January 1921

JANUARY, 1921. FEDERAL RESERVE BULLETIN. 31

Movement of the price oj silver and oj sterling and rupee exchange, 1919 and 1920. [Exchange rates are highest quotations on sight drafts for each month.]

Average New York New York exchange New York rupee price of silver. on England. exchange. London Per cent of exchange Date. Price per average on India fine ounce. price 4.8665=100. Per cent. 48.67=100.1 Per cent. (rupee= for 1913 24d.).i ($0.60641).

1919. January U. 01558 167.45 • 4.7585 97.78 35. 65 73.25 17fi February . 1.01500 167.35 4.7585 97.78 35. 65 73.25 17M March 1.01495 167.34 4.758 97.77 35. 875 73.71 17f| A.pril 1. 01500 167.35 4. 6725 98.01 35.65 73.25 17#4 May . . . 1. 08020 178.10 4.6925 96.42 42.50 87.32 191 June 1.11402 183. 68 4. 6350 95.24 42.50 87.32 197 July ... 1.07332 176.97 4.57 93.91 43.00 88.35 197 August 1.12386 185.30 4.3525 89.44 43.50 89.38 217 September . . . 1.15636 190. 66 4.2625 87.59 45.00 92.46 23fi October 1.20692 198.99 4.3225 86.97 44.00 90.40 23H November . -. 1.30446 215.08 4.1625 85.53 44.75 91.95 24} December . . 1.33072 219. 41 3. 9875 81.94 46.25 95.03 27| 1920. January.. .. . 1.33899 220.77 3. 7875 77.83 46.25 84.48 27| February 1.32665 218.74 3. 4525 70.94 49.00 100.68 32J March . . . . 1.27287 209.87 3. 9525 81.22 50.00 102. 73 30| \pril 1. 20576 198. 84 4.0175 82.55 47.25 97.08 261 May. ... 1.03495 170. 67 3.9150 80.45 45.75 94.00 261 June 2.92789 153.01 3.9875 81.94 43. 50 89. 38 24f July 2.92935 153.25 3.95125 81.19 38.50 79.10 August 2.96948 159.87 3.7075 76.18 37.25 76.54 224 September 2.94510 155. 85 3.5625 73.20 34.75 71.40 22| October 2.84187 138. 83 3.5075 72.07 32.50 66.78 19| November 2.7849 129. 41 3.5275 72.48 30. 25 62.15 19| December 2.65503 107.35 3.5275 72.48 28.50 58.56 18

1 Until Oct. 1, 1920, par of exchange for rupees was 16 pence, or 32.64 cents, but for the sake of comparability percentages have been figured on the new base throughout. 2 Price of domestic silver, 99.535 per fine ounce. When the Government was selling sterling anomalous condition. Theoretically, it is linked drafts at the rate of 28 to 30 pence per rupee, with gold, but the Government has not cared i. e., at about 10 rupees or less per sovereign, to give gold in exchange for rupees in view of the demand for such drafts became so heavy, the great premium commanded by gold in and the difference between the Government India, though it was the committee's intention rate and the market rate was so pronounced ultimately to make sovereigns and rupees inter- that the Government was obliged to change the changeable at will at the 1 to 10 rate.1 It was rate from 10 rupees to a sovereign to 10 rupees feared that to issue gold for rupees would result to a pound sterling. The amount of reverse in a heavy drain on the gold reserves which the councils sold up to September is estimated at Government was not prepared to risk, espe- over 50 million pounds. At the same time, as cially as the gold in the reserves was declining a result of the cessation of the demand for silver (See attached table on currency reserves,) from China, the price of silver was rapidly fall- Since March, 1920, the value of the silver ing, so that the gold value of the silver in a runee content of the rupee no longer equaled its was no longer equal to its par value as a^coin. value at the gold parity. The practical con- In other words, the problem from one of how sequence of the situation is that the rupee, to keep down the price of the rupee became one whether paper or coin, is inconvertible token of how tc keep it up. money, so far as foreign trade is concerned, A little retrospect may throw light on the and its exchange value is dependent to a situation. The rupee before 1893 had a value great extent on India's balance of international measured by the value of the 165 grains of payments. In a western country, with a silver it contained, that is to say, India was on free gold market, the falling exchange value a silver basis. From 1893 to 1920 India was of the rupee would have led to the export of on the gold exchange basis and the rupee had a large quantities of gold, but in India there was gold value for Exchange purposes of approxi- a great demand for gold in the interior, where mately 7.5 grains of gold. But the value of its silver content rising continually in recent years, 1 Witness thelanguage of the 191? report: "We consider that the Govern- ment of India should maintain the prewar practice of making gold coin the value of the rupee had to be raised, as other- available when it is demanded by the public" (p. 29); also, "In normal times, and whenever the supplies of silver permit, the Government of wise it would have been melted for export. As India will doubtless offer all facilities for the conversion of legal tender the result of the new parity and of the drop in gold into legal tender silver coin, and vice versa; but, in view of the present shortage of silver, we consider that the obligation to give rupees the price of silver the rupee is in a somewhat for sovereigns should be withdrawn" (p. 30).

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