ENG-1961 — Page 86

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CURRENCY AND BANKING

Australia and China (now the Chartered Bank); by then the Oriental Bank had closed its doors and the Chartered Mercantile Bank of India had been re-organized. In 1911 this re-organized Mercantile Bank of India (now the Mercantile Bank) joined 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. The Currency Ordinance of that year, later renamed the Exchange Fund Ordinance, set up an exchange fund to which note-issuing banks were obliged to surrender all silver previously held by them against their note issues, in exchange for certificates of indebted- ness. The 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 sterling and operates in a similar manner to traditional Colonial Currency Boards. The Ordinance also made the banknotes legal tender.

At the same time Government undertook to issue one-dollar currency notes to replace the silver dollars in circulation. In 1960 a dollar coin of cupro-nickel and about the same size as a United Kingdom florin was reintroduced, but it is still far from replacing the notes in circulation. The dollar notes and coins 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 of the value of 5 cents, 10 cents and 50 cents and notes of the value of 1 cent.

Since 1935 the value of the Hong Kong dollar has been main- tained 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 31st December

1961 was:

Bank note issue

Government $1 note issue

$952,940,645 $ 31,741,487

Government $1 coin issue

$ 11,999,700

Subsidiary coin and 1 cent notes

$ 29,987,148