FROM A GOLD STANDARD TO A GOLD EXCHANGE STANDARD 495
Indian system of currency is that system which prevailed in England during the Bank Suspension period (1797-1821). The fundamental likeness between the two systems becomes quite unmistakable if we keep aside for the moment the remittance operations of the Government of India and the Secretary of State, which becloud the true features of the Indian currency system. If we tear this veil and take a close view, the following appear to be the prominent features of the Indian system :—
(1) The gold sovereign is full legal tender.
(2) The silver rupee is also full legal tender.
(3) The Government undertakes to give rupees for sovereigns, but does not undertake to give sovereigns for rupees, i.e. the rupee is an inconvertible currency unlimited in issue.
Turning to the English system of currency during the period of the Bank Suspension, we find :—
(1) The gold sovereign was full legal tender.
(2) The paper notes of the Bank of England circulated as money of general acceptability by common custom if not by law.*
(3) The Bank of England undertook to give notes for gold or mercantile bills or any other kind of good equivalent, but did not give gold for notes, i.e. the notes formed an inconvertible currency unlimited in issue.
Only in one respect can the analogy be said to be imperfect. The Indian Government has undertaken—not, be it noted, as a statutory obligation, but merely as a matter subject to the will of the executive, to convert the rupee into gold at a fixed rate for foreign remittances if the exchange falls below par. This, it must be allowed, the bank of England did not do during the suspension period. Everything, therefore, turns upon the question whether this much convertibility is a sufficient distinction to mark off the Indian currency from the English currency of the suspension period into a separate category and invalidate the analogy herein said to exist between the two systems. To be able to decide one way or the other we must firmly grasp what is the true import of convertibility. Prejudice against an inconvertible currency is so strong that people are easily satisfied with a system which provides some kind of convertibility, however small. But to assume this attitude is to trifle with
- Cf. Andreades, History of the Bank of England, p. 198.