CO129-422 - Governor Sir May - 1915 [5-6] — Page 563

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5.56

there is an enormous amount of money remitted from America, Philip- -pines, Java, Siam and Straite Settlements by Chinese to South China all financed through this Colony this money represents savings and is also sent in payment of exports from ports in South China for use of Chinese abroad. Such remittances, which from a Banking point of view have the same effect on exchange as exports, always increase at a lower level of exchange, and we find that we get more on one side of our book then we can cover, the consequence being that exchange is automatically forced up until a change takes place, that is, either drawings from abroad on Hongkong fall away or a demand for remittances from Hongkong to gold countries arises sufficient to cover the operations on the other side of the book. The exchange banking business of the Colony is almost entirely buy- -ing and selling gold in some form, and exchange is influenced accordingly if the greater volume is on the buying side the tendency is for exchange to advance and vice versa.

-

At the present moment it is easier for Banks to buy than to sell gold, and under the circumstances it is therefore not possible to depress exchange nearer to the gold value of the silver dollar, or rather it would mean undertaking a very considerable risk on the part of a Bank to do so, as it is useless quoting a lower rate of exchange unless a Bank is prepared to make it effective by operating at it.

The foregoing is exactly the position at the present time. Exchange is about 62% above the silver parity, and so long as thefriis more gold to be bought than to be sold there is not much prospect of exchange dropping to silver parity, and premium on notes is likely to continue until such time as the position is remedied either by a considerable advance in the price of silver or a very much larger volume of import businessdoing. It must be remembered that for all the transactions referred to above, notes

are demanded in payment silver dollars would not be accepted by

Merchants.

-

It may be asked why we do not take advantage of our

powers to continue issuing notes until parity is restored.