SPECIAL ARTICLE

Indias Failed Transition to a Gold Currency

in the 1860s
Sashi Sivramkrishna

Recent historical research on the emergence of the

classical gold standard tends to omit Indias failed
attempt at moving to a gold currency in the 1860s.
Though this was extensively deliberated upon in
contemporary studies and in the works of the late 19th
and early 20th century economists and historians, it
finds almost no mention in the more recent debate.
Revisiting this episode from history, this paper aims to
draw attention anew to the important role India played
in the evolution of the world monetary system.

The original version of this paper was presented at the Annual Economic
History Society Conference held at the University of York in April 2013. I
benefited greatly from the questions raised there and the discussion that
followed. The comments of the EPW referee were also very useful. I am,
however, solely responsible for the contents of the paper.
Sashi Sivramkrishna (sashi.sivramkrishna@gmail.com) is with the
Narsee Monjee Institute for Management Studies, Bengaluru.

48

Introduction

erhaps the most significant event in the monetary history

of the 19th century was the decline of bimetallism and
the shift of many European countries from a silver or
bimetallic standard to a monometallic gold currency. England
was the first to adopt the gold standard in 1821, and European
changeovers began with Portugal in 1854, followed by a few
smaller states in 1867. The move gathered momentum only
after 1872. Many recent studies in monetary history have
sought to find reasons for the emergence of the classical gold
standard (1870-1914). Surveys of the different viewpoints can
be found in Meissner (2002) and Redish (2006). A later survey by Morys (2012) aptly points out that recent research has
overlooked the distinction between emergence and diffusion
theories in understanding this monetary phenomenon. The
one commonality, however, among these perspectives is their
almost exclusive focus on the adoption of the gold standard in
Europe. Japan and the United States (US) do figure in the discussion occasionally, their official transition to gold took
place only later, 1897 and 1900, respectively. Surprisingly, all
the recent studies make no reference to a movement that began in India at about the same time (if not earlier) as Europes
shift to gold.
Beginning with a contextualisation of the movement for a
gold currency, this paper attempts to first highlight that many
of the reasons advanced in recent emergence theories were
clearly articulated by Indian lobbyists in the 19th century.
The gold lobbyists were even successful in getting the (gold)
sovereign and half sovereign accepted at Indian treasuries,
but the scheme failed for an obvious but often repeated practice the legal ratio of the sovereign and rupee was not set in
accordance with the market price ratio of their bullion content. Why was the government attempt half-hearted in spite
of the benefits that would accrue to trade and capital flows in
both Britain and India? While apprehension over India absorbing and hoarding precious metals, including gold, and
the adverse impact this would have had on the worlds money
markets may be considered the most obvious answer (Ambirajan 1984; Bagchi 1997),1 it does not seem adequate when we
consider the larger macroeconomic context of the period. In
the early 1860s, gold was abundant; its market price relative
to silver more often than not remained below the French legal
ratio of 15.5:1.
Britains other colonies, including Australia and Canada,
had moved to gold while many of the bigger European
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countries had still not officially transited to it. Like Morys

(2012), we emphasise the need to differentiate between emergence and diffusion theories. The movement that arose in
India in the early 1860s was before the gold standard had been
adopted in Europe (particularly in Germany and France). It
cannot be equated with the debate for a gold currency in India
from the late 1870s to the 1890s since Europe had by then officially transited to gold.
A more plausible answer to the question of the 1860s could
simply have been Britains ambivalent policy on India rather
than a concerted strategy to keep it away from gold, as may
have been the case in the 1890s. Some important factors
would, however, have shaped its stance on Indias demand for
a gold currency. Britains share of trade, in particular imports
from its colonies, declined significantly in the 19th century
even though the colonies continued to depend on it for their
imports and their exports. British and Indian merchants in India
obviously saw the benefits of a common gold currency, although the view in Britain may not have been quite the same.
A sudden spike in the flow of precious metals in India during
the years of the cotton famine caused apprehension over shortages of gold in the London money market, reminiscent of gold
outflows from England during the commercial crisis of 1847-48.
These realities, combined with the political uncertainties in
India post-mutiny, would have played a role in Britains lukewarm response to the Indian movement. Meanwhile, there were
significant changes taking place in Europe with the industrial
revolution spreading to other parts of the continent (Ambirajan
1978: 54) and the growing desire in Europe for monetary union
based on the ideas of Flix Esquirou de Parieu (Einaudi 2000).
The unusual demand for silver in India that arose from cotton
shortages gave Europe an opportunity to drain excess silver,
thereby allowing gold to smoothly fill the void. But this de facto
transition to gold in Europe was only a prelude to the official
transition that began in the 1870s. In the intermittent period,
bimetallism returned to Europe as soon as Indian demand for
gold and silver waned with the end of the civil war in the US.
Indian Currency System, 1835-53

By Act XVII of 1835 of the imperial government, a common currency was introduced for the whole of British India a silver
rupee weighing 180 grains troy and containing 165 grains fine
was the sole legal tender. Copper coins were accepted as legal
tender, but only for fractions of a rupee. The year marked the
culmination of a long and arduous process of monetary reform
that had begun soon after the rise of the East India Company
as a merchant-ruler, placing India on a silver monometallic
basis with the rupee as legal tender and standard coin. Some
commentators like Naoroji (1870: 16) argued that an artificial
increased demand was created for silver by the Act of the
Indian government which prohibited gold as legal tender, and
by the demand for China. Silver worth some 75 million had
been exported between 1847 and 1867 by Britain to India and
an additional 41 million had gone to China. India, Naoroji
claimed, had purposefully been put on a silver currency so
that its buoyant demand for silver prevented silver prices
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from falling and causing possible instability in international

