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in Colonies, which was addressed to the Colonial Office on the 21st September, 1894. It is true that in that letter the Treasury did not look favourably on proposals which would require an issuing Bank to deposit with the local Government legal tender coin against a large proportion of its issue, but at the same time the failure of the Oriental Bank was emphasised to point the moral that in communities of mixed nationalities, where the population is to a great extent uneducated, a note issue should be immediately convertible.
4. Under its new Charter the Chartered Bank is not required to keep any cash reserves. It would in common prudence keep some cash in hand, but in times of difficulty the amount would be reduced to a dangerous limit, and in the event of a local panic there would very possibly be nothing to meet the Hongkong note liabilities except the future
proceeds of the sale of securities in London; which, if the
panic was world-wide, might be for the time being practically unsaleable.
5. It is especially necessary in a Colony such
as Hongkong, where exchange in terms of sterling fluctuates
from day to day, that an ample cash reserve should be
immedi»tely available to meet the sudden demands for silver
which from time to time arise. It is true that in normal
circumstances the Banks control the situation to a great
extent by the manipulation of exchange, but during the war the balance of trade became such that the Banks were being rapidly drained of their silver against the return of their notes, and in consequence of strong representations which they made this Goverment prohibited the export of silver doll are, with the result that the bank-note became, for practical purposes, inconvertible. This prohibition is still in force, and in your telegram of the 2nd October you stated that the Governor had requested that the questio
(*1401) W7%, 20817-89. 80,000. 1121. T. A
of
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