Chapter I: From a Double Standard to a Silver Standard (2)

⁴⁴ The cultural influence of France had led the other countries of
Latin origin to adopt the French monetary system. The political
independence acquired by Belgium in 1831 was followed by a change
in her monetary system. By the law of 1832, Belgium from a
monetary point of view, became a satellite of France. By that law
she adopted in its entirety the monetary system of France, and
even went so far as to give the French gold pieces of 20 and 40
francs and to the French silver 5-franc pieces the power of legal
tender in Belgium. In Switzerland, Art. 36 of the Constitution of
1848 had vested in the Federal Government the authority to coin
money. The law of May 7, 1850, adopted the French monetary system
for Switzerland: Art. 8 declared “that such foreign silver coins
as were minted in sufficiently close proximity with the French
system might be granted a legal status as regular media for the
payment of debts in Switzerland.” The various Italian States,
prior to unification, had, like the Swiss Cantons, each its own
currency. But with the desire for uniformity of coinage
consequent upon unification there arose a problem either of
selecting one of the old systems or of adopting a new one which
would be common to the whole country. Some form of a grateful
memorial to France was uppermost in the minds of the Italians for
the help the French gave in the matter of their independence, and
the adoption of the French monetary system for Italy was deemed to
serve the purpose. Fortunately, Sardinia already possessed the
French system, and the law of August 24, 1862, extended it to the
whole of Italy, with the lire as the unit, and also conferred
legal-tender power on the coins of France, Belgium, and
Switzerland. Cf. H. P. Willis, _History of the Latin Monetary
Union_, Chicago, 1910, pp. 15, 27, 36–37.

⁴⁵ Switzerland was the first to reduce the amount of silver in her
small coins in order to keep them in circulation. But these Swiss
coins of reduced fineness crossed the national frontier and, as
they were legal tender in other countries of Latin origin, began
to displace their dearer coins of similar denominations, which
contained more silver but which passed current at the same nominal
value. This brought forth a decree in France (April 14, 1864)
which revoked the legal-tender power of these debased Swiss coins
in French territory. This, of course, compelled resort to a
concerted action on the part of all the Latin countries concerned.

⁴⁶ For more particulars of the Latin Union, cf. Laughlin, op. cit.,
pp. 146–9.

⁴⁷ Cf. H. of C. Return, East Indian (Coinage) 254 of 1860.

⁴⁸ _Ibid_., p. 8.

⁴⁹ _Ibid_., p. 10.

The abrogation of bimetallism in India accomplished by the Act of 1835, cannot therefore be made a ground for censure. But it is open to argument that a condemnation of bimetallism is not _per se_ a justification of silver monometallism. If it was to be monometallism it might well have been gold monometallism. In fact, the preference for silver monometallism is not a little odd when it is recalled that Lord Liverpool, the advocate of monometallism,⁵⁰ whose doctrines the Court had sought to apply to India, had prescribed gold monometallism for similar currency evils then prevalent in England. That the Court should have deviated from their guide in this particular has naturally excited a great deal of hostile comment as to the propriety of this grave departure.⁵¹ At the outset any appeal to ulterior motives must be baseless, for Lord Liverpool was not a “gold bug,” nor was the Court composed of “silver men.” As a matter of fact, neither of them at all considered the question from the standpoint as to which was a better standard of value, gold or silver. Indeed, in so far as that was at all a consideration worth attending to, the choice of the Court, according to the opinion of the time, was undoubtedly a better one than that of Lord Liverpool. Not only were all the theorists, such as Locke, Harris, and Petty, in favour of silver as the standard of value, but the practice of the whole world was also in favour of silver. No doubt England had placed herself on a gold basis in 1816. But that Act, far from closing the English Mint to the free coinage of silver, left it to be opened by a Royal Proclamation.⁵² The Proclamation, it is true, was never issued, but it is not to be supposed that therefore Englishmen [pg 27] of the time had regarded the question of the standard as a settled issue. The crisis of 1825 showed that the gold standard furnished too narrow a basis for the English currency system to work smoothly, and, in the expert opinion of the time,⁵³ the gold standard, far from being the cause of England’s commercial superiority, was rather a hindrance to her prosperity, as it cut her off from the rest of the world, which was mostly on a silver basis. Even the British statesmen of the time had no decided preference for the gold standard. In 1826 Huskisson actually proposed that Government should issue silver certificates of full legal tender.⁵⁴ Even as late as 1844 the question of the standard was far from being settled, for we find Peel in his Memorandum⁵⁵ to the Cabinet discussing the possibility of abandoning the gold standard in favour of the silver or a bimetallic standard without any compunction or predilection one way or the other. The difficulties of fiscal isolation were evidently not so insuperable as to compel a change of the standard, but they were great enough to force Peel to introduce his famous proviso embodying the Huskisson plan in part in the Bank Charter Act of 1844, permitting the issue of notes against silver to the extent of one-fourth of the total issues.⁵⁶ Indeed, so great was the universal faith in the stability of silver that Holland changed in 1847 from what was practically a gold monometallism⁵⁷ to silver monometallism because her statesmen believed that

