CO129-523-13 Currency situation 16-6-1930 - 16-6-1930 — Page 48

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X

rather the

double uncertainty

in a normally constituted currency system, would have been

corrected by an import of currency (or its usual

equivalent, bullion).

4. Disadvantages of the Premium.

It is generally accepted that the existence of

the premium reacts unfavourably on Hong Kong trade.

reason generally given is that the higher exchange on

(1) silver valve which Hong Kong renders it harder for Hong Kong to compete

is shared with Shanghai

(2) premium of the hole, from which shan, hai

Tis free onl

with Shanghai in "services" (financial, merchanting,

shipping etc.)

This is, of course, the result of a

If the rate rising exchange, not of a high exchange.

remained steadily at a high figure comparative charges

in Hong Kong and Shanghai would adjust themselves.

Nevertheless in times of rapid changes in rates this

The

net. ikunst bara may be a serious disadvantage. (Since the uscant, H. K. caes not sep a complementem vantay. over A more permanent disadvantage is the uncertainty

Shanybai when siever is.

rising)

of the premium.

It is, as already shown, essentially

unstable, as the value of the Hong Kong note rests

on no legal or physical basis but is purely psychological;

i.e., it is valuable because it is accepted as valuable and

The "pramine" the moment people begin to question its value is in

danger of disappearing altogether.

Finally the present Hong Kong system seems to

combine the disadvantages of both a gold and a silver

currency; it is stable in terms of neither and every

transaction through Hong Kong is subject to two risky

exchange operations (incidentally the fact that it is not

stable in terms of silver largely discredits the usual

argument in favour of sticking to silver as long as

China does). The Hong Kong note acts in some ways as

I don't think so. The argument is the partial mustucking has shown how desirable it is to stick it

more

securely.

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