gold-silver parity.
The view that the 1835 proclamation for a monometallic silver currency was to keep India away from gold and at the same
time sustain the price of silver was, however, not endorsed by
others such as B R Ambedkar (1947: 24-26), who pointed out
that the gold standard, at that time, had not found universal
acceptance even in England. After the commercial crisis of
1825, questions were raised on whether the gold standard was
too narrow a basis for a currency system. Again in 1844 Robert
Peel even contemplated the possibility of abandoning gold
and moving to silver or a bimetallic standard. In the light of
these arguments, it is inappropriate to see the adoption of a
monometallic silver standard in 1835 as a step that had the
ulterior motive of keeping India away from gold.
Ambedkars line of argument was supported by the proclamation of 13 January 1841 whereby Indian treasuries were
instructed to also accept gold coins in settlement of dues. The
reason for this policy was not surprising the market goldsilver ratio remained above the legal ratio of 1:15 between 1840
and 1850.2 Gold had even appreciated a few basis points from
1:15.62 in 1840 to 1:15.70 in 1850 (Statistical Abstract 1955:
432). In spite of this legal undervaluation of gold, which should
have been a disincentive to make payments in gold, there were
instances when treasuries received locally available (gold)
currency. This was primarily because silver coins were sometimes in short supply, and the rates charged by local moneychangers for converting gold to silver were exorbitant.
Tremors that shook confidence in the stability of the par rate
between gold and silver began with the gold discoveries in
California in the late 1840s. However, the full effect of these
disturbances in the market for precious metals reached
India only with news of gold discoveries in New South Wales,
Australia. Such a supply shock was expected to be followed by
a fall in the silver price of gold and consequently golds overvaluation as coin at the statutory rate of 1:15. Under the proclamation of 1841, a flood of overvalued gold coins could have
flowed into the treasury, a fearsome situation for the government. On 1 January 1853, Lord Dalhousie, Governor General of
India, withdrew and cancelled the amendment made in the
proclamation of 1841. The Act of 1835 was reinstituted. Although
gold would continue to be minted by the government, the gold
mohur was demonetised and no longer accepted in discharge
of the publics liabilities in the Indian territories of the East
India Company. India transited from silver to a bimetallic and
back to a monometallic silver standard at the beginning of the
second half of the 19th century.3 Holland had preceded India
by suspending the circulation of gold Guillaumes in 1850 out
of the same fear that a fall in the silver price of gold would lead
to an overvaluation of gold coin and settlement of government
dues in this lower valued coin. By the end of the first half of
1851, some 5 million equivalent of gold coins had flowed into
the bullion markets of France, Germany, and Britain from
Holland (Faucher 1853: 37). Holland was soon followed by
Belgium. What is critical to note here is that the demonetisation
of gold by Dalhousie was not because of shortages in gold
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SPECIAL ARTICLE

supplies, but due to fear of a possible glut of gold in the market

and a fall in the silver price of gold.

Figure 2: Coinage of Silver (1841-65, )

1,40,00,000
1,20,00,000

Indias Increased Currency Needs in the 1860s

1,00,00,000

The movement for a gold currency in India originated from the

coincidence of two important events. First, the gold supply
shocks triggered by gold discoveries in California and New
South Wales in the mid-1800s, and second, the growth in
Indias internal and external commerce because of cotton
trade between the late 1850s Table 1: Indias Gold and Silver
and early 1860s. Let us begin Imports (1850-65, )
Year
Gold Imports
Silver Imports
with the latter. As can be seen
1850
1,159,548
2,235,792
in Figure 1, there was a steep
1851
1,205,310
2,656,548
increase in Indian imports of 1852
1,338,778
3,713,280
cloth from the Lancashire 1853
1,332,106
4,490,227
cotton mills in 1857-58. A few 1854
1,078,708
3,770,643
882,721
1,145,137
years later, there was a massive 1855
2,508,353
8,792,793
surge in export of raw cotton 1856
2,176,002
12,237,695
from India because of the 1857
1858
2,823,484
12,985,332
Cotton Famine that followed
1859
4,437,339
8,379,692
the outbreak of the US civil 1860
4,378,037
12,068,926
war, which cut off Lancashires 1861
4,242,441
6,434,636
main source of raw material. 1862
5,190,432
9,761,545
6,881,569
13,627,400
These events led to enormous 1863
8,920,440
13,974,400
growth in the overall trade and 1864
9,875,032
11,488,320
commerce of India, both exter- 1865
Source: Ambedkar (1947: 31, 40).
nal and domestic. A greater
quantum of currency was therefore required to support circulation of a larger volume of goods and services. As evident
from Table 1 and Figure 2, the import of bullion along with
coinage of silver rupees at the mints of the presidencies indicate
the growing currency needs of the Indian economy at that time.
The demonetisation of gold in 1853 had, however, rendered
silver the only metal available for coinage. The silver inflow
in itself was inadequate for meeting the growing requirements of trade, which led to an acute scarcity of coins in
circulation. Dickens (1864: 174) eloquently captured the situation in India at that time with his remark, People are making
more money than there is money to make. Meanwhile,
gold inflows had increased substantially and gold was
abundantly available in India. Ad hoc arrangements were
Figure 1: India's Growing Cotton Trade (1849-64, )
4,00,00,000
3,50,00,000
3,00,00,000
2,50,00,000

Raw cotton exports

2,00,00,000
1,50,00,000
Cotton good imports

1,00,00,000
50,00,000
0
1849
Source: DSAL.

1851

1853

1855

1856

1858

1860

1862

1864

soon adopted to put this gold into circulation. The Bombay

Chamber of Commerce (1864: 5) reported gold bars stamped
by Bombay banks circulating in the market. In another
instance, Cassels (1864: 15) reported that in north-west India
50

80,00,000
60,00,000
40,00,000
20,00,000
0
1841 1843 1845 1847 1849 1851

1853

1855 1857

1859 1861

1863 1865

Source: DSAL.

people exchanged mysteriously sealed bags, each supposedly containing Rs 1,000, entirely on faith in the merchants. In Ambala, the government found counterfeit gold
coins circulating extensively and the more trusted Jaipur gold
mohurs were acknowledged to have widespread acceptance
in many parts of the country (Trevelyan 1864: 77). In south
India, silver became so scarce in 1858 that the government
was compelled to once again accept gold sovereigns coming
from Ceylon and Australia in settlement of taxes. The simultaneous increase in currency needs and the inability to utilise
the abundant metal for coinage set off a movement in
India for a gold currency and a subsequent transition to a
gold standard.
Reasons Cited for a Gold Currency in India

