107
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(e) Is the linking of the currency with silver advantageous to the Colony? If so can it be more closely linked?
31. We consider that we have supplied sufficient answers to these questions in our remarks in reply to question (a), where we imply that as long as China links her currency to silver so long must it be advantageous to the Colony to do likewise. In the preceding paragraphs we have indicated the means by which a closer link may be forged.
(f) Is it desirable in the interests of the Colony that the value of the dollar be stabilised? If so can any effective steps be taken to that end?
32. It is conceded on all hands that stabilisation in currency matters is an ideal which it is most desirable to attain, and, if it could be realised here to the extent to which it has been effected elsewhere, all the problems connected with the Colony's currency would automatically disappear. The only justification for adhering to the existing silver currency is, as we have already fully explained, the fact that Hong Kong is yoked to South China both geographically and commercially, and in the last resort the question becomes a choice of evils: whether the Colony should face the loss of trade, which is apprehended if it adopts a gold basis, or whether it should continue to be buffeted by the fluctuations attendant on the use of silver as a basis for its cur-
rency.
33. We would here emphasize that stabilisation could not be effected at any arbitrary figure but would have to be determined by the value of silver at the time when the change is made, as present holdings of silver must be sold for what they will obtain in the new currency in order to finance that currency. We are not prepared to hazard an opinion as to the sterling price our silver dollar on finally being disposed of would fetch, were stabilisation to be agreed upon, but undoubtedly the price would be much lower than the exchange value of our currency at the time the decision to stabilise was taken. Any attempt therefore to fix arbitrarily the sterling value of the dollar at a higher rate must involve a serious loss, which neither a Government nor any private individual would be prepared to suffer. It is obvious that, during the period of transition towards stabilisation and for long afterwards, trade and com- merce will suffer severe dislocation, but how far-reaching the effects may be, or how quickly the Colony would recover, can only be a matter for conjecture.
34. As regards the future of silver we do not feel confident to express any definite views. But though we fully realise the uncertainties and risks of the situa- tion in this respect, we would deprecate any over-hasty action to effect stabilisation at a figure that subsequent movements in the price of silver might prove to have been ill-advised and disastrous to the best interests of the Colony In this connection it may not be out of place to repeat the evidence given by American interests before the Royal Commission on Indian Currency and Finance in May 1926, when with regard to the effect of the price of silver on the world's production it was stated that, should the price of silver fall to 50 U.S. gold cents per ounce, 20% of the world's pro- duction would be made unprofitable, whilst a fall to 33 cents per ounce would make 58% unprofitable. It was also pointed out at the same time that the reduction of output would probably not follow immediately on the decline of prices. These remarks might well be taken in conjunction with the views of the Chairman of the Shanghai British Chamber of Commerce, who in February last in a letter addressed to the Chinese Minister of Commerce and Industry, Nanking, made the following
statement :-
"The present stocks of silver in Shanghai would be insufficient to finance.
China's trade, were such trade normal".
35. Finally since China has now worked out through the agency of the Kem- merer Commission a complete and detailed scheme, whereby in more propitious cir- cumstances she may make the change to a gold standard currency, we consider that it is of the utmost importance that Hong Kong, as being unable herself to exercise any control over the price of silver, should be in a position to anticipate such a move on the part of the last remaining user of silver on a large scale. Although we cannot see that China will be able to take this step in the immediate future and although we are rather disposed to regard China's desire for a gold standard for the time being as a pious hope, since any such scheme in the nature of things must entail the reor- ganisation of her political and fiscal machinery and the obtaining of large financial credits from outside, nevertheless Hong Kong should not be found unprepared for