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LIBRARY
MAY

10 1919

FEDERAL RESERVE BANK

May 9, 1919.

14 dear blackett:

As you know, some of us are interested in a plan to promote
legislation by our %;oni.eeese se that we rte; have some eort of a definite

system of budget for our ?ederal Government.

'r!e are trying to stimulate

1111111110111116Naft*

public interest by newspaper and magazine articles and by other methods
and I am wondering whether you would be willin4; to write an article for
one of our best magazines on this subject.

We would like, if possible,

to have about 1500 words, dealing particularly with the working of the
budget aestem in en gland, emphaeizinc how it has saved money, also,
historically, l.ow it came to be adopted, and that under your system no

restraint is to be imposed in the aevelopment efemeTressive legislation
such as old age pension, health insurance, and similar measures which

have already been adopted in

ngland under the system of executive budget.

It would be of great advantage to us to have something in the article to
indicate how the operation of the budget, readjusted to meet war conditions, has been of assistance to Great eritain's financial program.
If this is aaxing too much of you, please don't hesitate to say
so, but I scow the article would be of value and am confident that if you
can spare the time you will be glad to help us out.
sincerely yours,

Basil P. Blackett, .84.1
23 All street, how York.

Be/LB

a

My dear Blackett;

I was greatly disappointed in not having opportunity to
have A little visit with you before your sailing for home, but

1

playing golf diligently and recovering from the loan effort.
You are most kind to be willing to prepare that article.
We shall value it highly, and it will be of real service to this
country, where you have been a sojourner for so long.

It looks

as though we were making good progress toward budget legislation,
and I know you will be glad to feel that you have had a share in
bringing it about.

Whenever the article is ready, send it

along to me and I will ree that you ale sul.plied with copies after
publication.
.pith kindest regards,

I am,

Jincerely yours,

Treasury jhambers,
Whitehall, London 6.'4.1,

:gland.

B:i/a3B

F 1-466

London, Se2tamber 16, 1919.

Dear Sir:

letter of the 15th instant enPlease acce:t my thanks fc>r your
closing coe.y of knnua., Re,:ort of the Indian

Per Currency Department

for 1916-17.
Very truly yours,

The Under Secretary of State for India,
Financial De artnent,
India Office, S. W. 1,
London.

V

a
June 3, 1921

-y dear Blackett:

I have yours of Hay 19, with the ouestionnaireo on statistical
information.
t..

Jr-

I have forwarded yoistnoto to 1:ashinf7ton and will advise you
of any reply Choy may wish to make,.

But I will dray your attention to tho fact that practically
every item about which you inouiro in published every month rogularly in
And I ohould say that thio infornation
the Federal Roc:erre Bulletin.
It would bo no different if
was as official an anything you could get.
eamo through the ;tale ;)ooart-lont or any other.

it

Tho only itel I note with is not :ivon exactly ao you wioh it
This, in thio
is the nonthly statement of tonnago of foreign trade.
country, in givem only for a certain nukber of items, Where the qunntitioo aro rAvon ao well an tho valuoo.
From these quantity figuros tho Federal R000rve Board nakoo
uo an estimate of the rolativo quantity each month, *doh is also pub..
liohed in the Federal Reserve Bulletin.
you probably know, 71r. Hoover is ondoavoring to inprovo the
statistics yo have as to domestic trade and production, and the Federal
Aooerve Board and the individual banks have been working along the nano
line, so that you could easily have not only all you ask for but a ;Teat
deal more.

Kindly advise no in whet furthor way we any oervo you, and believe that it rill always boa pleaouro.
sincerely yours,

BrILT A: MI 71110IIC 9

Governor

non. Been P. Blackett,
Treasury Mambers,
nitehall, London, nagland.

a
June 29, 1921.

Dear Sir:

Your favor of rdy Z1, with the accompanying
documents, reached me sometime ago, and I regret the delay
in acknowledging thsa, due tJ my repeated absence from
New York.

Will you not accept my thanks for this courtesy,

and convey Lhe same to Sir Lail Elckstt?
Yours very truly,

Arthur Sweetser, Esq.,
c/o Office of the League of National
London, England.

BS tad

a

June 29, 1921.

My dear Blackett:
About five years ago I purchased 1.500 3f Aar Savings
Certificates.

it 6001118 astonishing how fast tine flied, when I

find that these certificates fall due on August 4, 1921.

Can you

tell me if they are still being issued, and if so at that price,
and whether I should seed them over to be collected, or whether on
the contrary it would be better to

urcha.:e BDTO new ones in their

place:

I take thie opportunity also to thank you for asking Mr.
Sweetser to send me the interesting report of the committee which
investigated the Austrian problem.

I have not yet had time to

finish its reading, but hope to do so shortly.

Trusting that you keep well, and with kindest regards,

Faithfully yours,

Sir Basil Blackett,
The Treasury,
London, England.
BSOLM

misc. 35

FEDERAL RESERVE BANK
OF NEW YORK

3

Sent by

(SEND TO FIL

TELEGRAPHED IN CIPHER

iA`oii, Lowe o

&AID. ,E;

;AactiLt 17, 19 1.

Pk,' 1 B

:1 1

A4

MISC.3.1-90,011-20

FEDERAL RESERVE BANK
OF NEW YORK

r
FROM

ACE CORRESPONDENCE
.07 Snyder

DATE

September 2

SUBJECT

Governor Strong

agree with you that it is desirable not to turn down

Mr. Blackett's request, but at the same time we must regard the
views of the Department of State. *Mr. Gilbert will be here to-day
and I shall have a word with him before deciding what to do.

1921

September 13, 1921.

My dear Rldckett:
Ov:ing to continued absence from the office I failed
to acknowledge your kind letter cf July '!" with regard to the

War Savinss Certificates which I wrote to you about.

I have

decided to allow them to run for another five years with the

expectation as you say of having them repaid at ve for each
!_5/6 originally invested.

It ioak very good of you to look

into this matter for me

to dive me the neesesary informa-

tion concerning these certificates.
With my best wishes and kind personal regards,
believe me,

Yours sincerely,

`)v,c

Basil P. Blackett,
Tne Treasury,
London, Enl and.
GEIMM

January 8, 1923.

Dear Blackett:

This is my first

learning of

opeortunity to send you a eersonal line since
your acceptance of the finance memnership in the Viceroy's -aouncil.
Of course, I have known soeething
most interesting, work.

It certainly is a

of it since visiting Hai ley, and frankly can well understand the lure to one
of your active mind and disposition which such an oprartunity will afford.

Since I was in India in 1920, your predecessor has been good enough
to keep up a correspondence with me which Sae been most interesting, and given
me such a good picture of India and what was going, on there that I hope you
will be willing to do the same.
clalet ?sr. Stanley Baldwin and Borman
Last Thursday your former
Wadsworth and I !feet them down the Say. where they
the Majestic.
were honored by a visit from more newspaper representatives and camera men
To...day they start ne,rotiatinn the funding_
than i have ever seen on shipboard.
of the deot. he are all hopeful of the results. hullo the temper of public
opinion in this country would not yet eupport anything like intervention on
the pain., of our Gevernment in political matters in Europe, there nevertheless
has been a strong swing in favor oF' e more conetructive policy in economic

arrived on

matters than at any time since the war ended, which is t. helpful background for
such a difficult transaction as they now 1:eve to oon.luct. I ae, afraid, however,
that the decision of the wrench Government to occupy the Ruhr has chilled
public opinion a good deal as to eonclitous on the Continent, and l think
oolitical obligations
solidified public opinion that anything in the nature of
of the strongest influenaes upon public
One
in Europe are not to be thought of.
opinion just now has been the growing realization by our farmers that we produce
10 or 15 per cent. more farm pr. cluots than our own neople can eoneume; that
Europe is the principal maraet for them, and unless that market is capable of
taking what we produce at fair prices, the farmers have 2.ot to curtail aroduction.

Tais applies especially to cereals and meats, as

cotton

exports have been pretty

well maintained, and prices have been good.

have felt

i must take this opeortunity to express the appreciation I
I hear frequentfor the litany eindnesses that you have shows ihy boy pen in Adencion.
ly front him and he has more than once mentioned being with you and Ledy ala.caett,
and of the hospitality you have been good enough to show nim.
While a cold has keit me away from ousinese recently,
been

Happy New Year, I am,
Yours sincerely,

Sir Basil P. 31aokett,
Delhi, India.
38.MM

i

have otherwise

pretty well and sincerely hope that you have been.
Wishing you the greatest possible success in your new work, and a very

No. 2.

June 19, 1924.

ltrefore, it set-Pid to me that it was worth ecme effort and expanse to
it started.
1
would much appreciate your writing me as soon as
your many duties may happen to leave you 9. few spare minutes to do so.

Tith many good wishes to you and to my other friends in India,
I am, as always,
Sincerely yours,

Sir Paoli P. Hackett,
Delhi,

ES.MM

July 10, 1924.

14 dear Blaekett:

Today I had the pleasure of a call from Mr. Denning and his wife .
Unfortunately, they came just before I was obliged to keep an engagement for
luncheon and just before a week-end which I Loi planning to spend in the country.
As they are sailint, next Tuesday - and this is Thursday - very much to my regret

it will not be possible for me to show them any courtesies during their stay in
York.

This I greatly regret on your account and eopecially on my own as I

should like to nave the time to learn nose about my good friends in India and
how things are going with them.

They hapoened here in a very hot season and

I fear their impression of New York *ill be one of discomfort.

It is sood of

you to send them to me, dad I only regret my inability to show them something
in the way of hospitality.
with kindest regards, believe wee.

Tours sincerely,

Sir Basil P. Blackett,
Delhi, India.

P. S.

1 had a fine Letter today from Hailey, and dm propoeilv to write to

him as well as to you in the near future and give you nomethin2 of an account
of what is going on over here.

Sir Basil. P. Blackett

2

7.14.24.

ilk

The Democratic nationel convention resulted is a deadlock between
Ihe real issue developed to be one of
McAdoo acid Governor dmith of Wes ork.
great oiLternees, - a supposed cisorimieation again et the Homan Catholic
And .aly after
religion, for watch Governor anith was the standard bearer.
two weeks of exhausting effort in a very hot convention hall both parties
withdrew and John W. Davis was nominated by a land slide. It's the beet
He ig a fine, able men, and the general feelnon; nation they could have made.
ing is tlat whether he or Coolidge becomes Presineat for the next four years,
From now on interest will center upon
the country will be in safe hands.
the primariae, where about one-third of the eenatore, end all of the represeetaIt looks an though
tives are nominated preparatory to the thvember election.
the general dieeatisfaction throughout the country wit the performancep of
ContTeee durlee_ the ease few yeAre will result in a turf) over, eel it ma: no
We certainly will see many new faces
that we shall see a radical Congreee.
there.

I em aorry to learn by your letter that you have hied a really serious
illness, but I an reassured by what you .erite thet you are all yell mein.
I have a long letter from 1111ey, and I hope he will be hap.. in his
fellow, and T em
new aeeelnteeet es Governor of the Punjab.
He te e
very fond of him.
Won't von remember ma to any of my frieede with whop' you are
assooieted whr! -7T111 sae them, and give my warmeat regards to 1,ord ReedinF.

The seine to your good self.

Faithfully yours,

Sir Basil Hlaekett,
Delhi, India.

B6.1i36

August 2C, 1924.

My dear Blackett:

You are certainly very considerate and helpful in connection
with that literature, and it would be

real contribution if you are atle

to inake it possible for me to get just the documente which you have in
wino.

I am koknowledging your letter at once so Etb to make sure that you

undereL.and my appreciation.

My son Ben is very happily married, and after a yehrs experience

with Schroeders in London, he is now in New York bagging away at the
tAnking business.

I hope you keep well and happy and that all of your ;Manx and
affairs art meetin6

success which they eurely deserve.
Sincerely,

Sir Basil P. BlacLett,
Simla, India.

BF.IIIM

September 11, 194.

My dear Blackett:
It was very good of you indeed to take an interest in the conics on

Indian finance, et.

I think it will be a good plan to have some such

repository of information on India as we shall then have in Princeton.
will be known to other Universities throughout the country and etudenTA3 will
undoubtedly avail of it.

I am most grateful to you for your help.

Possibly Mr. Denning explained to iou that he and his wife happened
in on me just as I was leaving the city and only a few days before they were
sailing.

I was so disappointed not to be able to entertain them, show them

something of New York, and make some contribution to the enjoyment of their
visit.

Next time you send folks to me with a letter of introduction I sure-

ly hope to have better luck.

I seem to be in first rate health and bm just about to leave for a
month's holiday in Colorado *hie. this time will be spent entirely in loafing.
With many good wishes, I am,
Yours sincerely,

Sir Basil P. Blackett,
Simla, India.

A

1"."(,9

My dear altickett:

/CI

ve

a only yeeturday that I wiee,01e, o rot,
It
the Bud.eot 'speech taF:t you were good enough to Zond Sc,
1 did eo with great ec:miration red appreciation of tne work

which it represents; but more especinlly, my dear 3lackett,
knotty
for the fine spirit in shish isu tivproach a
'riot ouch I woult anjoj a visit kith you and learn
problem.
something of your work!

enjo:ed e visit from your friend, Mr. Shirrs,
6o tar
and hope V.:let be derived some benefit from his trip.
eis I could tell, everyone gave rid the needzd time for dieicvestigntion, and we were aed to do so es we all
cueeion
found him a most likeable fellow, indeed.
months, Zs you way StirMit'S, a:tve been
The last
much devoted to the subject of 'old. From here it looks as
though the transition from a slowed to en open markat has been
accomplished with little friction 82.01 herdship, end probably
with success beyond Norman's skpeotatione.
I ehell hope to 'ce over ta-Lre in July .ant le2 IT1 more

on the ground.

Kith every good wish to you, believe me,
oincerely yours,

Sir

Beall F. Blaczatt,
Finance Member of the Council,
Inrde,
BS. LS

September 17, 194E).

My dear Blecketts

My very enterprising friend, the librarian at Princeton
University, hae written to remind me that I wee undertaking some time
ago to get a collection of Indian official documenta for C.le Princeton
library, which resulted in my bothering you.
It Beene that when your friend, Dr. Shirrae, was here, he
visited Princeton and ea b. result of conferencee there, they have
something under uty which will neceeeitate reference to a cwaber of
these f!ocumente, and they have asked and ithether there ie a chance of
their being obtained.
hate to bother a busy fellow like you, but it etteme that
I cannot well avoid it. You must net beeitete W let M6 not if this
is going to be tn inconvenience or expense, which I am not justified
in asking.
T.

I just got off the etnamer lest nitht after two monthe spent
abroad, much of the time with our old friend Normen; and I wish my desk
were not so occupied with wl,t3re needinz attention ea *Ai prevent my
But I shall try tc do so later.
writing you domething of my trip.
with menu kind *Janes, believe me,
:sincerely yours,

Sir Basil P. Oleckett,
Finance Member of the Council,
Simla, India.

January 21, 1428.

!iy dee r Blacketto

Your letter of December 3 fortuettely arrived *bile Norman wee here,
so ee her op,ortunity to diecuse It together, end it resulted after conei .erable
deliberation in nur aenning you Jointly a conlicnmtial cable vie London, confirmation of which is enclosed herewith.
I teet: written Professor Coyajee, but din not eand his 120 Hupeee,
as I gathered from your letter e:v: his that the amount of the expense incurred 4tA)
I shall bend cam
still uncertain, Lee he would let as know the &mount later.
whatever id needed %hen I near the amount.
If you will accept the 1'01 owNow about your gold standard nrogram.
ing comaenta in the very humble epirit in which they are offered, and underetend
them to come :roe one who pretends to heve no expert knoeledge of Indian monetary
affairs, I shall regerd tnem ee containing the poeeibility of help with the
oinimum poelAbility of harm.

First let me say that I have always hart a feeling that the Indian
sterling exchange standard with the use or silver kg the monetary unit of India,
had clearly dieclosed the weakness that it could be sada to protect India eguinet
either e rise or a fall in the price of silver, but it WrI.6 not succeeeful In its
In fact, I neve always felt that the Indian position would
ability to do both.
All
be in some peril until the time CAMO to get antler...1y on the gold standard.
of the urguoemts are clearer to you then they are to me, with the intimate experience you have how had with the Indian currency, enr: I only with to pass on to
you a few reflections on the difficulties of the amerce.

For years, centuries almost, the 500 million neople of Indic have been
In recent years, I gather that the annual net imoortation
accutuluting silver.
may run around 75 million ounces, at these reaching 100 millions or even more;
srldle
and curing the extraordinary war period, Innis toot practically the entire
production of 200 million ounces a year, either directly as new production or
indirectly through the Pitmen Act silver, which has later been replaced by the
This great
United states Line nnent in its Airchase of new production silver.
horde of silver, partly in ornaments, partly in rupees, is the 'Jeering* bank of
In a general way, I suppose when the :rice of silver declines, the Itn:ien
India.
Nhen it advances in relation to gold, tney
people buy more silver.
dispose of ogee or their silver and buy fold; but there is, nevertheless, a constant
additdon to tee total fund.
Your progrem sill contemplate making known to the world that India sill
no longer continue to tAu !'rom 75 to 100 million ounces year, but, in tact, in
coeree of time sill dienobe of 150ble 500 million ounces, which is eeuel to three
One need only .go beck to the days when Germany abandoned
yeerso world production.

eir Basil P. eleekott

1.21.28

bi-metelliem to realise *..het this *ill cut the vales, of eilver doer treeendously
in world markets.
So the first query which omens to xa is 6e to the affect eeo
the mines oe the Indian population of levering the intrineic purcheeine power of their
silver
reduced in value.
How much coined silver will to tendered to the
eoveinment?
hoe much ailver metal will be offered for sale?
That feeturo of the
programs is ail h mystery to me; it depende such ueon the psychology of the Indite%
eeople, ea moll as upon the tbility of the Indian Government to ectuelly deal with
tee err/ilea of marketing e vtet etore of silver which it not he on nand or which
is held by trio public.

Of course, the imect upon Brice es a result of this glove sight be seoeswhet leseened if some very coneieereble part of the 'store of silver cen 111 coined
into a token coin et ea low en intrincic value, teat it would not to exported.
But
the euestion ia, how sauce currency of that character can India. absorb, wed would
it ebeorb any conuieerable tsount with the intrinsic value eo reduced?
It must
oleo be borne in mind that the use of silver for subsidiary coinage
been very
much reduced teroughout the world, in iect, almost universelly throueeout Europe,
bad the British shilling lite been reduced from 925 to 500 fine.
This hats
thrown u greater burden upon silver producers by restricting their market.
In feet,
the Lest and erincieally Indic, ie now almost lee only coneieerable :eerket for woaetery silver.
Of course, it at once occurs to me on ream ding your letter to estimate the
pceeible reaction in this country.
Iu order to somewhat inform myself bud to eive
&orison a first-Ilene picture, I took ehe liberty of asking Mr. John D. Byrn and
Yr. Cornelius Kelly of tee Anacouda Copper Compeny to eiecuse the wetter very oonfidentielly eite ue.
Mr. Kelly le now ereeieent of LAO eilver Producers Aseocietio
o? tole country.
Abet he tells ut is most disconcerting as to your progrem.
In
the first piece, the silver produced from the purely eilver since of this country
eye only be treeted in conjunction with twee eixed ore& Weich contain other nonferrous metals.
The other metale principally eseocieted eite silver are copper,
lead tnd zinc - lead end zinc being the east iskeortent.
The efeect of losing the
Indian market for silver could be to add roughly 2 cents a eound to the coot of cope
for those cites Lich wive silver production as well.
&see of thee eoule he oblige
to close.
For the lead and zinc industry it would be r celerity.
but it 'would
really extend beyond tett.
The refining is _Urge', conducted by refineries in
New fork, New Jersey, Maryland and clone the Atlantic seaboard.
reeve incuetries
soald be ,:ieo seriously efected.
The lose or the Inditn merket they believe, woul
clone the (silver minee of Ceneds, United etttee bUtl Mexico (except the moat proritebl
would close twee copper einoe, and would greatly increase tne coot of lead and zinc,
sad effect the tributary induatriee, pertleuierly refinine.
It eoule raise a.
political question or the first order.

All of this le loading up to the ',unction show you frankly end neceseeril:
reise as to assistance in carrying outs proves oe adopting the gold etan&rd. You
estimate that it would reeuire 100 millions sterling of gold, which you naturally
feel *meld need to he furnished by Loneon end New fort.
Overt period, I belie no
doubt teat this could be arreeete, so far as aecuseury Cinenciel erreegemente eo,
but I fear the conseeuencee of a progress ceiling upon the reeerel Esserve eyetem or
American beekere to join in financing a eonetury reorgenizetion in Indite the oleect
of wtich would be to throw tens of thousends eosseibly hundreds
thousends of people
out of employment end seriously cripple or destroy two or three important industries
in this country.

eir &AI P. Bl ceett

1.21.28

Ot CQdrtk:, India ali these yeare lash
Then there is /mother eit..ieelty.
had rvoreble belancea ol cayeesete and has been % steedy ccumuleeor of the precious
4e might eseute that e erogrem could be laid out
metals in eayment tor eJeorte.
for a=doption of the gold etanderd bilged ueon the ebility or the Indian Government
But ever, if that rare done,
regularly to ecquire the .oath Africse production.
I think Norman feels that other Oostende for gold arising ' :nom ell emertere of the
forld, ehich is liable to be of uuueual eeteet in counoction with mane for he
resumption of gold payment, could have to bo zat by tmfts on London, tad it might
indeed be too severe e entrain upon his reserve.

On the ehole, my confausiOu is that hoeever doeireole your progrem may be,
strictly from the etandeoint of India and its monetary effeire and ite gradual upbuilding economically, there ere enters of reising tsetse° pith e strong eoliticel
caueing antagonisms which ciennot be overlooked, end 'mice indeed sight
euelity
defeat them program entirely if it depended uion easietence fro2 uo.
I cm firmly convinced that the euld etteiderd erogree is tee beat yet devised, end tett it le tee one to or to ultimately, but I oo pot yet believe that
it can be eucceeefully otrried out at present in Indic without reactions in England
sac America, which mieht have ter-reaching, even dieeetroue, coneeeuences.
I have arranged to get some fieures from Kr. Kelly, which eheuld nerve been
in my hands today, but not bting receivec end te I e leaving for h month's ebeence
on Friday, I shell prepare tide letter in tee hope Chet I nen incluoe the figures
eeparetely liter.

You eey you sill be interested to hour whet I think of you, tar. I ma
honestly *soy, my deer Bleckett, that I teink es .ouch of you is ever - reteer more,
Indeed, I might
it: fact, nor rriting me so fully and frenely about your proeodele.
equilly reply that I shell be greatly intereuted in hearing, stet you thick of me
efter reeding this rather hastily erepered reply.
Vita tensest regerde, I

b'

to resale,

eincerely yours,

eit Been. P. Bleckett,
Finenciel Umber of Council,
Delhi, India.
3;r. Lt

June 27, 192?.
Deer Elackett:

4
evte efther heard from you or written

It is e ion,' time An
you.

