The situation in the Western world had been settled satisfactorily to the advocates of the gold standard. But the position in India and the East was becoming rather serious. The Indian exchange was becoming a serious factor in determining the money condition of the world. Even previous to 1890 the Indian exchange was falling and in India the rupee or the silver coin was not a token, out, as in China to-day, the standard of weight and value. The position became so serious that international trade and administration were being seriously hampered by the situation brought about by the adoption of the gold standard in the Western countries. The closing of the Indian mints to free coinage of silver was proposed in 1891 and the following remarks of Sir David Barbour, the then Financial Secretary, in the course of presenting the Budget of 1891-92, showed the position of the Government in a clear light:

"The recent action of the United States has, no doubt, to some extent, raised the price of silver and caused a rise in the rate of exchange, but what India requires is not a high rate of exchange rather than a low rate, but some system in which fluctuations in exchange should be neither great nor frequent, and shall oscillate round a fixed point. In this respect we have so far lost rather than gained.

"It is held by some that a low rate of exchange, or at any rate a falling rate, stimulates exports from India, and is beneficial to the country, and, for proof of the correctness of their opinion, they point to the course of trade as it ebbs and flows daily before our eyes. With all deference to my friends who hold this opinion, I believe that it is one of the greatest delusions that ever gained possession of the human mind. Trade between different countries is essentially a barter of goods for goods, and its extent and nature are determined, in the long run, not by the standard of value in use in either country but by the comparative production of commodities in these countries. The truth is that the apparent stimulus to, or apparent check on, exports which accompanies a fall, or a rise, in exchange is followed in each case by a reaction of precisely equivalent magnitude, or is itself the reaction which naturally follows a previous check or stimulus. It will probably be a surprise to most persons to learn that the total fluctuations downwards of exchange since 1873 very slightly exceed the total fluctuations upwards, the difference being, I believe, not more than 3 per cent. While repudiating the theory that trade between England and India is benefited by the absence of a common monetary standard, 1 do not deny that there is such a thing as a good standard of value and a bad standard of value, or hold that the question as to what is the best standard is of no practical importance. What I contend for is that the theory of a beneficial stimulus to trade owing to the fluctuations in exchange between countries having different standards of value is an untenable and mischievous delusion. A sudden rise in exchange such as we had this year will unquestionably check business for a time and cause a depression of longer or shorter duration. But trade must adjust itself in time to the new scale of prices and will then proceed as before. The existence of the Indian tea gardens depends not on the relative value of gold and silver, but on the fact that the people of England want tea and are willing to give iron, coal or piece goods in exchange for it. An alteration in the relative value of gold and silver neither weakens their desire for tea nor reduces the amount of goods which they are willing to give in exchange for it, and cannot, therefore, in the long run, either stimulate or check the production of that article in India.

"The task which the United States has undertaken, of raising the price by purchasing yearly a fixed, though large, quantity of that metal, is one which, if undertaken by any other nation would, I feel convinced, result in disaster; but so great is the wealth of that country, and so rapid its growth, that it would not be safe to say that its efforts must fail. We cannot blame the United States for adopting the course which seems best for its own interests, but I venture to think it would have been better to have at once adopted the unlimited coinage of silver.

"If the United States should adopt free coinage of silver, it is possible that in time the other nations of the American Continent would follow its example, but, whether they did so or not, I should expect that the adoption of free coinage by the United States would lead to a much greater stability in the relative value of gold and silver than we have experienced in recent years, though I am unable to say what the relative value of the two metals might prove to be under such a system. In that case it would probably be best for India to maintain the free coinage of silver for an indefinite period in the hope that a final solution would be obtained.

