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HONG KONG DAILY PRESS. TUESDAY, JULY 29, 1930. REPORT ON HONG KONG CURRENCY.
COMMITTEE'S RECOMMENDATIONS.
VIEWS ON SILVER, NOTE-ISSUES, AND STABILISATION.
We have received from the Colonial Secretary's Office a copy of the General Report" submitted to the Governor for consideration by the Committee appointed in April last to supply answers to six questions bearing upon the currency problem. A summary of the. Committee's report was published some time ago, but we give below in full their answers to the terms of reference,
NO ADVOCATE OF STABILISATION.
Regret is expressed at "the most meagre response" to the gederal "invitation issued to the public to put forward their views and, if necessary, support them by oral evidence. Nobody came forward to advocate stabilization of the dollar.
Several paragraphs of the Committee's Report are devoted to an historical review of the Colony's currency, and to the system of note issue. Attention is called to the fact that, in an emergency, when the limit of note-issue, has been reached by the Chartered and Mercantile. Banks, the Hong Kong and Shanghai Bank alone has authority to exceed the statutory limit of note-issue to any amount by depositing coin or bullion to the value of the excess.
DR. KOTEWALL'S RESERVATIONS.“
At the end of the Committee's Report are published the two reservations made by Dr. Kotewall in signing the Report. REPLY TO THE TERMS OF
REFERENCE.
(a) Is the present currency the most advantageous for the purposes of the trade of the Colony
We have found it difficult to keep our treatment of this question separate from that of questions (e) and (), and our answers to these questions must be read as comple mentary one to another. We have assumed that by "present currency" is meant generally the currency:
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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 unsatisfactory 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 concoting the business of financing, manufactur ing, buying and selling goods, and does not extend except indirectly to the individual or collective interests of any other persons than traders,
Prefacing so much, we have from the evidence received, to reply to the first question in the affirmative, so long as Ching uses a currency hased on silver. `:;
Sycee In Shanghai.
་ ་.
Stabilisation.
desirable in tha in~: We might bere refor in passing to the use of sycee in Shanghai,terests of the Colony that the value of the dollar be “stodilisea 2 ead remark how in spite of its so can any effective steps. be disabilities this medium functions taken to that end which certain limits as an exchange
It is conceded on all hands that Corrective. The exchange level in stabilisation in turrency matters Shanghai cannot remain for long is an ideal which it is most desir too high above the laying-down cost able to attain, and if it could be of silver; and again, oppetite but realised here to the extent to which: natural forces are immediately put it has been affected elsewhere, all in action should the exchange level the problems connected with the tend to move too far below the ac Colony's currency would automati- tual value of silver. It may be cally disappear. The only justi assumed roughly that, when exfication for adhering to the exist change in Shanghai" is quoted ating silver currency is, as we have 4 per cent. below silver, a point already fully explained, the fact has been roached at which it begins that Hong Kong is ycked to South to be profitable to ship sycee and China both geographically and sell it for its silver content. We commercially, and in the last re have previously shown that the ex-sort the question becomes a choice port point of the British dollar of evils whether the Colony should does not arrive until our exchange face the loss of trade, which is ap- falls to over 3 per cent. below the prehended, if it adopts & gold price of the silver content of the basis, or whether it should continue dollar. Bearing in mind then to be buffeted by the fluctuations that as a circulating medium Bri- attendant on the use of silver, as tish dollars have a very limited
a basis for its currency. use, and in zettlement of inter-bank
A Serious LDSS. commitments are far from being
We would here emphasize that acceptable, it occurs to us to put forward the suggestion that some stabilisation could not be effected scheme might be agreed upon at any arbitrary figure but would among the banks whereby bar-silver have to be determined by the value might be utilised in the place of of silver at the time when the minted coins in inter-bank settic change is made, as present hold- All indications seem toings of silver must be sold for. currency in order to finance that show that there is a glut of silver what they will obtain in the new dollars in the Colony, and if some such scheme for the use of har- currency. We are not prepared to hazard an opinion as to the ster- silver could be agreed upon among the banks the loss on seigniorage ling price our silver dollar on fin agreed might be avoided, and it might ally being disposed of would fetch, then be possible to prevent the were stabilisation to be further indiscriminate minting of upon, but undoubtedly the price change value of our currency at British dollars, for minting which would be much lower than the ex- permission might be granted by the time the decision to stabilise Government only in special cir was taken. Any attempt therefore trolled private, note-issue. On the contrary, it might involve Govern cumstances when the note reserves fa hx orbitrarily the sterling value ment, and indirectly the taxpayer, or the Colony's requirements de- of the dollar at a higher rate must in the risks of heavy losses due to mand a further supply. We do fluctuations in the value of silver not consider that outside interests and securities, risks which bankers, being daily engaged in them, are should be allowed the latitude per more competent both to anticipate mitted under the present system and cover. A Government note- issue again would involve Govern of saddling Hong Kong with ment in heavy initial expenditure superfluous coins in order to gain We have conduded, and are sup-in laying down notes and building an immediate profit, a practice against them, and in a constantly which incidentally aggravates the recurring charge for the staff of a problem for, the Colony if and special note department.
