CHAPTER VI_The Problem of the Rupee, Its Origin and Its Solution

*STABILITY OF THE EXCHANGE STANDARD*

It will be recalled that at the time the Indian Mints were closed to the

free coinage of silver there were two parties in the country, one in

favour of and the other opposed to the closure. Being placed in an

embarrassing position by the fall of the rupee, the Government of the

day was anxious to close the Mints and raise its value with a view to

obtaining relief from the burden of its gold payments. On the other

hand it was urged, on behalf of the producing interest of the country,

that a rise in the exchange value of the rupee would cause a disaster to

Indian trade and industry. One of the reasons, it was argued, why

Indian industry had advanced by such leaps and bounds as it did during

the period of 1873–1893 was to be found in the bounty given to the

Indian export trade by the falling exchange. If the fall of the rupee

was arrested by the Mint closure, it was feared that such an event was

bound to cut Indian trade both ways. It would give the silver-using

countries a bounty as over against India, and would deprive India of the

bounty which it obtained from the falling exchange as over against

gold-using countries.

Theory had already scoffed at these fears. It is therefore interesting

to see that later history has also confirmed the verdict of theory.

Indian trade with a gold-standard country like England or a

silver-standard country like China did not suffer a setback,

notwithstanding an arrest in the fall of the rupee. The following

figures furnish sufficient evidence to support the contrary:— [pg 182]

_TABLE XXV_

_Trade of India with United Kingdom (before and after the

Mint Closure)_

──────────────────────────────────────────────────────────────────────────────────────────────

Exports to U.K. Imports from U.K.

────────────────────────────────────────────────────────────────────────────────

Annual Merchandise. Bullion Total. Merchandise. Bullion Total.

Average. and and

Specie. Specie.

£ £ £ £ £ £

I 1889–93 31,569,891 1,180,646 32,750,537 31,837,482 7,694,149 39,531,631

II 1894–98 26,329,764 2,215,049 24,544,813 28,963,180 6,750,736 35,713,916

III 1899–1903 28,709,819 2,089,656 30,799,475 33,498,480 7,301,172 40,799,652

IV 1903–8 36,784,628 2,232,857 39,017,485 47,294,311 9,586,706 56,881,017

— — — — — —

Percentage of

Increase (+)

or Decrease

(−) in —

Period II in −16·598 +87·613 −25·055 −9·028 −12·261 −9·657

comparison

with Period I

Period III in +9·039 −5·661 +25·483 +15·659 +8·154 +14·240

comparison

with Period

Period IV in +28·126 +6·853 +26·682 +41·183 +31·304 +39·415

comparison

with Period

III

Period IV in +16·518 +89·122 +19·135 +48·549 +24·597 +43·887

comparison

with Period I

[pg 183]

_TABLE XXVI_

_Trade of India with China_

─────────────────────────────────────────────────────────────────────────────────────────────

Exports to China. Imports from China.

Annual ───────────────────────────────────────────────────────────────────────────────

Average. Merchandise. Treasure. Total. Merchandise. Treasure. Total.

───────────────────────────────────────────────────────────────────────────────

£ £ £ £ £ £

I 1889–93 9,454,014 20,223 9,474,238 1,666,840 1,992,914 3,659,754

II 1894–98 8,509,284 112,105 8,621,389 1,713,529 503,357 2,216,886

III 1899–1903 9,679,830 183,647 9,863,477 1,309,975 798,053 2,108,028

IV 1903–8 12,461,535 160,879 12,622,414 1,248,822 919,402 2,168,224

— — — — — —

Percentage of

Increase (+)

or Decrease

(−) in —

Period II in −9·993 +454·333 −9·002 +2·801 −74·743 −39·425

comparison

with Period I

Period III in +13·756 +63·817 +14·407 −23·551 +58·546 −4·910

comparison

with Period

Period IV in +28·737 −12·398 +27·971 −4·668 +15·206 +2·856

comparison

with Period

III

Period IV in +31·812 +695·508 +33·229 −25·078 −53·866 −40·755

comparison

with Period I

[pg 184] That the arrest in the fall of the rupee should have lifted the

burden from Indian finances was just as was expected to follow from the

closure of the Mints. Notwithstanding important reductions in taxation

and large expenditure of social utility, the annual budgets since the

Mint closure have shown few deficits (_see_ p. 185).

Now there is a tendency among some writers to interpret these facts as

unmistakable proofs of the soundness of the currency system. It is

argued that if the trade of the country has not received a setback,³⁰¹

and if the finances of the country have improved,³⁰² then the

implication is that the currency of which such results can be predicated

must be good. It is not necessary to warn students of currency that

such easy views on the soundness of the currency system, however

plausible, are devoid of the logic necessary to carry conviction. Trade

no doubt is dependent on good money, but the growth of trade is not a

conclusive proof that the money is good. It should be noted that during

the periods of debased coinages so common at one time the social misery

and nuisance arising there from were intolerable, yet during the same

periods it was possible for countries to make great advance in trade.

Speaking of seventeenth-century England, when that country was afflicted

with debased and constantly changing coinage and when there was,

besides, a long period of civil war and confusion, Lord Liverpool, who

was above all statesmen of his day most alive to the evils of a bad

currency, remarks:—

³⁰¹ Keynes, op. cit., p. 3.

³⁰² Barbour, D., _The Standard of Value_, p. 224.

“It is certain, however, that during the whole of this period,

when our coins were in so great a state of confusion, the

commerce of the kingdom was progressively improving, and the

balance of trade almost always in favour of this country.”³⁰³

³⁰³ _A Treatise on the Coins of the Realm_ (reprint of 1880), p. 135.

That commerce can increase even when currency is bad is easily supported

from the experience of India herself. In no period did Indian trade

make such strides as it did [pg 185]

_TABLE XXVII_

_Finances of the Government_

──────────────────────────────────────────────────────────────────────────────────────────────────────────────────

Surplus + Surplus + Surplus + Surplus + Surplus +

Years. Deficit − Years. Deficit − Years. Deficit − Years. Deficit − Years. Deficit −

────────────── ────────────── ────────────── ────────────── ─────────────

Rs. £ £ £ £

1893–94 −1,546,998 1898–9 +2,640,873 1903–4 +2,996,400 1908–9 −3,737,710 1913–14 +2,312,423

1894–95 +693,110 1899–1900 +2,774,623 1904–5 +3,456,066 1909–10 +?,606,641 1914–15 −1,785,270

1895–96 +1,533,998 1900–1 +1,670,204 1905–6 +2,091,854 1910–11 +3,936,287 1915–16 −1,188,661

1896–97 −1,705,022 1901–2 +4,950,243 1906–7 +1,589,340 1911–12 +3,940,334 1916–17 +7,478,170

1897–98 −5,359,211 1902–3 +3,069,549 1907–8 +300,615 1912–13 +3,107,634 — —

[pg 186] between 1873 and 1893. Was the Indian currency of that period

good? On the other hand, it is possible to hold that if trade is good

it may be _because_ the currency is bad. The trade of India between

1873 and 1893 flourished because it received a bounty. But the bounty

was a mulcting of the Indian labourer, whose wages did not rise as fast

as prices, so that the Indian prosperity of that period was founded not

upon production, but upon depredation made possible by the inflation of

currency.

Similarly, it cannot be granted without reserve that the new currency

system must be good because it has obviated the burden of the gold

payments and given relief to the Indian taxpayer. Such a view involves

a misconception of the precise source of the burden of India’s gold

payments during the period of falling exchange. It has been widely held

that the burden of gold payments was caused by the fall in the gold

value of silver, a view which carried with it the necessary implication

that if India had been a gold-standard country she would have escaped

that heavy burden. That it is an erroneous view hardly needs

demonstration.³⁰⁴ It is not to be denied that India bore an extra burden

arising from the increased value of the gold payments. But what is not

sufficiently realized is that it was a burden which weighed on all gold

debtors irrespective of the question whether their standard was gold or

silver. In this respect the position of a gold-standard country like

Australia was not different from a silver-standard country like India.

In so far as they were gold debtors they suffered each in the same way

from the same cause, namely the appreciation of the standard in which

their debts were measured. The fact that one discharged her debts in

gold and the other in silver made no difference in their condition,

except that the use of silver by India to discharge her debts served as

a refractory medium through which it was possible to see the magnitude

of the burden she bore. The fall of silver measured and not caused the

burden of India’s gold payments. The arrest in the fall of the rupee

cannot be accepted as a _prima facie_ [pg 187] proof of a relief to the

taxpayer and therefore an evidence of the soundness of the currency

system. It is possible that the benefit may have been too dearly paid

for.

³⁰⁴ Cf. evidence of Prof. Marshall before the Gold and Silver

Commission, 1886. Q. 10,140–50.

Although favourably impressed by the increase of trade and the buoyancy

of Government finances under the exchange standard, the Chamberlain

Commission did not care to found its case for it on the basis of such

arguments. The chief ground on which it rested was that the currency

system was capable of maintaining the exchange value of the rupee at a

fixed par with gold.³⁰⁵ We must therefore proceed to examine this claim

made by the Commission on behalf of the exchange standard. The table on

p. 188 presents the requisite data for an elucidation of the question.

³⁰⁵ Report, pp. 18 and 20.

Assuming, for the moment, the criterion laid down by the Commission to

be correct, can it be said from the data given above that the rupee has

maintained its gold value? It would be over-confident if not rash to

say that the system, even from the narrow point of view of the

Commission, has been an unquestioned success.

