Vol. 6 · pages 626–630

611A RETURN TO THE GOLD STANDARD Equally sane was the view of the Government in 1876 with regard to the rupee currency. The Bengal Chamber of Commerce, it will be recalled, had urged upon the Government of India to close the Mints to the free coinage of silver, without opening them to the free coinage of gold—a project which practically meant that the Government should undertake the management of the rupee currency. The reply of the Government of India was a sharp rebuke. It declared*:— “8. . …the Chamber invite the Government to take a measure calculated to enhance indenfinitely the value of the rupee by suspending the long-established legal right of all comers to have silver bullion manufactured upon uniform conditions under State supervision into legal-tender coin, and temporarily substituting a system of coinage at the discretion of the State…… * * * * * “11. It is essential to a sound system of currency that it be automatic. No man or body of men can ascertain whether at any particular moment the interests of the community as a whole require an increase or diminution of the currency; still less, how much increase or how much decrease is, at any moment, exactly needed. No Government which aspires to keep its currency in a sound condition would be justified in attempting that impossible task, or in leaving the community, even for a short interval, without a fixed metallic standard of value. Under an ‘open coinage system’ these things regulate themselves without official interference.” Now, compare with this the later pronouncements of the government with regard to the principles governing the paper and rupee currency respectively. During the war, when the Government of India resorted to the enlargement of paper issues, Honourable Members of the Supreme Legislative Council pointed out the effects it would produce on prices in India. But the late Hon. Sir Wm. Meyer, who as a Finance * Resolution of the Government of India, relating to the Depreciation in the Value of Silver, dated September 22, 1870, Commons Paper 449 of 1893.

612 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES Minister piloted the Indian finances during the last war, in the course of a speech on the Indian Paper Currency (Amendment) Bill, dated September 5, 1917, replied*:— “ The note circulation was sixty crores before the war and is now about a hundred crores. But the Hon. Mr. Sarma shivered at the idea of inflation. I may remind him that one of the accepted (!) doctrines of economists is that artificial inflation of paper currency only exists when the note circulation is not fully covered. Now we have covered every rupee of our note circulation. …… in securities……” [How could there be an inflation ?] The change in the Government’s view with regard to the rupee currency is equally noteworthy. In 1908, when the exchange value of the rupee fell below par, the Government was reminded that it was the result of the excessive coinage of rupees. But although in 1876 the Government did not think it was possible for it to so increase and decrease the currency to suit the needs of commerce, yet in 1908 the Government advanced the opposite view. The Finance Minister, the Hon. Mr. Baker, in his reply, went on to argue†:— “ In the first place the whole of the new coinage that we have undertaken during this period has been undertaken solely to meet the demands of trade. Not one single rupee has been added to the circulation except to enable us to meet these demands……” Now, if it is dangerous to entrust a Government with the power to manage currency, how very dangerous is it to entrust it to the Government of India, which professes to carry out its trust on the basis of doctrines such as these ! No one is so ill-instructed in these days as to suppose that these are sound maxims. If security is enough, what need is there for convertibility ? If currency is issued only in response to trade demand, what fear is there of over-issue ? A Government acting on such a principle may well go on indefinitely increasing the currency without remorse. History abounds with instances of ruin caused by the management of currencies on such naive principles as these. ‡ Happily for the country, the paper currency profoundly * S.L.C.P., Vol. LVI, p. 35. † Cf. Financial Statement for 1908-9, p. 229. ‡ Cf. E. R. A. Seligman, Currency Inflation and Public Debts, New York, 1922, passim.

613A RETURN TO THE GOLD STANDARD altered in its basis—one might almost say, tampered with— in 1920 by the Government is yet far away from currencies regulated on the theory enunciated by the Finance Minister. It is the rupee currency which has been, ever since the Mint closure, the chief source of danger to the welfare of the Indian people, particularly because of the principle governing its issue. Because that principle has the support, in itself a surprising thing, of such eminent authorities as Prof. Keynes,* Mr. Shirras.† and the Chamberlain Commission. ‡ it cannot alter the case for depriving the Government of this power of managing the rupee currency, for the principle is essentially unsound. The reason why the fallacy in the reasoning, that there could be no excess of rupees because of their being issued in response to trade demand, does not appear on the surface is due to the peculiar nature of money. Money is said to be wanted only because money has a purchasing power. That is no doubt true, but that does not quite explain why people so incessantly want money, even when they know that the value of money is so unstable. Indeed, if purchasing power was the only consideration we should not find such a desire for the current means of purchase. That desire can only be accounted for by the fact that money has a differential advantage over other goods, in that it has in the highest degree what Menger called the quality of saleability. That one can more often buy at a bargain than sell at a bargain is simply another way of stating that every one desires to hold his resources in the most saleable form of money. In this sense it is absolutely true that no more money can be issued than there is demand for. But from that it does not follow that there can be no over-issue of money purely for the currency needs at any given time. All money is acquired in response to trade or services, but all money is not retained in currency. Indeed, all commodities are exchanged for money, because money is supposed to bear the option of being used for non-monetary purposes. In the case of the rupee the option-ofuse quality is non-existent. Consequently, although issued in response to trade demand, it remains in currency whether it is * Op. Cit., p. 111. † Op. cit., p. 39. ‡ Report, par. 66.

