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In their letter of the 4th. February regarding the
proposal which I made to convert the existing Government Loans
into Dollar loans the Crown Agents say: "It is thus clear that the scheme amounts in effect to a speculation on the probability that the exchange value of the dollar will fall below the present
level of about 3/-"
I think they have overlooked the fact that by redeeming the loan at an exchange of 3/- the cost in dollars to the Hong- -kong Government will be considerably less than the amount of dollars received at the time the loan was contracted and that where the element of speculation really lies is in borrowing in a currency other than that of the revenue of the Colony.
It should not be inferred from the willingness of the Hongkong & Shanghai Bank to take up the doliar loan that they anticipate a higher sterling price for the dollar. The rate of Exchange at which the transfer would take place is quite immaterial to the Bank for as far as the exchange part of the transaction is concemed they would merely quote the Government approximately their selling rate of the day and if accepted buy sterling to cover the amount thus closing the transaction in a very few days.
The loan to the Government of the comparatively small
sum of $3,500,000 would be no tax upon the local Funds of the Bank.
I think a serious mistake will be made if the present favourable opportunity of transferring the loans from sterling
into dollars is not taken.
25th. April, 1919.
(Sd.) David Landale.