Indian Currency and Finance

by John Maynard Keynes

CHAPTER IV

THE PRESENT POSITION OF GOLD IN INDIA AND PROPOSALS FOR A GOLD CURRENCY

1. The Fowler Committee of 1898 avowed themselves in favour of the ultimate establishment of a gold currency in India as well as a gold standard. Paragraph 54 of their Report runs as follows:—

We are in favour of making the British sovereign a legal tender and a current coin in India. We also consider that, at the same time, the Indian mints should be thrown open to the unrestricted coinage of gold on terms and conditions such as govern the three Australian branches of the Royal Mint. The result would be that, under identical conditions, the sovereign would be coined and would circulate both at home and in India. Looking forward as we do to the effective establishment in India of a gold standard and currency based on the principles of the free in–flow and out–flow of gold, we recommend these measures for adoption.

The first part of their proposal was carried out immediately, and, in 1899, British gold was declared legal tender at the rate of a sovereign to 15 rupees. It appeared at first as if their further object of a gold currency might soon be attained also. The principle of minting gold in India was accepted both by the Secretary of State and by the Viceroy’s Council, and in 1900 Sir Clinton Dawkins actually announced that it had been decided to constitute a branch of the Mint at Bombay for this purpose. In the meantime an attempt was made, described in §4, to force sovereigns into circulation. But the attempt failed, and Sir Clinton Dawkins’s proposal was never carried out. As Sir G. Fleetwood Wilson explained in the Legislative Council in 1911—

A number of technical and other difficulties were raised by the Royal Mint, which ultimately wore out the patience of Lord Curzon’s Government. In the interval the Kolar gold mining companies had mostly entered into agreements for the sale of their produce in England; and the prospect of their bringing their gold to be refined and coined at Bombay—which was to be the pièce de résistance of our gold mint—was thus deferred. In the circumstances it was decided in 1902 to drop the project, and to wait until a stronger demand for a local gold coinage should arise.

This account of the matter, however, scarcely does justice to the part played by the British Treasury in defeating the project. The official correspondence lately published,[31] shows that for two years (from 1899 to 1901) they made, as Sir G. F. Wilson states, a succession of technical difficulties in a spirit of scarcely veiled hostility to the whole proposal. But eventually (in May 1901) a scheme was arranged, acceptable both to the Mint at home and to the authorities in India. At this point in the negotiations the natural instincts of the Treasury officials became uncontrollable, and respect for the independence of the India Office had to be abandoned. Their first line of defence in the form of technical difficulties having been overcome, they fell back upon open argument as to the wisdom from the Indian point of view of the whole project:—

While expressing their satisfaction that an agreement has now been reached, my Lords think it desirable, before practical steps are taken to carry out the scheme, to invite Lord George Hamilton to review the arguments originally advanced in favour of the coinage of the sovereign in India, and to consider whether the course of events, in the two years which have elapsed since the proposal was made, has not tended to diminish their force, and to render such advantages as are likely to accrue from the establishment of a branch mint wholly incommensurate with the expense to be incurred.... The gold standard is now firmly established, and the public requires no proof of the intention of the Indian Government not to go back on their policy, which is beyond controversy. Sovereigns are readily attracted to India when required under existing conditions.... On the other hand, the estimates of the Government of India of gold available for coinage in that country are less than was anticipated, nor is any considerable increase expected, at any rate for some time.... The staff would have to be maintained in idleness for a large part of the year at considerable cost to the Indian Exchequer.... It is of course for Lord George Hamilton to decide whether, in spite of these objections, the scheme is to be proceeded with.

The India Office answered thus:—

The establishment of a mint for the coinage of gold in India is the clearest outward sign that can be given of the consummation of the new currency system; and to abandon the proposal now must attract attention and provoke criticism and unrest.... His Lordship is not inclined to abandon the scheme at the stage which it has now reached.