Indian rupee

“ Indeed, the rise of prices in India before the Mint closure, when the pipe-connection between the silver-bullion reservoir and the rupee-currency reservoir was intact, must be regarded as very trifling compared with the rise of prices after the Mint closure when the pipe-connection was cut off. From the standpoint of prices the Mint closure has therefore turned out to be a curse rather than a blessing, and literally so, for, under an ever-rising price-level, life in India is rendered quite unbearable. No people have undergone so much misery owing to high prices as the Indian people have done. ”

“ It would be possible, although it might be exceedingly troublesome, to adjust the Indian fiscal system to a rupee of any value. What causes inconvenience alike to Government and to trade is that the value of the rupee is unstable. It is impossible to state accurately in Indian currency what the annual liabilities of the Government of India are. These liabilities have to be calculated afresh every year according to the variations which take place in the relative value of gold and silver, and a calculation which will hold good for even one year is exceedingly difficult to make. ”

“ If we could imagine that amount of circulation at present existing in the form of currency notes suddenly converted into £16,000,000 in gold, it seems impossible that Indian trade should be able to get on without having part at least of that amount held in actual circulation, in other words, it would not be possible for that amount of gold coin to be remitted out of the country without the value of the rupee being forced up to a point which would arrest the stream of export. ”

“ South of Yung-ning I again had recourse to broken silver; but west of Tali-fu the Indian rupee is generally accepted, and at the town of Hsia Kuan, near Tali-fu, Indian rupees can be bought in any quantity by travellers and merchants bound for Burma. The Indian rupee is now a rare coin in Ssuch'uan, but sometimes it is treated like broken silver, being cut into pieces and sold by weight. I have in my possession several mutilated rupees which were weighed out to me as small change. The late queen-empress's head has been treated with small respect by the silver-merchants. ”

“ Therefore, if some mitigation of the rise in the Indian price-level is desirable, then the most essential thing to do is to permit some form of “exportable” currency such as gold to be a counterpart of the Indian monetary system.
The Chamberlain Commission expended much ingenuity in making out a case against a gold currency in India.398 The arguments it urged were: (1) Indian people will hoard gold and will not make it available in a crisis; (2) that India is too poor a country to maintain such an expensive money material as gold ”

“ At the close of the Moghul Empire, India, judged by the standards of the time, was economically an advanced country. Her trade was large, her banking institutions were well developed, and credit played an appreciable part in her transactions. But a medium of exchange and a common standard of value were among others the most supreme desiderata in the economy of the Indian people when they came, in the middle of the eighteenth century, under the sway of the British. Before the occurrence of this event, the money of India consisted of both gold and silver. ”

“ On the other hand, if rupees in India fall in purchasing power (i.e. if the Indian price-level rises) while pounds rise in purchasing power or remain stationary or fall less rapidly (i.e. if the English price-level falls relative to the Indian price-level) , it will take more rupees to be worth as much as a pound, i.e. the exchange value of the rupee in terms of the pound will fall.
On the basis of this theory the real explanation for a fall in the Indian exchange should be sought for in the movement of the Indian price-level. ”

“ The recorded statistics of trade overland show a large annual balance against India, which is probably met by an unrecorded export of gold, silver bullion, and rupees. In the case of Nepal, for example, the [155] recorded statistics show a considerable net balance of imports of treasure into India; and in the case of Tibet, Afghanistan and, in fact, all the land frontiers, the official statistics of the export of treasure do not tally with what we know of the circulation of the rupee beyond the frontiers. ”

“ On the other hand, the Indian rupee, of approximately the same weight and fineness, not being backed by any such law, circulates at its commodity value only, and its purchasing power in the markets of the world fluctuates with the price of the metal. ”

“ Indeed, those who have been agitating for an increase in the Indian gold-standard reserve cannot be said to have been alive to the dangers involved in the existence of such a reserve. The smaller the gold-standard reserve the better it would be, for there would be no inflation, no fall in the purchasing power of the rupee, and no necessity for its retirement. ”

“ As a result of these various measures, the rupee remains the local currency in India, but the Government take precautions for ensuring its convertibility into international currency at an approximately stable rate. The stability of the Indian system depends upon their keeping sufficient reserves of coined rupees to enable them at all times to exchange international currency for local currency; and sufficient liquid resources in sterling to enable them to change back the local currency into international currency, whenever they are required to do so. ”

“ It is the most difficult question attending the modern currency crisis, whether such assumption of an unaltered situation is permissible.
Further than this, as a simple matter of fact, [Pg 296] the currency difficulty with India at the present moment is purely governmental and commercial. The Indian Government has yearly to remit a very large sum to this country in discharge of its gold obligations. In 1873-74, before the great fall in silver commenced, the amount remitted was £13,285,678, which, at the rate of exchange of 1 rupee = 1s. 10.35d., meant 142,657,000 rupees. ”

“ The need for a currency reform was recognized in England; but in India many people seemed averse to it. To some the stability of the silver standard had made a powerful appeal, for they failed to find any evidence of Indian prices having risen above the level of 1873. To others the bounty of the falling exchange was too great a boon to be easily given away by stabilizing the exchange. The falsity of both the views is patent. Prices in India did rise, and that, too, considerably. ”