One of the earliest among the recent studies on the origins of

the gold standard was by Bordo and Rockoff (1996: 389) in
which they argue that it was the possibility of accessing capital
on better terms by having a good housekeeping seal of
approval that motivated countries in the periphery (net capital importers) to change to gold. Convertibility of the currency
into a fixed amount of gold signalled to the world that prudent
fiscal and monetary policies would henceforth be pursued,
thereby minimising currency risks that could emanate from
inflation. This explanation is supported by Sussman and Yafeh
(2000: 465) in their study of Japan where the gold standard
acted as a symbol of sound economic policy and creditworthiness, lowering Japanese borrowing costs in London. They
argue that in spite of Japans increasing debt, adoption of the
gold standard served to keep yields on government bonds low.
India, as a colony of Britain, may not have needed such a
seal of approval. Nonetheless, the adoption of gold was considered favourable to enhancing capital flows. With political rule
passing from the East India Company to the Crown in 1858
after the sepoy mutiny, India attracted a massive amount of
British capital to fund the building of the railways, irrigation
works, and the telegraph. Figure 3 (p 51) shows Indias growing
debt in England. Between 1856 and 1862, the railways alone
absorbed British capital of some 50 million (Lees 1864: 49).
With silver production slowing down at that time, along with a
relative abundance of gold, expectations were that the gold
price of silver would increase. Given its relative scarcity then,
silver would have been an inconvenient currency (Naoroji
1870: 13). More importantly, an appreciation of silver, and
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Figure 3: Indias Debt in England (1840-64, )
4,00,00,000
3,50,00,000
3,00,00,000
2,50,00,000

Debt in England

2,00,00,000
1,50,00,000
1,00,00,000
50,00,000
0
1842 1842 1844 1846 1848

1850 1852 1854 1856

1858 1860 1862 1864

Source: DSAL.

consequently of the rupee, could dampen capital inflows to

India. At the same time, moving to gold would bring down the
costs of raising loans for India, enabling it to raise a greater
amount of capital for its development needs. The process has
been succinctly described by Hendriks,
The result would be an increased holding of Indian registered debt in
London, and the loss arising from the fluctuating, and, on the average,
losing price of the interest bills, and from the liability to have the capital of the loan repaid in silver rupees, which, to the holder here (England), are bullion only, and not money, would be avoided (1870: 18).

In quite the same vein as capital flows, common gold standardbased currencies were also expected to bring down the transaction costs of trade, particularly hedging costs. Whether this
was a reason for switching to gold in the 1870s has been examined in a cross-country study by Meissner (2002: 33), which
finds that countries converted to gold when trade
with other gold standard Table 2: Countrywise Tonnage Shares
countries made up a of Indias Imports and Exports (in %)
Country
Share of
Share of
large proportion of naImports
Exports
tional income and when United Kingdom
36
43
they traded relatively Ceylon
15
16
7
11
little with countries on China
11
8
other commodity stan- Straits settlements
Mauritius and Bourbon
5
6
dards. This logic applied
Arabian and Persian Gulfs
5
5
unequivocally to India
France
2
3
and Britain. As evident Suez
3
3
in Table 2, which shows Others
11
6
tonnage-wise shares of Total tonnage
21,17,371 21,51,295
Indias import sources Source: DSAL.
and export destinations, Britain was by far its chief
trading partner and a common currency like the sovereign
would eliminate uncertainties in fluctuations of goldsilver parity.
There was another advantage that supporters of a gold currency drew attention to, the convenient and cheaper access to
gold from Australia. The adoption of a uniform currency in
India and Australia would induce an opening up of trade
between the countries, which until then had been negligible.
Cotton cloth for Australia from England could be manufactured
in India and shipped there at a much lower cost, apart from
significant savings on transport. These network externalities
(Flandreau 2004) of larger capital and trade flows emanating
from a common currency, which were then cited by Indian
gold lobbyists are now considered an important reason for
Europe adopting the gold standard.
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One of the principal advantages of gold was its higher

density compared to silver, which meant it had more value
for a given weight. Rupees worth 1,00,000 weighed about 11
tonnes at that time, but in gold it was just about 700 kilograms.
The cost of transporting silver was high and it also meant a
great amount of time expended in counting, weighing, and
examining a large number of coins. This was akin to doing
large business transactions with small change. The protection
of government silver during transport required employing
30,000 troops (Cassels 1869: 102). The inconvenience and
costs incurred in transport of silver made the government
retain large and unprofitable balances in its various treasuries,
resulting in a loss of interest and restricting business operations.
In Europe, as we will see later, it was increasing volumes of
trade and a simultaneous increase in the value of transactions
that lent support to calls for gold as a more appropriate
currency. Although the average value of transactions in India
may have been much lower than in Europe, the commercial
centres of Bombay, Madras, and Calcutta witnessed rapid
growth in the latter half of the 19th century. This obviously
would have made them eager to replace silver with gold.
The gold lobby also believed that the adoption of a gold
currency would dissuade people from hoarding precious
metals; a habit which Indians were customarily infamous
for. Gold could be obtained at a much lower cost directly from
Australia rather than being shipped half way across the world
to England where it had then to be converted into silver before
being shipped back to India in settlement of claims. This made
the silver received in India so expensive that it was unable to
find a market elsewhere when it was re-exported. Indians
were in a sense forced to hoard silver. Transiting to gold would
mean a significant saving in transport costs, and also fundamentally change Indias position as a recipient of precious
metals. The Bombay Chamber of Commerce (1864: 8) in a
memorandum to the Viceroy and Governor General of India
claimed, Instead of being the last recipients and absorbers of
silver, we (India) might become the first importers and the
distributors of gold.
As first importers of gold from Australia and given the possible gains from its export there would have been little incentive in hoarding it. India would be placed on the highway by
which gold would travel to Europe (Cassels 1864: 18) giving it
the opportunity to become the largest distributor of gold,
which at the same time would release vast amounts of its hoardings for productive use.
Arguments against a Gold Currency in India

