Vol. 6 · pages 646–650

631 STATEMENT OF EVIDENCE cannot with safety be made as elastic as it should be. I would therefore recommend that the remainder of the Gold Standard Reserve be utilised in the cancellation of the “Created Securities” in the Paper Currency Reserve. 8. Having given my views on the nature and form of the change I will now discuss the question next in importance, namely, “the ratio between gold and rupee.” As a result of war operations there is not a single country with a Gold Standard which was able to keep its pre-war gold parity. Some of them have erred from it by such a large margin that it is now beyond the capacity of many to approach it with any degree of certainty. But howsoever impossible and impolitic the task, the hankering for a return to the prewar parity seems to be universal. There is but this difference between India and the other countries. The other countries have yet to reach the pre-war parity. India, on the other hand, has in fact overreached the pre-war parity. As a result of the difference the problems before India and the other countries are different. In European countries the problem is one of deflating the currency, i.e., appreciating it; in other words of bringing about a fall in prices. In India the problem becomes one of inflating the currency, i.e., depreciating it; in other words of bringing about a rise in prices. For a change from 1 s 6d. gold to 1 s. 4 d. gold means this and nothing else. Should the currency be inflated to reach back the pre-war parity ? There are some people who are under the impression that the restoration of pre-war parity would give justice and would also give us the old price level to which we were so long accustomed. Both these views are fallacious. First : the restoration of pre-war parity is not a restoration of the pre-war price level. For it is to be remembered that 1s . 4d. gold in 1925 is not the same thing as 1s . 4 d. gold in 1914 if measured in terms of purchasing power. The same ratio of exchange does not necessarily mean the same level of purchasing power. The ratio between two currencies may remain the same though their respective volumes have undergone enormous changes, provided the variations in volumes are equal and in the same sense. This is exactly the result of a mere nominal restoration of the pre-war parity. If by restoring pre-war parity is meant the restoration of the pre-war level of prices then

632 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES the ratio instead of being lowered from 1s. 6d. in the direction of 1s . 4d. must be raised in the direction of 2 s. gold. In other words instead of an inflation there must be a further deflation of the currency. Second : the restoration of pre-war parity even nominally would be unjust. As a standard of deferred payment a currency should not disturb monetary contracts. If all debts now existing had been contracted in 1914 before the war, ideal justice would clearly require the restoration of the pre-war ratio. On the other hand if all existing contracts had been entered into in 1925 justice would require us to keep to the ratio of 1925. Two things must be borne in mind in this connection. Existing contracts include those made at every stage of preceding depreciations and appreciations and to deal fairly with all would demand that each one should be treated separately—a task impossible by reason of its complexity and enormity. Existing contracts are no doubt of various ages. But the great bulk of them are of very recent date and probably not more than one year old; so that it may be said that the centre of gravity of the total contractual obligations is always near the present. Given these two facts the best solution would be to strike an average between 1 s. 4d. and 1s. 6d., and to see that it is nearer 1 s. 6d. and away from 1s. 4d. This is substantially the view of Prof. Fisher, who observes: “The problem of a just standard of money looks forward rather than backward : it must take its starting point from the business now current, and not from imaginary pars before the war. One might as well talk of restoring the original silver pound or returning to the monetary standards of Greece and Rome.” In short, in matters of currency the real is the normal and therefore just. 9. As regards the effects of a rising and falling rupee on trade and industry the point often sought to be made is that low exchange confers a bounty on trade and industry. But this is not the important point. The more important point is, supposing that there is a gain arising from low exchange, whence does this gain arise ? It is held out by most business men that it is a gain to the export trade and so many people have blindly believed in it that it must be said to have become an article of faith common to all that a low exchange is a source of gain to the nation as a whole. Now

633 STATEMENT OF EVIDENCE if it is realised that low exchange means high internal prices, it will at once become clear that this gain is not a gain to the nation coming from outside, but is a gain from one class at the cost of another class in the country. Now the class that suffers is the poor labouring class, which pays the bounty to the richer or the business class. Such a transference of wealth from the poor to the rich can never be in the general interest of the country. I am therefore strongly opposed to high prices and low exchange, and no righteous Government should be party to such clandestine picking of the pockets of the poorer classes in the country. 10. I now come to the question of providing for the seasonal needs of the money markets in India. A currency system should be stable and elastic, and it is for this reason more than any other that the currency in many countries is a compound of metal and paper. The former is intended to give steadiness and stability and the latter elasticity. Unfortunately in India the plan of the paper currency is not contrived to give it elasticity. In England under a similar paper currency the inelasticity is made good by the development of what is called deposit currency which is issued against good commercial paper. Owing to a variety of causes deposit currency has failed to take root in India and there has been consequently no mitigation of the inelasticity of the paper currency of India. We should therefore make greater provision in our paper currency reserve whereby it could be made possible to convert good commercial paper into currency best suited to the needs of seasonal demands. zz

2 Copy of the Memorandum* circulated to Witnesses in India by the Commission The following memorandum, indicating the main questions which will come under the consideration of the Royal Commission on Indian Currency and Finance under its terms of reference, is published in order to assist intending witnesses in the preparation of their evidence. It is not to be regarded as exhaustive, nor is it desired that each witness should necessarily attempt to deal with all the questions raised :— (1) Is the time ripe for a solution of the problems of Indian Currency and Exchange by measures for stabilisation of the rupee or otherwise ? What is the comparative importance of stability in internal prices and in foreign exchanges ? What are the effects of a rising and a falling rupee, and of a stable high or low rupee, on trade and industry (including agriculture) on national finance ? (2) In relation to what standard and what rate should the rupee be stabilised, if at all ? When should any decision as to stabilisation take effect ? (3) If the rate selected differs materially from the present rate, how should the transition be achieved ? (4) What measures should be adopted to maintain the rupee at the rate selected ? Should the Gold Exchange Standard system in force before the war be continued, and with what modifications, if any ? What should be the composition, size, location, and employment of a Gold Standard Reserve ? (5) Who should be charged with the control of the note issue, and on what principles ? Should control or management be *Report of the Royal Commission on Indian Currency and Finance, Vol. III, Appendix 95A, p. 612.

635 COPY OF A MEMORANDUM transferred to the Imperial Banks of India, and, if so, what should be the general terms of the transfer ? (6) What should be the policy as to the minting of gold in India and the use of gold as currency ? Should the obligation be undertaken to give gold for rupees ? (7) By what method should the remittance operations of the Government of India be conducted ? Should they be managed by the Imperial Bank ? (8) Are any, and, if so, what, measures desirable to secure greater elasticity in meeting seasonal demands for currency ? Should any, and, if so, what, conditions be prescribed with regard to the issue of currency against hundis ? (9) Should any change be made in existing methods for the purchase of silver ? Note.—The above questions were circulated to witnesses in India. As the result of the oral and written evidence received in India, the relative emphasis to be laid on the various matters dealt with has become clearer, and accordingly the attached memorandum and supplementary list of “Questions to be asked by the Chairman” have been prepared for the information of witnesses. zz