Book Review: The Conjuror’s Trick – An interpretive history of Paper Money in India by Bazil Shaikh

I review this superb “visual delight” book by Bazil Shaikh: The Conjuror’s Trick – An interpretive history of Paper Money in India. The book is published by Marg Publications in December 2020.

A Visual Delight history of Indian Paper Money
Amol Agrawal

The Conjuror’s Trick: An interpretive history of Paper Money in India, Bazil Shaikh, Marg Publications, December 2020.

Post Demonetization- 2016, I became highly interested in history and evolution of currency (Indian and global). In this regard, I came across an insightful RBI Museum monograph written by Bazil Shaikh. I also learnt that Basil Shaikh was instrumental in design of RBI’s Museum in Mumbai. I became an instant Basil fan as the monograph had a superb picturesque account of evolution of Indian Rupee. I tried to get a personal copy but the copies were out of print.

I could not be more delighted to discover Bazil Shaikh’s new book on history of paper money in India which is even more comprehensive and rich in content and pictures. It is truly a collector’s delight. The only glitch is the steep price of the book (Rs 1800) which could become a barrier for the book not becoming a bestseller.

Dr. Y.V Reddy has penned foreword for the book calling it a “visual delight that informs, educates and interprets. Offering a delectable read to both the studious and the curious”. Indeed!

Shaikh’s book is divided into 9 chapters which are like a delicate thread weaving the narrative from one chapter to another.

Chapter 1 gives an overview of different forms of money and people that shaped these currencies (all men barring pictures of Queens on some of the notes).  Before the advent of paper as a currency form, several other commodities had circulated as money such as cowrie shells, grains, salt etc. Once humans discovered precious metals such as silver and gold, these metals replaced all forms of money. Overtime, Lydians, Chinese and Indians standardized the metals to develop coins which continues to remain one of the dominant forms of money even till today.

Paper Money was first seen in China under the Tang Dynasty around seventh century. These notes were not used for trade but for graves! The Chinese kept burial notes in graves so the dead could use them afterlife or during reincarnation.

Later dynasties such as Song Dynasty (906-1279) understood that paper can be used as money even by the living person (J). The wealthy Chinese merchants started issuing printed paper notes backed by monetary reserves. These printed notes had two features which continue till date. One they had images of houses, trees, humans etc. Two the merchants overissued notes leading to bankruptcies and authorities abolishing private issuance in favor of government issuance.

In Europe, Sweden was the first country to experiment paper currency in 1657 issued by a private bank which faced crisis of overissuance. The Swedes established a new bank in 1668 which became the world’s first central bank as well. The British formed Bank of England three decades later in 1694 to fund wars with French which issued notes along with private banks.

The paper money came to India via the British banks. Before we get there, we need to ask two questions.

At this juncture we need to pause and ask two questions.

First, why is it that these hundis which were similar to Chinese bills did not become paper money? The book cites two reasons. First, hundis did not circulate amidst public and was limited to merchants.  Second, hundi issuing indigenous banks did not accept deposits. Third, they also considered issuing notes as borrowing from public which was detrimental to their reputation.

The second related question is how come none of these indigenous banks transitioned to become leading banks? First, indigenous banks were opaquely organised based on informal norms and caste structures.  Second, the decline of Mughal Empire led to loss of political patronage enjoyed by these banks. Third, the British quickly undermined the exiting elite and financial powers. The same Jagat Seths were divested of their powers to collect tax revenues by creating Office of the Collector. Fourth, British, shifted the power/financial centre from Murshidabad to Calcutta.

Thus, paper money came via British banks. In 1720, Bank of Bombay was established which issued banknotes but the bank faded in oblivion. The British power was not yet secure and Bombay was hardly the financial centre it was to become.

Post Battle of Plassey victory in 1757, both political and economic conditions changed in favor of British.

The British soon started establishing businesses under the Managing Agency system where commerce and banking was combined.  The first bank established under this system was Bank of Hindoostan (BoH) which issued its own paper banknotes.  These notes were printed in England on watermarked paper. The notes were issued in denominations of Rs 4, 8, 16 given the Indian binary system of sub-denominations along with round denominations of Rs 20, 250 and so on. The paper notes quickly fed people’s imagination leading to counterfeiting and forgery of these notes.

Apart from history of paper money, the book describes how these banks were organised and began to develop financial products and services which is fascinating. For instance as BoH lacked branches and could not transfer funds, Governor General of India Warren Hastings established another bank in 1773 – General Bank of Bengal and Behar (GBBB). GBBB had 14 branches but could only run for two years as Collectors complained of revenue loss. RBI’s History mentions GBBB as the first central bank experiment in India.

