________________________________________________________________________________________
CHAPTER VI
STABILITY OF THE EXCHANGE STANDARD
It will be recalled that at the time the Indian Mints were closed to the free coinage of silver there were two parties in the country, one in favour of and the other opposed to the closure. Being placed in an embarrassing position by the fall of the rupee, the Government of the day was anxious to close the Mints and raise its value with a view to obtaining relief from the burden of its gold payments. On the other hand it was urged, on behalf of the producing interest of the country, that a rise in the exchange value of the rupee would cause a disaster to Indian trade and industry. One of the reasons, it was argued, why Indian industry had advanced by such leaps and bounds as it did during the period of 1873-1893 was to be found in the bounty given to the Indian export trade by the falling exchange. If the fall of the rupee was arrested by the Mint closure, it was feared that such an event was bound to cut Indian trade both ways. It would give the silver-using countries a bounty as over against India, and would deprive India of the bounty which it obtained from the falling exchange as over against gold-using countries.
Theory had already scoffed at these fears. It is therefore interesting to see that later history has also confirmed the verdict of theory. Indian trade with a gold-standard country like England or a silver-standard country like China did not suffer a setback, notwithstanding an arrest in the fall of the rupee. The following figures furnish sufficient evidence to support the contrary:—
TABLE XXV
trade of india with united kingdom (BEFORE AND AFTER
THE mint closure)
|
Exports to
U.K. |
Imports from
U.K. |
||||
Bullion and
Specie |
Total. |
Merchandise. |
Bullion and
Specie |
Total. |
||
|
£ |
£ |
£ |
£ |
£ |
£ |
I1889-93 |
31,569,891 |
1,180,646 |
32,750,537 |
31,837,482 |
7,694,149 |
39,531,631 |
II1894-98 |
26,329,764 |
2,215,049 |
24,544,813 |
28,963,180 |
6,750,736 |
35,713,916 |
III
1899-1903 |
28,709,819 |
2,089,656 |
30,799,475 |
33,498,480 |
7,301,172 |
40,799,652 |
IV 1903-8 |
36,784,628 |
2,232,857 |
39,017,485 |
47,294,311 |
9,586,706 |
56,881,017 |
Percentage of Increase (+) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Period II in comparison with Period I |
-16.598 |
+87.613 |
-25,055 |
- 9.28 |
-12.261 |
- 9.657 |
Period III
in comparison with Period 11 |
+ 9.039 |
- 5.661 |
+25.483 |
+15.659 |
+ 8.154 |
+14.240 |
Period IV in
comparison with Period III |
+28.126 |
+ 6.853 |
+26.682 |
+41.183 |
+31.304 |
+39.415 |
Period IV in
comparison with Period 1 |
+16.518 |
+89.122 |
+19.135 |
+48.549 |
+24.597 |
+43.887 |
TABLE XXVI
trade of india with china
|
Exports to China. |
Imports from China. |
||||
|
|
|||||
|
|
|
|
|
|
|
|
Merchandise. |
Treasure |
Total. |
Merchandise. |
Treasure. |
Total. |
|
£ |
£ |
£ |
£ |
£ |
£ |
I1889-93 |
9,454,014 |
20,223 |
9,474,238 |
1,666,840 |
1,992,914 |
3,659,754 |
II1893-98 |
8,509,284 |
112,105 |
8,621,389 |
1,713,529 |
503,357 |
2,216,886 |
III 1898-1903 |
9,679,830 |
183,647 |
9,863,477 |
1,309,975 |
798',053 |
2,108,028 |
IV 1903-8. |
12,461,535 |
160,879 |
12,622,414 |
1,248,822 |
919,402 |
2,168,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
II in comparison with Period I |
- 9.993 |
+454.333 |
- 9.002 |
+ 2.801 |
-74.743 |
-39.425 |
Period III in
comparison with Period 11 |
+13.756 |
+ 63.817 |
+14.407 |
-23.551 |
+58.546 |
- 4.910 |
Period IV in comparison with Period III |
+28.737 |
- 12.398 |
+27.971 |
- 4.668 |
+15.206 |
+ 2.856 |
Period IV in comparison with Period 1 |
+31.812 |
+695.508 |
+33.229 |
-25.078 |
-53.866 |
-40.755 |
That the arrest in the fall of the rupee should have lifted the burden from Indian finances was just as was expected to follow from the closure of the Mints. Notwithstanding important reductions in taxation and large expenditure of social utility, the annual budgets since the mint closure have shown few deficits (see p. 506).
