A puzzling feature of interwar Anglo-Indian economic relations is the contrast between Whitehall's relatively hands-off attitude to Indian tariff policies, and its insistent hands-on approach to monetary policy issues in the colony. Both sets of issues were, at various times, equally contentious. But while Britain's strategic objectives in India paved the way for the Fiscal Autonomy Convention, the road towards a similar monetary ‘convention’ was never taken. Rather, thanks to Britain's external financial problems, the interwar decades saw initially a tightening, and later a refinement, of London's control over Indian monetary policies. This paper hopes to set out the processes at work more clearly than has been attempted before, and to account for them. The interpretation offered here is consistent with the ‘gentlemanly capitalism’ explanation of British imperialism during the interwar years, and of the postwar de-colonization process.
1 In this paper, the term ‘monetary policies’ is used to represent exchange-rate policies as well.
2 Cain, P. J., and Hopkins, A. G., ‘Gentlemanly Capitalism and British Expansion Overseas: The New Imperialism, 1850–1950’, Economic History Review, 1 (1987);Krozewski, G., ‘Sterling, the “Minor” Territories and the End of Formal Empire, 1939–1958’, Economic History Review, 2 (1993).
3 De Cecco, M., Money and Empire: The International Gold Standard (Oxford, pp. 120–2;Ambirajan, S., Political Economy and Monetary Management: India, 1860–1914 (New Delhi, 1984), p. 169;Presnell, L. S., ‘Sterling System and Financial Crises before 1914’, in Kindleberger, C. P. and Lafargue, J. P. (eds), Financial Crises. Theory, History and Policy (Cambridge, 1981), p. 162;Committee on Indian Exchange and Currency, 1920 (Babbington-Smith Committee), Memoranda and Evidence, app. IIB to app. A, ‘A History of the Indian Currency System and its Present Position and Problems’ by Abrahams, Lionel; The Collected Writings of John Maynard Keynes (JMK), vol. 1 (London, 1971), pp. 75, 80–3.
4 Balachandran, G., ‘Britain's Liquidity Crisis and India: 1919–1920’, Economic History Review, 3 (1993);‘India in Britain's Liquidity Crisis: The Stabilization of 1920’, Papers in Third World Economic History (School of Oriental and African Studies, London, 1990), pp. 3–10.
5 In general, India's gold imports depended on her income, which could be expected to rise as the world economy expanded. During the 1920s, Britain sought an expansionary global economic environment to ease her own postwar adjustment problems. Since Indian gold imports were thought to exert a counter-cyclical influence upon the world economy, Britain's policy-makers felt the need to insulate the Indian economy from global upswings. The exchange rate was the main instrument for this purpose, and the 1920 episode represented an early use of the emerging policy approach. For a more detailed argument, see Balachandran, ‘Britain's Liquidity Crisis’.
6 National Archives of India (NAI), GOIFD, A & F proceedings, no. June 1919–2073-C, ‘Regulation of Exchange between England and India’, Abrahams' memorandum, 26 Jan. 1919; Abrahams to Lucas, 27 Jan. 1919; Meston's note, 17 April 1919; Howard's note, 12 May 1919.
7 JMK, vol. 15, pp. 38–9, 214–15, 234–6;Chandavarkar, A. G., Keynes and India: A Study in Economics and Biography (London, 1990), pp. 107–8; contrast this with the India Office's nonchalant response to the effects of the 1920 stabilization package in India Office Library and Records (IOR), L/F/7/612, Kisch's ‘Note on Exchange and Currency Position’, 5 November 1920, and Howard's ‘Note on the Currency Situation’, 17 November 1920; for Abrahams' influence on Keynes, see Chandavarkar, , Keynes and India, pp. 25–6, 107–8, 191; also see JMK, vol. 15, pp. 38–9, 95–6.
8 School of Oriental and African Studies (SOAS), Addis Papers, PP. Ms. 14/37, Addis's diary entry, 20 Oct. 1919; for an example of the new, post-Abrahams attitude, see the India Office memoranda referred to in the previous note.
