CO129-409 - Governor Sir May - 1914 [1-3] — Page 507

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When money is tight there is no relief but the expansion of the Note circulation of the Banks or the import of dollars, which takes time. Then only one or two Banks are able to afford the necessary relief by immediately issuing notes, they are naturally tempted to raise their rate of exchange, sometimes much above silver parity, taus putting the dollar at a discount. A little competition at such times would be much more wholesome. It yould also tend to greater stability in Exchance. Our rates vary from d. above to d. below silver purity according to tie money market and the state of trade, and these variations would naturally be reduced had we the power to expand and contract our Note Issue within reasonable limits, without buying or selling silver to any extent.

If we only had to be secured for a third part of our issue, we could of course issue 3 of lotes for 1 purchase of silver, and in the event of our notes coming back in times of ease in the form of deposits etc., we should be able to withdraw them from circulation without having to sell silver to avoid idle cash.

I trust I have made it clear to you from the above

remarks that the concession we ask for will be beneficial to

other interests than our own.

In the course of conversation you suggested if it were

expedient that this or any other Bank should be granted the

privilege we ask for, it would be better for Government to take up the matter and issue lotes itself.

The subject is a difficult one, but I believe that unless exchange in China wes to bear a fixed relationship to gold, the Government would find itself faced with complications.

Presuming that the Government started its own Note Issue, and requested the Banks to withdraw their Notes from circulation, how would the Government meet the market in times of

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