Now there is a tendency among some writers to interpret these facts as unmistakable proofs of the soundness of the currency system. It is argued that if the trade of the country has not received a setback,[f1] and if the finances of the country have improved,[f2] then the implication is that the currency of which such results can be predicated must be good. It is not necessary to warn students of currency that such easy views on the soundness of the currency system, however plausible, are devoid of the logic necessary to carry conviction. Trade no doubt is dependent on good money, but the growth of trade is not a conclusive proof that the money is good. It should be noted that during the periods of debased coinages so common at one time the social misery and nuisance arising therefrom were intolerable, yet during the same periods it was possible for countries to make great advance in trade. Speaking of seventeenth-century England, when that country was afflicted with debased and constantly changing coinage and when there was, besides, a long period of civil war and confusion, Lord Liverpool, who was above all statement of his day most alive to the evils of a bad currency, remarks:—
" It is certain, however, that during the whole of this period, when our coins were in so great a state of confusion, the commerce of the kingdom was progressively improving and the balance of trade almost always in favour of this country."[f3] That commerce can increase even when currency is bad is easily supported from the experience of India herself. In no period did Indian trade make such strides as it did between 1873 and 1893. Was the Indian currency of that period good ? On the other hand, it is possible to hold that if trade is good it may be because the currency is bad. The trade of India between 1873 and 1893 flourished because it received a bounty. But the bounty was a mulcting of the Indian labourer, whose wages did not rise as fast as prices, so that the Indian prosperity of that period was founded not upon production, but upon depredation made possible by the inflation of currency.
TABLE XXVII
finances of THE government
Years. |
Years. |
Years. |
Surplus
+ Deficit — |
Years. |
Years. |
Surplus
+ Deficit— |
|||
|
|
£ |
|
£ |
|
£ |
|
£ |
|
-1,546,998 |
1898-9 |
+2,640,873 |
1903-4 |
+2,996,400 |
1908-9 |
-3,737,710 |
1913-14 |
+2,312,423 |
|
1894-95 |
+
693,110 |
1899-1900 |
1904-5 |
+3,456,066 |
1909-10 |
+
606,641 |
1914-15 |
-1,785,270 |
|
1895-96 |
+1,533,998 |
1900-1 |
+1,670,204 |
1905-6 |
+2,091,854 |
1910-11 |
+3,936,287 |
1915-16 |
-1,188,661 |
1896-97 |
-1,705,022 |
1901-2 |
+4,950,243 |
1906-7 |
+1,589,340 |
1911-12 |
+3,940,334 |
1916-17 |
+7,478,170 |
1897-98 |
-5,359,211 |
1902-3 |
+3,069,549 |
1907-8 |
+
300,615 |
1912-13 |
+3,107,634 |
— |
— |
Similarly it cannot be granted without reserve that the new currency system must be good because it has obviated the burden of the gold payments and given relief to the Indian taxpayer. Such a view involves a misconception of the precise source of the burden of India's gold payments during the period of falling exchange. It has been widely held that the burden of gold payments was caused by the fall in the gold value of silver, a view which carried with it the necessary implication that if India had been a gold-standard country she would have escaped that heavy burden. That it is an erroneous view hardly needs demonstration.[f4] It is not to be denied that India bore an extra burden arising from the increased value of the gold payments. But what is not sufficiently realised is that it was a burden which weighed on all gold debtors irrespective of the question whether their standard was gold or silver. In this respect the position of a gold-standard country like Australia was not different from a silver-standard country like India. In so far as they were gold debtors they suffered each in the same way from the same cause, namely the appreciation of the standard in which their debts were measured. The fact that one discharged her debts in gold and the other in Silver made no difference in their condition, except that the use of silver by India to discharge her debts served as a refractory medium through which it was possible to see the magnitude of the burden she bore. The fall of silver measured and not caused the burden of India's gold payments. The arrest in the fall of the rupee cannot be accepted as a prima fade proof of a relief to the taxpayer and therefore an evidence of the soundness of the currency system. It is possible that the benefit may have been too dearly paid for.
