cent. I observe that the Finance Committee con- sider that 38 years is too long a period, and that the legislature will be in favour of a larger contribution than I per cent, for a sinking fund; and it further considers that 10 years may be taken as a generation in Hongkong. I need hardly remark that annual contributions of 2 per cent., which the Legislative Council appears to contemplate, would not repay the loan in 10 years, neither would it do so in 20 years.
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17. The point which the Legislative Council has to consider is, how much the Colony can safely pledge itself to provide annually for interest and sinking fund; but I much doubt whether it can prudently commit the Colonial Treasury to a heavier liability in this respect than £15,000 a year, which would repay the loan in 20 years, a period which on general grounds, and looking to the purposes to which the capital expenditure is to be devoted, does not appear to me to be other than reasonable.