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Sir,
FOR THE INDUSTRIAL & COMMERCIAL BANK, LIMITED.
(Sd). M. T. CHIEN.
Sub-Manager.
FOR THE BANK OF CHINA.
(Ed.) SHOU J. CHEN.
Manager.
EQUITABLE EASTERN BANKING CORPORATION.
IV.
(Sd). D. M. BIGGAR.
Manager.
Hong Kong General Chamber of Commerce.
28th November, 1929.
I have the honour to acknowledge receipt of the Government's letter No. 778/ 1926. C. dated the 29th October, 1929, enquiring the views of the Chamber of Com- merce on the immediate and prospective effect on the trade and general prosperity of the Colony of the recent fall in exchange and return of the local currency to a silver basis.
In reply, the General Committee submits the following observations :-
In the first place, it should be remembered that, in the history of the Colony, exchange has been at a lower level for considerable periods, and commerce has rapidly adapted itself to the situation.
As regards the general trade of the Colony, both in imports and exports, the fall in exchange has had the immediate effect of stimulating exports, and to some ex- tent also of assisting imports. In regard to the latter, however, the effect has been chiefly observable in promoting the delivery of uncleared imported goods stored in godowns thereby giving an impetus to business generally, although only of a temp- orary nature.
That the fall in exchange will continue to exercise a beneficial effect on exports goes without doubt; but it will require time to permit conditions to adjust them- selves as regards imports. Meanwhile, due to higher costs, new business in imports will not be possible for a considerable time.
The return of the Colony's currency to a definite silver basis should be on the whole both welcome and favourable for the following reasons:--
1. It will greatly assist and facilitate all exchange operations in future by
making it less difficult to obtain "cover".
2. It will do much to remove the great disadvantage this Colony has been labouring under, vis-à-vis the Treaty Ports, and more particularly Shanghai; for, due to Shanghai exchange rates having been maintained at silver parity, more silver, or silver dollars, could be obtained there than in this Colony, for the same or an equal sum in sterling or any other gold currency, with the result that commodities could be pur- chased from Shanghai at a lower "gold cost" than from Hong Kong. This adversely affected the general trade of the Colony, and caused substantial diversion to the Northern Port of exports which used to be financed and put through from Hong Kong.
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Consequently, the beneficial effect of a high exchange on imports has been counteracted to a considerable extent, because Chinese traders from the interior have latterly been inclined to give preference to business in imports to the same Port in which they have been able to do their busi- ness in exports thereby diverting to Shanghai much import business which used to be negotiated and put through from Hong Kong.
3. As the total amount of exports-visible and invisible-from the Colony has always been considerably more than half our total trade, a low ex- change, which stimulates exports, should, on the whole, be best for the Colony.
4. A low exchange also tends to promote the flow of capital to the Colony from Great Britain and abroad, and this should benefit the Colony, espe- cially from an investor's point of view, by making the money market easy. The immediate effect of this was to be seen in the general appre- ciation of all local stocks and shares following the fall in exchange.
5. This Colony, being mainly a distributing centre for South China, a cur- rency on some definite silver basis should benefit trade generally. This reversion to a silver basis has unfortunately taken place at one of the most inconvenient times of the year, when remittances from abroad are prevailing and when money tends to get tight as the end of the year ap- proaches. Hence, the reversion to a silver basis appears on the surface to have had little effect up to the present. Silver dollars, too, are not yet plentiful, but the Mints have received large orders and these dollars are now on the way.
new
As the return to a silver basis may mean a large flow of silver into note-issuing Banks, the Committee suggests that the Government might consider the abolition of the tax of one per cent per annum on that portion of the note-issue covered by silver dollars, issued by the note-issuing Banks and held under Government control.
As the exchange situation has led to suggestions that the Colony's currency should be based upon gold, the Committee takes the opportunity to remark that, the ideal currency being one that is stable, there is much to be said in favour of a gold currency. But Hong Kong being commercially part of China, a silver standard is, in the opinion of the Committee, inevitable. That it will fluctuate is unavoidable: but provided the dollar is in sympathy with the price of silver, and not out of rela- tion to it, as it has been latterly (and unfortunately still is, although the premium is considerably less), the Colony's trade will be carried on without undue handicaps, and our handling charges will not be dearer than in other ports in China.
If there is available at Home a highly qualified expert on silver currency the Committee suggests that it might be advisable for the Government to engage his services to advise on the whole question of Hong Kong currency, bearing in mind its relation to the currency of China.
The Honourable
The Colonial Secretary,
Hong Kong.
I have the honour to be, Sir,
Your obedient Servant,
(Sd.) M. F. KEY. Secretary.
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