Perhaps the most important anti-gold (or pro-silver) voices

were of British government employees in India who received
their salaries in silver.4 Appreciating silver meant that each
rupee would fetch them a greater number of sovereigns back
home. However, the arguments raised against gold went beyond
this purely selfish motive, and were sound and logical in their own
right. Giving them due consideration provides a more complete
understanding of the transition to a gold standard, in particular, the arguments that had to be addressed in the process.
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Anti-gold commentators strongly contended that the masses

in India did not favour gold and that its high value would not
be suitable for the needs of a poor country. In a place where
cowrie shells still circulated as currency at the rate of approximately 6,000 per rupee, it was argued that silver was more
commensurate with the prevalent wage levels, prices of goods,
and general standard of living. The currency shortage in the
1860s was mainly because of the mint (Boycott 1870: 212), not
because of the non-availability of silver. Concerns were therefore raised whether this was adequate reason for a change in
the currency standard itself.
Another argument against a change, which attracted intense
debate, was the breach of faith it would be to public creditors.
The monetisation of gold (and the fall in demand for silver as
currency) would have raised the silver price of gold (or
reduced the gold price of silver). The British government had
accumulated a large amount of debt, and repaying its creditors
with depreciated silver (for debt contracted in silver) would
mean using a relatively cheaper metal. However, the pro-gold
lobby argued that if public creditors were to be protected from
repayment of debt in a cheaper currency, the government and
the public at large would have to be protected from the repayment of debt in a currency of greatly appreciated value (that is,
repayment in silver that had appreciated relative to gold)
because of adhering to a monometallic silver standard.
Apart from these arguments, several other criticisms against
a change in the monetary standard can be found in contemporary discussions of that period. More than currency shortage,
some commentators believe that there may well have been a
glut of currency in India. A true indicator of this was the price
level. The silver price of gold was increasing and even the general silver price of all other commodities showed an upward
trend, which clearly indicates that precious metals were abundant and cheap in India (Trevelyan 1864: 73-74). It was also
argued that Indias imports of silver (and gold) were not indicative of a dearth of currency, but of the peoples preference for
these metals and low demand for other goods manufactured
in the west. As far as stability in the exchange rate between
India and Britain under a gold standard was concerned, this
was considered to be inadequate. Trade with other countries did
matter. China, which was on a silver standard, accounted for
about 10% of Indias foreign trade in tonnage terms (Table 1).
Objections against the costs of exchange fluctuations were
also dismissed. This, it was argued, not only generated activity
and intelligence, but also gave jobs to many people. This point
may have actually been one of the key factors for the banking
sector in Europe resisting the transition to a gold standard
(Russell 1898: 43; Einaudi 2000: 294). The more mundane
contentions against silver such as the cost of escorting it during transport were also considered flawed If the mass in one
case had been lighter to carry, it would also have been lighter
for robbers to carry off (Campbell 1870: 12).
Finally, many contemporary authorities felt that a change of
this kind could prove disruptive, especially if silver was driven
out of circulation too abruptly. The poor whose savings were
predominantly held in silver would face an erosion of their
52

capital on account of a fall in its price. There was also a fear that
a change in the currency standard would disrupt established
commercial norms the reputation of the tola weight must
not be done away with, if we wish to keep up our reputation as
honest traders (Boycott 1870: 212). The British Indian government was struggling for political legitimacy post-mutiny and
was concerned that a breakdown in the monetary system of
the country could have dangerous political implications. On
the other hand, silver was available in abundance and people
were used to it. Paper was also beginning to gain acceptance in
India, although slowly. In all, the benefits of a gold currency did
not unequivocally outweigh the potential costs of a transition.
Proposed Strategy for Introduction of a Gold Currency

In spite of opposition by the anti-gold lobby, by 1864, the arguments put forth for a gold currency in India were overwhelming not just among urban Anglo-Indians, but among people
from every part of India (Ballard 1868: 3). The only question
that remained to be resolved was when and how. Even the progold lobby was against any attempt to impose a sudden change
in the currency of India. If gold were made legal tender and
silver demonetised, the shortage of gold coins would drive up
its price with a severe deflationary effect on the economy.
Given this possibility, it was felt that the transition to gold
could only be made after a period of a parallel standard with
gold and silver as legal tender, their exchange rate varying
with the market rate. But a parallel standard even with silver
as the unit of account would have meant utter confusion with
a fluctuating gold-silver ratio. Nascent expansion in Indias
trade and commerce would have been disrupted. This was
unacceptable and the only viable option was a transitory
phase of bimetallism.
The critical issue that had to be settled under a bimetallic
currency standard was the legal ratio between gold (sovereign)
and silver (rupee). A scheme proposed by Charles Trevelyan
(Finance Member) in 1864 was accepted by the Secretary of
State for India in which gold would not be made legal tender
but accepted at the treasuries of the British Indian government.
This was a return to the situation before Dalhousies
directive in 1853. But Trevelyan overestimated the peoples
willingness to switch to gold. He fixed the legal ratio of the
sovereign at Rs 10 when it could not be brought to Bombay
from Australia for less than Rs 10, 2 annas, and 9 paise. Why
did he think that a legally undervalued gold coin would come
into circulation? Based on the experience of the Indian government between 1841 and 1853, Trevelyan felt a discount on
sovereigns would be acceptable to people transacting large
sums of money (given the inconvenience of silver) and also
assumed that Australia would reduce export duties to meet the
Indian demand. The action should have lowered the market
price of gold in India, bringing it closer to the legal ratio.
Neither of it happened. Almost no payments were made in
gold, only silver flowed into the treasury. The small amount of
gold that accumulated in the governments treasury was
used as a reserve against the issue of notes or sent to England.
Very little, if at all, came into circulation in India. Without
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possessing adequate reserves to push gold into circulation, the

government should have overvalued gold legally. In 1866, the
government, on the recommendation of Lt General Mansfield,
altered the rate from Rs 10 to Rs 10 and 4 annas. But by then
the market rate for gold was Rs 10 and 7 annas. Once again,
the same question can be asked: why did the government not
take decisive steps to bridge the difference between the legal
and market rates? Mansfield had observed the rate for gold
had been falling steadily from Rs 10 and 12 annas to Rs 10 and
7 annas. He simply assumed that it would fall further and
touch the proposed legal rate of Rs 10 and 4 annas. Once again,
that did not happen. The fear of overvaluing gold and driving
out silver made Mansfield conservative in fixing the legal rate.
Unfortunately, the market rate never reached the legal rate
and gold never entered circulation. Meanwhile, the demand
for money in India slowly abated with the end of the US civil
war and a decline in cotton exports.
Contemporary commentators saw the persistent legal
undervaluation of gold as a reflection of the governments
indifference and disinterest in India successfully transiting to
a gold currency.
Notwithstanding the unanimous decisions of the repeated commissions of inquiry in India, in favour of the speediest practicable introduction of a gold currency [referring to the reports of 1864, 1866 and
1869] the questions has, more or less persistently, been put upon
the shelf. It has, apparently, been placed aside for the advent of some
more auspicious occasion, as was formerly the case with the wellconceived intentions in favour of a gold currency...No more seems
likely to come of it than reference to the secretary of State for India in
Council, who, in turn, may probably relegate it again to India, and
thus the matter may, for an indefinite term, be handed backwards and
forwards, until the pressure of circumstances brings itself to bear
upon it in England as well as in India.
The proportion of 15 to 1 which that government has used in its calculation is unreal, imaginary, and infected with error at the outset instead of having been 15 to 1, it may be clearly shown to have been, and
still to be, in the practical working, 15.15306 silver to 1 gold (emphasis
added, Hendriks 1869: 103-05).

