HC Deb 04 April 1862 vol 166 cc548-53

said, he rose to move an Address for Copy of the Agreement entered into by the Government of India with the Bank of Bengal, for the issue of Paper Money in India. The establishment of a paper currency in India was a question of importance. It had excited considerable interest among the commercial classes out of doors; and, naturally enough, some difference of opinion had arisen on the subject. A paper currency would, no doubt, be a great advantage to the commercial and mercantile classes in India. It would enable merchants to pay sums of money in distant parts of India with far less trouble and expense than at present. So far it would be a great commercial convenience; but that commercial convenience would be very dearly purchased if the currency to be established were not based on sound financial principles. A very general feeling prevailed, that if there was to be a paper currency in India, the paper to be issued should proceed from a bank authorized by the Government, with a separate department of issue, like the Bank of England, but that the paper should not be issued by the Government itself. The reasons for that were sufficiently obvious. India was a country peculiarly sensative and peculiarly liable to sudden commercial and monetary panics. Those panics some times occurred in India without any assignable cause; and if during one of them a run for coin or, bullion should take place, which it naturally would do, to such an extent as to induce a suspension of cash payments as a temporary expedient, it would be far better that such a course should be taken by a bank rather than by the Government itself. In the former case the Government might come forward to assist the bank, to proclaim the frivolity of the panic, and to offer to accept the notes of the bank; but in the latter case, where the notes were issued by the Government itself, the Government, being unable to meet its engagements, would stand discredited in the eyes of the people, and would be practically insolvent. It might be said that that could hardly occur to a Government which usually kept from £14.000,000 to£15,000,000 cash balances its treasury. That, however, was a delusion which prevailed in this country, even among those who professed to instruct the public on matters of Indian finance. Those persons seemed to suppose that the cash balances in the Indian treasury were as available resources to the Indian Government as the cash balances in Her Majesty's treasury would be to the Govern- ment at home; and that therefore they might be used as a security for an issue of paper money. To a certain extent that might be true, but to a certain extent also it was fallacious. What were called the cash balances in the Indian treasury were cash balances in about 300 treasuries, scattered over every part of the Indian empire. Some of these treasuries were 1,000 miles from the seat of Government, and, with the usual modes of conveyance, it would take two months to bring the balances from those distant treasuries to the treasury at Calcutta. It was obvious, therefore, that these cash balances could not be made available at the seat of Government for any sudden commercial panic, and that the only cash balances which could be made available under such circumstances would be those that might be found in the treasury at Calcutta. Now, the cash balances in the Calcutta treasury usually amounted to about 10 per cent of the whole; so that if they calculated the cash balances in all the Indian treasuries at £15,000,000, they might assume that there was about £1,500,000 in the treasury at Calcutta which might be made available for a commercial panic. It was useless, however, to discuss that question; because, by an arrangement to which he was about to call attention, the cash balances were made to disappear and vanish altogether from the scene. When Mr. Wilson was first appointed Financial Secretary to the Government of India, he left this country fully prepared to carry out a system of paper currency in India. He had the advantage of consulting the right hon. Gentleman the Secretary of State for India, than whom there was no one either in or out of that House who, from his previous studies or his great knowledge of the subject, would have been able to give him better advice; and he also consulted the Governor and the Deputy Governor of the Bank of England, who expressed themselves favourable to his views. Accordingly, Mr. Wilson did not lose much time after his arrival in India before he published his programme which was contained in a minute dated from the camp at Meerut, on the 25th of December, 1859. That minute had been justly characterized by the right hon. Gentleman the Secretary of State for India as a very able document. Mr. Wilson did not conceal from himself the difficulties with which he would have to contend in first introducing into the Indian Empire that great invention of modern civilization, the abuse of which had caused such incalculable evils in almost every country in Europe, as well as in America. He understood the character of the people; he knew how suspicious they were of modern innovations; and therefore he endeavoured to take every possible precaution to secure the confidence of the people in the convertibility of his notes. How, then, did Mr. Wilson propose to carry out his plan? He proposed that a paper issue should take place, the security being two-thirds of Government Stock and one-third of coin. That plan came home to this country, and was submitted to the right hon. Gentleman the Secretary of State for India, who disapproved of it, being of opinion that it did not give sufficient security for the convertibility of the notes. The proposal of Mr. Wilson, therefore, was disallowed, and very properly. The right hon. Gentleman had not left them in doubt as to what were his views on the subject. They were expressed in a despatch to the Governor General after Mr. Wilson's minute; and the despatch might be considered as the answer to that minute. In that despatch it was stated by the right hon. Gentleman that so indispensable was it in the first instance to establish confidence in the notes, that beyond the reserve of coin and bullion in the hands of the Currency Commissioners it should be provided that the cash balances in the Indian Treasury should be available to meet any unforeseen demand in payment of the notes. The plan of the right hon. Gentleman was briefly this:—that there should be an issue of £4,000,000, on Government Securities, but all beyond that should be secured by coin; but he was so anxious to secure the convertibility of the notes that he further provided that the cash balances of the Indian Government should be available to meet any unforeseen demand for the payment of the notes. But, in spite of these instructions, the Indian Government had devised, and actually carried into effect, a plan, he presumed under the presiding genius of Mr. Laing, far more dangerous than the scheme of Mr. Wilson—providing, as it did, that Government notes should be issued on the security alone of Government Stock. He referred to the agreement of the Indian Government with the Bank of Bengal for keeping the cash balances. That agreement, which came into operation on the 1st of last March, provided that the Government should open an account with the Bank of Bengal for keep- ing its cash balances there in place of in its own treasury; that the bank should have an allowance of £4,360 yearly, besides being reimbursed by the State for all its expenses; that the State should retain at the Bank a monthly average balance of £700,000; and that the Bank should be at liberty to employ it for its own commercial purposes, just as it did the money of other customers. That privilege would be equivalent to the payment to the Bank of no less than £42,000 a year. When the balances were under £500,000, the State was to pay the Bank on such deficiency the same rate of interest as the Bank charged its other customers. When the average balance exceeded £700,000, the directors were to keep the excess in cash or to invest it in Government Securities. The Bank would adopt the latter course, as it was to receive the dividends. The Bank would thus be always selling and buying Government Securities, and receiving the dividends, whilst the Government would pay any loss there might be upon the transactions. He did not pretend to calculate what might be the loss of the Government under the agreement, but the gain of the Bank would be large indeed. That consideration had caused the enormous rise of £10 per cent which had taken place in the shares of the Bank. He wished the House to observe that the cash balances of the Government, which the Secretary of State deemed so necessary to give security and confidence to the notes, were made entirely to disappear, for they were invested in Government Securities; and that the notes were to be issued upon the security alone of Government Stock. He could not understand how Government Stock could be a security for notes that were convertible and payable on demand.

