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on the 17th May, I replied that I had communicated with Your Lordship in the matter. Mr. E. A. HEWETT, the member representing the Chamber of Commerce, has also asked questions on the subject which he has intimated to me he proposes to bring up again when the Estimates are under consideration in September next.

The Right Honourable

THE EARL OF ELGIN, K.G.,

&c., &C...

HONGKONG.

Confidential.

&c.

I have, etc.,

M. NATHAN.

DOWNING STREET,

24th August. 1906.

SIR-I have the honour to acknowledge the receipt of your confidential despatch of the 13th ultimo in which you offer various suggestions for meeting the effect of the rise in silver on the sterling salaries of Government servants.

2. I have carefully considered your observations, and I regret that I am unable to satisfy myself that measures of relief are necessary or justifiable at the present time. In the matter of remittances to this country the Government servants in question are no longer affected by the rate of exchange, and a reduction in the dollar value of imported articles must presumably be only a matter of time if exchange continues to rule high. Moreover I would remind you of the statement in your despatch No. 72 of the 29th March that "house rent is the chief, if not the only, expense of living which is not lower in this Colony than in most others, where customs duties are levied and where wages are higher". I am bound to add that in my opinion the scale of pay of Government servants in Hongkong compares favourably with that obtaining in most other parts of the Empire.

3. I would observe, with reference to the suggestions made in your despatch under reply, that sterling salaries were introduced in order to get rid of the system of making payments in dollars at fictitious rates of exchange, and, even if I were convinced of the necessity of taking steps in the direction which you advocate, I could not agree to any arrangements whereby that system would be revived.

4. In answer to the 10th paragraph of your despatch I have to say that I have no ob- jection to your communicating the present despatch to the Unofficial Members of the Legislative Council.

Governor

SIR M. NATHAN, K.C.M.G.,

$o..

$. &c.

I have, &c.,

ELGIN.

Paragraph 12 of Despatch of 5th October, 1906, to the Secretary of State.

12. There are two other matters which were discussed in the meeting of Council held on 27th September to which I may here briefly refer. The Hon. Mr. HEWETT in the course of some remarks on the subject suggested that I should appoint a small Committee to consi- der the whole question of the salaries of Civil servants. I informed the Council that I was not prepared to adopt this suggestion but that I would place the Hon. Member's remarks before Your Lordship.