Vol. 6 · pages 661–665

646 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES correlated by reason of the fact that the reserve cannot increase without an increase in the rupee currency.” I am going to ask you to expand that a little, and in order to show you what I think needs expansion, I would put these possible questions by a critic. Might not a critic say : you say that the reserve cannot increase without an increase in the rupee currency, and this critic might say, why should it ? He would say, if the rupee currency cannot increase without an increase in the reserve, would that not be a most desirable state of affairs ? Have you followed my point ?—I will explain in this way : for instance, there are the bank issues and the reserves of a bank. If you compare, for instance, the bank reserves with the bank issues and the currency and the gold standard reserves of the Government of India with the rupee issues, you will see this : that when the bank issues are limited, the reserves increase, and vice versa. But here you cannot, for instance, reduce the rupee currency without also reducing your reserve. 6093. My point is this. I say, all right, but look at it from the other point of view. However that may be, what appeals to me is that you cannot reduce your reserves without reducing your rupee currency, and that is what I desire to effect ?—Quite true, I admit that. But my submission is this. What is the use of a reserve, really ? Suppose you have an enormous reserve and you have also an enormous rupee circulation. Does the fact that you have a large reserve in store in some safe in any way affect the value of the rupee ? It does not. The value of the rupee will be affected simply by its quantity and the volume of circulation. Its value has nothing to do with the reserve at all. Backing absolutely has no effect on the value of currency except, of course, in times in which it is disorganised. It may lead to some confidence in that currency, but I submit that when currency has come to such a pass that people have to have some confidence, I say that currency has been absolutely inflated. 6094. Accepting no doubt, the proposition that the value of the currency will be ultimately decided by its total volume in relation to the business ?—What I say is this, that this relation

647 MINUTES OF EVIDENCE is so dangerously correlated, and I am sure you cannot indefinitely go on coining rupees simply because there is a gold reserve. If you go historically into this matter, my submission is that such has really been the case. In the history of India people who have had to deal with currency were so much infatuated by the idea that they must have some reserve that the coinage of rupees was really initiated for that purpose. The coinage of rupees in India in 1893 and 1898 when the Fowler Committee’s Report was brought into operation and reforms were introduced is a point, Sir Edward Law was so much obsessed by the volume of rupees in circulation that he felt that there must be some reserve, and it was on this ground that he proposed to the Secretary of State that the Government should be allowed to coin rupees. If he knew properly that the value of rupees would maintain themselves if they were limited in volume, then he would certainly not have gone on increasing the currency. I am recommending simply what the Government of India recommended to the Secretary of State in 1893. 6095. To turn to the immediate point : the function of a reserve under these conditions is to maintain stability, is it not ?— I think a reserve ought not to be there. A currency is something like any commodity which maintains its value simply because of the law of supply and demand. 6096. Do you reject the proposition that the function of a reserve is to maintain stability ?—Yes, I do. I do not think a reserve has anything to do ; in fact, a reserve maintains itself when the currency is limited ; it does not maintain the currency. 6097. Let us now consider your practical proposals for the reform of the currency. You say :—“The following, then, are the requirements of my plan for the reform of the Indian currency :— (1) Stop the coinage of rupees by absolutely closing the mints to the Government as they are to the public. (2) Open a gold mint for the coinage of a suitable gold coin. (3) Fix a ratio between the gold coin and the rupee. (4) Rupees not to be convertible in gold and gold not to be convertible in rupees, but both to circulate as unlimited legal tender at the ratio fixed by law.” A question which does suggest itself to a practical man