The excuse on my part ie

let .'ieptember 'hie. put me on

4,11neee after returritni:; from

e

that the e'.cuee on your part is

I wurnise

amount of work with whieh I

know you are confronted just an

not. compl el n.

greatly appreciate hearing from
are viricino in organizing,

.:Iirope

f for about seven soothe.

o

mat I would

ectiy Peomethine. of the pro,r,reeF you

under the ttres of the Hilton Young

Conmission

report, end eepecielly something of the difficulties which you appear to be
-xperiencine ov-r the

declining

valor, of the rupee.

In a way you were responsible for th,.t. visit of ninn to Landon,
and I must tell you one or tao foutainL incidents in connection with ivy appearance before the Cormiseion.

My old friend, Sir Noroot Marren, referred to our correspondence
prior to tt,e Ce.1.1.reiou hearini.:b in London in which he nrid that you had told

Me of your long letter to me, end that he had naoe a consent that ''.out:tlese
you

your tongue in your cheek when you f,rote it.

said your retort

wee that you had a very nice letter from e in reply, wh,:reupon hie cement
was that if be knew anything

Ll.re.ng probably Strong elan heed hie tongue

in hie cheek when he wrote the answer.

The fact is, ay old friend, the whole

enterprise ra originally laid out gave me quite s bed turn.

The re, 80,16 for

thn way I felt were so fully bet out in my etotere,nt and thope of Sprague and
Hollender, thf t further comment 1P unnecessary.

After thr; hei..rini.-s one day

your friend, Sir Purshotendes asked me if I would he interested to know what
inpreesien my eteteesent had made upon the Inc:leo either* of the Cormiseion,

which he explained by handing to a slip of 1.aper ehich 'ee bac peed to

lelc.rren at the hearing e

ha haa
on which h haw eritten the folloei.e6:

"fall

your friend, Pleckett, thet hie friend, Strong, nee buried his i,o1d etanderd
echese with tn.ternational honore." At the foot of the blip I:erten hr.:, uritten,
*end a damn .eood job too."

I had some very Intrestine experiences with the naaeers of the
Gowiseion, none sore illusineting than a long talk *Jell :,iz Purehetandee.
Fe apprrently wee deed eat tqatnet the is. bd. vtaut...40u,

:;,1%.fti&OCA: to se

euite frankly thet he thouvht the Indian excht:nge bee neon menipteloted that
le. e e . was an artificial vilue, end if they could attopt Is lie. it egoeld

recto re to enployere in Incite some part of the extraurcauary weee; inorceses
4i ch heti 1:eem sore or ices forced upon then by the Government e.e.: which they

could not readjurt by any other method then the one seiggeated. I teei'e the
poeltion conntatently, (and without the a1i6hteet. irnowleabe of what Norman

had teetified) that the adoption of Ivey vele° for the rupee suet be 'zeeed upo$

the feote, thet in, whether India had edjust3d to the value of Is 5d. :Itch
had erevalled for awes eighteen soothe, or Vihttli.ir I. ILLs, in feet, e vise
isn i ch had any artificial element in it. On that :subject ke had no informa-

tion and could sake no etetesent except in general terra, Lilat Lrbitnr: retdjuatinenta of the vnlee of the our: envy were undeeirsele if they eoull be
aecided.

I never expected Sir Purehotesdas to .,rite a Whinority report, but

I had expected that :sir I. D. Dadebhoy sight potion:1y do eo. Inogice ny
betonishment, then, when Sir Purshotuee.es

prOUUCCit bua ell CltW4Ve and

almost violent obiection.

Of eoures, you know that I seraly atatoti al oonviotiune to the Cos a/Arlon withbe helpful, and I hope in the loud rue that proves
aceire to

to be the outcome.

You will find the record of key etetement

with

irarnings ageinat ettempting to apply h beetint, eyet.en which is eulteblu to

the United Eitetes, where conditions differ so reeterielly es they do in Indle.
The South Africen reeerve bank It ouffrt.ng no

from the coneequeneee of m

ettempt to r'0 that very thing.
If I were e free lance it would be tremendously intereetin,7, to me

The next beet is

to visit you in Indio end talk over SCV 5 of the. e tbliniee.

to hear from you stout then by letter, co pleeee write me if you hA's time.

It is

F1 long time since I have heard from Heiley,

let me know

how he is snd, if you think he would be interested, paee this letter alone. to
him.

I hope he keeps well. I hope biro tbtt you lied Ire. Bleckett are yell

and proeperoue end peppy.
Pen,

as you knov, is married, he e. lovely if

en

a boy, also

Ben, over two veers

Things here rock *long abut -e ueuel.
end prosperous.

Our Treasury this year hove

The oountry is waxing fel

eurpluo revkaue of about

t600,000,0f).0 end will rae:uce the funded debt by over e pillion dollars.

is mighty intereeting to at to watch this eituetinn develop.

It

Of th::, five

big war loess of which, roughly, eomethinF over one half eve sold by our

organization in New York, the fifth hee been entirely retired, a nothnr, the

second, ie in course of retirement end will be fully repaid or rofanded at

the end of this year, and another, the third Liberty Loan, fella cue and will
be partly peid off end the balance refunded 1-7 September of next year.

It

has been en extraordinry reoord. The wealth of the country end the induatry
and savings of the people hey* done most of it, tut se have he a very mice.

secretary of the treasury who is emtitled to much credit.

arrives here next zePlt with Schacht, end re ere also '.0

V
Ja.nu :.ry 25, i928.

Der
Your letter of December '1 has t.rrived during 11r.

aron 'r illness. He hse asked ii A. to write )ou and to tell
he is looking, forwrArd pith pleaeLre to reading it,

but that probably he mill not be able to reply to it for
zone :.;tee.
After nine won 1..1! b

oontinJoue good health and

LA:broken bu,dnese activity lir. Z-Iror4; he L

h. recurrence

or his old trouble. However, this has been very slight - no
cos:parable to his 1 st attack - and we have every reason to

bc,,ieve that he will be tack in the office se fit a.e ever in
a couple or weeks.

I oin enclosing a copy of your letter, anti have retFaned a copy for Mr. Strong.

Very truly yours,

Secretar-y to Mr. Strong.

Sir Eaeil F. blackett,
Delhi, India.

S

ku ust 10, LI

.

My dear Bssilt

It deems most ungretefUl that I should have so long dei-y

suitable answer to your fine letter of December 21. It arrived at a
time when I was seriously ill, and from that time until the present I
Ft

have teen obliged tc neglect a great many matters, inaluding much of my

I am not even certain E,t the moment whether you are in India or
have returned to England, so sr ending this to the Indio. Office where

moil.

they will know your address.
Evan nova cannot wend you much of a reply, as I am only a few

days tack from birope and must skimp my working Lime still for the bene-

fit of health.

in this letter is the hope
re great deal of asaafaction. I

COIL I especially wish to coil fey-

that polr work in India has given you
;mow that you ' ve tiOrkett much, in th - fee of opposition and obstacles
of a very stabt,orn and difficult oht:raoter but, aftt.r all, that lends

interest to the bark and creates the incentive for its accomplishment.
liata I coon eble to go tc Eland on this trip I could have looked
you up, were you there. If and when you receive this letter I hope you
will writ( me something of your plans, and whatever they may he I sincerely hope that it. means prosperity and happiness for you.
Sincerely yours,
Hon. Basil P. I31ackett,
a/o The India Office,
Downing Street,

Longon, EtIg land.

(ti

cf4

CY,J72

/17,/

c9it

do

4.3

yr)-1,/,

44- c:

t-t

al

4-

9 t

t

mslaza

4=somamessomecuteisftrAllialmirAftWakbatanielbrni11000100111.

1
THE IIEVEBTH GM:NAB WAII

subscribed as much as one half in new money.
After a month of very vigorous propaganda. the subscription lists of the 7th German Tier Loa', closed on October 18th.

A few days later the pro -isional results were published showing
that a total of -P622,900,000 had been obtained, apart from

subscriptions from over-seas and from armies in the field, for
which the licts remrined open till Vovember 20th 1917.

These

will no doubt briny the total up to £024;000,000 ufl compr:red
with a final result for the !Axth '2:ar Loan of r656,100,000.

The total .um raised by the seven wrr loans amounts to
r.3,639,800,000 with an annual interest charge of r182,000,000.

The following table shows the results of the war loene to date.
4rot Loan (17eptember 1914) (final figures)

224,050,010

Second Loan (Larch 1915) (final figures)

455,300,000

Third Loan (September 1915)

608,150,000

"

In 1915

1,063,450,000

Fourth Loan (March 1916) (final fieures)

538,400,000

Fifth Loan (Se3.tember 1916)

534,900.000

"

In 1916

Sixth Loan (March 1917) (final figures)

1,073,300,000
656,100,000

Seventh Loan (Veptember 1917) (provisional
figures)

622,900.000

In 1917

1,279,010,000

Grant Total

3,639,800,000

Thus the Seventh Loan falls rather more than !'30,000,010

Aort of the Sixth Loan, but iv, about £15,000,000 larger than the

(2)

Third Loan.

The German papers have regarded it as a greht

*success, and have emphasized with oonsiderrblo Netification the
fact th?t the low internal condition of the country, owing to

the Chancellor oriels, could hrrdly be considered frvourrbl for
the floating of a big loan.

To date Germany has covered out of her total Vot© of
Credit expenditure of "4,700,000,000 by means of nanded war
loans r_3,G39,800,000 or 77.44%.

It must be remembered, however,

thIA her war costs are continually swelling and that her last
two Votes of Credit have each been for f750,000,000.

There is

a growing surplus of expenditure whioh cannot be met by means
of wrr loans.

It is not known what total has been reached of

Treasury bills outstanding but there is every reason to believe
that it is well over ..(1.,000,000,000.

The inflation of the

note issue is also increasing. very rapidly.

The subscriptions to the complicated

Treasury Bonds

five once win kept within very modest proportions, re can be
seen from the comparison with previous loans :Fourth

Fifth
Loan

Lour'

Sixth
Loan
P1,000.

Seventh
Loan
P1,000.

4'1,000

5 per cent Loan
4i per cent.
Treasury Bills

e1, 000

457,150

478,925

587,896

557,865

78,450

53,660

68,207

65,032

Further, not more than

5,770,000 of old war loan stook

was offered for conversion into the new 4, per cent. security.

(3)

110It is evident that those 130n as, which the Germane claim "carry

their own redemption within then" are by no means populsr and
will not do much to lessen the anxieties of the financial
authorities as to the future.

The followinp table shows for the seventh and earlier
loans the distribution of subscriptions received through the

various subscribing sgendies :let Loan

3rd Loan

5th Loan

6th Loan

7th Loan

23,950

28,450

34,245

31,200

37,600

144,750

369,550

304,076

377,460

ings Banks

44,150

143,850

128,375

160,200

159,901

e Insursnce
ompanies

10,150

20,850

16,870

19,3n0

19A00

34,000

42,330

65,150

54,600

8,350

6,690

6,800

4,700

223,000

605,050

632,600

648,900

623,200

224,050

608,150

534,960

656,100

chsoank
ks and Bankers

perative
re'tit Astociutions

t Office
Total

ised Tots' including
subscriptions from
cud and from armies
the field

The sbove table can be expressed more clearly in the
form of percentages:

Distribution of subscriptions.
(Percentages)
1st Loan

genoif e.

wbank
and Bunkers
go Banks
Insurance Companies
Credit AsEtiln

10.7
64.9
19.8
4.6

3rd Loan
6.7
61.1
23.8
3.4
5.6

5th Loan Gth 'Loan
4
6.4
4.9
58.2
57.1
24.7
24.1
2.9
3.2
7.9

8.4

7th Loan
4

6.0
56.8
26.6
3.1
8.8

viii

um

RIR

011

"There is a decline in the actual vmounto received threuch all
the Fenciev with the exception of the Reichcbonk, where there
ie fln increase of F6,401,000.

It iv most sur.prisinc, in view

of the increase by re much an r48;000.000, in lorge oubscriptiono of over f25,000 (shown in the table immedittely below),

to note that both the actual emounts Ind the proportion of
the tottl collected through Bvnkc

in

nankerc should chow

a fall, to compvred with the f'ixth Loan, while emll subecriptiara! through Savings Benkr, Life Insurance Companies end
Co- operative Credit Asoociationo show e small oboolute
decline but r rclf,tive increase.

The totvl amount of the

':eventh Joan is :.bout r30toomol les: then the Sixth Loan,
the cubcoriptiono over r25,0011, tire 048,000,00o more than in

Sixth Loin and yet the oubooriptions through Binks fna
Bankers

1*() P30,00,000 less than in the Sixth loon.

The

increase of !'6,4(-)0,000 oubccribed through the Reichcbenk

accounto for only a satIll part of the extra r48,010,000 of
very large subscriptions.

The only conclusion to be drawn

from the firures uu they otend iv thnt there hco been a
fulliE0 off in the oubocriptionn made through 3anko and
Bvnkerc in amounts of less then f25,000 of nearly P40,000,000.
The two following trbies enable r. comporison to be
made of the amounts received. from the different 0111;see of

vubscribers in the feventh and earlier

(5)

Loans:

AMOURTE,SUBSCRIBED
(In thousands of pounds).

SubsAptions.

First Loan. Third
Loan.

Fifth
Loan.

Sixth
Loan.

Seventh
Loan.

e

e

r

1,800

6,600

7,700

14,320

10,400

21,860

14,740

to

10

m

16-

25

5,550

18,450

14,650

30-

50

29,360

42,200

27,600

55-

100

29,350

105-

250

28,950

78,150

255-

500

22,500

26,540

46,400
23,060

45,550

58,470

43,380

60,100

38,400

49,440

15,350 1,000
42,900

505-

35,090

32,550

40,650

34,870

49,100

64,850

59,450

40,500

53,140

42,600
51,190

1,005-

20,500

2,505-

5,000

15,750

5,005- 25,000

26,450

88,300

85,500

105,530

104,600

25,000- 50,000

14,350

34,750

42,650

48,080

56,500

50,000

r

2,500

43,450

86,450 122,400

117,410

157,280

;-'23,000

605,050 532,600

648,900

622,900

Total

58,350

iERCERTAGE 0? AMOUT SUBSCRIBED.
Subscriptions.

First Loan. Third

Fifth
Sevonth
Sixth
Lo&n.
Loan.
Per cent. Per cent.Per cent. 2pr cent. Percent.
Loan.

to
m

r

2
10
15-

30651052555051,0062,5065,00525,00560,000

g

0.8
2.5
13.2
13.2
13.0
10.1
6.9
9.2

6.9
7.7
12.9
9.9
7.1
9.6

7.0
11.4
6.4
19.5

14.6
5.7
14.3

16.1
8.0

Total 100.0

100.0

100.0

25
50
100
250
500
1,000
2,500
5,000
25,000

50,000

1.1
3.2

1.4

21/
4.9
8.6
7.2
6.1
9.2
7.6

2.2
3:4
6.2
5.4
9.0
7.6

1,7
2.4
4.3
3.7

10.0
8.2
16.3
7.5
18.0

7.0
6.6
5.6
9.5
8.2
16.8
9.0
25.2

100.0

100.0

It will appear from these tables thet the distribution
of uubscriptions in the Seventh loan presents a remrrkuble
contrast with the preceding loan.

The proportion of large

subscriptions is ftr greeter in the present loan, find there is
2n sctusl increase in the

rgest subscriptions - those over

71.

50,000 - of nearly £40,000,000 in spite of the fact thet the
total subscriptions r re smiler than in the sixth Loan.

Letually more than one quarter of the Whole of the Seventh
Loan was provided by 1032 subscribers of over 1'50,000.

Smell

pubseriptions Up to 350 represent only 8.4:; of the totsi as

compared with 11.8% in the 3ixth Lon, 9.7
and 11.2'; in the Third. Loen.

in the Fifth Loen

The increaeing herdships

suffered by thoso with umtll incomes would norlly result in
a diminution in their esptoity to subscribe to new 7sr Loan
issues.

The apparent reverssi of this tendency in the Sixth
Loan was due in ptrt to unprecedented proprgands which
undoubtedly tapped new resources, snd pertly, perhaps, to
manipulation of the figures.
The above fisures ',hewing the distribution of sub-

scriptions are borne out by the following t:bles in which the
number snd percentage of subscribers in the different classes
is given:-

(7)

DUMBER OF :AJTTRIBER.
First

Third

Fifth

LOUn.

Subscriptions.

LOT r

Lot-n.

Sixth
Loan.

Feventh
horn.

231,112

zo

904,358

1,794,084

3,844,834

3,233,472

15-

25

241,804

858,259

681,027

1,058,861

693,729

30-

50

463,143

918,595

605,494

893,611

666,623

65-

100

453,143

530,176

301,563

407,538

264,871

105-

250

157,591

422,626

245,073

320,762

233,542

255-

500

56,438

147,593

93,189

122,514

100,781

505-

1,W)0

19,313

54,445

40,671

51,659

42,732

1,006-

2,500

11,564

32,040

26,500

40,463

33,914

2,506-

6,000

3,029

10,090

9,748

13,564

12,169

5,005- 25,000

2,050

7,074

7,870

12,322

9,145

25,005- 60,000

361

832

1,032

1,184

1,363

210

630

725

770

1,032

3,966,4113

3,809,976

6,768,082

5,213,373
1,177,235

er50,000

Total

The great increase in the numbers of the very small
subscribers in the isst two wrr loFns is due to the inter rive
circulition of Vier .(2avings c:rds in the Army and the :schools.

Subscriptions of only one merle can thus be mud(' to the loan,

and each such subscription if counted goes to swell the total
number of subscribers.
In the Seventh Loan the number of .small subscribers

has fllen off considersbly in comparison with the Sixth Loan a fact which is explained by Germrn newepPpere c.e being pfrtly
dole to the decline in country subscriptions owing to the

(H

of the harvest having not yet come in.

furter Seitung admits quite openly thtt the country dwellers

have not done es much ra they ought in the my of contributions
to the WPr Loan.

It is interesting to note thitt aubscribers

of between £15 and 4100 fire fewer thnn in the Third, Fourth,
Fifth and Sixth Loans.
On the other hfind large subscribers of over ,'25,000

are considervbly more numerous than in the Sixth Loan; the
greet increase in subscribers of over 450,000 ie spec:I:11y
remnrkoble.

A table of the percentage of subscribers of

different amounts shows nil increase in the percentage of very

small mbooribers, due to the savings cvrd rystem, but a
considerable decrease in the reletive numbers of subeoribers
of amounts between ;115 and rai0.

;fie tables indicnte clef rly

that the capacity of the riddle clrsses to subscribe ir becoming
exhausted.

Tho perceLtage of subsoribers of over '50,000 is

exactly the same na in the Pirst Loan.
F7YJEUTIGE OF BUBSCRIBEE::.
First
Loan.

:riptior,s.

Third Loan.

Fifth
Loan.

Sixth
Loan.

eventh
Loan.

10

10
1525
3050)
55100)
10525()
255500
5051,005- 2,500
2,505- 5,000
5,005- 25,000
- 50,000
.03
3

The Frank-

.02

100.00

19.6
20.5
38.5

13.4
4.8
1.6
1.0
.3
.18
.02
.014

100.00

24.8
21.6

47.1
17.9

2'6.2

15.9

13.4
10.7
3.7
1,000
1.35
.83
.25
.207
.027
.019

100.00

7.9

6.45
2.44
1.06
.75
.26
.18
.017
.012

100.00

56.8
15.7
11.:
6.0
4.7
1.8
.74
.60
.20
.03
.02

100.00

62.02
1...31

11.25
5.08
4.48
1.93
.82
.65
.23

tt

'I

The averge amount contributed by arch subscriber ie
greater in the Seventh than in the sixth Loan owing chiefly to
the diminution in the nurther of small subscribers and the
increase in the very lurgn subsoriptione in the ct,se of the
seventh loan.

The following trIble shows the aver/)ge subearip-

tion in the seventh rind earlier loans

:

frflDGE'SUBSCRIPTIOBS.
First
TItrd.

ptions.

Loan.

Loan.

Fifth

Sixth

Seventh

Loan.

Loan.

Loan.

t

e

r

10

7.79

6.63

4.29

4.6

3.22

LL. 95

21.50

21.51

21.10

21.25

64.77

4L.94

45.11

46.24

87.52

86.4

87.06

185.8

185,75

15-

25

30-

50

55-

100

105-

250

)

e.

P

e

)

)

)
)

183.66

184.92

185.26

The greflt increase in the number of subscribers of over 250,000

has reduced the verge hMOUht subscribed in tht. eltIss to
e.152,403.

The following list nhowr the amounts subscribed by
No fi:uree ere again

certrin of the larger German towns.

available for Berlin and Dfteseldorf which in the third loan
headed the list with 2105,000,000 rind e23,400,000 respectively.

3UBSC2IPTIOU BY TOM.
OTIS

tion
1910

let Loan
1000

3rd Loan
21000

5th Loan
Z1000

6th Loan
Z1000

7th Loan
41000
22,000

zfurt

415,000

7,400

22,750

19,750

24,800

tgert

286,000

3,700

13,000

14,950

21,450

mer

302,000

7,750

14,800

18,000

-erg

931,000

23,000

17,500

19,775
12,501

18,200

h

596,000

5,600

13,550

11,315

15,166

14,000

au

512,000

6,800

13,250

17),785

14,360

13,000

'Tne

516,527

len

548,010

4,200

12,730

10,525

294,635

3,455

7,352

8,200

Sig

590,000

3,600

11,100

6,900

:aeim

236,113

2,190

7,412

6,918

burg

?

279,629

?

180,843

Dttin

194,000

?

10,050
9,050

?

8,450

7,980

6,050

98,656
Lie

?

10,400

?

?

?

2,850

6,200

7,800

6,750

7,460

9,600

6,700

6,025

7,500

6,500

The only town in the above list which shows an increase over
the Sixth 3.oan in Essen, and amongst the smaller towns also it

is mainly the munition °entree, which have increesed their
eubscriptione.

In the majority of cases the subscriptions are

smaller in the Seventh than in the Third Loan.
The results of the Seventh Vier Loan tire significant re

affording proof of the determination of the Germain people to

carry on the war ,Tid as showing that the internal credit of
the German Bmpire is as yet not verioutly impairer :.

