⁴⁰⁵ From January 22, 1862, when the Sale_The Problem of the Rupee, Its Origin and Its Solution

authority of the Secretary of State first took place, up to

November, 1862, the sales were effected monthly. From November,

1862, the sales were effected fortnightly; and in August, 1876,

they were made weekly.

⁴⁰⁶ From January to March, 1862, the minimum fraction was a farthing;

it was reduced to ⅛th of a penny in March 1862, to 1/16th in

January 1875, and to 1/32nd in 1882, at which fraction it has

continued since then.

⁴⁰⁷ First introduced in 1876.

From an examination of these tables two facts at once become clear. One

is the enormous amount of council bills the Secretary of State sells.

Before the closing of the Mints the sales of council bills moved closely

with the magnitude of the home charges, and the actual drawings did not

materially deviate from the amount estimated in the Budget. Since the

closure of the Mints the drawings of the Secretary of State have not

been governed purely by the needs of the Home Treasury. Since the

closure, the Secretary of State has endeavoured⁴⁰⁸:—

“(1) To draw from the Treasuries of the Government of India

during the financial year the amount that is laid down in the

Budget as necessary to carry out the Ways and Means programme of

the year. [pg 266]

⁴⁰⁸ Cf. Memorandum on the Sale of Council Bills, by F. W. Newmarch, to

the Chamberlain Commission, App. Vol. I, No. VII, p. 222,

_TABLE LI_

_Balance of Trade, Council Drawings and Imports of Gold

Before 1893_

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

Net Imports Excess

of Treasure. (+)

───────────────────── or

Balance Gold. Silver. Deficiency Cash

of Amount (−) Balances Minimum

Trade of of Home in Rate for

Years. (Merchandise: Council Bills Charges. the Council

Private Bills drawn Home Bills.

Account). drawn. as Treasury.

compared

with

Budget

Estimate.

(1) (2) (3) (4) (5) (6) (7) (8) (9)

£ £ £ £ £ £ £ s. d.

000,000 000,000

1870–71 20,863,000 2·13 ·9 — — 10,031,261 3,305,972 1 10¼

1871–72 31,094,000 3·43 6·3 — — 9,703,235 2,821,091 1 10⅜

1872–73 23,376,000 2·41 ·7 13,939,095 +939,095 10,248,605 2,998,444 1 10⅜

1873–74 21,160,000 1·29 2·3 13,285,678 −214,322 9,310,926 2,013,638 1 9½

1874–75 20,137,000 1·73 4·3 10,841,615 +841,615 9,490,391 2,796,370 1 9¾

1875–76 19,204,000 1·40 1·4 12,389,613 −1,910,387 9,155,050 919,899 1 9

1876–77 23,573,000 ·18 6·1 12,695,800 −964,200 13,851,296 2,713,967 1 6½

1877–78 23,758,000 ·41 12·7 10,134,455 −2,115,545 14,048,350 1,076,657 1 8

3/16

1878–79 23,167,000 ·74 3·3 13,948,565 −3,051,435 13,851,296 1,117,925 1 6⅝

1879–80 26,046,000 1·45 6·5 15,261,810 +261,810 14,547,664 2,270,107 1 7

1880–81 21,464,000 3·03 3·2 15,239,677 −1,660,323 14,418,986 4,127,749 1 7½

1881–82 32,855,000 4·02 4·5 18,412,429 +1,212,429 14,399,083 2,620,909 1 7⅜

1882–83 31,389,000 4·01 6·1 15,120,521 −221,479 14,101,262 3,429,874 1 7

1883–84 23,611,600 4·44 5·2 17,599,805 +1,229,805 15,030,195 4,113,221 1 7¼

1884–85 20,034,100 3·76 5·8 13,758,909 −2,741,091 14,100,982 2,249,378 1 6¾

1885–86 21,344,200 2·10 8·8 10,292,692 −3,481,008 14,014,733 4,726,585 1 5⅞

1886–87 19,844,800 1·58 5·2 12,136,279 −1,195,121 14,409,949 5,280,829 1 4⅛

1887–88 18,724,400 2·10 6·5 15,358,577 −891,423 15,389,065 5,900,697 1 4⅜

1888–89 20,271,900 1·92 6·3 14,262,859 +262,859 14,983,221 3,259,933 1 4

1889–90 24,557,800 3·18 7·6 15,474,496 +784,596 14,848,923 5,402,873 1 4

1890–91 20,733,800 4·25 10·7 15,969,034 +980,034 15,568,875 3,885,050 1 4

15/16

1891–92 27,632,400 1·68 6·3 16,093,854 +93,854 15,874,699 4,122,626 1 3

1/16

1892–93 29,287,300 1·75 8·0 16,532,215 −467,785 16,334,541 12,268,388 1 2⅝

[pg 267]

_TABLE LII_

_Balance of Trade, Council Drawings and Imports of Gold

After 1893_

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

Net Imports Excess

of (+) or

Balance Treasure. Deficiency Cash

of ───────────────────── Amount (−) of Balances Minimum

Trade Gold. Silver. of Bills Home in Rate for

Years. (Merchandise: Council drawn Charges. the Council

Private Bills as Home Bills.

Account). drawn. compared Treasury.

with

Budget

Estimate.

(1) (2) (3) (4) (5) (6) (7) (8) (9)

£ £ £ £ £ £ £ s. d.

000,000 000,000

1893–94 21,660,500 − ·39 8·3 9,530,235 −9,169,765 15,826,815 1,300,564 1 1·500

1894–95 25,765,000 −2·7 3·4 16,905,102 −94,898 15,707,367 1,503,124 1 0·000

1895–96 29,963,800 1·5 3·7 17,664,492 +664,492 15,603,370 3,393,798 1 1·000

1896–97 21,333,100 1·4 3·5 15,526,547 −973,453 15,795,836 2,832,354 1 1·781

1897–98 18,847,000 3·2 5·4 9,506,077 −3,493,923 16,198,263 2,534,244 1 2·250

1898–99 29,560,700 4·3 2·6 18,692,377 +2,692,377 16,303,197 3,145,768 1 3·094

1899–1900 25,509,600 6·3 2·4 19,067,022 +2,067,022 16,392,846 3,330,943 1 3·875

1900–01 20,727,400 ·5 6·3 13,300,277 −3,139,723 17,200,957 4,091,926 1 3·875

1901–02 28,630,600 1·3 4·8 18,539,071 +2,039,071 17,368,655 6,693,137 1 3,875

1902–03 33,352,600 5·8 4·6 18,499,966 +1,999,946 18,361,821 5,767,787 1 3·875

1903–04 45,424,100 6·6 9·1 23,859,303 +6,859,303 18,146,474 7,294,782 1 3·875

1904–05 40,548,200 6·5 8·9 24,425,558 +7,925,558 19,463,757 10,262,581 1 3·969

1905–06 39,086,700 ·3 10·5 32,166,973 +14,333,973 18,617,465 8,436,519 1 3·938

1906–07 45,506,600 9·9 16·0 33,157,196 +15,357,196 19,208,408 5,606,812 1 3·969

1907–08 31,640,000 11·6 13·0 16,232,062 −1,867,938 18,487,267 5,738,489 1 3·906

1908–09 21,173,300 2·9 8·0 13,915,426 −4,584,574 18,925,159 8,453,715 1 3·906

1909–10 47,213,000 14·5 6·3 27,096,586 +10,896,586 19,122,916 15,809,618 1 3·906

1910–11 53,685,300 16·0 5·8 26,783,303 +11,283,303 19,581,563 18,174,34? 1 3·906

1911–12 59,512,900 25·1 3·6 27,058,550 +9,900,250 19,957,657 19,463,723 1 3·937

1912–13 57,020,900 22·6 11·5 25,759,706 +10,259,706 20,279,572 9,789,634 1 3·969

1913–14 43,753,900 15·6 8·7 31,200,827 +10,000,827 20,311,673 3,157,732 1 3·937

1914–15 29,108,500 5·1 5·9 7,748,111 −12,251,889 20,208,598 7,913,226 1 3·937

1915–16 44,026,600 − ·7 3·2 20,354,517 +13,354,517 20,109,094 12,803,348 1 3·937

1916–17 60,843,200 8·82 12·5 32,998,095 +29,093,095 21,145,627 11,391,993 1 4·031

1917–18 61,420,000 16·8 12·7 34,880,682 +34,880,682 26,065,057 16,625,416 1 4·156

1918–19 56,540,000 −3·7 45·3 20,946,314 +20,946,314 23,629,495 14,715,827 1 4·906

[pg 268]

“(2) To draw such further amounts as may be required to pay for

purchases of silver bought for coinage purposes.

“(3) To draw such further amounts as an unexpectedly prosperous

season may enable the Government to spare, to be used towards

the reduction or avoidance of debt in England.

“(4) To sell additional bills and transfers to meet the

convenience of trade.

“(5) To issue telegraphic transfers on India in payment for

sovereigns which the Secretary of State has purchased in transit

from Australia or from Egypt to India.”

The result of such drawings is that the councils are made to play an

enormous part in the adjustment of the trade balance of India, and the

swelling of balances in the Home Treasury and the locking up of Indian

funds in London.

The second point to note in comparing the preceding tables is with

regard to the price at which the Secretary of State makes his sales.

Before the closure of the Mints the price of the council bills was

beyond the control of the Secretary of State, who had therefore to

accept the price offered by the highest bidder at the weekly sale of his

bills. But it is objected that there is no reason why the Secretary of

State should have continued the old practice of auctioning the rupee to

the highest bidder when the closing of the Mints had given him the sole

right of manufacturing it. Availing himself of his monopoly position,

it is insisted, the Secretary of State should not have sold his bills

below 1s. 4⅛d. or 1s. 4 3/32d. which, under the ratio of 15 rupees to

the sovereign, was for India the gold-import point. In practice the

Secretary of State has willed away the benefit of his position, and has

accepted tenders at rates below gold-import point, as may be seen from

the minimum rates he has accepted for his bills.

It is said that if the council bills were sold in amounts required

strictly for the purposes of the Home Treasury, and sold at a price not

below gold-import point, gold would tend to be imported into India and

would thus become part of the Indian currency media. As it is, the

combined effect of the operations of the Secretary of State is said to

be to [pg 269] lock up Indian gold in London. With the use or misuse of

the Indian gold in London we are not here concerned. But those who are

inclined to justify the India Office scandals in the management of

Indian funds in London, and have offered their services to place them on

a scientific footing, may be reminded that a practice on one side of

Downing Street which Bagehot said could not be carried on on the other

side of it without raising a storm of criticism, would require more

ingenuity than has been displayed in their briefs. This much seems to

have been admitted on both sides, that the operations of the Secretary

of State do prevent the importation of gold into India, not altogether,

but to the extent covered by their magnitude. Now, those who have held

that the ideal of the Fowler Committee has been defeated are no doubt

right in their view that the narrowing of the Secretary of State’s

operation would lead to the importation of gold into India. But what

justification is there for assuming that the imported gold would become

a part of the currency of India? The assumption that the abolition of

the Secretary of State’s financial dealings would automatically make

gold the currency of India is simply a gratuitous assumption. Whether

the imported gold would become current depends on quite a different

circumstance.