“it had proved disastrous to the commercial and industrial
interests of Holland to have a monetary system identical with
that of England, whose financial revulsions, after its adoption
[pg 28] of the gold standard, had been more frequent and more
severe than in any other country, and whose injurious effects
were felt in Holland scarcely less than in England. They
maintained that the adoption of the silver standard would
prevent England from disturbing the internal trade of Holland by
draining off its money during such revulsions and would secure
immunity from evils which did not originate in and for which
Holland was not responsible.”⁵⁸

But stability was not the ground on which either the Court or Lord Liverpool made their choice of a standard metal to rest. If that had been the case, both probably would have selected silver. As it was, the difference in the choice of the two parties was only superficial. Indeed, the Court differed from Lord Liverpool, not because of any ulterior motives, but because they were both agreed on a fundamental proposition that not stability but popular preference should be the deciding factor in the choice of a standard metal. Their differences proceeded logically from the agreement. For on analysing the composition of the currency it was found that in England it was largely composed of gold and in India it was largely composed of silver. Granting their common premise, it is easy to account why gold was selected for England by Lord Liverpool and silver for India by the Court. Whether the actual composition of the currency is an evidence of popular preference cannot, of course, be so dogmatically asserted as was done by the Court and Lord Liverpool. So far as England is concerned, the interpretation of Lord Liverpool has been questioned by the great economist David Ricardo. In his _High Price of Bullion_, Ricardo wrote:—

⁵⁰ The author of _A Treatise on the Coinage of the Realm_ was
anticipated by Sir John Shore, the Governor of Bengal, in his
Minute, op. cit., par. 55.

⁵¹ Cf. H. M. Dunning, _Indian Currency_, 1898, _passim_; also S. V.
Doraiswami, op. cit., _passim_.

⁵² Cf. Dana Norton, _The Silver Pound_, 1887, p. 161.

⁵³ Cf. the evidence of A. Baring (afterwards Lord Ashuburton) before
the Committee for Coin (1828), H. of C. Return 31 of 1830.

⁵⁴ See his Memorandum to the Cabinet printed by Gibbs, _A Colloquy on
Currency_ (1894), Appendix, p. xlvii.

⁵⁵ For which, see Andréadès, _History of the Bank of England_,
Supplement I.

⁵⁶ For the original purpose of this defunct proviso, _see_ Peel’s
Speech on the Bank Charter Act, dated May 20, 1844, Hansard, Vol.
LXXIV, pp. 1334–35.

⁵⁷ In theory Holland had adopted bimetallism in 1816. But the legal
ratio of 15·873 to 1 had undervalued silver so much that it had
made gold the chief circulating medium of Holland.

⁵⁸ _Report of the U. S. Silver Commission of_ 1876, p. 68.

“For many reasons given by Lord Liverpool, it appears proved
beyond dispute that gold coin has been for near a century the
principal measure of value; but this is, I think, to be
attributed to the inaccurate determination of the mint
proportions. Gold has been valued too high; no silver can
therefore remain in circulation which is of its standard weight.
If a new regulation were to take place, and silver be valued too
high … gold would then disappear, and silver become the standard
money.”⁵⁹ [pg 29]

⁵⁹ _Works_, p. 271

And it is possible that mint proportions rather than popular preference⁶⁰ could have equally well accounted for the preponderance of silver in India.⁶¹

⁶⁰ Mr. Dodwell, in his otherwise excellent article, op. cit., seems
to convey that silver was substituted for gold in Southern India
as a result of the natural preference of the people for the former
metal. So eager is he in meeting the contentions of writers like
Mr. Doraiswami that he fails to see how his own facts controvert
his own thesis.

