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not given to this point, and they would impress upon the Secretary of State and the Colonial Government that the first and principal question for discussion is the price at which a British or Hong Kong dollar can be laid down in Hong Kong, as compared with the prices in the colony of Mexican or American dollars. If, as my Lords and the Deputy Master of the Mint anticipate, the cost of the British dollar be the greatest, the Secretary of State will have to consider whether the colony ought to undertake the cost of manufacture; and it is to be borne in mind that the wider the circulation and the greater the expense, the greater will be the success of the proposed coin.
Sir Hercules Robinson observes: "Hong Kong is a mere directing centre and financial capital for a trade carried on outside it. The principal merchants and the banks keep there their central establishments, and there their balances are adjusted and the exchanges regulated; but the real business of buying and selling is carried on at the open ports. The strings are pulled, as it were, in Hong Kong, but a chest of tea or a bale of silk never touches the shores of Hong Kong. Millions upon millions of dollars are thrown into the Colony annually, and pass through it as through a sieve on their way to the open ports."
If the proposed dollar were accepted by the Chinese, it is to be feared that it would only pass through "the sieve" not to return at all, or to return chopped and disfigured after the fashion, which gives such good ground for dissatisfaction, and the result would be a constant demand for new dollars, on each of which the Colonial Treasury would incur a loss.
It remains to be considered whether it would be possible to restrict the internal currency of the colony to clean dollars. The correspondence shows that the mutilated coins now in use cause grave inconvenience, and that there is a general wish for reform. The popular remedy appears to be a proclamation declaring that from a certain date clean coins would only be accepted.
My Lords, however, feel sure that the Secretary of State will agree with them that no such proclamation should be issued, even if desirable in itself, unless the Government be reasonably assured of its success. Experience has repeatedly shown that legislation on monetary matters, at variance with the wants or convenience of the community, is set at nought, and it needs no instances to prove that laws which do not work are mischievous. The question is: Hong Kong being little more than a suburb of Canton, can the coin current in the latter be kept out of the former? It would be well if the Colonial Government were desired to consider carefully this question in its relation to the proposed remedy, and to report their conclusions.
The demand for one dollar notes is in some degree connected with the movement for a clean currency, for my Lords observe that allusion is made to it in the correspondence under review, and the general ground upon which the issue has been advocated is the benefit to all classes in Hong Kong of a convenient substitute for the present chopped and disfigured currency, and it is the main argument upon which the Administrator of the Government relies in his despatch of the 10th June, enclosed in your letter of 17th August.
My Lords hold that departure from safe and sound principle in monetary legislation will sooner or later entail upon the community, when the experiment is tried, evils far counterbalancing the immediate advantages which more speculative proposals may offer. The Colonial Banking Regulations were drawn up with great care, and they embody the accepted principles of safe banking; no mischief, therefore, can ensue if they are obeyed. If in the process of time competent judges of such matters think that changes are required, the regulations themselves should be modified upon a consideration of general principle; again, if the circumstances of a particular colony demand exceptional legislation, the burden of proving the necessity lies on those who plead it, and the demand should be carefully considered by the Secretary of State, with the assistance of this Board, before any action is taken. My Lords think it a most dangerous innovation that the Governors of Colonies, who have not necessarily made such matters their study, should be permitted to sanction departures from the Colonial Banking Regulations, at the instance of the parties for whose control those regulations were devised.
As matters are now, my Lords understand that the issue of one dollar notes is restricted to the 226,000 dollars, which the Hong Kong and Shanghai Bank has actually in circulation, and that there is no impediment to the recall of that limited power of issue, if it be thought expedient.
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Of course, this restriction will reduce the risk to a minimum, which might follow a panic among an ignorant and alien people, and, for practical purposes, it might not be necessary to press objection further; but my Lords cannot help observing that the monopoly accorded, for no reason apparently, to the Hong Kong and Shanghai Bank is, even in its restricted form, utterly unjustifiable, and they cannot help thinking that it should be put an end to as soon as an opportunity can be found.
At this point, my Lords might conclude, but they are anxious to assist the Colonial Government as much as possible in putting an end to the monetary difficulties, which are the subject of complaint. They will, therefore, make a suggestion which they think might be feasible and justifiable, considering the exceptional situation of the Colony. They assume, upon the evidence before them, that the issue of a small note would be of real benefit for internal circulation, and that the object of the Government of the Colony is to provide such a note as a substitute for the degraded currency now in use. My Lords have considered whether it would be possible to secure such an issue against the risks to which it is peculiarly liable, and they make it a condition of their suggestion that the Colony must confine themselves to an issue so secured without regard to profit. It is evident that on these terms, it is not a privilege for the banks to possess, because they could only use it upon ordinary trading principles, i.e., for the purpose of profit; and they, for that purpose, could only retain a small reserve of coin in hand, insufficient to meet such a demand as might be apprehended in case of panic.
If, however, the Colonial Government were to issue small notes, retaining coin in their cellars against every note, the experiment might be safely tried. There would no doubt be expense to the Government in the first instance. As experience was gained, it might indeed be possible to make other arrangements; but in the first instance, all idea of profit must be abandoned, and the issue regulated simply to supply a want of the community in very exceptional circumstances.
In making this suggestion for the consideration of the Secretary of State, and without pledging themselves absolutely to its adoption, my Lords wish it to be understood that they have not modified their views on the subject of State issues by small communities. They are proposing a special measure to meet a special emergency.
C
It has been urged that it is true commercial policy to issue small notes, in order that trade may be diffused among the many, in preference to among the few capitalists." It appears to my Lords that such theories are of dangerous tendency. The duty of the State, in the regulation of the coinage, is not to consider the interest of any class, large or small, but to found its legislation on sound and simple principle, assured that such legislation will in the end conduce to the interest of all classes.
My Lords observe, with some surprise, a statement in the debate of the Chamber of Commerce, that the Yen had been declared legal tender in the Straits Settlements. They presume that such a step would not have been taken without reference to the Secretary of State, but they find no mention of it in the correspondence between the Secretary of State and this Board.
The Under Secretary,
Colonial Office,
I am,
SIR,
Your obedient Servant,
R. R. W. LINGEN.
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