Between June, 1893, and January, 1917, the rupee was rated to gold at

the rate of 1 rupee equal to 7·53344 troy grs. of fine gold. At that

rate the sovereign should be equal to 15 rupees, the mint price of gold

should be Rs. 23–14–4 per tola (i.e. 180 grs.) of bar gold 100 touch,

and the exchange on London should be 1s. 4d., and should have varied

within 1s, 4·125d., the import point, and 1s. 3·906d., the export point,

for gold. [pg 188]

_TABLE XXVIII_

_Gold Value of the Rupee_

─────────────────────────────────────────────────────────────────────────────────────────────────────────────

As expressed in Terms As expressed in Terms of Gold.

of Foreign Exchange ─────────────────────────────────────────────────────────────────────────

Rates on London. Par (1) Rupee Prices of (2) Rupee Price of

R. = 1s. 4d. Sovereigns. Par Rs. Bar Gold. Par Tola =

15 = 1 Sovereign. Rs. 23–14–4

───────────────────────────────────── Years. ────────────────────────────────────────────────────────────────

Years. Highest. Lowest. Highest. Lowest. Highest. Lowest.

───────────────────────────────────── ────────────────────────────────────────────────────────────────

s. d. s. d. Rs. A. P. Rs. A. P. Rs. A. P. Rs. A. P.

1892–93 1 3·969 1 2·625 1893 16 10 6 15 6 0 26 11 0 24 14 0

1893–94 1 4·031 1 1·500 1894 19 0 0 16 1 0 32 4 0 25 9 0

1894–95 1 1·906 1 1·000 1895 19 5 0 18 2 6 30 8 0 27 6 0

1895–96 1 2·875 1 1·100 1896 17 7 0 16 1 0 27 13 6 27 2 0

1896–97 1 3·842 1 1·781 1897 16 10 0 15 3 0 26 12 6 25 4 0

1897–98 1 4·125 1 2·250 1898 15 7 0 15 1 0 24 10 0 24 0 0

1898–99 1 4·156 1 3·094 1899 15 4 0 15 0 0 24 2 0 23 4 0

1899–1900 1 4·375 1 3·875 1900 15 1 3 15 0 0 24 2 0 23 15 6

1900–1901 1 4·156 1 3·875 1901 15 0 0 15 0 0 24 2 0 24 0 0

1901–1902 1 4·125 1 3·875 1902 15 4 6 15 2 6 24 2 6 24 0 0

1902–1903 1 4·156 1 3·875 1903 15 3 0 15 1 6 24 3 0 24 0 0

1903–1904 1 4·156 1 3·875 1904 15 5 0 15 1 3 24 2 0 24 0 3

1904–1905 1 4·156 1 3·970 1905 15 4 0 15 1 6 24 2 0 24 0 0

1905–1906 1 4·156 1 3·937 1906 15 1 0 15 2 0 24 4 6 24 0 0

1906–1907 1 4·187 1 3·937 1907 15 4 0 15 0 0 24 4 0 23 15 6

1907–1908 1 4·187 1 3·875 1908 15 1 0 15 0 0 24 10 0 24 2 0

1908–1909 1 4 1 3·875 1909 Premium between 12 24 3 6 23 15 0

and 3%

1909–1910 1 4·156 1 3·875 1910 15 5 0 15 0 0 24 4 0 23 15 0

1910–1911 1 4·156 1 3·875 1911 15 0 0 15 0 0 24 0 6 23 14 0

1911–1912 1 4·156 1 3·937 1912 15 0 0 15 0 0 24 0 0 23 14 0

1912–1913 1 4·156 1 3·970 1913 15 0 0 15 0 0 24 0 3 —

1913–1914 1 4·156 1 3·937 1914 15 14 0 15 2 0 26 10 0 23 15 6

1914–1915 1 4·094 1 3·937 1915 15 13 6 15 5 0 25 14 0 24 8 0

Taking a general survey of the stability of the rupee with regard to its

value in terms of gold, it will be noticed that from the date of the

Mint closure up to 1898 the rupee was far below par. The depreciation

of the rupee, measured in terms of exchange or price of gold or

sovereign, ranged somewhere between 25 to 30 per cent. So great was the

depreciation that it redoubled the difficulties confronting the

Government when the rupee was not fixed to gold. The financing the Home

Treasury by the usual means of selling Council Bills became well-nigh

impossible.³⁰⁶ The [pg 189] Secretary of State found himself in an

embarrassing position. Offering to sell below par involved the obloquy

of having led the way to the defeat of the policy of stabilizing

exchange. Refusing to sell at market rates involved the danger of a dry

Treasury. The Government of India suggested that the Secretary should

lay down a minimum rate for or a maximum amount of the bills that he put

upon the market. The Secretary of State agreed to neither, but

consented to reduce his drawings so as not to unduly depress the

exchange rate. The drawings of the Secretary of State during the first

fiscal year since the Mint closure have been the smallest on record:—

³⁰⁶ _See_ Commons Paper 7 of 1894, East India (Currency and Sale of

Bills).

_TABLE XXIX_

_Council Drawings_

──────────────────────────────────────────────────────────────────

Date of Drawing. Amount of Drawings. Rate at which drawn

£, 000 omitted. (Pence per Rupee).

──────────────────────────────────────────────────────────────────

1893. June 2,478 15·039

──────────────────────────────────────────────────────────────────

July 25 15·974

──────────────────────────────────────────────────────────────────

August 78 15·243

──────────────────────────────────────────────────────────────────

September 7 15·350

──────────────────────────────────────────────────────────────────

October 5 15·334

──────────────────────────────────────────────────────────────────

November 617 15·251

──────────────────────────────────────────────────────────────────

December 14 15·242

──────────────────────────────────────────────────────────────────

1894. January 98 14·408

──────────────────────────────────────────────────────────────────

February 1,023 13·787

──────────────────────────────────────────────────────────────────

March 1,915 13·870

──────────────────────────────────────────────────────────────────

April 1,368 13·626

──────────────────────────────────────────────────────────────────

The curtailment of drawings to save the rate of exchange from being

lowered was not an unmitigated good, for it imposed the necessity of a

resort to the by no means inexpensive method of sterling borrowings to

finance the Home Treasury.³⁰⁷ The remittances by drawings fell short of

the net disbursements of the Home Treasury in 1893–94 by £6,588,000,

which deficit was met by permanent sterling [pg 190] borrowings to the

extent of £7,430,000, the interest on which added to the already

over-heavy burden of the gold payments. Rather than incur such a

penalty the Secretary of State gave up the attempt to dominate the

market and preferred to follow it. But this let-go policy was not

without its cost. The drop in the exchange below 1s. 4d. added to the

burden of remittances to the Home Treasury, and also compelled the

Government to grant exchange compensation allowance to its European

officers, civil and military—an aid which it had so far withheld. The

cost to the Government involved by the fall of the rupee below par was

quite a considerable sum.³⁰⁸

³⁰⁷ Evidence of Sir H. Waterfield before the Fowler Committee, Q.

4,332–39.

³⁰⁸ Evidence of Hon. A. Arthur before the Fowler Committee. Q.

1,806–7.

_TABLE XXX_

_Cost of the Fall of the Rupee_

──────────────────────────────────────────────────────────────────────────────────────────

Loss on Loss Total on all

Council by Total Counts for three

Bills Loss by Increase on each Years.

Years. being Exchange of pay Account ───────────────────────────

sold Compensation of in each In In

below Allowance. British Year. Rupees. Sterling

par. Troops. at 1s.

4d.

Rs. £.

1894–95 3,74,15,000 78,02,000 37,84,000 4,90,01,000

────────────────────────────────────────────────────────────────

1895–96 3,05,91,000 87,18,000 49,38,000 4,42,47,000 11,91,86,000 7,945,733

────────────────────────────────────────────────────────────────

1896–97 1,66,48,000 48,95,000 44,25,000 2,59,38,000

In the midst of such a situation it is no wonder if the faith of the

Government in the ultimate stability of the rupee had given way, for we

find that in October, 1896, the Financial Member of the Council had

personally come to the conclusion that it would be better in the

interest of stability to substitute 15d. for 16d. as the par of exchange

between the rupee and gold.³⁰⁹ But the suggestion was dropped as the

rupee showed signs of reaching the gold par, which it did in January,

1898, after a period of full five years of depreciation from the

established par.

³⁰⁹ Cf. Shirras, _Indian Finance and Banking_, p. 168.

Between January, 1898, and January, 1917, twice did the rupee fall below

its gold par. The year 1907–8 records the second occasion when the

parity of the rupee under [pg 191] the exchange standard broke down.

The actual rates of exchange prevailing in the market were as follows:—

_TABLE XXXI_

_Rates of Exchange, London on India (From “The Times”)_

──────────────────────────────────────────────────────────────────────

Par R. = 1s. 4d.

On Calcutta. On Bombay.

Date ────────────────────────────────────────────────────

Highest. Lowest. Highest. Lowest.

1907. September 1 4 1/32 1 3 31/32 1 4 1/32 1 3 31/32

October 1 4 1/32 1 3 31/32 1 4 1/32 1 3 31/32

November 1 4 1 3 23/32 1 3 31/32 1 3 23/32

December 1 3 15/16 1 3 27/32 1 3 15/16 1 3 23/32

1908. January 1 3 15/16 1 3 29/32 1 3 15/16 1 3⅞

February 1 3 31/32 1 3⅞ 1 3 31/32 1 3⅞

March 1 3 29/32 1 3 27/32 1 3 29/32 1 3 27/32

April 1 3⅞ 1 3 27/32 1 3 27/32 1 3 27/32

May 1 3⅞ 1 3 27/32 1 3 15/16 1 3 27/32

June 1 3 29/32 1 3 27/32 1 3⅞ 1 3 27/32

July 1 3⅞ 1 3 27/32 1 3⅞ 1 3 27/32

August 1 3 29/32 1 3 27/32 1 3 29/32 1 3 27/32

September 1 3 31/32 1 3 29/32 1 3 31/32 1 3⅞

October 1 3 15/16 1 3⅞ 1 3 29/32 1 3 13/16

November 1 3 29/32 1 3⅞ 1 3⅞ 1 3⅞

December 1 3 15/16 1 3 29/32 1 3 31/32 1 3⅞

After a crisis lasting over a year the rupee recovered to its old gold

par and remained fixed at it, though by no means firmly, for another

seven years, only to suffer another fall from its parity during the year

1914–15 (_see_ table, p. 192).

