TNAG-0765-FCO40-969-Minting-of-coins-for-Hong-Kong-1978 — Page 18

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a Committee set up to examine currency problems in British West Africa, said "there was some talk of the shilling being currency wherever the British drum was heard... that policy has long been abandoned. The policy subsequently adopted was one of complete neutrality". However, by that date - to use developments in that region as an example UK silver coin (925 fine) had undoubtedly become the most important single means of payment there. HMG found itself sometimes obliged to ship coins out at its own expense and to sell them to traders at par against sterling. The Crown Agents and the commercial banks were also involved

at various times in arranging, for a charge, the supply of British coins abroad against payment in London.

7.3

The 1912 Committee (mentioned above), whose work resulted in the establishment of the West African Currency Board, went through the main questions involved in setting up a local currency. Their report criticised the existing system because, first, profits on the

coinage accrued to HMG (but it was considered that a division of the

profits would be impracticable); secondly, although UK silver coins

were issued against payment in sterling they were not redeemable. As now, neither HMG nor the Royal Mint was under any obligation to redeem. This caused no difficulty in the UK because coins could be

used to set up, or add to, a bank deposit. But as the issue of coins

in the dependent territories expanded, the process carried with it the risk, if economy activity should slacken, of a large surplus having

to be sent back to the UK. This, it was thought, would be costly to

the banks and to the public; it could also conflict with the UK's

domestic policies. At that time the UK banks had arrangements with the Bank of England for obtaining face value for surplus silver coins

up to a stated amount in a given period. For excess amounts the Bank of England imposed a charge which could be increased pari passu with

any increase in the number returned.

7.4

The Committee then considered the advantages of having a local issue of silver coins backed by "a reserve in gold or securities, sufficient to secure its redemption by the Government at a rate closely

approximating to par". After minting costs had been met, it was

thought that a sufficient reserve could be set up to meet any possible

payment for redemption. The value of the currency would be maintained

by the assurance of its convertibility in London against sterling.

A note issue was also contemplated. It was suggested by the Committee

that it should largely be backed by coin. But the principles of issue

and redemption would be the same as for coins. The charge for both