30
notes and fight shy of the dollars, and, moreover, payment in dollars involves the lengthy business of shroffing. The Hong Kong and Shanghai Bank with its large Chinese staff can only shroff about $200,000 a day; other Banks can handle far less. The recent influx of silver dollars had taxed the various Banks' storage capacity to the utmost, and I feel that it is principally the lack of Treasury space which has so far prevented further minting orders being placed. As the public are so averse to accepting payment in silver dollars-and here again the shroffing ques- tion crops up as the recipient has in his turn to examine each coin—the only means by which excess dollars can be got rid of without loss is by exporting them as bullion, and to do this means exchange dropping to the export silver basis, which means the silver parity less import and minting charges, and also less the further shipping charges out of the Colony and melting charges. This would mean a very low level of exchange which would not be to the interests of the Colony and would no doubt result in a further advance in the cost of living.
We as the principal Note-issuing Bank have done our best to meet the demand for cover by buying from other Banks, which has necessitated a very large increase in our note issue and corresponding large increase of silver dollars we hold as cover. There is a limit to our capacity in both directions. We certainly don't want to be saddled with large quantities of further useless dollars: when I say "useless" I am referring to the fact that We cannot circulate them and their only use is as cover for a further expansion of our note issue.
In our position I am very diffident in suggesting the only remedy I can think of namely for Government to restrict the import of dollars to the Note-issuing Banks. If this was done, this Bank (which has so far imported none and has in spite of that fact been saddled with almost all the coin brought in by others) would usually obtain its cover for its excess purchases of gold exchange and the resulting increase in note issue, by buying Bar Silver in London and depositing it there as security for our note issue. By this procedure there would be no surplus dollars to get rid of. and, when exchange suited, the Bar Silver could be resold in London and all shipping and minting charges to and from Hong Kong saved.
If import of dollars was restricted, would have no objection to it embracing all Banks as long as our present power to deposit bullion as security for excess note issue was maintained. This leads up to the further point raised by you, namely:
The sufficiency of Note Issue and whether or not it should be made more elastic and whether restrictions on Note Issue are too onerous &c.
Was
I would like to take this opportunity of thanking the Government for having removed the tax on our issue over $45 million. Without this relief we could not have made the large increase that has recently taken place in our issue,-it $44.972.000 on 11th September, 1929, and rose to $74,296,000 on the 29th of last month. Personally I always felt that the conditions previously imposed were too onerous and not sufficiently elastic, but the recent change has gone far to remedy our difficulties. To maintain a large issue is very expensive and means a very consider- able permanent staff in that department, and it did not seem equitable that should pay a tax on the portion of our issue covered $ for $ by actual coin deposited with the Government. The only suggestion I would make to improve the elasticity is that we should be allowed to cover more of our issue by the deposit of approved gold securities and not limit it to the present figure of $23,333,333.33. There would of course be a proviso that one-third at least of the total issue must be covered by dollars deposited with the Government.
We
Please do not think we are ungrateful for the concession lately made.
1 พาก only making this suggestion as vou asked for my views about more elasticity and I think some change on these lines might help.
As regards the question of whether there are sufficient notes, I consider there are at the moment, but, as long as South China has no note issue or
currency in which the Chinese have faith, I fear that Hong Kong notes will continue to function
31
This is
there increasingly, and from time to time possibly create a shortage here. one of the difficulties the Note-issuing Ban there used to be a big influx of our notes after China New Year and a decrease in s now have to contend with. Formerly our circulation, but this only pertains to a small degree now.
The effect of the low price of Silver :
This must undoubtedly increase the cost of living in the Colony and, for a time at any rate, make it difficult for importers to connect with producers in gold coun- tries. Presumably this will be adjusted time, but in a colony like Hong Kong where exports (principally invisible) are enormously in excess of imports, it makes it increasingly difficult to solve our curren 'v question which is principally a question of shortage of exchange cover to balance or exports to gold countries.
I must apologise for the length of this letter, but the excuse is that the currency question is so vital to the good of the Colony and the threat of being flooded with silver dollars fraught with such danger.
Hon. Mr. C. McI. Messer, O.B.E..
The Treasury,
HONG KONG.
Confidential.
The Honourable The Colonial Treasuer,
HONG KON
Dear Sir,
VI-D.
Yours very sincerely,
(Sd.) A. C. HYNES
Hong Kong ("lub
25th February, 1930.
Referring to our recent talk on currency you already have my views on the situation as it existed at the end of July last when I went home. These were stated in my memorandum dated 29th July addressed to the Acting Colonial Treasurer and you now invite any further views on the subject having regard to what has happened during the past six months.
I have no readily available copy of my letter of 29th July, but from my recol- lection of it I stressed two main points :-
(1) That the premium on the banknote over the silver dollar that is the only legal tender of the Colony, was in a general way operating harmfully against the trade of the Colony and more especially it was harmful to such local industries as competed with similar interests in Shanghai that conducted on a strictly silver basis.
were
(2) That no good economic cause could be advanced for the existence of this premium, that at that time stood at no less than fifteen per cent. and later I believe went as high as twenty per cent. over the silver parity of the dollar. I added that the only reasonable explanation of it was that the pre- mium originated during the disturbed period of 1925 as a quite understand-
86