After 1916 the stability of the exchange standard was threatened by a

danger arising from quite unsuspected quarters. The Indian exchange

standard was based upon the view that the gold value of silver was bound

to fall or at least not likely to rise to a level at which the intrinsic

value of the rupee became higher than its nominal value. The price of

silver at which the intrinsic value of the rupee equalled its nominal

value was 43d. per ounce. So long as [pg 192]

_TABLE XXXII_

_Rates of Exchange London on Calcutta (from the National

Bank of India)_

───────────────────────────────────────────────────────────────────

1914. 1915.

Months. ─────────────────────────────────────────────────────────

Highest. Lowest. Highest. Lowest.

January — — 1 3 15/16 1 3 15/16

February — — 1 4 1/32 1 3 29/32

March — — 1 4 1 3 15/16

April — — 1 3 15/16 1 3 29/32

May 1 4¼ 1 3 15/16 1 3 15/16 1 3 29/32

June 1 3 31/32 1 3 15/16 1 3⅞ 1 3 27/32

July 1 3 31/32 1 3 13/16 1 3 22/32 1 3 22/32

August 1 3⅞ 1 3 13/16 1 3 15/16 1 3 27/32

September 1 3 15/16 1 3 13/16 1 4 1 3 15/16

October 1 3 15/16 1 3 15/16 — —

November 1 3 15/16 1 3 15/16 — —

December 1 3 15/16 1 3 15/16 — —

the intrinsic value of the rupee remained below its nominal value, i.e.

the price of silver did not rise above 43d., there was no danger of the

rupee circulating as currency. Once the price of silver rose above that

point the danger of the rupee passing from currency to the melting-pot

was imminent. Now, with the exception of a brief period from September,

1904, to December, 1907, the gold price of silver had since 1872 showed

a marked tendency to fall. The decline in its price was so continuous

and so steady as to create the general impression that the low price had

come to stay. Indeed, so firm was the impression that the framers of

the exchange standard had never taken into account the contingency of a

rise in the price of silver above 43d. So little was it anticipated,

that the system was not criticized on this ground by any of the

witnesses who deposed before the successive Committees and Commission on

Indian currency. But the unexpected may happen, and unfortunately did

happen after 1916, and happened suddenly. On February 10, 1914, the

cash price in London of silver [pg 193] per ounce of standard fineness

was 26⅝d. It fell to 22 \frac{11}{16}d. on February 10, 1915, and

though it jumped to 27d. on the same date in 1916, yet it was below the

rupee melting-point. After the last-mentioned date its rise was

meteoric. On February 9, 1917, it rose to 37⅝d.; on February 8, 1918, to

43d.; and on the same date in 1919 to 48 \frac{7}{16}d., thereby quite

overshooting the rupee melting-point. But the price of silver broke all

record when on February 11, 1920, it reached the colossal figure of

89½d. per standard ounce.

The rise in the intrinsic value of the rupee above the nominal value at

once raised a problem as to how the rupee could be preserved in

circulation. Two ways seemed open for the solution of the problem. One

was to scale down the fineness of the rupee, and the other to raise its

gold parity. All other countries which had been confronted by a similar

problem adopted the former method of dealing with their silver

coinages—a method which was successfully tried in the Philippines and

the Straits Settlements and Mexico in 1904–7, when a rise in those years

in the price of silver had created a similar problem in those

countries.³¹⁰ The Secretary of State for India adopted the second course

of action and kept on altering the rupee par with every rise in the

price of silver. The alterations of the rupee par following upon the

variations in the price of silver are given below:—

³¹⁰ Cf. E. W. Kemmerer, _Modern Currency Reforms_, 1916, pp. 349–354,

445–49, and 535–47.

_TABLE XXXIII_

─────────────────────────────────────────────────────────────────

Date of Alteration of the Rupee Par. Pitch of the Par.

─────────────────────────────────────────────────────────────────

s. d.

January 3, 1917 1 4¼

August 28, 1917 1 5

April 12, 1918 1 6

May 13, 1919 1 8

August 12, 1919 1 10

September 15, 1919 2 0

November 22, 1919 2 2

December 12, 1919 2 4

─────────────────────────────────────────────────────────────────

[pg 194] After having played with the rupee par, for two years, in this

manner, as though such alterations involved no social consequences, the

Secretary of State, on May 30, 1919, appointed a new Currency Committee

under the chairmanship of Babington Smith, to recommend measures “to

ensure a stable gold exchange standard.” The majority of the Committee,

after half a year of cogitation, reported to the effect³¹¹ that

³¹¹ _See_ Report, P.P. Cd. 527 of 1920, par. 59.

“(i) The object should be to restore stability to the rupee, and

to re-establish the automatic working of the currency system at

as early a date as practicable.

“(ii) The stable relation to be established should be with gold

and not with sterling.

“(iii) The gold equivalent of the rupee should be sufficiently

high to give assurance, so far as is practicable, that the

rupee, while retaining its present weight and fineness, will

remain a token coin, or in other words, that the bullion value

of the silver it contains will not exceed its exchange value.

“After most careful consideration” (the Committee said) “we are

unanimous (with the exception of one of our members who signs a

separate report) in recommending that the stable relation to be

established between the rupee and gold should be at the rate of

one rupee to 11·30016 grs. of fine gold both for foreign

exchange and internal circulation.”

i.e. the rupee to be equal to 2s. (gold).

The minority report, which harped on the old cry of a stimulus of low

exchange and penalty of high exchange, stood out for the maintenance of

the old rate of 15 rupees to the gold sovereign or 113·0016 grs. troy of

pure gold, and recommended the issue of a two-rupee silver coin of

reduced fineness compared with the old rupee, so long as the price of

silver in New York was over 92 cents.³¹² By the announcements of

February 2, 1920, the recommendations of the majority of the Committee

were accepted [pg 195] by the Secretary of State and also by the

Government of India, which abandoned the old parity of 7·53344 grs. per

rupee for the new parity of 11·30016 grs. troy. Now, has the rupee

maintained its new parity with gold?

³¹² Report, p. 41.

In the matter of ascertaining this fact the exchange quotation on London

is no guide, for the value of the rupee was 2s. _gold_ and not 2s.

sterling. Had gold and sterling been identical the case would have been

otherwise. But during the war, owing to the issue of virtually

inconvertible money, the pound sterling had depreciated in terms of

gold. We must therefore take as our standard a currency which had kept

its par with gold. Such a currency was the American dollar, and the

exchange quotation on New York is therefore more directly helpful in

measuring the gold value of the rupee than is the sterling quotation on

London. We can also employ the actual rupee-sterling quotation as a

measure by comparing it with the amount of sterling the rupee should

have purchased, as an equivalent of 11·30016 grs. of fine gold, when

corrected by the prevailing cross-rate between New York and London.³¹³

³¹³ The formula for this computation is as follows:—

─────────────────────────────────────────────────────────────────

If x pence = 1 rupee

= 11·30016 grs. fine gold,

23·22 grs. fine gold = 1 dollar,

D dollars = 1 pound sterling

= 240 pence.

Then x \frac{11·30016 = \frac{11·680}{\textrm{D}}

\times 240}{23·22 \times pence.

\textrm{D}}

─────────────────────────────────────────────────────────────────

Cf. Rushforth, F. V., _The Indian Exchange Problem_, 1921, p. 9.

Compared with the par of exchange, the actual exchange, either on New

York or on London, indicates a fall of the rupee which is simply

staggering (_see_ table, p. 196).

Consider, along with the external gold value of the rupee, its internal

value in terms of sovereigns and bar gold (_see_ table, p. 197). [pg

196]

_TABLE XXXIV_

_Actual Gold Value of the Rupee and the new Parity in Terms

of Foreign Exchanges_

─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

As New York on Bombay in Bombay on London in s. d.

in cents.

the ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

Middle 1920. 1921. 1922. 1920. 1921. 1922.

of ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

the Par Actual Par Actual Par Actual Par Actual Par Actual Par Actual

Month Rate. Rate. Rate. Rate. Rate. Rate. Rate. Rate. Rate. Rate. Rate. Rate.

of—

January 0·4866 0·4400 0·4866 0·2925 0·4866 0·2800 2 7½ 2 3⅝ 2 7 5/16 1 5⅝ 2 3⅝ 1 3 13/16

February 0·4866 0·4850 0·4866 0·2800 0·4866 0·2845 2 10 11/32 2 9⅛ 2 5 13/16 1 4⅛ 2 2 7/32 1 3 9/16

March 0·4866 0·4850 0·4866 0·2625 0·4866 0·2787 2 7 29/32 2 5¾ 2 5 31/32 1 3¼ 2 2 29/32 1 3 5/16

April 0·4866 0·4775 0·4866 0·2625 0·4866 0·2785 2 5 7/16 2 3¾ 2 5 13/16 1 3⅝ 2 2½ 1 3⅛

May 0·4866 0·4325 0·4866 0·2675 0·4866 0·2930 2 6 19/32 2 2⅛ 2 5 7/32 1 3½ 2 2¼ 1 3 9/16

June 0·4866 0·4125 0·4866 0·2525 0·4866 0·2900 2 5 31/32 1 10 13/16 2 6 29/32 1 3⅜ 2 2⅛ 1 3 19/32

July 0·4866 0·3900 0·4866 0·2400 0·4866 0·2900 2 5 31/32 1 8 1/16 2 8 9/32 1 3¼ 2 2⅝ 1 3⅝

August 0·4866 0·3650 0·4866 0·2475 0·4866 0·2916 2 8 9/32 1 10 1/16 2 7 29/32 1 4¾ 2 2 3/16 1 3 19/32

September 0·4866 0·3325 0·4866 0·2675 0·4866 0·2875 2 9 9/16 1 10 1/16 2 7 15/32 1 5 1/16 2 2 6/16 1 3 9/16

October 0·4866 0·3025 0·4866 0·2825 0·4866 — 2 9 21/32 1 7¾ 2 6 1/32 1 5 7/16 — —

November 0·4866 0·3025 0·4866 0·2695 0·4866 — 2 10 9/16 1 7⅛ 2 5 16/32 1 4⅛ — —

December 0·4866 0·2650 0·4866 0·2775 0·4866 — 2 9 9/16 1 5¼ 2 4 1 3⅞ — —

[pg 197]

_TABLE XXXV_

_Gold Value of the Rupee and the new Parity in Terms of the

Price of Sovereigns and Gold_

─────────────────────────────────────────────────────────────────────────────────────────────────

1920. 1921. 1922.