But why would Britain be against what seemed a mutually

beneficial proposal, logically articulated, and reasoned out on
the basis of expected changes by the Indian pro-gold lobby?
We make some propositions to answer this question.
Britains Concern Over Indias Absorption
of Precious Metals

In the 1860s, Britains concern would have been the quantum

and rate at which India was absorbing precious metals. Figure 4
illustrates the narrowing gap between world output and
Indias growing imports of silver and gold. More interestingly,
Figure 5 shows gold output was inadequate (in spite of increased production) if India were to (hypothetically speaking)
fully substitute silver with gold.
It was not merely the Indian import of precious metals that
was the issue. The problem was that once imported, gold and
silver were hardly exported or put into circulation. In India,
they were literally consumed (Faucher 1853: 99). In a world
that was experiencing rapid economic growth, there was obviously the danger of an inadequate supply of coin dampening
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Figure 4: World Output and Indian Imports of Gold and Silver (1850-65, )
4,00,00,000
3,50,00,000

Gold output

3,00,00,000
2,50,00,000
2,00,00,000

Silver output
Gold imports

Silver imports

1,50,00,000
1,00,00,000
50,00,000
0
1849 1851 1852 1853 1854 1855 1856 1857 1858 1859 1860 1861 1862 1863 1864 1865
Source: DSAL and Ambedkar (1947: 31, 40).

Figure 5: World Output of Gold and Indian Imports of Gold and Silver
(1850-64, )
4,00,00,000
3,50,00,000
3,00,00,000

Gold output

2,50,00,000
2,00,00,000
1,50,00,000
1,00,00,000
50,00,000
Total imports (gold + silver)
0
1850 1851 1852 1853 1854 1855 1856 1857 1858 1859 1860 1861 1862 1863 1864
Source: Constructed from Table 4.

the trend. A well-cited work by Lees (1864: 12) stoked this fear
while the accumulated hoarding of precious metals was estimated at a whopping 300 to 400 million, India, given the
rate at which it was growing since the early 1860s, required
another 400 to 500 million to meet its currency needs.5 It is
not surprising that India moving to a gold currency would
have had a major impact in the money markets of Europe, if a
large quantity of gold were suddenly required to carry out
such a change (Wood 1864: 4). Britain, being on a gold standard, would have been most concerned by this.
The gold remains in the Bank of England until the Indian demand sets
in, and then it is suddenly withdrawn to sweep the Continent of silver
for transmission to India. In order to protect themselves, the Banks of
England and France raise their rates of discount, and by their so doing,
and by the violent oscillations on the foreign exchanges, every
description of business is deranged (Trevelyan 1864: 74).

Although concerns may have existed over Indias absorption of precious metals, there is little evidence of a scarcity
of gold in international markets. As can be seen from Figure 6
(p 54), almost all through the period 1853-66, the silver price
of gold remained below the legal ratio of 15.5:1. The major
nations of Europe had still not taken definitive steps towards
a gold standard.
Given depressed gold prices internationally, Indian gold
lobbyists argued that Indias demand for gold was a positive
development and opportune (Ambirajan 1984: 89-90) as it
would steady its falling price.
If annual production of gold were now, as it was a short time ago, only
about five millions, the adoption of a gold standard and currency for
India might have been unwise and objectionable, but now that the

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Figure 6: Gold-Silver Ratio (1851-67)
15.8

G/S ratio
15.5:1

15.6

15.4

15.2

15
1851 1852 1853 1854 1855 1856 1857 1858 1859 1860 1861 1862 1863 1864 1865 1866 1867
Source: J L Laughlin (1897): History of Bimetallism in the United States, 4th ed, New York, p 294.

production has been so largely and suddenly increased, and is still

increasing, the introduction of a gold standard could not be but advantageous, steadying the price of gold on the one hand, and of silver on
the other (Cassels 1864: 17).

As we have seen, the British Indian government did not

dismiss these claims outright and even went ahead with
allowing gold coins to be accepted at its treasuries. However,
its lackadaisical efforts in fixing the bimetallic ratio in accordance with the market rate did not allow a successful transition to gold.
Europes Changeover to Gold Gathers Momentum

While Britain remained nonchalant to Indias currency needs,

a new chapter was unfolding in Europe the preference of
gold over silver for currency. In France, from the beginning of
the second half of the 19th century, the increase in supply of
gold caused the silver price of gold to fall below the legal ratio
of 15.5:1. As predicted by Greshams Law, with gold (silver)
overvalued (undervalued) legally, silver francs began to
disappear from circulation. They were replaced by silver
coins with a lower fineness from Italy and Switzerland. To
prevent a race to the bottom (as silver remained undervalued
as coin), the Latin Monetary Union (LMU) was conceived.6
Addressing the problem with its silver coinage was only one
part of the LMU agenda its members, including France, were
already strategising their transition to a monometallic
gold standard.
As a matter of fact, France did not defend the principle of the
double standard at all on this occasion it was premature in Napoleons
programme. He preferred to let matters wait till he had assembled
all the nations in a monetary conference, and then, in the face of a
probable demand for the gold standard, seem to yield the double
standard in consideration of the adoption of the French coinage as
a basis for monetary unity. One prerequisite of success in negotiations is to have something to yield ...The French delegates were
at heart partisans of the gold standard. Parieu was one of the
strongest gold monometallists that France ever had, and, as has
been said, was the diplomatic manager of Napoleons programme7
(Russell 1898: 30).

In 1866, the LMU came into effect as silver outflows from

Europe to the East reached their peak. In 1867, although the
demand for Indian exports abated and with it outflows of silver,
54

representatives from Europe and the US overwhelmingly voted in favour of moving towards
gold monometallism at the International Monetary Conference held in Paris. The west had
overtly planted the seeds of a gold standard.
This was possible only because Europe (France,
in particular) had by then drained its excess
silver off to India, replacing it with gold from the
US. In other words, Indias absorption of silver
was a necessary condition for Frances and the
USs de facto transition to gold.
Although the Western states often pursued
conflicting monetary strategies and were
plagued by divisions, there was a discernible
economic and political crystallisation taking
place in Europe.