648 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES there is, under those circumstances, how are you to maintain the ratio between the gold coin and the rupee, and how are you to prevent one going to a discount or a premium in comparison with the fall in accordance with the balance of the country’s trade ?—Well, the rupee will maintain its value by reason of the fact that it will be limited in volume ; no more issues of rupees are to be issued. 6098. What is to prevent it going to a premium ?—It cannot at once go to a premium because it has a substitute in gold. Rupees are not to be convertible in gold. The rupee cannot go to a discount because it is limited in volume. No more rupees are to be coined. The rupee cannot go to a premium because there is the alternative of a gold coin functioning as currency. 6099. Then you say :—“But there is just this chance : that the existing volume of the rupee currency is so large that when there is a trade depression it may become redundant and may by reason of its excess lose its value. As a safeguard against such a contingency, I propose that the Government should use part of the gold standard reserve for reducing the rupee currency by a substantial margin so that even in times of severe depression it may remain limited to the needs of the occasion.’ How would that operation take place ?—You simply call in rupees and not issue them again—by the process of calling in rupees up to a certain limit. 6100. So that the rupees would not, to that extent, be convertible into gold ?—It will never be convertible into gold, until the limit is reached, so that it will never be in excess even in times of depression—the rupee will not be convertible into gold and gold will not be convertible into rupees. Even as it is, I am not very much afraid that the rupee will go to a discount, but there is just this chance that it might and I therefore propose that safeguard. 6101. Coming then to the question of the ratio, you say : “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

649 MINUTES OF EVIDENCE about a rise in prices. For a change from 1s. 6d. gold to 1s 4d. gold means this and nothing else. Should the currency be inflated to reach back the pre-war parity ?” Then you point out that the restoration of the pre-war parity is not a restoration of the pre-war price level because there is a change in gold prices ?—Yes. 6102. Further, you point out that : “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.” I understand that the opinion which you emphasise there is that we have been passing through a period of violent fluctuations in the value of the rupee, that at every stage contracts have been entered into, and that it is impossible, as it were, to fix upon any, definite ratio which will do justice as between all these contracts made at the varying levels ?—Yes. 6103. Then you say that the great bulk of the contracts have been of recent date ?—Well, my information is really based upon a small note made by Professor Cannan in one of his articles in the “Statistical Journal.” 6104. Are there any statistics available which would give us a correct estimate of the number of contracts ?—I think it is a guess for what it is worth ; a question of commonsense. 6105. Then you say, “It may be said that the centre of gravity of the total contractual obligations is always near the present.” Those premises lead you to the following conclusion, that, given these two facts, the best solution would be to strike an average between 1s. 4d. and 1s. 6d. and say that it is nearer 1s. 6d. than 1s. 4d. I am not sure that I quite follow that. Your trend of reasoning would rather have led me to suppose that you would finally turn out to be a supporter of the 1s. 6d. rate ?—I say it may be nearer 1s. 6d. and away from 1s. 4d. 6106. What ratio would you suggest ?—It is difficult. Of course, I think 1s. 6d. would be just as good. It could not inflict any very great hardship.

650 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES 6107. Then, finally, as regards the question of a rising and falling rupee ratio, your opinion is summarised in paragraph 9. You say : “Now if it is realised that a low exchange means high internal price, it will at once become clear that this gain is not a gain from one class at the cost of another class in the country.” Which class gains and which class loses ?—The business class gains ; the labouring class does not. The price of all factors of production does not change. Wages do not change as rapidly as price and these are the classes who suffer. 6108. Have you any suggestion to make, either from the theoretical or practical point of view, as regards the important provisions as to the currency arrangements to provide elasticity to meet seasonal demands ?—As I hinted, of course, very briefly, if we want to make our currency elastic for seasonal proposes, we must some how see that the commercial paper which has given rise for trade transactions is converted to currency. So that commercial paper should be made more a basis for the issue of the currency than Government bonds. I think it would be to the good of India if we adopt the proposals in the German Imperial Bank. They adopted, of course, more or less the English Banking Act of 1894 with variations so as to suit the seasonal demands. 6109. That is a provision for the extension ?—For the extension for the time being of paper issues under certain regulations. 6110. That is a provision, is it not, for the extension of the fiduciary issue ?—Exactly. 6111. In return for the payment of a proportional tax ?— Yes, I think it is a sufficient safeguard for both. 6112. (Professor Coyajee.) The chief merit of the gold standard is, according to you, that it places certain definite limitations against possible fluctuations ?—Exactly. 6113. But, of course, there are certain things, for example, the provision from the mines is not based on how much currency is required by a country ?— Yes ; I may say that I am in favour of a gold standard simply because compensating systems are not workable. If they are workable, I would at once reject the