TABLE VI

Extent and Economy of Paper Currency

Presidencies.	Bullion.	Coin.	Government Securities.	Value of Notes in Circulation.
Calcutta on Oct. 31, 1863	—	1,84,55,922	1,10,44,078	2,95,00,000
Madras on Oct. 31, 1863	—	73,00,000	—	73,00,000
Bombay on Jan. 4, 1864	1,17,00,000	1,19,00,000	—	2,36,00,000
Total	1,17,00,000	3,76,55,022	1,1,44,078	6,04,00,000

As was pointed out by Mr. Cassels⁸⁰ the currency notes, after three years, had been taken only to the extent of about 6 per cent. of the whole metallic currency, which was then estimated by Mr. Wilson to be £100,000,000 in sterling, and that they had actually fulfilled their primary object of releasing the reproductive capital of the country only to [pg 42] the extent of a million sterling or 1 per cent. of the whole. On the other hand, the demand for currency grew apace. Owing to the demand for Indian cotton in the Liverpool market to take the place of American cotton, the export of which was stopped during the Civil War, the growing foreign trade assumed enormous proportions. And as the paper currency gave no relief the entire stress fell upon silver. The production of silver, however, was not increasing much faster than it did previously, and its absorption by India had not slackened. The inadequacy of a currency medium therefore continued to be felt as acutely as before, notwithstanding the introduction of a paper currency. This inadequacy was made good by increased imports of gold. Not only was gold imported in large quantities, but was employed for monetary purposes, although it was not legal tender. The fact was brought to the notice of the Government of India by the Bombay Chamber of Commerce⁸¹ in a memorial praying for the introduction of a gold currency in India, in which it was pointed out

“that there is an increasing tendency to the creation of a gold ingot currency, by the natives of this country, as a rude remedy for the defects of the existing silver one,”

and

“that gold bars, stamped with the mark of Bombay banks, are for this purpose circulated in several parts of the country.”

This led to an agitation for requiring the Government to give effect to the proviso in the Paper Currency Act,⁸² and the movement assumed such dimensions that it forced the hands of the Government. On this occasion the plan for effecting the change was boldly conceived. Sir Charles Trevelyan [pg 43]

TABLE VII

Trade and Currency⁸³

Years	Merchandise.		Treasure. Net Imports of		Total Coinage of		Excess (+) or Defect (-) of Coinage on Net Imports of		Annual Production (in £, 00,000 omitted) of
	Imports. £	Exports. £	Silver. £	Gold. £	Silver. £	Gold. £	Silver. £	Gold. £	Gold. £	Silver. £
1860–61	23,493,716	32,970,605	5,328,009	4,232,569	5,297,150	65,038	−30,859	−4,167,531	23,9	8,2
1861–62	22,320,432	36,317,042	9,086,456	5,184,425	7,470,030	58,667	−1,616,426	−5,125,758	22,8	8,5
1862–63	22,632,384	47,859,645	12,550,155	6,848,156	9,355,405	130,666	−3,194,750	−6,717,490	21,6	9,0
1863–64	27,145,590	65,625,449	12,796,717	8,898,306	11,556,720	54,354	−1,239,997	−8,843,952	21,4	9,8
1864–65	28,150,923	68,027,016	10,078,798	9,839,964	10,911,322	95,672	+832,524	−9,744,292	22,6	10,3
1865–66	29,599,228	65,491,123	18,668,673	5,724,476	14,639,353	17,665	−4,029,320	−5,706,811	24,0	10,4
1866–67	29,038,715	41,859,994	6,963,073	3,842,328	6,183,113	27,725	−779,960	−3,814,603	24,2	10,1
1867–68	35,705,783	50,874,056	5,593,961	4,609,466	4,385,080	21,534	−1,208,881	−4,587,932	22,8	10,8
1868–69	35,990,142	53,062,165	8,601,022	5,159,352	4,269,305	25,156	−4,331,717	−5,134,196	22,0	10,0
1869–70	32,927,520	52,471,376	7,320,337	5,592,016	7,510,480	78,510	+190,143	−5,513,506	21,2	9,5

[pg 44] saw through the weak point of the proviso on which the Government was called upon to act. He argued that the currency notes were payable only in the current coin of the country, which in India was the silver rupee, and to hold a portion of the reserve in gold which could not be tendered in payment of the notes was seriously to endanger their convertibility in times of political distrust or commercial panic.⁸⁴ He therefore ventured beyond the scope of the agitation, and pronounced that instead of allowing gold a back-door entry into the currency system it ought to be made the standard of value in India. He did not agree with Mr. Wilson that the substitution of gold for the silver standard would be “to break faith with the creditor.” Nor was he much deterred by the fact that before the silver currency could be reduced to a subsidiary position the introduction of gold in India would give rise to a double standard for the time being; for he argued that “all nations must pass through a transition stage of a double standard before they arrive at a single standard.” Accordingly he proposed that (1) sovereigns and half-sovereigns of British or Australian standard should be legal tender in India, at the rate of one sovereign for Rs. 10; and that (2) Government currency notes should be exchangeable either for rupees or sovereigns at the rate of one sovereign for Rs. 10, but that they should not be exchangeable for bullion.

