The Growth of Currency Organisations in India

: THE GROWTH OF CUEKENCY ORGANISATIONS IN INDIA BY ALAKH DHARI. It BOMBAY THE BOMBAY CHRONICLE PRESS. *-> , j>6 FEINTED BY A. P. BREWIN AT THE BOMBAY CHRONICLE PRESS, MBDOWS STREET, FORT, BOMBAY, FOR THE PUBLISHER, ALAKH DHARI, MANAQEfi, OUDH COMMERCIAL BANK, LIMITED, FYZABAD. : This book can be had from — Messrs. ThackEr, Spink & Co., Calcutta. Messrs. Thacker & Co., I^d., Bombay. Messrs. A. H. Wheêji^Kr & Co., Allahabad. Messrs. G. A. Natesan & Co , Madras. Messrs. Rama Krishna & Sons, Iâhore. Messrs. A. J. Combridgk & Co., Bombay & Madras. Messrs. Higginbothams, I^d., Madras. Messrs. Taraporbvaiâ, Sons & Co., Bombay. M83002 TO The Hon'bi.k Sir JAMBS SCORGIB MBSTON, K. C. S. I., I. C. S., IÎKUTENANT-GOVERNOR, UNITED PROVINCES OF AGRA AND OUDH, THIS EFFORT IS BY KIND PERMISSION RESPECTFULLY DEDICATED. — .. .. .. CONTENTS. INTRODUCTION— The introduction contains a survey of the recommendations made by the Royal Commission on Indian Finance and Currency. The findings of the Royal Co n nissi^ciers on each of the following subjects are discussed in full detail : The Gold Standard Reserve . vii General Balances . xiii to xxviii (a) Indian Balance . xviii (b) I,ondon Balance . xxiv (c) Lending out of Indian Balance in London . xxvi Sale of Council Bills . xxviii Gold in Internal Circulation . xxx The Paper Currency . xl Financial Organization of the India Office . xlvi State or Central Bank . xlix CHAPTER— Page. I—The Rise ani Fall of the Rupee . i II—Progress to a Gold Currency . 15 III—Îndian Mints and the Free Coinage of Gold 48 IV—The Story of the Gold Reserve . 66 V—The Expansion of Paper Currency . 96 VI—The Apple of Discord 121 Appendix A . , . 153 Appendix B 167 INTEODUCTION. Before the advent of the British era the progress ot currency institutions in India followed along the Hues of old eastern belief, viz., of full-value legal tender money. The Government mints in pre-British days simply assayed and tested the precious metals and cut the same into convenient sizes. The Government stamp added nothing to the value of a coin but only certified to its weight and purity. There was no token metal or paper currency. This same cult was recognised and continued in the early British days. But when the conquests of science and the advance of modern ideas about economical forms of currency changed the old order of things and new behefs and principles gained ascendancy, the theory of full- • value legal-tender money underwent a radical change and the present system of token metal and paper cur- rencies was introduced. The framers of the present currency system in India have steadily striven to cast it on the Hues of the latest accepted principles of monetary science in Kngland. But, whereas, in England and elsewhere, the artificiaHties of a token currency are covered by the ample play of a genuine, full-value, gold coinage in the country, the currency policy of India is bereft of such assuaging characteristics. The task of tracing and recording the currency history of India is full of difficulties. It becomes exceedingly hard to trace events from point to point so as to record every successive development in the true light of its own contemporaneous circumstances and keep it free from the reflections and influences oi subsequent events, when, as in the case of India, the whole system is, to a great extent, the result of a series of experiments and has never been deliberately adopted as a consistent whole, 11 CURRENCY ORGANISATIONS IN INDIA. and when "the authorities themselves do not appear "always to have had a clear idea of the final object to "be attained." In describing in detail the gradual growth of the different branches of currency institutions in India, I have endea- voured to present the official view and actions in the most liberal light and, where the popular view differs from the official one, to give expression to the people's beliefs and wishes with unflinching truth and straight- forwardness but in a spirit of utmost moderation, loyalty and respect. The currency system of the country has recently under- gone a process of examination at the hands of a Royal Commission. The Commission had not finished its labours when this work was written(in November-December, 1913), hence its deliberations could not be embodied in proper places in the body of the book. To bring this treatise up-to-date I subjoin a brief resume of the Royal Commission's report and of its recommendations. As soon as the appointment of the Commission was ^nnounced, thc Bcugal Chamber of Letter No. 759 dated 21st. ^Ti^^'^c^^:^: Commerce wrote to the Government '^:ntlrinlCZlSc7i>l of India that the Committee of the Chamber were inclined to think that if the Commission intended to undertake an exhaustive enquiry into the whole question in its Indian aspects, a visit to this country