34 MODERN MONETARY SYSTEMS
value of the rupee whenever the trade balance of India
showed a surplus.
Similarly, it is easy to understand that the possibility of
providing the inhabitants of India with pounds sterling in
exchange for rupees at the same rate would have sufficed
to fix the export gold point when the balance of trade showed
a deficit, and would thereby have consummated the stabil-
isation of the exchange. For, clearly, the restriction of
exchanges within the limits of the gold points in gold
standard countries is not due to the disappearance within
the country of larger or smaller quantities of yellow metal,
but to the fact that there is gold available for foreign pay-
ments. The constitution of this reserve and the fixing of a
rate for the conversion of the internal silver currency only
amounted in the end to a more systematic way of putting
into practice the system which had been empirically set up
in countries formerly bimetallist. These had retained an
ample silver currency having unlimited legal tender; but
by admitting gold alone to free coinage they had made it
into the only currency which they used for the purpose of
foreign payments. They had thus succeeded in maintain-
ing their silver coin at its former legal parity in spite of the
depreciation of white metal.
The Government of India, however, does not appear to
have grasped the full significance of the provision for the
conversion of pounds into rupees, which seemed a side
issue ; nor did it realise the effect which measures for the
reciprocal conversion of rupees into pounds would have
had.
Obsessed by its belief in the automatic effect of con-
traction and by a confused notion that contraction would
increase at the same time the internal and external value of
a currency, i.e., its exchange value, its only concern, in
spite of the protests of the commercial world, was to resist
any new issue of rupees.!
Monetary contraction had at least the effect of raising
1Tn 1898 it even went so far as to consider the melting down of 240
million rupees in order to hasten valorisation and in spite of a general
shortage of credit.
