Act Iii of 1905. the First Event Was Only Calculated to Enlarge the

circulation of the [pg 215] notes, but the second event had the direct effect of lowering the value of the rupee currency.

The third period (1909–14) was comparatively a moderate but by no means a slack period from the standpoint of currency expansion in India. The first three years of the period were, so to say, years of subdued emotion with regard to the rupee coinage. With the exception of the year 1910, when there was no net addition to rupee coinage, and 1911, when the addition was a small one, the coinage in the years 1909 and 1912 ranged from 24 to 30 lakhs. But during the last two years of this period there was a sudden burst of rupee coinage, when the total reached 264 crores. The expansion of paper currency took place also on a great scale during this period. In 1909 the Rs. 5 were universalized in Burma as they had previously been in other parts of India. This process of universalization was carried further during this period, when, under the authority granted by the Paper Currency Act (II of 1910), the Government universalized notes of Rs. 5 and Rs. 50 in 1910, of Rs. 100 in 1911. Along with the stimulus thus given to the increase of paper currency, the Government actually expanded the fiduciary portion of the issue from 12 to 14 crores by Act VII of 1911, thereby throwing into circulation 2 crores of additional rupees.

During the fourth period (1915–1920) all prudential restraints were thrown overboard.³³⁵ The period coincided with the Great War, which created a great demand for Indian produce and also imposed upon the Government the necessity for meeting large expenditure on behalf of H.M. Government. Both these events necessitated a great increase in the current means of purchase. There were three sources open to the Government to provide for the need: (1) Importation of gold; (2) increase of rupee coinage; and (3) increase of paper currency. It must not be supposed that the Government of India had no adequate means to provide the necessary currency. Whatever [pg 216] expenditure the Government of India incurred in India, the Secretary of State was reimbursed in London. So the means were ample. The difficulty was that of converting them to proper account. Ordinarily the Secretary of State purchases silver out of the gold at his command to be coined in India into rupees, This usual mode was followed for the first two years of the period, and the currency was augmented by that means. But the rise in the price of silver made that resource less available. The Secretary of State had therefore to choose between sending out gold or issuing paper. Of the two, the former was deemed to be too unpatriotic. Indeed, the Secretary of State believed that from an Imperial point of view it was entirely ungracious even to “earmark” the gold he received in London as belonging to India. But how was demand for additional currency in India to be met? As a result of deliberation it was agreed that to provide currency in India without employing gold the best plan was for the Secretary of State to invest at one end the gold he received on India’s behalf in the purchase of British Treasury bills, and the Indian Government to issue currency notes at the other end on the security of these bills. Such a procedure, it will be observed, involved a profound modification in the basic theory of Indian paper currency. That theory was to increase the fiduciary issue by investing a portion of the metallic reserves only when the proportion of the latter to the total of the notes in active circulation had shown, over a considerable period, a position sufficiently strong to warrant an extension of the invested reserves and a corresponding diminution of the metallic reserves. The main effect of the principle was that the extent of the paper currency was strictly governed by the habits of the people, for whatever the amount of fiduciary issue at any given moment it represented metallic reserves which were once in existence. Under the new scheme the old principle was abandoned and paper currency was issued without any metallic backing, and what is more important is that its magnitude, instead of being determined by the habits of the people, was determined by the necessity of the Government and the amount of security it possessed. [pg 217]

³³⁵ For a view of the currency policy of this period the primary source are the Annual Financial Statements, for these years, of the Government of India.

This fatal and facile procedure was adopted by the Government of India with such avidity that within four years it passed one after another eight Acts, increasing the volume of notes issuable against securities. The following table gives the changes in the limits fixed by the Act. and the total issues actually made under them:—

TABLE XLIII

Issue of Currency Notes

───────────────────────────────────────────────────────────────────────────────────── Acts prescribing the Fiduciary Issue of Currency Notes. ───────────────────────────────────────────────────────────────────────────────────── Act Act Act Act Act Act Act V of IX XI XIX VI II XXVI I. Limits to 1915 of of of of of if fiduciary issues 1916 1917 1917 1918 1919 1919 ───────────────────────────────────────────────────────────── In Lakhs of Rupees. ───────────────────────────────────────────────────────────────────────────────────── (a) Permanent 14,00 14,00 14,00 14,00 14,00 14,00 14,00 ───────────────────────────────────────────────────────────────────────────────────── (b) Temporary 6,00 12,00 36,00 48,00 72,00 86,00 106,00 ───────────────────────────────────────────────────────────────────────────────────── Total limit 20,00 26,00 50,00 62,00 86,00 100,00 120,00 ───────────────────────────────────────────────────────────────────────────────────── II. Total issues of 61,63 67,73 86,38 99,79 153,46 179,67³³⁶ currency notes ───────────────────────────────────────────────────────────────────────────────────── Silver 32,34 23,57 19,22 10,79 37,39 47,44 III. ───────────────────────────────────────────────────────────────────────────── Reserve Gold 15,29 24,16 18,67 27,52 17,49 32,70 ───────────────────────────────────────────────────────────────────────────── Securities 14,00 20,00 48,49 61,48 98,58 99,53 ─────────────────────────────────────────────────────────────────────────────────────