The other explanation offered to explain the failure of the ideal of the

Fowler Committee is the want of a Mint in India open to the free coinage

of gold. The opening of the Mints to the free coinage of gold has been

regarded as the most vital recommendation of the Fowler Committee;

indeed, so much so that the frustration of its ideal has been attributed

to the omission by the Government to carry it out. The consent given by

the Government in 1900 to drop the proposal under the rather truculent

attitude of the Treasury has ever since been resented by the advocates

of a gold currency. A resolution was moved in 1911 by Sir V.

Thackersay, in the Supreme Legislative Council, urging upon the

Government the desirability of opening a gold Mint for the coinage of

the sovereign if the Treasury consented, and if not for the coinage of

some other gold coin. In deference to the united voice of the Council,

the Government [pg 270] of India again asked the Secretary of State to

approach the Treasury for its sanction.⁴⁰⁹ The Treasury on this occasion

presented the Secretary of State⁴¹⁰ with two alternatives: (1) That a

branch of the Royal Mint be established at Bombay solely for the purpose

of coining gold into sovereigns, and exclusively under its control; or

(2) that the control of the Mint at Bombay should be entirely

transferred to it. Neither of the two alternatives was acceptable to

the Government of India; and the Secretary of State, as a concession to

Indian sentiment, sanctioned the issue of a ten-rupee gold coin from the

Indian Mint. The Government of India preferred this solution to that

suggested by the Treasury, but desired that the matter be dealt with

afresh by the Chamberlain Commission then sitting. That Commission did

not recommend a gold Mint,⁴¹¹ but saw no objection to its establishment

provided the coin issued was a sovereign, and if the coinage of it was

desired by Indian sentiment and if the Government did not mind the

expense of coinage.⁴¹² This view of the Commission carried the

proposition no further than where it was in 1900, until the war

compelled the Government to open the Bombay Mint for the coinage of gold

as a branch of the Royal Mint. But it was again closed in 1919. Its

reopening was recommended by the Currency Committee of 1919,⁴¹³ and so

enthusiastically was the project received that an Honourable Member of

the Supreme Council took the unique step of tempting the Government into

adopting that recommendation by an offer to increase the Budget

Estimates under “Mint” to enable the Government to bear the cost of it.

The Government, however, declined the offer with thanks. So we have in

India the singular spectacle of a country in which there was a gold Mint

even when gold was not legal [pg 271] tender, as was the case between

1835–93, while there is no gold Mint, when gold is legal tender, as has

been the case since 1893. Just what an open Mint can do in the matter

of promoting the ideal of the Fowler Committee it is difficult to

imagine; but the following extracts from the evidence of a witness (Mr.

Webb), than whom there was no greater advocate of an open gold Mint

before the Chamberlain Commission, help to indicate just what is

expected from a gold Mint.

⁴⁰⁹ _See_ Commons Paper 495, of 1913, p. 57.

⁴¹⁰ _Ibid._, p. 64.

⁴¹¹ Report, secs. 69–71.

⁴¹² The Commission recommended that if a gold Mint was not established

in India Government should renew the notification withdrawn in

1906 to receive refined gold on suitable terms.—Report, sec. 72.

⁴¹³ Report, par. 67.

“The principal advantage which you would expect to derive from a gold

Mint is that you would increase the amount of gold coin in

circulation?—That would be one of the tendencies.

“Is there any other advantage?—The advantage is that the country would

be fitted with what I regard as an essential part of its monetary

mechanism. I regard it as an essential part of its currency mechanism

that it should have a Mint at which money could be coined at the

requisition of the public.

“I want to get exactly at your reason why that is essential. Am I right

in thinking that you consider it essential to a proper currency system

that there should be a gold currency?—Yes.

“And essential to a gold currency that there should be a gold Mint?—Yes,

on the spot in India itself. … It would do away, in a measure, with the

management by the Secretary of State of the Foreign Exchanges, in that

there would be always the Mint at which the public could convert their

gold into legal-tender coins in the event of the Secretary of State

taking any action of which the public did not approve. It is a

safeguard, so to speak, an additional safeguard, that the people of

India can on the spot obtain their own money on presentation of the

metal.”

Here, again, the assumption that a gold Mint is a guarantee that there

will be a gold currency seems to be one as gratuitous as the former

assumption that if gold were allowed to be freely imported it would on

that account become part of the currency. On the other hand, there are

cases where Mints were open, yet there was neither gold coinage nor gold

currency. Instances may be cited from the history [pg 272] of the

coinage at the Royal Mint in London. The magnitude of gold coinage

during the bank suspension period, 1797–1821, or the late war, 1914–18,

is instructive from this point of view. The Mint was open in both

cases, but what was the total coinage of gold? Throughout the

suspension period the gold coined was negligible, and during the years

1807, 1812, and 1814–16 no gold was coined at all at the Royal Mint.⁴¹⁴

Again, during the late war the coinage of gold fell off from 1915, and

from 1917 it ceased altogether.⁴¹⁵ There instances conclusively show

that although a Mint is a useful institution, yet there is no magic in a

Mint to attract gold to it. The historical instances adduced above

leave no doubt that the circulation of gold is governed by factors quite

independent of the existence or non-existence of a Mint open to the free

coinage thereof. Now, it is an established proposition of political

economy that when two kinds of media are employed for currency purposes

the bad one drives out the good one from circulation. Applying this

principle to the situation in India, it should be evident that so long

as there is an unlimited issue of rupees gold cannot circulate in India.

This important principle has been so completely overlooked by those who

have insisted on the introduction of a gold currency that they have not

raised a finger against the unlimited issue of rupees. Mr. Webb, the

fiercest opponent of the India Office malpractices, and the staunchest

supporter of the view that if only the Secretary of State could be made

to contract his drawings gold would flow and be a part of the currency

in India, recommended to the Chamberlain Commission that—

“The sales of Council Drafts should be strictly limited to the

sum required to meet the Home Charges, and no allotments should

in any circumstances be made below, say, 1s. 4⅛d. to 1s.

4 3/32d.—i.e. about the present equivalent of specie point for

gold imports into India. The sum required in London for Home

Charges having been realized, _no further sales of Council

Drafts should be made except for the express purpose—duly

notified to the public—_ [pg 273] _of purchasing metal for the

manufacture of further token coinage_. Such special sales of

Council Drafts should not be made at anything below specie point

for gold imports.”⁴¹⁶

⁴¹⁴ _See_ G. R. Porter, _Progress of the Nation_ (Ed. Hirst), p. 568.

⁴¹⁵ _See_ Report of the Deputy Master of the Royal Mint, 1921.

⁴¹⁶ Italics not in the original.

Again, Sir V. Thackersay, in the course of his speech on March 22, 1912,

moving a resolution in the Legislative Council, asking the Government to

open the Mint for the coinage of gold in India, observed:—

“Let me make myself clear on one point. _I do not suggest that

Government should give up the right to coin rupees or refuse to

give rupees when people demand the same_. I do not propose to

touch the gold-standard reserve, which must remain as it is as

the ultimate guarantee of our currency policy. My proposal does

not interfere with the existing arrangements in any way, but is

merely supplementary to them. … Let the Government of India

accumulate gold to the maximum limit of its capacity, but let

the surplus gold which it cannot absorb be coined and circulated

if the public chooses to do so. With our expanding trade and

the balance in our favour, gold will continue to be imported in

ordinary time, and _if the facilities of minting are provided in

India, it will go into circulation_.”⁴¹⁷

⁴¹⁷ _S.L.C.P._, Vol. L, pp. 637–38. Italics not in the original.

Those are surely not the ways of promoting a gold currency. Indeed,

they run counter to it. So long as the coinage of rupees goes on gold

will not enter into currency. Indeed, to cry out on the one hand

against the huge drawings of the Secretary of State and the consequent

transfer of Indian funds to London and their mismanagement by the

Secretary of State, and on the other hand to permit him to manufacture

additional token coinage of rupees, is to display not only a lamentable

ignorance of a fundamental principle of currency, but also to show a

complete failure to understand the precise source from which the whole

trouble arises. It is true that the Government of India cannot bind the

Secretary of State to any particular course of action,⁴¹⁸ [pg 274] and

he often does override the provisions of the Annual Budget. But the

question remains, How is it that he is able to draw so much more after

1893 than he ever did before? It must be remembered that whatever the

Secretary of State does with the funds in London he must pay for his

drawings in India. Before 1893 he drew less because his means of

payment were less; after 1893 he drew more because his means of payment

were greater. And why were his means of payment greater? Simply

because he had been able to coin rupees. Indeed, the amount of drawings

are limited by the demand for them and by his capacity to coin rupees.

It is therefore foolish to blame the Secretary of State for betraying

the interests of India and at the same time to permit him to coin

rupees, the very means by which he is able to betray. If a gold

currency is wanted, and it is wanted because the rupee is a bad standard

of value, then what is necessary is not to put a limit on the drawings

of the Secretary of State or the opening of a gold Mint, but a short

enactment stopping the coinage of rupees. Then only gold—made legal

tender, at a suitable ratio with the rupee—will become a part of Indian

currency.

⁴¹⁸ The legal position of the Secretary of State and the extent to

which he can be bound by the provisions of any law passed by the

Government of India were well explained by Sir James Westland in

his speech on the Indian Paper Currency (Amendment) Bill, which

afterwards became Act IT of 1898; compare also the peculiar

wording of that Act.

That the stoppage of rupee coinage is a sufficient remedy is amply

corroborated by the now forgotten episode in the history of Indian

currency during the years 1898–1902. Within the short space of a year

and a half after gold had been made legal tender the Hon. C. E. Dawkins,

notwithstanding the fact that there was no gold Mint, was able, in his

Budget speech in March, 1901, to observe:—

“India has at length emerged from a period of transition in her

currency, has reached the goal to which she has been struggling

for years, has established a gold standard and a gold currency,

and has attained that practical fixity in exchange which has

brought a relief alike to the private individual and to the

Government finances.”⁴¹⁹

So great was the plethora of gold that Mr. Dawkins further remarked⁴²⁰:—

“… We have been nearly swamped … by gold …” [pg 275]

⁴¹⁹ _Financial Statement_, 1900–1, p. 14.

