Currency System

Currency System A coin is basically a metallic piece used as a medium of exchange having a specific metallic weight standard and a certain metallic purity. In general the weight standard and the metallic purity of a coin are authenticated and guaranteed by the sovereign political authority of a country. The appearance of coined money certainly suggests a complex socio-economic situation, which must have witnessed a considerable growth of commerce along with a political structure. Currency system in history varied from country to country.

Ancient period As evidenced by available ancient inscriptions and texts, Bengal in ancient times had a settled economy characterized by extensive internal and external trade and commerce. Bengal was indeed integrated to commercial hubs of South and Southeast Asia, even to those of the Middle East and Europe, according to Periplus.

In facilitating the market operation there must have been some device as exchange medium. In fact, we have definite evidence of the existence of currencies functioning as medium of exchange, but our knowledge about them is very limited in the absence of adequate data. Even before the Christian era, as evidenced by the mahasthan brahmi inscription, a currency denominated as Gandak and Kakanika were in operation. According to Periplus there were gold coins denominated as Caltis and Kallais, which were in circulation in the great business centres. The finds of punch-marked metal pieces and cast copper coins indicate the existence of a currency system in ancient Bengal a few centuries before the Christian era.

North Bengal under the Guptas had witnessed flourishing trade and commerce. Both gold and silver coins were in use during the 5th and 6th centuries AD; the gold coins were called Dinars and the silver coins, Rupaka. Eight Rupakas were equal to half a dinar. But curiously the widespread existence of gold and silver coins of the Gupta era almost disappeared from the seventh century onwards. There were some silver coins in south-eastern Bengal. Of course, cowrie (kadi) shell had been in use as the smallest unit of currency all throughout ancient times. The use of cowrie as medium was there in the rural areas even in the late nineteenth century, even afterwards, in some places. Cowrie was then imported from Maldive in exchange of rice.

Turko-Afghan period Sholars agree that scarcity of gold and silver and consequent scarcity in metallic currency that characterized the Pala and Sena periods, persisted till the coming of the Husain Shahi rulers. The gold and silver hungry period of the Palas and Senas may rationally be attributed to the decline of foreign trade and consequent decline in the import of gold and silver by way of favourable balance of payment. There was no gold and silver mining in Bengal. Therefore, whatever gold and silver Bengal had possessed at a particular time came through favourable balance of payment in foreign trade. In a state of weak economy and weak metallic currency system, cowries became the most dominant mode of exchange. Bartering mode of exchange was equally strong.

The economy began to be moneytized again from the Turko-Afghan period. Cowrie kept its dominant position in the rural areas where transactions were basically of small scale. Silver coins of various sizes and weights began to appear on an increasing scale during the Husain Shahi period (c 1490-1540). During this period we are encountered with tanka, the new form of old Rupaka which became rupee. (Rupee and Tanka in the Sultani period meant the same thing and this remained unchanged down to the end of British rule). But it is true that cowries served as an exchange medium for ordinary transactions of daily life, and coins were used only in large-scale transactions. The upward valuation of cowries was made in the following manner: 4 cowries = 1 ganda; 5 gandas = 1 budis; 4 budis =1 pana; 16 panas =1 kahan; and 10 kahanas = 1 tanka/rupee. Curiously this formulation of the units of a rupee had continued down to a period when cowrie was no longer a part of the currency. Tradition made cowrie an imaginary unit of counting system. The Husain Shahi period saw the revival of silver and gold coins, though gold coins were possibly more for regal demonstration than for general business transactions. The pre-Mughal regimes had made only two denominations of a rupee - half a Taka coin and quarter Taka coin, which were again not very general. One ana denomination was used for counting only and hence it did not then exist in real.

Three types of coins are found in circulation in the pre-Mughal regimes. Their average weight was 160, 80 and 40 grains respectively. Their proportionate ratio with the highest denomination was thus 2:1 and 4:1 (in other words, full, half and quarter rupee). The first type of silver coin was, however, more numerous than the other two.

All these coins including the smaller denominations were minted on the 172.8 grains standard. But this standard was only ideal which was seldom maintained. The first type full rupee, sometimes varied from 148 to 170 grains.

