I have given a brief exposition of the situation with regard to paper money in the above four countries in order that my plan for China might be better understood. As regards the authority to issue notes, China must follow all these countries in arranging that the Government grant the necessary sanction to the district banks to issue paper money. In China, under the present state of affairs, it is useless for the Government to be the direct issuer of paper money. The experiences of the people of this country are not helpful to insure confidence in Government paper money. So far as the procedure with regard to the issue of paper money is concerned, China might profitably work very nearly on the lines of the new Federal Reserve Act of the United States. Beyond that, however, I believe that stricter regulations and larger metallic reserves are absolutely necessary, if the new paper issue is to succeed.

The proportion of metallic reserve must be at least as much as that in India; only a smaller proportion might be kept in gold - at the outset it must be all in silver - and the larger part of the reserve might be kept in China, instead of in foreign countries. The reason why gold should be kept as a reserve, I will explain later on.