CO129-519-4 Adjustment of exchange account- payment of military contribution on profit on exchange 10-9-1929 - 10-6-1931 — Page 30

6.

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exemption fran Military Contribution in respect of these

realizations would have been granted as readily as the Trade

Loan was granted to enable the Colony to tide over the

emergency, for I am reluctant to believe that the ar

Department would have desired to extract financial benefit

from realizations which were forced upon Hong Kong by

adversity.

9.

It is incorrect to assume, moreover, that the

Colony stands in any way to gain from a fall in the dollar

exchange. Its revenue which is almost entirely in dollars

? remains unaffected; but its expenditure, being largely in

sterling, is automatically increased, for Crown Agents'

expenditure, and salaries of sterling officers amount to

about 50% of the total. And, of course, dollar salaries

and local prices sooner or later adjust themselves upwards.

10. The dollar appreciation of investments is due

entirely to the fact that the Colony's dealings have to be represented partly in silver and partly in gold. If the currency of Hong Kong were, like most Colonial currencies,

on a fixed gold basis or, if a dual system of accounting

obtained, no fluctuations would appear; and it is only

because all accounts have to be finally embodied in a single

and fluctuating currency that a difference of dollar values appears. Hong Kong being unique in that it is linked to the silver currency system of China, this adjustment cannot be avoided, though it does not in reality mean actual revenue or expenditure. But, owing to the incidence of Military Contribution, it operates singularly to the disadvantage of

the Colony in that the apparent dollar book profit involves a 20% Military Contribution Liability, whereas there was no

rebate when the books in 1919 shewed a loss of $786,665.

11.

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