STATEMENT OF EVIDENCE 629
should otherwise have been, though it was serious enough.” In the absence of that demand the next best thing would be the introduction of gold currency in India and the East. This introduction of a gold currency can be better accomplished by adopting the fixed issue system rather than the convertible system. For the former will leave a larger margin for the use of gold in actual currency than will the latter.
- That being my view of the solution of the problem I am necessarily in favour of the abolition of the Gold Standard Reserve as being of no practical use for maintaining the stability of the currency. There is also another reason why I think the Gold Standard Reserve ought to be abolished. The Gold Standard Reserve is peculiar in one respect, namely this; the assets, i.e., the reserve and the liabilities, i.e., the rupees are dangerously correlated by reason of the fact that the reserve cannot increase without an increase in the rupee currency. This ominous situation arises from the fact that the reserve is built out of the profits of rupee coinage. That being its origin, it is obvious that the fund can grow only as a consequence of an increase in the volume of rupee coinage. Now as Prof. Cannan remarks “ the percentage of administrators and legislators who understand the Gold Standard is painfully small, but it is and is likely to remain ten or twenty times as great as the percentage which understands the Gold Exchange System. The possibility of a Gold Exchange System being perverted by ignorance or corruption is very considerably greater than the possibility of the simple standard being so perverted. Unfortunately there is abundant proof of such perversion in the history of the currency system in India. Already we have had foolish administrators who had been obsessed with the idea that a reserve was a very essential thing and who had therefore gone in issuing currency without any other consideration but that of augmenting the reserve. Nor has the country been wanting in innumerable foolish business men who have condemned the Exchange Standard without ever knowing anything of currency on the sole ground that Government is not allowing them to use the reserve as though to boom up business was the proper function of a currency reserve. Similarly we have amongst us equally foolish politicians