His proposals were accepted by the Government of India and were communicated to the Secretary of State⁸⁵ for his sanction. But the Secretary of State, impatient and intolerant of any deviation from a monometallic system, whittled down the whole project with scant courtesy. His [pg 45] reply⁸⁶ is a grotesque piece of reasoning and terribly shallow. He was unwilling to allow the measure, because he felt satisfied that the rate of Rs. 10 to a sovereign underrated the sovereign too much to permit its circulation. Here he was on solid ground. The cost of producing a sovereign at a Mint in India was estimated⁸⁷ at the time to be Rs. 10–4–8; while the cost of importing it to Calcutta from England was estimated at Rs. 10–4–10, and from Australia at Rs. 10–2–9. Whichever was the proper rate, it was certain that sovereigns could not circulate at the rate of Rs. 10 to 1. It was a pity that Sir Charles Trevelyan did not propose a higher ratio⁸⁸ so as to make the circulation of the sovereign an assured event. But the Secretary of State would have been averse to the measure just the same even if the ratio had been favourable to the sovereign. To the Secretary of State, the measure, based as it was on an unfavourable ratio, was useless. But if based on a favourable ratio it was none the less pernicious, for it portended the possibility of what he considered as the most vicious system of double standard, however temporary it might have been. The mere contingency of giving rise to a bimetallic system was enough to frighten the Secretary of State into opposition to the whole measure, for he refused to admit that “it may be for the public advantage to pass through a period of double standard in order to change the basis of the currency from silver to gold.”

The only concession that the Secretary of State was willing to make was to permit “that gold coin should be received [pg 46] into public treasuries at a rate to be fixed by Government and publicly announced by Proclamation” without making it a general legal tender in India. It will be recalled that this was a revival of that foolish measure which was abandoned in 1852 for having embarrassed the Government. To offer to receive coin which you cannot pay back is to court trouble, and it was to obviate the too-well-known danger inherent in the project that this more complete measure was proposed. But the currency stringency was so great that the Government of India, rather than obstinately cling to their view, consented to avail themselves of the suggestion of the Secretary of State, and issued a Government Notification in November, 1864, which proclaimed that

“sovereigns and half-sovereigns coined at any authorized Royal Mint in England or Australia of current weight, shall until further notice be received in all the Treasuries of British India and its dependencies in payment of sums due to Government, as the equivalent of 10 and 5 Rs. respectively; and that such sovereigns and half-sovereigns shall, whenever available at any Government Treasury, be paid at the same rates to any person willing to receive them in payment of claims against the Government.”

The real par, however, was somewhat above Rs. 10 to the sovereign,⁸⁹ and the notification was therefore inoperative. The currency situation, on the other hand, continued to be as acute as ever, and the Government of India was again moved in 1866 by the Bengal Chamber of Commerce to take steps to make the circulation of gold effective. This time the Chamber insisted on the institution of a Commission of Inquiry “as to the expediency of introducing gold into the monetary system of India.” But the Government of India held⁹⁰ that “instead of a gold a paper currency has been introduced, in the expectation that it would prove a more convenient and acceptable circulating medium then either [pg 47] of the precious metals,” and consequently “it must be shown that paper has not proved and is not likely to prove a circulating medium adequate to the wants and suitable to the habits of the country before an endeavour is made to introduce gold in supersession of, or in addition to, paper.” A commission was therefore appointed to inquire into the “operation of the existing currency arrangements which were established under Act XIX of 1861,” and to report as to “what may be the advantage, as based on expediency, of the introduction of the legal tender of gold into India, in addition to that of silver.” After an exhaustive investigation the Commission came to the conclusion⁹¹ that owing to several causes the paper currency had failed to establish itself among the circulating media of the country, but that gold was finding a larger place in the transactions of the people. The Commission ended by urging upon the Government “to cause a legal tender of gold to be a part of the currency arrangements of India.” Now it was the turn of the Government to give effect to the recommendation. But, curiously enough, it did not go to the extent of adopting the recommendation of the Commission which it had itself appointed. Instead of making gold legal tender, as advised by the Commission, the only action the Government took was to issue another Notification on October 28, 1868, which simply altered the rate of the sovereign to Rs. 10–8 without doing anything further to avoid the evil consequence attendant upon that one-sided measure. Fortunately for the Government, even this correction of the rate did not induce any flow of gold into the circulation of the country. The currency troubles had by then subsided, and as no new pressure was exerted upon the Government this proved the last of two abortive attempts the Government made to introduce gold into India.

For the time being the problem was solved by the natural course of events. But, as subsequent events showed, the change to a gold standard would have been better for India⁹² [pg 48] and would have been welcomed⁹³ in the interest of Europe, which was then suffering from high prices due to the superfluity of gold. At this particular juncture the Government of India was really at the crossing of ways, and could have averted the misfortunes that were to befall it and its people if it had sided with the forces of change and replaced the silver standard by a gold standard, as it could most easily have done. That those in charge of Indian affairs should have thrown the weight of their authority against the change was no dishonest act deserving of reproach,⁹⁴ but it does furnish one more illustration of those disastrous human ways which often lead people to regard the situation in which they live as most secure just when it is most precarious. So secure did they feel about the currency situation that in 1870, when the Mint Law came to be revised and consolidated, they were content, as though nothing had happened or was likely to happen, to allow the silver standard of 1835 to continue pure and unsullied by any admixture of gold.⁹⁵

Alas! those who then said⁹⁶ that they were not called upon to take more than a “juridical” view of the Indian currency question knew very little what was in store for them. [pg 49]