Indian Currency and Finance: Chapter I - The Present Position of the Rupee

Indian Currency and Finance by John Maynard Keynes is part of HackerNoon’s Book Blog Post series. You can jump to any chapter in this book here. Chapter I: The present position of the Rupee

CHAPTER I. THE PRESENT POSITION OF THE RUPEE

1. On the broad historical facts relating to Indian currency, I do not intend to spend time. It is sufficiently well known that until 1893 the currency of India was on the basis of silver freely minted, the gold value of the rupee fluctuating with the gold value of silver bullion. By the depreciation in the gold value of silver, extending over a long period of years, trade was inconvenienced, and Public Finance, by reason of the large payments which the Government must make in sterling, gravely disturbed; until in 1893, after the breakdown of negotiations for bimetallism, the Indian Mints were closed to the free mintage of silver, and the value of the rupee divorced from the value of the metal contained in it. By withholding new issues of currency, the Government had succeeded by 1899 in raising the gold value of the rupee to 1s. 4d., at which figure it has remained without sensible variation ever since.

2. There can be no doubt that at first the Government of India did not fully understand the nature of

4. The criticisms of 1893, therefore, are no longer heard, and the Currency Problems with which we are now confronted are new. The evolution of the Indian currency system since 1899 has been rapid, though silent. There have been few public pronouncements of policy on the part of Government, and the legislative changes have been inconsiderable. Yet a system has been developed, which was contemplated neither by those who effected nor by those who opposed the closing of the Mints in 1893, and which was not favoured either by the Government or by the Fowler Committee in 1899, although something like it was suggested at that time. It is not possible to point to any one date at which the currency policy now in force was deliberately adopted.

The fact that the Government of India have drifted into a system and have never set it forth plainly is partly responsible for a widespread misunderstanding of its true character. But this economy of explanation, from which the system has suffered in the past, does and the investment of a stated part of the Currency Reserve in sterling securities.

1906. The Notification withdrawn which had directed the issue of rupees against the tender of gold (as distinguished from British gold coin).

1907. Rupee branch of the Gold Standard Reserve instituted.

1908. Sterling drafts sold in Calcutta on London at 1s. 329/32d. the rupee, and cashed out of funds from the Gold Standard Reserve.

1910. Act rendering Currency notes of Rs. 10 and 50 universal legal tender, and directing the issue of notes in exchange for British gold coins.

1913. Royal Commission on Indian Finance and Currency.

8. In § 6 I have stated the practical effect of these successive measures. But the legal position is so complicated and peculiar, that it will be worth while to state it quite precisely. Previous to 1893 the Government were bound by the Coinage Act of 1870 to issue rupees, weight for weight, in exchange for silver bullion. There was also in force a Notification of the Governor–General in Council, dating from 1868, This part of the system is as perfectly automatic as in any other country. The Government has put itself under an obligation to supply rupees whenever sovereigns are tendered, and it often permits or encourages the tender of sovereigns in London as well as in India; but it has no power or opportunity of forcing rupees into circulation otherwise. In two matters only does the Government use a discretionary power. First, in order that it may always be possible to fulfil this obligation, it is necessary to keep a certain reserve of coined rupees, just as some authority in this country—in point of fact the Bank of England—must keep some reserve of token silver and coined sovereigns and not hold in its vaults too large a proportion of uncoined or foreign gold. The magnitude of this reserve is within the discretion of the Indian Government. To a certain extent they must anticipate probable demands on the output of the Mint. But if they miscalculate and mint more than they need, the new rupees must lie in the Government’s own chests until they are wanted, and the date at which they emerge into circulation it is beyond the power of the Government to determine. In the second place, the Government can postpone for a short time a demand for rupees by refusing to supply them in return for sovereigns tendered in London and by insisting upon the sovereigns being sent to Calcutta. Sometimes they do this, but very often it is worth their while, for reasons to be explained in detail later on, to accept the tender of sovereigns in London. In either of these cases the permanent effect of their action one way or the other on the volume of circulation is inconsiderable. The kind of difference it makes is comparable to the difference which would be made if it lay within the discretion of a government to charge or not, as it saw fit, a small brassage not much greater than the cost of coining.

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Keynes, John Maynard, 2015. Indian Currency and Finance. Urbana, Illinois: Project Gutenberg. Retrieved May 2022 from h

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