Sessional_Paper_1885-1886 — Page 132

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No. 13.

HONGKONG.

DESPATCH RESPECTING THE PROPOSED LOAN.

Presented to the Legislative Council by Command of His Excellency the Officer Administering the Government.

Colonel The Right Honourable Fred. Stanley, M.P., to the Officer Administering the Government of Hongkong.

HONGKONG,

No. 21.

SIR,

DOWNING STREET,

2nd February, 1886.

I have the honour to acknowledge the receipt of Sir GEORGE BOWEN'S despatch No. 417, of the 7th November, enclosing certain resolutions of the Finance Com- mittee, which were adopted by the Council, to the effect that any loan which may be required by the local Government to carry on its extraordinary public works should be raised not in England but in the Colony.

2. You will have learnt from my telegram of this day's date that I am unable to consent to the course proposed, for, on purely financial grounds, on which alone the point must be decided, it is clear to me that it will be more advantageous to borrow in this country than in Hongkong. At the same time I much regret that I have not felt myself able to accept the views of the Council on the subject.

3. The first resolution of the Finance Committee is to the effect that the probable further depreciation of silver makes it dangerous and inexpedient to borrow in gold.

4. It is of course not improbable that the price of silver will fall still lower than it is at present, but it would hardly be wise, in order to avoid a possible loss in the future, to borrow on what appear to be very disadvantageous terms at the present time.

5. The Committee notice in their report that the effect of borrowing in silver in the Colony will be a loss on exchange in keeping the Crown Agents supplied with funds, but this would not be the only loss to the Colony, and, in order to arrive at a sound conclusion, the unquestionable advantages of borrowing in this country must also be allowed full weight.

6. The relative advantages of the two methods of borrowing can, it appears to me, be most conveniently compared by the use of actual figures rather than by attempting to lay down abstract principles.

7. Hongkong desires to borrow £200,000, and the Colonial Government proposes to do so by means of a local 5 per cent. issue, the annual charge for interest on which would be £10,000. I am informed that a Hongkong Loan of £200,000 could, under present conditions of the money market, be placed here as a 4 per cent. issue, at so inconsiderable a discount below par, as to be inappreciable in the comparison. For interest on this Loan the Colony would have to pay £8,000 a year, and assuming, for reasons to which I shall hereafter refer, that the Loan has a currency of 20 years, the annual remittance for sinking fund would be £7,000, making a total annual remittance of £15,000.

8. The effect of the anticipated depreciation of silver on a transaction of this nature, can only be estimated by giving to that depreciation some definite value.

The Officer Administering the Government of

HONGKONG.