Vol. 6 · pages 411–415

396 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES community on the somewhat pedantic plea that in locking up currency it did not lock up capital.* Nor is it possible to say, since it was not called upon to enunciate a policy, how far it would have gone to modify the Paper Currency Act so as to relieve the situation. Before, however, this controversy could end in a satisfactory solution for imparting to the currency system that element of elasticity which it needed, there developed another and a greater evil, which affected its metallic counterpart in a degree sufficient to destroy its most vital element of steadiness and stability of value, which it was its virtue to furnish. So enormous did the evil grow, and so pervasive were its effects, that it absorbed all attention to the exclusion of everything else. These revised agreements were to remain in force till March, 1, 1874. In 1874 the question of the revision of the charters of the Presidency banks was under consideration, and it was the aim of the Government to continue to the banks the right to use the whole Government balances. Just at this time (1874) difficulties occurred with the Bank of bombay and the government could not draw upon their balances. This led to a reconsideration of the policy of merging the Government balances with the bank balances and leaving them in the custody of the banks. After a somewhat lengthy discussion the Government of India reverted to the system of Independent Treasury by instituting what were called Reserve Treasuries at the headquarters of the Presidencies which held the Government balances previously held by the Presidency banks. For a history of this episode see House of Commons Returns 109 and 505 of 1864 ; also J. B. Brunyate, An Account of the Presidency Banks, Chap. VII. *In the despatch of May 6, 1875, sanctioning the re-establishment of the Independent Treasury System, the banks were admonished by the Secretary of State thus :” Capital supplied by Government, and not representing the savings of the community, is a resource on whose permanence no reliance can be placed, and which therefore tends to lead traders into dangerous commitments. It gives ease for a time, and produces prosperity which is at the mercy of an accident. A political exigency suddenly withdraws the adventitious resources, and the commerce which trusted to it finds itself pledged beyond what its own resources can make good.” Under the arrangements of 1876 leading to the establishment of the Reserve Treasuries, the Government agreed as before to pay interest to the banks when their balances at the banks fell below certain minima. The Government entered into no formal undertaking as regards maxima, and gave the banks to understand “that the Government will ordinarily not leave with the headquarters of the banks, otherwise than temporarily, more than the following sums ; Bank of Bengal 100 lakhs, Bank of Madras 30 lakhs, and Bank of Bombay 50 lakhs. But this condition will not be inserted in the contract, which will impose no obligation upon the Government to leave any balances whatever with the banks........... The Government will not undertake to give to the banks the exclusive custody of all the public balances where the Government banks with the banks.” The question of the amount of balances which the Government would have with the banks in the ordinary course being thus settled, the only way left open to give help to the banks to meet seasonal demands was to grant loans to the Presidency banks for its balances held in the Reserve Treasuries. After 1900 it agreed to make such loans of a limited amount at the bank rate. Up to 1913 only six loans were made, which shows that the terms of such loans were rather onerous. The Chamberlain Commission of 1913 recommended loans rather than the abolition of the Independent Treasury system. The war, however, hastened the course of events. It proved the necessity of co-operation between the Presidency banks and the Government, and also the need of a large and powerful Banking Institution. This was accomplished by the amalgamation of the Presidency banks into an Imperial Bank of India (Act XLVII of 1920), with the inauguration of which the Independent Treasury system is again in the process of abolition. For a history of episodes of the Independent Treasury after 1876, see Appendices to the Interim Report of the Chamberlain Commission, Vol. I, Cd. 7070 of 1913, Nos. I and II.

397 THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY What fixity of value between the different units of its currency is to the internal transactions of a country, a par of exchange is to its internal transactions. A par of exchange between any two countries expresses the relative exchange values of their respective currencies in terms of each other. It is obvious from this that the par of exchange between any two countries will be stable if they employ the same metal functioning as their standard money, freely convertible into and exportable as bullion, for in that case they would have as a measure of value a common medium, the value of which could not differ, given freedom of commerce, in the two countries by more than the cost of its transhipment, i.e., within specie points. On the other hand, there can be no fixed par of exchange between two countries, having different metals as their currency standards of value. In that case, their exchange is governed by the relative values of gold and silver, and must necessarily fluctuate with changes in their value relation. The limit to the exchange fluctuations between them will be as wide or as narrow as the limit to fluctuations in the relative values of the two metals may happen to be. When, therefore, two countries such as England and India are separated by differences in their metallic standards, theoretically there could be no possibility for a stable par of exchange between them. But, as a matter of fact, notwithstanding the difference in their metallic standards, the rate of exchange between England and India seldom deviated* from the normal† rate of 1 s. 10½ d. for R. 1. So steady was the rate up to 1873 that few people were conscious of the fact that the two countries had different currency standards. After 1873, however, the rupee-sterling exchange suddenly broke loose from this normal parity, and the dislocation it caused was so great and so disorderly (Chart II) that no one knew where it would stop. *It appears, however, from the chart that the rupee-sterling exchange before 1873 was not quite stable. But the fluctuations in it are to be attributed to quite a different set of factors. It should be noted that the rates of exchange used for reducing the Indian moneys into sterling during the time of the East India Company had been various : moreover, they had so little relation to the intrinsic value of the coins exchanged that the actual rates officially given were far from the actual market rates. As having a bearing on this interesting subject, consult H. of C. Sessional Papers 735 II of 1931-32 ; Appendix No. 20, Correspondence, etc., relating to the rates of exchange at which the currencies of India are converted into sterling ;also Tucker, H. St. George, Remarks on the Plans of Finance, 1821, passim, and Memorials of Indian Government, 1853, by the same, pp. 382-85. †Normal only if 15½ to 1 be taken as the normal ratio between gold and silver, which was the case for nearly seventy years.