³³⁶ On November 30,1919. The rest of the figures are for March 31.

But this facile procedure could not be carried on ad infinitum except by jeopardizing the convertibility of the notes. Consequently the very increase of paper money, added to the increased demand for currency, compelled the Government to go in for the provision of metallic money for providing current means of purchase and also give a backing to the watered paper issues. The rising price of silver naturally made the Government go in for gold. An Ordinance was issued on June 29, 1917, requiring all gold imported into India to be sold to Government at a price based on the sterling exchange, and opened a gold Mint at [pg 218] Bombay for the coinage of it into mohurs.³³⁷ Frantic efforts were made to acquire gold from various quarters. The removal of the embargo on the export of gold by the U.S.A. on June 9, 1917, and the freeing of the market for South African and Australian gold, enabled the Government to obtain some supply of that metal. From July 18, 1919, immediate telegraphic transfers on India were offered against deposit at the Ottawa Mint in Canada of gold coin or bullion at a rate corresponding to the prevailing exchange rate, and at New York at competitive tenders from August 22, 1919. Arrangements were also made for the direct purchase of gold in London and U.S.A. Finally, to encourage the private import of gold, the acquisition rate was altered from September 15, 1919, so as to make allowance for the depreciation of the sterling. But the gold thus obtained was a negligible quantity. Besides, the issue of gold did not serve the purpose the Government had in mind—namely its retention in circulation. In the nature of things it was impossible. The rupee was depreciated in terms of gold to an enormous extent, and consequently at the rate of exchange gold passed out of circulation as quickly as it was issued by the Government. What the Government could do was to make the use of gold and silver coins illegal for other than currency purposes and to prevent their exportation, which it did by the Notifications of June 29 and September 3, 1917. Realizing that it could not rely upon gold, the Government renewed its efforts to enlarge the rupee coinage. To facilitate the purchase of that metal the import of silver on private account into India was prohibited on September 3, 1917. This measure, however, removed only a few of the smaller competitors for the world’s diminished supply of silver, and the world-demand remained so heavy that the Secretary of State was unable to obtain sufficient supply notwithstanding the great conservation effected in the use of silver by substituting nickel coinage for silver coins of subsidiary order,³³⁸ and by the issue of notes of denominations [pg 219] as low as that of R.1³³⁹ and of R.2–8.³⁴⁰ The Government of the United States was therefore approached on the subject of releasing a portion of the silver dollars held in their reserve. The American Government consented and passed the Pittman Act, under which the Government of India acquired a substantial volume at 101½ cents per fine ounce. The total silver purchased during this period was as follows:

³³⁷ Act XIV of 1918.

³³⁸ Acts IV of 1918 and XXI of 1919.

³³⁹ First issued on December 1, 1917.

³⁴⁰ First put into circulation on January 2, 1918.

TABLE XLIV

Rupee Coinage, 1915–20

───────────────────────────────────────────────────────────────── Year. Silver purchased Silver purchased Total in Open Market, from U.S.A., Standard Standard Ounces. Standard Ounces. Ounces. ───────────────────────────────────────────────────────────────── 1915–16 8,636,000 — — ───────────────────────────────────────────────────────────────── 1916–17 124,535,000 — — ───────────────────────────────────────────────────────────────── 1917–18 70,923,000 — — ───────────────────────────────────────────────────────────────── 1918–19 106,410,000 152,518,000 — ───────────────────────────────────────────────────────────────── 1919–20 14,108,000 60,875,000 — ───────────────────────────────────────────────────────────────── — — — ───────────────────────────────────────────────────────────────── Total 324,612,000 213,393,000 538,005,000 ─────────────────────────────────────────────────────────────────

Now, recalling the fact that from 1900 to 1914 the Government had coined about 532 million standard ounces of silver,³⁴¹ it means that the coinage of silver by Government during these five years exceeded the amount coined in the fourteen preceding years by five million ounces.

