According to the The Economist, “With a few taps on her phone, Lu Qingqing, a twenty-four year old office worker, leapt into the monetary future”, as part of a trial of China’s digital currency, eCNY. That monetary future is already here, the only question being of which currency. Is it central bank digital currency or is it the unchartered world of cryptocurrency, of Bitcoin and its clones, digital tokens, databases and blockchains? Is this the end of paper currency, or will the two coexist in some form?
Although it seems a novelty, we have been here before. Hark back to the late 18th century, when “money” changed from gold or silver coins to paper. The history of money is a continuous trajectory of changing forms, from coins to paper, from paper to plastic, and on to numbers on a computer screen. While looking ahead to the future, it is useful to look back at the past.
The paper trail
In a richly illustrated volume titled Conjuror’s Trick: An Interpretive History of Paper Money in India, Bazil Shaikh, a former central banker, does just that. He weaves together a fascinating narrative of the economic and political history of India through the medium of paper currency, from the early East India Company period to the present day.
The recorded history of money in India goes back to the 6th century BCE of the time of the Mahajanapadas, but its use was perhaps much older, going further back to the Indus Valley civilisation. For more than two millennia, money was linked to its intrinsic value in gold, silver, or copper.
But in less than fifty years after the Battle of Plassey, paper currency as tokens deriving their value from underlying coins gained wider acceptance. Over time, paper money no longer possessed intrinsic value but was based on fiat and the confidence of the public in the laws and institutions of the state. The transformation of money from the physical to the abstract is indeed a conjuror’s trick, a process of re-imagining the idea of money.
The book traces this evolution, beginning with bank notes payable on demand issued by early private banks in Bombay, Calcutta and Madras. The notes issued in different denominations, backed by the East India Company Government, began to supplement the silver rupee of the Mughals, to which it was nominally tied. The Rupee was standardised in 1835 giving the sub-continent a uniform currency and a new anchor for banknotes.
The Paper Currency Act of 1861 ended the privilege of the private and semi-government banks and gave the Government of India the monopoly of note issue. The Rupee acquired its present form with the establishment of the Reserve Bank of India, as the note issuing authority in 1935.
While the development of paper money is chronologically narrated, the book weaves in many anecdotes and vignettes from less-known episodes. One learns of the demonetisation of silver in favour of gold in Europe in the 1870s and its impact on the rupee, and the raid on the Madras harbour in September 1914 by the German cruiser, SMS Emden, to create panic and pandemonium in British India, among many other incidents.
As YV Reddy, the former RBI Governor, writes in the Foreword:
“This book takes the reader along this journey as it happened in India, traversing the by-lanes, exploring little-known note issues of princely states such as Hyderabad and Kashmir and exchange mechanisms that served as money such as Prisoner-of-War coupons, amongst others.”
However, the book is essentially about the design and the iconography of the currency notes. The evolution of note printing, the quality of paper, watermarks, security features, the patterns, and the palette of colours, the imagery and artwork are described in rich detail, not just as a matter of interest in itself but to convey through them a sense of the history of their time. Almost every note that was ever printed features in the book.
While the deployment of imperial symbols of British India evoke the grandeur of Empire, the iconography of bank notes issued after Independence reflect the aspirations of a young nation. For older readers, who grew up with these notes, the images of the Hirakud dam or of the first Indian satellite, Aryabhatta, evoke a nostalgia for a somewhat innocent and hopeful India.
No recent history of Indian currency would be complete without the three episodes of demonetisation: in 1946, 1978 and, in 2016. Ironically, the words of CD Deshmukh, the first Indian Governor of the RBI, sums up these “exercises in futility”. Speaking ten years after the demonetisation of 1946, Deshmukh said:
“It was really not a revolutionary measure and even its purpose as a minatory and punitive gesture towards black-marketing was not effectively served. There was no fool-proof administrative method by which a particular note brought by an individual could be proved as the life-savings of the hard-working man who presented it or established as the sordid gains of a black-marketer.”
The story of paper currency, though interesting in itself, also conveys a fundamental truth about the nature of money. Paper currency disrupted the long established idea of money and profoundly impacted the economic organisation of the society. As the nature of money is being disrupted once again, a look into history adds some perspective to understand the forces of change. From cowry shells to cryptocurrency, the continual reinvention of money is an ongoing process.
Kaushik Jayaram is a former central banker who worked for many years in an international financial organisation.
Conjuror’s Trick: An Interpretive History of Paper Money in India, Bazil Shaikh, Marg Publications.
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