Post BoH and GBBB, other note issuing banks such as Bengal Bank (1782) and General Bank of India (1786) were established in Calcutta whereas Carnatic Bank was established in Madras (1788). The two Calcutta based banks had no connections with agency house. There were concerns that commerce and banking should remain separate leading to some establishing banks not connected with commerce. Interestingly, this idea of whether industrial houses can run banks remains a point of contention until today.

Shaikh terms the period 1770-1806 as first phase of free banking (Chapter 2) where private banks issued own currency notes as discussed above.

The next phase second phase of free banking is from 1806 to 1861 (Chapter 3). The several wars had depleted the EIC and there was a need to establish government controlled banks to replenish money supplies. In 1806, Government Bank was established in Madras and Bank of Calcutta in Calcutta. In 1809, Bank of Calcutta was chartered and renamed as Bank of Bengal. Bank of Bengal became the first Presidency Bank followed by Bank of Bombay in 1840 and Bank of Madras in 1843. The Government Bank was merged with Bank of Madras.

Bank of Bengal issued unifaced notes on watermark paper with Bank name mentioned in 3 more languages apart from English: Bengali, Persian and Hindi. The notes became double faced in 1820s and added more security features. Bank of Bombay notes had Sindhi, Persian, Marathi and Gujarati languages whereas Persian, Tamil and Telugu languages were used in Bank of Madras notes. Several other private banks started in this period mainly in Calcutta due to boom in indigo crop and most failed as prices of indigo crashed. All these notes carried signature of key officials. The counterfeiters continued their adventures. The book mentions a fascinating study on how one such case was caught due to the missing signatures.

In 1835, the monetary unit was changed from Sicca Rupee to Company Rupee. The coins which were territorial were unified to issue a common coin across the country. The new coins bore portrait of King William IV marking “new confidence” of the established imperial power. This new power led them to drop the Indian languages from the Bank of Bengal notes in obverse and only kept them in reverse. The design of Bank of Bengal notes was also changed with Imperial Britannia at the centre of the notes.

In 1857, the governance of India shifted from EIC to British Sovereign. This period also saw change in thinking on monetary affairs. Apart from free banking school, Currency and Banking Schools emerged. The Currency school advocated that currency issuance should be backed by a reserve of precious metals. Banking School believed that real bills which facilitate trade and commerce should be behind currency issuance. The Currency school won the debate and in 1844 Bank of England became the monopoly issuer.

These debates and developments influenced monetary policy in India as well.

In 1861, the British government monopolized the currency under Paper Currency Act and prohibited all banks including Presidency Banks to issue currency (Chapter 4). The currency was backed by silver and government securities (maximum 4 cr). The profits arising from seignorage which has been a strong reason for monopolizing currency was termed as ‘Profits of the note circulation’. The first notes were issued as Victoria Portrait (VP) series in five denominations (10, 20, 50, 100 and 1000). In 1923, the VP series was changed to King’s Portait series featuring George V and notes had more images.

The government also developed circles of issue where these currencies could be circulated. In 1861, circles were only in Calcutta, Bombay and Madras which were then expanded into several sub-circles. The currency was universalized in phases beginning with Rs 5 in 1903, Rs 10 and Rs 50 in 1910 and Rs 100 in 1911.

One issue which is really important and discussed in the book is Indian rupee being backed by silver where most countries in 1870s had moved to gold. The value of silver depreciated compared to gold putting pressure on the rupee. In 1917, the government issued Rs 1 and Rs 2.5 notes due to shortage of silver. In a recent book – The Bitcoin Standard- Saifedean Ammous compares this sticking to silver standard with India’s approach to ban cryptocurrencies. He says that a ban ensures Indian rupee remains tied to US Dollar just like it did to silver.

In 1925, another landmark was crossed as notes began to print in India with the Government establishing the first printing press in Nasik.

Chapter 5 discusses how quest for an elastic currency led to formation of Reserve Bank of India. Post-RBI, one major discussion point was which notes should the central bank issue as King Geroge V had died. The new RBI issued notes had King Edward VIII. The legend Government of India was replaced by Reserve Bank of India and notes were to be signed by the Governor. The chapter also covers the first demonetization of 1946 following similar “call ins” of notes done in UK, France and Belgium. Then Governor CD Deshmukh did not favor the decision as is also documented in RBI’s history.

Another interesting explanation in the book is how Rupee gradually became a fiat currency. In 1940, the one rupee coin was included as a coin which meant it could be printed without being backed by coin. This was the first step towards Rupee becoming fiat currency as its link with silver was severed. These were the only notes signed by Finance Secretary as they were deemed as coins and not banknotes which are all signed by RBI Governor.

