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I am leaving on furlough on 1st February but will call to wish you good bye sometime next week.
In the meantime if anything startling occurs,
I will advise you.
The price of forward silver to-day is 21 1/6 which taken at the constant for minting silver dollars $9125=1/63 laying down rate. There are sellers to-day at 1/8 with a few buyers at 1/8.
The Hongkong Bank is not a keen buyer and you can't actually blame him for keeping out of the market as it is difficult to get cover here.
Yours sincerely,
(Signed)
W. J. WADDINGTON,
Note by Mr. Waddington.
The accompanying is in the nature of a résume of the happenings from 1st October in respect of the currency problem and the premium on notes in Hong Kong.
Before going any further it would be as well to point out that the Sterling ex- change market was approximately 16% above silver parity point on that date and that British & Mexican dollars although legal tender to any amount were in reality quoted at 20% discount, also that an anomaly existed and still exists in the fact that we have at present in the Colony side by side two metallic units, the British Trade Dollar and the Mexican Dollar, both of silver, both legal tender to any amount and yet the former containing 374.4 grains of silver and the other 375.62.
After several meetings between the Note-issuing Banks and the Colonial Trea- surer prior to 1st October and in response to Public opinion who in the present case were certain Banks and speculators heavily overbought in Sterling and Taels and who professed to speak for the General Public through the medium of the Press, the non-note-issuing Banks on 2nd October sent in to the Manager of the Chartered Bank, as Chairman of the Associated Exchange Banks, a letter above their signa- tures requesting that a meeting of all the Banks be called to discuss certain pro- posals designed to bring about a gradual return to silver basis.
The suggested proposals put forward were:-
(1) That the Exchange Banks agree to accept over their counters Mexican Silver Dollars and British Trade Dollars at par in the normal function of a circulating medium of that denomination.
(2) That the Exchange Banks continue to accept the Hong Kong One Dollar Note, but decline to pay it out over their counters until such time as the free circulation of silver dollars become thoroughly re-established. place of the One Dollar Note the Exchange Banks to pay out over their counters silver dollars.
In
(3) That a Committee be established which would secure a report daily from each Bank of the number of silver dollars on hand, with the power to re- distribute the silver dollars at par to avoid undue congestion in any parti- cular Bank. The Committee to have power to assist inerchants and firms, whose business is such that they would tend to accumulate large amounts of silver dollars with no outlet, by taking such stocks up at par and dis- tributing them among the Exchange Banks to be restored to circulation.
(4) That the Committee be empowered to advertise the details of the proposal, as finally agreed upon, in all English and Chinese Newspapers, the cost of such advertising to be divided equally among the Exchange Banks.
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(5) That under this scheme it is expected that a gradual return to silver parity be secured, the process taking possibly several weeks. During this time it is not expected that there will be any great influx of silver dollars, but, in order to protect the Banks of Issue it is suggested that the Exchange Banks agree to take over and hold, in case of need, a total not to exceed 2,000,000 silver dollars, divided between the Banks on the basis of the proportion of each bank's average daily clearing for the past six months based on the total average clearing for the same period.
(6) That nothing in the foregoing is to be construed as affecting the Bank
Notes of lagge denominations in any way.
The Exchange market was nominal on the morning of 4th October with no im- mediate indications of a drop in exchange. Business was done on the basis of 1/11 Sterling or approximately 2d, over silver parity point.
During the course of the day however word went around that all the Banks were agreed that efforts should be made to bring the rate down and immediately Merchants and Speculators came out as large buyers of exchange.
The Banks immediately lowered their selling rates and business at the close was done as low as 1/103.
The psychological effect of the Hong Kong Bank coming out as a buyer of ex- change was so great that the market became demoralised and when on the 5th October the market opened the best seller was 1/10 which by the afternoon was lowered by successive stages to 1/9).
It is estimated that Merchants and Chinese speculators bought in the vicinity of £2,500,000 at rates varying from 1/113 to 1/94 on the 4th and 5th October.
The rate continued to drop as additional merchant demand arose until business as low as 1/9 was done
.
At this stage buyers disappeared and as Chinese remittances from abroad in the shape of drafts and notes commenced to pour into Hong Kong the market com- menced to react and gradually reached 1/94 by the third week of October,
With the drop in the Hong Kong sterling rate from 1/11 to 1/9 there was a corresponding drop in the Tael rate from 864 to 781 which enabled speculators and Banks who overbought to cover their positions with profit.
At this stage a money stringency began to be felt in the Colony which became more acute as the Hong Kong Bank kept out of the market and refused to assist the Banks except by doing "budlis" in exchange at 1/8d difference for one month or in other words the equivalent of lending money at 11 p.a. interest.
On the evening of the 22nd October a meeting of all the Exchange Banks in the Colony was held with Mr. Ferguson as Chairman of Associated Exchange Banks in the Chair to decide on details in respect of the return of the Colony to a Silver basis, when it was unanimously decided to pay out and receive silver dollars over the counter from Thursday, 24th October.
A Committee of 8 was also formed consisting of the 3 note-issuing Banks and one representative of the Japanese, Dutch, French, American and Chinese Banks to go into the question of allocation of silver dollars on the basis of each Bank's aver- age daily clearing for the past 6 months in case any one Bank had an excess of silver dollars paid in to him.
Mr. Ferguson in his speech sounded a note of warning in that he mentioned that if too many British dollars were minted and imported beyond the currency require- ments of the Colony leading to an undue inflation, it would mean the shipping of the dollars ont of the Colony as bullion and that it would be a very expensive process also that British dollars were not current in Shanghai.
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