CO129-504-10 Currency system- premium on bank notes as compared with British silver dollars 10-1-1927 - 30-8-1927 — Page 14

- 4.

(1) The premium affects ordinary retail transactions

in the Colony and has helped to reduce the cost of living on the basis of Hong Kong currency. If the premium was suddenly withdrawn, retail stores would, as they have invariably done in the past, put up the price of imported goods "owing to the fall in exchange". As regards exports the sellers

in South China do not lose by the premium on the

Hong Kong note as they sell in subsidiary coinage and get more of same for the appreciated dollar. (2) All transactions with Foreign Banks at the Shameen,

Canton, are based on Hong Kong notes and therefore on Hong Kong exchange. As you know, the Native currency of Canton is Chinese subsidiary coinage and Chinese Bank notes repayable in such subsidiary

coins.

Hong Kong is not the only place where the note is

at a high premium. In Indo China at the present moment er change stands at a premium over Hong Kong exchange of 2 in spite of the fact that the silver contents of the piastre are practically the same as that

of the British dollar.

A high and low level basis for exchange is in my opinion only practicable when such exchange is on a gold basis and cannot apply to a silver currency with its

wide fluctuations in its bullion value.

I consider the correctness of the answer given to

the Peninsular and Oriental Bank in the Colonial

Secretary's letter of 10th January 1927 has been thoroughly justified by subsequent events.

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