PUBLIC RECORD OFFICE
Reference :---
TIIINC.O. 882
6
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
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the 16d standard and to the measures taken by the Indian Government to arrest the procesa and prevent its repetition. He pointed out that up to August last exchange followed the normal course and was steady at a point or two over 1s. 4d., although the drawings of the Secretary of State had been exceptionally heavy during the first four months of the year. In August the demand for money showed decided signs of slackening. and the issues from the currency reserve during the month amounted to only 66 lakhs, as compared with 250 lakhs in the corresponding month of 1906, and more than 150 lakhs in that month of the two preceding years. The explanation lay in the uncertain prospects of the jute trade, while in September a fresh cause for anxiety arose in the marked defect in autuan rains, parti- cularly in the wheat-growing provinces, and the consequent prospect of tamine conditions. To these conditions favouring a weak and stagnant exchange there was added later in the autumn an exterual complication as serious as it was unforeseen-viz, the financial crisis in America leading to an insistent demand for gold, and the rise of the Bank rate in London to no less than 7 per cent. The effect on India was instantaneous, for the tightness of money, combined with the slackening of the export trade consequent on crop failures, destroyed for the time the market for the Secretary of State's bills. Exchange moved steadily down- wards, and on November 25 stood at 1s 3 ¦td., considerably below the point at which it is profitable to export sovereigns from India. provided always that the latter can be obtained at par
From various quarters fiovernment was asked whether it would issue gold freely, ie., without limit of amount, in exchange for rupees at Rs. 15 to the pound. After careful consideration the proposal was refused. The depression was not due exclusively to the con- traction of exports, and it was felt that Indian interests could be most effectively protected by the stoppage of Council drawings, a course which the Secretary of State had already adopted. Moreover, the whole supply of gold was only about 3 millions, and this was already being drawn off at the rate of about £400.000 a month for internal consumption. Had Govern- ment complied with the demand, it could probably only have been met for a few weeks, and at the end of that time the stoppage of supply might have precipitated a panic. In these circumstances the currency officers were instructed not to issue gold in larger quantities than £10,000 to any firm or individual on any one day. To enable the Secretary of State to continue to withhold Council bills, sums to the aggregate of 24 millions sterling were released from the currency chest in London. and it was arranged that if exchange did not recover, telegraphic transfers on London should be offered for sale in India at a fixed rate. No public announcement to that effect was made, but the decision was communicated to the banks at the Presidency towns. The amount of transfers was to be limited to a defined, though reasonably substantial. figure, and (overnment reserved to itself the fullest discretion to with- draw the offer at any moment without notice. The effect of these measures, said Mr. Baker, was immediate; exchange recovered and since the middle of December had not fallen below la. 3330 In all the circumstances he could not regard as justified the criticisms passed on A conclusive the Government for its refusal to promise to issue gold for export without limit. argument was that, had the promise been given, it could not possibly have been fulfilled beyond a limited point. It had been suggested that the incidents of November had cast doubts on the sufficiency of the gold standard reserve, and on the action of Government in authorizing the employment of a portion of the future profits on coinage for capital expenditure on railways. But the course of events early in the winter was not really relevant to the adequacy or otherwise of the said reserve. The gold in the currency reserve constituted the first line of defence. The utilization of that gold in India and England simultaneously, and in a moderate degree, proved sufficient to arrest the fall in exchange, and it never became neces- sary to bring the gold standard reserve into play at all. If, therefore, circumstances arose which made the employment of the gold standard reserve justifiable and expedient, the public might rest assured that there would be no hesitation about using it; but the time and the method must be at the discretion of the Secretary of State, by whom the reserve was controlled.
Enclosure 2 in No. 250.
"TIMES' FINANCIAL AND COMMERCIAL SuppleMENT," 17th April, 1908.
CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA.
The 54th Ordinary General Meeting of the shareholders of this Company was held at the Cannon Street Hotel on Wednesday, Sir Montagu Cornish Turner, presiding.
