494 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES
To get an idea as to what these affinities are, or rather were, we must look into Chapter II of Mr. Keynes’s interesting treatise on Indian Currency and Finance. In that treatise of his, Mr. Keynes has attempted to show that there is a fundamental likeness between the operations of the Indian currency system and the operations as they used to be of the central banks of some of the important countries of Europe. He found that it used to be the practice of these banks to hold foreign bills of exchange for the purpose of making remittances to foreign countries. Between the selling of such foreign bills and selling of reverse councils by the Government of India he observed a close fundamental likeness, inasmuch as both involved
“the use of a local currency mainly not of gold, some degree of unwillingness to supply gold locally in exchange for the local currency, but a high degree of willingness to sell foreign exchange for payment in local currency at a certain maximum rate.”*
But, as Prof. Kemmerer points out.† it is difficult to see what likeness there is between the Government of India selling reverse councils and the European banks holding foreign bills. Far from being alike, the two practices must be regarded as the opposite of each other. In selling reverse councils
“the Government sells drafts against its foreign gold credit (i.e. its gold reserve), when money at home is relatively redundant, as evidenced by exchange having reached the gold export point. Thereby it relieves the redundancy through the withdrawing from circulation and locking up the local money received in payment for the drafts. Under the practice of holding foreign bills to protect the money market, the central bank sells its foreign bills, when money at home is relatively scarce, as means of securing gold for importation or preventing its exportation. In the former case, the sale of drafts takes the place of an exportation of gold, and the resulting withdrawal of local money from circulation is in essentials an exportation ; in the latter case the sale of the drafts abroad is part of a process for securing gold for importation, or for preventing its exportation.”
The Indian currency system therefore bears no analogy to the European currency systems, as Mr. Keynes would have us believe. But if a parallel is needed, then the true parallel to the
- Kenynes, Indian Currency and Finance, p. 29.
† Cf. his review of Keynes in the Quarterly Journal of Economics, February,
1914, p.