⁶¹ The total coinage of India from 1800 to 1835 was, according to Mr.
F. C. Harrison’s estimate in the _Calcutta Review_, July, 1892:—

────────────────────────────────
Gold 3,845,000 ounces
Silver 3,781,250,000 ounces
────────────────────────────────

N.B.—In the case of silver, rupees are converted into ounces for
comparison.

Whether any other criterion besides popular preference could have led the Court to adopt gold monometallism is a moot question. Suffice it to say that the adoption of silver monometallism, though well supported at the time when the Act was passed, soon after proved to be a measure quite inadequate to the needs of the country. It is noteworthy that just about this time great changes were taking place in the economy of the Indian people. Such a one was a change from kind economy to cash economy. Among the chief causes contributory to this transformation the first place must be given to the British system of revenue and finance. Its effects in shifting Indian society on to a cash nexus have not been sufficiently realized,⁶² although they have been very real. Under the native rulers most payments were in kind. The standing military force kept and regularly paid by the Government was small. The bulk of the troops consisted of a kind of militia furnished by Jageerdars and other landlords, and the troops or retainers of these feudatories were in great measure maintained on the grain, forage, and other supplies furnished by the districts in which they were located. The hereditary revenue and police officers were generally paid by grants of land on tenure of service. Wages of farm servants and labourers were in their turn distributed in grain. Most of its officers being paid in kind, the State collected very little [pg 30] of its taxes in cash. The innovations made by the British in this rude revenue and fiscal system were of the most sweeping character. As territory after territory passed under the sway of the British, the first step taken was to substitute in place of the rural militia of the feudatories a regularly constituted and well-disciplined standing army located at different military stations, paid in cash; in civil employ, as in military, the former revenue and police officers with their followers, who paid themselves by perquisites and other indirect gains received in kind, were replaced by a host of revenue collectors and magistrates with their extensive staff, all paid in current coin. The payments to the army, police, and other officials were not the only payments which the British Government had placed on a money basis. Besides these charges, there were others which were quite unknown to native Governments, such as the “Home Charges” and “Interest on Public Debt,” all on a cash basis. The State, having undertaken to pay in cash, was compelled to realize all its taxes in cash, and as each citizen was bound to pay in cash he in his turn stipulated to receive nothing but cash, so that the entire structure of the society underwent a complete transformation.

⁶² Cf. the article “The Silver Question as regards India,” in the
_Bombay Quarterly Review_, April, 1857.

Another important change that took place in the economy of the Indian people about this time was the enormous increase of trade. For a considerable period the British tariff policy and the navigation laws had put a virtual check on the expansion of Indian trade. England compelled India to receive her cotton and other manufactures at nearly nominal (2½ per cent.) duties, while at the same time she prohibited the entry of such Indian goods as competed with hers within her territories by prohibitory duties ranging from 50 to 500 per cent. Not only was no reciprocity shown by England to India, but she made a discrimination in favour of her colonies in the case of such goods as competed with theirs. A great agitation was carried on against this unfair treatment,⁶³ and finally Sir Robert Peel admitted [pg 31] Indian produce to the low duties levied by the reformed tariff of 1842. The repeal of the navigation laws gave further impetus to the expansion of Indian commerce. Along with this the demand for Indian produce had also been growing. The Crimean War of 1854 cut off the Russian supplies, the place of which was taken by Indian produce, and the failure of the silk crop in 1853 throughout Europe led to the demand for Asiatic, including Indian, silks.

⁶³ Cf. Debates at the East India House on Duties affecting Indian
Commerce, _vide_ the _Asiatic Journal and Monthly Register for
British and Foreign India, China, Australia_ (London, New Series,
Vol. XXXVII, January, and Vol. XXXVIII, May, 1842).

The effect of these two changes on the currency situation is obvious. Both called forth an increased demand for cash. But cash was the one thing most difficult to obtain. India does not produce precious metals in any considerable quantity. She has had to depend upon her trade for obtaining them. Since the advent of the European Powers, however, the country was not able to draw enough of the precious metals. Owing to the prohibitions on the export of precious metals then prevalent in Europe,⁶⁴ one avenue for obtaining them was closed. But there was little chance of obtaining precious metals from Europe, even in the absence of such prohibition; indeed, precious metals did not flow to India when such prohibitions were withdrawn.⁶⁵ The reason of the check to the inflow of precious metals was well pointed out by Mr. Petrie in his Minute of November, 1799, to the Madras Committee of Reform:⁶⁶ until their territorial acquisitions the Europeans

⁶⁴ For the history of those imposed by England, cf. Ruding, _Annals
of Coinage_, 3rd ed. Vol. I, pp. 353–4, 372, 376, 386–7; Thomas
Violet, _An Appeal to Cæsar_, London, 1660, p. 26.

