Bank of China

A significant withdrawal

PUBLISHED : Sunday, 29 April, 2012, 12:00am
UPDATED : Sunday, 29 April, 2012, 12:00am

Enormous distress has been caused throughout history by unbacked currencies and the massive inflation that follows. As unchecked 'quantitative easing' sleepwalks the world towards a global equivalent of the 1920s Weimar Republic, it's worth remembering a time when responsible bankers - the term wasn't always an oxymoron - creatively avoided the problem of future unbacked currency, at great personal risk.

One of Hong Kong's enduring curiosities is that our banknotes are exactly that. Our notes are issued by HSBC, Standard Chartered and Bank of China. Before the war, they were issued by the precursor institutions of the two first named, and Mercantile Bank. Until the 40s, banknote blanks had to be personally signed by authorised bank officers to become legal tender - without their signatures, the notes were invalid.

After the Japanese capture of Hong Kong in 1941, European bankers were kept out of internment for some months, partly to liquidate their banks' assets in favour of Japanese financial institutions, and also to sign banknotes. Notes signed after the British surrender became known as 'duress notes', as they were signed under compulsion. A Chartered Bank official involved, G.A. Leiper, later wrote a memoir of this time. A Yen For My Thoughts illustrates this aspect of occupation life and his subsequent period of internment at Stanley.

This issue of unbacked currency caused concern in London about eventual post-war economic stability in Hong Kong. What would be done with the wartime money? After all, it had gone into circulation and people had - legitimately and reasonably - purchased goods and services with it. An ingenious solution was found: bankers with signing authority would be smuggled out of occupied Hong Kong by British Army Aid Group agents. This was easier than it might have first appeared. Occupied Hong Kong had a sizeable European population - Swiss, Irish and other neutrals, Italians, Germans and other Axis nationals, numerous stateless White Russians and plenty of Eurasians and local Portuguese - so white faces on the street were no cause for comment, at least in the urban centre.

The bankers were approached by British Army Aid Group agents in a cafe in Central where they went daily for lunch. While initially reluctant, they were eventually won over and T.J.J. Fenwick and J.A.D. Morrison of the Hongkong Bank agreed to go. Getting them out was surprisingly easy: they took a tram from Central to Shau Kei Wan, where a waiting agent put them into a sampan. This departed for the New Territories, and then to Free China. It was as simple as that.

The Hongkong Bank's chief manager, Sir Vandeleur Grayburn, was also meant to go. Grayburn considered the proposal, but turned it down out of fear that the Japanese would retaliate against his wife who was interned at Stanley. Subsequently implicated in the smuggling of currency notes into the camp, he was brutally interrogated and died as a result of torture, aged 62.

Towards the end of the war, stories circulated about whether the duress notes, which people had collected, hoarded and traded (an enduring Hong Kong trait) would be honoured as legal tender by London when victory came.

Hong Kong's perennial rumour mill went into overdrive, banknote prices fluctuated wildly week by week, and astute speculation in duress notes helped create a few local fortunes. During the closing stages of the war, one hitherto unremarkable Indian family bought large quantities of duress notes at significantly discounted face values. When these were honoured at the end of the war, the resultant windfall was reinvested in real estate and other business assets - and another high-profile Hong Kong family fortune was established.

Duress banknotes appear from time to time in coin and banknote dealers' shops. Good- quality examples can fetch prices significantly higher than the face values.