ENG-1955 — Page 75

CURRENCY AND BANKING

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closed its doors and the Chartered Mercantile Bank of India having reorganized. In 1911 the reorganized Mercantile Bank of India was added to the list of authorized note-issuing banks.

The rising price of silver from 1931 onwards forced China to abandon the silver standard in 1935. Hong Kong followed. By the Currency Ordinance of that year, 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 held by them against their note issues. These certificates, which are non-interest-bearing and are issued or redeemed at the discretion of the Financial Secretary, became the legal backing for the notes issued by the note-issuing banks, apart from their fiduciary issues. The silver surrendered by the banks was used to set up an exchange fund, which in practice keeps its assets in the form of sterling and operates in a similar manner to the normal Colonial Currency Board. The Ordin- ance also made the banknotes legal tender. At the same time the Government undertook to issue one-dollar currency notes to replace the silver dollars in circulation; these are backed by a Note Security Fund, which maintains its assets partly in sterling and partly in Hong Kong dollar bank accounts. The Government also issues subsidiary coins to the value of 5¢, 10¢ and 50¢.

Since 1935 the value of the Hong Kong dollar has been maintained at approximately 1/3d. sterling, although the banks may deal with the public at a few points on either side of this rate, both to allow for a profit margin and, to a slight extent, to meet fluctuations in demand and supply.

The total currency in nominal circulation at 31 December 1955 was:

Bank note issue

Government $I note issue

Subsidiary notes and coin

726,802,187

27,691,500

17,238,383

The Colony has been a part of the sterling area since August 1941. Exchange Control is administered under powers conferred by the Defence (Finance) Regulations, 1940. The

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