───────────────────────────────────────────────────────────────────────────────────────

Price Price of Price of Price Price of Price

of Bar Gold British of Bar British of Bar

British per Tola Sovereigns. Gold Sovereigns. Gold

Sovereigns 100 touch. per per

Months. Tola Tola

100 100

touch touch

Par 10 Rs Par Rs Par 10 Rs = Par Rs Par 10 Rs = Par Rs

= 1 Sov. 15–14–10 = 1 Sov. 15–14–10 1 Sov. 15–14–10

1 Tola = 1 = 1

Tola Tola

Rs. A. Rs. A. P. Rs. A. P. Rs. A. Rs. A. P.

P. P.

January Nominal 28 0 0 Nominal 17 14 0

──────────────────────────────────────────────────────── ─────────────────

February Nominal 22 0 0 Nominal 17 14 0

March Nominal 24 0 0 Nominal 17 14 0

April Nominal 24 8 0 18 12 0 —

May Nominal 22 12 0 19 0 0 —

──────────────────────────────────────────────────────── Official ───────────────── Official

June Nominal 22 4 0 19 12 0 figures — figures

──────────────────────────────────────────────────────── not yet ───────────────── not yet

July Nominal 23 0 0 20 9 0 published. — published.

August Nominal 21 8 0 20 9 0 —

September Nominal 25 4 0 19 2 0 —

October Nominal 27 6 0 18 14 0 —

November Nominal 28 10 0 18 8 0 —

December Nominal 27 12 0 18 6 0 —

The tables need no comment. The rupee is not only far away from 2s.

(gold), but is not even 1s. 4d. (sterling).

Do not the facts furnish an incontrovertible proof of the futility of

the exchange standard? How can a system which fails to maintain its

value in terms of gold, which it is supposed to do, be regarded as a

sound system of currency? There must be somewhere some weakness in the

mechanism of a system which is liable to such occasional breakdowns.

The rupee fell or rather was below par in 1893, and did not reach its

parity to any real degree of firmness until 1900. After an interval of

seven years the rupee again falls below par in 1907. The year 1914

witnesses another fall of the rupee. A meteoric rise since 1917, and

again a fall after 1920. This curious phenomenon naturally raises the

question: Why did the rupee fail to maintain its gold parity on these

occasions? A proper reply to this question will reveal wherein lies the

weakness of the exchange standard. [pg 198]

The only scientific explanation sufficient to account for the fall of

the rupee would be to say that the rupee had lost its general purchasing

power. It is an established proposition that a currency or unit of

account will be valued in terms of another currency or unit of account

for what it is worth, i.e. for the goods which it will buy. To take a

concrete example, Englishmen and others value Indian rupees inasmuch and

in so far as those rupees will buy Indian goods. On the other hand,

Indians value English pounds (and other units of account, for that

matter) inasmuch and in so far as those pounds will buy English goods.

If rupees in India rise in purchasing power (i.e. if the Indian

price-level falls) while pounds fall in purchasing power or remain

stationary or rise less rapidly (i.e. if the English price-level rises

relative to the Indian price-level), fewer rupees would be worth as much

as a pound, i.e. the exchange value of the rupee in terms of the pound

will rise. On the other hand, if rupees in India fall in purchasing

power (i.e. if the Indian price-level rises) while pounds rise in

purchasing power or remain stationary or fall less rapidly (i.e. if the

English price-level falls relative to the Indian price-level), it will

take more rupees to be worth as much as a pound, i.e. the exchange value

of the rupee in terms of the pound will fall.

On the basis of this theory the real explanation for a fall in the

Indian exchange should be sought for in the movement of the Indian

price-level. Lest there be any doubt regarding the validity of the

proposition let us take each of the occasions of the fall and find out

whether or not the fall was coincident with the fall in the purchasing

power of the rupee.³¹⁴ [pg 199]

³¹⁴ The figures for the following tables are taken, unless otherwise

stated, from the Report of the Price Inquiry Committee, Calcutta,

1914.

_TABLE XXXVI_

_Period I, 1893–98_

──────────────────────────────────────────────────────────────────

Currency in Circulation, Index Number Index Number

Rupees + Notes. of Prices in of Prices in

──────────────────────────── India England

Years. Amount in Index Number

Crores of 1890–94 = 1890–94 =

Rs. 1890–94 = 100. 100.

100

──────────────────────────────────────────────────────────────────

(1) (2) (3) (4) (5)

──────────────────────────────────────────────────────────────────

1890 120 92 113 104

──────────────────────────────────────────────────────────────────

1891 131 100 106 105

──────────────────────────────────────────────────────────────────

1892 141 108 100 99

──────────────────────────────────────────────────────────────────

1893 132 101 96 99

──────────────────────────────────────────────────────────────────

1894 129 99 85 93

──────────────────────────────────────────────────────────────────

1895 132 101 89 90

──────────────────────────────────────────────────────────────────

1896 127 97 99 89

──────────────────────────────────────────────────────────────────

1897 125 96 120 90

──────────────────────────────────────────────────────────────────

1898 122 93 109 91

──────────────────────────────────────────────────────────────────

1899 131 100 108 94

──────────────────────────────────────────────────────────────────

_TABLE XXXVII_

_Period II, 1900–1908_

──────────────────────────────────────────────────────────────────

Currency in Circulation, Index Number Index Number

Rupees + Notes. of Prices in of Prices in

──────────────────────────── India England

Years. Amount in Index Number

Crores of 1890–94 = 1890–94 =

Rs. 1890–94 = 100. 100.

100

──────────────────────────────────────────────────────────────────

(1) (2) (3) (4) (5)

──────────────────────────────────────────────────────────────────

1900 134 103 126 103

──────────────────────────────────────────────────────────────────

1901 150 115 120 98

──────────────────────────────────────────────────────────────────

1902 143 109 115 96

──────────────────────────────────────────────────────────────────

1903 147 113 111 97

──────────────────────────────────────────────────────────────────

1904 152 116 110 100

──────────────────────────────────────────────────────────────────

1905 164 126 120 100

──────────────────────────────────────────────────────────────────

1906 185 142 134 107

──────────────────────────────────────────────────────────────────

1907 190 145 138 113

──────────────────────────────────────────────────────────────────

1908 181 139 147 104

──────────────────────────────────────────────────────────────────

[pg 200]

_TABLE XXXVIII_

_Period III, 1909–14_³¹⁵

──────────────────────────────────────────────────────────────────

Currency in Circulation, Index Number Index Number

Rupees + Notes. of Prices in of Prices in

──────────────────────────── India England

Years. Amount in Index Number

Crores of 1890–94 = 1890–94 =

Rs. 1890–94 = 100. 100.

100

──────────────────────────────────────────────────────────────────

(1) (2) (3) (4) (5)

──────────────────────────────────────────────────────────────────

1909 194 152 138 105

──────────────────────────────────────────────────────────────────

1910 199 152 137 110

──────────────────────────────────────────────────────────────────

1911 209 160 139 114

──────────────────────────────────────────────────────────────────

1912 214 164 147 117

──────────────────────────────────────────────────────────────────

1913 238 182 152 124

──────────────────────────────────────────────────────────────────

1914 237 182 156 124

──────────────────────────────────────────────────────────────────

³¹⁵ Figures for 1913 and 1914 are those of Mr. Shirras given in the

Appendix to his Indian Finance and Banking. Figures in column 3

are calculated from his figures.

_TABLE XXXIX_

_Period IV, 1915–21_³¹⁶

──────────────────────────────────────────────────────────────────

Currency in Circulation, Index Number Index Number

Rupees + Notes. of Prices in of Prices in

Years. ──────────────────────────── India England

Amount in Index Number

Crores of 1913 = 100. 1913 = 100.

Rs. 1913 = 100.

──────────────────────────────────────────────────────────────────

(1) (2) (3) (4) (5)

──────────────────────────────────────────────────────────────────

1915 266 104 112 127·1

──────────────────────────────────────────────────────────────────

1916 297 116 125 159·5

──────────────────────────────────────────────────────────────────

1917 338 132 142 206·1

──────────────────────────────────────────────────────────────────

1918 407 155 178 226·5

──────────────────────────────────────────────────────────────────

1919 463 180 200 241·9

──────────────────────────────────────────────────────────────────

1920 411 160 209 295·3

──────────────────────────────────────────────────────────────────

1921 393 114 183 182·4

──────────────────────────────────────────────────────────────────

³¹⁶ Index numbers of prices are taken from the League of Nations

_Memorandum on Currency_, 1913–1921, 2nd Ed. (1922), Table VIII.