⁴²⁰ _Ibid._, p. 19.

The transformation in the currency position which then took place was

graphically described by Lord Curzon, the then Viceroy, in the following

words⁴²¹:—

“Mr. Dawkins … has successfully inaugurated the new era under

which the sovereign has become legal tender in India, and

stability in exchange has assumed what we hope may be a

stereotyped form. This great change has been introduced in

defiance of the vaticinations of all the prophets of evil, and

more especially of the particular prophecy that we could not get

gold to come to India, that we could not keep it in our hands if

we got it here, but that it would slip so quickly through our

fingers that we should have even to borrow to maintain the

necessary supply. As a matter of fact, we are almost in the

position of the mythological king, who prayed that all he

touched might be turned into gold, and was then rather painfully

surprised when he found that his food had been converted into

the same somewhat indigestible material. So much gold, indeed,

have we got, that we are now giving gold for rupees as well as

rupees for gold, i.e. we are really in the enjoyment of complete

convertibility—a state of affairs which would have been derided

as impossible by the experts a year ago.”

⁴²¹ _Ibid._, p. 167.

Compare this state of affairs in 1900–1 with that found to exist in

1910–11, for instance. Speaking of the currency situation as it was in

that year, the Hon. Sir James (now Lord) Meston, observed⁴²²:—

“We have passed through many changes in currency policy and made

not a few mistakes. But the broad lines of our action and our

objects are clear and unmistakable, and there has been no great

or fundamental sacrifice of consistency in progress towards our

ideal. Since the Fowler Committee that progress has been real

and unbroken. There is still one great step forward before the

ideal can be reached. We have linked India with the gold

countries of the world, we have reached a gold-exchange

standard, which we are steadily developing and improving. The

next and final step is a true gold currency. That, I have every

hope, will come in time. …” [pg 276]

⁴²² _Financial Statement_, 1910–11, p. 346.

Leaving aside for the moment the extenuatory remarks of the speaker, the

fact remains that in 1900 India had a gold currency. But, taking stock

of the position at the end of 1910, it had ceased to have it. What is it

that made this difference? Nothing but the fact that between 1893–1900

no rupees were coined, but between 1900–1910 the number of rupees coined

was enormous. During the first period the inducement to coin rupees was

very great indeed. The exchange was not quite stable, and the

Government had still to find an increasing number of rupees to pay for

the “Home Charges.” And an Honourable Member⁴²³ of the Supreme

Legislative Council actually asked:—

“Is there any objection to the Government working the Mints on

their own account? Considering the low value of silver and the

great margin between the respective prices of bullion and the

rupee, would not Government by manufacturing rupees for itself

make sufficient profit to meet at least a substantial portion of

the present deficit? It seems to me to be a legitimate source

of revenue and one capable of materially easing our finances.”

⁴²³ This was no other than the Hon. Fazulbhai Vishram, the well-known

financier of Bombay. Cf. his speech in the _Financial Statement_,

1894–95, p. 96.

But Sir James Westland, who was then in charge of the finances of India,

replied⁴²⁴:—

“I must confess to a little surprise in finding the proposal put

forward by one of the commercial members of your Excellency’s

Council that we should buy silver at its present low price, and

coin it for issue at the appreciated value of the rupee. … I

shall certainly refuse myself to fall into this temptation.”

⁴²⁴ _Ibid._, p. 123.

Again, in 1898, when some of the followers of Mr. Lindsay desired that

Government should coin rupees to relieve the monetary stringency, Sir

James Westland remarked⁴²⁵:—

“… in our opinion the silver standard is now a question of the

past. It is a case of _vestigia nulla retrorsum_. [pg 277] The

only question before us is how best to attain the gold standard.

We cannot go back to the position of the open Mints. There are

only two ways in which we can go back to that position. We can

either open the Mints to the public generally, or we can open

them to coinage by ourselves. In either case what it means is

that the value of the rupee will go down to something

approaching the value of silver. If the case is that of opening

the Mints to the public, the descent of the rupee will be rapid.

If it is that of opening only to coinage by the Government, the

descent of the rupee may be slow but it will be no less

inevitable.”

⁴²⁵ _Financial Statement_, 1898–9, p. 169.

The Hon. C. E. Dawkins was equally emphatic in his denunciation of the

project of Government coining rupees. When he was tempted to acquiesce

in the proposal by holding out the prospects of a profit from coinage,

he replied⁴²⁶:—

“I think I ought … to beg my hon. friend not to dangle the

profits on silver too conspicuously before the eyes even of a

most virtuous Government. Once let these profits become a

determining factor in your action, then good-bye stability.”

⁴²⁶ _Financial Statement_, 1900–1, p. 163.

Another instance of the Government’s determination not to coin rupees is

furnished by inquiring into the reasons as to why it is that the

Government has never assumed the responsibility of selling council bills

in indefinite amount and at a fixed rate. The Chamberlain Commission

argued that the Government cannot undertake such a responsibility

because it cannot hold out for a fixed rate, and may have to sell at any

rate even lower than par. This is true so far as it is a confession of

a position weakened by the Government’s folly of indulging in excessive

rupee coinage. But this was certainly not the explanation which the

Government gave in 1900 when it was first asked to assume that

responsibility. The Government knew perfectly well that to keep on

selling bills indefinitely was to keep on coining rupees indefinitely.

They refused to assume that responsibility because they did not want to

coin rupees. That this was the original reason was made quite plain by

the Hon. Mr. Dawkins,⁴²⁷ [pg 278] who reminded those who asked

Government to undertake such a responsibility that

“the silver coin reserve of Government in consequence rapidly

neared a point at which it was impossible to continue to meet

unlimited transfers [i.e. council bills]. Therefore the

Secretary of State decided to limit the demands by gradually

raising the rate, thus meeting the most urgent demands, and

weeding out the less urgent, while warning those whose demands

were not so urgent to ship gold to India. No other course was

practicable. The liability of the Secretary of State to keep

the tap turned on indefinitely at 1s. 4 5/32d. has been

asserted. But I cannot see that any positive liability exists,

and I wonder if those who assert its existence would have

preferred that the stability of our currency (whose situation

they are well able to appreciate and follow) should have been

affected by the reserve of rupees being dangerously reduced?”

[and which could not be augmented except by coining more

rupees].

⁴²⁷ Cf. his Budget speech, _Financial Statement_, 1900–1, p. 27.

Just at the nick of time, when the ideal of a gold standard with a gold

currency was about to be realized, there came on the scene Sir Edward

Law as the Finance Minister of India and tore the whole structure of the

new currency to pieces with a piratical nonchalance that was as stupid

as it was wanton. His was the Minute of June 28, 1900, which changed

the whole course of events.⁴²⁸ In that Minute occurs the following

important passage:—

“15. As a result of these considerations it must, I think, be

admitted that the amount of gold which can safely be held in the

currency reserve must for the present be regulated by the same

rules as would guide the consideration of the amount by which

the proportion invested in Government securities could be safely

increased. Pending an increase in the note circulation … or

some other change in existing conditions, I am of opinion that a

maximum sum of approximately £7,000,000 in gold may now be

safely held in the currency reserve. I should not, however,

wish to be bound absolutely to this figure, which is necessarily

[pg 279] an arbitrary one, and particularly I should not wish

any public announcement to be made which might seem to tie the

hands of the Government in the event of circumstances, at

present unforeseen, rendering its reduction hereafter

desirable.”

⁴²⁸ For a copy of the Minute and the correspondence thereon, _see_

Appendix V to the _Interim Report of the Chamberlain Commission_,

Cd. 7070 of 1913.

In outlining this Minute, which with modifications in the maximum gold

to be held in the currency reserve, remains the foundation of the

currency system in India, the author of it never seems to have asked for

one moment what was to happen to the ideal of a gold standard and a gold

currency? Was he assisting the consummation of the gold standard or was

he projecting the abandonment of the gold standard in thus putting a

limit on the holding of gold? Before the policy of this Minute was put

into execution the Indian currency system was approximating to that of

the Bank Charter Act of 1844, in which the issue of rupees was limited

and that of gold unlimited. This Minute proposed that the issue of gold

should be limited and that of rupees unlimited—an exact reversal to the

system of the Bank Suspension period. In this lies the great

significance of the Minute, which deliberately outlined a policy of

substituting rupees for gold in Indian currency and thereby defeating

the ideal held out since 1893 and well-nigh accomplished in 1900.

If Sir Edward Law had realized that this meant an abandonment of the

gold standard, perhaps he would not have recorded the Minute. But what

were the considerations alluded to in the Minute which led him thus to

subvert the policy of a gold standard and a gold currency and put a

limit on the gold part of the currency rather than on the rupee part of

the currency? They are to be found in a despatch, No. 302, dated

September 6, 1900, from the Government of India, which says:—

“2. … the receipts of gold continued and increased after

December last. For more than eight months the gold in the

currency reserve has exceeded, and the silver has been less,

than the limits suggested in the despatch of June 18. By the

middle of January the stock of gold in the currency reserve in

India reached £5,000,000. The proposal [pg 280] made in that

despatch was at once brought into operation; later on we sent

supplies of sovereigns to the larger District Treasuries, with

instructions that they should be issued to anyone who desired to

receive them in payments due or in exchange for rupees; and in

March we directed the Post Office to make in sovereigns all

payments of money orders in the Presidency towns and Rangoon,

and we requested the Presidency Banks to make in the Presidency

towns and Rangoon payments on Government account as far as

possible in sovereigns. These measures were taken, not so much

in the expectation that they would in the early future relieve

us of any large part of our surplus gold, but in the hope that

they would accustom the people to gold, would hasten the time

when it will pass into general circulation in considerable

quantities, and by so doing would mitigate in future years the

difficulties that we were experiencing from the magnitude of our

stock of gold and the depletion of our stock of rupees.

“3. In order to meet these difficulties and to secure, if

possible, that we should have enough rupees for payment to

presenters of currency notes and tenderers of gold, we began to

coin additional rupees. …

――――――――

“14. We may mention that we have closely watched the result of

the measures described in paragraph 2. The issues of gold have

been considerable; but much has come back to us through the

Currency Department and the Presidency banks. The

Comptroller-General estimated the amount remaining in

circulation at the end of June at over a million and a quarter

out of nearly two millions issued up to that time; but there are

many uncertain data in the calculation. We are not yet able to

say that gold has passed into use as money to any appreciable

extent.