Mughal period Improvement in oceanic communication had globalized world trade and commerce which took a revolutionary turn in the seventeenth and eighteenth centuries. Bengal, as a maritime country, became integrated to the world capitalist economy and as a consequence, its economy became monetized, though its scale was not as large as assumed by many scholars. Though currency system prevailed in Bengal from very early period, but its operation was always limited to urban centres of production and distribution. The rural sector was governed partly by cowrie and partly by direct exchange in kind and services. The exchange system of goods against goods, service against service and labour against labour operated quite universally.

If not entirely, but largely this barter feature of the economy gave way to exchange through money during the Mughal period. Foreigners, particularly maritime companies of Europe, began to come by sea routes to participate in the Bengal export trade from the beginning of the Mughal rule. They came with bullion to buy Bengal merchandise because; their own products had practically no market here. Large-scale import of silver and other treasures gave the Mughal government an opportunity to stimulate its economy backed by a broad-based currency system. Mint towns were established in Dhaka, Murshidabad and Patna where bullion was brought by shroffs for coining according to approved weights and fineness. The Mughal currency was named Rupee (from Rupa or Rupaiya). (Though the old name Tanka was abandoned officially people continued to call Rupee Taka, which is today the name of the currency of Bangladesh).

All rupees coined under the reigning king were called Siccas. The Sicca Ruppee contained about 175 grains of silver. The Sicca Rupee had an important political content. On the accession of a new emperor to the throne, the rupees of the former regime were declared sanaut (devalued) and were made subject to a batta (discount). The sanaut rupee was not received into the royal treasury even on discount. In the money market there was a professional class of money changers called shroffs or sarrafs who bought the sanaut rupees at a batta and took them to royal mint for recoining the bullion into Sicca Rupees.

This was the system so long government directly controlled the mints. But with the decadence of the central government after the death of Emperor Auranzeb many changes took place in the imperial administrative system. One of those changes was the practice of farming out the mints to some banking houses. The jagat sheths became the sole farmer of the government mint from 1718. In violation of the long established tradition, the Jagath Seths prevailed on the successive nawabs to introduce the practice of terming sicca rupee as sanaut at the end of three years of its coining and charge batta on them. The triennial recoinage became a regular feature of the Bengal currency system since the ascendancy of the Seths in controlling the mint towns. The sicca sank gradually in three years in the proportion of 116 to 111. It means the rise of a huge batta market. The profits of such a squeezing system were shared by the mint farmer Jagath Seths and the Nawabi establishments.

The sicca and sanaut rupees were not the only currency in circulation. Simultaneously, there were several other currencies operating in the market as medium of exchange. Because of Bengal's constant favourable balance of trade, merchants from other provinces came with their own silver currency to buy Bengal goods. Because of their intrinsic value, all currencies coming from other provinces were acceptable in the Bengal market on payment of adjusting batta. Most of such currencies came from the mints of Arcot, Benares, Coochbehar, Lucknow, Madras, Surat and other provincial mints in India. The Arcot rupee, which was originally minted by the Nawab of Arcot, had a multiple variety because the English, French and the Dutch acquired the right to mint their own Arcot rupee in their own names.

Thus we find in Bengal money market all the Indian currencies including the English, French and Dutch Arcots. The English East India Company had an imaginary currency called Current Rupee. In view of many currencies operating in business transactions the English fixed an imaginary coin as a standard to determine the value of miscellaneous currencies in the market. The imaginary current rupee was ten percent less than a daxmassa rupee. But the circulation of current rupee was mainly confined to Calcutta. From 1756, the English East India Company got the right to coin sicca in their own mint in Calcutta. Thus a new element, Calcutta Sicca, was added to the already confusing currency system.

British period In the midst of all these currencies operating simultaneously in the money market the exchange system was bound to get stifled. Towards establishing a standard currency and only the currency- Sicca Rupee, the East India Company Government had abolished the Dhaka and Patna mints in 1773 and Murshidabad mint in 1777. The Sicca Rupee coined from Calcutta Mint was made the sole currency for business transactions and rent payment. Hastings' currency reform had failed signally. The sanaut rupees of all variety and sorts reigned in the money market. Lord Cornwallis made a currency reform by re-opening the mints at Patna, Murshidabad and Dhaka. He appointed in 1792 a Mint Committee to enquire into the problems of coinage. The Mint Committee recommended for abolishing sanauts in phases and for introducing gold coins to meet the scarcity of silver and its impact on the currency market.