Figures for circulation are taken from H. S. Jevons’ _The Future

of Exchange and Indian Currency_, 1922, p. 44. Index numbers of

circulation are calculated.

[pg 201] Now do these tables confirm, or do they not, the argument that

the fall in the gold value of the rupee is coincident with a fall in the

general purchasing power of the rupee? What was the general purchasing

power of the rupee when a fall in its gold value occurred? If we

scrutinize the facts given in the above tables in the light of this

query there can be no doubt as to the validity of this argument. From

the tables it will be seen that the gold value of the rupee improved

between 1893–1898 because there was a steady if not unbroken improvement

in its general purchasing power. Again, on the subsequent occasions

when the exchange fell, as it did in 1908, 1914, and 1920, it will be

observed that those were the years which marked the peaks in the rising

price-level in India; in other words, those were the years in which

there was the greatest depreciation in the general purchasing power of

the rupee. A further proof, if it be needed, of the argument that the

exchange value of the rupee must ultimately be governed by its general

purchasing power is afforded by the movements of the rupee-sterling

exchange since 1920 (_see_ p. 202).

But, although such is the theoretical view confirmed by statistical

evidence of the causes which bring about these periodic falls in the

gold value of the rupee (otherwise spoken of as the fall of exchange),

it is not shared by the Government of India. The official explanation

is that a fall in the gold value of the rupee is due to an adverse

balance of trade. Such is also the view of eminent supporters of the

exchange standard like Mr. Keynes³¹⁷ and Mr. Shirras.³¹⁸

No doubt some such line of reasoning is responsible for the currency

fiasco of 1920. How is it possible otherwise to explain the policy of

raising the exchange value of the rupee? Both the Smith Committee on

Indian Currency³¹⁹ and the Government of India³²⁰ were aware of the fact

that the rupee was heavily depreciated, as evidenced by the rise of

prices in India. [pg 202]

³¹⁷ Op. cit., p. 16.

³¹⁸ Op. cit., p. 4.

³¹⁹ Cf. Report, pp. 19–21.

³²⁰ Memorandum from the Government regarding Indian price movements.

App. XXVIII to the Report of the Currency Committee of 1919.

_TABLE XL_

──────────────────────────────────────────────────────────────────────────────

Date. Rupee Sterling Average Rupee-sterling

Prices in Prices in Rate of Purchasing

India. England Exchange Power

(_Statist_). London Parity.

1913 = 1913 = on \textrm{16d.}

100. 100. Calcutta. \times

\frac{\textrm{Col.

3}}{\textrm{Col.

2}}

(1) (2) (3) (4) d. (5) d.

1920. January 202 289 27·81 22·89

February 203 306 32·05 24·12

March 194 301 29·66 25·40

April 193 300 27·88 26·95

May 190 298 25·91 25·77

June 192 293 23·63 25·08

July 196 282 22·63 24·49

August 193 263 22·75 24·70

September 188 244 22·31 24·94

October 188 232 19·88 24·00

November 186 215 19·69 22·62

December 179 209 17·44 21·81

1921. January 169 200 17·66 21·96

February 164 191 16·31 20·98

March 162 183 15·53 20·40

April 163 186 15·75 19·63

May 170 182 15·44 17·98

June 172 176 15·53 17·14

July 171 163 15·38 17·40

August 178 161 16·25 16·36

September 178 157 17·22 15·82

October 178 156 17·02 14·65

November 173 161 16·25 14·89

December 169 157 15·94 14·86

1922. January 162 156 15·88 15·41

February 159 156 15·59 16·70

March 160 157 15·34 15·70

April 160 159 15·19 15·90

May 162 159 15·59 15·70

June 169 160 15·63 15·14

July 170 158 15·69 14·87

August 166 153 15·66 14·74

Given this fact, any question of raising the gold value of the rupee to

28. gold when the rupee had scarcely the [pg 203] power to purchase 1s.

4d. sterling was out of the question. The Committee indulged in loose

talk about stabilizing the Indian exchange. But even from this

standpoint the Committee’s insistence on linking the rupee to gold must

be regarded as a little grotesque. Stable exchange, to use Prof.

Marshall’s language, is something like bringing the railway gauges of

the world in unison with the main line. If that is what is expected

from a stable exchange, then what was the use of linking the rupee to

gold which had ceased to be the “main line”? What people wanted was a

stable exchange in terms of the standard in which prices were measured.

Linking to gold involved unlinking to sterling, and it is sterling which

mattered and not gold. Given this importance of sterling over gold, was

any policy of exchange stabilization called for? First of all it should

have been grasped that such a policy could succeed only if it was

possible to make sterling and rupee prices move in unison, for then

alone could the ratio of interchange between them be the same. What

control had the Government of India over the sterling? They might have

so controlled the rupee as to produce the effect desired, but all that

might have been frustrated by an adverse move in the sterling. The

success of the policy of linking to sterling would have been highly

problematical although highly desirable. But was it called for? Now

the problem of stabilization is primarily a problem of controlling

abnormal deviations from the purchasing-power parity between two

currencies. In the case of India there were no abnormal deviations from

the rupee-sterling purchasing power parity. On the other hand, the

Indian exchange was moving in a more or less close correspondence with

it. There was therefore no ground for originating any policy of

exchange stabilization. But, supposing there were abnormal deviations

and that, owing to some reasons known to it, the Committee believed that

the exchange value of the rupee was not likely to return to the point

justified by its general purchasing power, in that case the Committee

should have fixed the exchange value well within the range of the

purchasing power of the rupee. As it was, the value fixed [pg 204] by

the Committee the rupee never had. In giving a value to the rupee so

much above its purchasing-power parity, it is obvious the Committee

originated a solution for the simple problem of stabilizing the rupee

which involved the much bigger and quite a different problem of

deflation or raising the absolute value of the rupee. How was the

object to be attained? The Committee never considered that problem. And

why? Was it because the price of silver had gone up? Maybe. But it is

doubtful whether the Committee could have believed firmly that the value

of silver was going to be permanently so high as to require a

modification of the gold par. Anyone who cared to scrutinize the rise

in the price of silver could have found that the rise was largely

speculative and could not have been permanent.

_TABLE XLI_

_Price of Silver in Sterling (Pence)_³²¹

Year Highest. Lowest. Average. Range of

Variation.

1913 29⅜ 25 15/16 27 9/16 3 7/16

1914 27¾ 22⅛ 25 5/16 5 5/8

1915 27¼ 22 5/16 23 11/16 4 15/16

1916 37⅛ 26 11/16 31 5/16 10 7/16

1917 55 35 11/16 40 7/8 19 11/16

1918 49½ 42½ 47 9/16 7

1919 79⅛ 47¾ 57 1/16 31⅜

1920 89½ 38⅞ 61 7/16 50⅝

1921 43⅜ 30⅝ 37 12¾

³²¹ From Kirkaldy’s _British War Finance_, 1921, p. 35. Figures for

1921 are added from the Indian Paper Currency Report.

But supposing that the rise in the price of silver was not speculative,

did it follow that the rupee was appreciated? The diagnosis of the

Committee was an egregious blunder. With the facts laid before the

Committee it is difficult to understand how anyone with a mere

smattering of the knowledge of price movements could have concluded that

because silver had appreciated the rupee had therefore appreciated. On

the other hand, what had happened was [pg 205] that the rupee had

depreciated in terms of general commodities, including gold and silver.

Indeed, the appreciation of silver was a depreciation of the rupee. The

following is conclusive evidence of that fact:—

_TABLE XLII_

_Depreciation of the Rupee_

─────────────────────────────────────────────────────────────────────────────

Price of Bar Gold in India Price of Silver in Index

(Bombay) per Tola of 180 grs. India (Bombay) per Number for

100 Tolas. Prices in

Date. India

Rs. A. Rs. A. 1913 =

100.

1914 24 10 65 11 —

1915 24 14 61 2 112

1916 27 2 78 10 125

1917 27 11 94 10 142

1918 (July) 34 0 (May 117 2 178

16)

1918 (Nov. 82 10 —

28)

1918 30 0 — —

August

1918 32 4 — —

Sept.

1919, 32 0 113 0 200

March

Thus the rise in the price of silver was a part of the general rise of

prices or the depreciation of the rupee. The Committee desired to raise

the gold value of the rupee to 10 rupees per sovereign when it cost

twice that number of rupees to purchase a sovereign in the market. So

marked was the depreciation of the rupee in terms of gold that a few

months before the Committee submitted its report the _Statesman_ (a

Calcutta paper) wrote:—

“If you land in the country with a sovereign the Government will

take it away from you and give you eleven rupees three annas in

return. If you are in the country and happen to have a

sovereign and take it to the currency office you will get

fifteen rupees for it. On the other hand, if you take it to the

bazar you will find purchasers at twenty-one rupees.”

These facts were admitted by the Finance Department of [pg 206] the

Government of India to be substantially correct,³²² and yet in the face

of them the Committee recommended the 2s. gold parity for the rupee.

The Committee confused the rupee with the silver, and thus failed to

distinguish the problem of retaining the rupee in circulation and

raising its exchange value in terms of gold. The latter solution was

applicable only if the _rupee_ had appreciated. But as it was silver

that had appreciated in terms of the rupee, the only feasible solution

was to have proposed the reduction of the fineness of the rupee. Had

the Committee regarded silver as a commodity distinct from the rupee

like any other commodity to be measured in terms of the rupee as a unit

of account, probably it might have avoided committing the blunder which

it did. But what is more than probable is that the Committee did not

think that the general purchasing power of the rupee was a factor of any

moment in the consideration of the matter it was asked to report upon.