“15. It is very desirable that we should feel assured of being

able to meet the public demand for rupees, as indicated by the

presentation of currency notes and gold. We therefore strongly

press on your Lordship the expediency of sanctioning the above

proposal for further coinage [of rupees] …

――――――――

“17. But we do not wish our proposal to be considered as

dependent on such arguments as those just stated. [pg 281] We

make it primarily on the practical ground that we consider it

necessary in order to enable us to fulfil an obligation which,

though we are not, and do not propose to be, legally committed

thereto, we think it desirable to undertake so long as we can do

it without excessive inconvenience; namely, to pay rupees to all

tenderers of gold and to give rupees in encashment of currency

notes to all who prefer rupees to sovereigns.”

The arguments advanced in this statement of the case for coining rupees

are a motley lot. At the outset it is something unheard of that a

Government which was proceeding to establish a gold standard and a gold

currency should have been so very alarmed at the sight of increased gold

when it should have thanked its stars for such an early consummation of

its ideal. Leaving aside the psychological aspect of the question, the

Government, according to its own statement, undertook to coin rupees for

two reasons: (1) because it felt itself obliged to give rupees whenever

asked for, and (2) because people did not want gold. What force is

there in these arguments? Respecting the first argument it is difficult

to understand why Government should feel itself obliged to give rupees.

The obligation of a debtor is to pay the legal-tender money of the

country. Gold had been made legal tender, and the Government could have

discharged its obligations by paying out without shame or apology.

Secondly, what is the proof that people did not want gold? It is said

that the fact that the gold paid out by Government returned to it is

evidence enough that people did not want it. But this is a fallacy. In

a country like India Government dues form a large part of the people’s

expenditure, and if people used that gold to meet those dues—this is

what is meant by the return of gold to Government—then it is an evidence

in support of the contention that people were prepared to use gold as

currency. But if it is true that people do not want gold, how does it

accord with the fact that Government refuses to give gold when people

make a demand for it? Does not the standing refusal imply that there is

a standing demand? There is no consistency in this mode of reasoning.

The fact is, all [pg 282] this confused advocacy is employed to divert

attention from the truth that the Government was anxious to coin rupees

not because people did not want gold, but because Government was anxious

to build a gold reserve out of the profits of additional coinage of

rupees. That this was the underlying motive is manifest from the minute

of Sir Edward Law. That the argument about people disliking gold, and

so forth, and so forth, was only a cover for the true motive comes out

prominently from that part of the Minute in which its author had argued

that:—

“16. If it be accepted that £7,000,000 is the maximum sum which,

under existing conditions, can be held in gold in the currency

reserve, in addition to the 10 crores already invested, it is

evident that such assistance as can be obtained from

manipulating the reserve will fail to provide the sum in gold

which it is considered advisable to hold in connection with the

maintenance of a steady exchange. So far no authority has

ventured to name a definite sum which should suffice for this

purpose, but there is a general consensus of opinion, in which I

fully concur, that a very considerable sum is required. The

most ready way of obtaining such a large sum is by gold

borrowings, but the opinion of the Currency Commission was

strongly hostile to such a course, and the question therefore

remains unanswered: How is the necessary stock of gold to be

obtained?

“17. I do not presume to offer any cut-and-dried solution of

this difficult problem, but I venture to offer certain

suggestions which, if adopted, would, I believe, go a

considerable way towards meeting the difficulty. I propose to

create a special ‘Gold Exchange Fund,’ independent of, but in

case of _extraordinary_ requirements for exchange purposes to be

used in conjunction with, the gold resources of the currency

reserve. The foundation of this fund would be the profit to be

realized by converting into rupees the excess above £7,000,000

now held in gold in the currency reserve.”

Can there be any doubt now as to the true cause for coining rupees?

Writers who have broadcasted that rupees were coined because people did

not want gold cannot [pg 283] be said to have read correctly the history

of the genesis of the exchange standard in India.

But was Sir Edward Law the evil genius who turned a sound system of

currency into an unsound one by his disastrous policy of coining rupees?

Opponents of the Government as well as its supporters are all agreed⁴²⁹

that this was a departure from the ideal of the Fowler Committee. In

what precise respect the Government has departed from the

recommendations of the Fowler Committee has, however, never been made

clear anywhere in the official or non-official literature on the subject

of Indian currency. What were the recommendations of the Fowler

Committee? It is usually pointed out, to the shame of the Government of

India, that the Fowler Committee had said (it is as well to repeat it):—

“We are in favour of making the British sovereign a legal tender

and a current coin in India. We also consider that, at the same

time, the Indian Mints should be thrown open to the unrestricted

coinage of gold. … Looking forward as we do to the effective

establishment of a gold standard and currency based on the

principles of the free inflow and outflow of gold, we recommend

these measures for adoption.”

⁴²⁹ Even the Chamberlain Commission said that the Government had

departed from the ideal of the Fowler Committee.

That is true. But those who have blamed the Government have forgotten

that the same Committee also recommended that—

“The exclusive right to coin fresh rupees must remain vested in

the Government of India; and though the existing stock of rupees

may suffice for some time, regulations will ultimately be needed

for providing such additions to the silver currency as may prove

necessary. The Government should continue to give rupees for

gold, but fresh rupees should not be coined until the proportion

of gold in the currency is found to exceed the requirements of

the public. We also recommend that any profit on the coinage of

rupees should not be credited to the revenue or held as a

portion of the ordinary balance of the Government of India, but

[pg 284] should be kept in gold as a special reserve, entirely

apart from the paper-currency reserve and the ordinary Treasury

balances” [and be made freely available for foreign remittances

whenever the exchange falls below specie point].

Taking the two recommendations of the Committee together, where is the

departure? What the Government has done is precisely what the Committee

had recommended. That the Government of India or the Chamberlain

Commission should have admitted for a moment that there was a departure

is not a little odd, for the very despatch which conveyed the Minute of

Sir Edward Law to the Secretary of State opens with remarks which show

that Government was earnestly following the recommendations of the

Fowler Committee. It runs:—

“In our despatch No. 301 of August 24, 1899, we wrote with

reference to paragraph 60 of the Report of the Indian Currency

Committee [i.e. the Fowler Committee], that any profit made on

rupee coinage should be held in gold as a special reserve, has

not escaped our attention; but the need for the coinage of

additional rupees is not likely to occur for some time, and a

decision on this point may be conveniently deferred.”

What Sir Edward Law did was to carry that recommendation into effect

when the occasion arrived. In view of this it is useless to belabour

the Government of India if the ideal of a gold standard with a gold

currency was defeated by the coinage of rupees. But, even though the

Government has in ignorance taken the blame on itself, it cannot be

rightly thrown at its door. If the project has been defeated by the

coinage of rupees, the question must be referred to the Fowler

Committee. Why did the Committee permit the coinage of rupees? There

is no direct answer, but it may be guessed. It seems the Committee

first decided that there should be a gold standard and a gold currency

as desired by the Government of India. But then they seemed to have

been worried by the question whether in the ideal they had sketched they

had made enough provision for the maintenance of the gold value of the

rupee. [pg 285]

In the view of the opponents of the Government of India the rupee ought

to have been made either convertible as a bank note or a limited legal

tender as a shilling. The Committee rejected both these demands as

being unnecessary. Stating their ground for refusing to reduce the

rupee to the status of a shilling, the Committee argued⁴³⁰:—

“It is true that in the United Kingdom the silver currency has a

fixed limit of 40s., beyond which it cannot be used to pay a

debt. … While it cannot be denied that 40s. limitation tends to

emphasize and maintain the subsidiary character of our silver

coinage, yet the essential factor in maintaining those tokens at

their representative nominal value is not the statutory limit on

the amount for which they are a legal tender in any one payment,

but the limitation of their total issue. Provided the latter

restriction is adequate, there is no essential reason why there

need be any limit on the amount for which tokens are a tender by

law.”

⁴³⁰ Report, par. 56.

Regarding the necessity for convertibility the Committee observed⁴³¹:—

“Outside the United Kingdom there are two principal instances of

countries with a gold standard and currency, which admit silver

coins to unlimited tender. These countries are France and the

United States of America. In France the five-franc piece is an

unlimited tender and for all internal purposes is equivalent to

gold. The same remark applies in the United States to the

silver dollar. … Both in France and the United States the Mints

are now closed to the coinage of silver coins of unlimited

tender. In neither country are such coins convertible by law

into gold; in both countries alike they are equivalent to gold

for all internal purposes. For international payments, so far

as specie is concerned, France and the United States depend

ultimately on the international medium of exchange, which is

gold. In the last resort, it is their gold which, acting

through the foreign exchanges, maintains the whole mass of their

currency at its nominal value for internal purposes.

⁴³¹ Report, pars. 57–60.

“The position of the currency question in India being [pg 286]

such as we have explained in the preceding paragraph, we do not

consider it necessary to recommend a different policy in the

case of that country from that which is found sufficient in

France and the United States, by imposing a legal obligation on

the Government of India to give gold for rupees, or, in other

words, to substitute the former for the latter on the demand of

the holders. This obligation would impose on the Government of

India a liability to find gold at a moment’s notice to an amount

which cannot be defined beforehand, and the liability is one

which, in our opinion, ought not to be accepted.”

Although confident of its opinions, the Committee was considerably

impressed by those who, owing to the large quantity of rupees in

circulation, entertained doubts

“whether the mere closing of the Indian Mints to silver would in

practice be attended with such a restriction of the rupee

currency as would make the rupee permanently exchangeable for

gold at a fixed rate.”

So much was the Committee shaken by these doubts that it admitted

that⁴³²

“the forces which affect the gold value of the rupee are

complicated and obscure in their mode of operation, and we are

unable, therefore, to say positively that the mere closing of

the Mints to silver will, in practice, lead to such a limitation

of the rupee currency, relatively to the demands for it, as will

make the rupee permanently exchangeable for gold at a fixed

rate.”

⁴³² Report, par. 58.

As a remedy against such a contingency the Committee thought that the

Government of India should accept the obligation of convertibility of

the rupee into gold for foreign remittances whenever the rupee fell

below specie point. Having hit upon such a simple solution the next

question was how was the Government to get its gold reserve? Borrowing

for the purposes of such a gold reserve was one way of doing it. But

that project was somehow unpalatable to the Committee. Perhaps because

it had admonished the Government, in another part of its Report,⁴³³ to

[pg 287]

“husband the resources at their command, exercise a resolute

economy, and restrict the growth of their gold obligations,”

⁴³³ Report, par. 70.

or because it was a vicious principle to borrow

“for the establishment or the maintenance of a gold

standard,”⁴³⁴

the Committee was averse to the proposal for gold borrowing. But if a

gold reserve was not to be built up by borrowing, how could it be built

up otherwise? The Committee seems to have been considerably troubled

over the problem of finding an alternative mode of raising a reserve

until some member of it, probably at a moment when his intellect was

rather weak, proposed ‘Well, why not allow the Government to coin

rupees? If that were allowed it could easily build up a gold reserve

without having to borrow, and can then discharge the obligation of

convertibility for foreign remittances.’ So innocuous seemed the

proposal that the Committee wholeheartedly adopted and incorporated it

into its Report with a certain sigh of relief that is unmistakable from

the firm language in which it was expressed.