and
(ill.) If Hong Kong had a cur- convenient appendage to the cur- reacy based on gold with China's rency, and although the law never currency still remaining on a contemplated that they should sup- silver basis, merchants fear that plant silver dollara, it bas coma the financing of trade would tend about that a demand for currency to gravitate towards China, is in fact a demand for notes, to where a direct exchange transac supply which in practice entails a tion could be effected and bargains purchase of gold by a bank of issue. struck readily to the exclusion of Consequently what the party of de Hong Kong as an intermediary mand regards prima facie as an Trade might thus pass the Colony, obligation in regard to currency
movement becomes, from the point of view of ments. centrifugal a might set in, which in the long the party of supply, nothing more fun would adversely affect the or less than an exchange operation, prestige and prosperity of the which can only be optional. We Colony.
doubt whether in the special circum (iv) We do, not attach much stances of this Colony, from which weight to certain other objections a large quantity of notes must which were mentioned to us. For continually be drained into the hin instance, some feared that Chinese, torland of China, such an oblign merchants, being traditionally he- tion could be placed even on customed to handle silver, might ernment as a note-issuing authority. prefer to continue to do so, and
We cannot moreover see that in move their businesses elsewhere the circumstances of this Colony a rather than adjust their methods Government note-issue would have to the new currency. Again it has been stated that there is they advantages over a properly con possibility in the event of a mark ed appreciation of the price of silver that the Colony would for feit a great portion of its silver token coinage to the melting pot.
Currency Faults.
(o) In what respects if any is the present currency situation in the Colony unsatisfactory?
Forted in our conclusion by all the evidence before us, that the cur
Colony suffers rency system of the from the following faults:-
Gov-
treasuries to hold the reserves
Premium on Notes.
I
when stabilisation has to be effect-
ed.
Issue of Bank Notes.
To give effect to these measures of reform, and provide for that elasticity in the currency which
involve a serious loss, which neither In Government nor any private in- dividual would be prepared to suffer. It is obvious that, during the period of transition towards stabilisation and for long after- suffer severe dislocation, but how wards, trade and commerce will far-reaching the effects may be, or how quickly the Colony would re cover, can only be a matter for conjecture.
The Future of Silver.
As regards the future of silver we do not feel confident to express (1.) There is in fact a fluctuat-
(d) In the premium on noies
any definite views. But though, we ing premium on the bank-rate
fully realise the uncertainties and risks of the situation in this re- over the silver dollar in exchange, over silver detrimental to the pra (ii) The silver dollar is itself perity of the Colony? If so, can a-most inconvenient medium, bet be controlled and by what means
hasty action to effect stabilisation ing difficult to handle, carry and We, find, and are supported in
spect, we would deprecate any over- our finding by all the evidence, that is necessary to meet the growing at a figure that subsequent move- store.
the premium, as a fluctuating and needs of the Colony, we have arments in the price of silver might nrove to have been ill-advised, and uncertain factor, tends to drive rived at the conclusion, after our
disastrong to the best interests of trade past the Colony, and is thus examination of all aspects of the the Colony. In this connection it detrimental to its prosperity....
