メ
legot
7415
Currency
already. When Thing thean is
·
Currency effectin use
"C
Hillary. Weekly Press, 1110-29.
THE DWINDLING DOLLAR.
(Daily Press, October 8, 1929). FROM a reader in Manila comes a letter dated October 4 asking whether the Hong Kong dollar has slid down to what can be con- sidered more or less normal for the next few years?" Scarcely had this letter left the Philippines when the dollar commenced to
"slide again, and our correspondent, all unknowingly, has put a question which is being very widely asked in the Colony. Already we hear of several small Chinese firms being in serious difficulties, some having actually suspended business. On October 5 (Saturday) the dollar dropped from 1/10.3-16 to 1/9), and vesterday (Monday) was quoted at the same figures. Not since 1915 has the Hong Kong dollar been so low, though it touched 1/9 in 1926. A suggestion has been hastily put forward by Chinese merchants that the Government should compel the local hanks to make payment in silver dollars instead of paper cur- The idea is that if this rency. were done for a fixed period-a minimum of six months is pro-
silver posed-the
dollar would again become legal currency, and its value would be based directly upon the price of silver. At pre- sent the paper dollar stands at about 16 per cent. above silver parity, and the Chinese merchants urge that the Government obtain the advice of an independent currency expert with a view to finding the best method of keeping the note issue on a par with silver dollars, and the latter on a par with silver. Pending the discovery of such solution, the banks should pay out no more notes, passing over their counters nothing but silver.
There is શૈ very considerable amount of mystery surrounding the whole subject of Hong Kong cur- rency, and we have good ground for saying that most careful and diligent official inquiries have fail- ed to find a satisfactory explana- tion of the peculiar circumstances which have come into existence in this Colony. Until the cause can be clearly traced, can a satis- factory remedy be found? The plain fact is that a small piece of printed paper, usually very tattered in appearance and filthy to handle, is regarded in this Colony with much more favour than the silver coin for which the note is a very convenient substitute. Mr. W. F. SPALDING, Å well-known authority on finance and banking, has given a brief outline of how this state of affairs came about. More than sixty years ago, over two million British silver dollars were minted in this Colony, mould- ed after the fashion of the popular Mexican dollar, but they failed to meet with the favour of the Chinese, and were accepted by them only at a discount of one per cent. or more. Since 1872 the Hong Kong and Shanghai Banking Cor- poration has been permitted to issue currency notes, and this paper -together with the notes similarly issued by the Chartered Bank and Mercantile Bank--has found much favour among the Chinese com- munity. Simultaneously, the de- mand for silver dollars has steadily
decreased, and as a result notes have come to command a premium as compared with the metallic cur- rency they represent.
The fundamental basis of ex- change between Hong Kong and gold standard countries is the gold value of the silver content of the dollar. If silver rises in value, then exchange also will tend to rise; if silver falls in price, then ex- change will follow suit. On July 1 last, silver was quoted at 24.1-16, and the dollar stood at 1/11 3-16. About the middle of September silver went down to 23 11-16, and the dollar to 1/10 15-16. Last week- end silver was quoted at 23, and the dollar at 1/91. These figures seem to show very clearly the work- ing of cause and effect; cheaper silver, cheaper dollar. Since 1919 the silver market has been going down, and dollar exchange has shown a similar trend. The follow- ing figures provide interesting evidence of this movement :-
SILVER IN LONDON.
-
Highest. Lowest.
27 221
47.7-16
1900
30
1914
27
1919
79
1920
89
387
1921
4333
30g
1922
378
30%
1923
33.11-16
30/
1924
36.1-16
313
1925
33.7-16
1926
1927
31.1-16
31.13-16 241 28
HONG KONG EXCHANGE.
243
Highest. Lowest. 2/11/ 1/11 1/11 1/81 3/02
1900
1914
1919
5/2
1920
6/2
1921
3/12
1922
2/72
1923
2/4/
1924
2/58
1925
2/5/
1926
2/4/2
1927
2/03
1/99 1/11
The price of silver is not the only factor to be considered, but it will be noticed that as the metal has become cheaper, so has the value of the dollar come down. The recent drop again coincides with a fall in the silver market, and if the metal is quoted still more cheaply, the dollar may be expected to fall proportionately. The gold price of silver is the fundamental basis for fixing Eastern exchanges, and although exchange may not react immediately, owing to other minor factors also influencing financial and trade conditions, it will event- ually go up or down in sympathy with the silver market.
The other question-that of the disparity between notes and silver dollars-is much more puzzling. Communities suffering from a de- preciated paper 'currency-incon- vertible paper or notes issued far beyond the amount of metallic reserves are not uncommon. But Hong Kong "suffers " from the strange disease of having an appre- ciated paper currency, standing at about sixteen per cent. above par. Why should a torn and very greasy piece of paper be so much more acceptable than a bright and clean silver dollar? In the first place, the Chinese know there is ample security behind the notes; secondly, they have much more confidence in 2 British banknote than in an
|
18
unchopped dollar (and even
chopped dollars depreciate very rapidly as a result of this rough treatment); thirdly, paper currency is much more convenient to handle than heavy silver coins. There may be other reasons, but these appear to be the chief factors ex- plaining why paper currency is popular in Hong Kong, where pay- ment in notes is generally recog- mised as the basis for all exchange and business operations. If, how- ever, it is a fact though it is not yet clearly established that this premium on local notes has a very harmful effect upon local trade and industry, then it will not be long before this disability is removed. With silver at 26d. per ounce, the dollar would be worth about 1/103; at the present market price of silver, the dollar is worth approxi- mately 1/9, so that with exchange trembling half a point above that figure it seems that parity between notes and coins is almost in sight. It is most improbable that paper currency will be withdrawn entire- ly (as suggested by Chinese mer- chants) and only silver accepted as legal tender. This would be prac- tical so far as single dollars are concerned, but the larger notes would certainly have to remain, though the public might be given the choice of taking paper or coin when they go to the banks, and it will be interesting to see what happens after the novelty of hand- ling pieces of silver has passed. Paper money is now in such general use throughout the world that we shall be surprised if it loses its popularity in this Colony. If, as is probable, Chinese prejudice in favour of banknotes reasserts itself, and the bright silver dollar is again regarded with unfriendly eyes, what is to prevent a repetition of what has happened during the last few years a premium on paper mouey? We leave this problem to the expert who eventually may be summoned from England to look into the problem of Hong Kong currency and suggest a remedy for the difficulties created. Meanwhile, our answer to the question from a Manila reader is in the affirmative -the Hong Kong dollar appears to have settled at a figure more or less normal," and seems likely so to remain.
<<