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in sterling," that is an unduly large amount of their
liquid reserves is in the form of sterling securities
or credits. Having opened these large dollar credits,
the Banks have of course (1) been reluctant to open
further credits except at a rate of exchange less
favourable to sterling (2) been compelled to obtain
a backing in actual currency for these credits i.e.
in practice had had to collect Bank-notes to put in
their strong-rooms as cover. As explained above,
this has created a scarcity of notes and so has increased the "note premium"7
The whole business has been complicated by a
more or less steady droop in the price of silver, which
has appeared to overseas Chinese to make the Hong Kong
dollar more and more cheap and therefore desirable,
even though it was not as cheap as it should have been
on its silver content.
The abolition of the "note-premium" in October
1929 of course brought the "exchange premium" down with a bump, partly for technical banking reasons, i.e.
because on being made equivalent to notes all the
floating silver dollars also became available for
cover in the vaults of the non-note-issuing Banks, and
partly because the corrective applied by minting silver
dollars thereby became directly, instead of indirectly,
applicable to the exchange value of the dollar.
It has been explained above that silver can
be coined into dollars on demand at the London and
Bombay mints, the cost from entry into the mint to
landing