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FINANCIAL STRUCTURE

declared to be legal tender in the Colony although government accounts were kept in sterling until 1862. There were several un- successful attempts to change the monetary basis from silver to gold.

A mint was set up in 1866 and produced a Hong Kong equivalent of the Mexican dollar, but the new coin was unpopular and the mint closed down two years later. (The machinery was later sold to establish the first modern mint in Japan.)

An Order of the Queen in Council, dated February 2, 1895, authorized the minting in India of a British trade dollar, equivalent to the Mexican dollar. In Hong Kong this gradually replaced the Mexican dollar although the latter still remained both legal tender and the standard by which other dollars were judged. The sterling or gold value of the dollar varied with the price of silver. This gave Hong Kong a variable exchange relationship with London and the world at large, but a reasonably stable one with China.

In 1845 the Oriental Bank issued the first bank notes in the Colony, and the Chartered Bank of India, Australia and China, the Chartered Mercantile Bank of India, and the Hongkong and Shanghai Banking Corporation followed suit. Although not legal tender, these notes increasingly became the customary means of payment because of the inconvenience of dealing with large amounts of silver. By 1890 they had become established by con- vention as practically the sole medium of exchange apart from subsidiary coinage. An ordinance of 1895 restricted the issue of banknotes to specifically authorized banks, (the Hongkong and Shanghai Banking Corporation and the Chartered Bank of India, 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 reorganized. In 1911 this reorganized bank (now the Mercantile Bank Limited) was added to the list of author- ized 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 indebtedness.