CO129-504-10 Currency system- premium on bank notes as compared with British silver dollars 10-1-1927 - 30-8-1927 — Page 26

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The P. & O. Banking Corporation Ltd.

HONG KONG.

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Memorandum on a fault in the Currency System.

It is submitted that the Currency System of the Colony

The

is faulty in so far as there is no limit to the premium which

may be created for Bank-notes as against British Silver dollars,

in other words there is no means whereby an automatic increase

in the currency may be made when a demand for Hong Kong currency

arises, instead this is left to the free discretion of the

Hong Kong and Shanghai Bank as to whether it will increase its

note issue against the security of additional silver dollars to

the amount of the increase reserved in the Bank's Treasury.

convention of the market is that British Silver dollars are not

acceptable in satisfaction of a debt but that all contracts and

bargains are to be satisfied in Bank notes. When trade balances

are favourable to Hong Kong by a surplus of exports (of which

an important item is the remittances to Hong Kong from Straits

and U.S.A.) a premium on notes appears to which there is at

present no limit and it is the object of this memorandum to show

that while a small premium may be defended there can be no sound

defence of apremium which is greater than the cost of minting

and bringing to Hong Kong the British Silver dollars which the

Bank notes represent.

It is submitted that a healthy currency system for the Colony should provide upper and lower bullion shipment points of

exchange/