9. There must have been many occasions under the old system, on which ignorant persons suffered inconvenience through having notes of foreign circles passed off on them; and a long time may pass before distrust of the notes, as things not readily convertible, bred out of the memories of these occasions, entirely disappears. But, in combination with other circumstances, the universalising of the notes has had already a striking effect on the volume of their circulation, as is shown in the figures given below. It should be explained that by gross circulation (in the Government Statistics) is meant the value of all notes that have been issued and not yet paid off; that the net circulation is this sum less the value of notes held by Government in its own treasuries; and that the active circulation is the net reduced by the value of notes held by the Presidency banks at their head offices.[25] For some purposes the active circulation is the most important. But it is the reserve of rupees held against the gross circulation which is the best indication of the surplus volume of coined silver available, if necessary, for the purposes of circulation. The following table gives for various years the average of the circulation on the last day of each month:—

(In lakhs of rupees.)(In £ million at 1s. 4d.
the rupee throughout.)
Gross.Net.Active.Gross.Active.
1892–18932710233319531813
1893–18942829208317851912
1899–190027962367212718½14
1900–190128882473220519½14½
1902–190333742735234922½15½
1904–19053920327628112618½
1906–19074514394933933022½
1908–190944523902331029½22
1909–19104966453537213325
1910–19115435464838753626
1911–19125737494941893828

The following table gives in £ million the gross circulation of currency notes on March 31 of each year:—

£ million.£ million.
190019│190930½
190221│191036½
190425½│191136½
190630│191241
190831½│191346

The following table gives the average monthly gross circulation in £ million (at 1s. 4d. the rupee throughout):—

£ million.
Five years ending1880–1881———8½
”———”—1885–18869½
”———”—1890–189111½
”———”—1895–189619
”———”—1900–190117½
”———”—1905–190624
”———”—1910–191132
The year1911–191238

10. The rules governing the reserves which must be held against currency notes are very simple. A certain fixed maximum, the amount of which is determined from time to time by law, may be held invested, chiefly in Government of India rupee securities. Up to 1890 the invested portion of the reserve amounted to 600 lakhs (Rs. 600,00,000). This was increased to 700 lakhs in 1891, to 800 lakhs in 1892, to 1000 lakhs in 1897; to 1200 lakhs, of which 200 lakhs might be in English Government securities, in 1905; and to 1400 lakhs (£9,333,000), of which 400 lakhs (£2,666,000) might be in English securities, in 1911. The interest thus accruing on the invested portion of the reserve, less the expenses of the Paper Currency Department, is credited to the general revenues of the Government under the head “Profits of Note Circulation.” This interest now amounts to £300,000 annually.

Up to 1898 the whole of the rest was held in silver coin in India. Under the Gold Note Act of 1898 the Government of India obtained authority to hold any part of the metallic portion of the reserve in gold coin. An Act of 1900 gave authority to hold part of this gold in London; but this power was only intended to be used for purposes of temporary convenience, and, although some gold was held in London in 1899 and 1900, this was not part of a permanent policy. An Act of 1905, however, gave full power to the Government to hold the metallic portion of the reserve, or any part of it, at its free discretion, either in London or in India, or partly in both places, and also in gold coin or bullion, or in rupees or silver bullion, subject only to the exception that all coined rupees should be kept in India and not in London. The actual figures, showing where the gold reserve has been held at certain dates, are given below.

Gold in Paper Currency Reserve (£ Million).