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very considerably even with the depreciated dollar. But there is another

aspect. of the question that requires very grave consideration even before a Commission be decided upon, for the appointment of a Commission would at once further affect Exchange. Can this Colony afford to pay the cost of conversion? Assuming a gold reserve, with paper currency and token silver coins, is the paper to be inconvert- ible? If not, gold selling sometimes at a premium, our reserve will be demanded for conversion into gold leaf, of which there is enormous consumption in China, and must be replaced, while of the large token coin there will probably be a perennial supply of counterfeit from China that we can only exclude by the establishment of a rigid Customs service and the total change in the character of the port, which has grown and thriven upon its freedom from restrictions. While if the silver rises beyond the token value of the coin then the silver currency will be at once con-

verted into bullion.

These are questions that can be answered in London as well as in Hongkong, and require to be very carefully considered before any step is taken that will disturb present conditions. Whether Hongkong turns to the East or to the West it is evident that she will have to meet Exchange fluctuations on one side or the other. At present the double calculation is made by the merchant or commission agent in Hongkong. If we seek to transfer that trouble to the Chinese importer and exporter, will he not prefer to continue to deal in Exchange with his accustom- ed currency

in Chinese ports to which the Exchange Banks will transfer their busi- ness, and where he will be met by all the most active merchants and brokers who will perforce be drawn by trade competition from Hongkong? Such an exodus from this port would profoundly affect its prosperity which has grown upon the principle of minimum interference with the freedom of trade and a maximum of convenience for the Chinese traders.

The Right Honourable,

I have, &c.,

H. A. BLAKE.

The Secretary of State for the Colonies,

&c.,

&c.,

HONGKONG. No. 305.

&c.

DOWNING STREET,

22nd August, 1903.

SIR,-I have the honour to acknowledge the receipt of your despatch No. 174 of the 2nd April, with its enclosures, on the subject of the currency in Hongkong.

I regret that I have not returned an carlier reply to your despatch, which has, however, been receiving my careful attention. I transmit to you herewith a copy of Resolutions agreed to at a recent Conference between Delegations from the United States, China and Mexico, and Representatives of this country, regarding the inone- tary systems of silver-using contries and the establishment of a national currency in the Chinese Empire, together with a copy of a Message" from the President of the United States which led up to the Conference. The Delegations are now discussing the silver question with Representatives of different Governments in Europe.

It does not appear expedient to discuss further at the present stage the possi- bility of establishing a gold standard in Hongkong, the difficulties of which are clearly stated in your despatch. It appears to me to be out of the question tô

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