ENG-1952 — Page 81

IV

CURRENCY AND BANKING

At the time of Hong Kong's foundation in 1841, China's currency was on a basis of uncoined silver but the usual standard unit for foreign trade was the Spanish or Mexican dollar. These coins were the first legal tender in the new Colony and apart from one unsuc- cessful experiment in using United Kingdom coins alongside it the Mexican dollar became and remained until 1895, the standard coin. In 1895, in pursuance of Her Majesty's Order in Council dated 2nd February of that year, a British trade dollar, equivalent to the Mexican dollar, was minted and production of the Mexican dollar ceased, although it remained the stan- dard by which others were judged. Its sterling or gold value varied with the price of silver, giving Hong Kong a variable exchange relationship with London and the world at large but reasonable stability with China. In 1853, the Chartered Bank of India issued the first Hong Kong banknotes, followed in 1866, by those of the Hongkong and Shanghai Banking Corporation. Although not legal tender these notes became more and more the customary means of payment and from 1890 onwards they were established by convention as practically the sole medium of exchange apart from subsidiary coinage. An Ordinance passed in 1895, had the effect of restricting the right of issuing banknotes to the three banks named. In 1935 the silver standard was abandoned, and by the Currency Ordinance, later renamed the Exchange Fund Ordinance, an exchange fund was set up to which note issuing banks were obliged to surrender in exchange for Certificates of Indebtedness all silver previously deposited against their note issues. The exchange fund keeps full sterling cover against the notes issued by the banks

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