Treaty ports on a strict silver basis exports
including, as an important item, the services
of shippers and other agents in the extensive
entrepot trade of the port). It is true
that, as a result of variations in the premium,
the Hong Kong dollar rate may not have been
subject to such violent fluctuation as the
silver rate, but this advantage was offset by
the effects of fluctuation in the premium itself.
c.f. first paragraph on page 9 of the Print).
Financial houses involved in the financing of
trade found themselves in a most awkward
position since loans made by them on the basis
of the note rate might be repaid, at a heavy
discount, in silver dollars, these being legal
tender for any amount.
The causes of this situation are not
entirely clear, but they appear to have been
as follows.
The exchange banks, counting no
doubt on a prospective fall in the Hong Kong
rate pari passu with the decline in world
silver prices, bought "gold" on an extensive
scale. The subsequent demand for gold was,
however, less than had been anticipated, owing
to (i) the effect of fall in silver, which, by
making purchases in gold countries more
expensive, checked imports.
This is, of
course, not related to the later opposite
effect of the premium in encouraging imports
from silver countries, i.e. China outside the
Hong Kong dollar area), (2) a general decline
in purchasing power, due to a paralysis of
in China
trade arising from political causes in China.
rades
The