Although favourably impressed by the increase of trade and the buoyancy of Government finances under the exchange standard, the Chamberlain Commission did not care to found its case for it on the basis of such arguments. The chief ground on which it rested was that the currency system was capable of maintaining the exchange value of the rupee at a fixed par with gold. [f5]We must therefore proceed to examine this claim made by the Commission on behalf of the exchange standard. The table No. XXVIII presents the requisite data for an elucidation of the question.
TABLE XXVIII
gold
As
expressed in Terms of Foreign Exchange Rates on London. Par R.= ls.4d. |
As expressed In Terms of Gold. |
||||||
|
|||||||
Years. |
Highest. |
Lowest. |
|
Highest. |
Lowest. |
Highest. |
Lowest. |
|
s. d. |
8. d. |
|
Rs.
A. P. |
Rs. A. P. |
Rs. A. P. |
|
1892-93 |
1 3.969 |
1 2.625 |
1893 |
16 10 6 |
15 6 0 |
26 11 0 |
24 14 0 |
1893-94 |
1 4.031 |
1 1.500 |
1894 |
19 0 0 |
16 1 0 |
32 4 0 |
25 9 0 |
1894-95 |
1 1.906 |
1 0.000 |
1895 |
19 5 0 |
18 2 6 |
30 8 0 |
27 6 0 |
1895-96 |
1 2.875 |
1 1.000 |
1896 |
17 7 0 |
16 1 0 |
27 13 6 |
27 2 0 |
1896-97 |
1 3.842 |
1 1.781 |
1897 |
16 10 0 |
15 3 0 |
26 12 6 |
25 4 0 |
1897-98 |
1 4.125 |
1 2.250 |
1898 |
15 7 0 |
15 1 0 |
24 10 0 |
24 0 0 |
1898-99 |
1 4.156 |
1 3.094 |
1899 |
15 4 0 |
15 0 0 |
24 2 0 |
23 4 0 |
1899-1900 |
1 4.375 |
1 3.875 |
1900 |
15 1 3 |
15 0 0 |
24 2 0 |
23 15 6 |
1900-1901 |
1 4.156 |
1 3.875 |
1901 |
15 0 0 |
15 0 0 |
24 2 0 |
24 0 0 |
1901-1902 |
1 4.125 |
1 3.875 |
1902 |
15 4 6 |
15 2 6 |
24 2 6 |
24 0 0 |
1902-1903 |
1 4.156 |
1 3.875 |
1903 |
15 3 0 |
15 1 6 |
24 3 0 |
24 0 0 |
1903-1904 |
1 4.156 |
1 3.875 |
1904 |
15 5 0 |
15 1 3 |
24 2 0 |
24 0 3 |
1904-1905 |
1 4-156 |
1 3-970 |
1905 |
15 4 0 |
15 1 6 |
24 2 0 |
24 0 0 |
1905-1906 |
1 4-156 |
1 3-937 |
1906 |
15 1 0 |
15 2 0 |
24 4 6 |
24 0 0 |
1906-1907 |
1 4-187 |
1 3-937 |
1907 |
15 4 0 |
15 0 0 |
24 4 0 |
23 15 6 |
1907-1908 |
1 4-187 |
1 3-875 |
1908 |
15 1 0 |
15 0 0 |
24 10 0 |
24 2 0 |
1908-1909 |
1 4 |
1 3-875 |
1909 |
Premium between 12 and 3% |
24 3 6 |
23 15 0 |
|
1909-1910 |
1 4-156 |
1 3-875 |
1910 |
15 5 0 |
15 0 0 |
24 4 0 |
23 15 0 |
1910-1911 |
1 4-156 |
1 3.870 |
1911 |
15 0 0 |
15 0 0 |
24 0 6 |
23 14 0 |
1911-1912 |
1 4-156 |
1 3-937 |
1912 |
15 0 0 |
15 0 0 |
24 0 0 |
23 14 0 |
1912-1913 |
1 4-156 |
1 3-970 |
1913 |
15 0 0 |
15 0 0 |
24 0 3 |
— |
1913-1914 |
1 4.156 |
1 3-937 |
1914 |
15 14 0 |
15 2 0 |
26 10 0 |
23 15 6 |
1914-1915 |
1 4-094 |
1 3-937 |
1915 |
15 13 6. |
15 5 0 |
25 14 0 |
24 8 0 |
Assuming, for the moment, the criterion laid down by the Commission to be correct, can it be said from the data given above that the rupee has maintained its gold value ? It would be over-confident if not rash to say that the system, even from the narrow point of view of the Commission, has been an unquestioned success.
