While the fall in the value of the Chinese national dollar on Wednesday was sudden, it cannot by the greatest stretch of imagination be said to have been unexpected. Indeed the only real question was as to when it would come. It is reported that the new situation has been*brought about by the decision of the committee of the Stabilization Fund in Hongkong to permit the dollar again to find its own level with relation to. China's trade, and it is wholly incorrect to say that the Fund is exhausted, or as some would aver, completely wiped out. The facts are very different from that. Entirely beside the point as to who is responsible for it, is the fact that for some time past the process of inflation has been going on, and it could not be expected that the Stabilization Fund should continue to endeavour to maintain the dollar at its former rate while it was being subjected to such a process, Hence the withdrawal of support in order to allow the dollar to find its new level. On Thursday the market opened at 3!Ad. went up to 3%d. and closed around 3%d., firm. There was most decidedly no panic and in view of all the circumstances not a very surprising amount of business done. It must be pointed out, however, that in addition to the inflation mentioned above, the Chinese national dollar has been subjected to sustained attacks by over speculation, the circulation of rumours, and the general endeavour to create panic by people who apparently fail to realize that they are in this manner damaging their own interests. Some of these things it would in other places be possible to control but in Shanghai that cannot be done, and here, which is after all the money market of China, Chinese currency is being subjected to onslaughts against which it cannot be expected that the Stabilization Fund could for ever protect it.
It is a complete fallacy to contend that the value of a nation's currency depends on gold and silver deposits, and securities, and that because China has long got rid of hers there must come a time when her currency will become valueless. There was a time when Great Britain's gold holdings were laughably small. That was at a time when Britain was so prosperous that she may never again reach the same levels, and its currency was never held in better esteem. It was because of the trade it was doing, and the investments it held abroad that that was the position. The great factor which should dominate the value of China's currency is undoubtedly its trade, and there is every reason to believe that, were trade somewhere about normal, the. absence of China's former gold, and silver holdings would have but little effect upon the value of the national dollar. Thus it is that with even the restricted trade which China is doing at the present moment there will always be some value to the national dollar, though exactly at what level that will be remains to be seen. It would be idle to say that it might not go lower, but if that does occur it will in all probability prove to be no more than a passing phase. Obviously were it possible for China's trade to resume its previous volume there would be every prospect for an increase in the value of the currency, and in this respect it would not really matter through hich channels the trade passed so long as it was in fact being done, for, from that point of view the economic principles involved take no account of who is doing the trade but only as to whether it is being done or not. The remedy then is to be found in the early resumption of free trading in China, the permitting of China to get back to normal levels of exports, and the consequent securing of that exchange, which in the absence of sufficient exports she is wholly unable to obtain. Thus volume of trade which is being done, is still the main factor in reaching the real value of the national dollar. There is consequently not the slightest reason for thinking that the Stabilization Fund in Hongkong is playing any sinister role in the present currency developments, but rather every ground for believing that its influence has been consistently beneficial.
The whole question has much wider implications than those which affect Shanghai alone, important enough as they undoubtedly are. The prevention of trade is having a deleterious effect throughout the whole of China, in those parts occupied by the Japanese, and under the Wang Ching-wei regime as well as under that of Chiang Kai-shek at Chungking. The pressing need of the countless millions of Chinese under both jurisdictions is that they should be enabled to get back to normality with the least possible delay. They should be permitted to return to those agricultural, and industrial pursuits upon which the export trade of the country depends, for in the long run the only sound method of financing the return of the Chinese dollar to better levels than it now enjoys, must be the foreign exchange which exports would undoubtedly bring back to China. The Wang Ching-wei regime in Nanking is still very young, but it should not be impossible for it in conjunction with the Japanese to bring about free trading conditions giving outlets to those exports of which even now there is an abundance in the interior. No more telling gesture could possibly be made by the New Order in China than such an attempt to put China's currency on its feet again, and it should be the primary aim of all parties, in Shanghai, Chungking and Nanking to work for the restoration of conditions which would permit China's millions to carry on their normal daily life. The remedy, therefore, is not the Stabilization Fund: its role after all has been, and was intended to be merely palliatory, and in that sense it has worked admirably. Those who are apt to groan over present developments have only to think how, much quicker they would have come had the fund mot been brought into existence. Finally, uncomfortable as the situation undoubtedly is, it would be foolish to panic over it. That would be playing into the hands of those who seek to wrest profits from the falling dollar, and bring about a worse deterioration than up to he present has occurred. That is something which no one in Shanghai desires. At the same time it is necessary to point out that the reopening of the Yangtze to "only as far as Nanking, unrestricted so far as nationality is concerned. The whole situation then appears to be that much as foreign interests would like to do their utmost in order to maintain China's currency, that will not be possible unless steps are made to bring about a state of affairs in which China's export trade is allowed to assist.
Text read from the printed page and cleaned; old type leaves the occasional error.