399 THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY The rupee-sterling exchange was in reality a reflection of the gold-silver exchange. When, therefore, it is said that the rupee-sterling before 1873 was stable at 1s. 10½ d., it merely meant that the gold-silver exchange before 1873 was stable at the ratio of 1 to 15½ ; and that the rupee-sterling exchange was dislocated after 1873 meant that the gold-silver exchange lost its old moorings. The question which therefore arises is why was the ratio of exchange between gold and silver disturbed after 1873, as it never was before that year ? Two factors have been appealed to as affording a sufficient explanation of what then appeared as a strange phenomenon. One was the demonetization of silver as the standard money medium by the principal countries of the world. This movement in favour of demonetization of silver was the outcome of an innocent agitation for uniformity of weights, measures, and coinages. In so far as the agitation was aimed at such uniformity, it was in every way beneficial. But it also exemplifies how the pursuit of good sometimes leaves behind a legacy of evils. At the Great Exhibition held in London in 1851 the great difficulty of comparing the different exhibits, owing to the differences of weights, measures, and coinages as between the countries of their origin and other countries, was amply demonstrated to the representatives of the different nations assembled at that exhibition.* The question of international uniformity in weights, measures, and coins was discussed by the various scientific assemblies gathered at this exhibition, and although nothing tangible came out of it, the question was not allowed to be dropped : it was taken up at the Brussels International Statistical Congress held two years after. Opinion had so far advanced that the next Statistical Congress, held at Paris, issued a declaration, which was confirmed by the Vienna Statistical Congress of 1859, strongly urging the necessity of bringing about the desired uniformity in the weights, measures, and coinages of different countries.† Encouraged by the action of England, which had made in 1862 the metric system of weights and measures optional, the 1863 International Statistical Congress of Berlin resolved to invite the different Governments “ to send to a special Congress delegates authorized to consider * Report of the Royal Commission on International Coinage, 1868, p. v. † Cf. Russell, H. B., International Monetary Conferences, 1998, pp. 18-25.

400 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES and report what should be the relative weights in the........gold and silver coins, and to arrange the details by which the monetary systems of the different countries might be fixed, upon a single unit decimally subdivided.”* The significance of this Congress can hardly be overlooked. It made a departure. At the former Congresses the question debated was largely one of uniformity in weights and measures. But at this Congress “ that phase of it was subordinated to uniform coinage and was well-nigh laid aside.”† Though the resolution was a departure, it should not have been fraught with serious consequences if the reform had been confined to the question of uniformity of coinage. But there occurred a circumstance which extended its application to the question of currency. When this agitation for uniform coinage grew apace, the French quite naturally wished that their coinage system, which had already been extended over the area comprised by the Latin Union, should be taken as a model to be copied by other countries outside the Union in the interest of uniformity. With this end in view the French Government approached the British Government of the time, but was told in reply that the British Government could not consider the suggestion until France adopted the single gold standard.‡ Far from being taken aback, the French Government, then so anxious to cultivate the goodwill of England, proved so complacent that it felt no compunction in conceding to the British the pre-requisite it demanded, and indeed went so far out of the way, when the Conference met in Paris in 1867, that it actually manoeuvred§ the Assembly into passing a resolution “that for uniform international coinage it was necessary that gold alone should be the principal currency of the world.” So much importance was attached to the question of uniformity of coinage that those who passed the resolution seemed not to have noticed what sacrifice they were called upon to make for its achievement. Perhaps it would be more correct to say that they did not know that they were affecting by their decision the currency system of the world. All they thought they were doing at the time was to promote uniformity of coinage and nothing *Quoted by Russell, op. cit., p. 25. † Russell, loc. cit. ‡ Cf. evidence of Prof. Foxwell, Q. 23,876, Royal Commission on Agricultural Depression in England, 1892. § For which cf. Russell, op., p. 46.