103
11. The privilege of issuing notes in the Colony was granted to the Chartered Bank in 1853, to the Hong Kong and Shanghai Banking Corporation in 1866, and to the Mercantile Bank in 1911. The understanding or convention, by which notes be- came accepted in all banking, mercantile and revenue transactions almost as the sole medium of exchange apart from subsidiary coins, is said to date from about 1890 onwards; it subsequently became in fact a tacit agreement not to observe too strictly the terms of the `Order-in-Council of 1895. The acceptance of this convention was almost universal and any attempt to depart from it by meeting obligations with coin tended to be suppressed by reciprocating in kind. The total daily average amount of notes of the three issuing banks in circulation during the month of April 1930 was over 91 million dollars.
History of the so-called Premium on Notes.
12. The phenomenon of the local bank note or promise to pay becoming cap- able of purchasing a greater quantity of another currency than the number of silver dollars which it promises to pay could purchase has been a recurrent attribute of Hong Kong currency in a greater or less degree for at least thirty years; but the per- centage of this premium caused no serious inconvenience till 1908 when on it rising to 34% a move was suggested to remedy it by an unlimited Government note issue. as had been attempted in the Straits some years previously. At the suggestion of the Secretary of State for the Colonies this project for a Government note issue was abandoned, and the difficulties were solved for the time being by granting in 1911 the Mercantile Bank the privilege of note issue. During the war and post-war periods, when the price of silver was high, the problem did not arise; but after 1926, when silver declined in value, the divergence became marked, until in September, 1929, it represented a difference of 20%. The course of the premium is traced by Professor Robertson, Mr. Ferguson and Mr. Breen in their memoranda in Part III. Mr. Breen also gives an account of the attempts made to remedy a situation, which was becoming more and more difficult to handle, as the continued fall in the value of silver tended to aggravate the premium in so far as the rate of exchange in the Colony lagged in following silver on the downward course. Subsequent action by Govern- ment to assist in remedying the situation by reducing the stamp duty on bank notes to the extent of requiring not more than 1% per annum on $45,000,000 of the ag- gregate bank note-issues of the Hong Kong and Shanghai Banking Corporation is evidenced by the correspondence with the associated non-issuing banks, (printed in Part III), which culminated in Government Notification No. 625 of 1929, (also printed in Part III). The premium still persists however to quite an appreciable degree as silver keeps dropping.
REPLY TO THE QUESTIONNAIRE FORMING THE TERMS
OF REFERENCE:
(a) Is the present currency the most advantageous for the purposes of the trade of the Colony?
13. We have found it difficult to keep our treatment of this question separate from that of questions (e) and (f), and our answers to these questions must be read as complementary one to another. We have assumed that by "present currency" is meant generally the currency established on a silver basis by the Order in-Council of 1895, and that there is no immediate reference in the question to the tangible shapes which this currency has taken, the disadvantages and unsatis- factory features of which are dealt with in our reply to question (b). We note also that the scope of the question is limited to trade, a term which we understand as connoting the business of financing, manufacturing, buying and selling goods,-and does not extend except indirectly to the individual or collective interests of any other persons than traders.
14. Prefacing so much, we have from the evidence received, to reply to the first question in the affirmative, so long as China uses a currency based on silver.