9 Even as an Indian government official, Brunyate's attitude in financial matters was rather more London-centred than that of any of his colleagues; see NAI, GOIFD, A & F proceedings, no. Feb. 1916–112–A, Brunyate's ‘Statement of the Case’, 4 January 1916.
10 See, for example, Royal Commission on Indian Currency and Finance, 1926 (Hilton-Young Commission), Minutes of Evidence, Q. 11303 and QQ. 11267–80; SOAS, Addis Papers, PP. Ms. 14/557, Brunyate to Addis, 10 November. 1926; also Brunyate, J. B., ‘Report of the Royal Commission of Indian Currency and Finance—1926’, Journal of the Royal Society of Arts (1926), p. 76.
11 Bank of England (BOE), ADM 20/13, Norman's diary entry of 6 May 1924.
12 IOR, L/F/5/29, p. 517, Abrahams to Meston, 26 Oct. 1906; para. 3 of Financial Despatch no. 3 of the Government of India, 26 April 1907.
13 Two shillings sterling would equal 2S. gold when sterling returned to its prewar parity with the metal.
14 Balachandran, ‘Britain's Liquidity Crisis’.
15 IOR, Mss Eur D523/4, Chelmsford to Montagu, 17 Mar. 1920; Montagu to Chelmsford, 8 April 1920, 15 April 1920, and enclosed memorandum entitled ‘Reverse Councils’, 13 May 1920.
16 NAI, GOIFD, A & F proceedings, no. May 1923–64-A, note by Dutt and Hailey, September. 1922; no. May 1923–72-A, Cook to McWatters, 9 Oct. 1922.
17 IOR, Mss Eur D703/24, Viceroy to Secretary of State, 8 Nov. 1926.
18 IOR, Mss Eur E397/20, Baldwin to Blackett, 24 June 1923; L/F/7/468, f. 16, Secretary of State to Viceroy, 1 May 1923; Hilton-Young Commission, Memoranda, app. 3 to vol. 2, McWatters’ memorandum, app. II, p. 25.
19 Churchill College Archives (CCA), Cambridge, Hawtrey Papers, Htry 1/3/1, text of Blackett's speech to the Associated Chambers of Commerce, Dec. 1923. For a more detailed discussion of the episode, see Balachandran, G., ‘The Sterling Crisis and the Managed Float Regime in India, 1921–1924’, Indian Economic and Social History Review (IESHR) 1 (1990), pp. 19–27.
20 CCA, Htry 1/3/1, Blackett to Hawtrey, 1 May 1923.
21 IOR, L/F/7/468, f. 16, Viceroy to Secretary of State, 23 April 1923. This summary is based on L/F/6/1047, f. 2410, Viceroy to Secretary of State, 5 Feb. 1923, Secretary of State to Viceroy, 6 Feb. 1923, Viceroy to Secretary of State, 31 August 1923, and Secretary of State to Viceroy, 5 Sept. 1923. For a more detailed discussion, see Balachandran, ‘Sterling Crisis’.
22 Federal Reserve Bank of New York (FRBNY), Strong Papers, 1111.1, Blackett to Strong, 13 Feb. 1923.
23 BOE, OV 9/17, Schuster to Niemeyer, 10 Jan. 1929; according to Edward Benthall, politically the most active and well-connected British businessman in India, Cecil Kisch, Secretary of the India Office's Finance Department and the subject of Schuster's remarks, felt no European except himself could effectively control Indian finances; he also appears to have had the ear of the Secretary of State; see University of Cambridge, Centre of South Asian Studies (CSAS), Benthall Papers, box 2, f. 3, Benthall's remarks on p. 97.