³⁴¹ Cf. the figures given by L. Abrahms in his evidence to the Currency Committee of 1919. Mit. of Evid., Q. 37–41.

Thus the fall in the gold value of the rupee is an inevitable consequence of the exercise of the power to issue inconvertible currency in unlimited quantities. This is the fate of all inconvertible currencies known to history. But it is said that an exception must be made in the case of the rupee [pg 220] currency, for if the Government has the liberty of issuing it in unlimited quantities it has also resources to counteract the effects of a fall when it does occur. We must therefore turn to an examination of these resources.

The basis of the reasoning is that the rupee is a token currency, and that if the value of a token currency is maintained at par with gold by applying to it the principle of redemption into gold³⁴² it should be possible to maintain the value of the rupee at par with gold by adopting a similar mechanism. What is wanted is an adequate gold fund, and so long as the Government has it, we are assured that we need have no anxiety on the score of a possible fall in the value of the rupee. Such a fund the Government of India has, and on all the three occasions when the gold value of the rupee fell below par that fund was operated upon, The process of redemption is carried on chiefly in three ways: (1) The sale of what are called reverse councils, by which the Government receives rupees in India in return for gold in London; (2) the release of gold internally in receipt for rupees in India; and (3) the stoppage of the Secretary of State’s council bills to prevent further rupees from going into circulation. The cumulative effect of these, it is said, is to contract the currency and raise its value to par. Although all the three may be employed, the first is by far the most important means adopted by the Government in carrying through this process of redemption. The extent of the redemption effected on the three occasions when it was employed may be seen from the three following tables:— [pg 221]

³⁴² See the very interesting discussion by Laughlin of the laws of token money in his Principles of Money, Chap. XV. It may be said in passing that Laughlin is an opponent of the quantity theory of money, but in his discussion of token money he virtually admits it.

I. Redemption of Currency, 1907–8.

TABLE XLV

───────────────────────────────────────────────────────────────────── By the Sale of By Release Private Reverse Councils. of Gold. Exports ────────────────────────── Diminution of Gold Drawings Date. Amount Amount of Govt. Coin of the offered. sold. Stock of during Secretary Gold the of State. during the Month. Month. ───────────────────────────────────────────────────────────────────── £ £ £ £ £ ───────────────────────────────────────────────────────────────────── 1907— ───────────────────────────────────────────────────────────────────── Sept. — — 152,000 14 858,896 ───────────────────────────────────────────────────────────────────── Oct. — — 254,000 9,109 921,678 ───────────────────────────────────────────────────────────────────── Nov. — — 532,000 3 427,344 ───────────────────────────────────────────────────────────────────── Dec. — — 338,000 2,501 571,905 ───────────────────────────────────────────────────────────────────── 1908— ───────────────────────────────────────────────────────────────────── March 500,000 70,000 226,000 — 172,699 26 (for the whole month) ───────────────────────────────────────────────────────────────────── April 2 500,000 449,000 ────────────────────────────────── April 9 500,00 340,000 ────────────────────────────────── April 500,000 441,000 16 461,000 — 66,834 ────────────────────────────────── April 500,000 329,000 23 ────────────────────────────────── April 500,000 205,000 30 ───────────────────────────────────────────────────────────────────── May 7 500,000 81,000 ────────────────────────────────── May 14 500,000 145,000 ────────────────────────────────── 645,000 — 62,764 May 21 820,000 793,000 ────────────────────────────────── May 28 500,000 500,000 ───────────────────────────────────────────────────────────────────── June 4 1,000,000 755,000 ────────────────────────────────── June 11 1,000,000 70,000 ────────────────────────────────── 334,000 — 169,810 June 18 500,000 Nil ────────────────────────────────── June 25 500,000 50,000 ───────────────────────────────────────────────────────────────────── July 2 500,000 470,000 ────────────────────────────────── July 9 500,000 304,000 ────────────────────────────────── July 16 500,000 500,000 16,000 — 186,847 ────────────────────────────────── July 23 1,000,000 968,000 ────────────────────────────────── July 30 1,000,000 860,000 ───────────────────────────────────────────────────────────────────── Aug. 6 1,000,000 418,000 ────────────────────────────────── Aug. 13 500,000 310,000 ────────────────────────────────── 354,000 — 262,217 Aug. 20 500,000 Nil ────────────────────────────────── Aug. 27 500,000 Nil ───────────────────────────────────────────────────────────────────── Sept. 3 500,000 Nil ────────────────────────────────── 502,000 — 1,431,012 Sept. 500,000 Nil 10 ─────────────────────────────────────────────────────────────────────

