The powers that be in India have done a full flip. From trying to encourage people to use more currency notes, they are now trying to incentivise them to use less. Now that the dust has settled on demonetisation, it’s a good time to go back in history. Paper currency may be intrinsic to our lives now, but it was once an alien concept in India.
According to John Maynard Keynes, the idea of paper currency took many forms before we settled on the system we have today. The official issue of paper currency came into effect in 1861 through the Paper Currency Act, and currency was restricted, he wrote in Indian Currency and Finance (1913). “For the first forty years of their existence, the Government notes, though always of growing importance, took a very minor place in the currency system of the country. This was partly due to an arrangement, now in gradual course of abolition, by which for the purposes of paper currency India has been divided up in effect into several separate countries,” Keynes said.
What he meant was that the authority to print the paper currency was divided among seven areas, and the validity of each and every note only extended to that area where it was printed. For example, notes printed in Calcutta were valid currency only in Bengal, Eastern Bengal and Assam, those printed in Madras were valid only in Madras Presidency and Coorg, and so on.
This, he said, was done so that the government would not have to bear the additional cost of transporting coins all over the country. If they were redeemable at fewer places, the cost of transport would be correspondingly lower. However, the objections to such a system were also clear. The geographic restriction of notes in such a manner significantly hurt their popularity and adoption.
In 1903, Rs. 5 notes were universalised everywhere in India except Burma. This restriction was removed in 1909. In 1910, Rs. 10 and Rs. 50 notes were universalised, and in 1911, Rs. 100 notes. And thus were born the Indian currency notes that we know today.
Other notable books such as B.R. Ambedkar’s The Problem of the Rupee: its Origin and its Solution and Bhanoo Bhushon Das Gupta’s Paper Currency in India provide a more detailed narrative on India’s currency issues.
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