⁴³⁴ _See_ the Reservations to the Report by Campbell Helland and Muir

Report, p. 27.

This may or may not be a correct interpretation of the reasoning

employed by the Committee in permitting the Government to coin rupees.

But the fact remains that the Committee did not realize what was

involved in that recommendation. First of all, what was to happen to

the gold standard and currency if the coinage of rupees was to go on? In

this regard is it possible to have more respect for a Committee which

lays down on the one hand the ideal of a gold standard and currency, and

permits on the other hand the coinage of rupees, than Bagehot felt for

the Directors of the Bank of England, who, on March 25, 1819, passed

that notorious resolution:—

“That the Court cannot refrain from adverting to an opinion,

strongly insisted upon by some, that the Bank has only to reduce

its issues to obtain a favourable turn in the Exchanges, and a

consequent influx of the precious metals; [pg 288] the Court

conceives it to be its duty to declare that it is unable to

discover any solid foundation for such a sentiment”?

If the opinions of the Directors were classical for their nonsense, are

those of the Fowler Committee less so? Is there any difference between

them? Bagehot, in commenting upon the sentiments embodied in the

resolution, not dissimilar to the recommendations of the Fowler

Committee, urged some extenuating circumstances which compel us to

forgive the Bank Directors their nonsense. The Directors lived in an

age when economic reasoning was in a confused state; nor were they

anxious for the “influx of gold,” being perfectly satisfied with paper.

None of these circumstances can excuse the nonsense of the Fowler

Committee. They framed their recommendations at a time when the

contrary of what the Bank Directors had held was an established axiom.

Besides, it cannot be said that they were not anxious for the influx of

gold into the Indian currency. On the other hand, that was just the

thing they were looking forward to. Consequently, they should have

carefully weighed their words and allowed nothing that was inconsistent

with their main object. In not paying sufficient heed to that

elementary principle known as Gresham’s Law, the Committee not only made

a fool of itself but defeated the principal object it had set forth in

the earlier part of its Report.

Secondly, was it necessary to endow the Government with a power to coin

rupees? What was the nature of the problem the Committee was called

upon to decide? Let us re-state it. The Herschell Committee⁴³⁵ by way

of modifying the proposals of the Government of India, submitted to it

in 1892, had introduced a proviso by which the Mints, although closed to

the public, were to remain open to the Government for the coinage of

rupees—a proviso which, by the way, reveals that after all that imposing

survey the Committee remained supremely ignorant of the secret why in

the monetary systems it investigated the currency maintained its parity

with gold with little or no gold. If it had understood [pg 289] that it

was limitation of issue which maintained this parity it would not have

introduced the proviso which it did. However pernicious the proviso,

the Committee must be excused for that indiscretion, for it was afraid

that owing to the Mint closure there might be a sudden contraction of

currency, and as it had not made gold general legal tender it had to

provide for the necessary addition to the currency, and this it thought

could best be done by Government having the power to coin rupees.

Fortunately for the Government the occasion for an addition did not

arise for some time, till 1898, and there was therefore no necessity to

exercise that power. But when such an occasion did arise the

Government, as was pointed out before, refused to exercise that

power—and held to the view that the additions to Indian currency,

instead of being made by further coinage of rupees, should be made by an

influx of gold. The Government was the strongest opponent of Mr.

Lindsay, who was then agitating that it was safe and economical to

compel it to make the necessary additions by undertaking to coin rupees.

It was to adjudicate in the dispute between the Government of India on

the one hand and Mr. Lindsay on the other, the former desiring additions

by gold coinage and the latter by rupee coinage, that the Fowler

Committee was called into being. If the Government was anxious to add

to the currency by coining more rupees rather than by the influx of

gold, there was no necessity to appoint the Fowler Committee. Such a

power had already been given to it by the Herschell Committee. It was

because the Government did not want to exercise that ill-charged power

that an appeal to a new Committee became necessary. Faced with this

immediate problem of how best to expand the currency in relief of

monetary stringency, the Committee had solved it in one part of its

Report by prescribing that gold should be made legal tender, so that any

debtor who was unable to find rupees could have the option of paying his

creditors in gold. If gold was allowed to be the general medium of

exchange, was not the proposal to coin rupees a superfluous one, quite

uncalled for?

⁴³⁵ _See_ Chap. IV, _supra_, p. 147.

Thirdly, could the proposal to coin rupees as a means of [pg 290]

building up a gold reserve be justified as calculated to maintain the

value of the rupee? The one thing essential to the maintenance of the

value of the rupee was a limitation on its issue. The Committee talked

in a very learned manner about the shilling as being maintained in value

in consequence of a limitation in its issue. But did it understand how

the shilling was maintained limited in quantity? If it is true that it

is not the limit on legal tender, but the limit on the total volume,

that maintains the value of the shilling, why is not the shilling issued

in unlimited quantities? The manufacture of the shilling is profitable

in the same way as is the manufacture of the rupee. Why does not the

British Government coin it in unlimited quantities? Only because

shillings cannot be paid out in unlimited quantities? If the Government

could pay its Chancellors of Exchequer, Cabinet Ministers, and the hosts

of officials and clerks, and if they in turn could pay their grocers,

milkmen, brewers, and butchers in shillings, there could be nothing to

prevent the over-issue of shillings. But it is because nobody can pay

out shillings in unlimited quantities that nobody will have them in

unlimited quantities. It is the absence of a wholesale market, so to

say, due to a limit on legal tender, that stops the Government from

indulging in the over-issue of shillings. The Committee was therefore

wrong in arguing that the limit on legal tender had nothing to do with

the maintenance of the value of the shilling. On the other hand, if

limitation of issue is the prime condition which maintains the value of

a token coin, one means of making such a limit effective is to put a

limit on its legal tender.

With regard to its views on convertibility, its reasoning was equally

confused. To say what was sufficient for France and America should be

sufficient for India, was like the blind leading the blind. It was

entirely erroneous to argue that it was not convertibility but their

gold

“which, acting through the foreign exchanges, maintains the

whole mass of their currency at its nominal value for internal

purposes.” [pg 291]

Quite the contrary. France and America did not need convertibility to

protect their currency because the silver franc and the silver dollar

were absolutely limited in quantity. Indeed, far from being protected

by the influx of gold, the limitation of issue not only maintained their

value, but permitted the retention of whatever gold there was in those

countries. Now, the Committee, instead of venturing into long-winded

and pointless disquisitions, should have insisted that there was no

necessity either to prescribe a limit of tender or convertibility with

regard to the rupee, so long as there were other ways of restricting its

over-issue. Limitation of legal tender or convertibility can be said to

be essential only because they are the means of bringing about a

limitation of issue, and if the requisite limitation of issue was

provided for in other ways, the purpose for which convertibility or

limitation of legal tender were asked for was accomplished. Now, was

not the closing of the Mints a sufficient limitation on the volume of

rupees? Indeed, if the closing of the Mints was not an effective

limitation on the issue of rupees, what else could have been? Was not

the closing of the Mints the same thing as regulating the currency on

the principle of a fixed-issue system so well known in the matter of

regulating paper currencies? That it was, could hardly be denied. That

being so, the only question was whether the volume of rupees already in

circulation was distinctly less than the minimum amount of legal-tender

money ever necessary for the internal circulation of the country. The

Government of India had foreseen the volume of rupees in circulation

becoming in excess of such a minimum and had accordingly provided

against it. In their despatch of March 3, 1898, outlining their plans,

the Government observed:—

“9. … We know now that one of the main reasons of this failure

[to maintain the exchange value of the rupee] is that our rupee

circulation had before the closing of the Mints been increased

to such an extent that it fully, and more than fully, supplied

all the demands of trade, and allowed no room for any further

addition in the form of gold. … The necessary condition of a

fixed rate of [pg 292] exchange between two countries is that,

when the currency of one of them becomes redundant as compared

with that of the other, the redundancy may be relieved by the

withdrawal, for a time, of the excess coin, and we wish,

therefore, to reach the condition in which our circulating

medium … is not composed wholly of silver coin which has no

equal value outside the country, but contains also a margin of

gold which is capable of being used elsewhere as coin, and will

therefore in natural course flow to where it is most wanted.

Our total rupee currency is estimated to be at present somewhere

about 120 crores, to which we have to add 10 crores of fiduciary

circulation of currency notes.

“10. It is impossible with any exactness to say, and it can

only be ascertained by actual experience, by how much this rupee

circulation has to be decreased in order to remove its

redundancy. … But some considerations point to the amount being

within quite manageable limits. For example, there are

twenty-four crores, more or less, of currency notes in

circulation, including the amounts held in our Treasuries. If

we could imagine that amount of circulation at present existing

in the form of currency notes suddenly converted into

£16,000,000 in gold, it seems impossible that Indian trade

should be able to get on without having part at least of that

amount held in actual circulation, in other words, it would not

be possible for that amount of gold coin to be remitted out of

the country without the value of the rupee being forced up to a

point which would arrest the stream of export. If this is the

case, twenty-four crores of rupees is the outside limit of the

amount it might be necessary to convert into gold coin in order

to introduce a stable exchange of 16d., accompanied by an actual

(active or inactive) circulation of gold at that comparative

value; and it is more than probable that the amount required may

really fall far short of this.

“11. The mere reduction of circulation might be carried out in

the same way in which it was effected in 1893, namely, by

abstaining from withdrawing council bills, until we have an

accumulation of, say, twenty crores in excess of our ordinary

balances. But this procedure would be both costly and, as we

believe, ineffective; in the first place the permanent locking

up of twenty crores would cost us the interest on that amount,

or on the amount of gold borrowed in England during the

suspension of drawings, and in the [pg 293] second place the

existence of this accumulation of silver coin would be a

perpetual menace to the exchange market, and would entirely

prevent any confidence in the future of the rupee. We must not

only withdraw the amount from circulation, but we must show by

the method we adopt that our intention is that it should cease

to exist in the form of coin, and that its place, as coin, is to

be taken by gold. Our proposal is therefore to melt down

existing rupees, having first provided a reserve of gold [by

borrowing] both for the practical purpose of taking the place of

the silver, and in order to establish confidence in the issue of

our measures.”