⁶⁵ The following figures of the export of precious metals to India
from England are interesting:—

───────────────────────────────────────────────────
1652–1703 £1,131,653 (from Mr. Petrie’s Minute).
1747–1795 £1,519,654 (from Mr. Petrie’s Minute).
───────────────────────────────────────────────────

⁶⁶ For the Proceedings of the Committee, see _India Office Records_,
“Home Miscellaneous” Series, Vol. 456.

“purchased the manufactures of India with the metals of Europe:
but they were henceforward to make these purchases with gold and
silver of India, the revenues supplied the place of foreign
bullion and paid the native the price of his industry with his
own money. At first this revolution in the principles of
commerce was but little felt, but when [pg 32] opulent and
extensive dominions were acquired by the English, when the
success of war and commercial rivalship had given them so
decided a superiority over the other European nations as to
engross the whole of the commerce of the East, when a revenue
amounting to millions per annum was to be remitted to Europe in
the manufactures of the East, then were the effects of this
revolution severely felt in every part of India. Deprived of so
copious a stream, the river rapidly retired from its banks and
ceased to fertilise the adjacent fields with overflowing water.”

The only way open when the prohibitions were withdrawn to obtain precious metals was to send more goods than this amount of tribute, so that the balance might bring them in. This became possible when Peel admitted Indian goods to low tariff, and the country was for the first time able to draw in a sufficient quantity of precious metals to sustain her growing needs. But this ease in the supply of precious metals to serve as currency was short-lived. The difficulties after 1850, however, were not due to any hindrance in the way of India’s obtaining the precious metals. Far from being hindered, the export and import of precious metals was entirely free, and India’s ability to procure them was equally great. Neither were the difficulties due to any want of precious metals, for, as a matter of fact, the increase in the precious metals after 1850 was far from being small. The difficulty was of India’s own making, and was due to her not having based her currency on that precious metal, which it was easy to obtain. The Act of 1835 had placed India on an exclusive silver basis. But, unfortunately, it so happened that after 1850, though the total production of the precious metals had increased, that of silver had not kept pace with the needs of the world, a greater part of which was then on a silver basis, so that as a result of her currency law India found herself in an embarrassing position of an expanding trade with a contracting currency, as is shown on the opposite page.

On the face of it, it seems that there need have been no monetary stringency. The import of silver was large, and [pg 33]

TABLE IV

_Trade and Currency_⁶⁸

─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Merchandise. Treasure. Total Excess (+) or Defect Annual Net Coinage (―) of Coinage on Production (in Imports of Net Imports of £, 00,000 Years of omitted) of ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Imports. Exports. Silver. Gold. Silver. Gold. Silver. £ Gold. £ Gold. Silver. £ £ £ £ £ £ ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1850–51 11,558,789 18,164,150 2,117,225 1,153,294 3,557,906 123,717 +1,440,681 −1,029,577 8,9 7,8 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1851–52 12,240,490 19,879,406 2,865,257 1,267,613 5,170,014 62,553 +2,304,657 −1,205,060 13,5 8,0 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1852–53 10,070,863 20,464,633 3,605,024 1,172,301 5,902,648 Nil +2,297,624 −1,172,301 36,6 8,1 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1853–54 11,122,659 19,295,139 2,305,744 1,061,443 5,888,217 145,679 +3,582,473 −915,764 31,1 8,1 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1854–55 12,742,671 18,927,222 29,600 731,490 1,890,055 2,676 +1,860,455 −728,814 25,5 8,1 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1855–56 13,943,494 23,038,259 8,194,375 2,506,245 7,322,871 167,863 +871,504 −2,338,382 27,0 8,1 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1856–57 14,194,587 25,338,451 11,073,247 2,091,214 11,220,014 128,302 +146,767 −1,962,912 29,5 8,2 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1857–58 15,277,629 27,456,036 12,218,948 2,783,073 12,655,308 43,783 +436,360 −2,739,290 26,7 8,1 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1858–59 21,728,579 29,862,871 7,728,342 4,426,453 6,641,548 132,273 −1,086,794 −4,294,180 24,9 8,1 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1859–60 24,265,140 27,960,203 11,147,563 4,284,234 10,753,068 64,307 −394,495 −4,219,927 25,0 8,2 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

⁶⁸ Prepared from figures given in Palgrave’s “Memorandum on Currency
and Standard of Value,” Appendix B to _Third Report of the Royal
Commission on Depression of Trade and Industry_. C4797 of 1886.
Figures for the production of gold and silver, which are for
calendar years, are added from the “Silver Question and the Gold
Question,” by R. Barclay.

