FROM A GOLD STANDARD TO A GOLD EXCHANGE STANDARD 493
currency; for a portion of the new issue is a re-issue of what is returned from circulation. Nonetheless, it cannot be said that the Government by reason of its monopoly has put an effective limit on the volume of rupee currency. On the other hand, having no escape from the liability to issue currency, the exercise of this cherished privilege has recoiled on the Government, so much so that this monopoly of issue, instead of strengthening the position of the Government, has weakened it considerably.* The view of the Chamberlain Commission†
“that while the Government are very large dealers in the exchange market, they are not monopolists (!) and it seems doubtful if they could successfully stand out for any such [fixed minimum rate] at all times of the year,”
is therefore interesting as a confession that the closing of the Mints has not had the virtue of so limiting the coinage of rupees as to enable the Government to dictate at all times the price of the rupee, which none but it alone can manufacture.
Thus the present standard is different from the standard proposed in 1878 only in name. If this one is characterized by the adoption of the rate of exchange as an index for regulating the volume of currency, the same must be said of the former. But as Mr. Hawtrey remarks.‡ whatever means are adopted for the manipulation of the currency,
“the value of the rupee will be determined by the quantity in circulation.”
In other words, what must be said to be essential for the safety of a gold standard is a provision against over-issue of rupees. But, as we saw, neither the plan of 1878 nor the present one can be said to be free from that danger. Consequently we must conclude that, being essentially alike, the arguments that are valid against the former are also valid against the latter.
But the Chamberlain Commission will not allow that the exchange standard is a resuscitation of a condemned plan. On the other hand, it has sought to inspire confidence in that standard by holding out§
“that the present Indian system has close affinities with other currency systems in some of the great European countries and elsewhere ……”
- The danger involved in this indefinite liability to issue rupee currency was recognized by the Smith Currency Committee of 1919, which recommended that this obligation should be withdrawn. See Report, par. 68. Of course its motive was different.
† Report, par. 132.
‡ Currency and Credit, 1919, p. 341.
§ Report, par. 46.