"On the other hand, if the United States should abandon its attempts to maintain silver as the monetary standard, and should put a stop to its purchases of that metal, a position of serious danger would be created for India. So long as any reasonable hope of a satisfactory settlement of the currency question remains, I think it would be unwise for India to adopt a gold standard; but the circumstances would be entirely changed if the United States altogether abandoned silver, and the question whether India should not in that case simultaneously close her mints to silver is one that deserves serious consideration. I have no right to commit the Government of India to any opinion on the subject, but it is my belief that in case of necessity the gold standard could be introduced into this country, and that, if America altogether abandons silver, it would probably be best that India should change her standard of value. The risks would be considerable and the sacrifices heavy, but almost anything would be better than to accept violent and continual fluctuations in exchange as our inevitable lot for all time, with the prospect of a fall in the value of silver of quite indefinite amount. I mention the matter, not because there is any intention of taking steps in this direction at the present time, but because it is right that the Government of India and the Indian public should clearly understand what they may have to face in the future, and that they should make up their minds as to the course that is to be followed under certain conditions. If the United States abandons silver as a monetary standard, the disease will have run too far to be stayed by mere palliatives and the patient may any day be called upon to choose between a difficult operation or a lifelong disease. If such a change is ever made it will be found easiest and safest to adopt a gold standard at or about the exchange of the day rather than to attempt to establish the higher rate. The great mass of the currency in ordinary use in India would continue to be silver as at present.

"The question of the future of silver possesses not merely a speculative, but an eminently practical interest in India. I have long held the opinion that, however distasteful to the majority of men the currency question may be, and however unwilling we may be to undertake reforms which affect the standard of value, the perpetually recurring evils flowing from a difference of monetary standard between India and the other countries with which her financial and commercial transactions are so important, cannot and should not be endured for ever, and that sooner or later a final solution of the problem must be found; and I am unable to discover any permanent remedy for the evils which, day by day, and year by year, press themselves upon our attention in India, except either the general adoption of the system of double legal tender or the extension of the single gold standard."

Even before the position became acute, when the Indian exchange and the gold price of silver commenced to fall, the closing of the Indian mints to silver and the establishment of a gold standard for India were advocated by more than one person, especially by Mr. A. M. Lindsay. His first proposals were made in 1876 and 1878; his scheme, which was in fact a gold standard without a gold currency, seemed to the Government officials and the leading financers in London an utter impossibility.

Before proceeding with the details of currency reform in India, an understanding of which is absolutely essential to the success of scheme for China, I should give a brief statement of the situation in that country and the result arising out of the changes that took place in other parts of the world. By the coinage act of 1870 the Government of India was bound to issue rupees, weight for weight, in exchange for silver bullion. There was also enforced a notification of the Governor-General in Council, dating from 1868, according to which the Government received sovereigns as the equivalent of ten rupees and four annas; this notification of course superseded the previous one of 1864 which fixed the exchange of the sovereign at ten rupees. This notification had long been inoperative, as the sovereign was then worth much more than ten rupees and four annas.

The fall in the gold price of silver was naturally accompanied by a fall in the gold prices of commodities, and depression of trade was the result. The' gold standard countries were accommodating themselves to new conditions arising, by the reduction of the cost of transport, and the lowering of the actual cost of production. When it was found that it was impossible to bring silver back to its old value, India suffered greatly from the increase in the purchasing power of gold, or because of the larger number of rupees it took to buy the same quality and quantity of material. India was under the tutelage of Great Britain; railways and irrigation works in that country were chiefly constructed with English capital. Of course, the question of exports of raw materials, besides the hoarded wealth of the country in silver, were against any proposals tending to raise the gold value of the rupee. It is beyond my province to go into a detailed discussion of these subjects. The Government was embarrassed at the time as, with a falling exchange, they had to pay a larger number of rupees to meet the sums due on home charges. After all said and done, the British manufacturers' interests were paramount from their point of view. They decided that the situation cannot and should not continue.

In 1893 four possible bases of currency seemed to hold the field; (1) The debased and depreciating currency usually of paper, which, of course, was never intended to be adopted; (2) silver, which they were avowedly upsetting; (3) bi-metallism, which they attempted, and had failed, to obtain by negotiation with Governments of other countries; (4) gold, which to them seemed the only possible currency for adoption.