───────────────────────────────────────────────────────────────────── Total 15,320,000 8,058,000 4,394,000 249,912 ───────────────────────────────────────────────────────────────────── [pg 222]

II. Redemption in 1914–16

TABLE XLVI

────────────────────────────────────────────────────────────────── Date. Reverse Drawings of the S. of Councils (in £, S. (in Lakhs of Rs.). 000). ────────────────────────────────────────────────────────────────── April Nil 270 ───────────────────────────────────────────────────────── May Nil 61 ───────────────────────────────────────────────────────── June Nil 68 ───────────────────────────────────────────────────────── July Nil 66 ───────────────────────────────────────────────────────── 1914. August 2,778 72 ───────────────────────────────────────────────────────── September 1,515 25 ───────────────────────────────────────────────────────── October 1,895 41 ───────────────────────────────────────────────────────── November 1,044 32 ───────────────────────────────────────────────────────── December 1,250 30 ────────────────────────────────────────────────────────────────── January 225 29 ───────────────────────────────────────────────────────── 1915. February Nil 181 ───────────────────────────────────────────────────────── March Nil 287 ────────────────────────────────────────────────────────────────── Total 8,707 1,162 ────────────────────────────────────────────────────────────────── April Nil 1,53 ───────────────────────────────────────────────────────── May Nil 1,03 ───────────────────────────────────────────────────────── June 651 17 ───────────────────────────────────────────────────────── July 3,377 8 ───────────────────────────────────────────────────────── 1915. August 815 23 ───────────────────────────────────────────────────────── September 50 2,17 ───────────────────────────────────────────────────────── October Nil 2,25 ───────────────────────────────────────────────────────── November Nil 2,02 ───────────────────────────────────────────────────────── December Nil 3,28 ────────────────────────────────────────────────────────────────── January Nil 5,26 ───────────────────────────────────────────────────────── 1916. February Nil 6,02 ───────────────────────────────────────────────────────── March Nil 6,33 ────────────────────────────────────────────────────────────────── Total 4,893 30,37 ──────────────────────────────────────────────────────────────────

III. Redemption in 1920

TABLE XLVII

Sale of Reverse Councils (Figures in Thousands of Pounds)

─────────────────────────────────────────────────────────────────── Date of Sale. Amount Amount Amount Progressive offered applied sold at Total of at each for at each Amount Sale. each Sale. Sale. sold. ─────────────────────────────────────────────────────────────────── January 2 1,000 770 770 770 ──────────────────────────────────────────────────────────── January 8 1,000 8,499 990 1,760 ──────────────────────────────────────────────────────────── January 15 2,000 300 300 2,060 ──────────────────────────────────────────────────────────── January 22 2,000 4,890 2,000 4,060 ──────────────────────────────────────────────────────────── January 29 2,000 1,334 5,000 5,394 ──────────────────────────────────────────────────────────── February 5 2,000 32,390 2,000 7,394 ──────────────────────────────────────────────────────────── February 2,000 41,312 2,000 12,394 12 ──────────────────────────────────────────────────────────── February 2,000 122,335 2,000 14,394 19 ──────────────────────────────────────────────────────────── February 2,000 78,417 2,00 16,394 26 ──────────────────────────────────────────────────────────── March 3 2,000 64,931 2,000 18,394 ──────────────────────────────────────────────────────────── March 11 2,000 117,185 2,000 20,394 ──────────────────────────────────────────────────────────── March 18 2,000 153,559 2,000 22,394 ──────────────────────────────────────────────────────────── March 25 2,000 56,295 2,000 24,394 ──────────────────────────────────────────────────────────── March 31 ────────────── 2,000 35,050 1,988 26,382 April 1 ──────────────────────────────────────────────────────────── April 8 2,000 16,721 1,000 28,382 ──────────────────────────────────────────────────────────── April 15 2,000 48,270 2,000 30,382 ──────────────────────────────────────────────────────────── April 22 2,000 59,020 2,000 32,382 ──────────────────────────────────────────────────────────── April 29 1,000 53,210 1,000 33,382 ──────────────────────────────────────────────────────────── 1920. May 6 1,000 89,514 1,000 34,382 ──────────────────────────────────────────────────────────── May 13 1,000 101,625 1,000 35,382 ──────────────────────────────────────────────────────────── May 20 1,000 122,279 1,000 36,382 ──────────────────────────────────────────────────────────── May 26 1,000 85,620 1,000 37,382 ──────────────────────────────────────────────────────────── June 3 1,000 101,821 1,000 38,382 ──────────────────────────────────────────────────────────── June 10 1,000 109,245 1,000 39,382 ──────────────────────────────────────────────────────────── June 15 1,000 122,991 1,000 40,382 ──────────────────────────────────────────────────────────── June 24 1,000 73,391 1,000 41,382 ──────────────────────────────────────────────────────────── July 1 1,000 106,751 1,00 42,382 ──────────────────────────────────────────────────────────── July 8 1,000 63,690 1,000 43,382 ──────────────────────────────────────────────────────────── July 15 1,000 101,830 1,000 44,382 ──────────────────────────────────────────────────────────── July 22 1,000 103,960 1,000 45,382 ──────────────────────────────────────────────────────────── July 29 1,000 75,486 1,000 46,382 ──────────────────────────────────────────────────────────── August 5 1,000 101,260 1,000 47,382 ──────────────────────────────────────────────────────────── August 12 1,00 112,230 1,000 48,382 ──────────────────────────────────────────────────────────── August 19 1,000 114,767 1,000 49,382 ──────────────────────────────────────────────────────────── August 26 1,000 117,390 1,000 50,382 ──────────────────────────────────────────────────────────── Sept. 2 1,000 126,425 1,000 51,382 ──────────────────────────────────────────────────────────── Sept. 7 1,000 117,200 1,000 52,382 ──────────────────────────────────────────────────────────── Sept. 13 1,000 115,095 1,000 53,382 ──────────────────────────────────────────────────────────── Sept. 21 1,000 112,590 1,000 54,382 ──────────────────────────────────────────────────────────── Sept. 28 1,000 120,050 1,000 55,382 ───────────────────────────────────────────────────────────────────