Between June, 1893, and January, 1917, the rupee was rated to gold at the rate of 1 rupee equal to 7.53344 troy grs. of fine gold. At that rate the sovereign should be equal to 15 rupees, the mint price of gold should be Rs. 23-14-4 per tola (i.e. 180 grs.) of bar gold 100 touch, and the exchange on London should be 1s. 4d., and should have varied within 1s. 4.125 d., the import point, and 1s. 3.906 d., the export point, for gold.
Taking a general survey of the stability of the rupee with regard to its value in terms of gold, it will be noticed that from the date of the Mint closure up to 1898 the rupee was far below par. The depreciation of the rupee, measured in terms of exchange or price of gold or sovereign, ranged somewhere between 25 to 30 per cent. So great was the depreciation that it redoubled the difficulties confronting the Government when the rupee was not fixed to gold. The financing the Home Treasury by the usual means of selling Council Bills became well-nigh impossible.[f6] The Secretary of State found himself in an embarrassing position. Offering to sell below par involved the obloquy of having led the way to the defeat of the policy of stabilising exchange. Refusing to sell at market rates involved the danger of a dry Treasury. The Government of India suggested that the Secretary should lay down a minimum rate for or a maximum amount of the bills that he put upon the market. The Secretary of State agreed to neither, but consented to reduce his drawings so as not to unduly depress the exchange rate. The drawings of the secretary of State during the first fiscal year since the Mint closure have been the smallest on record:—
TABLE XXIX Council Drawings
Date of drawing |
Amount of Drawings
1.000 omitted |
|
2,478 |
15.039 |
|
July |
25 |
15.974 |
August |
78 |
15.243 |
September |
7 |
15.350 |
October |
5 |
15.334 |
November |
617 |
15.251 |
December |
14 |
15.242 |
1894. January |
98 |
14.408 |
February |
1,023 |
13.787 |
March |
1,915 |
13.870 |
April |
1,368 |
13.626 |
The curtailment of drawings to save the rate of exchange from being lowered was not an unmitigated good, for it imposed the necessity of a resort to the by no means inexpensive method of sterling borrowings to finance the Home Treasury.[f7] The remittances by drawings fell short of the net disbursements of the Home Treasury in 1893-94 by £6,588,000, which deficit was met by permanent sterling borrowings to the extent of £7,430,000, the interest on which added to the already overheavy burden of the gold payments. Rather than incur such a penalty the Secretary of State gave up the attempt to dominate the market and preferred to follow it. But this let-go policy was not without its cost. The drop in the exchange below 1s. 4d. added to the burden of remittances to the Home Treasury, and also compelled the Government to grant exchange compensation allowance to its European officers, civil and military—an aid which it had so far withheld. The cost to the Government involved by the fall of the rupee below par was quite a considerable sum.[f8]
TABLE XXX
Cost of the Fall of the Rupee
|
Loss on |
Loss by |
Loss by |
|
||
Years |
Council Bills |
Exchange |
||||
|
being sold |
Pay of |
Account in |
|
|
|
|
below par |
Allowance |
In Rupees |
In Sterling |
||
|
|
|
Troops |
|
|
at 1s. 4d. |
|
|
|
|
|
||
1894-95 |
3,74,15,000 |
78,02,000 |
37,84,000 |
4,90,01,000 |
|
|
1895-96 |
3,05,91,000 |
87,18,000 |
49,38,000 |
4,42,47,000 |
11,91,86,000 |
7,945,733 |
1896-97 |
1,66,48,000 |
48,95,000 |
44,25,000 |
2,59,38,000 |
|
|
In the midst of such a situation it is no wonder if the faith of the Government in the ultimate stability of the rupee had given way, for we find that in October, 1896, the Financial Member of the Council had personally come to the conclusion that it would be better in the interest of stability to substitute 15d. for 16d. as the par of exchange between the rupee and gold.[f9] But the suggestion was dropped as the rupee showed signs of reaching the gold par, which it did in January, 1898, after a period of full five years of depreciation from the established par.