[pg 34] so was the coinage of it. Why then should there have been any stringency at all? The answer to this question is not far to seek. If the amount of silver coined had been retained in circulation it is possible that the stringency could not have arisen. India has long been notoriously the sink of the precious metals. But in interpreting this phenomenon, it is necessary to bear in mind the caution given by Mr. Cassels that

“its silver coinage has not only had to satisfy the requirements
of commerce as the medium of exchange, but it has to supply a
sufficiency of material to the silversmith and the jeweller.
The Mint has been pitted against the smelting-pot, and the coin
produced by so much patience and skill by the one has been
rapidly reduced into bangles by the other.”⁶⁷

⁶⁷ Minute on Gold Currency for India, dated December 8, 1863, in the
_Report of the Bombay Chamber of Commerce_, 1863–64. App. I, p.
189.

Now it will be seen from the figures given that all the import of silver was coined and used up for currency purposes. Very little or nothing was left over for the industrial and social consumption of the people. That being the case, it is obvious that a large part of the coined silver must have been abstracted from monetary to non-monetary purposes. The hidden source of this monetary stringency thus becomes evident. To men of the time it was as clear as daylight that it was the rate of absorption of currency from monetary to non-monetary purposes that was responsible as to why

“notwithstanding such large importations [to quote from the same
authority], the demand for money has so far exceeded … that
serious embarrassment has ensued, and business has almost come
to a stand from the scarcity of circulating medium. As fast as
rupees have been coined they have been taken into the interior
and have there disappeared from circulation, either in the
Indian substitute for stocking-foot or in the smelting-pot for
conversion into bangles.”⁶⁹

⁶⁹ Minute on Gold Currency for India, dated December 1, 1863. Report,
op. cit., p. 184.

The one way open was to have caused such additional imports of silver as would have sufficed both for the monetary [pg 35] as well as the non-monetary needs of the country. But the imports of silver were probably already at their highest. For, as was argued by Mr. Cassels,

“the annual production of silver of the whole world does not
exceed ten million sterling. During the last few years,
therefore, India alone has annually taken, and to a great extent
absorbed, more of the metal than has been produced by the whole
world. It is clear that this cannot long continue without
producing serious embarrassment. Either the European markets
will be unable or unwilling to supply us, or the value of silver
will rise to an extravagant extent. Under such circumstances it
is not difficult to foresee that the present crisis must
continually recur, and the commerce in this country must be
periodically, if not permanently, crippled by the scarcity of
the circulating medium.”⁷⁰

⁷⁰ Report, op. cit. p. 189.

Had there been any credit media the contraction of currency might not have been felt as severely as it was. But there was no credit money worth the name. The Government issued interest-bearing Treasury notes, which formed a part of the circulating medium of the country. But, apart from being insignificant in amount,⁷¹ these Treasury notes had

⁷¹ Amount of Indian Treasury notes outstanding:—

─────────────────────────────────────────────────────────────────
On April 30, 1850 £804,988
On April 30, 1851 £802,036 Extracted from Table No. 2 of
On April 30, 1852 £770,301 the Return relating to East
On April 30, 1853 £850,432 India Revenues, etc.,
On April 30, 1854 £850,627 Parliamentary Paper 201, VIII,
On April 30, 1855 £889,875 1858.
On April 30, 1856 £967,711
─────────────────────────────────────────────────────────────────

“proved a failure, owing, firstly, to the condition that they
would not be received in payment of revenue for twelve months;
secondly, they would be paid off or received only where issued,
so that as the issues were confined to Calcutta, Madras and
Bombay, their use and employment for purposes of circulation
were limited to those cities … and lastly, because their
amounts were too large and their period of running at interest
too short.”⁷² [pg 36]

⁷² _How to Meet the Financial Difficulties of India_, by A. C. B.,
London, 1859, p. 13. This is in many ways a most remarkable
pamphlet which suggested many of the later reforms in Indian
currency and banking.

