35
PUBLIC RECORD OFFICE
Reference :-
TC.O. 882
است.
9
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO
p to March, 1908, India F Vinjuosition in India is very different from ours had comed some five thousand million rupees, of which we may assume that at It had at the same time a note issue of four hundred least half were in circulation and twenty million rupees, making a total circulation of, say, two thousand eight Like our circulation, that of India depends for its or nine hundred million rupees. value on its scarcity, and, as with us, the Government is solely responsible for the As with us, too, gold does not form part of the maintenance of this scarcity circulation, though no doubt the banks keep a greater or less part of their cash in gold which they can always exchange for rupees or notes to meet local requirements The only way therefore of maintaining the or export to meet a foreign demand scarcity which involves the parity of the circulation is for the Government to buy back part of it with gold
6 Against its liabilities of four hundred and twenty million notes India had in January, 190×, gold in India to the amount of, in round numbers, forty one million rupees, and in England to the amount of fifty five and a half million rupees, say, It had also a hundred millions in ninety six and a half million rupees altogether.
The balance was securities in India and twenty millions in securities in London in rupees
Against its liability on the two thousand five hundred million rupees in con, it had in its gold standard reserve investments in London of thirteen millions sterling, say, one hundred and ninety five million rupees and seventeen million
in gold in London, rupees
x
As the result of the American crisis coupled with a bad harvest and general trade depression, it had to reduce its note issue gold reserve to twenty-six and a half million rupees in India and twenty-two and a half million rupees in England or a It also reduced its gold standard total reduction of forty-nine million rupees. reserve by selling securities of the nominal value of eighty-six million rupees and reducing its gold from seventeen million to seven million rupees.
9. If the securities are assumed to have been bought and sold at the same price. this means that the reduction in the gold reserve was ninety-six million rupees and in the note issue gold reserve forty-seven and a half millions, a total of one These figures are liable to some hundred and forty-three and a half million rupees.* deduction as it is improbable that the securities sold at a time of depression realized as much as they cost, but, assuming that they did, in one of the worst crisis on record India had only to reduce her circulation of two thousand eight or nine hundred millions by one hundred and thirty-three and a half millions, or less than five per cent.
10. Excluding its silver, which is not likely to be sold, India has now in its note issue reserve only 47 million rupees in gold and a hundred million in securities and in its gold reserve a hundred and twenty millions all in securities except seven millions in gold. For contracting its currency therefore it has only 54 millions in gold and 213 millions in securities In fact India parted with one-third of its total reserve-gold and securities-in maintaining the parity of the rupee.
11. The circumstances with us have been peculiar, as we had, at a time of bad trade and natural tendency to contract the circulation, to face the demonetization of our currency in Sumatra and also in Siam and its provinces.
12. Our note issue circulation is at present 30 millions, and our legal tender silver circulation 7 millions. Our liabilities are therefore thirty-seven millions, but under no conceivable circumstances can we have to redeem more than a portion of these liabilities, because the community must have our notes or coin, and ours only, as a medium of exchange, and this cardinal fact must be borne in mind in considering the nature and amount of the reserves which we should maintain.
13. Whether we call our reserves note issue or gold standard-the sole object of both is the maintenance of our parity, and the two should be equally available so long as the Government agrees to take either silver or notes and to give gold in exchange at face value. Of our active circulation of thirty-seven millions The free circulation in the the banks hold between one-third and one-fourth.
The amount of the latter is governed hands of the public is only 25 or 26 millions.
by retail prices and by the rate of wages of labour, while the amount kept in the banks is regulated by their liabilities on deposit and current account, and exchange transactions. To what extent can these be reduced in a time of depression?
• The Finance Secretary recently put the figure at eight millions sterling or 120 million rapecsu. ↑ This was written in April. The reserve is now considerably higher.
take no account of a run on our notes or silver, as that would invole merely a The hrst substitution of one form of local currency for another and is soon over. point we have to consider then is what is the maximum limit of possible antrae- tion of our circulation in the hands of the banks and the people! Retail prices are more stable than wholesale prices, and here in the East far more so than in the West 11 our population only remains stationary and does not increase, is a reduc- tion of, say, 20 per cent. in wages, retail prices, and bank balances a possible contingency
14. In India with a bad harvest, at a time of universal depression, the result on the circulation only amounted to stopping the usual increase and reducing the circulation by less than five per cent. In Japan, the circumstances of which are even more like ours than those of India, the diminution in the circulation during the depression was only one per cent. The explanation no doubt is that in times ul depression and bad trade credit is largely curtailed, and there is a corresponding increase in the demand for coin or its equivalent, but in addition to that Japan was a heavy borrower in London during the depression.
15. Japan has copied to a large extent the legislation and practice of Germany. Its paper currency is issued by the Bank of Japan and the law requires it to keep a reserve of gold or silver bullion or specie up to the full amount of its notes-the But it can further, proportion of silver being limited to one-fourth of the total. with permission of the Government, issue notes up to 120 million yen against Government securities or commercial bills, free of tax, and may issue against such securities or bills, notes to any amount but subject to a tax of five per cent. per annum. The right of holding silver in its reserve does not appear to have been exercised since 1904, and on 31st December, 1908, against its total issue of $352,734,272 it held gold coin and bullion to the amount of $169,504,514, public bonds to the extent of $58,837,242, and other securities to the amount of $124,392,508, sn that it must have been paying tax on $63,000,000.
16.
It had therefore a gold specie or bullion reserve equal to 48'05 per cent. of
its liabilities, public loan bonds reserve equal to 16 68 per cent. and other securities equal to 35 27 per cent. But in addition to the liability on its notes it had liabilities on deposit and other accounts of 470 million yen, and these must be taken into account in considering the proportion of reserve to liabilities.
17. Against the silver circulation, amounting to $105,373,501, the Government held no reserve, so that the gold reserve of Japan against a total circulation of notes or silver amounting to $458,107,773 was $169,504,514, or rather more than one-third, but if its liabilities on deposit account are taken into consideration, a proportion of one-sixth only. It was then stronger than it has ever been at any time in the ten years 1899-1908.
18. The policy of the United States in the Philippines does not give much help. Their certificates are backed by silver in the Treasury, though they may have 40 per cent. of the amount in United States gold which may be kept in New York and utilized there. The gold standard fund has been piled up by keeping it in New York, where it is lodged with various banking institutions earning good interest, and by the system of selling drafts on it in Manila at a charge of per cent. practice of the Government of the United States of lodging to the credit of this fund in New York gold for its disbursements in the Philippines and receiving there at par silver must tend to keep exchange low, and explains the large profits earned by the fund by selling drafts on New York. It is equivalent to an annual subsidy from the United States Government to the gold standard fund, given in the worst possible form, as the issue of currency in the Philippines at par against gold placed in New York must have the effect of keeping the currency inflated.
The
19. The only point about it is that the reserves against their circulation— whether notes or silver-except the silver reserve in the Philippines—are all utilized, not kept in coin.
The
20. Very little can be gleaned from the example of European countries. countries of the Latin Union, where silver is legal tender to an unlimited extent, maintain no reserve against their silver. England, whose subsidiary silver is legal tender to an unlimited extent throughout. West Africa and in most of the West Indies, maintains no special reserve against it.
21. The United States have a fund of 150 million dollars gold for maintaining the parity of its silver and United States notes amounting to about nine hundred million dollars, or about one-sixth.
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