At the time the Committee reported the volume of rupees in circulation

was not redundant, as was proved by the fact that exchange was rising

and gold was flowing in. That the closing of the Mints had therefore

brought about an effective limit is beyond dispute, and was even

admitted by the Committee.⁴³⁶ But supposing that the closing of the

Mints did not constitute an effective limitation on the volume of rupees

in circulation, what was the remedy? Was the plan of a gold reserve to

assure convertibility for foreign remittances calculated to promote that

object if the gold reserve was to be got by coining more rupees? If the

limitation of rupees was going to maintain their value, as it did the

value of the shilling, was the permission to add to the volume of

rupees, which the Committee feared was over-abundant if not redundant,

for the sake of a gold reserve, designed to limit their volume?

⁴³⁶ Report, p. 17.

It is difficult to read the report of the Fowler Committee without

exasperation. The permission to coin rupees was mischievous in every

way. It was destructive of a true gold standard; it was not wanted as a

relief against monetary stringency, and was calculated to lower the

value of the rupee. If it was anxious for a gold standard and currency,

as it undoubtedly was, it should have absolutely stopped the coinage of

rupees and suppressed the notification holding the Government ready to

give rupees for gold. In failing to do that it not only deprived the

country of a [pg 294] sound system, but actually, albeit unwittingly,

helped to place the entire Indian currency, including paper currency, on

the basis of an inconvertible rupee. Few people seem to be alive to the

precise significance of that pernicious proviso introduced by the

Herschell Committee, and remorselessly upheld by the Fowler Committee,

that the Government shall always be ready to give rupees for gold, but

there can be no doubt that in the absence of a counter-proviso,

requiring Government to give gold for rupees, the proviso is simply a

cover for an authority to the Indian Government to issue inconvertible

rupee currency of unlimited legal tender in the same way as the bank

restriction was for an authority to the Bank of England to issue

inconvertible notes in unlimited quantities. The first step in the

right direction would be to scrap that Report and make a speedy return

to the safe and sound proposals of the Government of India as outlined

in the despatch referred to above. The primary condition is to stop the

coinage of rupees and not merely close the Mints to the public. Whether

it would be necessary to melt a portion of the rupees depends upon what

gold value it is desired the rupee should have. Once the total

contraction of the rupee is settled upon and all further coinage is

stopped, India will be in a position to have an effective gold standard

based on a free inflow and outflow of gold. There will be no necessity

to reduce the rupee in legal tender and provide for its convertibility.

Its value would be maintained intact by sheer force of its quantity

being limited, provided the quantity in circulation has been reduced so

far as to be always below the minimum demand.

Supporters of the existing system of rupee currency have ever since its

inauguration held out that the currency is economical and secure. Its

claim for security, both in terms of gold and commodities, has been

tested, and the grounds of it have been analysed in the course of this

and previous chapters, wherein is demonstrated how very much wanting it

is in the essentials that go to make up a secure currency. We must now

endeavour to assess whether it is economical, for if it were really so,

then that might be a point of some [pg 295] value against its opponents

We must therefore scrutinize the economy effected by the rupee currency.

Kemmerer says⁴³⁷:—

“A convertible money finds its _raison d’être_ largely in the

fact that it economizes the precious metals, and makes possible

a saving to the community. If paper money or token money are

substituted for primary money, their substitution reduces the

demand for the precious metals by the difference between the

amount of metal used in the token money introduced plus that

contained in the primary money required for the redemption fund.

This economy of the precious metals results in an increased

supply being thrown upon the market” [which supply goes abroad

and into the arts and increases the non-monetary wealth of the

country by an equivalent amount: the gold obtained for the metal

economized represents a net gain to the community].

⁴³⁷ _Money and Credit Instruments in Relation to Prices_, p. 63.

The same kind of gain, says Kemmerer, attaches to the use of

inconvertible money, and even on a larger scale, because there is no

necessity to use primary money even for a redemption fund, as there is

when the money is convertible. Such views as these have led Mr. Keynes

to opine that the Indian currency system is a marvel of economy, and

that other more advanced countries might usefully follow the lead. We

will not draw from this the uncharitable conclusion that either Prof.

Kemmerer or Prof. Keynes would recommend that because an inconvertible

paper currency is the most economical currency a country should adopt it

without remorse. What we are concerned with is to find out whether the

rupee currency is really economical. When the process by which the

rupee comes into being is carefully analysed it becomes impossible to

take seriously the plea that the Indian currency is economical. First

of all, gold is tendered to the Secretary of State in London for his

council bills, or gold is tendered to the Government of India in India

in payment of taxes or otherwise. Out of this gold the Secretary of

State buys silver and coins rupees. As the price of silver is below the

[pg 296] ratio, there arises a difference between the cost price of the

rupee and its selling price in gold. To the extent of this difference

there is, of course, a gain. But this gain or profit on coinage, as it

is called, is no benefit to society. It is a hoard, and to that extent

represents a useless abstraction of wealth. If the profit is not to be

used for any current purposes of society it is as well not to coin

rupees. It is therefore obvious that so long as the profits are merely

held apart from the revenue resources of India there is no economy in

the rupee currency worth naming. From another standpoint the currency

of India is a wasteful asset to society. Metallic currency is primarily

a capital good representing a form of social investment. Consequently

it is necessary to see that the capital value of the currency is

maintained. It is a happy circumstance to note that the Government of

India is not dead to this aspect of the question with regard to its

paper-currency reserve, and has very recently instituted a depreciation

fund for the preservation of its capital value.⁴³⁸ Now, the

considerations that apply to the paper currency should apply also to the

rupee currency. Has the rupee currency maintained its capital value?

The gold part of it, called the gold-standard reserve, is invested in

interest-bearing securities. Interest is no doubt an additional source

of gain, but have the securities maintained their capital value? Far

from it. Turn to the rupee half of the currency. Has the bullion in the

rupee maintained its capital value? There have been endless charts and

diagrams drawn by playful economists in which the black line, showing

the nominal value of the rupee, has remained up while the red line,

showing the bullion value of the rupee, has gone down with the falling

gold value of silver.

⁴³⁸ Cf. the Speech of the Finance Minister, Mr. Hailey, on the Indian

Paper Currency (Amendment) Bill, dated September 16, 1920,

_S.L.C.P._, Vol. LIX, pp. 308–9,

But what does that mean? Simply that the rupee is a wasting asset and

is not worth at a later date what it cost to society when it was

manufactured. Surely there was more economy in the project of the mad

Chinaman who burnt his house to roast his pig [pg 297] than there is in

the Indian rupee currency. The Chinaman’s house must have been very old

and uninhabitable. The same cannot, however, be said of this converting

of gold money into silver money, because we know that silver is an

inferior kind of investment to gold. Thus viewed, the currency is not

in the least economical. It appears to be so because people look only

to the rupee. But, adding the cost of the rupee currency to that of the

gold-standard reserve, can it be said that India would have required

more gold if she had a gold currency in place of a rupee currency?

Bearing in mind that with a fixed limit on the issue of rupees there can

be no reason for a gold reserve, the only result of a stoppage of rupee

coinage would be that gold, instead of being, as now, part reserved as a

sinking fund and part transmuted into a rupee currency, would enter into

circulation without being subjected to this baneful and wasteful

process. No more gold would be required in the one case than in the

other. We can therefore conclude without fear of challenge that with a

complete stoppage of rupee coinage Indian currency would be truly

economical, prices would be more stable, and exchange secure, in the

only way in which it can really be said to be secure, and the rupee,

although inconvertible, will cease to be a problem, which it has been

ever since 1873.

But will that be all the advantage to the country? By no means. In

drawing a moral from his comparison of the paper pound of 1797 with the

paper pound of 1914, Prof. Cannan⁴³⁹ points out that

“there can in these days be no doubt that the experiment of

entrusting what no community should entrust to any institution,

the power of creating money without limit, to the Bank of

England, compares very favourably with the modern plan of

entrusting it to the Government itself or to a State bank

completely under the control of the Government. In the

comparatively short war of 1914–18 currencies ‘not convertible

at will into a coin which is exportable’ were issued by

Governments and Government banks in amounts compared with which

the 100 per cent. increase in [pg 298] thirteen years, which

made the Bullion Committee complain so vigorously in 1810, look

absolutely trifling.”

⁴³⁹ _The Paper Pound of_ 1797–1821, Introduction, p. xxxix.

There was a time when it could have been said that this indictment did

not apply to the Government of India. Few Governments could be said to

have been so very anxious to wash their hands of the responsibilities

involved in, the management of a currency as the Government of India

once was. In 1861, when the Government first undertook the issue of

paper money in India, the anxiety it displayed was laudable. An

impecunious Government, made prostrate by the heavy burdens of the

Mutiny should have welcomed the project of a paper currency as a source

of profit. But so great was its sense of responsibility that the

Government refused to be content with convertibility as a check on

over-issue. One of the principal reasons why the desperate

paper-currency scheme, which that straitened financier Mr. Wilson had

devised in 1860 to find ways and means for improving the finances of

India, was rejected was so well stated by his successor, Mr. Laing, that

in these days of frenzied finance his remarks may as well be reproduced

in full. He said⁴⁴⁰:—

“There was another important reason why he (Mr. Laing) thought

that Sir Charles Wood’s principle was the soundest. All parties

were agreed that a paper currency ought to be identical with the

metallic currency which it displaced. But the system of issuing

against two-thirds of securities and one-third of specie, as was

proposed by Mr. Wilson, would not always ensure this identity,

and there was considerable risk that in times of buoyancy and

speculation the circulation would be unduly extended. He

thought that that was a point of considerable importance,

because if we looked at what had taken place in India during the

last three years, we should find a great increase in the wages

of labour and the prices of commodities, which should warn us as

to what the consequences might be if we were to accelerate the

process already going on so rapidly by any artificial inflation

of the currency. If you unnaturally [pg 299] stimulated the

rise of prices by an over-issue of paper circulation you ran

considerable risk of changing the healthy action of commerce

into a feverish excitement which was sure to bring about a

reaction. If we continued to go on as we had done for the last

two or three years, the result would be that many articles of

Indian produce might be driven out of the market by the

competition of other countries and he therefore thought that the

Government ought to be exceedingly cautious how it took any step

that might unduly accelerate the tendency to a general advance,

as might be the case under the system of paper currency which to

any considerable extent represented securities and not bullion.

Such an advance might even reach a point seriously embarrassing

to the Government if the general rise in the rate of wages and

cost of living made the present scale of salaries and the pay of

troops no longer adequate.⁴⁴¹ For these reasons he thought it by

far the wisest course to adhere to the principle of paper

currency adopted in England as laid down in Sir Charles Wood’s

despatch.”

⁴⁴⁰ His speech on the Paper Currency Bill, dated February 16, 1861,

_S.L.C.P._, Vol. VII, pp. 66–7.

