The evolution of the promises on India’s banknotes (1770 onwards)

JP Koning has another fascinating post on how the promises on the banknotes have changed over the years.

Taking a cue, I looked at India side of the story as well (Source: The Paper and the Promise written by Bazil Sheikh and Sandya Srinivasan). This is how it goes:

  • Early issues before 1861: The paper currency was introduced by British banks like Bank of Hindoostan (1770-1832) and General Bank of Bengal and Bahar (1773-75).  Later Presidency Banks also issued their own notes. These notes stated”

” I promise to pay so and so or the bearer on demand a sum of Rupees”.

This made the notes transferable. At that time this promise meant notes could be converted to coin of the region. Hence they were also called as Promissory Notes.

  • Paper Currency Act 1861: The Paper Currency Act took away the banknote function away from private hands to government hands. In order to address redemption of these notes, the government made currency circles. The notes issued in a circle acted as legal tender only in that circle. This meant, the notes could be encashed only in the given circle. This, the promise changed as:

“I promise to pay the bearer on demand the sum of ….” and name of circle was printed on the note as well.

We can see this in these pictures as well (not as clear though).

  • 1900s: The growing business and travel put pressure for universalization of notes. This meant notes to be enchased in any of the offices.In  1903, Rs 5 note was first universalised followed by other denominations. Now the Promise was:

“I promise to pay the bearer on demand the sum of … at any office of issue”.

  • 1969 onwards: This promise at any office of issue ran till 1969. In 1969, it was changed to

“I promise to pay the bearer sum of ….Rupees”.

This continues to run on the banknotes until today. Both “on demand” and “any office of issue” were removed as they did not mean anything now as the currency was purely on fiat. RBI in its history (1951-67) says:

There was some text printed on currency notes which the passage of time had rendered superfluous. Initially the  Bank proposed removing the words ‘guaranteed by the Central Government’, but the suggestion was not implemented for fear of adverse public reaction. The expressions ‘for the Reserve Bank of India’ below the Governor’s signature and ‘at any office of issue’ were dropped.

The Bank also proposed deleting the ‘promise to pay’ clause. Not only had the expression lost its meaning with the abandonment of any kind of domestic convertibility, it did not, as the Bombay High Court confirmed, have any legal meaning. Besides, Bank notes in several countries did not carry such a clause. But it was feared this change too, would give rise to public confusion, and in the end only the expression ‘on demand’ in the ‘promise to pay’ clause was dropped.

The Bank’s liabilities were thus in form still at variance from what they were in fact. That an opportunity to eliminate the anachronism was missed illustrates the misgivings officials at the Bank and in the government harboured during these years about a largely unlettered public’s faith in the country’s currency.

Fascinating…

This is an aspect of monetary history which is seldom spoken about

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7 Responses to “The evolution of the promises on India’s banknotes (1770 onwards)”

  1. G Sreekumar Says:

    I believe, when the entire currency note was to be made bilingual, including the guarantee and promissory clauses, apart from having the denominations in various other languages also, the space was found to be insufficient. Therefore, the following three were removed from the promissory clause: “On demand”, “at any office of issue” and “for the Reserve Bank of India”. Please see in this regard book on central banking by RK Seshadri, former Deputy Governor, Reserve Bank of India, in the early 70s.

    • Amol Agrawal Says:

      Dear Sri Sreekumar, Thanks once again for your guidance. All the books by Mr Seshadri are such gems. I have read the History of Indian Bank and another one on India’s Treasury operations. What is the title of this book? It is very difficult to get these books other than old libraries. I request RBI to put up these books on a digital platform for a wider reading…

  2. G Sreekumar Says:

    I do not recall the title of the book. Maybe it is just a collection of essays and/or articles. Will check and get back.

  3. G Sreekumar Says:

    I mean essays and/or speeches

  4. N Ramagopal Says:

    How can i get a copy of The Paper & The Promise.? it is not mentioned in the RBI website.
    ramagopal

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