Archive for July 17th, 2017

Trying to figure different monetary standards in India using data from Paper Currency Reserve (1861-1935)…

July 17, 2017

Monetary history despite being highly fascinating, is confusing as well. There are so many terms/standards which one does not understand. If there is one thing positive from India’s demonetisation and rise of digital currency, it is to understand history well. The basics keep coming back and haunting you for your ignorance.

Chandravarkar (1985) in his essay in Second Cambridge Economic History of India said:

India witnessed practically every variety of monetary standard, passing successively from a silver standard to a managed inconvertible silver currency, then almost fortuitously to the gold exchange standard; thereafter, to a paper standard, a gold bullion  standard, and after 1931, to a sterling exchange standard. India also played a pivotal role in the days of the international gold standard, 1890-1914, insofar as her merchandise surplus with the rest of the world and her merchandise deficit with England helped England to square her international payments on current account.

 Keynes in his Indian Currency and Finance Report (1913) too had marvelled over India’s Gold Exchange Standard.

But then whenever you try and figure these different monetary systems you struggle to understand. The dates of transition from once system to another are confusing and difficult to remember.

One useful way to figure all this is to analyse the data. In historical matters, time-series data helps one understand and remember things like no other. The next question is where is the data? Which data should we look at?

Interestingly, British colonists were highly efficient at collecting data especially on monetary and financial matters. We have some useful data which is not used by scholars for analysing Indian monetary history from various lenses.

One such data is that of Paper Currency Reserve, which was instituted by the British in 1861. Before 1861, the Presidency Banks (and other banks) issued their own paper currency. These notes circulated in their respective areas. Post -1857, as powers to run India moved from East India Company to the British Government there were talks of issuing a Government Paper currency. James Wilson the first Finance Member (today’s Finance Minister) had started proposed a Government currency in 1859 but passed away before the idea could be executed.

In 1861, the British authorities set up Paper Currency Reserve which was to issue government paper notes. The power of Presidency Banks to issue banknotes was taken away. Despite suggestions to let the banknotes being universally accepted across the country, the government let them be legal tender only in their respective areas.  These areas were called as circles. Initially they were just three circles which were expanded later to many more over time.

This Paper Currency Reserve is key to figuring the different monetary systems mentioned by Chandravarkar.

The Currency Reserve balance sheet had following heads:


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