The French proposal that all civilised nations should adopt a common
coinage cannot be dismissed as merely a form of political expansionism, even if it was partly that. The initiative was also the result of
purely economic factors, linked to free trade and to the embryonic
development of European federalist ideas (emphasis added; Einaudi
2000: 285).

Gold was the metal chosen for a common coinage on the

basis of several economic reasons its efficiency in higher
value transactions; its abundant availability that could meet
the demands of growing economies; the modernisation of
European industry; growing volumes of internal trade; and
the success of Britain. There was an ideological and political
angle too. As can be noted in Einaudis remark, gold was
considered the currency of superior or civilised nations.
These civilised nations were not restricted to Europe. They
included the US, South America, and even perhaps Australia
and Canada (the latter does not find explicit mention).
The lines of demarcation for monetary standards were not
drawn in just economic terms. The International Monetary
Conference of 1867 contains several pointers that gold should
be the monetary standard of the West, and its rich, civilised,
Christian nations, while silver belonged to the East and its
poor, barbaric, pagan world.8 An extract from a letter by
Samuel Ruggles, Vice-President of the US Commission at
the Universal Exposition at Paris, written in July 1867,
exemplifies this.
Wisely limited by its own organic law to one common coinage
between the two great oceans, the world needs only the assent of our
own continental republic to give to the gold dollar and its multiples a
free, unchallenged circulation, meeting no money changer or other
impediment through the whole breadth of Christendom. The US may
alone complete the golden chain binding in one common monetary
civilisation the outspread lands and waters of America and Europe,
stretching from the Golden Gate of the Pacific over the auriferous
Oberlands of the wide interior, and across Christian Europe to the
western bounds of the Ottoman Empire. To widen and extend still
further this majestic belt, to embrace in the same great measure
of civilisation the residue of Europe with the wide extent of Asiatic
Russia has been among the leading aims of the international
monetary conference.
Speaking the languages of Spain and Portugal, these Latin races of
the two Americas approach, to say the least, in general culture and
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intelligence, the Teutonic and Slavonic races represented in the
Conference above all let us never forget that the two Americas are
Christian members of the great family of nations, and that unification
of money may be close akin to other and higher objects of Christian
concord (Index 1868: 17, 89, 94).

One would not expect the description of Asia as pagan in

monetary discourse, but it was used purposefully although
rather irrelevantly to emphasise the regions unfamiliarity
with monetary systems.
It appears that, in ignorance of the actual relative values of the two
metals in our Atlantic world (of 15 or 16 to 1) these pagan Asiatics
had fixed the ratio at only 4 to 1 the partial correction of the mistake
by 1860 shows an advance of intelligence in this distant region, inspiring the hope that, in due time, at least a portion of eastern Asia
may be brought within a world-embracing and world-protecting belt
of monetary unification (Index 1868: 87-88).

The East was then clearly demarcated as the other, distinct from the civilised Christian west. The following extract
describes the deliberateness in the choice of monetary standards across nations.
The world is divided in its monetary relation into two considerable
and very distinct groups: on the one side the western states, where
gold tends more and more to prevail; on the other, the countries of the
extreme east, where silver continues to predominate (Index 1868: 40).

Keeping the East and India in particular away from gold

also served another important purpose ensuring that it
remained on silver.
Drain of Silver to India and Emergence of the
Gold Standard in Europe

To Morys (2012: 7) the movement for a gold standard in

Europe began for rather straightforward, almost trivial, reasons. First, its density, whereby gold allowed to encapsulate
more value in the same volume than silver, and second, the
increased inflow of gold into Europe after the Californian and
Australian discoveries, along with the outflow of silver on an
unprecedented scale. While the abundance of gold was one of
the factors that influenced Europes preference for this metal
as coin, the acute scarcity of silver also played a part in moving
to gold.
In our view, everything started with the gold supply shock of the
1850s: The immense gold findings in California (1848) and Australia
(1851) brought, for the first time ever, gold to Europe in amounts large
enough to actually contemplate the transition to gold for a large
number of countries. European silver holdings, by contrast, had been
dwindling rapidly since the early 1850s as a result of species re-composition in the bimetallic countries. Both factors combined gave rise to a
discussion of the monetary standard, with gold, silver and bimetallism
as options. The 1860s monetary debates, we argue, were not about following the English example or not. Instead, they were all about adaptive strategies: How to choose the best monetary standard given that
Europe had recently experienced gold inflows (and silver outflows) on
an unprecedented scale? (Morys 2012: 3).

But where was Frances (and Europes) silver going for species recomposition to happen if Europes silver standard countries were not absorbing the excess supply?9 India; the answer
though commonly known has not been explicitly highlighted
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in recent research as having been a fundamental and necessary condition for the emergence of a pan-European movement in favour of gold monometallism (Morys 2012: 2). It was
the massive drain of their silver reserves to India that had
allowed the US and France to move to a de facto gold standard
by 1864. Contemporary literature saw this interlinkage between India and Europe in the transition to a gold standard as
a matter of fact.
In the last nine years [prior to 1864] the silver imported into India
alone, after deducting re-exports, has amounted to 89,638,792, or
within half a million of the entire estimated production of the whole
world for the same period. There were two great reserves of silver, the
currencies of the United States and France. Both these reserves have
been exhausted. The US has been avowedly placed on upon the basis of
a gold standard with a subsidiary silver token currency. In France, although the law remains unchanged, gold has been coined in vast
quantities, and the only silver coins remaining in circulation are those
which by wear and tear have become depreciated (Levi 1864: 403).

