390 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES
On the face of it, the Indian currency is also a compound of money and credit, and as such it may be supposed that it contained provisions for expansibility as well as elasticity. But when we come to analyse it we find that it makes no provision whatever for elasticity. Far from allowing the credit part of it to expand and contract with the seasonal demands, the Paper Currency Act placed a rigid limit upon the volume of its issue regardless of any changes in the volume of the demand. Here, then, is to be found one of the causes for the “convulsions” in the discount rates prevalent in the Indian money market. As was pointed out by Mr. Van Den Berg :—
“The paper currency established by the Indian legislator fully answers the purpose, so far as business requires an easier means of exchange than gold or silver coin ; but no connection whatever exists between the issue of the fiduciary currency and the wants of the public to have their bills or other commodities converted into a current medium of exchange........... and this is the sole cause of the unexpected convulsions and sudden transitions in the money market so utterly detrimental to business to which the British Indian trade is constantly exposed.”*
It may, however, be objected that such a view is only superficial. The Indian Paper Currency Act is a replica of the English Bank Act of 1844 in all its essentials. Like the English Bank Act, it set a definite limit to the fiduciary issue of notes. Like it, it separated the Issue Business from the Banking Business,† and if it made the banks in India mere banks of discount, it is because it copied the Bank Charter Act, which deprived banks in England, including the Bank of England, from being banks of issue. And yet, it cannot be said that the English money market is affected by such “convlusions and sudden transitions” as has been the case with the Indian money market.
- Op. cit., p. 7.
† The Indian Paper Currency Act carried the principle of separation further than did the English Bank Charter Act. It not only prevented the Issue Department being conducted under the aegis of a Banking Department, but also disallowed the two being housed under the same roof. Such an ideal of separation was held out by Sir Charles Wood during the debate on the Bank Charter Act. Cf. Hansard Parliamentary Debates, Vol. LXXIV, p. 1363. Though he was then disappointed he did not fail to realize his ideal when he became the Secretary of State for India.