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(c). Reserve or Redemption Fund to be created by an initial vote of say $200,000 and added to annually by 850,000.

Profit on investments thereof in silver securities also to accrue to the Fund.

(d). Prohibition of foreign coin at some convenient date after the scheme has been initiated.

18.

While on this point of prohibition my attention was called to the Home Treasury's letter to the Colonial Office of 21st. December, 1910, wherein (in the 11th. paragraph) the question of the operation of

Gresham's law is discussed.

But the above paragraph refers to two sets of Chinese coins

issued and circulated in China and the different matter of the sub-

-stitution of a foreign coin by a native one in the Colony has not been touched upon.

alleg

I therefore do not see that it affords the view expressed in

paragraphs 1 and 10 of this memorandum.

If prohibition were not enforced and at the same time Hongkong coin were redeemed the subsiliary currency of the Colony would I think

be mostly the Chinese imitations circulating at a rate of discount per- -haps but still taking up the room of a subsidiary coin of fixed value.

This rate of discount might even become as high as to lower their current value to nearly that of their intrinsic value but they would I

believe circulate all the same.

The fact that they would still circulate in China at a figure above their bullion value owing to their being the only coin in China would however tend to keep them at a price above the intrinsic, until they were absolutely discarded by the Chinese Government. This is an end which, guessing from experience, might be deferred for years.

I am of opinion therefore that ultimate prohibition say within two years or so is a necessity for the entire success of any scheme which has in view a stable currency in the Colony for the purposes of

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