What was of prime importance in its eyes for the maintenance of the

exchange value of the rupee was a favourable balance of trade, and that

India had at the time the Committee drafted its Report. For the

Committee, in the course of its general observations on the exchange

standard, remarked:

³²² Cf. the reply of the Hon. Mr. Howard to the question of the Hon.

Mr. Sinha on September 23, 1919. _S.L.C.P._, Vol. LVII, p. 417.

“that the system had proved effectual in preventing the fall in

the value of the rupee below 1s. 4d., and unless there should

have been profound modifications in India’s position as an

exporting country with a favourable trade balance, there was no

reason to apprehend any breakdown in this respect.”³²³

³²³ Report, par. 33.

Proceeding on this view of the question it was quite natural for the

Committee to have argued that if a favourable balance of trade sustained

1s. 4d. gold exchange, why should a similar balance of trade not sustain

2s. gold exchange?

Again, it is only on some such hypothesis that one can explain why the

recommendations of the Committee were adopted at all when the necessity

for their adoption had [pg 207] passed away. Even if the intrinsic

value of the rupee exceeded its nominal value, there was no danger of a

wholesale disappearance of the rupee from circulation in view of the

enormous volume of rupees in India.³²⁴ What would have taken place was

not a wholesale melting of rupees, but a constant dribble of an

irregular and illegal character leading to the contravention of the

orders then issued by the Government of India against the melting or

exportation of the rupee coin. At the time when the Committee reported

(December, 1919) the price of silver was no doubt high, but it was

certainly falling during 1920 when the Government took action on the

Report. Indeed, on August 31, 1920, when the Bill to alter the gold

value of the rupee was introduced into the Council, gold was selling at

23¼ rupees to the tola, while if the sovereign was to be equal to 10

rupees, the market price of gold should have been Rs. 15–14–0 per tola,

so that there was a difference of Rs. 7½ or 33 per cent. between the

market ratio of gold to the rupee and the new mint ratio. Moreover, the

price of silver had also gone down in the neighbourhood of 44d., so that

there was no danger of the rupee being melted out of circulation.³²⁵

But, notwithstanding such a disparity, the Government rushed to fix a

higher gold parity for the rupee. The financial reason for this rash

act was, of course, obvious. The impending constitutional changes were

to bring about a complete separation between provincial and imperial

finance in British India. Under the old system of finance it was open

for the central Government to levy “benevolences” in the form of

contributions on the Provincial Governments to meet such of its

imperious wants as remained unsatisfied with the help of its own

resources, apart from the lion’s share it used to take at every

settlement of the provincial finance. Under the new constitution it was

to be deprived of this power. The Central Government was therefore in

search of some resource to obtain relief without [pg 208] appearing to

tax anybody in particular. A high exchange seemed to be just the happy

means of doing it, for it was calculated to effect a great saving on the

“home charges.” But how was this high exchange to be maintained,

supposing it was desirable to have a high exchange from the financial

point of view?³²⁶ Not only had the price of silver gone down and the

rupee shown evident marks of depreciation in terms of gold, but the

balance of trade had also become adverse to India at the time when the

Government proceeded to take action on the Report of the Committee. But

this enactment, so singular in its rashness, was none the less founded

upon the hope that the balance of trade would become favourable in time

and thus help to maintain the 2s. gold value of the rupee. That this is

a correct interpretation of the Governments calculations is borne out by

the following extract from the letter which it addressed to the Bengal

Chamber of Commerce in explanation of the currency fiasco.³²⁷ After

speaking of the necessity for granting international credits to revive

commerce, the letter goes on to say:—

“But for the rest they [i.e. the Government of India] can now

only rely on the natural course of events and the return of

favourable export conditions, combined with the reduction of

imports … to strengthen the exchange. Experience has

demonstrated that in the present condition of the world trade

stability is at present unattainable, but the Government of

India see no reason why the operation of natural conditions …

should not allow of the eventual fixation of exchange at the

level advocated in the report of the Currency Committee.”

³²⁴ Cf. evidence of Mr. Keynes before the Committees of 1919, Q.

2,665–68.

³²⁵ Cf. the speech of the Hon. Mr. Tata on the Indian Coinage

(Amendment) Bill, _S.L.C.P._, Vol. LIX, p. 112.

³²⁶ In the recent discussions on the Indian exchange it has been

entirely overlooked that this was the underlying motive of raising

the Indian exchange to 2s. gold. But it was laid bare by the

Finance Member of the Council in his speech on March 10, 1920, in

the course of the debate on the resolution _re_ Reverse Councils,

_S.L.C.P._, Vol. LVIII, p. 1292.

³²⁷ The letter was published in the _Times of India_, November 20,

1920, p. 14, col. 6.

Which of the two views is correct? Is it the low purchasing power of

the rupee which is responsible for its fall, [pg 209] or is it due to an

adverse balance of trade? Now, it must at once be pointed out that an

adverse balance of trade, as an explanation of the fall of exchange, is

something new in Indian official literature. A fall of exchange was a

common occurrence between 1873 and 1893, but no official ever offered

the adverse balance of trade as an explanation. Again, can the doctrine

of the adverse balance of trade furnish an ultimate explanation for the

fall that occurred in 1907, 1914, and 1920? First of all, taking into

consideration all the items visible and invisible, the balance-sheet of

the trade of a country must balance. Indeed, the disquisitions attached

to the Indian Paper Currency Reports, wherein this doctrine of adverse

balance as a cause of fall in exchange is usually to be found, never

fail to insist that there is no such thing as a “drain” from India by

showing item by item how the exports of India are paid for by the

imports, even in those years in which the exchange has fallen. The

queer thing is, the same Reports persist in speaking of an adverse

balance of trade. Given the admission that all Indian exports are paid

for, it is difficult to see what remains to speak of as a balance. Why

should that part of trade liquidated by money be spoken of as a

“balance”? One might as well speak of a balance of trade in terms of

cutlery or any other commodity that enters into the trading operations

of the country. The extent to which money enters into the trading

transactions of two countries is governed by the same law of relative

values as is the case with any other commodity. If more money goes out

of a country than did previously, it simply means that relatively to

other commodities it has become cheaper. But if there is such a thing

as an adverse balance in the sense that commodity imports exceed

commodity exports, then there arises the further question: Why do

exports fall off and imports mount up? In other words, given a normal

equilibrium of trade, what causes an adverse balance of trade? For this

there is no official explanation. Indeed, the possibility of such a

query is not even anticipated in the official literature. But the

question is a fundamental one. An adverse balance of trade in the above

sense is only another way of stating [pg 210] that the country has

become a market which is good to sell in and bad to buy from. Now a

market is good to sell in and bad to buy from when the level of prices

ruling in that market is higher than the level of prices ruling outside.

Therefore, if an adverse balance of trade is the cause of the fall of

exchange, and if the adverse balance of trade is caused by internal

prices being higher than external prices, then it follows that the fall

of exchange is nothing but the currency’s fall in purchasing power,

which is the same thing as the rise of prices. The adverse balance of

trade is an explanation a step short of the final explanation. Try to

circumvent the issue as one may, it is impossible to escape the

conclusion that the fall in the exchange value of the rupee is a

resultant of the fall in the purchasing power of the rupee.

Now what is the cause of the fall in the purchasing power of the rupee?

In that confused if not absurd document, the Report of the Price Inquiry

Committee,³²⁸ one cause of the rise of prices in India was assigned,

among others,³²⁹ to the decline in supplies relatively to population.

In view of the more or less generally accepted theory of quantity of a

currency as the chief determinant of its value, the line of reasoning

adopted by the Committee is somewhat surprising. But there is enough

reason to imagine why the Committee preferred this particular

explanation of the rise of prices. The position of the Government with

regard to the management of the Indian currency is somewhat delicate.

Already the issue of paper currency was in the hands of the Government.

By the Mint closure it took over the management of the rupee currency as

well. Having the entire control over the issue of currency, rupee and

paper, the Government becomes directly responsible for whatever

consequences the currency might be said to produce. It must [pg 211]

not, also, be forgotten that the Government is constantly under fire

from an Opposition by no means over-scrupulous in the selection of its

counts. As a result of this situation the Government walks very warily,

and is careful as to what it admits. Lord Castlereagh, in the debate on

Horner’s resolution of 1811 stating that bank notes were depreciated by

over-issue, asked the House of Commons to consider what Napoleon would

do if he found the House admitting the depreciation even if it was a

fact. The Government of India is in the same position, and had to think

what the Opposition would do if it admitted this or that principle. The

reason why the Government of India adheres to the adverse balance of

trade as an explanation of the fall of exchange is the same which led

the Committee to ascribe the rise of prices to the shortage of goods.

Both the doctrines have the virtue of placing the events beyond the

control of the Government and thus materially absolving the Government

from any blame that might be otherwise cast upon it. What can the

Government do if the balance of trade goes wrong? Again, is it a fault

of the Government if the supply of commodities declines? The Government

can move safely under the cover of such a heavy armour!³³⁰ But does the

explanation offered by the Committee invalidate the excess of currency

as an explanation of the rise of prices in India? The value of money is

a resultant of an equation of exchange between money and goods. To that

equation there are obviously two sides, the money side and the commodity

side. It is an age-worn dispute among economists as to which of the two

is the decisive factor when the result of the equation of exchange

undergoes a change, i.e. when [pg 212] the general price-level changes.

There are economists who when discussing the value or the general

purchasing power of money emphasize the commodity side in preference to

the money side of the equation as the chief determinant of it. To them

if prices in general fall it may not be due to scarcity of money; on the

other hand, it may be due to an increase in the volume of commodities.

