CO129-504-10 Currency system- premium on bank notes as compared with British silver dollars 10-1-1927 - 30-8-1927 — Page 13

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Mr. Mackay assumes that the note and the silver

dollar are at par when Hong Kong exchange is at the bullion

value of the dollar, which no doubt is theoretically correct,

but I submit that the true working parity is the laying down cost of the British dollar; we can, I think, ignore the

Mexican dollar as it is no longer minted and can only be

picked up in small quantities.

In the appendix to the Memorandum the cost of

bringing British dollars to Hong Kong is put at 3%. including

2% Seigniorage and 1% interest. If you will refer to your

letter 39/1925 dated 26th August 1925, you will notice that

the London Royal Mint's Seigniorage was £2.5/- per $1000 or

247 on a 2/- dollar, but this was only if they supplied the

silver themselves which I should imagine was more or less a

temporary phase.

If the Banks supplied the silver the Seigniorage is

£3.16/- per $1000, and in such an event 1% for interest

is quite insufficient as the minting would probably take

at least a month for any considerable quantity, to which must

be added 5 weeks en route. I am mentioning this to emphasize

that the premium of the note over the laying down cost of

the dollar is a very different matter to a premium based

on the bullion value of the dollar; you will note that in

the formula for the latter, the Peninsular and Oriental

Bank have allowed no shipping charges &c. to get the

bullion to the point where it can be sold - usually India.

With reference to the questions raised at Downing

Street, the answers are as follows:-

(1)