The

position after the war is undoubtedly causing S. great deel of

anxiety, but so long fF the army is still able to keep victories
up its sleeve aed produce them when planted, and co long re it

suffers no very disastrous defect in the field, it oes not
seem liLely that it will be unable to obtain the funds necm-ery
for the prosecution of the war.
The facility with which Gorr any is able to raise these

great loPns every six months is certainly remarkable, but it

must be remembered (a) that the currency is very rapidly being
inflated; more than rzoo,00l,000 of notes have been put into
circulation since the beginning of 1917, and the total
circulation now stands above gd00,000,000, (b) thtt the funds
invested in the war loans acre largely the proceeds of the

process of liquidation of much of his netional wealth during
the war.

for stocks of raw materiels and manufactures have

been used up and live not been replaced, her reserves of food_

(12)

stuffs have been consumed, her soil exhausted, her muchinery
end plrnt worn out. The sole opportunity for the investment
of much of the liquid capital th11£3 C;!Oeted has been the tier
Loons, in which if! now looked up Ft very inree pert of the
"replecement fund" which will be required by German industry
end commerce f 'ter the vier. The making of these funds

available after the wrr is one of the most urgent of the
orobleme which the German government will hfve to face t;ftcr
the wer. It htls ennounced thf t it 1..roposes to retrain the
existing Loan Officec for a oensideruble period fter the war,

and to eni ble them, with the rid of the Reichsbrnk and the
whole banking- system to rrrnt for
egainet wrr loan stock,
to en filmost unlimited extent, et n low rate of interest.

It is true thr t it is quite poeeible thr t this could be done,
but it involves an enormous inflation of the elrendy inflated
Germen currency with a corresponding effect in depreciating
its value both mt home end ebrord.
The aotuul emount of new money received is epprociabl,y

less than eppeers from the °Motel figures. The ;-evings
banks contribute large sums to the loans but before each new
loan their clients ere the 1: rgest sellers of old loan even
at s. 10E8. It fells on the Reichebink to meintein the merket
for liar 1,oen, and it is the sole buyer on a if rge serle.
It tocepts the stool: of old loens rt i-11 below issue price, fnd
it buys officially trc much el) r50,000 daily at the Berlin Stock
Exchange.

However, when the sales ere more buriclent, especially,

for the account of the ravings Banks, it does not hesitate to
absorb en even ere, ter quantity in order to prevent too much

Every obstt;cle is thrown in the
way of the public, if it wishes to divpove of War Loin. If
anyone is in absolute necessity for money he Ic sent to the Ilar
Offioes to borrow on his ':ivr Loan; if he is determine 1i to sell,
his ordero rare executed slowly and only for nosy smt.11 qufIntities.
Hence in time of vier, gat least, the poesession of 7111 Loan stock
iv by no means free from divndvontares; while on the other side,
the Reichsbunk is compelled to have ever increasing recourse to

II/being offered on the mrket.

its note issue in order to maintain the Iv rket for all war loons.

(14)

ON HIS MAJESTY'S SERVICE.
FASTEN Envelope by gumming this Label aoross Flap.

NATIONAL ECONOMY. OPEN by cutting Label instead of tearing Envelope.

Ben

in Strong, Esq.,
Ritz Hotel,
PICCADILLY,

a6) Wt. 49369 248 6,9116,900 4.19 W 6 & 1.

CONFIMNTIAL.
The loans advanced by the Allies* to one another
are approximately as follows

By United

By United

By France.

Loans to.
States.

Kingdori.

£

£

d Kingdom

485,000,000
275,000,000

a

700,000,000

520,000,000/: 160,000,000

718,000,000

90,000,000

236,000,000

30,000,000

54,000,000

16,000,000

35,000,000

53,000,000

15,000,000

j

15,000,000

38,000,000

90,000,000'5

4,000,000

nia

35,000,000

390,000,000/

i

56,000,000

a

2,000,000

,

8,000,000

al

Total ...

875,000,000

390,000,000/

38,000,000

um

£

800,000,000

800,000,000

e......

Total.

10,000,000

10,000,000
1,451,000,000

1,668,000,000

365,000,000

3,484,000,000

Excluding loans raised by the United Kingdom on the
market in the United States, and loans raised by France on the
market in the United Kingdom or from the Bank of England.

/

After

deducting loans of gold to the United Kingdom,

from France £50,000,000, from Italy 222,000,000, and from
Russia X60,000,000, which are returna'ole when the counter
loans are repaid.

This allows nothing for interest on the debt since
the Bolshevik Revolution.

No interest has been charged on the advances made
to these countries.

MEMORANDUM RECEIVED FROM BRITISH BOARD OF TRADE
COTTON.

July 16th, 1919
Bales

Estimated year's consumption of American cotton
at in mills of United Kingdom under pre-war conditions 4,270,000
Deduct one-eighth for reduced consumption owing
to shorter hours of working, say
Leaving estimated year's requirements
for 1919-20

530,000

3,740,000

Notes.
1.

The indications are that the year 1919-20 will be a period

of active trade for the cotton industry; and no reduction in consumption is to be expected on account of lack of demand.

The figure

of 4,270,000 bales above represents approximately the consumption
during 1912-13, which was likewise a period of active trp,de. There

has been no appreciable change since then in the spindleage consumiw,
American cotton.
2.

Working hours have been recently reduced from 551 to

48.

It is improbable that the output of the mills will be diminished
by quite as much proportionately, but for the first year, certainly,
the reduction will be nearly proportionate.

A decline of one-

eighth has accordingly been assumed under this head.

A

Any further communication on this subject
should be addressed to -The Under Secretary of State for India,
Financial Department,
India Office, S.W.1,
10111-and the following reference quoted

INDIA OFFICE,

WHITEHALL. S. W.1.

7t 1046C
Tele. Noe.

VICTORIA 8920
TREASURY 4

Ext.

15th September 1919.

S
Sir,

I send you the enclosed copy of the

annual report of the Indian Paper Currency
Department for 1916-17 at the suggestion of
LIr.Blackett of His Majesty's Treasury.

It is regretted that no copy

is

available of the 1917-18 report, i. e. of the
latest issue.
I am, Sir,

Your obedient Servant,

Benjamin Strong Esq.,
Ritz Hotel,
Piccadilly,
W.

For Financial Secretary.

COPY

91r,

File after showing to Chr. Jy. I have replied BS

Treasury Chambers,
Whitehall, S.W.1

23/12/19
My dear Strong,

This will be too late to do more than hope you have had a Merry Xmas, but
It will start with the
here are my best wishes to you for the New Year 1920.
world in a less hopeful mood than 1919, but I trust sincerely that it will be
a less disappointing time for us all.
We have been watching your efforts to check inflation in the U.S.A with
interest + admiration. We have just taken a very bold step here in fixing
a maximum for the fiduciary issue of Currency Notes in 1920. It seemed a
good move not because in itself it can do any good but because it improves
public confidence in its belief that the Government has a definite policy +
if it is to be carried through the decision commits the authorities to a
are at last at the peak of our National
deflationist policy. I believe
Debt + in a position to begin shortly some debt reduction, though pending
is still in the future. The Government has a reasonably economical frame of
mind for the present + can probably be kept up to the mark, as public opinion
demands economy.

I am - little afraid that the U. S. A. ,;i11 not give us proper time to effect
the improvements in exchange which I aim at.
It seems to me not im
only American prices could be allowed to rise a little more that we might get ours
down a trifle so that the two would meet on a proportion similar to the pre-war
proportion + so allow us to get near to reestablishing the gold standard, with
gold purchasing about 45% _hat it did before the ,;ar.
But if you deflate too fast
+ your prices go down, we cannot face, socially or politically, the big drop in
I am not sure that it would not pay the
prices which would be necessary here.
to let our rates remain, as they are at least now, well above New York, and then
,hen we have got back to the gold standard come in us partners with us in providing
Europe + elsewhere with capital. But perhaps I am over sanguine as to the prospects
of restoring the gold standard.

Best wishes to Jay + Curtis

Yours very sincerely
[signed] Basil P. Bluckett

a
fi

V
/

LEAGUE OF NATIONS.

liSOCIETE DES NATIONS.

-London.

Lay 31, 19:1.

Dear Sir,

Sir Basil Blackett of the Financial Commission of the
League of I;ations has asked me to send on to you as a matter

of possible interest the enclosed Report of the Sub-Committee
which went to Vienna, too investigate the Austrian problem, and

the Report of the full Financial Commission of the League on
all the measures which should be taken both by the Allied
Governments and by Austria herself, to put Austria back on her
feet.

Sir Basil feels very optimistic as to the general out-

come of the work and feels that already the Austrian situation

has been improved by removing it from the political to the
technical field.
.Yours very truly,

Governor Strong,
Federal Reserve Bank,
YORK Cl2Y.
U.S.A.

1111

SEP 13 1921

m s,,
1641

TREASURY CHAMBERS,

"%r`ii
11111

'SA BLED

In reply

WHITEHALL.

please quote Regd. No.

12th July,1921.

4 dear Strong,
In reply to your letter of the 29th ultimo
about your holding of War Certificates;

you may make

application (on a form which I enclose) for repayment
of the certificates at par on their due date or
you may allow ,them to run on for another five years

at the and of which they will be repayable at 26/for each 15/6 originally invested and therefore
for each 20/- due on the 4th August 1921.

You will

see that the form of application for repayment allows
you to be repaid by a warrant payable to any bank
you may name;

the actual certificates should

accompany the form of application.
./e are still issuing new certificates at

a price of 15/6, repayable after 5 years at 20/after 10 years at 26/-,

compound interest at

approximately 5i% per annum is thus payable

throughcathe
currency

Delhi,

the 13th February 1923.

My dear Strong,

I was very glad to get your letter of January 8th.
thanks for your good wishes.

Many

Your picture of the arrival of

Stanley Baldwin and Norman gave me just the touch which I
have been wanting.

Personally, I am well satisfied with the

settlement between the British and American Governments in the
matter of the Debt (so far as I can understand it from the
insufficient reports in the newspapers here).

Of course one

recognises that from one point of view it simply means that
we are paying a war indemnity, but

I think it is better so

than that matters should be left unsettled to cause
irritation between our two countries.

I arrived here on January 8th, the anniversary of my
first arrival in India, i.e. the date of my birth.

So far

I am thoroughly disappointed with the conditions of work.
Instead of being axle to get ahead and do things

which need

(.;

doing, one has to waste one's time tryingitto obtain authority

from the India Office for doing things which are obviously
proper and right and obviously ought to be done by the
people on the spot without reference Home.

The only thing

wrong with India at the present moment is the India Office.

However we may be able to change all that.
Yours sincerely,

7,let

"CI

Benjamin Strong, Esquire,
Federal Reserve Bank of New York,
New York.

a-te I I ellthr..

he4;tt-

4//z PPz-/-449vt
gok

td

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 192g.

IL-REVIEW OF THE TEAR 1922-23.
Deficit as now
estimated.

3. The budget estimates of the current year as finally passed provided for a deficit
of 9.16 crores, the estimated revenue (including new taxation and increased postage
and railway rates expected to yield 181 crores), being 133.23 crores, and the expenditure 142.39 crores. There is a saving of 4.14 crores on expenditure, but revenue will
be 12.48 crores less than the estimate, so that as now revised the estimates point to
a deficit this year of 17i crores.

Revenue.
Trade conditions.

4. Our revenue estimates were not based on a hope of any marked or striking
revival in trade, although we certainly expected some slight improvement on the
general trade conditions of the previous year. On the whole, this anticipation has
been justified. There was considerable stagnation during the earlier part of the
summer, but, except perhaps in the cotton mill industry in Bombay, the general
feeling prevailing in the business community has for some months been one of mild
optimism. Considering the impoverishment of many of our former customers, our
exports have undoubtedly shown a promising recovery, and, so far as merchandise
alone is concerned, the balance

of trade in favour of India during the first ten

months of the financial year has been 62 crores which contrasts with an adverse
balance of 29i crores in the corresponding ten months of the preceding year. As

Customs.

against this, there has been a substantial net import of bullion in the current year, but
after including the bullion figures there still remains a net balance of 20 crores in
favour of India instead of an adverse balance of 33 crores in the first ten months of
last year.
5. Under Customs we budgeted for a total net revenue of 451 crores, of which

9 crores was expected to accrue from the enhancement of duties imposed in the
We now expect a Customs revenue which will be some
3 crores short of the figure budgeted for. The most uncertain, and at the same
time one of the most important factors affecting our revenue is the import of sugar,
which in the previous year had yielded us the unprecedenfedly large figure of
Finance Act of March last.

62 crores at the old rate of duty of 15 per cent. For the current yettr we did not
anticipate the continuance of such abnormally large imports, but expected, on the
increased duty of 25 per cent., to realise about 61 crores. The figures of imports
vary in a very erratic way from month to month which makes estimating difficult ;

recently, owing to a large drop in prices, imports were held up in order to
get the benefit of the revised tariff valuation which came into force from the
1st January. We expect, therefore, large imports in the last 3 months of the year
though the effect of this will be counterbalanced by the duty being calculated on a
lower valuation. On the whole, we expect that the revenue from sugar will be less

by l crores than the budget figure. The excise duty on cotton manufactures will also

bring us in substantially less than we expected ; owing to the high price of cotton and

a fall in the price of cotton cloth in the internal markets, there has recently been a
reduced output from the mills, and we expect to be about 60 lakhs down under this head.

As regards the other tariff heads, it is probable that there will be some deficiency in
the revenue from liquors, matches, machinery, cutlery and other manufactured articles,
but any losses here should be nearly counterbalanced by increased revenue from import
duties on cotton piece-goods (which may give us 96 lakhs more than our estimated
revenue of 5,60 lakhs), iron and steel and other metals, while the new excise duty on
kerosene is likely to bring us in 89 lakhs as against 40 lakhs budgeted for.
6. Before leaving the subject of Customs, I must refer briefly to a matter which
has attracted some public attention during the year, namely, our revenue from the
so-called " luxury " articles, which are assessed to duty at 30. per cent. Hon'ble
Members will have seen from time to time various articles in the press, the object
of which was to show that this high rate of duty has very seriously affected the trades
concerned, and it was implied, if it was not asserted, that a lower rate of duty would.
have brought in more revenue. These contentions are scarcely borne out by the
facts. In the current year we budgeted for a return of 2,84 lakhs from the 80 per
cent. duty ; we actually expect to receive only 11 lakhs less in spite of a considerable
fall in prices. The principal articles included in the 30 per cent. schedule are motor

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

57

titars, silk manufactures, glass bangles and beads, and tyres and tubes.

Except in the
case of silk manufactures, the quantities imported during the first nine months of
the current year have been in excess of those imported in the corresponding period of
the preceding year. Nearly twice as many motor cars have been imported ; and if the
value of the cars imported has fallen considerably, this is due partly to the general fall
in world prices and partly to the fact that people have been importing the cheaper
American car in preference to the more expensive English car. I doubt very much if the

duty has had much to do with this substitution. The conclusion is that there is

certainly no case at present for any alteration of the schedule.
7. As Hon'ble Members will have seen from the published returns, our traffic ItailwaYs.
receipts from railways have been disappointing. The increase in passenger fares
was expected to add some 6 crores to the receipts. Traffic, both passenger and goods,
especially the latter, has, however, fallen off, and as against the estimated gross traffic
receipts of 99-1- crores, we do not expect to get more than 92, the small improvement
over the gross earnings of last year being mainly due to the increased passenger fares.
On the other hand, we expect a saving of 24 crores on that portion of the expenditure
on replacements and renewals which is debitable to revenue, counterbalanced by an
excess of about 1 crore in ordinary working expenses. Altogether our net railway
revenue is likely to be down by 54 crores. Taking into account interest charges, I
am sorry to say that the final result for the general tax -payer will be that there will
again be no profit from railways, but a loss of about a crore.
8. The effect of the new postal rates, during the first few months of the financial ,Preolsets

'year, was to reduce correspondence, but there have since been signs of recovery,
and the public are now gradually getting used to the higher postal charges. For
the present, however, I think we must anticipate a diminution of 1,06 lakhs in our
anticipated receipts in 1922-23. There is a small saving in working expenses, and
after debiting interest, the department will probably prove to have been running

grap

at a profit of about 24 lakhs.

9. We expected large arrear income-tax collections, but after the beginning of the Income -tax.

year it became evident, not only that the allowances that we should have to retake for
bad debts, etc., would be large, but also that our revenue was to be seriously

affected by heavy refunds which have had to be made in Calcutta as a result
of the adjustment system in force under the former Act ; fortunately this will,

under the new Act, not disturb our estimates again. I understand that in Calcutta
companies have in many cases actually received a cheque from the income-tax
authorities instead of paying any tax to Government, and the net receipts in Bengal
are not expected to be more than 31 crores. The collections have been good in the
other provinces, particularly in Bombay, though the lower profits which the cotton
mills have recently been making will, I fear, affect our revenue from that city in
1923-24. Altogether, we expect a total deterioration of 3i crores.
10. As regards other heads, I need only say that we expect to get 89 lakhs more Opium and Salt.
from opium than we anticipated, and there will probably be some slight improvement

-7 lakhs or so-under salt.

Expenditure.
11. On the expenditure side, there will be a substantial saving of about 1,86 lakhs Interest.

in our budget provision for interest on debt. Our rupee and sterling borrowings
have been larger than we budgeted for, but a full half year's interest in respect of the
greater part of these does not fall due till next year ; the success of our borrowings
has, moreover, enabled us to fund a substantial portion of our floating debt. and the
payment of interest made for short periods this year on our new loans is less than

that which would have been payable for the replacement of the treasury bills
discharged.

The House will recollect that a special provision of 60 lakhs was entered in the

Other

Civil estimates-as part of the expenditure in Waziristan (under the head " Political"). expenditure.

We now anticipate that there will be a saving of nearly 35 lakhs therein, owing to
a part of the expenditure being thrown forward to next year. There will also be a
saving of 4 crore in other civil expenditure, mainly as the result of retrenchments
carried out during the year.

Exchange.

Change in method
of accounting.

Military
expenditure.

Summary of
variations.

Succession of
Deficits.

expect

hange

-comounts.
een to

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

69

'Iltdr. Punch would say, first depressions. I am afraid that much of what I say may
sound rather superficial, and that I shall be open to t
been done before by more than one globe trotter who
in the country, sets to and writes a book about India. O
India which I brought with me to read on boardship o
entitled " The Moral and Material Progress Report ".

odd assumption in the title that there had necessarily bee

look into the finances of India for the last few year
whether it was not rather a rake's progress. For five
had a deficit. The accumulated total of these deficits
crores, and this in spite of the fact that in the last two

has been imposed estimated to bring in about 28 crores d
Apart from our reve
this is not the whole story
many crores on unproductive purposes, the expen
as capital expenditure. New Delhi is the most obvio

justification, other than sheer necessity, for not treatin
able against revenue, and in any case it ought to be rep
date. Moreover, besides the deficit of the Central Gove
of the provincial Governments and of many local bod
be forgotten.

16. I ask the House to pause a moment and consider
Unfortunately, we are accustomed in these days all ove
and familiarity breeds contempt in spite of the fact that

is before us among the nations of Europe of the cha
deficits inevitably induce.

The individual who lives be

does not escape the penalty and the same is true of a
makes this mistake quickly finds himself compe
cutting down of his expenditure or is driven either
or the whole of his possessions ; or, in the worst e
A State is in the same position, but the position is fr
that the State's creditors are in another capacity the c
taxpayers. And the State which is driven to cheat i
realise what it is doing although its unsound method
not only of the wealth and happiness of its own citiz
risk to social order within its borders. Much of the pr
due to the way in which States in all parts of the world
by unsound currency manipulation and the creation o

assets behind it.
17. India has not entirely escaped the evils of taxatio
compared with many other countries she has come off

of 100 crores during the last five years, it is estim
covered by the creation of paper money, representi
of the Government of India. The remainder amount

raised by borrowing. Moreover to the extent of 22 cro
taken the form of issues of Treasury Bills to the pub
to special conditions during 1922-23, we were able to
32 crores, in spite of the deficit, out of the proceed
22 crores of Treasury Bills in a country like India is fa
outstanding.. A large volume of Treasury Bills is an

the condition of the money market is such that it is alwa

bills by offering a competitive rate, but in India co
under which even an impossibly high rate would b
case the Government of India would be driven bac

Bills by paper currency, i.e., would be driven to taxation
18. In this connection, a word may be said about our

have to find the means of meeting bonds during the n
extent of 5i crores in 1923, 34 crores in 1925, and near
amounts, too, have to be competed for against other d
may be said, in part at any rate, to be one of the outcom
few years.

60

Increased Interest
charge.

Effect on India's
credit and handicap
to her development.

