¹²⁴ Cf. Prof. R. P. Falkner in _A Discussion of the Interrogatories of the Monetary Commission of the Indianapolis Convention_, 1898, Publications of the University of Pennsylvania in Political Economy and Public Law, No. 13, pp. 26–26.
On the face of it the Indian currency is also a compound of money and credit, and as such it may be supposed that it contained provisions for expansibility as well as elasticity. But when we come to analyse it we find that it makes no provision whatever for elasticity. Far from allowing the credit part of it to expand and contract with the seasonal demands, the Paper Currency Act placed a rigid limit upon the volume of its issue regardless of any changes in the volume of the demand. Here, then, is to be found one of the causes for the “convulsions” in the discount rates prevalent in the Indian money market. As was pointed out by Mr. Van Den Berg:—
“The paper currency established by the Indian legislator fully answers the purpose, so far as business requires an easier means of exchange than gold or silver coin; but no connection whatever exists between the issue of the fiduciary currency and the wants of the public to have their bills or [pg 63] other commodities converted into a current medium of exchange … and this is the sole cause of the unexpected convulsions and sudden transitions in the money market so utterly detrimental to business to which the British Indian trade is constantly exposed.”¹²⁵