⁴⁴¹ During the bank suspension period in England it is to be noted

that the Army and the Navy were paid in gold, for fear of causing

discontent.

Not only was the Government anxious to put a limit on the issue over and

above making it convertible, but it did not want to be vested with the

legal authority to issue notes. In a despatch dated April 27, 1859,⁴⁴²

to the Secretary of State, the Government of the day observed:—

“We believe that the convertibility of the notes on demand would

not be a sufficient guarantee against over-issue. When once the

paper currency is established in public confidence, the

temptation to take dangerous advantage of this confidence will

be very great in a time of difficulty, if the power of doing so

is left in the hands of the Government of India alone.

Restriction by law, either to a certain amount of issue

absolutely, or to an amount relative to the balances in India,

will, in our opinion, be necessary. We think that such a law

ought to be passed by Parliament, and not by the Legislative

Council of India.”

⁴⁴² For a copy of it, _see_ Commons Paper 183, of 1860, p. 1.

Equally sane was the view of the Government in 1876 with regard to the

rupee currency. The Bengal Chamber of [pg 300] Commerce, it will be

recalled, had urged upon the Government of India to close the Mints to

the free coinage of silver, without opening them to the free coinage of

gold—a project which practically meant that the Government should

undertake the management of the rupee currency. The reply of the

Government of India was a sharp rebuke. It declared⁴⁴³:—

“8. … the Chamber invite the Government to take a measure

calculated to enhance indefinitely the value of the rupee by

suspending the long-established legal right of all comers to

have silver bullion manufactured upon uniform conditions under

State supervision into legal-tender coin, and temporarily

substituting a system of coinage, at the discretion of the State

…

――――――――

“11. It is essential to a sound system of currency that it be

automatic. No man or body of men can ascertain whether at any

particular moment the interests of the community as a whole

require an increase or diminution of the currency; still less,

how much increase or how much decrease is, at any moment,

exactly needed. No Government which aspires to keep its

currency in a sound condition would be justified in attempting

that impossible task, or in leaving the community, even for a

short interval, without a fixed metallic standard of value.

Under an ‘open coinage system’ these things regulate themselves

without official interference.”

⁴⁴³ Resolution of the Government of India, relating to the

Depreciation in the Value of Silver, dated September 22, 1870,

Commons Paper 449 of 1893.

Now, compare with this the later pronouncements of the Government with

regard to the principles governing the paper and rupee currency

respectively. During the war, when the Government of India resorted to

the enlargement of paper issues, Honourable Members of the Supreme

Legislative Council pointed out the effects it would produce on prices

in India. But the late Hon. Sir Wm. Meyer, who as a Finance Minister

piloted the Indian finances during the last war, in the course of a

speech on the Indian Paper Currency (Amendment) Bill, dated September 5,

1917, replied⁴⁴⁴:— [pg 301]

⁴⁴⁴ _S.L.C.P._, Vol. LVI, p. 35.

“The note circulation was sixty crores before the war and is now

about a hundred crores. But the Hon. Mr. Sarma shivered at the

idea of inflation. I may remind him that one of the accepted

(!) doctrines of economists is that artificial inflation of

paper currency only exists when the note circulation is not

fully covered. Now we have covered every rupee of our note

circulation … in securities …” [How could there be an

inflation?]

The change in the Government’s view with regard to the rupee currency is

equally noteworthy. In 1908, when the exchange value of the rupee fell

below par, the Government was reminded that it was the result of the

excessive coinage of rupees. But although in 1876 the Government did

not think it was possible for it to so increase and decrease the

currency to suit the needs of commerce, yet in 1908 the Government

advanced the opposite view. The Finance Minister, the Hon. Mr. Baker,

in his reply, went on to argue⁴⁴⁵:—

“In the first place the whole of the new coinage that we have

undertaken during this period has been undertaken solely to meet

the demands of trade. Not one single rupee has been added to

the circulation except to enable us to meet these demands. …”

⁴⁴⁵ Cf. Financial Statement for 1908–9, p. 229.

Now, if it is dangerous to entrust a Government with the power to manage

currency, how very dangerous is it to entrust it to the Government of

India, which professes to carry out its trust on the basis of doctrines

such as these! No one is so ill-instructed in these days as to suppose

that these are sound maxims. If security is enough, what need is there

for convertibility? If currency is issued only in response to trade

demand, what fear is there of over-issue? A Government acting on such a

principle may well go on indefinitely increasing the currency without

remorse. History abounds with instances of ruin caused by the

management of currencies on such naive principles as these.⁴⁴⁶ Happily

for the country, the paper [pg 302] currency profoundly altered in its

basis—one might almost say, tampered with—in 1920 by the Government is

yet far away from currencies regulated on the theory enunciated by the

Finance Minister. It is the rupee currency which has been, ever since

the Mint closure, the chief source of danger to the welfare of the

Indian people, particularly because of the principle governing its

issue. Because that principle has the support, in itself a surprising

thing, of such eminent authorities as Prof. Keynes,⁴⁴⁷ Mr. Shirras,⁴⁴⁸

and the Chamberlain Commission,⁴⁴⁹ it cannot alter the case for

depriving the Government of this power of managing the rupee currency,

for the principle is essentially unsound. The reason why the fallacy in

the reasoning, that there could be no excess of rupees because of their

being issued in response to trade demand, does not appear on the surface

is due to the peculiar nature of money. Money is said to be wanted only

because money has a purchasing power. That is no doubt true, but that

does not quite explain why people so incessantly want money, even when

they know that the value of money is so unstable. Indeed, if purchasing

power was the only consideration we should not find such a desire for

the current means of purchase. That desire can only be accounted for by

the fact that money has a differential advantage over other goods, in

that it has in the highest degree what Menger called the quality of

saleability. That one can more often buy at a bargain than sell at a

bargain is simply another way of stating that every one desires to hold

his resources in the most saleable form of money. In this sense it is

absolutely true that no more money can be issued than there is demand

for. But from that it does not follow that there can be no over-issue

of money purely for the currency needs at any given time. All money is

acquired in response to trade or services, but all money is not retained

in currency. Indeed, all commodities are exchanged for money, because

money is supposed to bear the option of being used for non-monetary

purposes. In the case of the rupee the option-of-use quality is

nonexistent. Consequently, although issued in response to [pg 303]

trade demand, it remains in currency whether it is wanted or not, and

thus tends to bring about its depreciation. That such a depreciation is

possible cannot be denied even by those who maintain that rupees are

issued only in response to trade demand, otherwise why should they be so

very anxious for an increase of the gold reserves of the country. But

the danger to the rupee currency does not merely arise from the

possibility of indiscretion on the part of the Government. Besides the

Government there have been statesmen in India so interested in the

welfare of their fellow-subjects that they have rebuked the Government

on several occasions for not making the profits on rupee coinage

available for the advancement of the moral and material progress of the

country,⁴⁵⁰ and in 1907 the profits on rupees were actually employed in

the extension of railways. It must fill every one with horror and

despair to contemplate the consequences sure to emanate from the

manipulation of currency for such ends. Is it not time this source of

danger and temptation be removed by depriving the Government of this

power to manage the rupee currency? But what is the means of bringing

this about? If it is desirable to do away with the management then

convertibility is an insufficient measure: for with convertibility the

rupee will still remain a managed rupee. Only the complete stoppage of

rupee coinage will remove the governmental interference in the

management of Indian currency; and it is this that we must therefore ask

for. Queer as it may seem, SAFETY LIES IN AN INCONVERTIBLE RUPEE WITH A

FIXED LIMIT OF ISSUE.

⁴⁴⁶ Cf. E. R. A. Seligman, _Currency Inflation and Public Debts_, New

York, 1022, _passim_.

⁴⁴⁷ Op. cit., p. 111.

⁴⁴⁸ Op. cit., p. 39.

⁴⁴⁹ Report, par. 66.

⁴⁵⁰ Such a sober politician as the late Mr. Gokhale took the lead in

this matter. Cf. his speech in the _Financial Statement_ for

1907–8, pp. 203–4; and the same indiscretion is repeated by Prof.

V. G. Kale in his _Currency Reform in India_, 1919, p. 65.

Administration:

Changes in 1833, 21

Civil Service reforms, 1853, 90, 91, 97

Table of costs, 92

Agricultural exports, 104

Althorpe, Lord, 161 _note_

Babington Smith, Sir Henry. _See_ Smith Committee on Currency

Bagehot, Walter, 130, 131

Baker, Hon. Mr., 301

Bank Charter Act, 1884, 279

Bank of England Notes, depreciation, 1797–1818, 243, 247

Banks in India, table, 37

Barbour, D., 184 _note_

Belgium, Bimetallic system in, 23

Bengal:

Double standard experiments, 1766–93, 14

Reform of currency, 18

Bimetallism:

Abrogation in India, 22 _et seq._

Drawbacks of, 138

Gold to silver ratio, 83

Indian Government’s position, 140, 141

Market and Mint ratio divergences, 84, 85

Monetary conferences, discussions at, 135, 136

Bombay, currency reforms, 16, 18

Brown, Hon. Claud, 45 _note_

Cairnes, Prof. J. E., 47 _note_, 82

Cannan, Prof. Edwin, 246 _note_, 262 _note_, 297

Cassel, Prof. G., 253 _note_

Cassels, Mr., 34, 35, 41

Castlereagh, Lord, 211, 241 _note_

Chamberlain Currency Commission, 1913, 164, 167, 171, 187, 225, 231

_note_, 234, 237, 249, 259, 272, 277, 278 _note_, 302

Cheque system, failure of, 64

China, trade with India, 1889–1908, table, 183

Civil Service, economies in, 90, 91, 97

Coinage and Mint Act, 1870, 49 _et seq._, 147

Coinage under the Moghul Empire, 4

Cotton trade, development in India, 102, 106

Council Bills:

Drawings, 1803–94, 189

History of, 263

Reverse Councils, 166, 220 _et seq_.

Sales of, 130, 131, 166, 187, 213, 264 _et seq_.