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

19. But the deficits of 100 crores can be looked at from another point of view,
when again their evil effects are prominent. In the budget for 1923-24, the charge
for interest would be at least 5-1- crores less had it not been for these accumulated deficits. This extra 5i crores has to be met either by reducing expenditure, possibly by
reducing desirable expenditure, or by raising new taxation, or at best by maintaining
existing taxes which could otherwise be reduced.
20. Moreover the continued deficits are threatening to impair India's credit in the
market both at home and abroad, and increasing the cost of borrowing whether for
covering the deficits or for new capital expenditure. India is a country where, as it
seems to me, there is an almost unlimited field for new capital expenditure on new
development. At the last Assembly of the League of Nations at Geneva, India

established her claim to be one of the eight premier industrial States of the world.
Every one admits, however, that India is only at the beginning of her industrial

development, and it is out of her capital resources, i.e., out of her accumulated savings

and her new savings, that the capital to develop India industrially must be found.
We have borrowed all that we could borrow in India and in England during

the last few years for capital expenditure purposes, and we have undertaken a

minimum programme of 30 crores a year for capital expenditure on Railways. I
wish it could be more. So far as Ican judge at the present time, the amount which
might usefully be spent on profitable development of transportation in India is

limited mainly by the.possibilities of finding capital resources. Yet we have spent 100
crores out of capital in the last five years in financing deficits, thereby diminishing to
a corresponding extent the resources available for developing India. Let us make
no mistake about it. If recourse to inflation is ruled out, if it is agreed that the
concealed method of taxation by inflation is the worst of all methods, the money to

meet the annual expenditure of India, whether on capital or on revenue account,
must come out of the savings of the country. The only exception, which is not a

real exception, to this statement is that some of the capital may be borrowed abroad,

and it has of course been a commonplace of the history of the last century that

Necessity for

stimulating habit
of Investment.

capital has been found by the older industrial countries of the world for the development of new-comers in the field, to the great advantage both of the borrower and of.tbe
lender. But the amount that India can borrow abroad is limited both by the amount
available abroad, which in the present condition of the world may prove a comparatively small amount for some time to come, and by the capacity of the borrower to
meet the annual charges for interest. These annual charges for interest are in effect
a claim on the future resources of India and ultimately come out of the same pocket
as the money required to meet the rest of India's expenditure, i.e., out of the savings
of the people. To sum up, the deficits of the last few years have brought in their train
a certain amount of taxation by inflation, a heavy annual charge on the present and
future budgets of India, a deterioration in India's credit, an increase in the cost of
borrowing, and a depletion of the resources available for desirable capital development.
21. Perhaps I may be allowed to digress at this moment to touch on a subject in

which I have always taken very great interest. Every one who has studied the
subject agrees that a wonderful era of prosperity would be ahead of India if the
habit of investment could be stimulated, if investment in India became anything
like as general a practice as it is in such countries as England and France. It is
true that much has been done in recent years. The rupee loans of the last few years
have been unprecedented in amount. But much remains to be done if the
Indian people are to form the habit of investing their talents in reproductive enterprises rather than wrapping them up in a napkin, and perhaps I should also add,
if some of them could learn to be content with sound and steady returns on the
money they invest instead of looking for impossibly high dividends.
22: I have been making some inquiries as to the progress of the Post Office Cash
Certificates. I was an original member of the National Savings Committee appointed
in England at the beginning of 1916 largely through the efforts of Mr. Montagu, and
was privileged to take a part in what is widely regarded in England as a most extraordinarily successful movement. The change from thriftlessness to thrifty habits
which has taken place among many sections of the English people has been described
as a revolution. National Savings Certificates to the value of nearly £360 millions

are now held by the small investor in the -United Kingdom. When I contrast the

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

At'

ces as between one commodity
Can we say that the position
e a fixed value, whether at 18.
erms of some other currency,
P I think not. 'f he French

pe is faced with the threat of
are

unstable ;

sterling has

at par ; and even if it were

d monetary conditions in the
sing prices in terms of dollars

by a rise in sterling prices. For
yet come for a new attempt to
figure.
Strength of Indian
Currency Reserves.
amely, that the era of unbalanced
ceeded by an era of balanced
ncy position of India with some

India's export trade has taken a
ic reserve of silver seems to be
er currency. In addition to the

rency Reserve a sum of £24

vertible into foreign exchange,
outside these Reserves, we have
e of the separation between the
lable for maintaining the rate of
Paper Currency Reserve and the
Movements in

Exchange.
ge during the past year reflect a
ear ago, in February 1922, the
llen as low as 18. 2-1-14, and it
d. Since then, after a rather
on, it is for the moment fairly
ment in terms of sterling reflects
o the rise which has taken place

gold, and the improvement is

igure for Indian wholesale prices
e corresponding figure was 173.
es of food grains. This fall in
which there has been an actual
approximately stationary.

has come for fixing on a new
nt to make one or two general
f instability about any parti-

ing else ; it is simply a question
ltimately India's payments outrts of Indian goods and services.

int of view of the budget, the
overnment of India's sterling
ts to 360 crores, at is. 5d. it

rores, while at 2s. it amounts to

d have been saved had exchange
Statistics proverbially can be

es are striking and it must be

sss of the Government of India,

palities, port trusts, and many

benefited by a higher exchange
en, again, although since 1920
ore stable than world prices, or

owly, has to a large extent
ther internal prices in India
ding to a is. 4d. exchange, so
rnal prices would have to go

'Wilk

t3r6-4-10,u,

St"(

REGISTERED No. L 848.

azdte of
EXTRAORDINARY.
PUBLISHED BY AUTHORITY.
DELHI, THURSDAY, MARCH 1, 1923.

6uVERNIIENT (SF' INI IA.

F tNANCE DEPARTMENT.

SPEECH OF THE FINANCE MEMBER INTRODUCING THE
BUDGET FOR 1923-24.

(

53

)

64

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

e Committee are either autonchments which we ourselves
advance of the receipt of theaki
ommittee cast their shadowlow
economy which they created
E itent to which

akecredit has been the reductions,
credit for

tiestakenLondon, we propose
in in Budget
for retrenchment
mmittee's recommendations.
proposals.
nowledge of the reductions
y the Commander-in-Chief,
ent Committee and with his
al agreement in regard to the
dget, we have been able to
some though not all of the

uence of the

recommenda-

rations could not be so far
s. It was necessary to pree estimates for the Demands
proposals which were going

estimates for the Demands for

show the figures of civil exnchments consequent on the
ned, this does not mean that
appear in those estimates, but
he figures.
Civil expenditure.

e in the budget statement the
dying the report of the Commine and vote on the Demands
yet in a position to announce

ns of the Committee will be
te forecast of the allowance
cannot come into full effect
ul consideration to the report,
ill be justified in taking the
eduction of 4 crores can be
, either in the ways proposed
on of them. A further paper
this lump sum reduction of
ds, and when the time comes
will be asked to vote not the
s reduced in each case by
nt Committee's recommenxcluding interest, the Com-

al Budget estimate in 1922-23

ailed Budget statements for

House will see that our cut of
ch represents retrenchments

of in the estimates, makes a

ures, amounting to less than 2
essary to make for the fact that
ot be in full operation during
ernment of India will do their
omplished facts and will leave
eductions to the full extent of

r cloth, and where necessity

ys. But I cannot conceal from

e full effect to the 4 crores
are being taken in assuming

66

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

spring crop are so favourable that it is not unreasonable to expect a revival before
long. The difficulty is to say how soon this revival will occur. Traffic receipts

suffered a check in 1922-23, and on the whole I do not think it is safe to budget odr
the assumption that there will be a very rapid revival in 1923-24. Our estimate for
gross traffic receipts is accordingly put at 951 crores. It is 31 crores higher than the
revised estimate for 1922-23. Two factors account in the main for this increase

of 31 crores. The first is Oat in the earlier months of 1922-23 there was a
considerable loss of revenue due to the strike on the East Indian Railway and the

second is that the present increased rates did not come fully into effect on all Railways
until about the 1st of July 1922.
Working expenses and interest and other charges, without allowing for the share

attributable to this head of the Ifthcape Committee's cuts, amount to nearly the

same figure, leaving a net profit for the year of 35 lakhs which compares with the net
loss on the current year's budget as now revised of R92,60,000.
Posts and
Telegraphs.

Total revenue.

40. In the case of Posts and Telegraphs, we are able to estimate for a net
receipt of 147 lakhs as compared with the net receipt of 24 lakhs in the 1922-23
budget as revised. This improvement is due in part to expected recovery in revenue
and in part to reductions in working expenses made in anticipation of, or in consequence of, the recommendations of the Retrenchment Committee.
41. We thus arrive at the following budget position on the basis of existing taxation. As against an expenditure of 2,04.37 crores, we have an expected revenue of
1,98.52 crores, leaving a deficit of 5.85 crores. Before I proceed to explain to the

House what we propose to do in regard to this deficit, I must turn for a moment to
our ways and means position.

V.-WAYS AND MEANS.
42. Public attention is usually concentrated on the annual budget of revenue and
expenditure, but the Ways and Means budget is of equal importance, for after all it
is the Ways and Means budget which shows the sums which the Government has to
pay out under one head or another during the year and the sums which it has to get
in from the public. Whether it is a provincial overdraft or an advance on capital
account, or whether it is a revenue deficit, the money to meet the outgoing has to
be got in before it can go out. The Ways and Means budget is, however, one which
it is difficult to present in a clear and easily intelligible form. It is never possible

to adhere to a strict programme in regard to Ways and Means operations. In
financing the country's various liabilities and in finding cash for our own and the
provinces' day to day disbursements, we have to be guided very largely by the
Funding of
Floating Debt,

changing conditions of the money market both here and in:London.
43. During the current year we expect to meet liabilities, over and above' what has
been met from revenue, amounting to 106 crores. These will have been financed

mainly out of the proceeds of our rupee and sterling loans which have been on an
unprecedentedly large scale.

Our rupee loan realised nearly 47 crores and 2311

millions was borrowed in London during the year. One satisfactory feature of the
year, to which I have already referred, is that out of these borrowings we have been
able to reduce our floating debt by 40.6 crores, of which 32.4 crores consists of a net
discharge of Treasury Bills held by the public and 8.2 crores of a cancellation of
Treasury Bills held in the Currency Reserve. We cannot hope to continue the reduction of floating debt on the same scale over a long period, but I feel sure that the

House will agree with me that it must be our constant policy to secure the early

Remittances to
London, 1922-23.

extinction of the floating debt by its conversion into securities of longer term.
44. Our sterling borrowings have facilitated the provision in London of the sums

required to meet our sterling obligations during the year. But advantage has
been taken of the strengthening of exchange which occurred at the New Year to
effect remittance by the method of selling Council Bills. Weekly sales have
been taking place of moderate amounts since the beginning of January, and we have
thereby been placing funds in London at a moment which, although somewhat in
advance of actual requirements, is nevertheless convenient to the market. We anticipate that our balance in London will be about £8 millions on the 31st March 1923
as against a normal minimum balance of £4 millions, but the surplus will be required
early in the new financial year.

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

68

intend to reduce, and eventually extinguish, these contributions.

I am aware that

this is not the solution which finds universal favour, though I think this is what
the majority of the Provincial Governments desire. But so long as we have a defic,
in the Central budget, it is obviously impossible for us to make a beginning with OF
reduction of provincial contributions. Meanwhile, every Provincial Government,
without exception, is finding very great difficulty in balancing its budget. The
majority, I am afraid, did not succeed in doing so in 1922-23, though they

are doing better I am glad

to see for

It has been
1923-24.

suggested

to me by more than one spokesman for the provinces that there is a feeling
in the minds of the Provincial Governments and of their Legislatures that
it would be unwise for them to show balanced budgets. They are, it is hinted,
taking a leaf out of the book of some charitable and religious bodies which
make a habit of showing an annual deficit in order to make a striking appeal
to their supporters to come to their rescue. The Provincial Governments think,
it is said, that they will get more sympathy from the Central Government and

get rid of their provincial contributions quicker if they can show a handsome
deficit and appeal to the charity of the Central Government. I should like to
say for my part that the strongest appeal that the Provincial Governments can
make to me in this matter of the Provincial contributions is to show themselves
worthy of assistance from the Central Government by strenuous and successful

endeavours to make both ends meet for themselves. Much, therefore, as we should
have liked to be able to make.a beginning of the reduction of the provincial contributions, it is obvious that this year we must confine ourselves to an attempt to deal
with our own deficit. I would, however, add this appeal to all who are interested in
a reduction in the provincial contributions. Let them give us their full support in

any measures we propose for securing a balanced Central budget in the certainty
that by so doing they are hastening the day when the contributions can begin to be

released.

VII.-PROPOSALS FOR DEALING WITH THE DEFICIT.
Interest on Gold
Standard Reserve.

40. What then is to be done about the deficit of 5.85 crores ? First of all, we
propose to make an adjustment which, though little more than a change in methods of
book-keeping, has the effect of reducing the apparent figure of the deficit by 1.59 crores.
It is proposed to ask the House to continue during 1923-24 the arrangement made a

year ago for crediting to revenue the interest on the securities in the Paper
Currency Reserve. There is a similar source of income in the interest on the
£40,000,000 in the Gold Standard Reserve, which is expected to amount to 1.59
crores in 1923-24. This is, in essence, of the same nature as the interest on the

Deficit cannot be

left ntfovered.

Paper Currency Reserve's investments, and we propose for 1923-24 to treat it in the
same way. This change does not really add anything to our available resources
or alter our Ways and Means position, but I think it is justified on merits.
50. We are thus left with a deficit of 4.26 crores, and the only way left for meeting
it is by additional taxation. If the House will turn its mind back for a moment
to what I said about the accrued deficits of the last five years, it will recognise that it
cannot leave the deficit of 44 crores untouched. It will perhaps he asked whether
the fact that several crores in the military expenditure and a considerable additional
amount in the non-military expenditure represents non-recurrent expenditure due to

" lag" and " terminal charges " would not justify the deficit being allowed to

continue for one more year. This argument unfortunately does not represent the full
facts. If some crores in the military budget represent non-recurrent expenditure,

on the other hand over 2 crores of the cuts made in the military budget represent
non-recurrent savings, being arrived at simply by a reduction in stores. Similar
considerations apply to some of the other cuts both in the military and the nonmilitary budgets, in particular in the railway budget. Moreover, some terminal
charges will still have to be met in 1924-25. Whatever our hopes may be, we have
no reasonable certainty that the budget for 1924-25 would balance on the basis of
present taxation. Moreover we have not yet begun to provide anything towards
making good past deficits. If 1924-25 were to turn out much better than it is
possible to promise at this moment, we can, if we have got through 1923-24 without
a deficit, turn our thoughts to reduction of the provincial contributions.

THE GAZETTE OF INDIA EXTRAORDINARY, MARCH 1, 1923.

69

51. Our conclusion, therefore, is that we must ask for some increase in taxation. New taxation
No one likes new taxation. It is a disappointment to the House, and it was a great necemarY.
appointment to me, that new taxation is needed at all. If he is wise, a Finance
Igember dislikes new expenditure and dislikes new taxation even more. But most of
all, he loathes and abhors a deficit. I hope the House will agree that I have demon:

strated to the full the absolute impossibility of its leaving a sixth year's deficit of 41
crores to be added to the appalling aggregate of 100 crores of the deficits of the last
five years. The House would be false to its trust if it allowed the Government
to adopt so pusillanimous and mischievous a course. The credit of India is
in jeopardy. It is already under the cloud of the deficits of the last five years.
But India's financial record has been so good for decades preceding those five years that
hitherto the damage is not irreparable. The world has trust in I udia's record and
has felt sure that the era of deficits could only be a passing phase. It is our duty

to-day to justify that trust. We have made drastic cuts in our expenditure, but we
have not achieved a balance. New taxation is, therefore, inevitable.
52. What form then is the new taxation to take ? We have carefully reviewed the Increase in salt
existing taxes. In particular, we have examined those taxes which were proposed ants.
last year and not accepted. One after another m e have had to reject promising
expedients, and finally we have come to the conclusion that the right course is to ask
the House to agree to an increase in the salt tax to E2-8 a maund. In a full year, this
increase is estimated to yield 6 crores, but we cannot count on its bringing in more
than 4i crores in 1923-24. The House will see that this additional revenue is just

sufficient to cover the deficit of 41 crores, to give us a balanced budget, and to
leave us a small surplus of 24 lakhs. In view of the uncertainties of our estimates
of expenditure, this House will agree that this is not an undue margin to leave over

for contingencies.

CO N CLUSION.

53. My allotted task is finished. I have laid before the House the Government
of India's account of their stewardship for the year that is passing and their proposals
for the year 1923-24. I am painfully conscious of the responsibility which attaches
to the Member introducing the budget. He cannot hope that his proposals will
no doubt that when the details of o
receive universal approbation. I have

proposed expenditure come up for discussion, some Members will criticise this

or that retrenchment as iniquitous and the retention of this or that item of

Some other Members will disagree entirely with
them on one or other or both of these criticisms. But all will manage to
disagree with me on some point or other. I hope none the less that the Government
of India will receive the credit which I claim is their due for courageously shouldering
their burden and boldly coming forward with a budget which, at one and the same

expenditure as outrageous.

time, effects drastic reductions in expenditure and calls for a further sacrifice in the form
of new taxation. 1 appeal to the House for one last long and strong pull, all of us

pulling together, in the confident assurance that so doing we shall quickly get the
boat out of the vicious current which is threatening to drag India down on to the
rocks of insolvency. Once back in safe waters, I have every hope that in a
surprisingly short time we shall find ourselves on the flood tide of prosperity,
and shall be able to turn our minds to pleasant thoughts of reduced provincial
contributions, reduced taxation, and increased devotion of our resources to the
development of India. I was struck a little more than a week ago by a remark that

fell from Sir Deva Prasad Sarvadhikari- when, speaking on the Racial Distinctions Bill,
he said that the House had had three red letter days in succession. Let us crown our
successes by a fourth red letter day, and end our session with a balanced budget.

BASIL P. BLACKETT.
The 1st March 1923.

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COPY

os,

FINANCILL MEMBER OF COUNCIL
March 29, 1924

My dear Strong
111

I have owed you a letter for nearly as long as you owed me one till you last
So I seize the moment when our numerous retinue has carted all
our
baggage off to the station en route from Delhi to Simla, either direct
as most of
it will go, as to accompany us on a three weeks trip to Kashmir
+ back to Simla.
We are off tonight +are in gay mood as this is our first real holiday
in India.
We have done quite a reasonable amount of travelling + sight seeing
but always in
more or less official business. So we are in great spirits.
-.,;e had planned a
trip in 1.he Simla lakes last October but I .ent to bed aith diptheria
wrote.

instead.

My second budget is over + launched. The political seas which buffeted it were
violent + unreasoning, but it has escaped most of the damage thanks to the renewed
Only it has had to be shorn of its most constructive
powers of the Government.
feature, the proposal to begin to relieve the Provincial Govts. from the burden of
giving subventions to the Central Government. The problem of making India into a
real Federal State is one of the most important financial problems here unsolved.
The poliBut it is one which must I fear wait for long on political developments.
tical stupidity of our Indian revolutionariesters, if I may coin the word, is incredible.
me with quite a little special
They really rather liked the Budget + have
confidence as being a broad-minded well-.4isher of India + no bureaucrat. But they
rejected my budget without its even occurring to them that this was unkind to their
, but the absurd notion that something
friend. Their stupidity however was not
was to be gained by formally rejecting the Finance Bill + at the same moment definitely
requesting the Government to see that no harm came of it.
It has been an interesting year for me. My two main tasks are, I think, first
to give India the makings of a modern financial system based on broad principles +
not merely a hand-to-mouth affair year by year, + second to try + educate both the
bureaucracy + the legislators in the meaning + methods of Parliamentary control of
finance + expenditure. The bureaucrats find it very difficult to believe that they
can seriously be asked to explain their actions to a set of incompetent legislators, +
the latter are continually wanting to control the minutest details of the executive's
actions + cannot see that the task of an executive is to execute. Moreover they are
mostly third-rate lawyers with no grasp of principles + finding how soon they get lost
in big questions they love to worry over tiny questions of rupees 100 here + there.

I .onder if you saw a speech I made in Bombay in December about Indian Exchange +
It was quite a big effort for this backwater + has had good educative results.
Currency.
Our currency position is now thoroughly sound but we are waiting anxiously for other
parts of the world to settle down to a gold standard + are forced meanwhile to wait
on events. I am disappointed at the slow return of sterling to parity + don't altogether acquit you of blame, but I can understand your fears. But is the Federal
Reserve system making any profits for its shareholders?
The currency problem here which puzzles me most is however the problem of excessively dear money in the winter. Currency goes up country to pay for the crops, +
hich depends
it comes back only slowly + partially. It needs a "good m_.rriage season"
Otherwise only a
on astrological observations to bring currency back in a good year.
I tried expanding the
bad monsoon helps, + that is very objectionable in other ways.
currency against internal bills of exchange this winter besides the ordinary method of
expansion against sterling securities, but in spite of a special addition of 24 crores
we have had very dear money ever since December + our problem now is to reduce the
We are far too little
currency again to normal. in what ought to be the slack season.

ACKNOWLEOGEO
JUL I

ti)

1924

Fl
Delhi, the

12th larch

192 4.

dear Strong,

This letter will introduce my friend Mr. H. Denning,

Controller of the Currency in India, who is passing through
the United States on his honeymoon trip.

Any kindness that

you may be in a position to show him will be greatly
appreciated by
Yours sincerely,

Benjamin Strong, Esquire,
Federal Reserve Bank of new York,
New York.

vz.7..<.T\loWl.,EDOED
AUG 2 0 1924

N)Wt.,E06e0
SEP 1 1 1924

cL

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LL:

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L1J

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Delhi. the

3rd Decbtilber

CD

11025.

,\N

c'

Ey dear Strong,
I am sorry that the question of material for the
Princeton Library on Indian Finance has got hung up.

I

have spoken to Professor Coyajee, the man who undertook
to assist us in the matter, and he is, I understand, writing to you.

I have arranged with him to get a catalogue

made of the books in the Calcutta library as a start ,and

guaranteed payment of the expense up to Rs.120.

I hope

that direct correspondence between you and him will now
proceed vigorously and result in a settlement to your
satisfaction.

I am having a great time here with the Royal Com-

mission on Indian Currency under Hilton Young as Chairman.
I doubt if I ever enjoyed myself quite so much as during

the two-andTa-half days on end

when I was giving evidence.

The line I have taken has staggered some people, and as
it ultimately depends on co-operation from : :ontagu :roman

and yourself, unless the Commission turn me down as is

posible, I may as well tell you what I am up to.

The

views I have arrived at have not been reached without a
struggle, but they represent my honest convictions.

W1'

before the War with a Stering Exchange standard, though

she was always encouraged to believe that it was a steppin
stone only to a Gold Standard with a Gold Currency in
circulation.

She could get on quite well with an improved

system on similar lines, the main addition to the pre-war

arrangements being the transfer of the control of the

Paper Currency from the Goverment to the Imperial Bank
of India, and the undertaking of a statutory obligation
to give sterling for rupees and rupees for sterling at

the gold points, instead of leavinr this vital matter
at the discretion of the authorities as it was before
tie War.

This would be a Sterling Exchange standard.

You could ,Aake it into a Gold Exchange standard, though

rather cumbrously, by substituting an obligation to give
foreign exchange for rupees and rupees for foreign ex-

change at th gold points for the obligation to give
and take sterling.

Both the Sterling 7Exchange standard

and the Gold Exchange standard involve rather cumbrous
arrangements so long as the silver rupee is unlimited
legal tender and the note is convertible into the silver
rupee.

Both systems, aowever, would work reasonably well

subject to two conditions, which are (1) that sterling
and gold may be regarded as equivalent in all but the

most abnormal circumstances, and (2) twat the silver
bullion in the rupee will not, except in the most abnormal
circumstances, become more valuable as bullion than as
coin.

With the rupee at ls.6d,

this means that

the price

After a very careful examination we have come to

S

the conclusion that the cost to the Budget will not be
serious.

At a maximum it will cost us ,compared with

present arrangements, something like Rs.165 lakhs a year
for the first 5 years and about iZs.1 crore a year there-

These are maximum figures and would I believe

after.

be found to be unnecessarily high estimates.
It remains to consider the effect on the world's
gold and silver markets.

We calculate t:.lat the immediate

effect of the introduction of the new system would be

to make all those who are hoarding silver rupees in India
turn out their silver rupees and demand gold in their
place.

The maximum demand for gold which we can foresee

is £ 100 million sterling, again a very high estimate,
possibly twice as much as would really be required. This
demand would come quickly in the course of a very few

years, but once it was stisfied, the Indian Currency
system would cese to be in danger from the hoarding of.
over-valued rupees, and I have no dou'zt that the annual

demand of India for gold thereafter would be progressively
reduced.

One might put it that over the next 30 years,

in spite of the excess initial demand, India would not
take more gold under the new system than under the old,
and thereafter she would take very much less.