Between January, 1898, and January, 1917, twice did the rupee fall below its gold par. The year 1907-8 records the second occasion when the parity of the rupee under the exchange standard broke down. The actual rates of exchange prevailing in the market were as follows:—
TABLE XXXI
rates oF exchange, london oN india (FROM "the times")
Date |
On Calcutta |
On Bombay |
||
|
Highest |
Lowest |
Highest |
Lowest |
1907. September |
1 4 1/32 |
1 3 31/32 |
1 4 1/32 |
1 3 31/32 |
October |
1 4 1/32 |
1 3 31/32 |
1 4 1/32 |
1 3 31/32 |
November |
1 4 |
1 3 23/32 |
1 3 31/32 |
1 3 23/32 |
December |
1 3 15/16 |
1 3 27/32 |
1 3 15/16 |
1 3 27/32 |
1908. January |
1 3 15/16 |
1 3 29/32 |
1 3 15/16 |
1 3 7/8 |
February |
1 3 31/32 |
1 3 7/8 |
1 3 31/32 |
1 3 7/8 |
March |
1 3 29/32 |
1 3 27/32 |
1 3 29/32 |
1 3 27/32 |
April |
1 3 7/8 |
1 3 27/32 |
1 3 27/32 |
1 3 27/32 |
May |
1 3 7/8 |
1 3 27/32 |
1 3 15/16 |
1 3 27/32 |
June |
1 3 29/32 |
1 3 27/32 |
1 3 7/8 |
1 3 27/32 |
July |
1 3 7/8 |
1 3 27/32 |
1 3 7/8. |
1 3 27/32 |
August |
1 3 29/32 |
1 3 27/32 |
1 3 29/32 |
1 3 27/32 |
September |
1 3 31/32 |
1 3 29/32 |
1 3 31/32 |
1 3 7/8 |
October |
1 3 15/16 |
1 3 7/8 |
1 3 29/32 |
1 3 13/16 |
November |
1 3 29/32 |
1 3 7/8 |
1 3 7/8 |
1 3 7/8 |
December |
1 3 29/32 |
1 3 31/32 |
1 3 1/8 |
|
After a crisis lasting over a year the rupee recovered to its old gold par and remained fixed at it, though by no means firmly, for another seven years, only to suffer another fall from its parity during the year 1914-15 (see table, p. XXXII).
After 1916 the stability of the exchange standard was threatened by a danger arising from quite unsuspected quarters. The Indian exchange standard was based upon the view that the gold value of silver was bound to fall or at least not likely to rise to a level at which the intrinsic value of the rupee became higher than its nominal value. The price of silver at which the intrinsic value of the rupee equalled its nominal value was 43d. per ounce.
TABLE XXXII
rates of exchange, londn on calcutta
(FROM THE national bank of india)
Month |
1914 |
1915 |
||
|
Highest |
Lowest |
Highest |
Lowest |
January |
|
|
1 3 15/16 |
1 3 15/16 |
February |
|
|
1 4 1/32 |
1 3 29/32 |
March |
|
|
1 4 |
1 3 15/16 |
April |
|
|
1 3 15/16 |
1 3 29/32 |
May |
1 4 1/4 |
1 3 15/16 |
1 3 15/16 |
1 3 7/8 |
June |
1 3 31/32 |
1 3 15/16 |
1 3 7/8 |
1 3 27/32 |
July |
1 3 31/32 |
1 3 13/16 |
1 3 22/32 |
1 3 23/32 |
August |
1 3 7/8 |
1 3 13/16 |
1 3 15/16 |
1 3 27/32 |
September |
1 3 15/16 |
1 3 13/16 |
1 4 |
1 3 15/16 |
October |
1 3 15/16 |
1 3 15/16 |
|
|
November |
1 3 15/16 |
1 3 15/16 |
|
|
December |
1 3
15/16 |
1 3 15/16 |
|
|
So long as the intrinsic value of the rupee remained below its nominal value, i.e. the price of silver did not rise above 43d., there was no danger of the rupee circulating as currency. Once the price of silver rose above that point the danger of the rupee passing from currency to the melting-pot was imminent. Now, with the exception of a brief period from September, 1904, to December, 1907, the gold price of silver had since 1872 showed a marked tendency to fall. The decline in its price was so continuous and so steady as to create the general impression that the low price had come to stay. Indeed, so firm was the impression that the framers of the exchange standard had never taken into account the contingency of a rise in the price of silver above 43d. So little was it anticipated, that the system was not criticised on this ground by any of the witnesses who deposed before the successive Committees and Commission on Indian currency. But the unexpected may happen, and unfortunately did happen after 1916, and happened suddenly. On February 10, 1914, the cash price in London of silver per ounce of standard fineness was 26 5/8d. It fell to 22 11/16d. on February 10, 1915, and though it jumped to 27d. on the same date in 1916, yet it was below the rupee melting-point. After the last-mentioned date its rise was meteoric. On February 9, 1917, it rose to 37 5/8 d.; on February 8, 1918, to 43d.; and on the same date in 1919 to 48 7/16d., thereby quite overshooting the rupee melting-point. But the price of silver broke all record when on February 11, 1920, it reached the colossal figure of 89 1/2d. per standard ounce.
