36 MODERN MONETARY SYSTEMS 
In other words, a new monetary system was set up in this 
way which included a silver currency, to some extent 
fiduciary in character, and had the advantage of the gold 
standard for foreign payments. This is the system which 
the Americans have called the “gold exchange standard” 
and which we may describe as the “System of the Gold 
Reserve! 
Thanks to the gold reserve thus constituted and to the 
fact that the Indian Government issued drafts upon it at 
the same rate at which it was prepared to exchange pounds 
sterling for rupees, the value of the rupee could hence- 
forward (from 1900 onwards) be stabilised at 16 pence, 
even at times, as, for instance, between 1907 and 1908 and 
again in 1914, when the trade balance of India showed a 
large deficit. 
We thus observe the curious fact that the stabilisation 
of the rupee was carried out at the very time when the 
Government was abandoning its policy of monetary con- 
traction and, having resigned itself to a resumption of the 
coinage of rupees, was issuing annually between 100 and 
200 million new rupees, not counting those put back 
into circulation in exchange for gold imported from 
abroad. 
The significance of the monetary reform thus carried 
out in India is obvious, and gives rise to the following 
practical conclusions, the theory of which is reserved for 
a later chapter. It is possible to stabilise an internal silver 
currency in relation to gold at an arbitrary rate superior 
to the market value of the metal contained in the coin, 
by giving it a semi-fiduciary character, if the following 
measures are adopted : 
(1) The suppression, not indeed of all minting—for the 
Government 1s bound to maintain a currency adequate to 
1 This system, set up by the Indian Government as an experiment and 
in self-defence, realised on the whole Mr. Lindsay’s project, which had 
been considered Utopian (see Kemmerer, “Modern Currency Reforms”). 
The law of 1898, under which a gold reserve had been constituted in 
London, was originally a provisional measure of secondary importance, but 
it was prolonged in 19oc and its main clauses became permanent from 
1902 onwards.