One would

hope that in 50 years India would be very much nearer
western conditions in the matter of banking and invest-

ment; she would be a far better customer for the world

with her standard of living iz.proved as it would be,
41

and might even at a fairly early date become

a lener

of capital abroad instead of a borrower an;f hoarder.

The crux of the matter is the effect on the gold
market of a sudden demand for gold amounting to a maximum of £ 100 million sterling, and the effect on the silver
market of an addition to the surplus silver of the world
amounting to a maximum of about 600 million ounces, bet-

ween two and three times the world's annual production
of silver.

So far as gold is concerned, I have not the

least hesitation in sayinOldly that you and /Torman between you could let us have £ 100 millions of gold out of
t.le available reserves without making the slightest im-

pression on the world's gold prices or °I, the maintenance
of the Gold Standard in I]urope and America.

But you and

orman would I am sure, while saying that you agree with

this, go on to say that you will have enormous difficulty
in persuading the man

in the street W.hether in London,

Hew York or Washington to believe you.

However, I do

not despair.

But the threat of letting loose 600 million ounces
of silver on the world undoubtedly adds to the problem.
I cannot think that it would make India popular with the
silver producers of the United States or that these
latter gentlemen would encourage the Federal Reserve authorities to facilitate India's operations of substituting
gold for silver.

Ly idea is that we might minimise the

the trouble by putting a special import duty on silver
imported into India, the effect of which would be to
cut India off from among the countries seeking to :atisfy

their silver requirements out of the World's silver
supply, and confine the Indian market for a period of
10 years or so to purchases of silver from the Government
of India.
There are our proble(as for you.

You will recognise

that they are not without a world interest. It may seem

rather a bold demand on the part of India that you should
assist her in satisfying her wishes, but I firmly believe
that if a long view is take ;, the world has an immense

amount to gain by assisting the process.

India as a real

partner in the gold standard countries of the world will
be far more valuable than as a continual sink of gold
which she will certainly remain as long as you refuse
her gold in circulation.

India as a country with a big

investment market and widespread banking facilities will

mean an enormous addition to the world's wealth and to
her value as a market for the products of the world,

particularly of the manufcturing countries of the world.
I

do not say that the Commission will unanimously recommend

the adoption of my proposals,but I feel fairly sure that
an important minority at the minimum will favour them.
I

ought to say of course that we should desire to make

the process of change as gradual and easy a one as possible
in order to facilitate the transition both for India and
for the world, though the difficulty is that an announcemen

of policy may unavoidably lead to an immediate demand
for gold in place of silver rupees in hoards.

be interested to hear what you think of me.
With best wishes for the New Year,
Yours very sincerely,

Benjamin Strong, Esq.,
Federal Reserve Bank of New York,
New York, U.S.A.

I shall

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tei

CALky

New Delhi, the 21st December, 1927.
My dear Strong:

This paper was intended to be used before N
the century was in its teens, but it has lived to be

good things for 1928 and for providing a very belated
ciated letter of June 27.

It was just because I appr

has remained so long - too long - unanswered.

I wan

buoyant enough to send a full letter in reply, and i

interval between a busy and hurried past which lies b
lies ahead that I can sit down to it.

I expect that

seven weeks out of India, of which twenty days were

voyage, are largely responsible for my feeling energe

must forgive me for setting you the task of reading t

type, but I have not the habit of putting intimate or
a letter which I dictate.

There's really an amazingly large amount of
of the history of Inctian finance in the last year.

J

to a titanic if Gilbertian struggle to get the ratio of

the statute book, much assisted by the production by
out of a hat, of a startlingly popular budget, whose

really reflected the fruition of much hard labour and
of which I am, I hope justifiably, proud.

But one's

veniently exactly the right moment to display themsel
public gaze as did mine with my budget for 1927/28.
The next few months were teasers.

Apart f

misadventures of the Reserve bank bill, I found mysel

tough problem in maintaining in real life the stabili

- 2 -

islation could give stability, on the floor of the assembly.

The rupee

refused to be worth Is. 6d., and you a.s.k me for some explanation of the difficulties.

The first was the dead set against the rupee of the politico-:peculator group

in Bombay, who fought hard to make the big profits which they hao counted on obtaining by fixing the rupee at ls. 4d. by legislation.

They went to unexpected
But, of course,

lengths and showed more backbone than I credited them with having.

The

they could not have done much if the facts had not been partly on their side.

clear recognition of this in my own mind aid not lessen my anxieties at the moment
of the crucial debates in the legislature.
To explain the position in April to June,
at least to March, 1926.

isr,

it is necessary to go back

For a year and a half previous to March, 192.6, prices and

currency conditions were accommodating themselves comfortably to the ls 6d_ ratio,
and little if any occasion had arisen for intervention by the Government to prevent
a fall in the rate.

By the Government I mean all the authorities concerned, i. e.,

the Imperial Bank, the Government of India and the India. Office.

In

March, 1926,

a poor wheat harvest and various other circumstances brought about a change.

It

became important to take currency off the market and, of source, we had good reason
to do so as we had increased the issue against Tterling to the tune of nearly
crores in the previous three years.
ports that we had to deal with.

F.0

but it was not only a slackening off in ex-

The velocity of circulation had been (and still

is) increasing very rapidly in India owing to various factors of which the most
inportant are the rapid increase in the habit of banking and investment which was
rendering silver rupees redundant as they came out of hoards.

I

Go

not atop to

define hoards, - and the replacement of rilver rupees in hoards by gold ano silver
billion, and

tho

fall in world prices was also operating to make rupees redundant.

It is extremely difficult to

assign

the exact degree of its importance to auch

factor, but the increase in the banking and investment habit is a very real 1-hen-

3

ongon. It has a close connection with the next stage of our difficulties.

The

surplus cash was finding its way steadily into Government securities for want of
confidence in any others, anc the rise in Government securities was accentuated
.coming
beyond all reason by the Bombay speculator, who saw the rise/ant was either him-

self takenlin or was taking in others for his own purposes by the confident, assertion that Sir Basil Blackett means to push 3 1/2%e up to par. (They were below
60 when I came out and were over 70 by March, 1926, and the confidence in my fi-

nancial capacity was then ana is still more now pathetic.)
:That was to be done in these circumstances?

The currency Commission was

sitting and it was supposed to be an open oueetion at what rate the rupee was to

be stabili-ect. If, therefore, we stepped in to take the action necessary to main-

tain stability at 1/6 we should be open to the charge of manipulating not only the
currency but also the Commission' s report. Yet it was clear enough that stability

could very easily be maintained by simple enough action if taken in good time and
steadily followea through.

dtlhat actually happened was that after finding divided

councils in the Inaia Office (ana much ignorance - our friend Goodenough in the

chair of the Finance Gommitteel), ano unwillingness to proffer advice or help in
the Imperial Bank, I took the bit between my teeth, and took as much action as I
could without being dismissed for insubordination. I had the loyal, but entirely

uninstructed, support of the Government of India in all I did, but had to fight
the Inaia Office at every turn, not because they had a different policy but because
they had none.

I contracted currency fairly heavily against sterling, but was held

up from June to October by the India Office when I tried to contract currency

against the cancelation of Government of India securities in the reserve.

The

reason given me for this a few !leeks ago - I had never been given a reason up to

then, and only got this in conversation in London - was that the India Office were
anxious lest my available rupee reserves should run short if I used them up in can-

4 -

*ling Treasury bills in the reserve.

This is illuminating, for at almost the

same moment I was crying to get agreement out of the India Office to an issue of

rupee loan for a larger amount than I needed for my immediate capital programme
in order to stem the rise in Government securities which was getting out of
trol.

con-

(7, 1/2s up to 78) and to take money off the market, and the India Office

were objecting on the ground that it was wrong to build up too large bal:nces.
I had to acquiesce because I needed India Office support in carrying out and India Office

in getting sanction for the acceptance of the Currency Commission's
The upshot was that I never did suite

report which was just about to be published.

enough to keep rupee stable and never did it quite soon enough.

The only valid

reason for this failure was the political necessity of not antagonizing opinion
against the Currency Commission's report.

However, I did just enough to maintain

the rupee within the gold points.
Meanwhile the deport was issued, but for political reasons we had to

postpone legislation fixing the rupee at 1/6 from August 1926 to March,

1927.

!4e

did, however, &t out a square-footed ainouncement that we should meanwhile take

all steps necessary to maintain exchange.

Armed with this I defied the India

Office in October, 1926, and contracted against rupee securities of the Government of India and was not far from being recalled for insubordination.

December, 1926, I contracted again in the same

form

In

with the blessing of the

India Office, and it, is only the power to do this freely which eventually saved
us.

by December, 1926, the political and financial campaigns to reduce the
(not a very good
rupee is ls. 4d. was in full :wing, but it was the busy season

one however and a late one) and we were all right by now till
April the bill to

fix 1/6 was through.

and by

- 5 -

- 6 -

'India

Treasury Bills held in the reserve, but also against Government of

India 3 1/2 per cent stock held in the reserve and then instead of canceling
it sold it (at a very high price) in the market.

It was

This did the trick.

an ordinary "Central Bank" operation but was unheard of in India.

3 1/2 per

cent loan came down to 76 1/2 (and has since gone to below 75), the flow of
capital to London became less pronounced, we issued a short-term loan in India
at a moderate price and got more than I expected, and the contraction of currency
at last caught up the surplus of silver rupees.

Since then all has been compara-

tively simple and a small sale of silver has both increased our resources and
given the speculators a lesson.

But we had to borrow 135,000,000 in London in

six-months bills, which we almost avoided and should have avoided if weld reached
ec;uilibrium three months earlier, and we're thinking of converting these bills now

into a long-term sterling loan, an operation which is however not absolutely necessary at the moment but will improve our sterling resources for purposes of the
inauguration of the Reserve Bank and for certain capital expenditure purposes
which we foresee, and we've been rather up against it in India for ways and means
during the lean :quarter of the financial year just ending.

But we're through and it is not impossible that import

gold

point may

be reached in a month or so, which I don't much want but may be unable to prevent,
and any doubt as to my capacity to maintain 1/6 is at an end, though I

am told

that some optimists in Bombay still hope to bring exchange down to 1/4 when I'm
out of the way.

I've been much interested of course meanwhile in your doings.

The

failure of the Bank of England rate to go to 4 per cent after dropping to 4 1/2
per cent in the spring was a bitter disappointment., for which I don't love the
French.

It would have raised gilt-edged securities in London just enough to make

stocks in India unimportant.
the gap between them and our rupee prices of Government

- 7 -

ally
July.

you helped us materially by lowering the Federal Reserve Bank's rates in
July was a good month for me, as it relieved me of some of my fears such

as a 5 per cent rate in London and brought me a good monsoon without which we
should have been once again in trouble.
I've written at enormous length and hope you're not bored.

It is really

a great pleasure to me to set out the story at length to a comprehendin7, listener,

and as a matter of fact I've never done so before, and the story has taken much
more concrete shape in my own mind as I've written it.
read too egotistically.

I hope too that it doesn't

I've some useful - very good - subordinates, but with the

exception of 0. A. Smith (whose health placed him hors de combat for the whole

period March to July 1927) I've no one at all to advise me, and no one at all to
share the responsibility with except the Government of India, none of whom understand the first. thing about it all and

all

in the soup with me if I take them there.

of whom rely implicitly on me and are
So it really has been a one-man job

for me, and as I have said made more difficult by the necessity of carrying old
fogies at the India Office with me and of compromising at every turn with them
and with our tangled and incredible politics.

(Of course I'm deep in the said

politics most of tine time and since July have had the job of Leader of the Assembly
as an extra for my spare moments.)

On the hole I'm rather proud of having
tale of too late at every step.

,110n

through, even if it is a

If we had been able to do the right thing in

March to July 1926, we'd have been up to date all through and our troubles would
have been much lees.

On the other hand I'm bound to say thank you for a very

fair monsoon in 1926 and a really good one in 1927.

I've gone to such lengths over thin story that I've not cheek enough
to write and you wouldn't have patience enough to listen to the full story of the
Reserve Bank Bill.

political
Besides it isn't through yet, and it is so much more

-8

--

to financial that it hasn't the came real interest for you as the story of the
ratio. I'll try anc tell a brief story however.
pill rather reluctantly, but with good grace.

The Incia Office swallowed the

ie drafted the bill in a month,

great feat for which Denning and the Draup;,htsman deserve great credit.

a

The ratio

controversy fortunately kept the Reserve Bank out of politics for some months, and

it on considerable favor (1) as offering an alluring if indefinite prospect of
fat jobs for Indians and their sons and nephews and (2) from my description of it
as a ri step towards Financial Swaraj. But there were always big lurking dangers. The ratio fight made Purshotamdas and others so mad that they were ready

to no anything to spite me, and vested interests, exchange banks and Indian joint
stock banks, dislike° the idea of a Reserve bank. I kept Purshotamdas in check

by winning over the Swarajists to my side in support of the principle of the bill,
and they were also very useful allies, first against Purshotamdas an° then against
the exchange banks and finally even against the Indian banks, representing as the

fz:arajists on the whole do the agricultural and up-country inteligentsia against
the Bombay capitalist.

I cut much ice too by leaving the delights of Simla and

going °own to Bombay and Ualcutta in the height of the hot weather to hold meet-

ings of the Joint Committee of the Legislature. This was not a calculated gain

as I really delight in getting out of Simla whenever I can.
But at the very first meeting at Bombay a combination of Swarajists and

the Bombay capitalists gave me one in the eyes by voting for a State Bank and not
a shareholders' bank. They really meant a tank run by and for the benefit of leg-

islature, but when they realized that they had liked the Reserve Bank right off,
the Swarajists came right round and said they quite agreed that the bank ehouln be
free from Government control and free from political influence, but itmust not be

in the hands of capitali ate, European or Indian.

And they asked very pertinently

they should pay the shareholders 8 per cent for money which the Goverment could

- 10 -

ieead

of one.

The principled for which I fought were (1) that
the bank must

be absolutely free from Governmental control (2)
that there must be no control
by the legielature, and no political influence
on the Board and no members of the

Legislature on the Board and (3) that the directors must be
responsible experienced men.

subject to this I

was

to do without shareholders.

And I'd

just got an almost unanimous assembly behind me for
a very workable scheme substituting"etockholders" for "shareholders," and the non-cooperators
were cooperating and Purshotamcas was bide-stepping hard, when bang! The India
Office said
they wouldn't have a hank without shareholders.
alarm

This Was the reflection of the

and intrigue) in Calcutta of a week earlier which I had by that time largely

allayed, and of the real alarm in London.

But whatever the merits it was a shame-

ful betrayal of the Viceroy :>_nd my.,elf by the India office.

They'd let me negoti-

ate for a fortnight with the assembly and knew of all my moves day by day, and
then at the end went back on me.

There was an outburst of political vituperation

in India, bui, for the moment I was an Indian hero, and the curious result of it

all was that once it was realized that the bill was nearly dead and that there
would be no reserve tank after all, I was implored to save the situation at all
costs and they

4puld accept almost any reserve bank I could give them.

"7

o r si

weeks I wfla resigning and shoild certainly have gone if my going had not meant
(1)

a nasty mess for the Viceroy who constitutionally was the one to resign first

(?)

no Reserve bank for India (3) a first class political row which would have

damaged the critish position in India, arai though it might have gone far to finish

the India Office would have been begun in rather unpropitioue circumstances and
done little good to any one.

Eventually I forced everyone to agree to my going

home for twenty days and I've c_me back with a scheme which is practically the
stockholders' scheme only on a shareholders' basis, and I've ciscovered, I hope, a
way of making the shareholders take a. real risk or at least a live interest in the

ler willing

to cont ess that you and he

- 12 and all

the rest of you (and us) keep needless-

lywOrke gold reserves and could do with far less if you would only face honestly
the question - what are gold reserves for and what is the true criterion of their
adequacy? - even then you and he would be much too frightened of the unenlightened
multitude to risk saying so in public.

I suppose the fact is that a good deal of

gold is needed so long as the public's confidence in the currency is dependent on
the mistaken notion that it is "as good as gold" only if there's a lare heap of
gold to look at.

But even so you and Norman have more gold than you need, and

could do far more than you do to educate your public to do with less,
must begin by giving my Inaians gold before they can
not needed.

And you are not

in

to India by rejecting my plan.

begin

.iherea,s I

to realize that it is

the end (or even for many years) sending less gold
On the contrary you increase the strain in the end.

However, I've got as much as I expected out of Hilton Young's Commission,

and don't

complain.

The situation in England, as I saw it in my 20 days, does not 4ive me
much satisfaction.

There is some gradual improvement going on all the time in

the tranquilization of Europe, the rationalization of industry, social servi ces,

the reations of capital and labor, and so on.

But it wouldn't take much to up-

set Europe again, and in England the Go"ernment and everyone else is spending
recklessly when they ought to be saving.

They'll never

et the burden of the

interest on the internal debt reduced, and will lose markets in the Empire and
outside if they don't add very appreciably to their annual savings.

They've

got to lend to Europe if U. rope is to recover and they've got to lend to the
Empire if it's to remain the British Empire (unless, of course, the U. S. A.

takes the whole show over as the American Empire, which is nonsense), and they
can't Co it unless they save money and create a much larger capital fund. So one
day England and Europe will repuciate their debts of all kinds to the U. S. A.,

not intentionally so far as England is concerned, but for lack of money to

pay.

- 13 -

But I hope they'll get, tired of spending and then all will be well.

_AD

Spending is the wrong wore.

There's a host of things they ought to be

snending money on, but they're chucking it all 'Away in search of distraction ana
to avoid boredom.

And "the world is not clever enough to manage the machine it's

createa."

I heard with great regret of the illness which incapacitated you and do
hope you are fitter.

You'll be none the healthier for reading this, I fear, if

you try to wade through it in manuscript, and it'll be 1929 before you get to the
end.

Best wishes.
Yours ever,
(signed)

P. S.

I never meant to inflict this all on you.

should first of all have it typed.
losing a mail.

Basil P. Hackett.

I suggest that you

I would ao it myself if it dian't mean

etnd if you do have it typed, I'd be grateful if you would have

two copies made and send me one, as it would be useful to have one for my own use,
though I wrote it all with no such idea in my mind.
(Signed)

B. P. B.

AnAYfree_ cpc:

"yett,fedi, Ac. c.

AAL:e
k. c. S i.

THE GOLD STANDARD AND RESERVE BANK OF INDIA BILL,
1928.
CONTENTS.

CHAPTER 1.
PRELIMINARY.

Siccrioxs.
1.

2.

Short title, extent, commencement and
duration.
Definitions.

CHAPTER II.
INCORPORATION, SHARE CAPI1A1, MANAGEMENT AND BUSINESS.

Establishment and incorporation. of the
Reserve Bank of India.
3.

Establishment and incorporation of Reserve
Bank.
Share Capital.

4.

Share capital, share registers and share-

5.

Increase, reduction and transfer of s hare

holders.

capital.
Offices and Branches.
6.

Head Office, branches and agencies.

Management of the Bank.
Management.
Qualifications and disqualifications for
Directorships.
9. Composition of the Board, and term of
office of Directors..
10. Election of Directors representing shares
7.

8.

11.
12.
18.
14.
15.
16.

holders.
Removal of Dirt etors.
Casual vacancies.

Power to make election mit s.
Meetings of the Board.
General meetings.
Temporary provisions.
BusinesN of the Bank.

17.
18.
19.

Business which the Bank may transact.
Power of direct discount.
may not
Business which the Bank
transact.

CENTRAL BANKING FUNCTIONS.

Relations of the Bank with the Secretary
of State in Council, the Governor General
in Council and Local Governments.
SICTIONe.

20.

Obligation of Bank to transact Govern-

21.

Bank to have the right

ment business.
to transact

Government business.

Note Issue.

Right to issue bank notes.
23. Issue Department.
24. Denominations of notes.
25. Form of b ink notes.
26. Legal tender character of notes.
27. Re-issue of notes.
28. Recovery of notes lost, stolen, mutilated
- or imperfect.
22.

Prohibition of issue of private bills

or

notes payable to bearer on demand.
29.
30.

Issue of demand bills and notes.
Penalty.

31.

Assets of the issue Department.
The Reserve.

Liabilities of the Issue Department.

32. Liabilities.
Initial- assets and liabilities.
33.

Transfer of assets Ind liabilities to the
Bank.

&pay of coin, and of different forms
of legal tender currency,
34.

Delivery to Government df surplus rupee
coin.

35.

Purchase of rupee coin.

36.

Obligations of Government and Bank in

37.

Obligation to supply different forms of

respect of rupee coin.
currency.

Obligation to sell gold and gold exchange.
38.
39.

Sale of gold.
Sale of gold exchange.
Obligation to buy gold.

40.

Obligation of Bank to buy gold.

Suspension of Reserve requirements (ind
tax on note issue.
41.

Suspension of Reserve requirements.

42.

Bank exempt from further note tax.

43.

Duration of the privilege of note inns.
Powers of Government in respect of note

A

the registered shareholders of the
Bank ;

(g) " gold standard country " means any
country, other than British India,
from which any person is at liberty
to export gold and in which any
person may obtain gold on demand
from the principal currency authority
on payment of the equivalent thereof,

as prescribed by law, in legal tender
currency ;

(h) "Issue Department " means that department of the Bank which is charged
by section 23 with the conduct and
management of the note issue;
(1) " provincial co-operative bank " means any
society which is registered or deemed

to be registered under the Co-operative Societies Act, 191.2, or any other II of 1912.

law for the time being in force in

British India relating to co-operative

and the sole business and
object of which is the financing of

societies

the other societies in a province which

are or are deemed to be so registered ;

(j)

" the Reserve " means the assets of the
Issue Department as specified in
section 31 ;

(k) " the Reserve Fund " means the Reserve
Fund referred to in section 46 ;
(1) " rupee coin " means silver rupees which
are legal tender under the provisions
of. the Indian Coinage Act, 1906 ; and III of 1906.
(9n) " scheduled hank " means .a bank
included iu the First Schedule.

CHAPTER II.
INCORPORATION, SHARE CAPITAL, MANAGEMENT AND
BUSINESS.

Establishment and incorporation of the Reserve
Bank of
3. (1) A Bank to be called the Reserve Bank of
India shall be constituted for

and
Establishment
incorporation of Reserve
Bank.

the purpose of taking over

the management of the
currency from the Governor
General in Council and of carrying on the business

of banking in accordance with the provisions of
this Act.
(2) The Bank shall be a body corporate by the

name of the Reserve Bank of India, having
perpetual succession and a common seal, and shall
by the said name sue and be sued.
Share Capital.
4. (1) The original share capital of the Bank
shall be five crores of rupees
Share capital, share
registers
holders.

and

share.

divided into shares of one
hundred rupees each, which
shall be fully paid up.

