Vol. 6 · pages 491–495

476 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES But soon after it had refused to be diverted from the goal it had placed before itself, namely the introduction of a gold standard, it was faced with a crucial problem in its existing monetary arrangements. The rupee stock, the addition to which was stopped since 1893 by the closure of the Mints, was large enough to meet the needs of the people for some considerable time, in the first few years after the closure, the rupee currency was not only abundant but was also redundant. Soon it ceased to be redundant, and indeed by the end of 1898 it became scarce, so much so that the discount rate in the Indian money market rose to 16 per cent., and continued at that pitch during the larger part of the year. Such was the outcry against what was called the policy of “starving” the currency, that the Government was obliged to pass an Act (No. II) of 1898 to permit currency notes issued in India against gold tendered in London to the Secretary of State. The Act was doubly easeful to the then starved condition of the Indian money market. By the measures adopted in 1893 gold was not general legal tender, so it could not be used when the rupee currency fell short of the needs of the time. The new Act, it is true, did not make gold general tender, but permitted it to be used on behalf of the general public* as a backing for the issue of currency notes which were general legal tender. The Act, however, could have required that gold be laid down in India before notes could be issued. But as the remittance of gold to India took some three or four weeks, it was feared† that the remedy might” prove too tardy to be effective” unless the interval was done away with by providing that gold with the Secretary of State in London was lawfully tantamount to gold with the Paper Currency Department in India for the purposes of note issue. In doing this the Act only testified to the urgency of the situation. A sound currency system must be capable of expansion as well as contraction. The Government, by the closure of the Mints in 1893, had contracted the currency to the point of danger. In 1898 it was called upon to undertake measures to provide for its expansion. Now, there were two methods open to bring about this desired result. One was to keep the Mints closed and to permit additions to currency through the use of the gold by making the sovereign general * By Notification No. 2664 of 1893, notes could be issued against gold only to the Comptroller-General. † Cf. the speech of the Hon. Sir James Westland introducing the Bill, dated January 14, 1898.

477 TOWARDS A GOLD STANDARD legal tender. This was the plan proposed by the Government of India, in their despatch dated March 8, 1898,* they argued ;— “Our present intention is rather to trust to the automatic operations of trade. The amount of coin required for the needs of commerce increases every year: and as we print no increase in the amount of silver coin, we may reasonably expect that the effect of the increasing demand for coin will raise exchange to a point at which gold will flow into the country, and remain in circulation. The position will thus become stronger and stronger as time goes on, but at the beginning at least, gold will not be in circulation in the country to more than the extent necessary to secure stability of exchange. The mass of the circulation will be a silver circulation, maintained at an appreciated value (just as it is at present), and we can be content to see gold coin remain little more than a margin, retained in circulation by the fact that its remittance out of the country could create a scarcity of coin which would have the effect of raising the exchange value of the silver rupee in such manner as to bring it back, or, at the very best, stop the outward current of remittance. We shall have attained a gold standard under conditions not dissimilar from those prevailing in France, though not a gold circulation in the English sense ; and this last may possibly not be necessary at all.” Besides expanding the currency through the use of gold, there was aisc another mode of effecting the same object. It was urged that this increase of currency might as well take place by Government coining rupees whenever there arose a need for additional currency. Though the Mints were closed, the Government, by Notification No. 2662, had undertaken to give rupees to anyone desiring to have them at the rate of 7.53344 grs. troy of fine gold per rupee.† The Government had only to give effect to that notification to augment the currency to any extent desired. Prominent in the advocacy of this plan of expanding the currency were Mr. Probyn and Mr. A. M. Lindsay. Both claimed that the plan of the Government of India was * Cf correspondence respecting the Proposals on Currency made by the Government of India, C. 6840 of 1898, p. 3. † See supra.

