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With these data an approximate estimate could be made of the amount and the present distribution of the Hongkong subcoin which it would be incumbent upon the Government to redeem, Mr. May writing ou the 27th April 1907 on this subject thought it highly probable that the amount which might be expected to be finally returne on our hands would come to the neighbourhood of 20 millions, an excess over requirements of 18 millions.
II. The next step would be to secure that, if possible, the redemption of subcoin should. be spread over a series of years so that the finances of Government at any given time might not be seriously embarrassed by the operation. To this end, when as much Hong- kong subcoin as is usually held in considerable amounts by banks, companies, merchants, etc., has been located, an attempt should be made to enter into an agreement with such holders to refrain from pressing the Government for immediate redemption. The terms. offered to such holders by Government might be-
(4.) a promise of redemption at face value within a fixed period by instalments, annual
or otherwise :
and
(5.) payment of interest on unredeemed boldings. The holders on their part would have to agree to hand over to the Government the whole of their holdings of Hongkong subcoin, as well as all Hongkong subcoin subsequently from time to time acquired by them, at face value as a lean bearing a certain interest and redeemable by a certain date. It is. probable that the large holders would gladly accept these terms, as they would directly profit by the immediate rehabilitation of the subcoin, and no doubt a low rate of interest would be secured by Government, in view of the discount at which these coins now stand.
III. Accepting provisionally Mr. May's estimare that the face value of subcoin which the Government would have to redeem is about $20,000,000, it is not unlikely that 2/3rds of that amount would either be in, or come into, the hands of the large holders, who would thus hand over the Government subcoin to the face value of $12,000,000. Assuming that, as previously stated, the loss ou shipping subesin to a mint, demonetizing it, and either selling it as bullion or converting it into dollars, is 14:82% or say (for convenience and to allow a margin) 15%, the loss on $12,000,000 would be $1,800,000. In other words the net value of the loan obtained by Government would be $10,200,000, and this sam would be available to buy up subcoin in the hands of small holders, who, however, according to the above estimate hold only $8,000,000. There would, therefore, at the very start be $2,200,000 available to cover the loss on demonetizing the loan of subcoin made to the Government by the large holders.
IV. As soon as the agreements with the large holders had been complete and the net value of the loan made by them become available for use, a notice would be issued to the effect that the Government was prepared to buy Hongkong subcoin at face value. The effect of such a declaration would be that Hongkong subcoin would at once rise to its face value, i.e., be rehabilitated. There would no doubt at first be a rush of sinall holders to sell Hongkong subcoin to the Treasury, but the funds to meet such a rush would be ready and it is likely that after a short time the excitement over the matter would subside. The present limit of the legal tender of subcoin should remain unchanged, and thus the value of the dollar itself would not be affected. It would only be necessary to establish for the time being a sub-department of the Treasury for the purchase of Hongkong subcoin, while both merchants in their business and the Government in collecting its revenue would adhere to the established rules with regard to legal tender of coinage." The redemption of subesin would be an entirely independent transaction: and the subcoin as redeemed would be demonetized, sold or converted into dollars and used for payment of interest and sinking fund on the loan made to Government by the large holders.
V. As soon as it was considered safe to do so a new and wholly different Hongkong subsidiary coinage would be issued to take the place of the coins withdrawn. These new subcoins would be of nickel, or some similar metal, and the profit on issuing them would also be appropriated to the subsidiary coinage loan account until the loans were finally redeemed. It is probable that the profit on issuing a nickel coinage would not be less than 50% but on this point I have no reliable information. As soon as the issue of new subcoins was made, the old subcoins would be declared to be no longer legal tender and would, therefore, be received only at the office established for purchasing subcoin. Finally when it was held that further redemption could properly be suspended, the purchase of old
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subcoin would cease, and private individuals would be left to melt down or otherwise dispose of such Hongkong subcoins of the old issue as might subsequently come into their possession.
VI. To sum up therefore :-If we have to redeem a face value of $20,000,000 Hong- kong subcoins, we shall probably lose on account of demonetization a sum of $3,000,000 (4.2, 15%). In addition to this we shall have to contract a loan with the large holders of subcoin for a face value of $10,200,000. If this loan bears an interest of 2% per annum, the sum payable annually as interest would be $204,000. But, as above stated, the average annual loss to revenue for the last three years (1906-8) on account of subcoin (including loss by demonetization) has been $184,204- a loss which has produced no compensating benefit ; whereas the suggested outlay of $204,000 would be immediately effective. More- over, the interest on the loan will rapidly decrease as the lonu itself is paid off by the sale of the demonetized subcoin.
There remains the dead loss of $3,000,000 in the process of demonetization. But, if Mr. May is correct in estimating that a sum of $1,500,000 of subcoins is required for the Colony's business and that an aunaal issue of about $100,000 would be necessary to provide for deficiencies, then the new issue of nickel coins at a profit of 50% would produce à sum of $750,000 on the original 15 lakhs, with an additional $50,000 per annum on the yearly issue. The loss of $3,000,000 would, therefore, at once be reduced to $2,250,000 and in any case the whole loss of $3,000,000 wonki not have to be met immediately. The immediate loss on demonetizing the loan of subcoin from large holders would only be $1,800,000: and, as shown under subbed HI supra, there would be a sum of $2,200,000 ready to hand which would more than cover this loss, and would in fact all but cover the full loss of $2,250,000 which would only accrue after the redemption of a total face value of $20,000,000 of subcoin.
The
It would probably take one year to make the necessary arrangements with large holders for the demonetization of their holdings: and it may perhaps take 5 years to buy out the small holders and so complete the purchase of a face value of $20,000,000 of subcoin. demonetization of this sum will yield a net value of $17,000,000 out of which has to be paid a sum of $8,000,000 to small holders plus $1,224,000 (interest on loan from large holders for 6 years at $204,000 per annum) plus $3,000,000 (loss on demonetiza- tion)-$12,224,000. At the end of the 6th year (if not sooner) there would therefore be available a sum of $4,776,000 to deduct from the loan of $12,000,000 leaving an unredeemed balance of $7,224,000, from which must be further deducted $750,000 (profit on the new issue of subcoin). There would remain, therefore, in the 7th year a loan of $6,474,000 and interest on this at 2% would only be $129,480 per annum, while from it must be taken the sum of $50,000 received annually as profit on the new issues of subcoin made. There- fore, after the 7th year the vote for subcoin would be reduced from $204,000 to $79,480 per annum, a sum not much greater than the figure of $66,347.55 entered in the Treasury books last year as being loss calculated at the rate of 14% on the actual amount of subcoin received by the Governinent as revenue, In addition to interest provision would have to be made annually for repayment by instalments of the outstanding loan of $6,174,000, the sum payable annually being determined by the period stipulated in the loan agreements : and this loan might be greatly reduced by the payments from the Colonial Reserves, which could not be put to a more legitimate purpose than the rehabilitation of the Colonial Currency.
I submit the foregoing suggestions in no dogmatic spirit and the figures throughout are, of course, tentative only: but I think that the solution of this problem, unless it comes from China, will have to be sought on some such lines as those now indicated.
C. CLEMENTI,
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