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before they could carry on any large volume of business. to this there is a real stringency of currency-a shortage of means of payment-which is making it impossible even for merchants with very large, though solid, assets to raise the working capital required to meet their losses and resume trade.
76. What is the cause of this stringency? In the first place some $16,000,000 of cash was withdrawn from the Chinese banks between the 19th and the 22nd June, and a good deal of that went out of the Colony to South China before the Government's pro- clamation prohibited export. Some bank-notes of large denomi- nation have been smuggled out since; more has been, and still is being, hoarded in the Colony. It is estimated by a competent authority that at least $10,000,000 of our currency is being thus held out of circulation. There is therefore an actual shortage of hard cash. We have, further, the estimate of the compradores of our leading banks that $40,000,000 of our bank-notes are out of circulation, or not in active circulation, the figure being arrived at as follows:
Reserves in the three leading banks Reserves in other non-native banks
Held in South China (Canton, &c.)
$7,000,000
13,000,000
10,000,000
10,000,000
Tatal ...
$40,000,000
And the above estimate of the amount hoarded
Our total note-issue is about $65,000,000. This leaves only $25,000,000, in active circulation, and the requirements for normal trading are estimated to be about $45,000,000. Naturally a con- siderable part of the effective currency of the Colony consists of cheques drawn against deposit accounts, such deposits being in many cases really new currency created by the banks by way of lotus or overdrafts against suitable securities based on their cash reserves. Now this part of the currency has been restricted by the doubt as to the immediate solvency of the 'merchants. As the storm passed and the strike dragged out, it became clear that some measure would be necessary to replace the hoarded currency and to serve as a cash basis, or the extension of the cheque currency based on loans and overdrafts. It is well known that in times of stringency in the money market a comparatively small sum will serve to draw out much larger quantities of currency into active circulation if it is provided in such a way as to inspire confidence. It now became urgently necessary to find that sum, and in such a way as to restore public confidence by a dramatic
action.
77. Being convinced of the existence of a stringency, and realising that it was intensified by the anxious and uncertain state of mind of the Chinese merchants, suggested a large loan from the Imperial Government, as the result of a letter from the Chinese General Chamber of Commerce to the Government on the 19th September appealing for assistance to the amount of $30,000,000 in the shape of Treasury Bonds. After discussing the Chamber's rather vague proposals with the Hon. Mr. D. W. Tratman I submitted that it was necessary to appeal to the Imperial Government for advances not exceeding £3,000,000 sterling on approved securities, for the relief of the Chinese
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