478 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES defective because, although it provided for the expansion of currency by making gold legal tender, it made the rupee entirely inconvertible, and thereby likely to defeat the policy of stabilizing its exchange value. On the other hand, they deemed their plans to be superior to that of the Government of India because they recognized the obligation to provide for the conversion of the rupee currency on certain terms. Although the plans of both of them had contemplated some kind of convertibility, yet they materially differed in the particular mode in which conversion was to be effected. Mr. Probyn proposed*:— 1. That legislative effect should be given to the notification of 1893, under which the public can obtain rupees at the Indian Mints and Reserve Treasuries in exchange for gold, at the rate of 1s. 4d. 2. That the gold so received should be part of the paper currency reserve, and should be held either in the form of full legal-tender gold coins of the United Kingdom, or gold bars representing not less than Rs. 1,000 each. 3. That in order to give the rupee currency automatic power of contraction, Government should be empowered (though not required) so soon as the portion of the paper currency reserve has continuously for one year been less than that held in gold, to give gold in exchange for rupees or rupee notes at the rate of 1s. 4d., if presented for the purpose in quantities of Rs. 10,000. 4. That the existing Rs. 10,000 notes should be called in, and, in future, notes of Rs. 10,000, payable at the option of the holder either in gold or in silver rupees, should be issued in exchange for gold alone, gold in the form of bars being specially reserved to meet any such notes outstanding. Mr. Lindsay, on the other hand, followed on lines quite different from those adopted by Mr. Probyn. He proposed† that the Government should offer to sell, without limit on the one * Cf. his Indian Coinage and Currency, Effingham Wilson, London, 1897, passim, particularly p. 121. Also the summary by Lindsay in the Economic Journal, Vol. VII, pp. 574-75. † The earliest elaboration of his plan is to be found in his article in the Calcutta Review for October, 1878, under the title, “A Gold Standard without a Gold Coinage in England and India,” and the latest, in his pamphlet called Ricardo’s Exchange Remedy, Effingham Wilson, 1892. The plan was further developed in the newspaper Pioneer of Allahabad (India), dated January 6, 1898, full extracts from which are given in C. 8840 of 1898, p. 13.

479 TOWARDS A GOLD STANDARD hand, rupee drafts on India at the exchange of 16 1/16d. the rupee, and on the other hand, sterling drafts on London at the rate of exchange of 15 3/4d. the rupee. The funds necessary for the transactions were to be kept separate from the ordinary Government balances in “Gold Standard” Offices in London and in India. The London Office was to be kept in funds to meet drafts drawn on it— (1) by borrowing in gold to the extent of five or ten million sterling; (2) by the rceipts realized by the sale of drafts on India; (3) by the receipts realized by the sale of silver bullion in rupee melted down ;* and (4) when necessary, by further gold borrowing. The Indian Gold Standard Office was to be kept in funds to meet the drafts drawn on them— (1) by the receipts realized by the sale of drafts on London ; and (2) by the coinage when necessary of new rupees from bullion, purchased by the London Gold Standard Office and sent to India. The principal point of difference between the scheme of currency advocated by the Government of India on the one hand and that put forth by Messrs. Probyn and Lindsay consisted in the fact that the former proposed to establish a gold standard with a gold currency, while the latter proposed to establish a gold standared without a gold currency. To adjudicate upon the relative merits of a gold standard with a gold currency and a gold standard without a gold currency, the Secretary of State appointed another departmental Committee, under the chairmanship of Sir Henry Fowler. After taking a mass of important evidence, the Committee observed† :— “50. On this scheme [of Mr. Probyn] we remark that, while bullion may be regarded as the international medium of exchange, there is no precedent for its permanent adoption for purposes of internal currency; nor does it accord with * Mr. Lindsay contemplated that when the demand for gold drafts on London became so great as to indicate the necessity, the volume of the rupee currency should be contracted by melting down the rupees and selling the silver for gold to be deposited in the London “Gold Standard” Office. † Report of the Committee appointed to inquire into the Indian Currency, P.P. C 9390 of 1899, p. 15.

480 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES either European or Indian usage that the standard metal should not pass from hand to hand in the convenient form of current coin. No real support for such a scheme is to be drawn from the purely temporary provisions of “Peel’s Act” of 1819, whereby, for a limited period, the Bank of England, as a first step to the resumption of cash payments, was authorized to cash, in stamped gold bars, its notes, when presented in parcels of over £ 200. Little or no demand for gold bullion appears to have been made on the Bank itself in 1321. ***** “53. It is evident that the arguments which tell against the permanent adoption of Mr. Probyn’s bullion scheme, and in favour of a gold currency for India, tell more strongly against Mr. Lindsay’s ingenious scheme for what has been termed ‘an exchange standard.’ We have been impressed by the evidence of Lord Rothschild, Sir John Lubbock, Sir Samuel Montagu and others, that any system without a visible gold currency would be looked upon with distrust. In face of this expression of opinion, it is difficult to avoid the conclusion that the adoption of Lindsay’s scheme would check that flow of capital to India upon which her economic future so greatly depends. We are not prepared to recommend Mr. Lindsay’s scheme, or the analogous schemes proposed by the late Mr. Raphael and by Major Darwin, for adoption as a permanent arrangement; and existing circumstances do not suggest the necessity for adopting any of these schemes as a provisional measure for fixing the sterling exchange.” The Committee preferred the scheme of the Government of India, and outlined a course of action to be adopted for placing it on a permanent footing, which may be stated in the Committee’s own language as follows:— “54. We are in favour of making the British sovereign a legal tender and a current coin in India. We also consider that, at the same time, the Indian Mints should be thrown open to the unrestricted coinage of gold on terms and conditions such as govern the three Australian branches of the Royal Mint. The result would be that, under identical conditions, the sovereign would be coined and would circulate both at home