(2) No amount in excess of twenty thousand
rupees shall be issued to any one person or to
any two or more persons jointly, and no person
shall be allowed to acquire an interest in the share
capital of the Bank, whether held in.his own right,

or held jointly with others, or held partly in his

3

own right and partly jointly with others, to a
nominal value in excess of twenty thousand rupees.

(3) Separate registers of t-haieholders shall be
maintained at Bombay, Calcutta, Madras, Rangoon and Delhi, and a separate issu3 of shares
shall be made in each of the areas served by those
registers, as hereinafter defined, and shares shall

not be transferable from one register to another
save in accordance with conditions to be prescribed
by the Governor General in Council.
(4) A shareholder shall be qualified t o be registered as such in any area in which be is ordinarily
resident or has his principal place of business

in India, but no person shall be registered as a
shareholder in more than one register or as a

holder of an interest in the share capital of a total
nominal value exceeding twenty thousand rupees ;
and no person who is not (a) domiciled in India, or
(b) a British .ubject ordinarily- resident in
India, or

(c) a company registered under the Indian
Companies Act, 1913, or a society VII of 1913.
under the Co-operative
Societies Act, 1912, or a scheduled II of 1912.

registered

bank, or a corporation or company incorporated by or under an Act of

Parliament or any law for the time

being in force in any of His Majesty's

dominions and having a branch in

British India,
shall be registered as a shareholder or be entitled .
to payment of any dividend on any share.

(5) The Board may, at its discretion, without

giving any reason, decline to allot shares to any
applicant or to register any transfer of shares.

(6) The areas served by the various registers

mentioned in snb-section (3) shall be as follows,
tin inely : -

(a) by the Bombay register-the Presidency
of Bombay (including Sind), and the
Central Provinces ;

(b) by the Calcutta register-the Presidency
of Bengal and the provinces of Bihar
-

and Orissa and Assam;

(c) by the Madras register-the Presidency
of Madras and the province of Coorg ;

(d) by the Rangoon register-the province
of Burma, and the Andaman and
Nicobar Islands;

(e) by the Delhi register-tbe remainder
of India, including the territories of
Indian Princes and Rulers in India.
(7) The nominal value of the shares originally

assigned to the vatious registers shall be as

follows, namely :(a) t., the Bombay register-one hundred and
fifty lakhs of rupees ;
(6 to the Calcutta register-one hundred and
fifty lakhs of rupees ;

(c) to the Madras register-forty lakhs of
rupees

(d) to the Rangoon egister-forty lakhs of
rupees

(e) to the Delhi register-one hundred and
twenty lakhs of rupees :
Provided that, in the event of the shares assigned to any register not being fully taken up at the
first allotment, the Board may, with the previous
sanction of the Governor General in Council,

transfer a portion of such shares from that
register to anaher.

4
(8) In allotting the shares assigned to a register, the Board shall, in the first instance, allot
one share to each applicant qualified under subsection (4) to be registered as a shareholder on that

register; and, if the number of such applicants is
greater than the total number of shares assigned
to the register, shall determine by lot the applicants to whom the shares shall be allotted.

If the number of applicants, is less than the
number of shares assigned to the register, the
Board shall allot the remaining shares to applicants who have applied for more shares than one ;

and if the number of extra shares so applied for
exceeds the number of shares so to be allotted, the

Board shall allot them among the various applicants in such manner as it may deem fair and
equitable :

Provided that such allotments shall in all cases

be subject to the restrictions contained in subsection (2).

If, after all applications have been met in
accordance with the provisions of this sub-section,
any shares remain unallotted, they shall, notwith-

standing anything contained in this section, be
allotted to Government, and shall be sold by the

Governor General in Council, at not leas than par,
as soon as may be.

5. (1) The share capital of the Bank may
be increased by the Board

Increase,

redaction

with the previous sanction
of the Governor General in

and transfer of share
capital.

Council.

(2) Every such increase shall be fully paid up,
and the areas to which such further shares shall
be allotted and the price at which they may be
issued shall be fixed by the Board with the like
sanction

(3) The Board may determine the manner in

which any increase of share capital shall be effected.

(4) The share capital of the Bank may be
reduced by the Board, with the previous sanction
of the Governor General in Council, to such extent
and in such manner as may be determined by the
Bank in general meeting.
Offices and Branches.

O. The Head Office of the Bank shall be
Head office, branches
and agencies.

established in Bombay, and

the Bank shall, as soon as
may be, establish branches

in Calcutta, Madras, Rangoon, Delhi and London,
and may establish branches or agencies in any

other place in India or, with the previous sanction of the Governor General in Council, else-where.

31anagernent of the Bank.

7. The general superintendence of.the affairs
and business of the Bank
Management.

shall be entrusted to a Board

of Directors which may exercise all powers and
do all such acts and things as may be exercised

or done by the Bank and are not by this Act

expressly directed or required to be done by the
Bank in general meeting.

8. (1) Save as expressly provided in this

Act-

Qualifications and diequalifications for Directorships.

(a) no person may be a Director who is not
or has not at some time been(i) actively engaged in agriculture, corna

II

II

II

5

a director of any company as
defined in clause (2) of section 2

of the Indian Companies Act, 1913, "VII of 1913
or of a corporation or company incorporated by or under any law for
the time being in force in any place
outside British India ; and
(6) no person may be a Director who is(1) a government official, or
(ii) an officer or employee of any bank,
ur

(iii) a director of any bank, other than
a registered society as defined in
clause (e) of section 2 of the Cooperative Societies Act, 1912.

(2) The election or appointment as Director

of any person who is a member of the Indian
Legislature or of a local Legislature shall be void,
unless within one month of the date of his election
or appointment he ceases to be such member, and
if any Director is elected or nominated as member

of any such .Legislature he shall cease to be a.
Director as from the date of such election or
nomination, as the case may be.

9. (1) The Board shall consist of the following
of the Directors, namely :-

Composition

Board, aid

term of

office of Directors.

(a) a Governor and two Deputy Governors
to be appointed by the Governor
General in Council after consideration

of any recommendation made by the
Board in that behalf ;
(b) four Directors to be nominated by the
Governor General in Council ;

(c) two Directors to be elected by the Associated Chambers of Commerce ;

(d) two Directors to be elected by the
Federation of the Indian Chambers of
Commerce ;

(e) one Director, representing the interests of
agriculture, to be elected by provincial
co-operative banks holding shares to the

nominal value of not less than five

thousand rupees ;
eleven Directors to be elected on behalf

of the shareholders on the various

registers, in the manner provided in
section 10 and in the following numbers, namely :(i) for the Bombay register-three
Directors ;

kii) for the Calcutta register-three Directors ;

(iii) for the Madras register-one Director ;

(iv) for the Rangoon register-one Director ;

(v) for the Delhi register--three Directors ; and
(g) one government official to be nominated
by the Governor General in Council.

(2) The Governor and Deputy Governors shall
devote their whole time to the affairs of the Bank,
and shall receive such salaries and allowances as
may be determined by the Board, subject to any
minimum prescribed by the Governor General in
Council.

I1 of 1912.

6

(3) The Governor, a Deputy Governor and a
Director nominated or elected'under clause (6),
(a), (d), (e) or (t) shall hold office for five years,
or thereafter until his successor shall have been
duly appointed, nominated or elected, and, subject
to the provisions of section 8, shall be eligible for
re-appointment, re-nomination or re-election, as
the case may be.
The Director nominated under clause (g) shall
hold office during the pleasure of the Governor
General in Council. He may attend any meeting

of the Board and take part in its deliberations,
but shall not be entitled to vote.

(4) No act or proceeding of the Board shall be
questioned on the ground merely of the existence
of any vacancy in, or any defect in the constitution of, the Board.

10. (1) The shareholders registered on the
Election of Directors
representing
shareholders.

various registers shall elect
delegates for the purpose of
electing Directors to repre-

sent them on the Board, and the numbers of
delegates shall be as follows, namely :--

(a) for the Bombay register-twenty-four
members ;

(b) for the Calcutta register-twenty-four
members ;

for the Madras register -t. n members ;
(d) for the Rangoon register-ten members ;
(e) for the Delhi register-twenty-four mem-

(c)

bers.

(2) Every shareholder who has been registered

on a register for not less than six months immediately preceding the election shall he entitled
to vote at the election of delegates for the shareholders on that register ; and no shareholder shall
have more than one vote.

(3) The delegates for the shareholders on a

register shall be elected from among those who
are shown on that register as having held, for a
period of not less than six months immediately
preceding the election, unencumbered shares of

the Bank of a nominal value of not less than
five thousand rupees :

Provided that no person shall be elected as a
delegate who is a government official or an officer
or servant of the Bank :

Provided further that no candidate may stand
for election, unless he has been nominated by not

less than twenty of the shareholders entitled to
vote at the election.

(4) The election of delegates for the share-

holders on a register shall be held once in every
five years, at a convenient time before the expiry

of the term of office of the retiring Directors
for the election of whose successors the delegates
are to be elected.
(6) Delegates shall hold office for a period of
five years :

Provided that, if a delegate ceases to be qualified for election under sub-section (3), he shall
forthwith cease to hold office as a delegate.

(6) A casual vacancy in the office of delegate,
in whatsoever manner arising, may be filled by the

Board from among the shareholders for the time

7

being qualified for election to that office under
sub-section (3,.

(7) The delegates for the shareholders on a
register shall elect, from among those shareholders,

the Directors to represent them on the Board, in
accordance with this Act and the rules made under
section 13.

11. (I) The Governor General in Council may
Removal of Direc- remove from office the
Governor, a Deputy Govertors.
nor, or any Director nominated or elected under clause (6), ',e), (d), (e) or

(/) of sub-section (1) of section 9, on a resolution
passed by the Board in that behalf by a majority
consisting of not less than fifteen Directors :
Provided that, in the case of a Director elected
under clause (c), (d), (e) or (1), such resolution
shall have been, confirmed by a majority of not
less than two-thirds of the persons present and
voting at a general meeting expressly called for
that purpose.

(2) A Director nominated or elected under
clause (b), (c), (d), (e) or (/) of sub-section (1)
of sectio" 9 shall cease to bold office if, at any
time after the expiry of one month from the date
of his nomination or election or of eighteen months

from the date on which this Act comes into
force, whichever is later, he is not registered

as a holder of unencumbered shares of the Bank
of a nominal value of not less than ten thousand
rupees, or if he ceases to hold unencumbered shares
of that value.

12. (1) If the Governor or a Deputy Governor
by infirmity or otherwise
Casual vacancies.
is rendered incapable of executing his duties or is absent on leave or otherwise in circumstances not involving the vacation

of his apptintment, the Governor General in
Council may appoint another Jerson to officiate
for him, and such person may, notwithstanding
anything contained in clause 16) of sub-section (1)
of section 8, Le an officer of the Bank.
(2) .A casual vacsney in the office of a Director,

other than the vacancies provided for in subsection (1), shall be filled in the manner in which,

and by the authority by whom, the nomination
or election of the Director vacating office was
made ; and the Director so nominated or elected
shall bold office for the unexpired ; ortion of the
term of his predecessor.

13. The Governor General in Council may,
to
Power
election rides.

make

after previous publication,
make rules to provide for all

matters for which provision is in his opinion
necessary or expedient for the holding and conduct of elections under this Act, and in particular
and without prejudice to the generality of the
foregoing power, may by such rules provide(a) for the holding of elections according
to the principle of proportional represent-

ation by means of the single transferable vote or otherwise as he thinks fit
in any case, and
(6) for the final decision of doubts or disputes
regarding the qualifications of any

candidate for election or regarding the

validity of elections.

S

14. Meetings of the Board shall be convened
by the Governor at least six
of

Meetings
Board.

the

times in each year and at
least once in each quarter.

Meetings shall ordinarily be held in Bombay, but
at least two meetings of the Board shall be held
in Calcutta in each year.
15. (1) A general meeting (hereinafter in this
Act referred to as the annual
General meetings.
general meeting) shall be
held annually at Bombay within six week. from

the date on which the annual accounts of the

Bank are closed, and a general meeting may be

convened by the Board at any other time.
(2) Any shareholder shall be entitled to attend

and vote at any general meeting, and no shareholder, whether present in person or voting through

another shareholder as proxy, shall have more
than one vote.
16. (1) The following provisions shall apply
to the first constitution of
Temporary provisions.
the Board, anti, notwith-

standing anything contained in section 9, the

Board as constituted in accordance therewith
shall be deemed to be duly constituted in

accordance with this Act.
(2) The first Governor

and

first

Deputy

Governors shall be appointed by the Governor
General in Council on his own initiative, and
shall receive such salaries and allowances as he
may determine.

(3) The first four Directors nominated under
clause (b) of sub-section (1) of section 9 shall
hold office for three years.

(4) The first four Directors elected under clauses
and (d) of that sub-section shall hold office
for four years.
(c)

(6) The first Director elected under clause (e)
of that sub-section may be elected by all provincial co-operative banks notwithstanding that shares
have not been allotted, and shall hold office for four
years.
(6) The first. eleven Directors representing the

shareholders shall be nominated by the Governor General iu Council after consultation with
the Local Governments, and shall hold office for
two years.

(7) The first elections of Directors under sec-

tion 10 shall be held before the expiry of the

term of office of the Directors nominated under
sub-section (6), and the Directors so elected shall
hold office as follows, namely :-

(a) the Directors elected on behalf of the
shareholders on the Bombay register-fur four years ;
(b) the Directors elected on behalf of the
shareholders on the Calcutta register- for three years ;
(c)

the Director elected on behalf of the
shareholders on

the

Madras

regis-

ter -for five years ;

(d) the Director elected on behalf of the
shareholders on the Rangoon regis-

ter-for five years ;
(e) the Directors elected on behalf of the
shareholders on the Delhi register-for
two years.

9

Bueinese of tke Bank.

17. The Bank shall be authorised to carry on
Business

which

Bank may transact.

the

and

transact the several

kinds of business herein-

after specified, namely :(1) the accepting of money on deposit
without interest from, and the collection

of money for, the Secretary of State
in Council, the Governor General in

Council, Local Governments, banks and
any other persons ;

(2) (a) the purchase, sale and rediscount of

bills of exchange and promissory notes,
drawn and payable in India and
arising out of bond fide commercial or
trade transactions, bearing two or more

good signatures, one of which shall
be that of a scheduled bank, and
maturing within ninety days from the
date of such purchase or rediscount,
exclusive of days of grace ;
(6)

the purchase, sale and rediscount of bills

of exchange and promissory notes,
drawn and payable in India and

bearing two or more good signatures,

one of which shall be that of a

scheduled bank, or a provincial cooperative bank, and drawn or issued
for the purpose of financing seasonal agricultural operations or the
marketing of crops, and maturing within six months from the
date of such purchase or rediscount, exclusive of days of grace :
provided that the total face value

of bills or notes so purchased or rediscounted shall not at any time exceed

one-fourth of the total face value of
all bills and notes purchased or rediscounted by the Bank up to that time ;

(c) the purchase, sale and rediscount of bills
of exchange and promissory notes,
drawn and payable in India and bearing the signature of a scheduled
bank, and issued or drawn for the
purpose of holding or trading in
securities of the Government of India
or a Local Government, and maturing within ninety days from the date
such purchase or rediscount, exof
clusive of days of grace ;

(3) the purchase from and sale to scheduled
banks and persons approved by the
Board, in amounts of not less than
the equivalent of one lakh of rupees, of
the currencies of such gold standard

countries as may be specified in this
behalf by the Governor General in
Council by notification in the Gazette
of India, and of bills of exchange (including treasury bills) drawn in or
on any place in any such country,
and maturing within ninety days

from the date of such

purchase,

exclusive of days of grace ; and the
keeping of balances with banks in
such countries ;

10

(4) the making of loans and advances, repayable on demand or on the expiry of
fixed periods not exceeding ninety days
against the security of(a) stocks, funds and securities (other than

immoveable property) in which a
trustee is authorised to invest trust
money by any Act of Parliament or by

any law for the time being in force in
British India ;
(b)

gold coin or bullion or documents

(c)

such bills of exchange and promisas are
sory notes
eligible for

of title to the same;
purchase or rediscount by the Bank :
provided that the total of the
loans and advances against such

securities as are referred to in subclause (b) of clause (2) shall not at any
time exceed one-fourth of the total
loans and advances made by the Bank
up to that time ;
(d) such bills of exchange as are eligible for
purchase by the Bank under clause (3);
(e) promissory notes of any scheduled bank
or a provincial co-operative bank, supported by documents evidencino. title
to goods which have been transferred,
assigned, hypothecated or pledged to

any such bank as security for a cash
credit granted for bond fide commercial

or trade transactions, or for the purpose of financing seasonal agricultural
operations or the marketing of crops :
provided that no loan or advance shall
be made on the security of any promissory note such as is referred to in this
sub-clause after the expiry of five years

from the date on which this section
comes into force ;

(6) the making of advances to the Governor
General in Council repayable in each
case not later than three months after
the close of the financial year in respect
of which the advance has been made ;
(6) the issue of demand drafts and the making,

issue and circulation of bank post bills
made payable on its own branches ;
(7) the purchase and sale of securities, matur-

ing within five years from the date of
such purchase, of the Government of any

gold standard country specified in this

behalf by the Governor

General in
Council by notification in the Gazette of
India ;
(8) the purchase and sale of securities of the

Government of India of any maturity,
or of a Local Government or of a local
authority in British India maturing
within ten years from the date of
purchase : provided that the amount of
such securities held at any time in the

Banking Department shall be so regulat-

ed that-

(a) the total value of such securities shall
not exceed the aggregate amount of

the share capital of the Bank, the

Reserve Fund and two-fifths of the
liabilities of the Banking Department
in respect of deposits ;

11
(h)

the value of such securities maturing
after six montl s shall not exceed the
aggregate amount of the share capital
of the Bank, the Reserve Fund and
one-fifth of the liabilities of the
Banking Department in respect of
deposits ;

12

(16) the making and issue of bank notes subject to the provisions of this Act ; and
(16) generally, the doing of all such matters
and things as may be incidental or subsidiary to the transaction of the various
kinds of business hereinbefore sped.
fled.

18. When, in the opinion of the Board, it is
Power of direct dis- necessary, or expedient that
count.
action should be taken under

this section in the interests of Indian trade or

commerce, or for the purpose of enabling the
Bank to perform any of its functions under this
Act, the Bank may, notwithstanding any limitation contained in sub-clauses (a) and (b) of clause
(2) of section 17, purchase, sell or discount any
bills of exchange or promissory notes drawn and
payable in India and arising out of bond fide
commercial or trade transactions, bearing two or
more good signatures and maturing within ninety
days from the date of such purchase or discount,
exclusive of days of grace.
19. Save as otherwise provided in sections 17,
Business which the
Bank may not transact.

18 and 45, the Bank may

not-

(1) engage in trade or otherwise have a direct
interest in any commercial, industrial,
or other undertaking, except such interest

as it may in any way acquire in the

course of the satisfaction of any of its

claims : provided that all such interests
shall be disposed of at the earliest
possible moment ;
(2) purchase its own shares or the shares of

any other bank or of any company, or

grant loans upon the security of any
such shares ;"

(3) advance money on mortgage of, or otherwise on the security of, immoveable property or documents of title relating
thereto, or become the owner of immoveable property, except so far as is
necessary hr its own business premises
and residences for its officers and servants ;
(4) make unsecured loans or advances ;
(5) draw or accept bills payable otherwise
than on demand ;
(6) allow interest on deposits or curtent
accounts.

CHAPTER II I.

L BANKING FUNCTIONS.

Bank with the Secretary of State
Governor General in. Council

rnments.
shall undertake to accept monies
to for account of the Secretary
ent of State in Council and the
Governor General in Council

Governments as may have the

agement of their own provincial
make payments up to the amount
edit of their accounts respective-

out their exchange, remittance
ing operations, including the
he public debt, on such conagreed upon.

13

21. (I) The Governor Gen. ral in Council and
to here the such Local Governments as
Tight to transact Gov- n ay have the custody and
-ernment business.
management of their own
Bank

provincial rel enues shall undertake to ent ust the
Bank, on such conditions as may be agreed upon,
with .11 their money, remittance, ex. Lange and
banking transactions in India and el-ewhere and,
in partieul .r, to deposit free of interest all their
cash balances with the Bank :
Provided that nothing in this sub-section shall
prevent the Governor General in Council or any
Local Government from carrying on money transactions st government treasurie- or sub-treasuries
at places whe e the ltank has no branches or
agencies, and the Gov. rnor General in C. un-it and
Local Governments may hold at such treasuries
and sub-treasuries such balances as they may
require.

(2) The Governor General in Council and
each Local Government shall undertake to entrust
the Bank, on such conditions as may be agreed
upon, with the management of the public debt
and with the issue of any new loans.
Note Issue.

22.

(1)

The Bank shill have the sole right to

Right to issue bank
-notes.

issue paper money in British
India, and may, for a period

of one year from the date on which this Chapter
comes into force, issue currency notes of the
Government of India supplied to it by the
Governor General in Council, and the provisions
of this Act applicable to bank notes shall, unless
a contrary intention appears, apply to all currency

notes of the Government of India issued either
by the Governor General in Council or by the
Bank in like manner as if such currency notes were

bank notes, and references in this Act to bank
notes shall be construed accordingly.
(2) On and from the aforesaid date the Governor
General in Council shall not issue any currency
notes or any other kind of paper money.
23. k1) The issue of bank notes shall be conIssue Department

ducted by the Bank in an
Issue

Department

which

shall be separated and kept wholly distinct from
the Banking Department, and the assets of the
Issue Department shall not be subject to any
liability other than the liabilities of the Issue
Department as hereinafter defined in section 32.
(2) The Issne Department shall not issue bank
notes to the Banking Department or to any other
person except in exchange for ther bank notes
or for such coin, bullion or securities as are permitted by this Act to form part of the Reserve.
24. Bank notes shall be of the denominational
Denominations of notes.

values of five rupees, ten
rupees, fifty- rupees, one

hundred rupees, r ve hundr. d rupees, one thousand

rupees and ten thousand rupees, and of such

other denomirational values, if any, as may be
directed by the Governor G, neral in Council.

25. The design, form and material of bank
notes shall be such as may

.Form or b nk notes.

be approved by the Governor
General in Council.

14
26. (1) Subject to the provisions of sub-section
(2), every bank note shall be
Legal tender character
legal tender at any place in
of notes.
British India in payment
or on account for the amount expressed therein,_
and shall be guaranteed by the Governor General.
in Council.