Between 1856 and 1862, India consumed 15% more than

the world production of silver. As seen in Figure 4, this increased to almost 50% more than the world production by 1863.
The global demand-supply gap was even greater; with total
demand approximately three times the supply (annual net production). India was therefore draining Europe of its excess
silver by sustaining its demand and keeping the market price
of silver above the French legal ratio of 15.5:1.10 All this happened because of the failed transition to gold in India in 1864.
In the 1860s, it may not have been Indias absorption of gold
that was the primary cause of concern the massive inflow of
silver was causing its own share of problems. A severe dearth
of small token silver coins developed across Europe. Britain
too came under threat. Even small monometallic silver standard countries such as Holland, which had chosen to abandon
gold in 1850, faced adverse consequences on their coinage
from the spurt in Indian demand for silver. At a more basic
level, Indias demand for silver arose from the phenomenal
increase in its cotton trade with Britain. If trade with India
were to continue at the same rate, and with it the absorption of
silver, then there was only one option remaining a dire one.
That India annually imports and absorbs more silver than the whole
world annually produces, and that this excessive drain must inevitably
lead to serious embarrassment both to India and the rest of the world
that the continued drain of silver for India must derange, if not
eventually destroy, the silver currency of all other nations (Bombay
Chamber of Commerce 1864: 5, 7).

Cassels, in 1869, elaborated on the danger that silver absorption by India had posed to Europe in the past (early 1860s)
and the possibility this may repeat itself at any time.
At the present moment [in 1869], the state of trade is not such as to
cause large quantities of silver to be forwarded to India. But what has
been may again be. We have seen the bullion market of England
thrown into a state of feverish excitement and the silver coinage of
France swept away, by a demand for the east. Is it impossible, or even
improbable that India should again, and at no distant date attract
enormous quantities of silver to her shores to the great disturbance of
the money markets of Europe? The failure, or even the partial failure,
of one years crop of cotton in America would, in all likelihood, bring
such an event to pass (p 102).

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A gold currency for India in the early 1860s would have

prevented this crisis, stabilising the gold-silver parity by
increasing the demand for gold and dampening that of silver.
But the world was not listening.
Economics of Parallel Standard, Bimetallism,
and International Bimetallism

For the silver of France and Europe to have drained out, gold
had to be continuously overvalued as coin, that is, the legal
ratio of 15.5S = 1G had to be greater than the market ratio of
(say) 15.3S = 1G. This could happen only if the demand for silver increased significantly and its price stayed above the legal
ratio (1/15.3 > 1/15.5). The Indian demand for silver did this
job efficiently for the West in the 1860s.
Had the Indian government not adopted the course of making silver
the only legal tender in 1835, the currency would have very probably
by this time settled itself, or been in the course of settling itself to gold,
just as it did in England, France, and America. In these countries the
demand of silver for India and China accelerated the process. When
double currency prevails, the debtors and creditors discount its effect
by taking it into consideration. The real effect of the double currency
is that the dearer metal soon goes off to other countries where there
may be greater demand for it, as silver left France and the United
States because a demand arose for it in India (Naoroji 1870: 16).

If India had not absorbed the excess silver, legally overvalued silver would have once again come back into circulation
in Europe.11
And it did. In 1858-59, there was a sudden spike in the goldsilver ratio from 15.30 to 15.51 (Figure 6 and Table 1). This coincided with the increase in Indias gold imports in that year by
some 2 million and a simultaneous decline in silver imports
by more than 8 million. In 1860-61, we once again observe a
spurt in gold prices, and there is a correlation with a sharp
decline in Indias silver imports. In 1864, as India opened its
doors to a gold currency, albeit cautiously and in a rather ad
hoc manner, the trend in the falling silver price of gold broke
and instead the price of silver began to fall. It so happened
that the [Latin] union was formed at the very beginning of
silvers great decline, the initial cause of which must be laid at
the doors of British India, which, late in 1864, took a step
towards the gold basis (Russell 1898: 33). From 1867, the
price of silver began to show signs of falling steadily. Why did
this happen when production of silver had not increased? The
answer lies in Indias absorption of silver, which declined
dramatically from 1866 onwards because of the slowdown in
cotton exports and capital inflows. And when silver outflows
to India further slowed down, the minting of silver coins began
returning to their old levels in France almost immediately.
Table 3: Pattern of British Foreign Trade, Destinations and Origins
1794-76

Europe
Asia
North America
West Indies
Others

44
22
7
25
2

Imports
1854-76

1913

36
14
24
6
20

41
16
23
1
20

Exports and Re-exports

1794-76
1854-76
1913

38
13
28
18
3

40
11
21
3
24

Source: de Jong, Jurrin (2003): Great Britain, the Industrial Revolution and the World
Economy, 1780-1914, Leidschrift, 18 (2).

56

37
23
14
1
25

While France minted only about 40,000 five-franc silver pieces

in 1866, it minted 10 million in 1867, and 18 million in 1868
(Russell 1898: 32). Table 4, which shows the minting of gold and
silver coins in France, Table 4: Mintage of Gold and Silver in France
bears a close relation- (1803 to 1873)
Year
Gold
Silver
Ratio of
ship to Indias trade
(Million Francs) (Million Francs) Value
pattern and inflows of 1803 to 1820
868
1,091
1-15.58
precious metals. The 1821 to 1847
301
2,778
1-15.81
reversal of the trend in 1848 to 1852
448
543
1-15.67
France post-1867 also 1853 to 1856 1,795
102
1-15.35
55
1-15.33
indicates that bimetal- 1857 to 1866 3,516
876
587
1-15.62
lism had not yet lost its 1867 to 1873
relevance. Nonetheless, Source: Ambedkar (1947: 127).
the seeds of a gold standard were planted at a period when silver outflows from Europe to India were massive.
Britains Indifference towards a Gold Currency
for India in the 1860s

Could Britain have articulated the need for India to remain on

silver for a smoother transition to gold in the West? Its trade
with Europe and North America compared to that with their
colonies showed a gradual increase between the late 18th and
mid-19th centuries (Table 3). This could have motivated Britains
alignment with European interests, and a common gold
currency among western nations could have been perceived as
more beneficial for their trade and investment flows. But
there is little real evidence to support such insinuations. The
question, however, remains why Britain did not take a firm
decision on Indias transition to a gold currency in the 1860s.
When seen through the prism of real history, it may more
have been Britains measured ambivalence towards the movement for a gold standard than a well-thought-out strategy
that resulted in a missed golden opportunity for India.12
This is evident when we study the remarks against a gold
currency made in 1861 by Charles Wood, Secretary of State
for India, who was of utmost importance in deciding Indias
transition to gold.
Silver is your [Indias] standard. It is, in truth, the standard of the
greater part of the world now. It was, near to the end of the
last century, the standard of the whole word. Accident and some
silly reasons made England adopt a gold standard (quoted from
Ambirajan 1984: 95).

