CO129-523-13 Currency situation 16-6-1930 - 16-6-1930 — Page 45

Xsay

minor quantity

only

when

extraneous condon, such ag an am-

-bargo on the export of silver, supervenes ·

only the HK's Banking

* Net mbėtų.

The question diade

the amount of silver cover which

can otřil,

Aey

joxx

X280. They are in demand both from China & from the nest of the world. Their valore is thenngon duce mined by the dimand from both Sources. The relative of ability to the fact that the volume of the two demands es but varies in such a way that at any time the seal dimand

omes from the sih lewend which the existing rate is

45-

value (measured in gold)'. On the other hand, the value of

silver is and has been subject to violent fluctuations.

When silver is falling the premium therefore tends to

increase; (cf. the period up to 1914 and since 1926)

when it rises, the premium decreases and alterately

disappears (cf. the period during and immediately after

the war). As already explained the premium can never

become a minus quantity.

x

The history of the premium since 1926 is well

explained in Professor Robertson's memorandum (pp. 65 - 67)

This demonstrates incontrovertibly 1) the comparative

steadiness of the Hong Kong note in terms of gold (As

Professor Robertson says, it behaved in many ways like a

gold currency)

2) the rise or fall of the premium in sympathy.

with the fall or rise in silver.

There are, however, factors tending to diminish

the premium. (a) The banks (or at any rate the Hong Kong

and Shanghai Bank) can issue an unlimited quantity of

notes (on terms) and when the premium gets large enough,

ily it ultimately profits them to do so, however onerous

the terms. (b) The convention of accepting the notes

is probably not equally strong in all parts of South

China, where it also circulates and notes will tend to

be withdrawn to Hong Kong where the convention may be

expected to be stronger. (c) There is always a fear

(which had begun to be justified last year) that the

convention will be discarded and people will return

to the use of legal tender. (a) The fear of (c)

and sentiment based on the still nearly universal belief

that Hong Kong is on a silver currency lead to a demand

1

that