63
XHABJJIM.*
AFT. 13W
.we.OČEONI
3 wi
201
Visbeitung
*
=
G
nba
2051
A
}
CA
we may say that a steady rate of 2/8 after the remission for the proceeds of the dollar loan would approximately cover the loss, and just make it worth while to issue the dollar loan.
The same effect would be produced by a mean rate of 2/8 during the 24 years currency of the loan, provided that this mean was calculated not as a simple arithmetic mean, but with due regard to the fact that the exchange rates during the first years of the period would be far more important than those of later years, because the earlier the remittances the longer time they would have to accumulate at compound interest. If the mean rate, so calculated, should prove to be lower than 2/8, the conversion will result in a profit to the Colonial Government.
6.
So far the argument is on fairly firm ground. But the question whether the exchange rate of the dollar will follow such a course as to make the scheme profitable or the reverse is a different question, to which we are not in a position to give any confident answer. Normally, in the absence of the prohibition of export of silver and of other artificial restrictions, it may be presumed that the value of the dollar will fluctuate with the price of silver, and the rate of 2/8 for a dollar containing 416 grains of silver of 900 fineness corresponds to a price of 3 about 42d. an ounce. for silver. During the first half of 1914
the price of silver varied between 26d. and 28d. but it would be rash in the present state of things to say that it is likely to return in the near future, or indeed ever, to anything like that level; and if any measures were taken to establish a gold exchange standard in China and Hong Kong as has been done in India and the Malay States, the effect might be to divorce the value of the dollar permanently from that of its bullion content. On the other hand, the probability may be very strong that on the termination of war conditions there will be a rapid fall in the price of silver, and that the dollar will fall with it and remain for at least several years at a level well below 2/88. The Colonial Government appear to anticipate some such course of events, and they may be right. The Hong Kong & Shanghai Bank possibly think otherwise, seeing that they are ready to take up the proposed dollar loan. We can only say that we are not in a position to judge.
7. We have assumed so far that it will be possible for us, if the proposed dollar loan is issued, to invest the whole of the proceeds in the purchase at about 75 of Hong Kong 3 stock or similar stock redeemable about the same date. There is, however, not much of such stock offering in the market, the bulk of it being firmly held by investors most of whom are not likely to wish to realise; and it might prove to be necessary for us, in order to attract a sufficient number of sellers, to offer a higher price than 75. Thus, as regards the Hong Kong stock itself, the largest amount held is about £250,000, which is held by us on behalf of the sinking funds of various colonial loans. The stock is a very advantageous holding for this purpose as it is redeemable in 1943, at or about which date a variety of the smaller Crown Colony loans fall for repayment. It was of course for this reason that the investments were made by us, and we should not recommend making any exchange for these sinking funds.
8. Failing Hong Kong stock or equivalent stock, we should have to purchase stock redeemable at a different period and perhaps bearing a different rate of interest, and to rely upon its worth in 1943 or on the hope of accumulating surplus interest in the interval to make up the money acquired for the redemption of the Hong Kong stock when due. This would involve a further element of uncertainty, though we do not wish to suggest that it is sufficient todecide against the scheme if the Colonial Government is prepared to face the much larger risk connected with the dollar exchange.
-2-