Again, if prices in general rise they prefer to ascribe it to a decrease

in the volume of commodities rather than to an increase in the quantity

of money. It is possible to take this position, as some economists

choose to do, but to imagine that the quantity theory of money is

thereby overthrown is a mistake. As a matter of fact, in taking that

position they are not damaging the quantity theory in the least. They

are merely stating it differently. The weakness of the position

consists in failing to take note of what the effect on the general

price-level would be if in speaking of increase or decrease of

commodities they _included_ a corresponding increase or decrease of

currency. If the volume of commodities increases, including the volume

of currency, then there is no reason why general prices should fall.

Similarly if the volume of commodities decreases, including the volume

of currency, then there is no reason why general prices should rise.

The commodity explanation is but the reverse side of the quantity

explanation of the value of money. Recasting the argument of the

Committee in the light of what is said above, we can say without

departing from its language that the rise of prices in India was due to

the supply of currency not having diminished along with the diminution

in the supply of goods. In short, the rupee fell in purchasing power

because of currency being issued in excess, and there is scarcely any

doubt that there has been a profuse issue of money in India since the

closing of the Mints in 1893.

³²⁸ This Committee was appointed in 1910 to investigate into the rise

of prices in India and was composed of Messrs. Datta, Shirras, and

Gupta. The first and the last named commissioners being members

of the Finance Department of the Government of India, the

Committee may be regarded as more or less an official body. The

results of its investigations appeared in 1914 in five volumes,

Vol. I of which contained the Report signed by Mr. Datta.

³²⁹ _See_ Report, pars. 126–27.

³³⁰ It may, however, be noted that this explanation of a shortage of

goods, which was apparently offered as most likely to absolve the

Government from any blame for having inflated the currency, was

repudiated by the Government in its resolution reviewing the

Report of the Committee, probably because such an admission on its

part was likely to be interpreted as an argument to show that

under it India was getting poorer. But the Government, in a

hurry, did not realize that with the repudiation of this doctrine

no other explanation was left but that of an increased issue of

money to account for the rise of prices in India.

The first period, from 1893–98, was comparatively speaking the only

period marked by a rather halting and cautious policy in respect of

currency expansion. The reason no doubt was the well-known fact that at

the time the Mints were closed the currency was already redundant. Yet

the [pg 213] period was not immune from currency expansion.³³¹ At the

time the Mints were closed the silver bullion then in the hands of the

people was depreciated as a result of the fall in its value due to the

closure. An agitation was set up by interested parties to compel the

Government to make good the loss. Ultimately, the Government was

prevailed upon by Sir James Mackay (now Lord Inchcape), the very man who

forced Government to close the Mints, to take the silver from the banks.

The Government proposed to the Secretary of State that they be allowed

to sell the silver even at a loss rather than coin and add to the

already redundant volume of currency. The Secretary of State having

refused, the silver was coined and added to the currency. The stoppage

of Council Bills in 1893–94 had temporarily accumulated a large number

of rupees in their Treasuries, a transaction which practically amounted

to a contraction of currency. But the Government later decided to spend

them on railway construction—a policy tantamount to an addition to

currency. The resumption of Council Bills after 1894 had also the same

effect, for a sale of bills involves an addition to currency. In view

of the heavy cost of financing the Home Treasury by gold borrowings, the

resumption of sale was a pardonable act. But what was absolutely

unpardonable was the increase in the fiduciary portion of the

paper-currency reserve from 8 to 10 crores,³³² thereby putting 2 crores

of coined rupees into circulation, particularly so because the Finance

Minister refused to pay any heed to its incidence on the currency

policy, arguing:—

³³¹ Cf. H. M. Ross, _The Triumph of the Standard_, Calcutta, 1909, pp.

16–17.

³³² By Act XV of 1896.

“I am a little doubtful whether, in discussing the question of

the investment of the currency reserve, we are at liberty to

look at outside considerations of that kind.”³³³

³³³ Financial Statement, 1896–97, p. 89.

All told, the additions to the currency during the first period were

negligible as compared to what took place in the second period,

1900–1908. This period was characterized [pg 214] by a phenomenal

increase in the volume of currency poured by the Government into

circulation. Speaking of the coinage of rupees during this period, Mr.

Keynes, anything but an unfriendly critic of the Government’s policy,

observed³³⁴:—

³³⁴ Op. cit., pp. 131–35.

“The coinage of rupees recommenced on a significant scale in

1900 a steady annual demand for fresh coinage (low in 1901–2,

high in 1903–4, but at no time abnormal), and the Mints were

able to meet it with time to spare, though there was some slight

difficulty in 1903–4. In 1905–6 the demand quickened, and from

July 1905 it quite outstripped the new supplies arising from the

mintage of the uncoined silver. … This slight scare, however,

was more than sufficient to make the Government lose their

heads. Having once started on a career of furious coinage, they

continued to do so with little regard to considerations of

ordinary prudence … without waiting to see how the busy seasons

of 1906–7 would turn out, they coined heavily throughout the

summer months. … During the summer of 1907, as in the summer of

1906, they continued to coin without waiting until the

prosperity of the season 1907–8 was assured.”

Evidently in this period the Government framed their policy “as though a

community consumed currency with the same steady appetite with which

some communities consume beer.” The period also witnessed a material

expansion of the paper currency. Up to 1903 the use of the currency

notes was limited by reason of the fact that they were not only not

legal tender outside their circle of issue, but also because their

encashability was restricted to the offices of the circles of their

issue. This was a serious limitation on the extension of paper currency

in India. By Act VI of 1903 the Rs. 5 was made universal in British

India excepting Burma, i.e. was made legal tender in all circles, and

also encashable at all offices of issue. Along with this the fiduciary

portion of the paper-currency reserve was increased to Rs. 12 crores by

Act III of 1905. The first event was only calculated to enlarge the

circulation of the [pg 215] notes, but the second event had the direct

effect of lowering the value of the rupee currency.

The third period (1909–14) was comparatively a moderate but by no means

a slack period from the standpoint of currency expansion in India. The

first three years of the period were, so to say, years of subdued

emotion with regard to the rupee coinage. With the exception of the

year 1910, when there was no net addition to rupee coinage, and 1911,

when the addition was a small one, the coinage in the years 1909 and

1912 ranged from 24 to 30 lakhs. But during the last two years of this

period there was a sudden burst of rupee coinage, when the total reached

264 crores. The expansion of paper currency took place also on a great

scale during this period. In 1909 the Rs. 5 were universalized in Burma

as they had previously been in other parts of India. This process of

universalization was carried further during this period, when, under the

authority granted by the Paper Currency Act (II of 1910), the Government

universalized notes of Rs. 5 and Rs. 50 in 1910, of Rs. 100 in 1911.

Along with the stimulus thus given to the increase of paper currency,

the Government actually expanded the fiduciary portion of the issue from

12 to 14 crores by Act VII of 1911, thereby throwing into circulation 2

crores of additional rupees.

During the fourth period (1915–1920) all prudential restraints were

thrown overboard.³³⁵ The period coincided with the Great War, which

created a great demand for Indian produce and also imposed upon the

Government the necessity for meeting large expenditure on behalf of H.M.

Government. Both these events necessitated a great increase in the

current means of purchase. There were three sources open to the

Government to provide for the need: (1) Importation of gold; (2)

increase of rupee coinage; and (3) increase of paper currency. It must

not be supposed that the Government of India had no adequate means to

provide the necessary currency. Whatever [pg 216] expenditure the

Government of India incurred in India, the Secretary of State was

reimbursed in London. So the means were ample. The difficulty was that

of converting them to proper account. Ordinarily the Secretary of State

purchases silver out of the gold at his command to be coined in India

into rupees, This usual mode was followed for the first two years of the

period, and the currency was augmented by that means. But the rise in

the price of silver made that resource less available. The Secretary of

State had therefore to choose between sending out gold or issuing paper.

Of the two, the former was deemed to be too unpatriotic. Indeed, the

Secretary of State believed that from an Imperial point of view it was

entirely ungracious even to “earmark” the gold he received in London as

belonging to India. But how was demand for additional currency in India

to be met? As a result of deliberation it was agreed that to provide

currency in India without employing gold the best plan was for the

Secretary of State to invest at one end the gold he received on India’s

behalf in the purchase of British Treasury bills, and the Indian

Government to issue currency notes at the other end on the security of

these bills. Such a procedure, it will be observed, involved a profound

modification in the basic theory of Indian paper currency. That theory

was to increase the fiduciary issue by investing a portion of the

metallic reserves only when the proportion of the latter to the total of

the notes in active circulation had shown, over a considerable period, a

position sufficiently strong to warrant an extension of the invested

reserves and a corresponding diminution of the metallic reserves. The

main effect of the principle was that the extent of the paper currency

was strictly governed by the habits of the people, for whatever the

amount of fiduciary issue at any given moment it represented metallic

reserves which were once in existence. Under the new scheme the old

principle was abandoned and paper currency was issued without any

metallic backing, and what is more important is that its magnitude,

instead of being determined by the habits of the people, was determined

by the necessity of the Government and the amount of security it

possessed. [pg 217]

³³⁵ For a view of the currency policy of this period the primary

source are the Annual Financial Statements, for these years, of

the Government of India.

This fatal and facile procedure was adopted by the Government of India

with such avidity that within four years it passed one after another

eight Acts, increasing the volume of notes issuable against securities.

The following table gives the changes in the limits fixed by the Act.

and the total issues actually made under them:—

_TABLE XLIII_

_Issue of Currency Notes_

─────────────────────────────────────────────────────────────────────────────────────

Acts prescribing the Fiduciary Issue of Currency Notes.