“ Similarly, it cannot be granted without reserve that the new currency system must be good because it has obviated the burden of the gold payments and given relief to the Indian taxpayer. Such a view involves a misconception of the precise source of the burden of India's gold payments during the period of falling exchange. It has been widely held that the burden of gold payments was caused by the fall in the gold value of silver, a view which carried with it the necessary implication that if India had been a gold-standard country she would have escaped that heavy burden. ”

“ Besides this thinness of connection which permits of deviations of the general purchasing power of a currency from the level indicated by the actual exchange rate, it is to be noted that the prices of Indian commodities which largely enter into international trade are not governed by local influences. Such exports of India as wheat, hides, rice and oil seeds are international commodities, not solely amenable to influences originating from changes that may be taking place in the prices of home commodities and services. ”

“ Holding such a position he was naturally opposed to any reform of the Indian currency, for the falling exchange which the Government regarded a curse he considered a boon. But however plausible was the view of the Indian producer, much sympathy would not have been felt for it had it not been coupled with a notion, most commonly held, that the bounty arose from the export trade, so that it became an article of popular faith that the fall of exchange was a source of gain to the nation as a whole. Now was it true that the bounty arose from the export trade? ”

“ It is said that if the council bills were sold in amounts required strictly for the purposes of the Home Treasury, and sold at a price not below gold-import point, gold would tend to be imported into India and would thus become part of the Indian currency media. ”

“ If we continued to go on as we had done for the last two or three years, the result would be that many articles of Indian produce might be driven out of the market by the competition of other countries and he therefore thought that the Government ought to be exceedingly cautious how it took any step that might unduly accelerate the tendency to a general advance, as might be the case under the system of paper currency which to any considerable extent represented securities and not bullion. ”

“ On the other hand, it is possible to hold that if trade is good it may be because the currency is bad. The trade of India between 1873 and 1893 flourished because it received a bounty. But the bounty was a mulcting of the Indian labourer, whose wages did not rise as fast as prices, so that the Indian prosperity of that period was founded not upon production, but upon depredation made possible by the inflation of currency. ”

“ But the reaction would hardly have led to such a serious crisis had it not been for complications which have arisen out of the peculiarities of a unique exchange and currency system. This system presumes a gold standard, but it is in reality a gold exchange system by which, in the absence of an Indian gold currency, the exchange as between the Indian silver rupee and the British gold sovereign has to be kept at the gold point of the legally established rate of the rupee to the sovereign by delicately balanced operations directed from Whitehall. ”

“ For small payments, which in India make in the aggregate an enormous total, the sovereign can no more supplant the rupee than it can supplant the shilling in England.
Reports collected by the Comptroller of Currency [94] in 1911–12 already show in a striking way the tendency of gold to take the place which is, or might be, occupied by notes. The rapidity with which gold is becoming popularised in the Punjab is probably due in very great part to the fact that notes have never become acclimatised there. [47] The inconvenience of making large payments in silver is obvious ”

“ It was up to the officers to see that the prices were not exorbitant. We always used Indian currency—the rupee and the anna. In normal times a rupee is about a third of a dollar. Throughout the occupied area Turkish currency also circulated, but the native invariably preferred to be paid in Indian. Curiously enough, even on entering towns like Tauq, we found the inhabitants eager for payment in rupees. I was told that in the money market in Baghdad a British advance would be heralded by a slump in Turkish exchange. ”

“ Indeed, the disquisitions attached to the Indian Paper Currency Reports, wherein this doctrine of adverse balance as a cause of fall in exchange is usually to be found, never fail to insist that there is no such thing as a “drain” from India by showing item by item how the exports of India are paid for by the imports, even in those years in which the exchange has fallen. The queer thing is, the same Reports persist in speaking of an adverse balance of trade. Given the admission that all Indian exports are paid for, it is difficult to see what remains to speak of as a balance. ”

“ I believe that, in future, the Government of India may have in the busy season a considerable stock of rupee funds available in the [252] Paper Currency Reserve and, occasionally, a surplus stock in the Indian Cash Balances. If a proper machinery is set up for lending these out in India, I anticipate some appreciable relief to the Bank Rate at the season of greatest stringency. Assuming that such a policy is practicable on other grounds, let us try to compare its precise effect as compared with the existing state of affairs. ”

“ The unit of coinage is the rupee, which, though nominally worth 2s., is practically given wherever you would in England give 1s., or even sometimes 6d. But, although this is the case, there is some compensating advantage in the fact, that there is not much temptation to extravagance in India, and that social life in the up-country stations is on an easy and31 natural footing that prevents any foolish ostentation on the one hand, or on the other, any inability to mix in society on the ground of not being able to afford it. ”

“ That's away in the western kens—districts, as you call them. The folk really are crowded thereabouts, but virtually poverty does not exist in the country. You see, an agricultural labourer can maintain himself and his family, as far as rice goes, for four cents a day, and the price of fish is nominal. Rice now costs a hundred pounds to the dollar. What do you make it by Indian standards? From twenty to twenty-five seers the rupee. Yes, that's about it. Well, he gets, perhaps, three dollars and a-half a month. The people spend a good deal in pleasuring. They must enjoy themselves. ”

“ Whatever may be the cause, the internal trade of India has, ever since the beginning of this century, required constant and steady additions to her currency, averaging during the last thirty-eight years upwards of five millions of pounds sterling per annum in value. Besides this, the returns show that the balance of imports over exports of gold bullion, during the same period, exceeded an average of two and a half millions sterling annually, having been, during the last twenty years, more than four millions per annum. ”