was imperative. The Upper India Chamber of Commerce (Cawnpore) also supported this view. But on the official publication of the Rojâl Warrant it became clear that the evidence would be taken in lyondon. This caused widespread disappointment in India, as it was evident that considerations of distance, expenditure, time and other conditions would render an adequate presentation of the Indian stand-point before the Ro3âl Commission, in lyondon, impossible. The currency administration of — TNTRODUCTION. ill India had for some time been the object of great debate and criticism in India and, under such circumstances, a visit of the Commission to India and the hearing of evidence of the Indian pubHc on an extensive scale, as in the case of PubHc Services Commission, would from the people's point of view have greatly helped in a clearer comprehen- sion of the whole problem and would have gratified the popular sentiment. Since the conclusions of the Royal Commissioners are, unfortunately, in many important matters, at variance with the wishes of the people of this country, the disappointment caused by the omission of a tour in India has become all the more keen. lyooking through the evidence and the general tenor of the leading questions put to the witnesses, one discerns a spirit of restlessness with the criticisms and opinions urged by the exponents of the non-official Indian point of view and of impatience with the labours and recommendations of the Currency Commission of 1898 in points where the current Iôndon money market interests and views happen to differ from the views held by the Fowler's Committee. It was openl}^ remarked that since the members of the Fowler's Committee had very little ex- perience to guide them, their recommendations in regard to the extension of the use of gold in internal circulation might well be overlooked and that much importance need not be attached to their opinion. The Commission held, in all, 34 meetings and examined 33 witnesses, classified as follows* : Representatives of the Government of India, including the Hon'ble Sir Janies Meston 4 Bx-officials of the Indian Government (Sir Guy Fleet- wood Wilson, retired Finance Member, and Mr. F. C. Harrison, formerly Accountant General at Bombay) 2 * The formation and constitution of the Royal Commission on Indian Finance and Currency and its scope of enquiry are described in detail on pages 36-38 of this book. IV CURRENCY ORGANISATIONS IN INDIA. Representative of the Bank of England i Representatives of the Exchange Banks 2 Officials and representatives of the India Office ... 9 Representatives of the banking, commercial and financial interests in India 12 Persons directly invited by the Ro3'al Commission, including Mr. Moreton Frewen 3 33 The enquiry covered the following subjects : — (i) the general balances of the Government of India and of the India Office in India and London respectively ; (2) the sale of council drafts by the Secretary of State in London ; the (3) Gold-Standard-Reserve ; (4) the system by which the exchange value of the rupee is maintained ; (5) the provision of facilities in India for the coinage of gold ; the Paper (6) Currency Reserve ; (7) the financial organi- sation and procedure of the India Office ; and (8) the question of the establishment of a Central or State Bank for India. The Royal Commissioners begin by observing that "the first principle to be borne in mmd in any considera- "tion of the Indian finance and currency system is that "the balances of the Government of India in India, and "of the India Office in London, and the portions of the "Gold Standard and Paper Currency Reserves located "respectively in India and in London, all represent in "the last anabasis one single fund. The titles attached to "the constituent portions of this fund indicate to some "extent the nature of the needs and Habihties for which "the fund as a whole is required to provide. "The name attached to each portion indicates the "primar^^ function of that portion ; but neither in theory "nor in practice have the separate portions of the fund "been entirely reserved for the objects indicated by their "separate names." INTRODUCTION. V The above exposition of the functions and objects of the currency and financial resources of the Government of India is far from clear and definite. The impression in this country is that every separate branch of the Fund has a definite object in view and a specified function to perform. The endeavours of the Royal Commission, or of the Government authorities, to ascribe new and extra liabilities to any of them, parti- cularly to the Paper Currency Reserve, has caused a feeling of bitterness and distrust. The Gold Standard Reserve is beheved to be quite sufficient to meet any strain on the stability of the exchange value of the rupee.

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