Nor was banking so widely developed as to satisfy the currency needs of commerce. The chief hindrance to its growth was the attitude of the Court. Being itself a commercial body largely dealing in exchange, the Court was averse to the development of banking institutions lest they should prove rivals. As this traditional policy of hostility continued even after the Court had ceased to be a body of merchant princes, banks did not grow with the growth of trade. Indeed, as late as 1856 banks in India numbered few and their issues were small, as shown in the table on opposite page.

The insufficiency of silver and the want of credit currency caused such an embarrassment to trade that there grew up a change in the attitude towards the Currency Act of 1835, and people, for once, began to ask whether, although it was well to have changed from bimetallism to monometallism, it would not have been better to have preferred gold monometallism to silver monometallism. As more and more of gold was imported and coined the stronger grew the demand for giving it a legal status in the existing system of Indian currency.⁷³ All were agreed on the principle of a gold currency: whatever difference there was, was confined to the method of its adoption. The introduction of gold on a bimetallic basis was out of the question, for the Government refused to make what it deemed to be the “hopeless attempt” to fix the value of gold and silver and compel their acceptance at that value.⁷⁴ The projects which the Government was willing to consider⁷⁵ were: (1) to introduce the “sovereign” or some other gold coin and to let it circulate at its market price from day to day as measured in silver; (2) to issue a new gold coin, bearing the exact value of a given number of [pg 37]

⁷³ The matter was first broached by the native shroffs and merchants
of Calcutta in April, 1859, in a letter to the President of the
Bengal Chamber of Commerce. Both agreed to urge upon the
Government the necessity of a gold currency in India. Cf. _Papers
relating to the Introduction of a Gold Currency in India_,
Calcutta, 1866, pp. 1–3.

⁷⁴ _Ibid._, p. 6.

⁷⁵ Cf. Minute by the Rt. Hon. James Wilson, dated December 25, 1859,
_ibid._, p. 23.

TABLE V

_Banks in India_⁷⁶

──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Name Capital. Notes Specie of Year Head Branches ─────────────────────────── in in Bills under the of Offices and Subscribed. Paid Circulation. Coffers. Discount. £ Bank Establishment Agencies £ up. £ £ £ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Bank 1809 Calcutta 1,070,000 1,070,000 1,714,771 851,964 125,251 of Bengal ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Bank 1843 Madras 300,000 300,000 123,719 139,960 59,871 of Madras ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Bank 1840 Bombay 522,000 522,000 571,089 240,073 195,836 of Bombay ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Oriental 1851 1,215,000 1,215,000 199,279 1,146,529 2,918,399 Bank ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Agra and 1833 Calcutta Agra, 700,000 700,000 — 74,362 — U.P. Madras, Lahore, Canton, and London ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── N. W. Bank 1844 Calcutta Bombay, 220,560 220,000 — — — Simla, Mussowri and Agra. Agencies in Delhi and Cawnpore ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── London & 1854 250,000 — 325,000 — — Eastern Bank ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Commercial 1854 Bombay Agents 1,000,000 456,000 — — — Bank in London, Calcutta, Canton, & Shanghai ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Delhi Bank 1844 Delhi Agents in — 180,000 — — — London, Calcutta, Bombay and Madras ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Simla Bank 1844 — 63,850 — — — ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Dacca Bank 1846 30,000 — — — — ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Mercantile Bombay London, 500,000 328,826 777,156 77,239 109,547 Bank Calcutta, Colombo, Kandy, Canton, and Shanghai ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── India, China had not commenced business and Australian Bank ────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

⁷⁶ R. M. Martin, _The Indian Empire_, Vol. I, p. 565. N.B.—The table
in original does not specify dates, but internal evidence shows
that it is about 1856.

[pg 38] rupees, and make it a legal tender for a limited period, when it might be readjusted and again valued, and made a legal tender for a similar period at the new rate; (3) to introduce the English sovereign as a legal tender for Rs. 10, but limited in legal tender to the amount of Rs. 20 or two sovereigns; or (4) to substitute a gold standard for the silver standard.