Chapter 6 discusses the monetary management during separation of Burma with India and Partition of India and Pakistan. It also has a discussion on usage of Indian rupees in the Gulf area and Haj rupees.

Chapter 7 discusses various banknote series post-independence. In 1949 first banknotes of independent India replaced King’s Portrait with image of Sarnath pillar. The notes also had eight languages: Urdu, Hindi, Bengali, Telugu, Tamil, Kannada, Gujarati and Oriya. Later three more languages were added. As India became republic in 1950, Indian symbols such as lion and elephants were added to the notes. In 1957, decimalization was initiated which did not impact the notes but impacted the coins. The new coins were called as ‘new/naye paise’. The chapter has extensive details on how currency designs have changed and demonetized (in 1978 and 2016).

Chapter 8 goes back to history and explains how two princely states of Jammu and Kashmir and Hyderabad had their own currencies. J&K in 1877 issued paper currency under Maharaja Ranjit Singh and were not backed by any metallic reserve. The year saw a great famine in the region and is seen as a major reason for British agreeing for a seperate issuance of notes. It is not really clear when the circulation was stopped but was for a brief period.

In 1918, due to silver shortage, Britsh acceded to request of state of Hyderabad to issue its own currency. The ‘Osmania Sicca Rupee’ (OSR) circulated till 1948 becoming the major princely state currency which circulated for 30 years. In an interesting tale, the book narrates how a ship in 1925 which was carrying printed Indian Rupees and OSR part from several luxuries, sank and led to a crisis in Hyderabad. An operation salvaged the sunk treasure including the Hyderabad notes leading to questions over whether they could be exchanged for any value. A technicality that notes simply printed do not have value but only those that circulate do, saved the Government of Hyderabad. The story of how Hyderabad currency had to be demonetized post its integration with India is quite telling as well. All was not lost as the Hyderabad mint at Saifabad was made part of Indian Union and became the third mint in the country.

Other Princely States such as Mysore and Kutch had designed prototypes but British rejected their requests.

Chapter 8 also has a vivid description of Portuguese currencies in Goa. Unlike the British which followed some processes and systems, the Portuguese issued “mind-boggling array of coins” and “complex denominations such as rupia, xerafim, cazaruco and so on. These complex monetary arrangements also ensured Goan economy did not prosper. Later in 1878, under the Anglo-Portuguese Treaty, Goa adopted the Indian rupee system to boost trade and growth. The notes carried both Portuguese and Marathi and were printed in local press. In the period 1906-61, Banco Nacional Ultramarino (BNU) which was started to issue banknotes in Portuguese colonies, started issuing currency notes for Goa too. In 1958, Goa changed from Rupee to Escudo. Post Goa’s liberation and integration with India in 1961, escudos were exchanged for rupee in the ratio 6:1 and remaining were demonetized (what else!).

The French territory of Pondicherry had its currency as Roupies which was equivalent to Indian Rupees. Once French territories are made part of India, replacing these notes with Indian Rupees was not as difficult.

Chapter 9 which is also the last chapter has fascinating cases of prisoner of war coupons issued during wars such as 1857, Second World War and 1971 Bangladesh Liberation war. These coupons provide pocket money to prisoners for buying items of need. There is a section of how Princely States such as Morvi and Dhrangadhara issued Hawala notes which escaped British attention as they resembled more like bills of exchange. In wake of WWII, around 36 States issued small denomination cash coupons/tokens to safeguard against shortage of coins. Later Bombay’s BEST and Calcutta Tramways issued similar tokens to reduce people’s stress of managing small change. We also see how local grocers use their own tokens to manage the small currency and change.

The chapter ends with a discussion on digital currencies. The private cryptocurrencies have become merely a speculative asset, Central Banks are gearing upto issue their own digital currencies. Bahamas and Eastern Caribbean Currency Union have already started issuing digital currencies. Shaikh says central banks will have to walk the fine balance between security and privacy while issuing these digital alternatives. He sums up well saying that future of money lies more in politics and sociology and not economics. It will be a contest of wills between governments and large corporations on one hand and crypto community seeking individuality and others who wish to see money as improving human welfare on the other.

Robert Mundell, Nobel laureate in Economics (1999) passed away recently. In his Nobel Prize lecture, Mundell mentioned that he wished to “bring out the role of monetary factor as a determinant of political events”. While it is difficult to prove which way the causality runs but one does see monetary factors and political events go hand in hand. Bazil Shaikh’s new book on history of paper money in India is almost a tribute to Mundell showing how money and political events are so intertwined in India’s history (and future) as well.



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