Cromer, Lord, 113

Currency. _See_ Indian Currency Currency Act, 1835, 22, 23, 36

Curzon, Lord, 275

Dalal, Mr., 260 _note_

Datta, Mr., 210 _note_

Davenport, Prof., 257

Dawkins, Hon. C. E., 274, 277

Demonetization of gold, 1833, 19

Demonetization of silver, 71 _et seq._

Discount rates, chart, 66

Dislocation of silver standard parity, 49 _et seq._

East India Company:

Double standard experiments, 1766–93, 14 _et seq._

Silver standard prescribed, 9

English currency, early history, 2, 6, 27

European countries, money stocks distribution, table, 134

Exchange:

Fall of, economic effects, 87 _et seq._

High exchange policy, 1920, 208

“Natural level” fallacy, 225, 226

Stabilization of, 203

Exchange rate:

Gold value of rupee in terms of, 196

London on Calcutta, 1914, 1915, table, 192

London on India, 1907–8, table, 191

Purchasing power parity, 252 _et seq._

Exchange standard, stability of, 181 _et seq._

Falkner, Prof. R. P., 62 _note_

Fetter, F. A., 234 _note_

Finances, Imperial and Provincial, separation between, 207

Fisher, Prof., 83, 84, 250, 257

Fowler, Sir Henry, Indian Currency Committee, 1898–99, 156, 239, 263,

269, 283, 288

Foxwell, Prof. H. 8., 72 _note_, 79 _note_

France:

Bimetallic system, 23

English and French currency systems compared, 161

Gold and silver mintage, 1803–73, table, 137

Germany, currency difficulties in, 132

Giffen, Sir Robert, 129

Gokhale, Hon. Mr., 258, 303 _note_

Gold:

Consumption in various countries, table, 245

Discoveries, effect of, 23, 25

Issue, 1917, 218

Notes, value in terms of, table, 243

Price-levels compared with other commodities, 242

Silver and gold, value and production, 76 _et seq._, 79

Gold currency for India:

Arguments in favour, 257 _et seq_.

Commission of 1868, 47

Imports of gold, 1863–64, 42

Legal tender notification, 1864, 46

Proposals, 1864–66, 42 _et seq_.

Gold exchange standard:

Chamberlain Commission, 1913, 164, 167, 171

Mints, closing for silver, 168, 169

Objections to, 167

Gold payments:

Army remittances, 97

Burden of, 186

Civil Service remittances, 97

Rupee, cost of, 87, 88, 89

Gold standard for India:

Bengal Chamber of Commerce support, 1876, 122

Currency Committee, 1886, 129

Currency Committee, 1898, 129

English fiscal difficulties, 26, 27

Government scheme, 1878, 125

Monetary Conferences, 135 _et seq._

Movement towards, 118 _et seq._

Proposals, 1859, 38, 39

Smith, Col. J. T., plan of, 121

Temple, Sir R., plan of, 118

Gold standard reserve:

Danger of, 238 _et seq._

Maintenance and distribution, 230 et seq.

Gregory, Dr. T. E., 239 _note_

Gresham’s Law, 138

Gupta, Mr., 210 _note_

Halifax, Lord, 119

Hamilton, Lord George, 158

Herschel Committee on Indian currency, 1893–94, 146 _et seq._, 288

Huskisson, 27

Inchcape, Lord, 213

Indian currency:

Additions to coinage, 1893–1920, 218 _et seq._

Army establishment, effect on, 30

Banks, table of, 37

Barter, trade reduced to, 7

Chamberlain Commission, 1913, 164, 167, 171, 187, 225, 231 _note_,

234, 237, 249, 259, 272, 277, 278 _note_, 302

Coinage and Mint Act, 1870, provisions of, 49 _et seq._

Convertibility of, 174

Credit currency, lack of, 1859, 36

Currency circulation, tables, 199, 200

Dislocation of parity of exchange, 69, 70

East India Company Units, table, 11

Expansion measures, 1898, 152, 153, 154

Fowler Committee, 1898–99, 156, 239, 263, 269, 283, 288

Gold currency. _See that title_

Gold exchange standard. _See that title_

Gold standard for India. _See that title_

Herschell Committee, 1893–94, 146 _et seq._, 288

Imperial and Provincial finances, separation, 207

Mint for gold coinage, 157, 158

Mints, opening to silver, 149, 150

Moghul Empire, 1 _et seq._

Money market fluctuations, causes of, 60 _et seq._

Monopoly of issue by Government, 169 _et seq._

Paper currency. _See that title_

Precious metals imports, 31, 32, 33

Redemption, 220, 224 _et seq._

Reforms, 1833, 18, 19

Rupee. _See that title_

Silver standard. _See that title_

Smith Committee, 1919, 194, 201, 248, 249, 263

Trade currency, 1860–70, table, 43

Trade expansion, 1842, effect of, 30, 32, 33

Industrial pursuits, England and India, tables, 100, 101

International coinage, uniformity in, 71 _et seq._

International Coinage Commission, 119

International Exchange, American Commission, 1898, 133, 135

International Monetary Conferences. _See_ Monetary Conferences

Investments, Indian, Price-movements of, 94

Italy, Bimetallic system of, 24 _note_

Jevons, 63, 82, 132

Jute industry in India, development, 103

Kemmerer, Prof., 172, 249, 251 _note_, 253, 295

Keynes, J. M., 170 _note_, 172, 173, 184 _note_, 201, 214, 232, 248,

249, 251 _note_, 252, 256, 257, 295, 302

Kitchin, Joseph, 245 _note_

Laing, Mr., 39, 40, 298

Latin Currency Union, 1865, 24, 72

Laughlin, Prof. J. L., 73 _note_, 74 _note_, 76 _note_

Law, Sir Edward, 278, 279, 282, 283, 284

Legal tender:

Limitation of, 285, 290, 201

Rupee as legal tender in U K., 145

Lewis, Prof. W., 79 _note_

Lindsay, A. M., 154, 164, 165, 166, 177 _note_, 238, 240, 289

Liverpool, Lord, 28

London, A. C. B., 35 _note_

McCulloch, J. R., 48 _note_

Madras, currency reforms, 15, 18

Mansfield, Sir William, 46 _note_

Marshall, Professor, 108, 130 _note_, 17, 186 _note_, 203

Meston, Sir James, 275

Meyer, Hon. Sir Wm., 300

Mint and Coinage Committee, 1803, 13

Mint regulations under Coinage Act, 1870, 51

Mints, opening to silver, 149, 150, 269

Mitchell, Professor, 242, 256

Moghul Empire, economic system under, 2, 3

Mohur:

Currency unit, 119

Issues of, 14, 217

Monetary Conferences, 1878, 1881 and 1892, 135, 149

Money and stocks distribution, table, 134

Money market, Indian, causes of fluctuation, 60 _et seq_.

Monometallism. _See_ Silver standard

Muir, Sir William, 123

Newmarch, F. W., 264 _note_, 265 _note_

Nicholson, Professor, 175 _note_

Nickel coinage, 218

Overstone, Lord, 162, 163

Paper currency in India:

Banks of issue, 53, 54, 57

Department for, 55

Encashment regulations, 58

Establishment of, 49

Fiduciary issue, extending, 215 _et seq._

Independent Treasury system, 66, 67

Notes, issue of, 1915–19, table 217

Paper pound, 1797 and 1914, compared, 297

Reserve distribution, 1862–91, table, 56 _note_

Values, table, 41

Paper Currency Acts, 42, 63, 147, 215

Parnell, C. S., 239

Peel, Sir Robert, 27, 30

Pierson, Professor, 160

Pittman Act, U.S.A., 219

Prices:

Committee of Enquiry, 1910, 210

Gold exchange standard in relation to, 250 _et seq_.

Indian and foreign price-levels, Chart, 250

Inflation during War, 250, 251

Movements of prices as standard of value, 256

Rupee and sterling securities, 1873–92, 94

Wages and Prices in England and India, 112

Wages, silver and prices, table, 110

Probyn, Mr., 154, 177 _note_, 238 _note_

Public works in India, development, 91, 93

Reddi Garu, M. L., 236

Revenue and expenditure in India, 88 _et seq._, 92

“Reverse Councils,” sale of, 166, 220 _et seq._

Ricardo, David, 28, 238 _note_, 241 _note_

Ripon, Lord, 95

Ross, H. M., 213 _note_

Rupee:

Alteration of par, 1917–1919, table, 193

Coinage additions, 214, 215, 219

Convertibility, 174

Cost of fall of, 1894–97, 190

Depreciation, 1914–19, 205

East India Company’s rupee, 9

Economy of rupee currency, 294, 205

Gold payments, cost of, table, 89

Gold standard reserve and rupee circulation, 233

Gold value, 1802–1922, tables, 188, 194, 195, 196, 197

Imperial bimetallic, 145

Legal tender in United Kingdom, 145

Moghul Empire, 4, 5

Monthly fluctuations, chart, 113

Purchasing power, 198 _et seq._

Rupee-sterling exchange, fall of, 71

Stability, general survey, 187

Standard of value, 257

Uniform, coinage, 1833, table, 19

Weight, increasing, 144

Russell, H. B., 48 _note_, 72 _note_, 73 _note_

Sconce, Hon. Mr., 58 _note_, 59 _note_

Seignorage, levy of, 25, 167

Shirras, Mr., 201, 210 _note_, 249, 302

Silver:

Bounties and the fall of, 108 _et seq._

Cost of purchases, 1893–1920, 236

Depreciation, attempts to prevent, 130, 131, 132

Gold and silver, relative production and value, 76 _et seq._, 79

Indian Government purchases, 1915–20, 219

Limited legal tender, 285

Price movements of, 191, 192, 204

Silver standard for India:

East India Company’s decree, 9

Evolution of, 22 _et seq._

Demonetization of silver, effect of, 71 _et seq._

Dislocation of parity of exchange, 1873, 70 _et seq._

General nature of, 49 _et seq._

Instability, 87 _et seq._

Smith, Colonel J. T., 121, 143

Smith Committee on Indian Currency, 1919, 194, 201, 248, 249, 263

Subedhar, Mr., 263

Switzerland, bimetallic system, 24 _note_

Taussig, F. W., 161 _note_

Taxation, increases in, 88 _et seq._

Temple, Sir Richard, 55 _note_, 59 _note_, 67 _note_, 118, 119

Thackersay, Sir V., 269, 273

Trade:

Adverse balance and fall of exchange, 209, 246

Agricultural exports, 104

Bounties and the fall of silver, 108 _et seq._

China and India, 1889–1908, table, 183

Cotton trade development, 102, 106

Distribution of, tables, 105

Falling exchange, general effect of, 99 _et seq._

Imports and exports, tables, 99, 100

India and U.K. before and after Mint closure, 182

Jute industry development, 103

Speculation caused by exchange fluctuations, 114

Treasury Notes, Indian, interest-bearing, 35

Trevelyan, Sir Charles, 42, 45 _note_

United States, currency difficulties, 133, 143

Units of currency, tables, 11

Van Don Berg, Mr., 60, 62

Vishram, Hon. Fazulbhai, 276

Walker, Prof. F. A., 143 _note_

Waterfield, Sir Henry, 189 _note_, 263 _note_

Westland, Sir James, 276

Whitaker, A. C., 161 _note_

Wood, Sir Charles, 63 _note_, 67 _note_, 298

⁴⁰⁵ From January 22, 1862, when the Sale of Council Bills under the