The rise of Rupee, no longer linked to the Pound Sterling
The story of India’s financial independence as the Rupee is de-linked from the Sterling
The Central Assembly on April 8, 1947, passed a bill de-linking the Rupee from the Sterling, along with bills providing for production and marketing of rubber, and giving protection to several industries as recommended by the Tariff Board.
The Bill amending the Reserve Bank of India (RBI) Act marks India’s achievement of financial independence even before political Independence. Moving consideration of the Bill, which has been brought forward as a result of constant pressure from the Congress benches, finance minister Liaquat Ali Khan described it as “the most important measure because it signalizes the emergence of the rupee as independent currency de-linked from the Sterling and as an international standard”.
The finance minister pointed out that the use of sections 40 and 41 of the Act to finance British and Allied war expenditure in India had resulted in accretion of Sterling balances and caused widespread agitation for the repeal of these sections. In future, the Reserve Bank would have the power not only to buy and sell Sterling but other currencies as well, Khan said.
The finance minister mentioned, however, that there was no intention of India to immediately go out of the Sterling area since the question of Sterling balances had yet to be settled.
Member of the assembly, Manu Subedar, declared that the country had been bled white by the misuse of powers under the Reserve Bank of India Act.
Commerce minister II Chundrigar nodded assent to this charge levelled against his predecessors. Subedar recalled that, for the past five years, he had been agitating for the repeal of these sections. He felt at the same time that it would not be all plain sailing for the Reserve Bank and enquired whether the bank was ready to assume responsibility that was being cast on it.
Chundrigar thought that hoarding of gold was indicative of the lack of confidence in the country’s currency. The finance minister contested this view and declared that the chief reason was not lack of confidence in the currency but political unrest and uncertainty about the future.
Ananthasayanam Ayyangar suggested that the country should go back to the gold standard. KG Ambegaonkar of the finance department, in his reply, stated that as the various currencies would be convertible multilaterally it would not be necessary to revert to the gold standard. The Bill was passed amidst general satisfaction because in the words of Ayyangar, it was “a landmark in the history of the economic independence of India”.
The following day HT reported on Khan’s motion for the second reading of the Bill to amend the Indian Coinage Act, removing the obligation on the government to mint silver coins.
In moving consideration of the Bill, the finance minister read out a carefully prepared brief. Singing the praise of the new nickel coin, he said that it was in keeping with modern ideas and that the nickel rupee would “retain its bright appearance almost indefinitely”. His other arguments were that there would be no temptation to hoard the nickel rupee because it was not a precious metal and that counterfeiters would not be able to manufacture it since a huge plant was needed for the purpose.
But he explained the real reason for this drastic step at the end of his speech when he revealed that the silver saved from coinage would be used for repaying the silver lent to India by the USA during the war and that it was not wise to buy it from private individuals or from abroad.
Mourning the prospect of the 1000-year-old silver rupee disappearing from India’s coinage because of the Shylockian attitude of the USA, Subedar said the word “rupee” was derived from the Sanskrit name for silver. “How could a nickel coin be called a rupee?” he asked, and added amidst laughter: “It will be more appropriate if we call the nickel rupee Nakli.”
Refuting Liaquat Ali Khan’s argument, Subedar said that foreign countries would find it easy to counterfeit nickel rupee.