Indian Currency and Finance

by John Maynard Keynes

12. I have placed these proposals in the order of their probable efficacy to effect their purpose. I see no reason why the first—the coinage of sovereigns at Bombay—should have any effect at all towards increasing the use of sovereigns as currency. Four types of occasion can be distinguished on which gold bars might be presented at Bombay for coinage:—

(a) Gold might be deliberately imported from England for the purpose; or it might occasionally happen that importers of gold bars, having temporarily miscalculated the demand for bars, would wish to sell these bars to the Government.

(b) Owners of Indian gold mines might conceivably find it worth their while to suspend the arrangements they have made in recent years with English refiners and might sell their gold (about £2,000,000 annually) to the Bombay Mint. Whether or not they would find it worth while to do this would presumably depend on the facilities for refining in India and the terms offered by the Bombay Mint.

(c) The habits of the people might be changing, the importation of new bars from England ceasing, and the people wishing to get rid of the bars and ornaments they already had.

(d) In times of famine or depression the people might sell their bars and ornaments to the Mint when they were driven to turn their ultimate resources into money.

Provided the Bombay Mint did not offer to coin on more favourable terms than the British Mint, which presumably it would not do, it seems exceedingly unlikely that bar gold would be imported from England on purpose to be coined in India rather than in England. But if this were to happen, it would have no consequences worth thinking about. The place of mintage is a matter of indifference. In all the other eventualities, suggested above, the gold is brought to the Mint, not to satisfy a demand for new gold currency, but because the owners of the gold wish to sell it. The sellers would take payment in sovereigns, notes, or rupees (since the former can always be exchanged for the latter), as might suit their convenience. In cases (c) and (d) the Government would probably be forced in the end to export the sovereigns it had itself minted, and to bear the cost of export as well as the cost of minting.

The chief result of mintage at Bombay, therefore (assuming that the terms for coming were substantially the same as in England), would be a small saving of expense to sellers of gold in India. Importers of gold bars would be saved occasionally a small loss of interest due to miscalculation; owners of Indian gold mines might conceivably pay, at the expense of Government, infinitesimally higher dividends; the people turning their hoards into money would be able to save the expense of sending the gold to England. A corresponding cost would fall on the Government, for mintage in the first instance and sometimes for export afterwards. These consequences, whether desirable or not, have very little to do with currency questions. The last of them—the making it easier to turn hoards into money—is very likely desirable. But all of them could be brought about more cheaply without the establishment of a Bombay Mint. It would be sufficient if the Government were to publish terms on which it was ready to buy gold bars. It might be a real convenience if Government notified its readiness to purchase bars tendered in India at Rs. 58 annas 5 per ounce[44] (payable in silver or notes or sterling drafts on London or in sovereigns, on the present system, if they were available).[45] The Government would be involved, from time to time, in the cost of export; but this cost it would have to bear, I believe, just as often if there were a mint, while the cost of the mint itself would be saved. Such a notification, as is suggested above, would be much more in the true spirit of the Indian currency system than the establishment of a gold mint would be; and it would serve the convenience of the public just as efficiently, at less expense to Government. The establishment of a Mint, however, would flatter at small expense an ignorant vanity. The Government by granting it in response to popular appeal (though I doubt whether, in fact, there is any such appeal) would have a pleasant feeling of being democratic on an occasion when to yield involves no more evil than any other expenditure on a piece of fairly cheap ostentation.

13. To the second proposal for the mintage of a distinctively Indian gold coin many of the above comments apply equally. But the existence of a 10–rupee gold piece (13s. 4d.) might very possibly do something to popularise the use of gold as currency, largely because it would be of a smaller and therefore more convenient denomination.[46] It is very difficult to prophesy with regard to the local popularity of a new coin. On the other hand—apart from the general objections, to be dealt with later, against popularising gold—it is generally a bad thing to introduce a new coin and add to the confusion of currencies. For purposes of export, at times of depression, the 10–rupee piece would be worth less than two–thirds of a sovereign. The sovereign, moreover, is fast becoming the international gold coin par excellence far beyond the bounds of the British Empire. In 1911, 43,305,722 British sovereigns were minted, or a good deal more than the whole gold coinage in that year of the rest of the world, viz. £33,375,455. A rival coin ought not to be set up in India unless some evident advantage is to be obtained from it.

14. The third policy—that of active measures on the part of Government to get more gold into circulation—is not likely to be adopted. If it were, it is difficult to say if it would be successful or not. To force a coin on people is not always the best way to popularise it; and if rupees were to be refused, there would probably be a small premium on them or a small discount on gold—a position which would not help gold.

15. It is probably the case, however, that if it were desirable to popularise the use of gold, a means could be found of effecting this in some degree. The main question is whether this is, in fact, the right policy. Lord Crewe looks forward (see his speech in the House of Lords, November 14, 1912) “with some confidence to the increased use of gold currency in India among the people, although it may be a long and indefinite time before it becomes the habitual and favourite coin in the country at large.” Ought he to expect this result with satisfaction as well as confidence?