Financial History 145 Spring 2023 - Page 38

been faced by the difficulty that the Indian masses do not understand any modern currency systems . Numbers of them do not know what checks or paper money are . They want actual hard cash , and they have an incorrigible habit of taking silver and gold coins and beating them into bangles and other ornaments for their wives . This is one form of saving , but the result is that India for years has been known as the ‘ sink of precious metals .’”
Situation in India Becomes Desperate
Early 1918 saw prices rising , and there was not enough currency for everyday commerce . The government attempted to make up for the lack of coinage by distributing council bills of various denominations . But the Indian people were distrustful of them , believing that their issuance meant the government could not meet its financial responsibilities . In March 1918 , there was a run on Indian currency reserves . People in rural districts rushed to cash in their notes at the Redemption Agencies .
According to Israel , “ Redemption was made in gold , but by March the entire reserve of the empire had dwindled to about 34 % of the outstanding currency .” German propaganda had played an important role in creating this situation . It was a difficult time , for the government knew that if just one Redemption Agency ran out of silver and gold coins , the result could be disastrous . There would be much turmoil : military recruitment would cease , the production of armaments would be suspended and export of necessary war materials such as wheat , jute and cotton would halt .
The US Treasury was authorized by Congress ( through the Pittman Act ) to melt up to 350 million US silver dollars and sell the silver bullion to the British for $ 1 an ounce . Above is an 1882-O ( New Orleans Mint ) US Morgan silver dollar .
Senator Pittman wrote of his meeting at Treasury : “ The British ambassador [ Lord Reading ]… frankly confessed to us that in a very few days the Indian government would be compelled to admit that it could not redeem these certificates unless a supply of silver could be obtained , with the result that there would be great disturbance in India . We all knew what a revolution in India would mean .”
Colossal Hoard of Silver Dollars
How could the United States help with the situation in India ? Well , the largest hoard of silver in the world was being held in the vaults of the US Treasury and its mints around the country . In them sat about 490 million silver dollars that had been gathered under the provisions of the Bland-Allison Act ( 1878 ) and the Sherman Silver Purchase Act ( 1890 ). Congress — and Congress alone — had the authority to allow the melting of silver dollars and shipping the bullion to the United Kingdom .
Developing the Pittman Bill
Senator Pittman was made fully responsible for the emergency silver legislation . Although he was motivated to help both his nation and the United Kingdom in the war effort , he also saw an opening to benefit the silver industry . He wrote , “ Our mines would all be closed down if we could only receive the present world market price of silver .” While quite aware of the
The ruins of the Old Silver Mint House at 60 Strand Road in Calcutta , where bullion from millions of US silver dollars ( via the Pittman Act ) was used to produce millions of Indian rupees .
36 FINANCIAL HISTORY | Spring 2023 | www . MoAF . org