CHINA (CURRENCY STABILISA TION) BILL. (Hansard, 27 March 1939)

§ LORD TEMPLEMORE

My Lords, this is another important but very short Bill of two clauses, the purpose of which is to enable the Treasury to give certain guarantees so as to enable two British banks to contribute to a Chinese Currency Stabilisation Fund. The establishment of the Stabilisation Fund is in the interests of China and in the interests of all countries who have close economic and financial relationships with China, and in particular in the interests of this country, whose investments in China have been estimated at some £300,000,000. The arrangements which are proposed in regard to the establishment of the China Currency Stabilisation Fund are explained in the White Paper. It is proposed that the two Chinese Government Banks shall contribute £5,000,000 and that a similar amount shall be put up by two British banks—namely, £3,000,000 by the Hong Kong and Shanghai Banking Corporation and £2,000,000 by the Chartered Bank of India, Australia and China. Each of the British banks will appoint one member to a Committee which is to manage the Fund, two other members will be appointed by the contributory Chinese 425 Banks, and the fifth member of the Committee will be a British expert appointed by the Chinese Government in agreement with the Treasury, with the approval of the two British banks.

The Fund so constituted and managed will be used solely for exchange operations—for example, the purchase and sale of Chinese dollars with the object of evening-out fluctuations in the sterling value of the Chinese dollar. For instance, if there is a temporary demand for sterling on the part of holders of Chinese dollars which might otherwise depress the exchange value of the Chinese dollar, the Fund will be able to provide the sterling required. Conversely, if there is a demand for Chinese dollars which might otherwise cause the Chinese dollar to appreciate unduly, the Fund will be able to meet this and so replenish its holdings of sterling. This function of minimising fluctuation is, as will be evident to your Lordships, very similar to that of our own Exchange Equalisation Fund, which buys and sells sterling for gold much as the Chinese Fund will buy and sell Chinese dollars for sterling. I should make it clear that this is the only purpose for which the Fund will be available. It is not available for any other purpose whatever.

The assistance which is proposed to be given by the Treasury to the establishment and maintenance of this Fund consists in two guarantees to the two contributing British banks. First, the Treasury will guarantee to the British banks the interest on their contributions which is payable by the Chinese banks. This guarantee will only come into force if the Chinese banks are unable to make up the amount earned by the sterling portion of the Fund to the amount due to the British banks, at 2¾per cent., on their contributions; and I need not remind the House of China's high reputation for financial integrity. Secondly, the guarantee of capital will only come into force when the Fund is wound up and its assets are distributed among the participating banks in proportion to their respective contributions to the Fund. If at that time the amounts so receivable in sterling by the British banks are more than their original sterling contributions, they will pay over the excess to the Treasury. If they are less the Treasury will make good the difference to the British banks. Your Lordships will, I 426 think, agree with me in hoping that with this measure of assistance it may prove possible for the Government of the sorely-tried Chinese nation to avoid undue fluctuations in the exchange value of their currency, in which a British trade, important even now, and potentially yet more important after the present hostilities have come to an end, is conducted. I beg to move that this Bill be now read a second time.