CO129-558-11 Mission of Sir F. Leith-Ross to China- proposals for a Hong Kong - China customs... 29-9-1936 - 30-12-1936 — Page 58

Hong Kong Currency Policy in

the last two years.

58

7A.

currency.

Hong Kong, like China, had formerly a silver

The actual money principally used in the Colony

has for many years been notes of the three banks

authorised to issue them, these notes being convertible into

silver. For some years prior to 1934 there had been

discussion of some reform of the currency owing to

occasional divergencies between the value of the Hong Kong

dollar and its nominal silver parity, but by general consent

the policy of remaining on silver so long as China did the

same had been followed.

In June, 1934, the United States embarked on the

policy of purchasing silver, with the deliberate intention

of driving up the price of silver. This necessarily

resulted in an increase in the exchange values of the

Chinese (Shanghai) and Hong Kong dollars (the latter rising.

from about 1s.5d. to ls.74d. by the autumn of 1934), with

consequent deflationary effects on Chinese trade. In

October, 1934, the Chinese Government decided that the

continued increase in the exchange value of its currency

could not be allowed, and imposed a fluctuating export duty

on silver. This caused an immediate depreciation of the

Shanghai dollar by about 10%. It was necessary to consider

at once whether similar action should be taken in Hong Kong,

both in order to continue the general policy of keeping in

step with China, and in order to prevent Shanghai getting

a competitive advantage by currency depreciation over Hong

Kong.