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In the circumstances,I think we ought to accept
the Govr's proposal. There is,admittedly, a breach
of faith; and it is apparent that that breach
of faith can no longer be justified on over-
riding grounds of financial necessity.
2. I agree with Mr: Caine's minute, except as
regards the lower limit which the Govr: proposes.
As the arrangement is not an out-and-out
arrangement under which sterling salaries
are to be converted into dollars at the current
rate--for there is an arbitrary upper limit-
I see no reason whatever why there should not be
an equally arbitrary lower--and compensatory--
limit.
3. But I would suggest that--once the immediate
action necessary is taken--this important
question should be examined in detail, and more
at leisure. One gets the impression that events
have hitherto forced us into urgent decisions
necessarily of an arbitrary character, and
founded on insufficient information. It is an
anomaly that Hong Kong officials, recruited
in England, should be paid on a sterling basis:
I can think of no analogous case at the moment.
The essential factor here,however, is that H K
will almost certainly) have to remain on a
silver basis, so long as China is on a silver
basis. That is necessary for general economic
and commercial reasons; and the consequence is
that--differing in this respect from other
Colonies--H K can have no control over the
exchange value of its currency. In the circumst-
ances and the practice of commercial firms
supports the argument) the best solution will
probably be to conta nue the recruitment of