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On similar lines the proportion of the purchasing power of sterling salaries in March 1907 to what it was in November 1905 due solely to the alteration in the value of the dollar from th to 4th of a £ is less than (+×}}) or 93 %.

8. From whatever point of view these figures are considered it cannot be questioned that there has been a heavy fall in the purchasing power of sterling salaries in the last few years and it could scarcely be expected that this fall should be without its effect on the efficiency of the Service generally. Apart from general dissatisfaction several cases have already occurred in which good men have been lost to the Colony by the unattractiveness of the present outlook.

9. Since the memorials above discussed were submitted, I have received despatch No. 236 of the 26th November, 1906, in the 4th paragraph of which Your Lord- ship regrets being unable to reconsider the decision that measures of relief were unjustifiable and unnecessary at the present time and goes on to state that "in any case the fact that in spite of economy of Public Works the estimated revenue for 1907 barely covers the estimated expenditure is sufficient reason against any general increase in salaries." In this connection I would point out that the Estimates were drawn up on the basis of a 2/- dollar and that the current rate is now over 2s. 2 d. so that unless this rate falls appreciably or compensation is given for its high level, the amount that will be expended on sterling salaries in the year will fall considerably short of the estimate.

10. Subsequent to the above quoted despatch I understand that Your Lord- ship on the 8th January last asked of the Governor of the Straits Settlements what solution of the salaries question would be applicable to Hongkong as well as to the Straits Settlements and Federated Malay States. Sir JOHN ANDERSON has been good enough to favour me with a copy of the despatch he wrote in reply-No. 60 dated the 31st January, 1907,-the 11th paragraph of which suggests that salaries in Hongkong should be paid at the rate of the day so long as it does not exceed 2/2 and that if the rate exceeds 2/2 the salary should have a percentage added to it equivalent to 1/48th of the excess of the rate over 21-.

For simplicity it is suggested that in place of the above an additional cent should be given on every dollar for every , that the dollar rises above 2/-. With nine dollars to the pound sterling, or the dollar at rather more than 2/24d. as at present, Sir JouN ANDERSON'S scheme would mean an immediate addition of 5% to salaries. This would not remove present grounds of complaint.

11. A more acceptable scheme would be if an additional cent were given on evrey dollar for every 4 that the dollar rises above 2/- With the dollar at 2/24 the addition would then be 10%. If it went to 2/6 the addition would be 24% which might be laid down as a maximum instead of the 12% suggested by Sir Joнк ANDERSON. The actual effect of the scheme is practically to pay salaries at a fictitious rate of 2/- the dollar. On the whole the scheme suggested in paragraph 7 of my confidential despatch of the 13th July, 1906, appears simpler.

12. I regret the delay, due to my recent illness and absence and to the compli- cated nature of the question, in forwarding the memorials and petitions submitted to me in October and November of last year, and I would urge on Your Lordship the necessity for some early action being taken in the matter with which they deal.

I have, etc.,

M. NATHAN.

The Right Honourable

THE EARL OF ELGIN, K.G.,

&c.