IV.-1893-1903. THE SILVER CRISIS. APPOINTMENT OF TWO CURRENCY COMMISSIONS.
(i.) The First Commission, when India put an artificial value on the silver rupee.
25. Silver rupee and its gold value.
Silver rupees which were current in India had been in use in Ceylon from about the year 1676 although the "Company's" rupee was made legal tender only with effect from January 1, 1872 1. The Order in Council of June 18, 1869, rated the rupee at 2 shillings. Until 1893 the currency of India was on the basis of silver freely minted, the gold value of the rupee fluctuating with the gold value of silver bullion. The Government of India were bound by the Coinage Act of 1870 to issue rupees, weight for weight, in exchange for silver bullion. From about 1873 the price of silver stated in terms of gold fell steadily, and early in June 1893 the rupee was only worth 1s. 2id. On June 26, 1893, the Indian Government fixed the value of the rupee at 1s. 4d. and, in order to make the value of the rupee approximate to that rate by rendering the coin more scarce, it closed the mints to the free coinage of rupees and withheld the sale of Council Bills.
Commission appointed.
This action of the Indian Government led to the appointment of the Ceylon Silver Currency Commission, consisting of the Auditor-General (Hon. Mr. James A. Swettenham),as Chairman, the Treasurer, the Principal Collector of Customs, the Chairman of the Chamber of Commerce, the Chairman of the Planters' Association, and four others. The Commission was asked to consider and report as to
26. (a) Effect of falling rate of exchange.
After a careful examination of the evidence and the statistics collected, the Commission found that during the preceding 20 years (1873 to 1893) while the gold price of silver had been falling, the effect of the fall had been as follows :
Mercantile interests.
As far as the merchants' interests were concerned the local merchant had had a greater volume of business owing to the progressive increase of exports and to the increase of shipping calling at Colombo; on the other hand, he had suffered from the harassing influence of a constantly fluctuating exchange and the drawback of the shrinkage of capital engaged in business, when measured in terms of gold.
Producers' interests.
The European and native owners of estates whose expenditure was largely on unskilled labour had benefited by the low exchange. The circumstances of the ordinary labourer who had little or no property had varied very much in different parts of the Island. The standard of living of labourers had increased generally and wages had risen in many districts.
Immigrants' interests.
As regards immigrant labourers, they did not appear to have received any direct benefit from falling exchange, and could only have benefited through the prosperity of the employer enabling him to offer employment to a larger number of immigrants.
English Civilians' interests.
The fall in exchange had brought on the English Civil Servants two distinct sources of hardship: (i.) the process of falling and (ii.) the permanently low value of the rupee. The losses under the first source had been considerable amongst the senior Civil Servants who paid insurance premia and contributions to funds in rupees which were on the average of a very much higher sterling value than would be obtained when the object of the payments came to be realized; and any sums of money saved and retained in the Colony with the ultimate intention of being transferred to Europe on retirement. were now of much less value in sterling than they originally were.
Government interests.
As far as the Government was concerned, the increase of revenue had been accompanied by an increase in the gold debt and gold payments. The prosperity of the producing interests was the main cause of the satisfactory condition of Colonial Revenue, and if that prosperity were materially checked by a change in currency which also effected a saving to the Government on its gold obligations, the direct saving so effected might not be a sufficient compensation for the probable shrinkage of revenue.
General position.
As regards the general position of Ceylon and its trade, the statistics pointed to a general increase of prosperity during the period when the fall of the rupee was most marked. The evidence was conclusive that that fall had not prevented the introduction of all necessary English capital: in fact, there was more capital offering for investment on reasonable terms than had ever been the case before.
(b) Effect of raising gold value.
The Commission was of opinion that up to the present time a bullion silver currency, coupled with a falling rate of exchange, had been for the benefit of the greatest number, and that the sum of the advantages had preponderated over the sum of the disadvantages; but that, as far as they could see, the action of the Government of India in putting an artificial value on the rupee was not advantageous to the general interests of Ceylon.
The Commissioners did not think that a gradual and moderate rise in the sterling value of the rupee would, if equally felt by the currencies of other silver using countries, seriously affect the prosperity of the Colony; but the effect of the action of the Indian Government in fixing the rate of exchange at 1s. 4d. had so far not been to raise the value of the rupee (except for a short period of speculation) above its pre-existing value, but to create a great divergence between the token currency value and the bullion value of the coin, (on June 1, 1893, the divergence was 1/32d. but on February 8, 1894, it had risen to 2¾d.), and it was this divergence in values which they feared would menace the prosperity of some of the Island's staple products. There was no doubt that, if this divergence were large, Ceylon products would only retain their markets by accepting prices so low as to seriously imperil the prosperity of the largest producing classes in the Island. The growing divergence between bullion value and the scarcity value of the rupee would also offer an ever-increasing temptation to illicit coinage.
As regards the future, the Commission was of opinion that 3 things might happen to the value of silver measured in terms of gold: (1) it might remain stationary; (2) it might diminish; or (3) it might increase. The effect upon Ceylon, if she were to take no independent action in each of these 3 cases, the Commission considered would be as follows :
In the first case, producers of tea and coconuts would be handicapped as regards rivals in silver standard countries. In the second case, Ceylon producers would be still handicapped to the extent to which the action of the Indian Government was successful in raising the value of the rupee, above the value of the pure silver contained in it. In the third case, the disadvantage to Ceylon would tend constantly to diminish until it disappeared entirely.
28. What measures it may be expedient to take to protect the interests of the Colony under the altered nature of the currency.
