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The Banks are obliged to redeem their notes
in silver dollars but are under no obligation to exchange
silver for notes. The issue, therefore, appears to lie
entirely at the discretion of the Banks, who are naturally
governed in the main by considerations of profit. It
will be obvious that the increasingly onerous terms on
which larger issues may be made are a serious detri
to any increase in the amount. The system is accordingly
markedly inelastic.
varying
3. The "Premium"
It has been shown that the value of Hong Kong
14
notes may be anything not less than the value of the
silver dollar; the excess over that value is known as the
premium on notes ("The value of the silver dollar is a
hypothetical figure calculated on its silver content and
is generally taken at the rate of 72 taels to $100).
The amount of the premium therefore is affected
by any factors affecting the value of either note or coin.
Among these are
genera
eneral conditions of trade etc., but in
the short run the most important factors are on the one
hand the supply of notes and on the other the value of silver.
inelastic.
Handly stable, but it follows slowly the fluctuations in silver valves
mon
The supply of notes is, as shown, markedly
The note, therefore, tends to remain stable in
value