STABILITY OF THE EXCHANGE STANDARD 515
on New York is therefore more directly helpful in measuring the gold value of the rupee than is the sterling quotation on London. We can also employ the actual rupee-sterling quotation as a measure by comparing it with the amount of sterling the rupee should have purchased, as an equivalent of 11.30016 grs. of fine gold, when corrected by the prevailing cross-rate between New York and London.*
Compared with the par of exchange, the actual exchange, either on New York or on London, indicates a fall of the rupee which is simply staggering ( See table XXXIV).
Consider, along with the external gold value of the rupee, its internal value in terms of sovereigns and bar gold ( see table XXXV).
The tables need no comment. The rupee is not only far away from 2s. (gold), but is not even 1s. 4d. (sterling).
Do not the facts furnish an incontrovertible proof of the futility of the exchange standard ? How can a system which fails to maintain its value in terms of gold, which it is supposed to do, be regarded as a sound system of currency ? There must be somewhere some weakness in the mechanism of a system which is liable to such occasional breakdowns. The rupee fell or rather was below par in 1893, and did not reach its parity to any real degree of firmness until 1900. After an interval of seven years the rupee again falls below par in 1907. The year
1914 witnesses another fall of the rupee. A meteoric rise since
1917, and again a fall after 1920. This curious phenomenon naturally raises the question : Why did the rupee fail to maintain its gold parity on these occasions ? A proper reply to this question will reveal wherein lies the weakness of the exchange standard.
- The formula for this computation is as follwos :—
if x pence = 1 rupee
= 11.30016 grs. fine gold,
2:3.22 grs. fine gold = 1 dollar
D dollars = 1 pound sterling
= 240 pence.
11.30016 × 240 11,680 Then x = pence.
23.22 × D D
Cf. Rushforth, F. V., The Indian Exchange Problem, 1921, p. 9.