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as explained below, the "note premium" while it influences the amount of the "exchange premium", is itself driven up by the same causes that drive up, the
exchange premium", since a rise in the "exchange
premium" is accompanied by a scarcity of notes. The
question of "note premium" has of course been complicated
by the fact that the question arises in connection with
two classes of transactions, ordinary public transactions and inter-Bank marginal, or clearing, transactions. Presumably the convention, though finally universal,
originally applied only to inter-bank transactions.
1
When the exchange premium got very high in October 1929, it was, as explained in the appendices
to the Committee's report, decided by unanimous consent
of all the Banks to abolish the note premium by
accepting silver dollars pari passu with notes for
payments in cash and incidentally withdrawing the one
dollar notes. At the same time a deposit of silver
que dollars was established in the vaults of the Bank de
l'Indo-Chine and used as the material for inter-bank
settlements by a system of book entries. As far as we
know this abolition of the "note premium" still holds
good.
There was of course one special feature
about the "note premium", which is that, as it arose out of convenience and not exchange considerations, it
could never become a negative quantity unless of course
the Banks failed to carry out their obligation to
redeem notes presented to them in silver dollars or
widespread
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