follows:
Two Dissenting Witnesses. Our vier in this respect has the support of all the evidence taken by us except that of two witnesses. One of these, who is Professor of
Some witnesses have also express Economics at Hong Kong Univered dissatisfaction with those pro sity, favoured a change to a gold visions of the currency system by
The causes from which the pre-case, that some readjustment may may not be out of place to repent basis even if China remained on which the privilego of note issue is mium arises are fully discussed in be called for in the restrictions now the evidence given by American in- a silver basis, being inclined to delegated to the somewhat arbitrary various memoranda printed in Part imposed upon the note-issuing terests before the Royal Commis- discount the disabilities to trade control of private banking institu- III. Briefly summarised they are as banks Admittedly the power of sion on Indian Currency and Fin- note issue possessed by banks in ance in May, 1926, when with re- volves a serious responsibility on gard to the effect of the price of which a change to gold would in- tions.
There is a chronic excess of in their part to Government, which silver on the world's production it volve; the other, who is Chief The Question of Remedies.
visible" exports consisting of Chi- Manager of a shipbuilding firm in
(c) If the situation is unsatisfarnese emigrants remittances from represents the interests of the pub was stated that, should. the price proposal therefore with some difper ounce, 20 per cent of the the Colony, considered the present tury in what way can it be reme- abroad, which lead to large pur. lie, and we make the following of silver fall to 50 U.S. gold cents chases of gold all round by the Edence. As the law stands at pre- world's production would be made. currenty unsatisfactory because of died?
banks. Presumably cover in the the effect the fluctuations in the
sent the extent of note issue is unprofitable, whilst a fall to 33.1/3 As regards remedies for the pre- shape of sales of gold is wasting limited by the amount of the capit cents per ounce would make price of silver had, in making it difficult to estimate sterling costs mium we deal with these fully in and thus the market becomes one al of the bank concerned. Only per cent. unprofitable. It was also sided. It might have been expected. in his business, or to keep a firm our reply to question (d). A offer open for the length of time
As regards remedies for the in that relief would have been obtain the Hong Kong and Shanghai pointed out at the same time that ed by the resumption of the import Banking Corporation Lay issue the reduction of output would pro required between tendering and ac convenience attending the use of the of silver dollars, but the difficulties Botes in excess of the statutory bably not follow immediately on ceptance, and also to finance ships
conditions. We think the prescrib marks might well be taken in con- after construction; he advocated silver dollar we consider that this attending their use for inter-bank limit, and then only under onerous the decline af prices These re therefore some measure of stabiliza inconvenience might be lessened to commitments are still considerable, ed limit should be less arbitrary junction with the views of the even though since October last year tion, though he would not go so far as to say we should depart from some extent, and at the same time it was agreed between banks to ac and should be subject to periodical Chairman of the Shanghe British the silver basis before China did so, the further minting of British dol-cept them freely. Prior to that revision, provided always that the Chamber of Commerce, who in date by tacit understanding between banks of issue fully cover their February last in a letter addressed It may be apposite here to re- lars stopped, if more advantage banke they were not accepted at all, notes by the deposit in the Colony to the Chinese Minister of Com capitulate very baleny the augments were taken of the means that al- and consequently no actual ex- of bulhon or silver dollars to the merce and Industry Nanking, upon which traders both past and presont (sea especially the memo ready exist of issuing notes against change corrective existed The extent of at least one-third, the made the following statement randa of Meters Mackie and Rus deposits of bar-silver in Hong British dollar is current to any balance being covered by approved The present stocks of silver in sell. Nos. 34 and 35 in Part III.), Kong or in London. In general the large extent only in Hong Kong securities deposited entirely under Shanghai would be insufficient to and its costs through seigniorage Government control. The public finance China's trade, were such vely to show how any attempt to practice of issuing notes against and interest are approximately 5 would thus be adequately safe trude normal." base the currency on any other metallic standard of value than bar-silver seems to us preferable to per cent.; morcover since the only guarded. that used in China would be issuing them against silver dollars. way of disposing of it elsewhere is harmful to the trade and thus Wo realise however that many coins by melting it down, to meet the loss indirectly to the general welfare of that there would be difficulty in cent might have to be added to connection with: the premium is to the Kemmerer Commission a com
may still be needed as currency and thereby incurred, another 3 por the as follows:
Traders” Arguments.
