"To the Eéltor of the "Nowru-Cla Dany News"
Sim—As a member of the profession whose business is giving financial advice toa large section of the community, I desire to question the benediction' that you have given to the latest piece of finance carried by the Treasury of the Council. I refer quite obviously to the "currency" loan of the S.M.C, It Is evident that the cause of devaluation has been pleaded so vehemently that the Council officials envisage a clipping of the coin of this 7S, with perfect equani-
France, Germany, England, Japan and America were forced to depreciate their currencies during or in the aftermath of the World war in their struggle to keep their heads above water is no excuse whatever for China to contemplate doing likewise, All these countries have now come to the conclusion that the vicious circle has got to be stopped and at the present moment they fare all doing their utmost to stop what they started, by virtue of necessity, from getting entirely out of hana, China has none of their reasons for depreciating her curreney—rather has she every reason for stabilizing—for many years to come she must be a borrower, if she is to take her place in the world and she has no excuse to try and evade her comparatively small national debt by devaluating the dollar. Those in power in China at the present moment have shown no wish to do so, rather have they demonstrated their desire to meet all their obligations and to put their finance on a sound basis, Yet in a roundabout way the Treasury Officials. of the S.M.C. are suggesting they do otherwise, They have implied belief that the Government of this country can, should, and will, adopt the near future the desperate and at present unthought of expediency of clipping-the coin, The offence lies {in this: that the mere expression of this belief is lable to do even more harm than the act itself might do, eat as that might b Let us look at the facts of the situation. So far from there being here a volt amount of credit resting upon a tiny base and so justifying deflation we have a very small amount of credit resting upon a broad base of bullion, So far from there being in existence a mass of credit created of unbounded confidence we have here a lack of credit born of an unwary rantable lack of confidence.
There lies in China a vast eld for economic expansion. There exists the necessity for it if this country is to maintain its place in the sun. Only tone thing can achieve it and that is capital. The dearth of this at present only be supplied from outside, It certainly will not come here for investment if people are to tale of currency depreciation. The justification for the recent abolition of the tael was that the content of the dollar was, categorically to be of a certain fixed weight of silver and to be of that exact weight consistently and universally through the length and breadth of this land, In my opinion the Treasury. Oficials of the S.M.C. have definitely done this country a disservice. If the county is to remain on a silver basis capital must be attracted into the country and this can only be done it it can be withdrawn more or less intact. As it is the Council has put out a loan at a rate of interest appreclably higher than it need done had it taken the precaution of safeguarding it as far as possible and hag thus burdened the community with @ loan by suggesting a disboliot in the bona fides of the National Government, It has made of what should have been a gilt-edged security, im-Pervious to market rumours, one that will bob up and down every time interested parties stir up a rumour that the Government is considering clipping the silver dollar or that the present hard working and compara: tively conservative set of Govern: ment OMicials is to make way for a regime of different hue, the like of which we have experienced in the past. This the Treasury Officials of, the Council have done we assume on their own initiative. The large Power issue put out tinder the aegis of the great financial institution that has come to the aid of the port in every financial stringency and with the ce-operation of the great Chinese bankers here, all men of affairs well able to apprise and understand developments elsewhere and the corelalon thereof to the needs of this country, contained the bullion clause. Does the Council think that these men considered that clause a joke?
The possible repercussions of the Couneit's policy is that the cost of capital for the development of this country will be unnecessary for the many years and that there will not be an-adequate amount of capital coming here for investment. It is reconsider the matter when further debenture issues are broached.
Shanghai, June 5.
"There is no doubt that ar. Hlekding's "opinions are entitled the greatest respect, but he appears to have overlooked the fundamentals of the ease. If the Chinese Standard Dollar is never debased during the existence of this recently issued loan, abody will have anything to worry about." If, tt ts "debased the muni ipaltiy will stil pay interest in the Unit which it Borrowed, and repay the capital in the same terms. In otter words the obligation incurred in this loan ie definite and clearly limite fed in all ts aspects, and the ratepayers know exactly what they have to pay for the accommodation. which they have received.
"That 1s not true of a silver loan.
Avconcrete example will best serve the purpose of showing' the position.
Supposing the Chinese did debase the sliver dollar upon an increase the "price of silver resulting from action by the" United States, and educed its Value to. 80 per cent. of {ts present worth, analogous to. the reduction effected inthe American Dollar, a by no means improbable contingency, and suppose this took lace five years hence.
The Council would have received. silver to the value of sees $ 7,000,00 'That amount' of sliver, the "dollar were depre-Gated to 89 per cent, would then Be. worth $11,800,00 Interest for the frst five years. in. dollars would Interest at 9 per' cent. on '$1,800,000, the. new dol-Tar' value' of the silver Joan, would tu twenty-five' "years amount to. $143825,000
'Total cost of the Silver 'Loan, redemption and interest, to the com= munity" in' terms CUPFEMCY sense sco - $28,438 00 'The total cost' tothe' community of 'a currency oan," redemption fand interest. of $7,000,000 at 9. pet cent. for thirty years is $17,500,000, There can be no question as to] which scheme is" prudent, from municipal financial point of view: it {certainly mot a sliver issue.
Far from the Council having done China disservice, what should be sought to Falsing a loan in the legal tender of this "country "and undertakes Fepay It in the same medium.
Text read from the printed page and cleaned; old type leaves the occasional error.