130
5. A suggestion made by Mr. CARVALHO, 1st Clerk of the Treasury, that arrangements might perhaps be made with the Hongkong and Shanghai Bank under which the Government would be allowed to overdraw its current account at the Bank paying interest only on the daily debit balances has been carefully con- sidered by the Treasurer (Mr. LISTER) and myself and we recommend it for approval, during the year 1886 at any rate. It would then not be necessary to borrow money in London until the end of 1886 or the beginning of 1887 by which time a loan could no doubt be effected on better terms.
3. The average of the daily credit balances of the Government current account with the Hongkong and Shanghai Bank during the year 1884, taking the weekly returns as the basis of the calculation was $88,500, and during the first three months of this year they have averaged $68,856. On these daily credit balances Government receives, like all other persons, interest at only two per cent. It is obvious that if the Bank agrees to allow Government to overdraw its account monthly by $33,500 at 6% interest (which is 1% lower than its usual rate) chargeable on the daily debit balances, the Government will benefit to the extent of the difference between 2 and 6 per cent. on the present arrangeinent as regards credit balances. It is difficult to estimate the amount of this difference but I think that, for the purposes of calculation, it may be fairly assumed that at least one of the monthly advances of $33,500 to be made by the Bank will not be chargeable
with interest,
7. The advances by the Bank will then be as follows :-
1st May,...... $ 33,500 no interest.
June, ............................,, 33,500 7 months @ 6% $1,173
July........ 33,500 6
August, ******** 33,500 5
19
**
September,
**** 33,500 4
**
*
October, .................,, 33,500 3
November,
1,005
538
11
670
503
11
>>
33,500 2
335
1;
>>
December,
....17
33,500 1 month
168
23
$268,000
$4,692
+
10. Supposing that the arrangements above indicated were continued during the year 1887, and that a further sum of $420,000 were advanced by the Bank in monthly instalments of $35,000, the interest payable by Government would be as
follows
On $268,000 less credit balance of $35,000 for 12 months @@ 6%, ...$13,980 On the 12 monthly instalments of $35,000 making a total of $-120,000,
Total interest payable @ 6% in 1887,..
13,650
.$27,630
If the $420,000 were raised in London at 41% there would be payable in 1887 interest on $268,000 + $420,000-$688,000-$30,960, plus the loss on exchange in remitting the interest.
11. The advantage of continuing the proposed system of drawing money from the local Bank during a second year is, it will be observed, not so great because a full year's interest will have to be paid on the money advanced in 1886 and in the one case the rate of this interest will be 6% whilst in the other it is assumed that it will not be more than 4; but it is clear that the Government of Hongkong would not lose by a continuance of the proposed arrangement during 1887. The question whether that arrangement should be continued during 1887 might be left to future consideration.
12. The Chief Manager of the Hongkong and Shanghai Bank informed the Treasurer and myself to-day that he had been authorized by the Directors to say that the Bank agreed to make the advances to Government in the mode proposed and further he stated that in event of any reduction in the current rate of interest, the Bank would make a reduction in the rate charged against the overdrafts of Government. I have no hesitation in recommending the Governor to approve this arrangement for the year 1886. There will then be no necessity for taking steps for raising money in London for at least a twelve month. By that time money will, there is every probability, be obtainable on far more easy terms than it could be at the present moment.
W. H. MARSH, Auditor General,
Now if $208,000 were borrowed in London at 44% on the 1st May next year, the interest payable thercon by the Colony would be, for 8 months, $8,040.
8. I do not take into consideration the loss that the Colony would sustain by the sale of its debentures considerably below par if arrangements were made for a loan at an unfavourable moment, nor the loss on exchange on the remittances to pay the interest, nor the Commission that would be payable, and the other attendant expenses of which no precise estimate can be formed by this Government as it has never yet effected a loan; but which the Manager of the Hongkong Bank states from his experience to be very heavy. I have assumed also that the interest will be only 44% whilst it is very probable that if the money were borrowed at present it will be more.
9. I think that there can be no doubt therefore that it will be far more ad- vantageous to the Colony, as far as next year is concerned, to draw advances monthly as required from the Hongkong and Shanghai Bank in the manner before indicated instead of obtaining the necessary money by a loan effected in London.
Audit Office, Hongkong, 16th April, 1885.
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