Mr. H. M. Ross: Mr. Chairman, in the very interesting speech which you have made, I am sorry to observe no mention of a matter of the utmost importance-I should say of vital importance to Indian banking. I refer to the heavy fall in exchange which took place about the month of November last, and which temporarily jeopardized the maintenance of the gold standard in India. What we as a bank owe to the maintenance of the gold standard may, perhaps, be shown if I say that, though we were incorporated as a bank in 1863, 40 years afterwards, or in the year 1802, our £20 shares changed hands at as low a figure at £18. In 1893 the Indian mints were closed for the coinage of silver, and 14 years later-that is to say, in 1907-our £20 shares were sold at £70. I do not think, therefore, that we can well overrate what the gold standard has done for Indian banking, nor that we can well overrate the debt of gratitude we are under to your partner, Sir James Mackay, who, almost single-handed. initiated the agitation in India which culminated in the establishment of the gold standard. As you know, I was honorary secretary of the Indian Currency Associa- tion, under the presidency of Sir James Mackay and his successor, Mr. John Anderson, and 1 therefore speak with some knowledge when I refer to the vacillation and irresolution which marked the conduct of the Government of India during the early steps of that great reform. In "The Times" of the 6th instant, I read a long pronouncement, made in the course of
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the Budget debate by Mr. E. N. Baker, the present Finance Minister of India, and I am sorry to say that timidity and irresolution are as marked to-day as they were 15 years ago. I will not trouble the meeting with the details of that long pronouncement; it will suffice if I say that, when the crisis arose, to provide against which the Government of India had accumulated a large gold standard reserve fund, the Government showed themselves unable to deal with it resolutely. When applied to to issue gold to the banks, they refused, or rather they limited their offer to sums of £10,000 to any one individual or firm in one day. Now, such an offer would have been absolutely ludicrous but for the possible gravity of its effects. Startled, no doubt, by the outery which arose, further measures were taken, but instead of taking them openly and boldly, they, so to speak, whispered in the ears of the exchange bankers that, if exchange should continue to fall, the Government, in addition to withholding Council bills, would be prepared to issue to a certain extent telegraphic transfers on London for gold, but that they would or might withdraw this offer at a moment's notice. Now, Mr. Baker clains that, as the result of these later measures, the panic, or the impending panic, was arrested: but I am much more inclined to give the credit to the cool-headedness of Indian bankers and merchants who refused to be carried away by the panic which was nearly provoked. Mr. Baker alleges that his reason for issuing these small sumns was the inadequacy of the gold at his disposal, amounting to only 37 millions sterling. Well, surely the policy of investing the greater portion of the gold reserve, something like 14 millions. in interest-bearing securities in this country stands self-condemned and should be changed. Mr. Baker speaks of these interest-bearing securities as his second line of defence, and rejoices Well, if we remember that the American that it was not necessary to fall back upon them. crisis coincided with the Indian crisis. I would ask any merchant or banker in this room to say what would have been the effect had the Government of India fallen back on their second line of defence if, in other words, they had commenced to sell freely their interest-bearing securities for the purpose of replenishing their stock of ear-marked gold. We all know that they would not have been permitted to do anything of the sort; the consequences in London would have been too dreadful. In that great work, written by the late Walter Bagehot, This Lombard Street," it is said that "Any notion that money is not to be had. or may not be had at any price, quickly raises alarm to panic and enhances panic into madness." was the state of affairs which I contend the Government of India almost provoked. Now, my object in rising to address this meeting at this length, for which I apologise, is to state that some months ago the Bengal Chamber of Commerce addressed the Government of India on this very subject, and urged the appointment of a committee to go into this question of the gold standard reserve. I would, therefore, respectfully urge that our directors should give their immediate attention to this matter, and should join hands as far as possible with the Bengal Chamber and other Indian banks in getting such a committee appointed. It aeems to me that it is useless for this bank to build up large reserves for the purpose of securing its interests and those of its customers if the large funds we employ in India are to be exposed to sudden, serious, and possibly permanent depreciation by mismanagement on the part of the Government.
The CHAIRMAN: I am sure that we are all much indebted to Mr. Ross for his most interesting and lucid speech on the subject of the maintenance of the 1s. 4d. rupee in India. for that is what it amounts to; and no one can speak better or more authoritatively on the subject than Mr. Ross, for he has studied the matter from the very commencement of the question up to the present day, and with his natural ability, which is by no means small, he has been able to conquer the difficulties of the question. I must confess I purposely avoided a reference to such a thorny question; for, in the first place, unless you speak with an expert knowledge, you are likely to make mistakes; and, in the second place, I do feel assured that We know that with the Government of India are fully alive to the gravity of the question. varying conditions of trade there must be a variation in exchange: but I am confident that the Government of India, or the Secretary of State's Council, would never allow the stability of the rupee to be broken. At any rate, Mr. Ross, I assure you that the question has occupied the consideration of the managers, and, I think, of some of the directors at any rate. As a matter of fact, our manager in Calcutta, Mr. Preston, is a member of the Finance Committee of the Bengal Chamber of Commerce, and I believe he has been an active element in raising this very important question of a Commission. I think myself it may have to come, but whether the present is quite a suitable time for appointing a Commission, and so possibly spreading doubt as to the stability of the rupee, is another question. But I quite agree that there are matters to be inquired into, and which it will be for the advantage of India sa a country, and for all of us concerned, to have thoroughly threshed out. (Hear, hear.)
16575
(No. 159.) MY LORD,
No. 251.
THE GOVERNOR to THE SECRETARY OF STATE
(Received 9 May, 1908.)
[Answered by Nos. 259 and 260.]
Government House, Singapore, 15 April, 1908 I HAVE the honour to report that the Treasurer informs me that 10,840,000
of the new Straits dollars have now been received from the Mint, and new half dollars to the value of $1,517,000 have either been already received or are now on their way from England.