The Problem of Rupee is 257-page long paper written by Dr. B. R. Ambedkar that he presented as his Doctoral thesis at the London School of Economics (LSE) in March 1923. In it, Ambedkar tried to explain the troubles that were associated with the national currency of India - the Rupee. He argued against the British ploy to keep the exchange rate too high to facilitate the trade of their factory products.
In this article, I have tried to summarize the aforesaid book by Dr. Ambedkar. I have also tried to focus on how he advances his speech depicting the ups and downs of the Indian economy and currency. He introduces us to the characteristics of trade and business in our country even from the time when it was divided into several monarchical regions. He proclaims that in our country, the trade of any product had been conducted through the exchanges of money and those particular products. So evidently our merchant society is typically crowned as a pecuniary society that only runs on money.
(In pic: Cover Page of Ambedkar's book. Courtesy: Kalpaz Publications.) Quoting W. C. Mitchell, Ambedkar reiterates that economists say money is pivotal to every individual in a society. And without the use of money, the distribution of anything can be a matter of disagreement and disturbance. In the next few lines of his speech, in the first chapter, he describes how the standards and currency were in the time of the Mughal empire and he certainly mentioned that the economic condition of the country was far better than that of today's, because it had a world-wide boundary of trade and free use of gold mohur and the silver rupee. Actually, before the administrative and financial invasion of British, Gold and silver were the inevitable parts of the medium of exchange without any fixed ratio. Hindu emperors and the Muslim emperors had some similarity in their trading features- both of them had a permissible use of metal coin in their empire but in the Mughal empire silver coins were at the center of currency, and later gold coins took that place in the Hindi empires. Mohur and rupee were similar in size, weight and composition. But the silver currency was unknown or more precisely unpopular to the southern part of the great Indian sub-continent because of the failure of Mughal administration. Instead of such coins, they normalised pagoda, the ancient gold coin traditioned from the time of Hindu kings. Mughals made allowances to recuperate the problems regarding faulty technology of the mints. Dr. Ambedkar observes that Mughals had initiated a system of provincial mints that had been maintained or ruled by a single unit or division. That made it easy to examine the issues related to monetary funds or mints. But later, these issues continued to be grow larger and made the poor and ignorant people suffer. He also tried to conjugate the great re-coinage of 1996(?). In the last half of the chapter, Ambedkar compared the coins as well as the rupee in every possible way.
Our country was divided into three presidencies during the British rule. So the British government set their target to change the parallel standard popular in Mughal times into a double standard by establishing an authorised ratio of exchange between pagoda, rupee, and mohur. But somewhere their effort partially went in vain. He gave a pictorial glimpse of how Bengal took this effort and tried to fix that ratio. Mainly, these types of attempts were taken and recommended by the Court of directors. But these steps were left to carry out by many of the provincial governments of India. In the first chapter of the problem of the rupee, Dr. Ambedkar explained how silver standards had been established through the vanishing of gold currency and how it had been supplemented by the paper currency. He also retorted how the Act XXIII of 1870 actually introduced nothing new - neither the number of the coins authorised by the mints nor its tender-powers. Rather, it helped just to make some improvements in monetary laws. Since the invention of coinage people always thought that the actual value of the coin can be exact with the price of the coin legalised by the mint. So according to him, the exact value of the coin can’t however always be the same as the certified value. That’s why in foreign countries, coins will not be legal tender if they vary from their legal standards beyond a certain limit. So, making coins legal tender without defining a certain limit to its toleration certainly makes way to cheat. Convincingly, the Act set a certain legal limit to the coins of its tolerance. The act also made an improvement that was to recognise the principle of free coinage. But we can not say that this principle of free coinage was perfect in every possible way as Ambedkar himself once said in this chapter that the principle had not been paid that much attention it deserved. Though it was the very basis of well-established currency in that it has an important bearing on the cardinal question of the amount of currency inevitable for the transactions of the people. According to Ambedkar, to solve this problem, two ways can be very useful to regulate such a huge quantity of transactions. One possible way is to close the mints and to leave it to the judgment of the government to handle the currency to suit our needs. The other way is to keep the mint as it is and to leave it to the self-interest of individuals to determine the amount of currency they need. Ambedkar aptly indicated both of the similarities and contradictions of the above-mentioned Act with the other ones where surely, he finds its incapability to regulate such a large quantity of currency.
In the introduction to the third chapter, Ambedkar was concerned about the economic results of the disturbance of the ‘par’ of exchange and he narrates it as the most “far-reaching character”. Our economic world can be sectioned into two neatly defined groups of people. These two categorised community had learned to use gold and silver and their standard money or purchasing standards. By giving a reference to 1873, he said that when a large amount of gold becomes equal to a large amount of silver, it barely matters for international transactions. It doesn’t make so much difference in which of the two currencies its obligations were stipulated and realized. But due to the dislocation of the fixed ratio or par, it becomes hard to indicate particularly how much silver is equal to how much of gold from one year to another, even from month to month. This exactitude of value which is the pivotal potential of monetary exchange, makes space for ambiguities of gambling. So, flatly all countries weren’t drawn to this center of perplexities in the same degree and the same extent; but yet it’s impossible for a nation which is a part of the international commercial world to escape from being dragged into it. This was true of our country as it was of no other country. India was a silver-standard country bound to a gold-standard country, so that her economic and financial picture was at “the mercy of blind forces operating upon the relative values of gold and silver which governed the rupee-sterling exchange.” Later in the discussion, Ambedkar pointed out the burdens of Indian economy and introduced us to an index [Table-XI] chart regarding the rupee cost of gold payments which showed data from year to year. If we give pay attention to the points figured out by Ambedkar, we can see that these burdens never stop, rather it’s been increasing day by day. Gradually, it caused various policies of high taxations and rigidity in Indian finance. Dr. Ambedkar brilliantly analysed Indian budgets between 1872-1882 and he proved that hardly a year passed without making an addition to the everlasting impositions on the country. He also analysed the information found in Malwa Opium Trade and was able to find errors in the economic policies of the Indian government. The taxes that the government standardized in these trades probably help the Indian economy to feel secure around the end of 1882. The government started exercising the virtue of economy along with the increment of resources. They found cheap agency of native Indians instead of employing imported Englishmen. And it was easy to use native intellect because the Educational Reforms of 1853 clearly says about the access of natives in Indian Civil Service. Thus, he finds the British try to set up a strong economy in India under the British raj.