(2) The Governor General in Council may, by
notification in the Gazette of India, declare

that, with effect from such date as may be specified in the notification, any series of bank notes of
any denomination shall cease to be legal tender
save at an office or agency of the Bank.
27. Any bank note re-issued from any office of
the Bank shall be sterilized
Re-issue of notes.
and disinfected before reissue, and the bank shall not re-issue bank notes
which are torn, defaced or excessively soiled.
28. Notwithstanding anything contained in any
Recovery of notes lost,
stolen,
or
mutilated
imperfect.

enactment or rule of law
to the contrary, no person
shall of right be entitled

to recover from the Governor General in Council or the Bank the value of
any lost, stolen, mutilated or imperfect currency
note of the Government of India or bank note :
Provided that the Bank may, with the previous
sanction of the Governor General in Council,
prescribe the circumstances in, and the conditions
and limitations subject to, which the value of such
currency notes or bank notes may be refunded as
of grace.

Prohibition of issue of private bills or notes payable to bearer on demand.

29. No person in British India other than the
Issue of
demand
bills and notes.

Bank

or,

as

expressly

authorised by this Act, the
Governor General in Council

shall draw, accept, make or issue any bill of

exchange, hundi, promissory note or engagement

for the payment of money payable to bearer on
demand, or borrow, owe or take up any sum or
sums of money on the bills, hundis or notes
payable to bearer on demand of any such person :
Provided that cheques or drafts payable to bear-

er on demand or otherwise may be drawn on
a person's account with a banker, shroff or agent.

30. (1, Any person contravening the proviPenal ty.

sions of section 29 shall,
on

conviction

by

a

Presidency Magistrate or a Magistrate of the first
class, be punishable with fine equal to de
amount of the bill, hundi, note or engagement in
respect whereof the offence is committed.

(2) No prosecution under this section shall be
instituted except on complaint made by the Bank.
Assets of the Issue Department.
31. (1, The Reserve shall consist of gold coin,.
gold bullion, gold securities,
The Reserve.
rupee coin and rupee securities to such aggregate amount as is not less than
the total of the liabilities of the Issue Department
as hereinafter defined.

(2) Of the total amount of the Reserve, not
than two-fifths shall consist of gold coin,.
gold bullion or gold securities

.15
Provided that the amount of gold coin and gold
shall not at any time be less than
thirty crori s of rupees in value, and shall not be
bullion

less than one-fifth of the total amount of the
Reserve after the end of the fifth year, or than
one-quarter of the total amount of the Reserve
after the end of the tenth year, from the date on

which this Chapter comes into force.
(3) The remainder of the Reserve shall be held
in rupee coin, Government of India rupee securi-

ties of any maturity and such bills of exchange
and promissory notes drawn and payable in British
India as are eligible for purchase by the Bank under
sub-clause (a) or sub-clause (6) of clause (2) of
section 17 or under section 18 :

Provided that the amount held in rupee coin
shall not exceed(a) during the three years after the date on
which this Chapter comes into force,
(6)

ninety-five crores of rupees,
during the next three years, seventy-five
crores of rupees,

(e) during the next four years, sixty crores
of rupees, and
(4) fifty crores of rupees thereafter,

or one-tenth of the total amount of the Reserve,
whichever am' unt is greater :

Provided further that the amount held in
Government of India rupee secnritiss shall not at
any time exceed one-fourth of the total amount
of the Reserve or fifty crores of rupees, whichever amount is less.
(4) For the purposes of this section, gold
coin and gold bullion shall be valut-d at 8.47512
grains of fine gold per rupee, rupee coin shall be

valued at Its face valve, and gold and rupee
securities shall be valued at the market rate for
the time being obtaining.
(51 Of the gold coin and gold bullion held in
the 'Reserve not less than seventeen-twentieths
shall be held in British India, and all gold coin and
gold bullion forming part of the Reserve shall be
held in the custody of the Bank or its agencies :

Provided that gold belonging to the Bank
which is in any other bank or in any mint or
treasury or in transit may be reckoned as part of
the Reserve.

(6) For the purposes of this section, the gold
securities which may be held as part of the Reserve

shall be securities of any of the following kinds

payable in the currency of any of such gold

standard countries as may be specified in this behalf
by the Governor General in Council by notification

in the Gazette of India, namely :(a) balances at the credit of the Issue De-

partment with a bank which is the
principal currency authority

under

the law for the time being in force
of such country, or with any of the
Federal Reserve Banks in the United
States of America ;
(6)

bills of exchange

bearing two or more
good signatures and drawn on and

payable at a place in any such country
and having a maturity not exowding
ninety days ;

16,
(e)

securities maturing within five years of
the Government of any part of
His Majesty s dominions which is a
g Id stun and countrl or of any oth'r
void standard con try sp.cilied in this

brhalf by the Governor General in

Council by notification in the Gazette
of India :

Provided that, for a period of two years from
the date on which this Chapter comes

into force, -

(1)

any of

such last- mentioned

securities

may be securities maturing after five
years, and the Bank may, at any time
before the expiry of that period,
dispose of such

securities

notwith

standing anything contained in section
17, and
(ii) sterling securities of the Government of

India may be held as part of the
Reserve.

Liabilities of the Issue Department.

32. (I) The liabilities of the Issue Department
Liabilities.

shall be an amount equal
to the total of the amount

of the currency notes of the Government of India

and bank notes for the time being in circulation and of an initial amount of forty crores

of rupees for the purpose of providing for
rupee redemption, which last-mentioned amount

shall be reduced by one rupee for every five
rupees delivered to the Governor General in

Council under the provisions of section 34,
and shall be increased by one rupee for every five
rupees received from him under section 35.
(2) For the purposes of this section, any currency note of the Government of India or bank note
which has not been presented for payment within
forty years from the 1st day of April follow-

ing the date of its issue shall be deemed not to
be in circulation, and the value thereof shall,
notwith, tending an3thing contain d in subsection 2, of section 23, be paid by the Issue
Department to the Governor General in Council
or the Banking Department, a the case may
be ; but any such note, if subsequeffhly resented
for payment, shall be paid by the Banking
Department, and any such payment in the
case of a currency note of the Government of
India shall be debited to the Governor General in
Council.

Initial Assets and Liabilities.

33. On the date on which this Chapter comes
Trfin.fer of assets and
liabilities to the Bank.

into force, the Issue Depart-

ment shall take over from

the Governor General in
Council the liability for all the currency notes of

the Government of India for the time being in
circulation, and the Governor Gen, sal in Council
shall transfer to the Issue Department gold coin,
gold bullion, gold securities, rupee coin and rupee
securities to such aggregate amount as is equal to
the total of the amount of the liability so transferred
and of a sum of forty crores of rupees. The
coin, bullion and securities shall be transferred
in such proportion as to comply with the
requirements of section 31 :

17

Provided that the total amount of the gold coin,

gold bullion and gold securities so transferred
shall not be less than one-half of the whole
amount transferred.

Supply of coin, and of different forms of legal
tender currency.

34. The Bank may deliver to the Governor
Delivery to Governwent of surplus rupee
coin.

General in
rupee coin

Council

all

held by it in

excess of the amount which
the Issue Department is

permitted to hold as part of the Reserve under

section 31, against payment of four rupees in
bank notes, gold or gold securities for every five
rupees so delivered.

35. When the amount of rupee coin for the
Purchase
coin.

rupee

of

time being held in the
Reserve does not exceed
twenty-five crores of rupees,

or one-tenth of the total amount of the Reserve, whichever is greater, the flank may demand
delivery of rupee coin from the Governor General
in Council, on payment of four rupees in bank
notes, gold or gold securities for every five rupees
so delivered.

36. The Governor General in Council shall
Obligations of Governk in
ment and

rest of rupe e coin
pec

undertake not to re-issue any
rupee coin delivered under
34 nor
section
to put
into circulation any new

rupees, except through the Bank and on the

Bank's demand ; and the Bank shall undertake
not to dispose of rupee coin otherwise than
for the purposes of circulation or by delivery

to the Governor General in Council under that

section.

37. The

Bank shall issue rupee coin on

Obligation to supply
different forms of currency.

demand in

exchange

for

currency notes of the Government of India, and

currency notes or bank notes on
demand in exchange for coin which is legal
shall issue

tender under the Indian Coinage Act, 1906, and III of 1906.
it shall, in exchange for currency notes or bank
notes of five rupees or upwards, supply currency
notes or bank notes of lower value or rupees

or other coins which are legal tender under the
Indian Coinage Act, 1906, in such quantities III of 1906.
as may, in the opinion of the Bank, be required
for circulation ; and the Governor General in
Council shall,

subject

to the provisions of

section 35, supply such rupees or other coins III of 1906.

If the Governor
General in Council at any time fails to discharge

to the Bank on demand.

this duty, the Bank shall be released from its
obligations to supply such coins to the public.

Obligation to sell gold and gold exchange.
38. (1) The provisions of this section shall
have effect from such date,
Sale of gold,

not later than the 1st day

Governor General in
Council may, by notification in the Gazette of
India, appoint :
Provided that the Governor General in Council
may, by notification in the Gazette of India
stating his reasons for such action, substitute for
the year 1931 in this section the year 1932 ; and

of July, 1931, as the

18
may, by like notifications, make two further
successive substitutions of the years 1933 and
1.934.

(2) The Bank shall sell gold bullion for deli-

very in Bombay to any person who makes a
demand in that behalf at its office at Bombay,
Calcutta, Madras, Rangoon or Delhi and pays
in legal tender currency the purchase price as
determined under the provisions of this section:

Provided that no person shall be entitled to
demand an amount of gold bullion containing
less than two hundred and fifty tolas of fine gold.

(3) The price of gold bullion for delivery in
Bombay shall be twenty-one rupees, three annas
and ten pies per tola of fine gold with an addition

representing twice the normal cost per tola of

transferring gold bullion in bulk from Bombay to

such place in a gold standard country as may
be specified in this behalf by the Governor
General in Council by notification in the 'Gazette

of India, including interest on its value during
transit :

Provided that no such addition shall be made
when the rate at which the currency of the country
in which the place so specified is situate can be

purchased in Bombay for immediate delivery at
that place is such that the equivalent of the
price at which the principal currency authority

of that country is bound by law to give gold
in exchange for currency is less than twenty-

one rupees, three annas and ten pies per tola of
fine gold by an amount equal to or greater than

the normal cost per tola of transferring gold

bullion in bulk from the specified place to Bombay,
including interest on its value during transit.

(4) The Governor General in Council shall,
from time to time, determine in accordance with
the provisions of sub-section (3) the price at
.which the Bank shall sell gold bullion for deli-

very in Bombay, and shall notify the price so

determined in the. Gazette of India. Such notification shall be conclusive as between the Bank and

any other person as to the price which the Bank
shall be entitled to charge in respect of any sale of
gold bullion.

39. (1) The Bank shall sell, to any person who.
makes a demand in that beSale of gold exchange.
half at its office at Bombay,
Calcutta, Madras, Rangoon or Delhi and pays the
purchase price in legal tender currency, at a rate
equivalent to twenty-one rapees, three annas and

ten pies per tola of fine gold, the currency of
such gold standard country as may be notified
in this behalf by the Governor General in Council

in the Gazette of India, for immediate delivery
in that country :

Provided that no person shall be entitled to
demand an amount of currency of less value than
that of two hundred and, fifty tolas of fine gold.
(2) For the purpose of determining the
equivalent rate applicable to the sale of currency

under this section, twenty-one rupees, three
annas and ten pies shall be deemed to be equivalent

to such sum in that currency as is required
purchase one tola of fine gold in that country

at the rate at which the principal currency
authority of that country is bound by law to give
currency in exchange for gold, after deduction.

19

therefrom of an amount representing the normal
cost per tola of transferring gold bullion in bulk
from Bombay to that country, including interest
on its value during transit.
(3) The Governor General in Council shall, from
time to time, determine the equivalent rate in
accordance with the provisions of sub-section (2),

and shall notify the rate so determined in the
Gazette of India.
Obligation to bred. gold.

40. The Bank shall buy, from any person who
makes a demand in that be-,
half at its office in Bombay,
Calcutta, Madras, Rangoon or Delhi, gold bullion
for delivery in Bombay at the rate of twenty-one
Obligation of Bank to
buy gold.

rupees, three annas and ten pies per tat of fine
gold, if such gold is tendered in the form of bars

containing not less than two bundled and fifty
tolas of fine gold :

Provided that the Bank shall be entitled to
require such gold bullion to be melted, assayed
and tefined, by persons approved by the Bank, at
the expense of the person tendering the bullion.
Suspension of Reserve requirements and tax
on note issue.

may, with the previous
sanction of the Governor
General' in Council, for
periods not exceeding thirty days in the first
instance, which may, with the like sanction, be

41. (1) The Bank

Suspension of Reserve
requirements.

extended from time to time by periods not exceeding fifteen days, hold in the Reserve gold coin,
gold bullion or gold securities of less a2-gregate

amount than that required by sub-section (2)
of section 31 and, whilst the holding is so
reduced, the proviso
cease to be operative.

to that

sub-section shall

(2) In respect of any period during which
the holding of gold coin, gold bullion and
gold securities is reduced

under

sub-section

the Bank shall pay to the Governor
General in Council a tax upon the amount by
(1),

which such holding is reduced below the
minimum prescribed by sub-section (2) of sec-

tion 31 ; such tax shall be payable at the bank rate

for the time being in force, with an addition of
one per cent. per annum when such holding

exceeds thirty-two and a half per cent. of the total
amount of the Reserve and of a further one and a
half per cent. per annum in respect of every further

decrease of two and a half per cent. or part
of such decrease :

Provided that the tax shall not in any event
be payable at a rate less than six per cent. per
annum.

42. The Bank shall not be liable to the

payment of any stamp
duty under the Indian Stamp
further note tax.
Act, 1899, in respect of 11 of 1899.
bank notes issued by it.
Rank

exempt

from

Duration of the privilege of note issue.

43. If at any time the Bank fails to comply
with any provi,4ion of
this Chapter or with any
went in respect of note
Powers of Govern-

issue and assets of the
Bank in certain cirenmstances.

other provision of this Act,
the Governor General in

Council may, by notification

20

in the Gazette of India, declare that the Bank has
forfeited the right of note issue, and shall thereupon take over the liabilities of the Issue Department, together with such portion of the assets of
the Bank as is required to meet such liabilities,
and thereafter the business of the Issue Department
shall be 2.arried on in the manner prescribed by
this Act by such agency as the Governor General
in Council may determine.
Cash reserves to be maintained by banks.

4. (1) Every scheduled hank shall maintain
a balance with the Reserve
Cash reserves of cer- Bank the amount of which
wain b.inks to be kept shall at no time be less than
with the Bank.

seven and one-half per cent.
of the daily average of the demand, and two and
one-half per cent. of the daily average of the time
liabilities of such bank in India.
(2) For the purposes of sub-section (1), the
daily average of the amounts of the demand and
time liabilities of each ' cheduled bank shall be
computed in respect of each period ending on the
fifteenth and on the last day of each month.
(3) Every such bank shall send to the Governor

General in Council and to the Bank a monthly
return, signed by two responsible officers of such

bank, showing(a)

the amounts of its demand and time
liabilities respectively in India,

(e)

the total amount held in India in currency notes of the Government of
India and bank notes,
the amounts held in India in rupee coin

(d)

the amounts of advances made and of

(b)

and subsidiary coin respectively,

bills discounted in India respectively,
and

(e)

the balance held at the Bank,

at the close of the month to which the return
relates.

(4) Every such return shall be sent not later

than fourteen days after the close of the month to
which it relates, and shall state whether the bank
has during that month maintained with the
Reserve Bank the minimum balance required by
sub-section (1).

(5) Any bank failing to comply with the pro-

visions of sub-section (3) or sub-section (4) shall

be liable, on application made by or on behalf
in Council to the
of the Governor General
having jurisdiction in a
principal Civil Court
office of the bank is situated,
place where an
of one hundred rupees for each
to a penalty

day during which the failure continues.

(6) When it appears from any such monthly
return or from a report of the Board that
any scheduled bank has failed to maintain the

minimum balance required by sub-section (1), the
Governor General in Council may call for such

further return, or make such inspection of the
books and accounts of that bank, as may be

41P

they have called for any explanation or information from the Board, whether it has been given
and whether it is satisfactory. Any such report
made to he shareholders shall be read, together
with the report of the board, at the annual general
meeting.

Returns.

51. (1) The Bank shall prepare and transmit
to the Governor General in
Returns.

Council a weekly account
of the Issue Department and of the Banking
Department in the form set out in the Fourth

Schedule or in such other form as the Governor

General in Council may, by notification in the
Gazette of India, prescribe.
The Governor
General in Council shall cause these accounts to
he published weekly in the Gazette of India.

(2) The Bank shall also, within two months
from the date on which the annual accounts of the
Bank are closed, transmit to the Governor General
in Council a copy of the annual accounts signed
by the Governor, the Deputy. Governors and the
Chief Accounting. Officer of the Bank, and certi-

fied by the auditors, and the Governor General
in Council shall cause such accounts to be published iu the Gazette of India.
(3) The Bank shall also, within two months
from the date on which the annual accounts of the
Bank are closed, transmit to the Governor General
in Council a statement showing the name, address
and occupation of, and the number of shares held
by, each shareholder of the Bank.

52. (1) Nothing in the Indian Companies Act,
Provision regarding 1913, shall apply to the VI/ d 1919.

application of Act vII

Bank, and the Bank shall

not be placed in voluntary or
compulsory liquidation save with the sanction of
of 1913 and liquidation.

the Governor General in Council and in such
manner as he may direct.

(2) In such event the Reserve Fund and surplus assets, if any$ of the ,Bank shall be divided
between the Governor General in Council and the
shareholders in the proportion of seventy-five per
eent. and twenty-five per cent., respectively.
Regulations.

53. (1) The Board may, with the previous
Power of the Board
to make regulations.

sanction of the Governor
General in Council, make

regulations consistent with

this Act to provide for all matters for which
provision is necessary or convenient for the
purpose of giving effect to the provisions of this

Act.

(2) In particular and without prejudice to the

generality of the foregoing

provision,

such

regulations may provide for all or any of the
following matters, namely :(a) the maintenance of the share register,
the manner in which and the conditions subject to which shares may be
held and transferred, and, generally,

24

all matters relating to the rights and
duties of shareholders ;

(b) the manner in which general meetings
shall be convened and the procedure
to be followed thereat ;
(c)

the manner in which notices may be
served on behalf of the Bank upon
shareholders or other persons ;

(d) the manner in which the business of the
Board shall be transacted, and the
procedure to be followed at meetings
thereof ;

the establishment of Local Boards and

(e)

(f)

the delegation to such Boards of
powers and functions ;
the constitution and management of
staff and superannuation funds for
the officers and servants of the Bank ;

the manner and form in which contracts
binding on the Bank may be executed;
(h).,ithe provision of an official seal of the
(8)

Bank and the manner and effect of

its use;

(1):the manner and form in which the
balance-sheet of the Bank shall be
drawn up, and in which the accounts
shall be maintained ;
U) the circumstances in which, and the conditions and limitations subject to
which, the value of any lost, stolen,
mutilated or imperfect currency note
of the Government of India or bank
note may be refunded; and
(k) generally, for
conduct of the
business of the Bank.
Amendments and Repeal.

54. In the Indian Coinage Act, 1906, for sec- III of 1906.
tion 1 I the following sec:
1906.
tion shall be substituted,
Amendment of Act III of

namely :"11. Gold coins, coined at His

Demonetisation of sorereign and half-sovereign.

Majesty's
Royal Mint in England
or at any mint estab-'
lished in pursuance of

a proclamation of His Majesty as a branch

of His Majesty's Royal Mint, shall not be
legal tender in British India in payment or on

account, but such coins shall be received by the
Reserve Bank of India at its offices and agencies
in India at the bullion value of such coins calculated at the rate of 8'47512 grains troy of tine
gold per rupee."
The Indian Paper Currency Act, 1923, and X of 19311.
the Currency Act, 1927, are IV of 1927'
Repeals.
hereby repealed.

25
THE FIRST SCHEDULE.

[See section 2 (m).]
SCHEDULE OF BANKS.

Ajodhia Bank, Fyzabad.
Allahabad Bank.
American Express Company Incorporated.
Banco Nacional Ultramarino.
Bangalore Bank.
Bank of Baroda.
Bank of Behar.
Bank of India, Bombay.
Bank of Morvi.
Bank of Mysore.
Bank of Taiwan.
Bari Doab Bank, Lahore.
Benares Bank.
Bhargava Commercial Bank.
Bhowanipore Banking Corporation, Calcutta.
Bombay Merchants' Bank, Bombay.
Byopar Sahayak Bank, Meerut.
Canna Bank.
Central Bank of India.
Chartered Bank of India, Australia and China.
Chota Nagpur Banking Association.
Coimbatore To mu Bank.
Comptoir National d'Escompte de Paris.
Dawsobs Bank, Pyapon.

Eastern Bank.
Equitable Eastern Banking Corporation.
Grind lay and Company.
Hongkong and Shanghai Banking Corporation.
Imperial Bank of India.
Imperial Bank of Persia.
Indian Bank.

Industrial Bank of Western India.
Jalpaiguri Banking and Trading Corporation.
Karachi Bank, Karachi.
Karnani Industrial Bank.
Lloyds Bank.
Lvallpur Bank.
Mercantile Bank of India.
Mitsui Bank.
Muffassil Bank, Gorakhpur.
Mysore Industrial Bank.
Namboodiri Bank, Pallippuram.
National Bank of India.
National City Bank of New York.
Nederlandsche Indische Handels-bank.
Nederlandsche Handel-Maatsehappij.
Nedungadi Bank, Calicut.
Oudh Commercial Bank.

P. and 0. Banking Corporation.
People's Bank of Northern India.
Punjab and Kashmir Bank, Rawalpindi.
Punjab and Sind Bank, Amritsar.
Punjab Co-operative Bank.
Punjab National Bank.
Shilotri Bauk, Bombay.
Simla Banking and Industrial Company.
South India Bank, Tinnevelly.
Sumitomo Bank.
Thomas Cook & Sons.

Union Bank of India.
U. Rai Gyaw Thoo and Co., Akyab.
Yokohama Specie Bank.

S

THE SECOND SCHEDULE.
(See section 45.)

Provisions to be contained in the agreement between the Reserve Bank of India and the Imperial

Bank of India.
1. The Imperial Bank of India shall be the sole agent of the Reserve Bank of India at all places
in British India where there is a branch of the Imperial Bank of India and no branch of the Banking
Department of the Reserve Bank of India.

2. In consideratiOn of the performance by the Imperial Bank of India on behalf of the Reserve
Bank of India of the functions which the Imperial Bank of India was performing on behalf of the
Governor General in Council at the places referred to in clause 1 before the coming into force of the
Reserve Bank of India Act, 1928, the Reserve Bank of India shall pay to the Imperial Bank of India a
commission calculated on the total of the receipts and disbursements dealt with annually on account of
Government by the Imperial Bank of India on behalf of the Reserve Bank of India. Such commission
shall be one-sixteenth of one per cent. on the first 250 crones of such total and one-thirty-second of one
per cent. on the remainder.