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words "an humble Address be presented to Her Majesty, that She will be graciously pleased to give directions that there be laid before this House, a Copy of the Agreement entered into by the Government of India with the Bank of Bengal, for the issue of Paper Money in India, —instead thereof.

Question proposed, "That the words proposed to be left out stand part of the Question."


seconded the Motion.


said, that the hon. Member had correctly enough stated the early proceedings with reference to the establishment of a paper currency in India. He believed that a paper currency there, resting on sound foundations, would tend much to develope the resources of India, and promote its commercial interests. The late Mr. Wilson had proposed a plan for that purpose, which in some respects had not been deemed satisfactory. Directions had therefore been sent out from this country on the subject, and an Act had been passed in entire conformity with those directions, it did not provide for the issue of notes for £4,000,000 without any deposit of bullion or coin; but £4,000,000 was the limit beyond which such issue was not under any circumstances to be carried. He had heard with surprise of the arrangement which had been made by the Government of India with the Bank of Bengal. It was not in accordance with the instructions which had been sent out, and it undoubtedly was one such as he should not have been disposed to sanction. But the hon. Gentleman would see that in this case, as sometimes happened in Indian matters, they were in this difficulty—that an arrangement had been made in India, on the faith of which persons were acting, and it would not be fair now to disturb it. The arrangement was, however, only temporary, and must come to an end in five years; and he could assure his hon. Friend that there would be little chance of its being renewed if be had the honour of holding office when the time arrived. The hon. Member was under a mistake in saying that the notes were issued upon Government securities. For every note issued by the Bank coin had been deposited, and at this moment there was coin deposited to the full extent of the paper issue. The temporary arrangement with the Bank could not, as he had stated, very well be overturned. The terms on which it should hereafter be renewed would require very careful consideration, and the hon. Gentleman would allow that he was only exercising a sound discretion in refraining from entering upon that point. As to the production of the papers now asked for, he would suggest that the hon. Member should postpone his Motion for a short time to allow of the receipt of further despatches from India.

Amendment, by leave, withdrawn.