In the fourth chapter of the book, Ambedkar focuses on how the establishment of a stable economic system was dependent upon the re-establishment of a common standard of value. As it was the purpose just to normalise a common standard of value, its fulfillment was by no means an easy matter. The government found mostly two ways to make an experiment or practice. First thing was to declare any of the common metal as the standard currency and the second was to let gold and silver standard countries keep to these metal currencies and to establish a fixed ratio of exchange as to turn these to metal into a common standard of value. The first idea of normalising metal currency other than gold and silver was to make other countries leave their standards in favour of gold. If we look back at the history of movements for the reform of the Indian currency, we will mainly find two movements. The movement that led to introduce a gold standard first occupies this field. Dragging a reference to a ‘Report of the Indian Currency Committee’ of 1898, Dr. Ambedkar said that the notification of 1868 had bluntly failed and this failure doesn’t affect the history because the movement had already started earlier in the sixties and the movement had still life in it. Clearly, it is shown by the fact that it was revived four years later by Sir R. Temple, when he became the Finance Minister of India, in a memorandum dated May 15, 1872.
In the next few lines, Dr. Ambedkar talks about the second movement for the introduction of the gold standard that was conducted by Colonel J. T. Smith, the able Mint Master of India. Frankly, Dr. Ambedkar mentioned that his plan was a redress for the falling exchange. In this topic, he quoted the actual speech of Smith that was published in 1876 in London. Depicting the whole principle behind the presentation of J. T. Smith, Baba Saheb found it was considerably supported by the fall of silver in British India.
Now in the fifth chapter, we come to know that once somewhere Indian economic system felt that the problem of an erosive rupee was favourably dissolved. The long-lasting concerns and niceties that lingered over a long period even for a quarter of the century could not but have been successfully compensated by the adoption of a redress like the one mentioned in the fourth chapter. But unfortunately, the system originally planned, failed to be designed into reality. In its place, a system of currency in India grew up which was the very reverse or contradictory of it. A few years later when the legislative sanction had been shown the recommendations and suggestions of the Fowler committee, the Chamberlain Commission on Indian Finance and Currency said that the government contemplated to adopt the recommendations made by the committee of 1898, but the contemporary system utterly differs from the plan and had some common feature with the theory and suggestions made by Mr. A. M. Lindsay.
According to Mr. Lindsay’s scheme, he emphasised on how to turn the entire Indian currency to a rupee currency; the government was to give rupees in almost every case in return for gold, whereas gold for rupees only in foreign dispatch of money. The project was to be implicated through the assistance in between of two offices, one was in London and the other located in here, India. The first was to sell drafts on the latter when rupees were wanted and the latter was to sell drafts on the former when gold was wanted. Unbelievably, the same or similar system prevailed in our country. It was rejected in 1898. Then gradually paper currency came up to the Indian economic realm and two reserves one of gold and other of currencies left other than gold. Ambedkar had lengthened his discussion over Indian currencies after these events.
In the sixth chapter of the book, Dr. Ambedkar said about a memorable thing that was to remind the time when all the Indian Mints were shut down to the free coinage of silver. and the economic world in India was surely divided into two parties, one in favour of the step and the other stood in opposition to the closure of the mints. Being placed in an embarrassing and contradictory position by the fall of the rupee, the British Government of the time felt anxiety to close the Mints and increase its value with a conception to sigh in relief from the burden of its gold payments. Whereas it was requested, to produce an increment of interest of the country, that such accretion in the exchange value of the rupee would cause a disaster to the entire Indian trade and industry. One of the reasons, it was argued, why the Indian industry had advanced by such leaps and bounds as it did from 1873 to 1893 was to be found in the bounty given to the Indian export trade by the falling exchange. If the fall of the rupee was discovered by the Mint closure, everyone feared that such an event was certainly bound to cut Indian trade both ways. It would give the silver-using countries a bounty as over against India and would deprive India of the bounty which is obtained from the falling exchange as over against gold-using countries.
However, in the seventh as well as the last chapter of the book, Ambedkar examined the system of the economy that was advancing towards the changes of the exchange standard in the light of the claim made on behalf of it. Though it is very much a matter of uncertainty and hard to explain the history of Indian banking, but sure if being followed, it will be easy to interpret the market, values of products. Unmistakably, the works of Ambedkar led the nation towards the development and advancement of its economics and international banking and trades.
Ambedkar, B. R. History of Indian Currency and Banking. Butler & Tanner Ltd.
______________. The Evolution of Provincial Finance in British India. P. S. King & Son Ltd., 1925.
______________. The Problem of the Rupee. P. S. King & Son Ltd., 1923.
Janardan Das studies English literature at Presidency University, Kolkata.