3. Subject to the condition that the Imperial Bank of India shall keep open branches not less in
number than those existing at the time of the coming into force of the Reserve Bank of India Act, 1928,
the Reserve Bank of India shall allow the following balances to the Imperial Bank of India at the
interest rates hereinafter specified, namely : (a) during the first five years from that time-3 crones free of interest ;
(b.) during the next five years-2 crones free of interest and, at the option of the Imperial Bank
of India, an amount not exceeding 1 crone at 2 per cent. per annum ;
(c) during the next five years-1 crone free of interest sand, at the option of the Imperial Bank
of India,.an amount not exceeding 2 crones at 2 per cent. per annum; and
(d) during the next five years-at the option of the Imperial Bank of India, an amount not exceeding 3 crores at 2 per cent. per annum.
4. The Imperial Bank of India shall not without the approval of the Reserve Bank of India open
any branch in substitution for a branch existing at the time this agreement comes into force.
-

26
THE THIRD SCHEDULE.
(See section 46.)

Scale of additional dividend payable to shareholders.

A. So long as the share capital of the Bank is five crores of rupees(1) if the surplus does not exceed four crores of rupees-Nil;
(2) if the surplus exceeds four crores of rupees(a) out of such excess up to the first one and a half crores of rupees-a fraction of one-thirtieth ;
(b) out of each successive additional excess up to one and a half crores of rupees-one-half of
the fraction payable out of the next previous one and a half crores of excess :
Provided that the additional dividend shall be a multiple of one-eighth of one ler cent. on the share
capital, the amount of the surplus allocated thereto being rounded up or down to the nearest one-eighth of
one per cent. on the share capital.
B. When the original share capital of the Bank has been increased or reduced, the additional
dividend shall be calculated in the manner provided in clauses (1) and (2) above, but the fraction of onethirtieth mentioned in sub-clause (a) of clause (2) shall be increased or diminished in proportion to the
increase or reduction of the share capital.
THE FOURTH SCHEDULE.
(See section 51.)
RESERVE BANK OF INDIA.

An Account pursuant to the Gold Standard and Reserve Bank of India Act, 1928, for the
on the day of

we ek

ending

Issue Department.
Assets.

Liabilities.

R..

Rs.

Bank Notes held in the Banking Department
.
Bank Notes in circulation .
Total Bank Notes issued .

Rupee coin
.
.
.
'
Government of India rupee securities

.
.

paper

NOMIIP IIIMM111..w.

per
Ratio of gold and gold securities to liabilities, cent.

day of

19

Banking Department.
Liabilities.

.

Assets.
its.

Rs.
.
.

.

.

ment
..
.

.
.

Notes

.

Rupee coin
Subsidiary coin

.
Bills discounted.
.
(a) Internal
.
(b) External

.

.

.

.

.

.

.

.

.

.

.
.

.

.

(e) Government of India Treasury Bills .
.
.
.
Balances held abroad
Loans and advances to the Government
.
Other loans and advances
.
.
Investments .
.
.
.
.
.
Other assets
.

Dated the
day of

19

.

.
.

.

Internal Bills of Exchange and other commercial

Gold
.
Government of India Note,' in circulation securities .
Gold coin or bullionRupee redemption
(a) held in India
(b) held outside India

Datod the

.

.

.
.

.

.

STATEMENT OF OBJECTS AND REASONS.
1110

PART I.

A Bill to give effect to the recommendations of

the Royal Commission on Indian Currency and
Finance, 1926, proposing the establishment of a
Reserve India and the to control of operation
Gold Standard forBank of Indiaconstitutionthe a
cif the Gold Standard was introduced in the
Legislative Assembly on the 26th January, 1927.
The initiation of this measure by the Government
of India and the discussions which followed both

inside and outside the Legislature revealed a
general consensus of opinion that the establishment of a Central Bank is desirable in order to
secure for India independent control, conducted
with reference only to correct banking and commercial principles, of her financial and monetary
policy, and revealed at the same time wide divergence of views as to the best means by 1% hick, in

removing the present governmental control, the
risk of domination by sectional interests of one
kind or another may be avoided.
The consideration of the aforesaid Bill clause
by clause was entered upon during the last session
of the Legislative Assembly in Simla. After the
House had considered the first few clauses, the

Government of India decided, for the reasons
given by the Finance Member on the 8th Septem-

ber 1927, not to proceed with the further consideration of the Bill during that session. The

tion hitherto attempted, the Government of India
consider it desirable to ensure that ample oppor-

tunity is given for study of their present pro-

posals with a view to their being passed into law

in the approaching session of the Legislature.

For these reasons the Government of India have
decided to publish the revised Bill befOre the

commencement of the session and they will take
Finance Member first opportunity of bringing it formally
the stated that the Government had
from the first before theopinion that Assembly.
held the Legislative the soundest

arrangement would be that the constitution of

the Bank should be founded upon the subscription
of capital by shareholders and the consequent
PART II.

interest of shareholders to see that the affairs of
the Bank are conducted 1.-It is proposed tostrict the Rank the
Clause in accordance with give
business principles and notnote issue forThis is of twentysole right of otherwise. a period
the one plan whichyears in the first instance and to provide
five has been found to be wholly
central
satisfactory by practical as recommended in paragraph 141
for renewal experience of Finance
countries : and the
banking in other Royal Commission's report. The provision
of the
Member further indicated that the alternativenot later than
that the Act shall come into force
methods of constituting the 1929, inBank of India
1st January, Reserve the Bill circulated in Janand forming its directorate which had been prouary, 1027, was based upon the time-table recom.,
posed during'mended by the Commission in paragraph 165
the discussions on the Bill had
raised difficultof thecontroversial questions which by the Joint
and report. The Bill as amended
required time Committeecareful examination of starting the
for further advanced the date for

the whole issue.
Bank by six months. It has now for various
During the reasons become impracticable tothe
interval that haS since elapsed prescribe a fixed

Government date and a proviso has been added to the effect
of India, in consultation with the
Secretary of State, have carried outto the Governor General
that it should b, open the further
review for which postponement of the to be stated, to postpone
in Council, for reasons discussion
of the Bill was found to beof this clause and a year at a time
the operation necessary : for in

doing so, they have given full weight to the of three years.
subject to a maximum postponement
practical considerations which had been urged
against the adoption of their own initial plan and
Clause 2.-The definition of Provincial Cooperative Bank which had as amended by the
to the alternative suggestionsin the Bill been
made. InCommittee included have come to the
Joint the end while they companies registered
conclusion that share capital affords1913, under a
under the Indian Companies Act, the only
satisfactory basis for the constitution of a Reserve
misapprehension that the Punjab Co-operative
Bank for India, at the undertime, they was connected
Bank registered same that Act have found
it possible to embody incredit system. a In the new
with the Co-operative the fabric of shareholders bank such companies have been excluded and
definition the essence of the arrangements
which opinion provision has been made to had
additional in the Legislative Assembly include
claimed to be necessary in order to make it cer- Coprovincial banks registered under Provincial
tain,operative Acts. is possible, that the Reserve
so far as this

Bank should ensue the interests of India as a

Claw 3.-The name, the Reserve Sauk of

India, is that suggested in paragraph 92 of the
Royal Commission's report.
Clause 4. --The Royal

Commission

recom-

mended that the capital of the Bank should be

rupees five crores fully paid up, and that the

Imperial Bank's shareholders should be given
the first opportunity of subscribing for the capital
stock of the Bank as consideration for foregoing
important privileges which the Imperial Bank
now enjoys. A clear-cut division of functions
between the Reserve Bank of India and the
Imperial Bank of India is the essence of the
proposal creating a Reserve Bank and it is undesirable to give the shareholders of the Imperial
Bank of India a preponderant voice in deciding
the currency policy of the Reserve Bank. It is,
therefore, proposed, for this reason and in view
also of the agreement contemplated by the Second
Schedule, not to give the Imperial Bank of India

the option of subscribing thirty per cent. of the
capital. Sub-clauses (2), (3), (6), (7) and (8)
provide for a broadbased distribution of the share

capital both at the time of original allotment and
subsequently, and is intended to be a safeguard
against the control of the Bank by sectional interests of any kind. Sub-clause (4) is intended
to meet the objection that the utility to India of

a share capital bank might be endangered by a
possible conflict of interest, within the management of the bank, between Indian and external
capital. Provision has also been made for the
transfer of portions of the share capital front one
area to another in the event of the shares assigned

to any area not bring fully taken up at the time
of original allotment.
It is necessary that the Government should be

prepared to take up any unallotted shares, but it
is not desirable that these should continue to be
held permanently by Government. It is, therefore,
proposed that the Governor General in Council
:mould dispose of such shares as soon as possible.

Clause 5.-This is based on paragraph 101 of
the Royal Commission's report. It is necessary
to make provision for the contingent necessity
of reducing the share capital and for the regional
distribution of any increase in share capital, in
regard to which the Commission have made no
recommendation.

Clause 6.-The Head Office of the Bank will
be located in Bombay as recommended by the
Commission in paragraph 97 of the report.

Delhi has been added to the list

of places

where the Bank may establish <branches in view
of the proposed creation of the Delhi register
under clause 4.
Clause 8. -This gives effect to the recommendations in paragraphs 95 and 96 of the Royal
The Joint Committee
Commission's report.
omitted the original provision prohibiting members of the Indian or local Legislatures from being

nominated or elected as directors of the Bank.
This provision has been reintroduced by subclause ('2) of this clause for reasons which have
been fully

explained in previous

discussions.

Sub-clause a(i) which was added to the previous
Bill by the Joint Committee on the precedent of
clauses contained in certain other enactments
establishing central banks, provides that no per-

son may be a director who is not or has not at

some time been actively engaged in agriculture,
commerce, finance or industry.

Clause 9.-This is derived from paragraph 94
of the Royal Commission's report. The Co
mission recommended therein that the Reserve
Bank should have Local Boards in Bombay,
Madras and Calcutta, and that representatives
from these Boards should constitute a majority
on the Central Board. The Local Boards have
now been replaced by the five bodies of delegates
one for each of the five areas mentioned in
Clause 4. Provision has been made for the
representation of commercial and agricultural
interests and the term of office of all directors
has been fixed at five years. As it would be undesirable that all the directors should vacate office
at the same time, varying periods of tenure have
been fixed in Clause 16 for directors nominated or
elected at the outset.
Clause 10.-This clause provides for the elect-

ion of directors by the shareholders through a
body of delegates elected for this purpose.

Qualifications for election as delegates and directors
are also prescribed and the provision that no share-

holder shall have more than one vote is intended
to ensure protection for the small shareholder.

Clause 11.-It is provided in this clause. that
the Governor, a Deputy Governor or any nominated or elected director may be removed by the
Governor General in Council if a resolution to
that effect is passed by a majoi ity of the Board
consisting of not le-s than 15 directors.
The additional provision for the removal of
elected directors follows the lines of a similar

provision in the Imperial Bank of India Act.
It seems undesirable that elected directors should

be removable by a bare majority at a general
meeting. It is proposed that directors other
than the Governor, Deputy Governors and the
nominated official shall cease to hold office if they

do not obtain within a month of appointment or
if subsequently they cease to possess the required
number of shares. This restriction does not
however come into force immediately as it is
necessary to give sufficient time to directors to
qualify themselves by purchase of shares in the
open market.

Clause 12.-The fixation of a period of five
years for the tenure of the directors makes it
necessary to provide for casual vacancies.

Clause 13.-This clause introduces a necessary
provision for the holding and conduct of elections
and the final decision of doubts or disputes.
Clause 14.-The Joint Committee proposed
in the previous Bill that the minimum

number of meetings to be held by the Board in
This has now been
reduced to six in view of the new proposal that
the Board must include directors from every
part of India. It is also proposed to prescribe
that as a minimum two meetings of the Board
should be held each year In Calcutta, in view of
each year should be twelve.

the commercial importance o£ that city.

Clause 15.-This is an obviously necessary
provision and is based on paragraph 98 of the
Royal Commission's report. The power of voting

'by proxy has been rigorously limited in -order
to ensure that the policy of the Bank shall not

4

4

held at the time24#. -Thisthe Royal Comeeissioti
Clause at which gives effect to the recommademendation in paragraph 142 It the Commission's
their recommendations. of is open to
gravereport. whether it would be possible without for a
doubt Freedom is retained to postpone
a serious disturbanceof one silver markets of the posttime the issue of the rupee notes if such
world to dispose of this surplus silver withinto the
ponement appears desirable with reference
a period of ten holding of silver rupees in reason
size of die years. Pa, tly for this the Reserve.
and pertly because of the obligation imposed on by
Provisions relating to a gold mohur introduced
the Bank Joint Committee have been iretly to for
the by clause 37 to supply rupees removed
the public in such quantities as fully explained in prereasons which have been may be required
for circulation, the limits of the amount of rupee
vious discussions.
coin which may25. -Thisat various periods thethe
be held gives effect to in recomReserve Clause inincreased by 25 crores each.
have been paragraph 155 of the Commission's
mendation
Sub-clause 5.-The proportion and material of bank
report regarding the form of the gold coin
and gold bullion held in the Reserve which must
notes.
be keptClause 26.-This ishas been raisedrecommendin British India based upon the to 85
per cent. The raising of the proportion to this
of the Commission's
ation in rendered possible largely by
extent has been paragra: h 149 Bank shall the legal
report of the provision for the sale of gold
that the notes of the
be
elimination for the payment of any amount and shall
tenderoutside India which was recommended
for delivery
be guaranteed by the teovernment of Lelia. The
by theguarantee ensures the confidence of the public in
Commission.
Sub-clause 6.-The Joint Committee wished to
the bank notes.
prohibit the holding in the Reserve of paragraph
The Commission recommended in bills
of exchange their repot that, not later thanstand-years
141 of drawn on foreign good five
ard countries asdate of the Bank Charter becoming
from the an unnecessary and undesirable
feature of a gold reserve. But the provision to still
operative, the Government of India notes
which the Joint Committeecease to be legalin
objected appears tender
outstanding
Statutes regulatingshould treasuries. central be
the condui t of other It may
except at Government
banks, and the GovernmentendIndia are satisfied few
presumed that by the of of five years very
that the same liberty India notes given to the outstandGovernment of should be will remain Reserve Bank butIndia.
ing : of it wouid be undesirable to take away
Clause legal tender characterthe recommend- the
the 32.-This gives effect to of such note in
ation absence of any 146 of the Commission'sto be
in paragraph very definite advantage
reportgained by thedoing. No provision Departdefining so liabilities of the Issue to the effect
ment suggested is therefore made.. Itofis, however,
The initial amount of 50 crores rupees
for the purpose to take power for the Governor General
proposed of providing for rupee redemption
recommended by the Commissionparticular series if
in Council to call in notes of has however
now been altered to 40 crores. The original
necessity arises.
figure was based ou an estimate on paragraph 155 of
Clause 27.-This is based indicating the
total amount of rupees that might be spared from of
the Commission's report regarding the re-issue
circulation notes. 250 crores. In view of the
bank as about
changes now proposed as regards the permissible
Clause 28. Reserve and of the a similar
silver holding in the-This is based uron return of provision in the Indian Paper Royal Commisrupees from circulation since theCurrency Act, 1923,
and is necessary to protect to Bank the
sion reported, it is considered safethe reduceagainst a
figurecivil action in respect of notes rupees. stolen,
for rupee redemption to 40 crores of lost,
mutilated or imperfect. The present practice by
Thewhich a note sub- clause, (2) of this clause is and
provision in may be divided into two halves
similar tohalves when pined together are accepted as
the that in the proviso to sub -section (6)
of section 18 of the Indian Paper Currency Act,
legal tender remains unaffected.
1923, although it differs in detail. Under the
Clauses 29 and 30.-These are based
Indian Paper Currency Act, 1923, notes of deno- upon
similar provisions in the Indian Paper Currency
minational value exeeeding Rs. 100 cannot be
Act, 1923. in circulation clause years
deemed to be not The proviso inuntil 10029 has been
altered from the form in which it of lower
after the date of issue, whereas notesstood for many
years in order to make it after 40 years.
denominations are so deemed clear that cheques upon
a banking account are not and the lower
This distinction between the hither prohibited by that
clause, even though the account In pracdenominations of notes is undesirable. may be overdrawn.
tice notes of higher den)mination are much less
Clause 81.-This gives effect long recommendlikely to be outstanding for a veryto the period
ations lower denomination the practice
than notes of in paragraph 145 of: nd the Commission's
at the report of England is constitutionnotes as not
Bank regarding the to treat all of the Reserve.
in circulation after 4u years. Jointis considered that
Sub-clause 2.- The It Committee introduced
the Reserveprevious Bill with advantage follew that
in the B-nle might a provision requiring
the practicethe the Bank of years the amount of gold
after of end of ten Eneland.
eecurities in the based upon paragraph 144
Clause 33.- This is Reserve must never excel d oneof the half of the total gold assets. This has been
report. The Commissionlecommended that
omitted, as such a provision is likely to
coin and bullion nd securities to be transferred toprove
noddy hampering to be specified of Schethe Issue Department shouldtie executivein a the Bank in
The amount of notes in ciicul
dule. the management of the Reserve. don at the
time of Sub-clause 3.-The amount of silver coin and
inauguration of the Bank will not be
known when nowBill is introduced and passed
bullion the held in the Paper Currency Reserve
and also between the dates of introduction of the
is 110 crores, or 25 erores more than the amount

ti

A

a

a,

Bill and its passing into law and the inauguration
of the Bank, there will be changes in the constitution of the Reserve held against note issue. It is,
therefore, proposed to provide for the transfer
to the Bank of assets of such a nature as to enable
the Bank to constitute the Reserve in accordance
with the requirements laid down in the Act. In
order to give the new Bank the necessary margin
over minimum requirements, it is proposed to include in the assets transferred, gold and gold securities equal to one-half of the liabilities of the Issue
Department as suggested in clause 3(a) of

Schedule III to the report.

Clause 34. -This gives effect to the recommendation in paragraph 147 of the report
regarding the disposal of surplus rupees by the
Bank.
Clause 35. -This gives effect to the recommenda-

tion of the Commission in paragraph 147 of the
report. As it would be uneconomical to coin new
rupees until the stock of silver rupees in the Reserve

is reduced to a limit of 25 crores or one-tenth of

the total amount of the Reserve whichever is great-

it is proposed to limit the right of the Bank
to demand the delivery of rupee coins from Gov-

er,

ernment.
Clause 36.-This gives effect to the recommenda-

tion in paragraph 148 of the report regarding the
mutual obligations of the Government and the
Bank in regard to rupee coin.
Clause 37.-This gives effect to the recommendation in paragraph 152 of the report. The
provisions regarding mohurs introduced by the
Joint Committee in this clause have been omitted.

sell gold daring the interim period has been replaced by the immediate permanent obligation to
sell gold exchange already mentioned.

Clause 40.-This gives effect to the

recom-

mendation in paragraphs 151 and 166 of the
Commission's report,

Clause 41.-This gives effect to the recommendation in paragraph 153 of the report
regarding the suspensicn of reserve requirements.
Clause 42.-This gives effect to the recom-

mendation in paragraph 154 of the Commission's
report.

But it is eow made clear that the Bank

is to be exempted only from the payment of
stamp duty under the Indian Stamp Act, 1899,
in respect of the bank notes issued by it. It is
not the intention to give any wider exemption.
Clause 43.-The provisions in this clause are in
accordance with the recommendations in paragraph 149 of the report. The Commission
recommended that the Governor General in

Council should have the right to take over the
assets of the Issue Department so far as they are

required to meet the liability of the note or of

rupee redemption. It is proposed to give the
Governor General in Council the right to take over

the assets not only of the Issue Department but
of the Banking Department as well, as in theory
such a necessity might arise if the Bank failed to
keep sufficient assets in the Issue Department. A
provision is also made for the carrying on of the
note issue in such circumstances by some other
agency determined by the Governor General in
Council.

the close of the month to which it relates, it is
necessary to provide for the receipt of the informatiou mentioned in sub-clause (3.) of this clause.

It is also necessary that provision should he

Clause 53.-This is based upon the recommendation in paragraph 164 of the report. The
Commission proposed that the Governor General
in Council should be given absolute power to

It is thought preferable that
regulations should be made by the Board with
the previous approval of the Governor General

made to enable the Government to take action not

make regulations.

Board of the Reserve Bank.

in. Council.

only on the monthly report, submitted by the
Bank, but also on any report received from the
The provision in paragraph 161 of the Commission s report, which requires a summary of the

monthly return of each bank to be published,
has been omitted as the particulars required for
the purpose of this clause furnish only a partial

Local Boards are not to be constituted on the
creation of the Reserve Bank,. but it is proposed to
give power to the Reserve Bank Board to establish
such Local Boards if considered necessary liter on

and to delegate to them such powers and func-

statement of the bank's affairs and their publica-

tions as may he desirable.

financial position of a hank.
Clause 45. -This follows the intention of paragraph 87 of the report.
Clause 46. -This is based upon the recommendation in paragraph 100 of the Commission's report.

Clause 54. -The obligation imposed on the
Government b y the Currency Act IV of 1927 to
receive sovereigns and half-sovereigns from the
public at their bullioti value will be taken over
by the Bank simultaneously with the transfer of
the conduct of note issue to it.

tion might mislead the public as regards the

It

is

considered unnecessary to build up the

reserve fund as quickly as the Commission suggest
and a lower rate of accumulation has, therefore,

Also the additional dividend to
be given to shareholders under certain circumbeen proposed.

stances has been reiluved from a maximum of 3 per
cent. recommended by the Commission to one of
2 per cent.

Clause 47.-This gives effect to the recommendation in paragraph 158 of the Commission's
report.

Clauses 48,49 and 50.-These give effect to the
recommendation in paragraph 156 of the report.

Clause 51.- This gives effect to the recommendation in paragraph 157 of the report.
Clause 52. -It is necessary to make provision
for the contingency of the liquidation of the Bank
and the distribution of the reserve fund and surplus assets, if any, of the Bank.

The First Schedule.-The First Schedule in the
Bill as amended by the Joint Committee has been
brought up-to-date.
The Second Schedule.-The provisions contained
in this Schedule involve no fresh charge on the
tax-payer. They are designed to compensate the
Imperial Bank of India for the agency work done
for the Reserve Bank and for the loss in respect
of non-paying branches.
The Third Schedule.-T his gives the scale of
additional dividend payable to the shareholders
and is so fixed as to give a maximum of 2 per cent.
in addition to the ordinary dividend of 5 per cent.

The Fourth Sc4 edule. -T his is based upon
Schedule IV to the report of the Commission.
The gold coin or bullion held by the Bank in the
Issue Department in India is proposed to be shown
separately from that held outside India.

BASIL P. BLACKEN.

The 11th January 1928.

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