24 FRBNY, Strong Papers, 1111.1, Blackett to Strong, 13 Feb. 1923.
25 IOR, Mss Eur E387/22, Cook to Blackett, 26 April, and 3 May 1923.
26 BOE, ADM 25/14, Siepmann to Norman, 31 Jan. 1924.
27 BOE, OV 56/85, Blackett to Norman, 5 Nov., and 10 Dec. 1925.
28 For a more detailed study of the gold standard controversy of 1925–26, see Balachandran, G., ‘Britain, USA and the Indian Gold Standard’, Economic and Political Weekly, 2–909. (1989).
29 Royal Commission on Indian Finance and Currency, 1914 (Chamberlain Commission), Appendices to the Interim Report of the Commissioners, vol. 2, app. XIV, ‘Memorandum on Proposals for the Establishment of a State Bank for India’ by Lionel Abrahams.
30 JMK, vol. 15, pp. 151–203 contains the text of Keynes' State Bank plan; Chamberlain Commission, Final Report of the Commissioners, sec. 5, discusses central banking; for a summary of the Keynes plan, see JMK, vol. 15, pp. 128–32; also see pp. 133–50, 212–19; also see Chandavarkar, Keynes and India, and Bagchi, A. K., ‘Keynes, India and the Gold Standard’, in Banerjee, D. (ed.), Essays in Economic Analysis and Policy: A Tribute to Bhabhatosh Datta (Delhi, 1991), pp. 229–34.
31 The latter emphasis—of depoliticizing decision-making in monetary affairs— was not altogether absent in Keynes' plan. But it was somewhat incidental, and arose in the background of the silver purchase controversy which culminated in the setting up of the Chamberlain Commission; see JMK, vol. 15, p. 143.
32 Sayers, R. S., The Bank of England, 1891–1944 (Cambridge, 1976), vol. 1, pp. 156–60; vol. 3, apps. 9 and 10.
33 BOE, ADM 16/2, Norman's memorandum of 15 Feb. 1921 and enclosure;Boyle, A., Montagu Norman (London, 1967), p. 206;Sayers, , Bank of England, vol. 1, pp. 156–60; by 1927, however, Norman was disappointed enough about the outcome of his efforts to characterize central bank cooperation as ‘melancholic’ and ‘rather a pretence! than deep reality’; see Sayers, , Bank of England, vol. 3, app. 17, p. 100.
34 Meyer, R. H., Bankers' Diplomacy: Monetary Stabilization in the 1920S (New York, 1976);Costigliola, F. C., ‘Anglo–American Financial Rivalry in the 1920s’, Journal of Economic History (1977).
35 BOE, G30/9, Norman to Peel, Viscount, 26 Oct. 1922; also see his letters to Siepmann cited below.
36 CCA, Hawtrey Papers, Htry 1/3/1, Hawtrey to Blackett, 7 June 1923; BOE, G3/179, Norman to Blackett, 31 March 1924.
37 BOE, ADM 25/14, Norman to Siepmann, 12 Sept. 1923; Siepmann to Norman, 31 Jan. 1924.
38 BOE, ADM 25/14, Norman to Siepmann, 12 Sept. 1923.
39 BOE, ADM 25/14, Norman to Siepmann, 14 Nov. 1923; Siepmann to Norman, 31 Jan. 1924.
40 BOE, ADM 25/14, Norman to Siepmann, 12 Sept. 1923.
41 IOR, Mss Eur E397/22, Cook to Blackett, June and 13 June 1923.
42 BOE, G3/180, Norman to Blackett, 21 May 1924; IOR, Mss Eur E397/22, Cook to Blackett, 24 May, and ‘ June 1923.
43 BOE, G14/96, ‘Final Edition’ of ‘Confidential Suggestions’, 19 March 1923; also see the letters cited in the previous note.
