Hong Kong Currency Policy in
the last two years.
58
7A.
currency.
Hong Kong, like China, had formerly a silver
The actual money principally used in the Colony
has for many years been notes of the three banks
authorised to issue them, these notes being convertible into
silver. For some years prior to 1934 there had been
discussion of some reform of the currency owing to
occasional divergencies between the value of the Hong Kong
dollar and its nominal silver parity, but by general consent
the policy of remaining on silver so long as China did the
same had been followed.
In June, 1934, the United States embarked on the
policy of purchasing silver, with the deliberate intention
of driving up the price of silver. This necessarily
resulted in an increase in the exchange values of the
Chinese (Shanghai) and Hong Kong dollars (the latter rising.
from about 1s.5d. to ls.74d. by the autumn of 1934), with
consequent deflationary effects on Chinese trade. In
October, 1934, the Chinese Government decided that the
continued increase in the exchange value of its currency
could not be allowed, and imposed a fluctuating export duty
on silver. This caused an immediate depreciation of the
Shanghai dollar by about 10%. It was necessary to consider
at once whether similar action should be taken in Hong Kong,
both in order to continue the general policy of keeping in
step with China, and in order to prevent Shanghai getting
a competitive advantage by currency depreciation over Hong
Kong.