With the establishment of the Company rule the import of bullion virtually stopped. Moreover, in financing the China trade of the Company Bengal silver was used. To meet the scarcity of silver, gold coin was introduced in 1766 and 1769. However, gold failed to take the place of silver. Bengal shrofs and consumers had a strong preference to silver. Thus gold price fell with the rise of silver prices. It made the currency market more confusing. Hastings suspended gold coinage in 1777, but introduced it again in 1780 to meet the silver crisis. But gold mohurs did not get recognition beyond Calcutta. Thus batta on mohurs increased leading to the further fall in gold prices. Cornwallis stopped gold coinage in 1788, but reintroduced it in 1792. He fixed the exchange ratio at 16 sicca for one gold mohur of the Calcutta Mint. He took a daring decision by making gold mohurs like any other commodity in the market. Its price could rise or fall according to market forces. The Cornwallis reform worked and within a decade Bengal got rid of the currency chaos.

The Company's Kingdom of Bengal grew into an all-India empire in the first half of the nineteenth century. In 1833, the nomenclature of British Bengal became British India and Bengal became one of the provinces of British India; Calcutta being the imperial capital. Keeping the imperial consideration in view, the Cornwallisian currency system, (ie free play of various currencies in the money market) was brought to an end in 1835 when the silver rupee of 180g troy 11.12th fine, with the nomenclature of Company Rupee (C Rs and after 1861 only Rs), was declared the sole legal tender throughout British India. The introduction of mono-metallic silver standard did not, however, work entirely satisfactorily. The American Civil War disturbed the regular supply of silver. The increasing habit of the people to sink silver in jewelry and other luxuries had taken a great chunk of bullion out of circulation. The consequence was a scarcity of silver rupee from the late 1850s. The crisis led to the creation and circulation of a private gold ingot currency bearing the marks of various banking houses. The gold coin got circulation and acceptance by virtue of its intrinsic value and also of the people's age-old habit of accepting mohurs. Under popular pressure the government of India gave temporary recognition to the private gold coinage. Sovereigns and half-sovereigns were accepted at government treasuries at the rate of Rs10 and Rs5 respectively.

But the government was in no mood to introduce bi-metallic standard. Instead, a token currency system was attempted. Under the Currency Act of 1861, the government acquired the monopoly of exchange media. All banks and houses of shroffs were denied the right to issue promissory notes and mint coins. A well-regulated and fully guaranteed paper currency system was introduced in 1861 in the name of the imperial sovereign Queen Victoria. The notes were to be issued in denominations of Rs 10, 20, 50, 100, 500, 1000 and 10,000. To facilitate transaction the Rs.5 note was introduced in 1891. The paper notes were issued to the public without limit in exchange for rupees of British gold coins and in exchange for gold bullion at the instance of the controller of currency. The Paper Currency Reserve was to consist of a maximum of Rs 40 million in government securities and the rest in silver coin and bullion.

There was an adverse public reaction to government's adoption of gold standard and closing down of all mints for the free coinage of silver. It was complained that the gold standard was adopted to serve the British interest only. In the face of continued public criticism and poor and anomalous performance of gold standard, a committee under the chairmanship of Lord Herschell, the Lord Chancellor, was appointed to look into various aspects of gold standard. In the light of the Herschell Committee Report, the Government of India made a major reform in the currency system.

The Currency Act of 1893 declared India a Bi-metallic Standard (silver and gold) country and made the government the sole and absolute authority of currency coinage and currency control. The 1893 reform made rupee a token coin with a state guarantee of returning on demand equivalent amount of silver or gold according to its international price at the time. A purely gold exchange standard became operative from 1898. But it did not solve the exchange problem.

Two more Royal Commissions, one in 1913 and another in 1925, were formed to review the monetary standard. In accordance with the 1925 Royal Commission Report the government enacted the Currency Act of March 1927 which established what may be described as a gold-bullion-cum sterling currency and which established a ls. 6d. ratio for the rupee. The ratio, which had superseded the former rate (1s. 4d. = 1 rupee) led to the bitter ratio controversy in the period from 1927 to 1939. The rupee-sterling ratio implied a depreciation of the rupee in terms of gold, and as a result, a rise in the price of gold in terms of rupees. The gold price rose leading to a violent vibration in the exchange system. The Second World War precluded any significant review of the monetary standard. Money supply increased phenomenally during and after the Second World War with its concomitant impact on prices. During this period politics of partition subdued the politics of money supply and exchange. [Sirajul Islam]

See also coins.