614 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES wanted or not, and thus tends to bring about its depreciation. That such a depreciation is possible cannot be denied even by those who maintain that rupees are issued only in response to trade demand, otherwise why should they be so very anxious for an increase of the gold reserves of the country. But the danger to the rupee currency does not merely arise from the possibility of indiscretion on the part of the Government. Besides the Government there have been statesmen in India so interested in the welfare of their fellow-subjects that they have rebuked the Government on several occasions for not making the profits on rupee coinage available for the advancement of the moral and material progress of the country.* and in 1907 the profits on rupees were actually employed in the extension of railways. It must fill every one with horror and despair to contemplate the consequences sure to emanate from the manipulation of currency for such ends. Is it not time this source of danger and temptation be removed by depriving the Government of this power to manage the rupee currency ? But what is the means of bringing this about ? If it is desirable to do away with the management then convertibility is an insufficient measure; for with convertibility the rupee will still remain a managed rupee. Only the complete stoppage of rupee coinage will remove the governmental interference in the management of Indian currency; and it is this that we must therefore ask for. Queer as it may seem, SAFETY LIES IN AN INCONVERTIBLE Rupee with a fixed limit of Issue. zzz * Such a sober politician as the late Mr. Gokhale took the lead in this matter. Cf. his speech in the Financial Statement for 1907-8, pp. 203-4 ; and the same indiscretion is repeated by Prof. V. G. Kale in his Currency Reform in India, 1919, p. 65.

Administration : Changes in 1833 : 353 Civil Service reforms, 1853 : 417, 418, 425 Table of costs : 420 Agricultural exports : 430, 431 Althorpe, Lord : 485 note Babington Smith, Sir Henry. See Smith Committee on Currency Bagehot, Walter: 456, 457 Baker, Hon., Mr. : 612 Bank Charter Act, 1884 : 591 Bank of England Notes, depreciation, 1797-1818:558,562 Banks of India, table : 367 Barbour, D.: 505 note Belgium, Bimetallic system in : 355 Bengal : Double standard, experiments 176693:346 Reform of currency : 350 Bimetallism: Abrogation in India : 354 et seq. Drawbacks of: 462, 463 Gold of silver ratio : 410 Indian Government’s position : 465, 466 Market and Mint ratio divergences: 411,412 Monetary conferences, discussions at: 459, 460 Bombay, currency reforms : 348, 350 Brown, Hon. Claud : 374 note Cairnes, Prof. J. E., 377 : note, 410 Cannan, Prof. Edwin : 229 note, 575 note, 608 Cassel, Prof. G. : 567 note Cassels, Mr. : 365, 371 Castlereagh, Lord : 528, 557 note Chamberlain Currency Commission : 1913: 487, 489, 493, 512, 542, 547 note, 549, 550, 553, 564, 573, 585, 590, 591 note, 613 Cheque system, failure of: 391 China, trade with India, 1889-1908, table : 504 Civil Service, economies in : 417, 418, 425 Coinage and Mint Act, 1870 :378 et seq., 471 Coinage under the Moghul Empire : 437 Cotton trade, development in India : 429, 432 Council Bills: Drawings, 1893-94 : 509 History of: 577 Reserve Councils : 489, 255 et seq. Sales of: 457, 489, 509, 531, 578 et seq. Cromer, Lord: 441 Currency. See Indian Currency Currency Act, 1835 : 354, 366 Curzon, Lord: 587 Dalai, Mr.: 574 note Datta, Mr. : 528 note Davenport, Prof. : 571 Dawkins, Hon. C. E. : 587, 590 Demonetization of gold, 1833 : 351 Demonetization of silver: 399 et seq. Discount rates, chart: 394 Dislocation of silver standard parity : 378 et seq. East India Company: Double standard experiments, 1766-93: 346, et seq. Silver standard prescribed, 342, 343 English currency, early history : 335,339, 355, 356 European countries, money stocks distribution, table: 461 Exchange : Fall of, economic effects : 415 et seq. High exchange policy, 1920 : 527 “ Natural level” fallacy : 542, 543 Stabilization of: 522 Exchange rate : Gold value of rupee in terms of: 516 London on Calcutta, 1914, 1915, table: 512 London on India, 1907-8, table : 511 Purchasing power parity, 567 et seq. Exchange standard, stability of: 502 et seq. Falkner, Prof. R. P. : 389 note Fetter, F. A. : 550 note INDEX