THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY 397
What fixity of value between the different units of its currency is to the internal transactions of a country, a par of exchange is to its internal transactions. A par of exchange between any two countries expresses the relative exchange values of their respective currencies in terms of each other. It is obvious from this that the par of exchange between any two countries will be stable if they employ the same metal functioning as their standard money, freely convertible into and exportable as bullion, for in that case they would have as a measure of value a common medium, the value of which could not differ, given freedom of commerce, in the two countries by more than the cost of its transhipment, i.e., within specie points. On the other hand, there can be no fixed par of exchange between two countries, having different metals as their currency standards of value. In that case, their exchange is governed by the relative values of gold and silver, and must necessarily fluctuate with changes in their value relation. The limit to the exchange fluctuations between them will be as wide or as narrow as the limit to fluctuations in the relative values of the two metals may happen to be. When, therefore, two countries such as England and India are separated by differences in their metallic standards, theoretically there could be no possibility for a stable par of exchange between them. But, as a matter of fact, notwithstanding the difference in their metallic standards, the rate of exchange between England and India seldom deviated* from the normal† rate of
1 s. 10½ d. for R. 1. So steady was the rate up to 1873 that few people were conscious of the fact that the two countries had different currency standards. After 1873, however, the rupee-sterling exchange suddenly broke loose from this normal parity, and the dislocation it caused was so great and so disorderly (Chart II) that no one knew where it would stop.
*It appears, however, from the chart that the rupee-sterling exchange before
1873 was not quite stable. But the fluctuations in it are to be attributed to quite a different set of factors. It should be noted that the rates of exchange used for reducing the Indian moneys into sterling during the time of the East India Company had been various : moreover, they had so little relation to the intrinsic value of the coins exchanged that the actual rates officially given were far from the actual market rates. As having a bearing on this interesting subject, consult H. of C. Sessional Papers 735 II of 1931-32 ; Appendix No. 20, Correspondence, etc., relating to the rates of exchange at which the currencies of India are converted into sterling ;also Tucker, H. St. George, Remarks on the Plans of Finance, 1821, passim, and Memorials of Indian Government, 1853, by the same, pp. 382-85.
†Normal only if 15½ to 1 be taken as the normal ratio between gold and silver, which was the case for nearly seventy years.