The rise in the intrinsic value of the rupee above the nominal value at once raised a problem as to how the rupee could be preserved in circulation. Two ways seemed open for the solution of the problem. One was to scale down the fineness of the rupee, and the other to raise its gold parity. All other countries which had been confronted by a similar problem adopted the former method of dealing with their silver coinage—a method which was successfully tried in the Philippines and the Straits Settlements and Mexico in 1904-7, when a rise in those years in the price of silver had created a similar problem in those countries.[f10] The Secretary of State for India adopted the second course of action and kept on altering the rupee par with every rise in the price of silver. The alterations of the rupee par following upon the variations in the price of silver are given below:—
TABLE XXXIII
Date of Alteration of the Rupee Par. |
Pitch of the Par. |
January 3, 1917 August 28, 1917 April 12, 1918 May 13, 1919 August 12, 1919 September 15, 1919 November 22, 1919 December 12, 1919 |
s. d. 1 4 1/4 1 5 1 6 1 8 1 10 2 0 2 2 2 4 |
After having played with the rupee par, for two years, in this manner, as though such alterations involved no social consequences, the Secretary of State, on May 30, 1919, appointed a new Currency Committee under the chairmanship of Babington Smith, to recommend measures " to ensure a stable gold exchange standard." The majority of the Committee, after half a year of cogitation, reported to the effect [f11]that
" (i) The object should be to restore stability to the rupee, and to re-establish the automatic working of the currency system at as early a date as practicable.
" (ii) The stable relation to be established should be with gold and not with sterling.
"(iii) The gold equivalent of the rupee should be sufficiently high to give assurance, so far as is practicable, that the rupee, while retaining its present weight and fineness, will remain a token coin, or in other words, that the bullion value of the silver it contains will not exceed its exchange value.
"After most careful consideration" (the Committee said) "we are unanimous (with the exception of one of our members who signs a separate report) in recommending that the stable relation to be established between the rupee and gold should be at the rate of one rupee to 11.30016 grs. of fine gold both for foreign exchange and internal circulation." i.e. the rupee to be equal to 2s. (gold).
The minority report, which harped on the old cry of a stimulus of low exchange and penalty of high exchange, stood out for the maintenance of the old rate of 15 rupees to the gold sovereign or 1 13.0016 grs. troy of pure gold, and recommended the issue of a two-rupee silver coin of reduced fineness compared with the old rupee, so long as the price of silver in New York was over 92 cents.[f12]
By the announcements of February 2, 1920, the recommendations of the majority of the Committee were accepted by the Secretary of State and also by the Government of India, which abandoned the old parity of 7.53344 grs. per rupee for the new parity of 11.30016 grs. troy. Now, has the rupee maintained its new parity with gold ?