Act Act Act Act Act Act Act

V of IX XI XIX VI II XXVI

I. Limits to 1915 of of of of of if

fiduciary issues 1916 1917 1917 1918 1919 1919

─────────────────────────────────────────────────────────────

In Lakhs of Rupees.

(a) Permanent 14,00 14,00 14,00 14,00 14,00 14,00 14,00

(b) Temporary 6,00 12,00 36,00 48,00 72,00 86,00 106,00

Total limit 20,00 26,00 50,00 62,00 86,00 100,00 120,00

II. Total issues of 61,63 67,73 86,38 99,79 153,46 179,67³³⁶

currency notes

Silver 32,34 23,57 19,22 10,79 37,39 47,44

III. ─────────────────────────────────────────────────────────────────────────────

Reserve Gold 15,29 24,16 18,67 27,52 17,49 32,70

Securities 14,00 20,00 48,49 61,48 98,58 99,53

³³⁶ On November 30,1919. The rest of the figures are for March 31.

But this facile procedure could not be carried on _ad infinitum_ except

by jeopardizing the convertibility of the notes. Consequently the very

increase of paper money, added to the increased demand for currency,

compelled the Government to go in for the provision of metallic money

for providing current means of purchase and also give a backing to the

watered paper issues. The rising price of silver naturally made the

Government go in for gold. An Ordinance was issued on June 29, 1917,

requiring all gold imported into India to be sold to Government at a

price based on the sterling exchange, and opened a gold Mint at [pg 218]

Bombay for the coinage of it into mohurs.³³⁷ Frantic efforts were made

to acquire gold from various quarters. The removal of the embargo on

the export of gold by the U.S.A. on June 9, 1917, and the freeing of the

market for South African and Australian gold, enabled the Government to

obtain some supply of that metal. From July 18, 1919, immediate

telegraphic transfers on India were offered against deposit at the

Ottawa Mint in Canada of gold coin or bullion at a rate corresponding to

the prevailing exchange rate, and at New York at competitive tenders

from August 22, 1919. Arrangements were also made for the direct

purchase of gold in London and U.S.A. Finally, to encourage the private

import of gold, the acquisition rate was altered from September 15,

1919, so as to make allowance for the depreciation of the sterling. But

the gold thus obtained was a negligible quantity. Besides, the issue of

gold did not serve the purpose the Government had in mind—namely its

retention in circulation. In the nature of things it was impossible.

The rupee was depreciated in terms of gold to an enormous extent, and

consequently at the rate of exchange gold passed out of circulation as

quickly as it was issued by the Government. What the Government could

do was to make the use of gold and silver coins illegal for other than

currency purposes and to prevent their exportation, which it did by the

Notifications of June 29 and September 3, 1917. Realizing that it could

not rely upon gold, the Government renewed its efforts to enlarge the

rupee coinage. To facilitate the purchase of that metal the import of

silver on private account into India was prohibited on September 3,

1917. This measure, however, removed only a few of the smaller

competitors for the world’s diminished supply of silver, and the

world-demand remained so heavy that the Secretary of State was unable to

obtain sufficient supply notwithstanding the great conservation effected

in the use of silver by substituting nickel coinage for silver coins of

subsidiary order,³³⁸ and by the issue of notes of denominations [pg 219]

as low as that of R.1³³⁹ and of R.2–8.³⁴⁰ The Government of the United

States was therefore approached on the subject of releasing a portion of

the silver dollars held in their reserve. The American Government

consented and passed the Pittman Act, under which the Government of

India acquired a substantial volume at 101½ cents per fine ounce. The

total silver purchased during this period was as follows:

³³⁷ Act XIV of 1918.

³³⁸ Acts IV of 1918 and XXI of 1919.

³³⁹ First issued on December 1, 1917.

³⁴⁰ First put into circulation on January 2, 1918.

_TABLE XLIV_

_Rupee Coinage, 1915–20_

─────────────────────────────────────────────────────────────────

Year. Silver purchased Silver purchased Total

in Open Market, from U.S.A., Standard

Standard Ounces. Standard Ounces. Ounces.

─────────────────────────────────────────────────────────────────

1915–16 8,636,000 — —

─────────────────────────────────────────────────────────────────

1916–17 124,535,000 — —

─────────────────────────────────────────────────────────────────

1917–18 70,923,000 — —

─────────────────────────────────────────────────────────────────

1918–19 106,410,000 152,518,000 —

─────────────────────────────────────────────────────────────────

1919–20 14,108,000 60,875,000 —

─────────────────────────────────────────────────────────────────

— — —

─────────────────────────────────────────────────────────────────

Total 324,612,000 213,393,000 538,005,000

─────────────────────────────────────────────────────────────────

Now, recalling the fact that from 1900 to 1914 the Government had coined

about 532 million standard ounces of silver,³⁴¹ it means that the

coinage of silver by Government during these five years exceeded the

amount coined in the fourteen preceding years by five million ounces.

³⁴¹ Cf. the figures given by L. Abrahms in his evidence to the

Currency Committee of 1919. Mit. of Evid., Q. 37–41.

Thus the fall in the gold value of the rupee is an inevitable

consequence of the exercise of the power to issue inconvertible currency

in unlimited quantities. This is the fate of all inconvertible

currencies known to history. But it is said that an exception must be

made in the case of the rupee [pg 220] currency, for if the Government

has the liberty of issuing it in unlimited quantities it has also

resources to counteract the effects of a fall when it does occur. We

must therefore turn to an examination of these resources.

The basis of the reasoning is that the rupee is a token currency, and

that if the value of a token currency is maintained at par with gold by

applying to it the principle of redemption into gold³⁴² it should be

possible to maintain the value of the rupee at par with gold by adopting

a similar mechanism. What is wanted is an adequate gold fund, and so

long as the Government has it, we are assured that we need have no

anxiety on the score of a possible fall in the value of the rupee. Such

a fund the Government of India has, and on all the three occasions when

the gold value of the rupee fell below par that fund was operated upon,

The process of redemption is carried on chiefly in three ways: (1) The

sale of what are called reverse councils, by which the Government

receives rupees in India in return for gold in London; (2) the release

of gold internally in receipt for rupees in India; and (3) the stoppage

of the Secretary of State’s council bills to prevent further rupees from

going into circulation. The cumulative effect of these, it is said, is

to contract the currency and raise its value to par. Although all the

three may be employed, the first is by far the most important means

adopted by the Government in carrying through this process of

redemption. The extent of the redemption effected on the three

occasions when it was employed may be seen from the three following

tables:— [pg 221]

³⁴² _See_ the very interesting discussion by Laughlin of the laws of

token money in his _Principles of Money_, Chap. XV. It may be

said in passing that Laughlin is an opponent of the quantity

theory of money, but in his discussion of token money he virtually

admits it.

_I. Redemption of Currency, 1907–8._

_TABLE XLV_

─────────────────────────────────────────────────────────────────────

By the Sale of By Release Private

Reverse Councils. of Gold. Exports

────────────────────────── Diminution of Gold Drawings

Date. Amount Amount of Govt. Coin of the

offered. sold. Stock of during Secretary

Gold the of State.

during the Month.

Month.

─────────────────────────────────────────────────────────────────────

£ £ £ £ £

─────────────────────────────────────────────────────────────────────

1907—

─────────────────────────────────────────────────────────────────────

Sept. — — 152,000 14 858,896

─────────────────────────────────────────────────────────────────────

Oct. — — 254,000 9,109 921,678

─────────────────────────────────────────────────────────────────────

Nov. — — 532,000 3 427,344

─────────────────────────────────────────────────────────────────────

Dec. — — 338,000 2,501 571,905

─────────────────────────────────────────────────────────────────────

1908—

─────────────────────────────────────────────────────────────────────

March 500,000 70,000 226,000 — 172,699

26 (for the

whole

month)

─────────────────────────────────────────────────────────────────────

April 2 500,000 449,000

──────────────────────────────────

April 9 500,00 340,000

──────────────────────────────────

April 500,000 441,000

16 461,000 — 66,834

──────────────────────────────────

April 500,000 329,000

──────────────────────────────────

April 500,000 205,000

─────────────────────────────────────────────────────────────────────

May 7 500,000 81,000

──────────────────────────────────

May 14 500,000 145,000

────────────────────────────────── 645,000 — 62,764

May 21 820,000 793,000

──────────────────────────────────

May 28 500,000 500,000

─────────────────────────────────────────────────────────────────────

June 4 1,000,000 755,000

──────────────────────────────────

June 11 1,000,000 70,000

────────────────────────────────── 334,000 — 169,810

June 18 500,000 Nil

──────────────────────────────────

June 25 500,000 50,000

─────────────────────────────────────────────────────────────────────

July 2 500,000 470,000

──────────────────────────────────

July 9 500,000 304,000

──────────────────────────────────

July 16 500,000 500,000 16,000 — 186,847

──────────────────────────────────

July 23 1,000,000 968,000

──────────────────────────────────

July 30 1,000,000 860,000

─────────────────────────────────────────────────────────────────────

Aug. 6 1,000,000 418,000

──────────────────────────────────

Aug. 13 500,000 310,000

────────────────────────────────── 354,000 — 262,217

Aug. 20 500,000 Nil

──────────────────────────────────

Aug. 27 500,000 Nil

─────────────────────────────────────────────────────────────────────

Sept. 3 500,000 Nil

────────────────────────────────── 502,000 — 1,431,012

Sept. 500,000 Nil

─────────────────────────────────────────────────────────────────────

Total 15,320,000 8,058,000 4,394,000 249,912

─────────────────────────────────────────────────────────────────────

[pg 222]

_II. Redemption in 1914–16_