44 NAI GOIFD, A & F proceedings, no. 11. 1923–565–71-B, ‘India Office Report of Meeting at Bank of England on 19th March 1923 between Representatives of the Bank of England. the London Office of the Imperial Bank of India and the India Office’, enclosure no. 1 to the Secretary of State's Financial Despatch no. 13 of 3 May 1923; for Indian suspicions of the India Office's attitude towards the Imperial Bank, see proceedings, no. May 1923 60–126-A, Cook's note, 7 Dec. 1922; also see f. no. 2(VI)-F-1928, Kisch to Burdon, 28 June 1928, for more evidence of the India Office's continued efforts to reduce the role of the Imperial Bank of India.
45 BOE, ADM 25/14, Norman to Siepmann. 26 May 1924; also see the papers in NAI, GOIFD, A & F proceedings, no. Dec. 1923–599–605-B.
46 BOE, G3/182, Norman to Blackett, 8 Dec. 1925.
47 BOE, OV 56/52, note by Norman, undated, but attached to the minutes of the committee's meeting of 16 March 1925. The subject was raised in nearly every meeting of the committee until February 1926 when India's gold demand began to level out; also see OV 56/49 and OV 56/54. Noman's letters on gold to Blackett, Niemeyer and Warren (of the Imperial Bank) were all retained by his ‘confidential typists’, and have not come down to us.
48 BOE, GI/317, ‘Note of a conversation between Mr E. C. Benthall and the Governor and Sir Ernest Harvey’, 8 Oct. 1928; rough notes in the same file of a further meeting on 30 November. 1928; Norman to Osborne Smith, 31 Dec. 1928; CSAS, Benthall Papers, box 7, f. 1, p. 9, diary entry of 13 February. 1929 which speaks of a meeting at which Norman, Hatvey, Blackett, Benthall, and Walter Layton (editor of the Economist) discussed the threat of an Indian takeover of the bank.
49 Hilton-Young Commission, Minutes of Evidence, Q. 11000, QQ. 11141–7, QQ. 11623–5.
50 Hilton-Young Commission, Minutes of Evidence, Q. 11140.
51 Hilton-Young Commission, Minutes of Evidence, QQ. 11179, 11627, 11181–3, and 11439–49.
52 Kisch, C. H., Central Banking (London, 1928).
53 CCA, Hawtrey Papers, Htry 1/3/2, Strakosch to Blackett, 17 October. 1925; Public Records Office (PRO), T176/25B, Strakosch's note ‘Imperial Bank of India’, 28 February. 1926; in Sayer's view (Bank of England, vol. 1, pp. 202–3) Strakosch was, along with Norman, one of the pioneers of central banking.
54 Chandavarkar, , Keynes and India, pp. 82, 106–7.
55 PRO, T176/25B, Hilton-Young to Niemeyer, 19 Oct., and reply, 20 Oct. 1926; IOR, L/PO/2/3(i), Chancellor to Secretary of State, 21 Oct., and reply, Oct. 1926.
56 IOR, L/PO/2/3(i), note, 22 Oct. 1926; Kisch to Carter, 20 Oct. 1926.
57 IOR, L/PO/2/7(i), ‘Memorandum on points of controversy between the Government of India and the Secretary of State arising out of the Reserve Bank Bill’, undated; L/F/7/2292, colln. 375, f. 19, pt. 3, Secretary of State to Viceroy, 7 Sept. 1927; Viceroy to Secretary of State, 10 Sept. 1927; Mss Eur D/703/27, Secretary of State to Viceroy, 3 Sept. 1927; also see R. Mathur, ‘The Delay in the Formation of the Reserve Bank of India: The India Ollice Perspective’,IESHR (1988).
58 BOE, OV 56/1, Norman to Strakosch, 26 Sept. 1927.
59 IOR, Mss Eur D703/27, telegram, 14 Sept. 1927; L/PO/2/7(ii), Birkenhead to Irwin, 22 September. 1927; these statements may have been intended to threaten Blackett that a future career in the City ‘depended on his being amenable…‘; according to one of Blackett's successors, such threats were London's stock-in-trade in dealings with Indian civilians; see CCA, Grigg Papers, 2/22, Grigg to H.J. (Rowlands), n.d., but Sept. 1938.