In the matter of ascertaining this fact the exchange quotation on London is no guide, for the value of the rupee was 2s. gold and not 2s. sterling. Had gold and sterling been identical the case would have been otherwise. But during the war, owing to the issue of virtually inconvertible money, the pound sterling had depreciated in terms of gold. We must therefore take as our standard a currency which had kept its par with gold. Such a currency was the American dollar, and the exchange quotation on New York is therefore more directly helpful in measuring the gold value of the rupee than is the sterling quotation on London. We can also employ the actual rupee-sterling quotation as a measure by comparing it with the amount of sterling the rupee should have purchased, as an equivalent of 11.30016 grs. of fine gold, when corrected by the prevailing cross-rate between New York and London[f13]
Compared with the par of exchange, the actual exchange, either on New York or on London, indicates a fall of the rupee which is simply staggering (See table XXXIV).
Consider, along with the external gold value of the rupee, its internal value in terms of sovereigns and bar gold (see table XXXV).
The tables need no comment. The rupee is not only far away from 2s. (gold), but is not even 1s. 4d. (sterling).
Do not the facts furnish an incontrovertible proof of the futility of the exchange standard ? How can a system which fails to maintain its value in terms of gold, which it is supposed to do, be regarded as a sound system of currency ? There must be somewhere some weakness in the mechanism of a system which is liable to such occasional breakdowns. The rupee fell or rather was below par in 1893, and did not reach its parity to any real degree of firmness until 1900. After an interval of seven years the rupee again falls below par in 1907. The year 1914 witnesses another fall of the rupee. A meteoric rise since 1917, and again a fall after 1920. This curious phenomenon naturally raises the question : Why did the rupee fail to maintain its gold parity on these occasions ? A proper reply to this question will reveal wherein lies the weakness of the exchange standard.
TABLE XXXIV
actual gold
value oF THE rupee aND
THE NEW parity IN
terms oF foreign exchanges
|
New York on Bombay in
cents. |
|||||||||||
As
in the Middle of |
1920. |
1921. |
1922. |
1920. |
1921. |
1922. |
||||||
|
|
|
|
|
|
|
|
|||||
|
Par |
Actual |
Par |
Actual |
Par |
Actual |
Par |
Actual |
Par |
Actual |
Par |
Actual |
|
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
Rate. |
|
January |
0.4866 |
0-4400 |
0-4866 |
0-2925 |
0-4866 |
0-2800 |
2 7 1/2 |
2 3 5/8 |
2 7 5/16 |
1 5 5/8 |
2 3 5/8 |
1 3 13/16 |
February |
0.866 |
0-4850 |
0-4866 |
0-2800 |
0-4866 |
0-2845 |
2 10 1/3 1/2 |
2 9 1/8 |
2 5 13/16 |
1 4 1/8 |
2 2 7/32 |
1
3 9/16 |
March |
0-4866 |
0-4850 |
0-4866 |
0-2625 |
0-4866 |
0-2787 |
2 7 2/3 9/2 |
2 5 3/4 |
2 5 31/32 |
1 3 1/4 |
2 2 29/32 |
1
3 5/16 |
April |
0-4866 |
0-4775 |
0-4866 |
0-2625 |
0-4866 |
0-2785 |
2 5 7/16 |
2 31 |
2 5 13/16 |
1 3 5/8 |
2 2 1/2 |
1 3 1/8 |
May. |
0-4866 |
0-4325 |
0-4866 |
0-2675 |
0-4866 |
0-2930 |
2 6 1/3 9/2 |
2 2 1/8 |
2 5 7/32 |
1
3 1/2 |
2 2 1/4 |
1
3 9/16 |
June |
0-4866 |
0-4125 |
0-4866 |
0-2525 |
0-4866 |
0-2900 |
2 5 3/3 1/2 |
1 10 13/16 |
2 6 29/32 |
1 3 3/8 |
2 2 1/8 |
1 3 19/32 |
July. |
0-4866 |
0.3900 |
0-4866 |
0-2400 |
0-4866 |
0-2900 |
2 5 3/3 1/2 |
1 8 1/16 |
2 8 9/32 |
1 3 1/4 |
2 2 5/8 |
1 3 5/8 |
August |
0-4866 |
0-3650 |
0-4866 |
0-2475 |
0-4866 |
0-2916 |
2 83 9/32 |
1 10 1/16 |
2 7 29/32 |
1 43/4 |
2 2 3/16 |
1 3 19/32 |
September |
0-4868 |
0-3325 |
0-4866 |
0-2675 |
0-4866 |
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