Wood also reiterated some of the points raised by pro-silver

voices in India, which included the political dangers of arbitrarily altering the standard from silver to gold and a possible
disruption of trade on account of bimetallism. Other important British Indian government officials also raised similar
concerns over a gold currency, rather than articulating any
strategic motive to consciously keep India away from gold.
One can, however, notice a significant change in Britains
policies towards Europe and Asia in the 1870s. As recognised
by Bagchi (1997: 22), it was only in the 1870s that the question
of monetary standards in India and other countries began to
draw the attention of some of Britains famous specialists in
money and banking such as Bagehot (1873) and Barbour
(1885). Ambirajan (1984: 91) supports Bagchis view and points
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out that very few economists had actually said anything

about this problem (gold currency) in the Indian context in the
sixties. Although there may have been concerns over India
adopting a gold currency as early as 1864, these apprehensions
became more categorical after Germany officially transited to
gold from silver;
We all know what the Germans have had to do, and how painful its
effect upon has been. They have had to buy gold to substitute for that
silver, and the result has been an unusual disturbance of the London
market, with sometimes very high rates of discount; nor is the operation as yet complete. But the effect of a similar operation in India upon
us would be altogether greater and more disturbing, because the
Indian silver currency is so very much greater than the German
(Bagehot 1877: 9-10).

This also meant that the situation in the 1860s was more
fluid than from the late 1870s onwards. By the third quarter of
the 19th century, most of Europe had officially moved to gold
and gold shortages had begun inducing deflation and depression.
The response to calls for a gold currency that arose in India
from the late 1870s onwards and continued right through the
1890s when silver (and with it the rupee) began to depreciate
cannot be compared to that of the early 1860s.
Conclusion and Further Questions

Post-1866, Indias absorption of silver declined while that of

gold continued at its prior level. The sharp decline in silver
imports was because of declining stocks in the west. If Indias
overall exports had to continue at their earlier levels, the country would have been compelled to move to gold; but the trend
in exports did not continue and showed a sharp decline after
1866. R B Chapman, Financial Secretary of the Government of
India, noted,
It may be admitted that if it [the abnormal trade condition] had continued,
India would have been very soon driven to take much more gold than
silver in payment for her exports. Silver, in fact, would not have been
forthcoming for remittance to the east at the same rate, and
a gold currency would here very likely have become a necessity
(Coyajee 1930: 30).

Notes
1 These historians who draw from late 19th and
early 20th century works have also been ignored in the recent literature, in particular,
those that find mention in the surveys of Meissner (2002), Redish (2006), and Morys (2012)
on the emergence of the gold standard.
2 One gold equals 15 silver was the legal ratio for
conversion of silver into gold in India.
3 Copper coins were circulated in denominations
of only less than a rupee. Note that the amount
of copper to be coined was regulated by the
government. No private individual could bring
copper to the mint and demand copper coin in
exchange; otherwise the country could have
been inundated with copper money. Moreover,
copper coins were issued at a much higher
money value than their actual weight would
warrant (Ballard 1868: 14).
4 Unlike the pro-gold lobby (particularly the
Chambers of Commerce) there was no anti-gold
lobby per se. These were more the independent
voices of political and economic commentators.
5 By which year this amount of currency would
be required is not mentioned by Lees.
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Capital imports also showed a sharp decline. The demand

for money slowly abated with Indias exports stabilising at
lower levels.
The movement for a gold currency, which reached a high
point in 1864, had brought India closer than ever to a gold
standard and well ahead of developments in Europe. We find
Feer-Herzog, the Swiss representative at the Paris International
Monetary Conference, commenting three years later,
The state which demonetises first will do so with but little loss, while
the state which shall have hesitated and waited will undergo the losses
resulting from the demonetisations which have preceded its own, and
so will pay for all the rest. The German authors have perfectly understood and explained the advantages which will accrue to their country
from acting speedily, while the states of the Latin Union still hold to
the double standard (Russell 1898: 105).

India then had unequivocally lost an early mover advantage but the missed opportunity had paved the way for a de
facto transition to gold in Europe. This leads us to impudently
open the door to counterfactual history. Would transition to
the gold standard in many parts of the world have taken place
if the Indian initiative for gold had succeeded? Would Europe
have found a convenient drain for its silver and abandoned
bimetallism if India had moved to gold?
While the answers to such questions can only remain conjectural, it does seem possible that if India had successfully
shifted to gold in 1864-66, the story would have unfolded differently in Europe, with perhaps a different ending too. Gold
prices would have remained high as a silver glut developed,
silver exports would not have taken place, and the transition
to a de facto gold standard in Europe and the US in the 1860s may
never have taken place. Figure 5 illustrates that if India had
substituted its silver imports with gold, there may well have been
inadequate gold (and too much silver) for the rest of the world
to move to a gold standard. By revisiting this significant episode
from monetary history, we aim to reinstate Indias position in
the recent narrative on the emergence of the gold standard
and the evolution of the international monetary system.

6 The original members of the Latin Monetary

Union (LMU) were France, Belgium, Switzerland, and Italy.
7 French statesman Flix Esquirou de Parieu was
the architect of the LMU, which is considered
the precursor of the European Monetary Union.
8 This term was commonly used, although it is
not found in the literature referenced here.
9 Morys (2012: 29) points out that the German
states (on a silver standard) were swamped
with French gold coin in 1867.
10 A banker or bullion-dealer in London desires
to send a hundred thousand pounds to India, or
China, or Holland, or any country where silver
circulates. Silver we will suppose is dear in
London, so he sends a hundred thousand
pounds worth of gold to his Paris agent, who
has it coined and exchanged for five-franc silver pieces, which are then exported to their
destination. The French Mint is set to work,
and the French coinage is changed to the extent of 100,000, for no purpose whatever but
to minister to the gain of a foreign banker
(Ballard 1868: 23).
11 Excess silver would have meant that the gold
price of silver would have fallen in the market.
vol l no 4

The legally overvalued silver would then flow

back to mints and into circulation. Meanwhile,
gold would have been undervalued as coin and
flowed out. This is how international bimetallism maintained parity at the French legal ratio
of 15.5:1.
12 Drawing from the work of Bagehot, Mellyn
(2009: 75-76) asserts that real history (as opposed to conjectural history) views institutions as organic, not mechanical. The evolution
of institutions was not always by design; more
often than not they were accidents of Real
History.

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ICSSR Data Access Scheme for PhD Scholars

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(vii)

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