III. Redemption in 1920

TABLE XLVIII

Sale of Gold

──────────────────────────────────────────────────────────────────────────────────────── No. Date of Minimum Rate Average Rate Quantity Price of of Sale. of accepted of accepted sold Country Bar Sale. Tenders. Tenders. (in Gold in the Tolas). Bombay Bazaar. ──────────────────────────────────────────────────────────────────────────────────────── Rs. A. P. Rs. A. P. Rs. A. P. ──────────────────────────────────────────────────────────────────────────────────────── 1 1919, September 25 8 0 26 12 1 3,29,130 28 10 0 3 ──────────────────────────────────────────────────────────────────────────────────────── 2 September 24 8 0 24 10 0 3,96,640 26 1 0 17 ──────────────────────────────────────────────────────────────────────────────────────── 3 October 6 25 8 0 25 9 8 3,26,000 27 0 0 ──────────────────────────────────────────────────────────────────────────────────────── 4 October 26 15 3 27 0 2 3,34,000 28 0 0 20 ──────────────────────────────────────────────────────────────────────────────────────── 5 November 27 14 6 27 15 6 3,25,000 28 5 0 3 ──────────────────────────────────────────────────────────────────────────────────────── 6 November 26 15 0 27 0 11 5,18,500 28 2 0 17 ──────────────────────────────────────────────────────────────────────────────────────── 7 December 26 0 6 26 4 6 10,00,650 27 10 0 8 ──────────────────────────────────────────────────────────────────────────────────────── 8 1920. January 5 26 4 3 26 7 9 7,63,300 27 3 0 ──────────────────────────────────────────────────────────────────────────────────────── 9 January 26 13 3 26 14 7 8,00,000 27 5 0 19 ──────────────────────────────────────────────────────────────────────────────────────── 10 February 25 2 3 25 9 7 7,56,450 25 6 0 5 ──────────────────────────────────────────────────────────────────────────────────────── 11 February 16 2 3 21 9 1 9,60,590 23 4 0 19 ──────────────────────────────────────────────────────────────────────────────────────── 12 March 3 18 8 0 18 12 4 12,96,125 21 7 0 ──────────────────────────────────────────────────────────────────────────────────────── 13 March 17 21 6 0 21 7 7 12,53,325 22 13 0 ──────────────────────────────────────────────────────────────────────────────────────── 14 April 7 22 7 3 22 9 4 12,46,200 24 0 0 ──────────────────────────────────────────────────────────────────────────────────────── 15 April 21 23 7 4 23 8 6 10,68,175 24 4 0 ──────────────────────────────────────────────────────────────────────────────────────── 16 May 5 20 13 3 21 3 2 11,96,750 21 8 0 ──────────────────────────────────────────────────────────────────────────────────────── 17 May 19 21 0 3 21 1 7 12,46,050 21 12 0 ──────────────────────────────────────────────────────────────────────────────────────── 18 June 9 21 8 9 21 9 8 11,32,350 22 2 6 ──────────────────────────────────────────────────────────────────────────────────────── 19 June 23 20 14 10 21 0 5 12,25,250 21 8 0 ──────────────────────────────────────────────────────────────────────────────────────── 20 July 7 21 1 4 22 2 2 12,81,500 21 6 0 ──────────────────────────────────────────────────────────────────────────────────────── 21 July 21 22 0 1 22 0 11 12,42,000 22 5 0 ──────────────────────────────────────────────────────────────────────────────────────── 22 August 4 22 5 6 23 6 3 12,78,950 22 7 0 ──────────────────────────────────────────────────────────────────────────────────────── 23 August 19 23 9 4 23 10 2 5,54,500 23 7 0 ──────────────────────────────────────────────────────────────────────────────────────── 24 September 22 8 3 22 10 8 8,27,700 23 1 6 1 ──────────────────────────────────────────────────────────────────────────────────────── 25 September 23 9 4 23 12 11 2,30,500 23 8 0 14 ──────────────────────────────────────────────────────────────────────────────────────── Total 2,15,89,635 ──────────────────────────────────────────────────────────────────────────────────────── During 1920 no council bills were drawn by the Secretary of State on the Government of India.