60 IOR, Mss Eur D 703/27, Birkenhead to Reading, 19 Sept. 1927; also Reading to Birkenhead, 15 Sept. 1927.
61 BOE, G1/312, Kisch to Norman, 13 Feb. 1928; IOR, L/PO/2/3(i) Kisch to Kershaw, 2 Feb. 1928.
62 IOR, L/PO/2/7(i), Kershaw's note, 25 Oct. 1927, and Secretary of State to Viceroy, 27 Oct. 1927; BOE, ADM 20/16, Norman's diary entry of Nov. 1927, describing a meeting with A. Hirtzel of the India Office.
63 BOE, G1/312, Norman to Birkenhead, Feb. 1927; Norman to Smith, 9 Mar. 1927; Smith's reply, 22 April 1927.
64 IOR, Mss Eur E397/31, Siepmann to Blackett, 4 Feb. 1927.
65 IOR, L/PO/217(ii), note by Hirtzel, 16 Sept. 1927; also see Mss Eur D703/27 Viceroy to Secretary of State 9 Sept., and 14 Sept. 1927.
66 For Norman's resolve to prevent the South African Reserve Bank coming under the influence of that country's politicians, see Ally, R., Gold and Empire: The Bank of England and South Africa's Gold Producers, 1886–1926, forthcoming book, ch. 4, pp. 103–8; the page references are to the manuscript. I am grateful to Dr Ally for permission to cite his material.
67 The main financial safeguards papers are in IOR, L/F/6/1179 f. 4495, and L/F/5/191; PRO, T160 519/F12471/05/2, T172/16, and T175/45; BOE, GI/310, and 311.
68 BOE, G1/411, Norman to Schuster, 3 Sept. 1930; PRO, T160/F. 12471/05/2, ‘Indian Constitutional Programme: Some Financial Aspects’, Grieve's memorandum, 12 Sept. 1930.
69 CSAS, Benthall Papers, f. 2, diary entry of 20 Nov. 1934, quoting Indian government officials.
70 PRO, T177/16, Waley's minute, 3 April 1933; T175/45, Hopkins's ‘Note on the View of the Financial Advisers’, 29 Oct. 1932.
71 BOE, G1/310, notes of the meeting between Indian representatives from the Round Table Conference and a delegation of London bankers led by Norman, undated but July 1931; see also Norman to Strakosch, 7 July 1931.
72 BOE, G1/314, ‘General Principles upon which Relations between the Bank of England and the Reserve Bank of India will be based’, 3 Oct. 1934.
73 BOE, G1/314, Norman to Kisch, 20 Feb. 1934; OV 56/47, Norman's note on memorandum by Poppiatt, 30 Nov. 1935; Norman had also opposed the South African Reserve Bank's move to open a London branch for similar reasons; see CCA, Hawtrey Papers, Htry 1/23, Norman to Hawtrey, 14 Jan. 1921.
74 BOE, G1/316, Grigg to Norman, 17 Jan. 1934; G1/313, Harvey's ‘very secret’ note, 6 March, 1934.
75 NAI, GOIFD, f. no. 7 (52)-F-1933, report of the India Office ‘Committee on Indian Reserve Bank legislation’, 14 March 1933; Schuster to Kisch, 10 April 1933. Kisch to Schuster, 28 April 1933; Taylor's note, 10 May 1933; Kelly's note, 25 May 1933; Finance Department memorandum, 29 May 1933.
76 BOE, G1/314, Norman to Kisch, 20 Feb. 1934; Kisch to Norman, 26 Feb. 1934; C40/177, Poppiatt's note, ‘Reserve Bank of India’, 16 Sept. 1935.
77 CCA, Grigg Papers, 2/3 Stewart to Grigg, 25 Jan. 1936.
78 IOR, L/F/7/2292, colln. 375, f. 19, Pt. 3, Kisch's ‘Memorandum on Points of Controversy between the Government of India and the Secretary of State arising out of the Reserve Bank Bill’, Nov. 1927.
