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The Hong Kong Bank stated that if too many silver dollars were paid in to him against differences in Clearing he would be compelled to close the Clearing House and the Banks would have to do their own clearing.
over
It was arranged that no $1 notes would be paid out to customers the counter but that silver dollars would be used in lieu thereof. The Hong Kong Bank stated that the Government had indicated that they were prepared to receive silver dollars in payment of rates and taxes.
Immediately after the meeting an announcement was made to the Press that the Banks were prepared to receive and pay out silver dollars over the counter on the same basis as Notes.
In spite of this notification the market remained steady due to the fact that all the Banks and Chinese speculators were heavily overbought.
As there was a continued absence of buyers in the market and in order to re- duce their overbought position some of the Banks arranged to buy silver and have them minted into British dollars and orders were placed with the Royal Mint in Lon- den for $7,000,000. the minimum order the Mint would execute being $500,000.
The profit on buying and minting of silver dollars at this time was approximately 41% and this appeared to be the only expedient the Banks had to reduce their over- bought position.
The market however continued to remain steady and much trouble and inconveni- ence was caused to Chinese who paid Silver dollars to the Banks and to those who received them in shroffing the coin.
At the same time the shortage of notes began to be felt more acutely then ever as the Chinese commenced paying in silver dollars to the Banks and drawing out notes, in lieu thereof, which they hoarded.
The feeling against the Hong Kong Bank was also running very high for keeping out of the exchange market and there were also rumours that in anticipation of a redundance of currency in the Colony in the near future he had started contracting his note issue. Exchange purchases which in the ordinary course were delivered on the 1st of each month were not taken up as usual on 1st November and Banks who were tight for money were good sellers at 1/9 9/16 for cash whilst nothing better than 1/9 1/16 could be obtained for February onwards, this was due to the fact that the Hong Kong Bank was only prepared to buy for cash and sell for February onwards at 7/16 to d in his favour, an extortionate difference from a Banking point of view.
The money tightness was further accentuated by the fact that a large amount of Mexican dollars were being paid in daily to the Hong Kong Bank by Chinese and that the Bank could only cope with the shroffing of $50/70,000 per day and made a charge of $2 per day on every $10.000 which lay in the Bank's vaults unshroffed overnight.
At this juncture the exchange market was almost at a standstill and it was felt that unless some joint action was taken by the Banks to force the hand of the note- issuing Banks to relieve the money stringency by the issue of more notes, there would be little likelihood of any interbank or merchant business being transacted for sometime until the minted dollars commenced to arrive and relieve the situation. On the 1st November the non-note-issuing Banks sent in a letter to the Chairman of the Associated Banks, asking that steps be taken at once to establish the proce- dure necessary to handle expeditiously the silver dollars at present in the Colony and expected to arrive in the near future and requesting that the sub-committee appointed at the meeting of the Banks he'd on the 22nd October be convened with- out delay to consider ways and means to that end.
This sub-committee consisted of the three note-issuing Banks :—
Hong Kong Bank
Chartered Bank
Mercantile Bank
Representatives of British interests.
and the following Foreign and Chinese Banks:-
Specie Bank
Bank of East Asia
National City Bank
Japanese interests Chinese
Netherlands Trading Society
American Dutch
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13
Banque de l'Indo Chine
French
17
On the 22nd November, a meeting of all the Exchange Banks was called to dis- cuss details of arrangement for storage of silver dollars with the Banque de l'Indo Chine and the question of bringing the exchange down to silver parity to prevent the further importation of silver dollars.
The danger of flooding the market with a plethora of silver dollars was very apparent, as it was understood that in addition to the Mexican dollars already im- ported into the Colony amounting to approximately $3/4,000,000 a further $15,750,000 were contracted for with the Royal Mint in London and the Indian Mint in Bombay.
The following Banks contracted for the importation of silver dollars:
Chartered Bank
P. & O. Bank
Mercantile Bank
American Express Co.
Bank of Canton
Bank of China
Bank of East Asia
Bank of Taiwan
Ho Hong Bank
$2,600,000
1,500,000
800,000
750.000
Nil.
Nil
1,000,000
Nil.
Nil
Banque de l'Indo Chine
Banque Franco Chinoise Equitable Eastern Banking Corp
Nil.
Nil.
Nil.
Nil.
1,100,000
7,000,000
1,000,000
Nil.
15,750,000
Industrial & Commercial Bank National City Bank of New York Netherlands India Commercial Bank
Netherlands Trading Society
Yokohama Specie Bank
Total
It was decided at the meeting that a silver dollar clearing house be opened with the Banque de l'Indo Chine and that as far as possible all interbank operations he transacted with that Bank. The Banque de l'Indo Chine agreed to open accounts for Banks wishing to deposit silver dollars in his vaults, which were capable of holding up to $15,000,000. Up to the time of writing this Bank holds in his vaults Silver dollars to the extent of $10,000,000 whilst there are at least another $12,000.000 to arrive by the middle of May, approximately $8,000,000 from Bombay and the balance from London.
On the 22nd November the Banks held a meeting at which it was decided to "peg" the selling rates of exchange day by day until such time the Hong Kong Bank official rate was reached.
This arrangement although bringing business to a standstill had the effect of checking speculation and it is noteworthy that with one or two exceptions all the Banks kept to their verbal arrangement made at the meeting not to sell better than the daily fixed rate.
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