The Government of India appointed the Indian Currency Committee (often called the Fowler Committee) to address instability caused by the rupee’s dependence on silver, whose value had fallen sharply against gold. The committee’s work set the stage for linking the rupee to gold through sterling, rather than circulating large quantities of gold coin in India.
The Fowler Committee recommended fixing the rupee’s value at 15 rupees per British sovereign (1s. 4d. per rupee) and moving India toward a gold-based system. In practice, the goal became a gold exchange standard: the rupee’s value was stabilized using reserves and convertibility into gold via sterling, rather than by putting gold coins into everyday circulation.
The Indian Coinage and Paper Currency Act, 1899 recognized the British gold sovereign as legal tender in India at the fixed rate of 15 rupees per sovereign. This legal change supported the new exchange-rate policy by formally tying Indian currency law to a gold coin that was central to the sterling-based international system.
A Gold Standard Reserve (GSR) was created to help keep the rupee at the official gold-linked rate, especially by supporting exchange operations between India and London. The reserve became a core tool of the gold exchange standard, backing confidence that the rupee could be kept stable without large-scale gold coin circulation inside India.
The Indian Coinage Act, 1906 consolidated and updated coinage law, replacing earlier statutes including the 1899 coinage-and-currency act. While India’s day-to-day money still relied heavily on rupees and notes, the legal framework continued to support a currency system managed around a gold-linked exchange rate.
In Parliament, the India Office described its main objective as maintaining the rupee’s exchange value at 1s. 4d. using the gold standard reserve, sterling reserves, and controlled rupee coinage and draft sales between England and India. This statement reflected how the system worked in practice: policy tools and reserves were used to maintain a fixed external value for the rupee.
World War I created heavy fiscal and payment pressures across the British Empire, including India, increasing demand for currency and stressing reserve arrangements. Emergency measures expanded the paper currency system and altered reserve practices, showing how wartime finance complicated the gold-linked exchange system.
After wartime disruptions and shifting exchange conditions, a new Indian Currency Committee under Babington-Smith was appointed to recommend steps to restore a stable gold exchange standard. It reflected official concern that the earlier arrangements were no longer working “automatically” and needed redesign to regain credibility.
Following the 1919 committee work, reforms in the early 1920s adjusted how paper-currency reserves could be held and valued, including holdings of sterling securities and gold. These changes aimed to make the system more flexible while still supporting a fixed external value for the rupee through reserve management.
The Royal Commission on Indian Currency and Finance (chaired by Hilton Young) reported in 1926 after reviewing India’s currency, reserves, and financial institutions. Its recommendations included major structural changes, most notably the idea of creating a central bank for India to strengthen monetary management.
In the later 1920s, policy moved to a new fixed basis for the rupee around 1s. 6d., and officials used currency contraction and reserve operations to support that rate. The change was controversial because it affected prices, credit conditions, and how the gold-linked system was experienced inside India.
In September 1931, the United Kingdom abandoned the gold standard, suspending sterling’s convertibility into gold. Because India’s gold exchange standard depended heavily on sterling convertibility and London-based reserve mechanisms, this effectively ended the earlier gold-based framework and pushed India’s currency link more directly onto sterling without a gold anchor.
The Reserve Bank of India Act created a statutory basis for a central bank, reflecting the shift from older reserve-and-exchange mechanisms toward modern central banking. This helped consolidate currency and reserve management under a dedicated institution, which was increasingly important after the gold-based international system broke down.
The Reserve Bank of India commenced operations, marking a practical end point for the 1898–1935 era of managing the rupee mainly through sterling convertibility rules and separate reserve pools. With a central bank in place, India’s monetary system moved toward institution-led management, better suited to a world no longer organized around a stable gold standard.
India under British Rule: Gold Reserves, Sterling Convertibility and Abandonment (1898–1935)