79 IOR, Mss Eur E397/29, Niemeyer to Blackett, 6 July 1927; L/PO/1/52(ii), Kershaw's note, 3 May 1933; BOE. G14/96, Minutes of the Committee of the Treasury, 26 Nov. 1930;Schuster, G., Private Work and Public Causes: A Personal Record (Cardiff, 1979), P. 122.
80 BOE, G2/10, Hoare to Niemeyer, 21 Nov. 1933.
81 BOE, G1/411, ‘Finance Member’, 23 Oct. 1933; the statement is derived from Norman's short-list of candidates with his remarks against their names.
82 CCA, Grigg Papers, 2/7, letter to Floud, 22 Feb. 1936; 2/9, letter to his father, 6 July 1937.
83 PRO, T160, 426/f. 11548, Grigg to Snowden, 11 Oct. 1929;Grigg, , Prejudice and Judgement (London, 1948), p. 257, pp. 324–5, p. 330;CCA, Grigg Papers, 2/2, Grigg to Chamberlain, 17 Aug. 1934; see also his correspondence with Chetwode in 2/3.
84 CCA, Grigg Papers 2/2, Grigg to Chamberlain, 30 March 1936; also see 2/20, Grigg to Stewart, 23 July 1934.
85 Grigg, , Prejudice, p. 290.
86 Boyle, , Norman, p. 206.
87 CCA, Grigg Papers 3/4, Smith to Grigg, 13 May 1937; reply, 20 May 1936; note of 16 May 1936; also see Prejudice, p. 209; FICCI stands for the Federation of Indian Chambers of Commerce and Industry.
88 CCA, 3/2, Grigg Papers Grigg to Smith, 8 March 1935; 14 Nov. 1935; Smith to Grigg, 18 November. 1935 Nehru Memorial Museum and Archives (NMMA), PT Papers, 105, Smith to Thakurdas, 27 June, 21 July, 10 August., and 10 Sept. 1936.
89 IOR, Mss Eur D714/31, Grigg to Stewart, 14 May 1934; BOE, Gl/316, Kershaw to Norman, 6 Feb. 1934.
90 CCA, Grigg Papers 3/10 has copies of the intercepted mail; Grigg's charges against Smith and his lady friend are also in this file.
91 CCA, Grigg Papers, 3/2, 3/3, 3/4, and 3/10; IOR, L/PO/3/2(i); the Bank of England papers on this episode were not yet open to researchers when this student wished to consult them; the episode is also discussed in Mathur, , ‘Delay’, and Rothermund, D., India in the Great Depression, 1929–1939 (Delhi, 1992).
92 CCA, Grigg Papers 3/5, Secretary of State to Viceroy, 20 Aug. 1936.
93 BOE, G1/318, Taylor to Norman, 15 Nov. 1938; Norman to Baxter, 25 Nov. 1938; Norman to Taylor, 22 Nov. 1938; also OV 56/3, ‘India Confidential’ by Kershaw, 31 May 1938.
94 Gallagher, J. and Seal, A., ‘Britain and India between the Wars’, Modem Asian Studies, 15, 3 (1981), p. 409;Tomlinson, B. R., ‘India and the British Empire, 1880–1935’, IESHR, 4 (1975), pp. 374–7.
95 Also see in this connection, James, H., ‘Introduction’, in James, H., Lindgren, H., and Teichova, A. (eds), The Role of Banks in the Interwar Economy (Cambridge, 1991), p. 5, which discusses, in a different context, the possibility of institutions using (or promoting) financial crises to secure their own position.
96 In Contrast, the South African Reserve Bank, which was also set up with a view to integrating it ‘into the working of the Bank of England’, quite soon became an ‘essential element in helping South Africa to secure its currency autonomy from Great Britain’; see Ally, Gold and Empire, ch. 5; the quotc is from ch. 4, pp. 110–1.
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