OP Y.
110
Hon. Colonial Secretary,
to two causes:-
I suggest that the difference in value is due
•
the same
(a). The primary cause lies in the law of supply and demand and the balance of trade. The silver dollar is the basis and its value depends upon the price of silver. The exchange rate of the dollar is not necessarily in fact it usually is not as its silver value. The exchange rate can be fixed by any bank, but the Hongkong Bank actually does fix it, as its position is so much the strongest, and it fixes it in accordance with what it considers to be the requirements of trade. When the Bank is buying at a rate above the silver rate it is buying not silver dollars, which are so much silver, but credit, and its notes being not silver but merely a medium of exchange of no intrinsic value they circulate at the rate of exchange fixed by the Bank. Latterly the Bank has been keeping exchange above the value of silver and notes nave consequently been above the value of the silver dollar. On the morning of the 2nd.. instant silver was quoted at 26.8125, which multiplied by the constant factor 868 gives a value of 1/112 to the silver dollar, but the Bank on the same morning fixed
silver the rate at 1/11%, some 1% higher, and notes were quoted and then per cent. higher than the silver dollar. I am informed that for a considerable part of last year and for a period prior to the middle of May this year notes and silver dollars were at practically the same rate.
I am informed also that not long ago, when the Banks which were quoting slightly under silver, notes were at a discount,
supports my theory.
(b). A secondary cause lies in the bulk of the dollar. The Chinese are accustomed to carry through large transactions in cash, where Europeans employ cheques and similar documents. $1,000 in silver weighs sixty pounds, and transport and storage charges should tend to send notes to a premium, especially when money is being sent into China.
(Sd.) M. Fletcher,
Treasurer. 4.7.13.