RECOVERY OF THE EXCHANGES 3s 
the discount rate, hitherto about the same as in Europe, 
to 12 or 139%, and provoked a serious shortage of credit. 
Nevertheless, the internal level of prices in India remained 
nearly constant except in 1898, when there was a sharp rise 
due to a bad harvest; it cannot therefore be reasonably 
concluded either that this contraction increased the in- 
ternal purchasing power of the rupee or that it contributed 
to the development of exports, since #0 fal! in internal 
prices occurred.! 
Nevertheless, the trade balance of India, taken as a 
whole, continued to improve. The sale of “council bills”’2 
was insufficient to ensure remittances from the mother 
country, and it was essential to procure gold. Thus, in pur- 
suance of a law of January 1898, the Indian Government 
began to accept deposits? in gold in London, in exchange 
for which it issued paper rupees in India; i is ar this 
moment that the import gold point of the rupee became effective 
on the basis of the parity set up by the law of 1893. More- 
over, deposits rapidly increased, reaching 8:6 million 
pounds sterling from March 1900 onwards. Finally it was 
decided, so long as the stocks did not fall below § million 
pounds, to place t's gold at the disposal of inhabitants of India 
at the legal rate of 16 pence, if they had foreign debts to pay. 
By this practice an export gold point was also fixed and 
thus the rate of exchange in India was finally determined. 
1 The purchasing power of the rupee, measured by the Indian index, is 
back in 1899 at the level of 1894 (index 121), after having risen slightly (113) 
in 1893 and then fallen sharply in 1896 and 1897 (133 and 171). Mr. 
Kemmerer, in “Modern Currency Reforms,” is right in explaining this 
diminution in purchasing power, which happened in spite of contraction, 
by the bad harvest; he even adds, basing his conclusion on an index limited 
to ten articles and omitting grain and rice in his calculation of the average, 
that the purchasing power of the rupee must have increased but for this 
accident. Nevertheless, a rise in the value of the rupee in relation to the 
pound sterling cannot be attributed either to an increase of purchasing 
power which never occurred, or, more specifically, to the possible stimulus 
on exports of a general fall in prices which also never occurred. 
2 These were bills drawn on the Indian Treasury by the Government 
Agent in London in order to procure gold for the payment of home charges. 
In competition with commercial paper, council bills were a common means 
of settlement with India. 
3 At the Bank of England, on account of “Paper Currency Reserve.”