For India as a whole the war years were fat years, though the wealth poured into the country was, as usual, very unevenly distributed, and some sections of the population were very hard hit by the tremendous rise in the cost of living.  Lean years were bound to come in India as elsewhere when the war was over.  But the reaction would hardly have led to such a serious crisis had it not been for complications which have arisen out of the peculiarities of a unique exchange and currency system.  This system presumes a gold standard, but it is in reality a gold exchange system by which, in the absence of an Indian gold currency, the exchange as between the Indian silver rupee and the British gold sovereign has to be kept at the gold point of the legally established rate of the rupee to the sovereign by delicately balanced operations directed from Whitehall.  These consist in the sale of “Council bills” at gold point by the Secretary of State for India when the balance of trade is in favour of India, and in the sale of “Reverse Councils” at gold point by the Government of India when the balance of trade is against India.

The system worked fairly well until the second year of the war, when the balance of trade turned in favour of India and soon assumed unprecedented proportions.  The enormous Indian exports could not be paid for in goods, as the Allied countries had neither goods nor freight available for maintaining their own export trade.  Nor could they be paid for in bullion, as gold and silver were taken under rigid control.  Nor could internal borrowings in India (though the success of the Indian war loans was a phenomenon hitherto undreamt of) suffice to finance the expenditure incurred in India on behalf of the Imperial Government.  The Government of India made very large purchases of silver, which combined with the stimulated world-demand to drive the price of the white metal up to inordinate levels, and to keep pace with this rise and avoid an intolerable loss on the coining of rupees the rate of exchange—­i.e. the rate at which the Secretary of State sells “Council bills” in London—­was raised until it actually reached 2s. 5d. for the rupee.  To meet the balance of Imperial expenditure in India the Government of India issued currency notes against London Treasury bills.

The result of these operations was that at the end of the war the funds standing to the credit of the Government of India in London had been swollen to the unprecedented figure of L106,000,000, a large proportion of which had to be paid back to India when, with the cessation of the abnormal conditions induced by the war, the balance of trade turned against her, and the rate of exchange had been raised from the legal standard of sixteenpence to the rupee to 2s. 5d.  The very important question then arose of the future legal ratio of the rupee to the sovereign or the L1 sterling.  A Committee was appointed to advise the Secretary of State as to the best means of securing