After discussing the remedies proposed, viz.: (a) International bimetallism, (b) a coin of commerce, and (c) a Ceylon rupee, the Commission reported that (a) seemed impossible at the time as all nations would not agree; as regards (b), the subject had already been decided upon by a Royal Commission in 1868 in favour of the British sovereign or the pound sterling; and as regards (c) the Government of India had telegraphed to the Secretary of State on March 16, 1893, that Ceylon must not be allowed to coin in her own mints new rupees resembling the Indian rupee; and Lord Herchell's Committee (1893-1894) had decided that Colonial Governments should not allow any coin which they issue to be so similar to the Indian rupee as to be mistaken for it.
In these circumstances, the Commission was of opinion that a change of currency would be profitable only if silver fell still lower, but disadvantageous in every other case; and in regard to the possibility of Ceylon obtaining rice and other supplies from silver standard countries instead of India, they came to the conclusion that while the course of trade might turn against India, Ceylon must still remain largely indebted to India in that respect. The Commission was therefore unable to advise the Government, of Ceylon to sever its connection with the currency of India, as the risks inseparable from such a change were as. great as, if not greater than, those which might be expected. inaction at the present time.
(ii.) The Second Commission, when the reintroduction of gold caused a scarcity of silver.
30. Sovereign again made legal tender.
English and Australian gold coins were first declared legal tender in Ceylon by Orders in Council dated October 16, 1852, and October 22, 1856, respectively. These Orders. were revoked by the Order in Council of June 18, 1869, which ordained that the "Company's" rupee and its silver subdivisions "shall be the sole legal tender". The Indian Coinage and Paper Currency Act of 1899 had made gold legal tender in India and, as there was an obvious advantage in being able to retain a portion of the Currency Note Reserve in coin with an intrinsic value and small bulk such as the sovereign rather than in coin of artificial value and large bulk like the rupee, an Order in Council dated September 26, 1901, was issued constituting the sovereign a legal tender again in the Island at the rate of Rs. 15 a sovereign, and was brought into force with effect from October 25, 1901, by Proclamation of the same date (Appendix G).
31. Importation of silver rupees discontinued by banks, causing scarcity of silver. A Commission appointed.
When Ordinance No. 13 of 1901 was passed permitting the Commissioners of Currency to receive gold as well as silver in exchange for currency notes, the banks found that they could import gold coins at about 1/16 per cent. cheaper (the rate for gold being about 3/16 per cent. and the rate for silver ¼ per cent.), and they practically discontinued the importation of silver. Their action caused heavy demands on the stock of silver in the hands of the Commissioners. The silver reserve fell during 1902 from over 5 million rupees to less than 2 millions while the gold in the reserve rose to over 6 million rupees. The scarcity of silver was injuriously affecting trade and causing alarm, and it became a matter of considerable anxiety. On 5th November, 1902, the Government appointed a Commission with the Attorney-General (Hon. Mr. A. G. Lascelles) as Chairman to inquire into and report on the existing scarcity of silver in the Colony and to suggest some way of meeting the present difficulty and of preventing its recurrence.
Commission's recommendations.
32. (i.) To meet the existing difficulty.
The Commission recommended the immediate importation of 20 lacs of rupees by Government from India in exchange for gold in the reserve, and suggested that it would be advisable to amend local ordinances by providing explicitly that gold in transit from Ceylon for the purpose of exchanging for rupees, and rupees in transit for Ceylon, may be regarded for the purpose of the Currency Ordinance as a part of the Commissioners' reserve.
(ii.) To meet future scarcity.
The proposals put forward with a view to prevent a future scarcity of silver were
(2) Imposition of an import duty on sovereigns.
(3) Prohibition of importation of sovereigns from India.
(5) Issue of notes of smaller value than Rs. 5.
(6) Importation of rupees by Government.
(7) Allowing the present situation to continue.
(a) it would make Ceylon independent of India for her currency;
(b) it would render unnecessary the bringing down from India of Indian rupees;
(c) it would bring a handsome profit to Government; and
(d) it would be on a stronger basis than the Indian rupee, if absolutely convertible with gold.
The Commission considered (2) and (3) unworkable; (4) and (5) inadequate; and (6) and (7) impolitic. As regards (1) and (8), while admitting the advantages which would ensue if the Colony had a separate rupee coin which would remain in the Island, the Commission was not prepared to recommend its adoption until the question was thoroughly investigated by competent authorities outside the Island, especially as, by issuing its own rupees at the rate of Rs. 15 to the sovereign, "the Colony would undertake the sole burden of a liability which at present is borne by India the liability, namely, to keep up the gold value of the rupee". It therefore suggested increasing the supply of small silver and recommended that section 3 of Ordinance No. 13 of 1901 should be further amended 80 that the Currency Commissioners might have the power to decline to issue notes in exchange for gold coin whenever they thought it inexpedient to increase the amount of gold coin held as reserve. If, however, it was ruled that to refuse to issue notes for a coin which was legal tender was so opposed to sound currency principles and practice that it would be dangerous to adopt it, the Commission saw no satisfactory alternative but the repeal of Ordinance No. 13 of 1901 and also of the Order in Council constituting gold a legal tender. The Secretary of State however did not see how the Ordinance could be amended in the manner suggested by the Commission so long as the sovereign remained legal tender.
The table below shows subsidiary coins minted during the period 1892-1903 inclusive ;
| Denomination. | No. of Pieces. | |
| Silver | .50 | 2,700,000 |
| .25 | 5,000,000 | |
| .10 | 13,500,000 | |
| Copper | .01 | 9,342,487 |
| .0½ | 12,060,000 |
Ceylon Currency British Period 1796-1936 By B. W. Fernando, Chapter IV.
1939, Ceylon Government Press p.13-18
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