Of these projects the first three were evidently unsafe as currency expedients. Fixity of value between the various components of the currency is an essential requisite in a well-regulated monetary system. Each coin must define a fixed value, in terms of the others realizable by the most untutored intellect. When it ceases to do so it becomes a mere commodity, the value of which fluctuates with the fluctuations of the market. This criterion ruled out the first two projects. To have introduced a coin as money, the value of which could not be vouched for—as would have been the case under the first project—from one day to another, apart from the trouble of computing and ascertaining the fluctuations, would have been a source of such embarrassment that the Government, it must be said, acted wisely in not adopting it. There was no saving grace in the second project to recommend its adoption in preference to the first. If it had been adopted the result would have been that during the period that a rate was fixed, gold would have been forced into circulation supposing that its market value was lower, and at the end of the year, if it was known that the rate would be revised and the value of the coin be reduced in conformity with the fall of gold, a general struggle to get rid of the overrated gold coin and shift the inevitable loss to the shoulders of others would have certainly ensued. The third was a somewhat strange proposal. It is possible with a low-priced metal to strike coins of less than full value for the purposes of small payments and limit their tender. But this is not possible with a high-priced metal, the _raison d’être_ of which is to facilitate large transactions. The objections to the plan could hardly be concealed. So long as gold was undervalued it would not circulate at all. But once it became overvalued owing to changes in [pg 39] the market ratio the rupee would go out of circulation, and shopkeepers and traders would remain possessed of a coin which would be of no use in liquidating large transactions.

The only project free from these faults was the adoption of a gold standard, with silver as a subsidiary currency. The strongest argument the Government could oppose to this demand was that “in a country where all obligations have been contracted to be paid in silver, to make a law by which they could forcibly be paid in anything else would simply be to defraud the creditor for the advantage of the debtor, and to break public faith.”⁷⁷ However sound the argument might have been, it was hopelessly inadequate to meet the growing demand to place the Indian currency on an expanding basis. Indeed, it cannot be said that the Government was really serious in its opposition to a gold currency. For the strength of its position it relied not so much on the soundness of its arguments against gold, but on its discovery that a better solution than a gold currency existed at hand. If what was wanted was a supplement to the existing currency, then the remedy proposed by the Government was unassailable. Gold would have been uneconomical and inconvenient. Silver backed by paper would make the currency economical, convenient, and expansive. Indeed, the advantages were so much in favour of the official alternative that this first attempt against the silver standard resulted not in the establishment of a gold standard, but in the introduction of a Government paper currency to supplement the existing silver standard.

⁷⁷ _Ibid._, p. 26.

None the less, the desire for a gold standard on the part of the people was too great to be altogether ignored, though the demand for it was supposed to have been met by the alternative measure. The paper currency, as originally conceived by Mr. Wilson, was a complete counterblast to the gold agitation. But his successor, Mr. Laing, differed from him in what he regarded as the “barbarous” exclusion of gold from Indian currency. He therefore introduced two important provisos in the original Bill, when the task of [pg 40] carrying it through fell upon him, owing to the untimely death of Mr. Wilson. One was to raise the lowest denomination of notes from Rs. 5 to Rs. 20. The other was

“to authorize the Governor-General in Council from time to time
to direct by order to be published in the Gazettes of Calcutta,
Madras and Bombay, that notes to an extent not exceeding
one-fourth of the total amount of issues represented by coin and
bullion … be issued in exchange for gold coin … or bullion
computed at rates to be fixed by such order …”

The Act which afterwards embodied the Bill adopted the second proviso _in toto_, and the first after being modified so as to fix Rs. 10 as the lowest denomination of notes to be issued. Although its general tenor is clear the immediate aim of the second proviso does not become quite clear from a perusal of the official papers. The Select Committee on the Paper Currency Bill seems to have held that the proviso was innocuous if not good. It thought

“that on special occasions and in particular transactions it
might be a great advantage to the mercantile community to know
that gold could be made available as money at a fixed rate. If,
on the other hand, at the rate fixed gold did not enter into
circulation it would prove that silver, with a secure and
convertible paper currency, gave perfect confidence and answered
all the wants of the trade and of the community, and the
enactment would remain a dead letter and be perfectly harmless.”

But there is no doubt that Mr. Laing looked upon it as an easy means of making a transition to the gold standard. In his Minute on Currency and Banking, dated May 7, 1862, he wrote:

“The object of this proviso was simply to leave the door open
for cautious and tentative experiments with regard to the future
use of gold. The importation of gold already exists and is
increasing, and the metal is much appreciated by the native
population as generally to command a premium. … Thus, after a
time, if the use of gold becomes more general, and its value
more fixed, some further step might be taken.” [pg 41]

And such seems to have been the impression of the Secretary of State at the time, for he understood the force of the recommendation in favour of issuing notes against gold was that it would “effectually contribute to the introduction of a gold currency in India.”⁷⁸

⁷⁸ Par. 59 of the Secretary of State’s Despatch, No. 158, dated
September 16, 1862.

