Sessional_Paper_1935 — Page 107

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The conclusion given in Paragraph 81 of the Hong Kong Currency Commission Report

that Hong Kong is economically part of China and must remain on a silver standard so long as China does " appeared to be understood and tacitly approved and, in the absence of any criticism to the contrary, the steps taken during the past few years to control the premium on Hong Kong currency would seem to have met with general approval in that the results were satisfactory to trade as a whole.

The question of the Colony's currency was hardly ever raised by the large number of witnesses examined by the Commission and then only in an indirect way when comparing labour and handling costs with those obtaining in Shanghai and else- where in China.

As a con-

2. On 15th October, 1934, the Nanking Government promulgated regulations raising the duty on silver exports from China from 2 to 10% with a further equalization tax, based on a sterling exchange rate related to the ruling price of forward silver in London, fixed daily by the Central Bank of China. sequence, Chinese Currency became subject to a measure of "control" and depre- ciated in terms of World currencies, resulting in an immediate rise in the Hong Kong and Shanghai inter-port cross rate of some 12%.

The Commission being in session considered the effects of this action by the Chinese Authorities as regards the Colony and after due consideration of the facts came to the unanimous conclusion that the interests of trade would best be served, for the time being at any rate, by retaining the Colony's Currency on the present silver basis.

In the event of further measures by the Chinese Government, the Colony may find it necessary to review the whole question in the light of conditions then pre- vailing.

3. Its position as the centre of the entrepot trade for South China makes Hong Kong a very important banking centre. Trade conditions, in the first place, demand a highly organised system of exchange banking. The banks established are, therefore, pre-eminently Exchange Banks which also perform the ordinary func- tions of domestic banking. In addition, three of the British Banks provide the Note Issue by means of which the trade of the Colony is financed. This combined Note Issue, which amounted on 31st January, 1935, to $158,601,900, also plays a very important part in the trade of the neighbouring Provinces of South China.

4. The Hong Kong Exchange Brokers Association is a duly constituted and re- cognized body whose members provide the link between banker and merchant in the matter of exchange rates.

5. There are two recognized Stock Exchanges in Hong Kong known as the Hong Kong Stock Exchange and the Hong Kong Sharebrokers' Association.

Suggestions were received that conditions did not warrant two Exchanges and that the two bodies might be amalgamated with advantage. It was further suggest- ed that an effort should be made to curb speculation and the "hammering down " of local shares by interested parties.

The Commission came to the conclusion that these questions hardly came within their terms of reference and were matters for the two Exchanges concerned to ar- range among themselves.

6. No criticism can be levelled at the banks of the Colony on the score of unwillingness to finance trade and industry. Indeed few places in the world have suffered less from Exchange and Finance restrictions. At the same time, the Colony's trade has been seriously hampered by fluctuations both in the local currency and in the currency of South China, but uncertainty in regard to exchange is a disability by no means peculiar to Hong Kong. It is universal, and presents one of the greatest obstacles to world recovery. Silver, the basis of the Colony's and of China's Currency, has become a veritable gambling counter for speculators the world over, and in consequence lacks that measure of stability necessary for sound trading.