The success of this mechanism on the two previous occasions had strengthened the belief that it had the virtue of restoring the value of the rupee. But the failure of this mechanism in the crisis of 1920 compels one to adopt an attitude of reserve towards its general efficacy. It cannot be said that exchange gave way because this mechanism [pg 225] was not brought into operation. On the other hand, the view of the Government regarding the sale of reverse councils in 1920 had undergone a profound modification as compared with the view it held during the crisis of 1907–8. In that crisis the Government behaved like a miser, sitting tight on its gold reserve and refusing to use it for the very purpose which it was designed to serve. An Accountant-General had “to go on his knees” to persuade the Government of India, to release its gold.³⁴³ It was probably because it was rebuked by the Chamberlain Commission for failing to make use of its gold reserve in 1907 that in the crisis of 1920 the policy of selling reverse councils was so boldly conceived. There was a great deal of ignorant criticism of that policy from the general public that it was an “organized loot.” But the Finance Minister was undaunted, and argued³⁴⁴:—

³⁴³ Evidence of Mr. F. C. Harrison before the Chamberlain Commission, Q. 10,209.

³⁴⁴ Speech on the resolution re “Reverse Councils,” March 10, 1920. S.L.C.P., Vol. LVIII, p. 1291.

“It is an essential feature of our exchange policy … that we should not only provide for remittances from London to India through council bills at approximately gold point, but from India to London in time of exchange weakness also at gold point, through the sale of sterling remittance known as reverse councils. It is simply an alternative to the export of gold. This is no new matter—we have been selling reverse councils for years … and unless we do so the exchange policy does not become effective. … This is the reason, and the only reason, why we have sold reverse councils. … It is an effort in fact to maintain exchange as near as possible to the gold point. … What would be the consequence if we yielded to the pressure placed on us and ceased to sell reverse councils at all? I can understand a demand that reverse councils should be sold by some different method, or at rates different from those at present in force, but I must confess that I cannot understand the demand that the facilities for the exchange of rupees into external currency should be entirely withdrawn. I see that in Bombay it is urged that we should let exchange find its ‘natural level.’ That is a catchword which does not impress me. Used in the sense in which that phrase has been recently [pg 226] used, there is no such thing as a ‘natural level’ in exchange, for, when one translates the internal currency into another currency, there must be some sort of common denominator to which both currencies can be brought; it may be gold, it may be silver, it may be sterling or it may be Spanish pesetas, which we take as our basis. The rupee must be linked on to something,³⁴⁵ and if it is so linked, then it must be at some definite rate, and this necessarily involves that we must sometimes be prepared to sell reverse councils in order to maintain that rate. If reverse councils be withdrawn entirely, then we should have neither a gold standard, nor a gold-exchange standard, nor any kind of standard at all.”

³⁴⁵ By Ordinance III of June 21, 1920, the gold coins referred to in