?
The Slump in Sliver.
Preparing for the Future, Finally since China has DOW As the root of the difficulties in worked out through the agency of
without loss of the cost of making son with the uncoined metal, the remittances, it is obvious that the in more propitious circumstances" and importing them. We do not ilver dollar possesses grave disd-recent lowering of the rate of insho may make the changes to a (2) Hong Kong is not a pro- favour any attempt to prohibit the vantages, in that its import and ex-terest allowed by banks on deposits gold standard currency, we con ducing but a transit centre; ita minting of importation of British port points are widely, removed should also in the long run tend sider that it is of the utmost am- exports and imports are almost
remedy the situation. But portance that Hong Kong, as be entirely on China's account; the dollars, as such action might simply As regards the possibility and to trade which it handles is intend to raise the premium on the means of controlling this premium, owing to the unprecedented fall in ing unable herself to exercise any reality China's trade. In spite of note, until some exchange corrective we consider that, if the issuing silver, overseas Chinese bave been control over the price of silver, the fact that all countries from 1n the form of silver bars is pro- banks here were to give out notes induced to make excessively large thould be in a position to antici-
vided.
freely in exchange for legal silver remittances to Hong Kong with a pate such a move on the part of which importe come and to which. Exports go are now on a gold As regards the control of note coins, the exchange level of Hong view to getting the benefit from an the last remaining user of silver basis, and that there is a great issue by private banking institu- Kong currency must approximate expected rise in exchange, and it on a large scale. Although we can improvement nowadays in the tions we have more to say on this to silver parity, but, as we have may be some time therefore before not see that China will be able to speeding up of communications topic when we come to discuss the already indicated, the inconveni- the action of the banks will make take this step in the immediate fu- between the Colony and China, it remedies for the premium, Those ences attendant on the use of zilver. itself fully felt systure and although we are rather still is of the utmost importance who are dissatisfied with the system dollars discourage the banks of (e) le tue linking of the currency disposed to regard. China' desire that the Colony's currency should of issue by private banks have issue from accepting any more of with silver advantageous to the for a gold standard for the time conform as closely as possible to suggested to us as alternatives them than is absolutely necessary Colony 1 If so can it be more being as a pious hope, since any that of China, and that unneces-either that Government should take for their business. If it is asumed closely linked such scheme in the nature of things We consider that we have sup- must entail the reorganisation of sary exchange transactions be over the whole note issue, or that that silver parity is maintained in
be
eliminated. sig vade it should exercise much more Shanghai, the local quotation for plled sufficient answers to those her political and fiscal machinery (ii)The ill-effects of any direct control than it does at pre- taels day by day against a parity questions in our remarks in reply and the obtaining of large financi “Bevergence kry waapisha rant open the "inuing banks We of roughly Tie 72 accurately into question (4), where we imply al credits from outside, "neverthe-
a high premium exists of congrave ghe cares and mind. Filingla, Aberrizit, of the pitundum forge Clinke har legg Hong Kong should not Kong exchange and drives bue their views, but have concluded that here, but la spite of large, imports currency to stream is found unarprated "dor, quei fis ness past the Colony to Shanghai, much of their dissatisfaction arises of British dollars the expected effect be advantageous to the Colony to event in China, or she might find It naturally follows that these ill-from a misapprehension regarding of removing the premium or restor do likewise. In the preceding par herself a holder of much-cheapened
contemplate effects would be accentuated by the obligation of the note-issuing ing a normal tael rate has not fol agraphs we have indicated the silver, £ situation too disastrous to making a clean break between banka. Although notes were never lowed. An exchange corrective means by which a closer link may
be forged.
(Continued on Page T.) the two currencies.
legal tender, but were primarily therefore has still to be found.
Devasunk kedokRO TAMAN