FROM A GOLD STANDARD TO A GOLD EXCHANGE STANDARD 497
That being so, it would be foolish to assume that we are immune from the consequences of an inconvertible currency until we know what is the grade of the convertibility that is provided. Now, what is the character of the convertibility of the rupee in India ? It is a deferred, delegalized, delocalized, and therefore a devitalized kind of convertibility. Indeed, really speaking it is not a convertibility, but rather it is a moratorium which is a negation of convertibility, for what does the provision for convertibility for foreign remittances mean in practice ? It simply means that until a fall of exchange takes place there is a moratorium or inconvertibility in respect of the rupee. Not only is there a moratorium as long as exchange does not fall, but there is no guarantee that the moratorium will be lifted when a fall does occur. It may not be lifted, for it is a matter of conscience and not of law.* Is such a grade of convertibility, if one has a predilection for that term, very far removed from the inconvertibility of the bank notes during the suspension period ? Let those who will say so. For a person not endowed with high and subtle imagination the distinction between such a convertibility and absolute inconvertibility is too thin to persuade him that the two systems are radically different; indeed, when we come to analyse the problem of prices in India and outside India we shall find another piece of evidence to show that they are not different, and that the analogy between the two is perfect enough for all practical purposes.
- The Finance Member of the Viceroy’s Council, in his Financial Statement for 1908-09 (p. 23, italics not in the original), observed :— “Had we complied with the demand for issues [of gold] without limit, the whole available supply might have been drawn off in a few weeks …… For these reasons we decided to stand by our legal rights. ...We are not bound to give sovereigns in exchange for rupees except at our own convenience. The currency offices were accordingly instructed not to issue gold in larger quantities than £ 10,000 to any individual on any one day.” These words were used to explain the attitude of the Government regarding its sense of obligation as to convertibility of the rupee in the exchange crisis of
1907 ! The degree of convertibility being a matter of administrative discretion it is difficult to define the extent to which it is given effect to in practice. Official evidence is inclined to impress upon the public that practically the rupee is convertible. If that is so, why not make it legally convertible. For, if convertibility is complete in practice a legal convertibility cannot impose upon the Government greater obligations than what the official evidence suggests the Government to be actually assuming. It is said that Government does not do so because it is afraid that exchange speculators will take advantage of it. But why should they not ? Are they not holders of rupees ? It does not, however, appear to have been adequately realized that this defence implies that the currency is issued so much beyond the point of the “saturation” that its value is always, on the margin of being affected by an element of speculation.