But whether conceived as a relief to the mercantile community or as an avenue for introducing a gold currency the proviso was not put into effect. The Secretary of State objected⁷⁹ to any action being taken with regard thereto. In the meantime the paper currency did not prove the panacea it was avowed to be. The extent it reached and the economy it effected were comparatively insignificant.

⁷⁹ _See_ par. 64 of his Despatch, _supra_.

TABLE VI

_Extent and Economy of Paper Currency_

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

⁸⁰ Cf. his letter to the Government of Bombay dated January 1, 1864,
_Vide_ Papers, etc., on the Introduction of Gold in India, pp.
51–69.

⁸¹ _Report of the Bombay Chamber of Commerce_, 1863–64, App. I, p.
206.

“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]

⁸² This time the Government was memorialized by all the Chambers of
Commerce—Bengal, Bombay, and Madras. Action was also urged by the
Bombay Association and the Manchester Chamber of Commerce. But the
movement derived its greatest strength from the support of the
Government of Bombay, particularly by Sir William Mansfield’s
famous Minute on Gold Currency for India.

TABLE VII

_Trade and Currency_⁸³

────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Merchandise. Treasure. Total Excess (+) Annual Net Coinage of or Defect Production Imports of (-) of (in £, Coinage on 00,000 Years Net Imports omitted) of 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 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

⁸³ Sources same as those used in the case of Table IV.

[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.

⁸⁴ Cf. his Minute dated June 20, 1864. _Vide_ Papers, etc., on Gold
in India, p. 147 _et seq_. He was even opposed to holding silver
_bullion_ in the paper currency reserve, for this involved on the
Currency Department the obligation to get the silver coined, which
was a matter of time having regard to the limited capacity of the
Indian Mints at the time, while the notes issued were payable _in
coin on demand_. There was a run on the Paper Currency Department,
which found itself short of coin.

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.”

⁸⁵ Cf. Government of India’s Despatch, No. 89, dated Simla, July 14,
1864,

⁸⁶ Financial Despatch from the Secretary of State, No, 224, dated
September 26, 1864.

⁸⁷ Cf. Letter from the Hon. Claud Brown to the Hon. Sir C. E.
Trevelyan, dated Calcutta, May 28, 1864. _Vide_ Papers, etc., on
Gold, p. 265.

⁸⁸ The reason why he preferred the ratio of 10 to 1 was that that was
the prevalent market ratio in India. His argument was that “the
sovereign must be rated for circulation in India, not with
reference to its English, but to its Indian price estimated in
silver.” Probably he was unwilling to overrate the sovereign
because of his fear that “the existing Indian currency would be
rapidly revolutionized and creditors would receive much less than
their due.” Cf. his Minute dated November 23, 1864. _Vide_
Papers, etc., on Gold in India,

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.

⁸⁹ Cf. Appendix A to the Minute by Sir William Mansfield on Gold
Currency for India, H. of C. Return 79 of 1865.

⁹⁰ Resolution in the Financial Department dated February 3, 1866, in
the _Fort William Gazette_ of the same date, under Notification
No. 592.

⁹¹ For the Report of the Commission, _see_ H. of C. Return 148 of
1868.

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

⁹² It is true Prof. J. E. Cairnes was against the introduction of a
gold standard in India; but later he withdrew his objections. Cf.
his _Essays in Political Economy_ (London, 1873, pp. 88–90).

⁹³ Cf. J. R. McCulloch, _Dictionary of Commerce_, Ed. 1869, p. 1131.

⁹⁴ Mr. H. B. Russell says that they retained the silver standard
because they profited by it on their remittances. Cf. his
_International Monetary Conferences_, 1898, p. 32.

⁹⁵ The original mint and coinage bill contained clauses embodying the
notification of 1868, compelling the Government to receive
sovereigns at Public Treasuries. Cf. _Gazette of India_, Part V,
dated July 23, 1870. But such was the degree of indifference
shown that they were afterwards dropped by the Select Committee,
which preferred to leave the matter to the discretion of the
Executive.

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]

⁹⁶ Cf. the speech of the Hon. Mr. Stephen on September 6, 1870,
introducing the coinage and mint bill. Vide _Supreme Legislative
Council Proceedings_ (abbreviated into _S.L.C.P._), Vol. IX, p.
398.