CO129-409 - Governor Sir May - 1914 [1-3] — Page 504

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is easy they receive back their notes either into the current

accounts of their customers or against a reduction of credit. The Government on the other hand, unless it is to usurp the functions of the exchange banks, must issue notes freely against silver dollars and must redeem them in the same coin, and it must be continually prepared for deposits or withdrawals of silver on the largest scale.

4.

Granting then that the special circumstances

of the Colony call for private note issues, it remains to be seen

how far the authorised issues are sufficient for the Colony's

needs. Enterprise in Hongkong, which produces no exports and has

no natural wealth of its own, is hampered by the difficulty of

finding new capital without risk in exchange. The authorised banks

of issue by reason of their power to issue a certain number of

notes secured in only a third of their value have been able to a

great extent to supply this need, but their limit of expansion is

soon reached and with it their power to assist in this respect the

growing financial necessities of the Colony. Further, as Mr.

Linton points out, these banks have, by reason of their monopoly,

special facilities for raising the rate of exchange, as it may suit their purpose, above the parity of silver.

5.

I am aware that the Lords Commissioners of

the Treasury have not regarded private note issues with favour and that they have maintained the opinion that such issues should be secured to their full amount plus 5 per centum; as recorded in the Treasury letter of the 25th. June, 1910, a copy of which was forwarded with Lord Crewe's above-quoted Despatch, and in the Treasury letter of the 21st. September, 1894, to which reference is made in the first-named letter. I venture however to think that the special conditions of the currency of the Colony render it most advisable in the interests of trade that full competition in the matter of note issue should be allowed on the most liberal terms consonant with safety, and I am of the opinion that it

would