The Great Exchange Question

(by Brig. A. Mason, M.C., R.E.)

Several times Kipling referred to these matters between 1883 and 1890, but one is never quite certain if he knew his subject, and occasionally he may have tried to treat it humorously. One 1899 writer tells us that if we wanted to learn about the position as it was, we need not go to India, for that would not help much.

The rupee was at the bottom of the whole matter, but if it was only the rupee and nothing more all would have been well, or fairly well. However, the rupee was also a bit of silver, so it was at one and the same time a piece of money and a piece of merchandise – both, and with a dual function. Or, perhaps, better, with a function and an attribute, which was more than the little rupee could bear. So it was the aim of all parties to rid the rupee of its incubus during those many
years of wrangling over the currency question. Which ought to go, the function or the attribute ? The attribute, for clearly the rupee must continue to be money and there was no great reason why silver, the article of merchandise should be rupees.

Money is a medium of exchange and a measure of value and one of the requisites of an efficient measure of value is stability. A commodity which is worth so much one year and perhaps a quarter as much again next year may be a good speculation, but it is a very bad measure of value. It is not pleasant to find that to pay your bill you have to pay 25% more than you expected. So the fact was that the value of silver, as measured by gold was unstable. This would not have mattered much for internal transactions in India only, but India did very considerable business with other countries, and most of it with gold-standard countries. Considerable funds had to be borrowed from gold-standard countries in gold, who had to be repaid in gold. The rupee being a silver coin had followed silver in exchange value.

When silver had become cheaper in terms of gold, the rupee had, of course, become cheaper with it, and it was the exchange value of the rupee (rather than its value as a piece of silver) upon which the whole question hinged.

The price of silver declined for over 20 years from about 1873 when Germany, flushed with French millions, discarded silver and took to gold, and when the Latin countries too gradually deserted silver the fall was continued.

At the same period there was an enormous development in silver mining. So the price fell from 5/- an ounce in 1872 to 3/- an ounce in 1892, and so the rupee exchange fell in those years from 2/- to l/2½d.

1893 was a year to be remembered in the monetary life of India. The government was almost bankrupt and they closed the mints. Until then anybody could bring as much silver as he liked to the Mints and receive rupees in exchange. The government too, had commitments in England to meet Home charges and the interest on the Sterling debt of India.

This was all based on 1872, when each rupee was worth 24 old pence (of 240 per £1), but by 1893 this was under 15 old pence, so, to meet each million pounds sterling, Rupees 16,000,000 were required instead of Rupees 10,000,000 only; or in the more usual Indian description, sixty extra lakhs of rupees per £1 million sterling (£375,000).

The decline had borne very hardly on the British in India who were paid a fixed number of rupees. It was not that the purchasing power of the rupee in India had varied much, but most of these men were obliged to send home a part of their income. Had salaries been fixed at a low rate of exchange they would not have been in such difficulties. It must have been extremely worrying to find from month to month, that more and more of your pay had to be sent home without doing any extra good there.

We need not go further into this but there was also the question of pensions at fixed rates, etc.

It was not until towards the end of the century that the rupee firmed up at 16 old pence, but the steps taken by the Government in 1893 gradually became effective, but all the 1880s and 1890s must have been very difficult for the Exchanges.


©A Mason 2007 All rights reserved