Sin—Now that the question of a Currency for Shanghai is again feoming in the foreground, I wish to make an analysis on a point, which in my opinion, does not seem entirely clear. I refer to the rela tion of Gresham's Law to the proposed currency.
All political economists agree that it is for the interest of the payer to pay in the cheapest or worst coins obtainable and acceptable. These sains ure acceptable, fat mb. face value, only if they are Tegal tender, and legal tender pre-merely on Or, there is ina as far practical experience goes. A. coin or a bank-nate may be refused jor accepted at a discount just ix the same way as one eountey may refuse che coins and notes of other country or accept them at 3 discount agreed upon between the buyer and the seller. See the duily Jeyshange rates, Where are. the old Chinese dollars, which were at a discount of 3 per cent. before the ar? They have disappeared since we had our Mexican Dollar got the full value Yuan dollar, and so have the spurious silver-coins of some years ago, because we had a sufficient supply of better ones. Why are thei than ever depreciated copper-cvints still "on the market? Because we have no better ones at our disposal. What will happen to the new debased 20-cent pieces of the 11th year of the Republic? They: will gradually disappear have a sufficient upply of tess depreciated 20-cent coins, From the above will be seen that toneing of, Gress is that if in a count rue of come of depreciated value less depreciated 6 legit tender. it is for the interest, of the payer to pay in the depreciated coins, since the monopoly allows him to do so, and tp dispose of the more valuable ones where he gets a better return for them. In this way the good coins will gr dually disappear from the market, Aw far as China is concerned it will also be seen from. the above that the ease is exactly the con trary. Good coins, or rather the better ones, drive the less good sains of the same face value out of cireufation. You are aware hereof, sixes you write in your leader of the July 19, 1916: "As for Gresham's Law, we wonder whether it quite contemplates the peculiar condit of Shanghai," auf further in your Keador of the dth instant draw the attention to the fact that notwithstanding Gresham's Law the S-ent tokens of the Omnibus Company ave accepted in preference to Chit ese coins of the same value.
1 bee add that, if ther sufficient supply of this Com= metal pivees, they would roon oust that quantity. of the Chinese copper coins which ix 1 sently used for the payment of mitments of five cents or multiples thereof as long ay the financial standing of the Omnibus Compa remains sound. This is not a coi eldenee but a perfect logical sequence of Taw which might ap: proprintely be defined as follows: In every country where the cur= rency is a commodity pure and Jsimple, goad coins always drive out bud ones. I have alrendy express: ed this theory' seven years ago, though it has never been published in print, and T have not hud any reason to deviate from same since.
In conclusion T wish to mention that should Gresham's Law hold geod in our ease, a currency for Shanghai would be a atillcborn proportion without the efficient assistance of the Chinese Government, As things are now a currency for Shanghai is perfectly practieuble. The more chaotic our subsidiary coinage gets, the bettes the chancos for suees. The only drawback, if drawback it be, that affects: the scheme is, that anything up to 10 times, or perhaps more, the amount of subsidiary coins actually needed for use in Shanghai will prove necessary to satiety the demand, since, as a result of the economical Taw defined above, the—proposed willie hearded the neighbouring pro The excess mount. needed is entirely depend fon the mea sures the Chinese Government my take to stabilize ube national eu. rency.
Tam, otos anghai, April 6, 1925,
Text read from the printed page and cleaned; old type leaves the occasional error.