¹⁰² For a summary of the controversy _re_ Bank issue _v._ Government issue, see _Report of the Bombay Chamber of Commerce for_ 1859–60, Appendix L, pp. 284–318.
The Department’s duty was confined by law¹⁰³ to the issue of notes in exchange for the amount thereof: (1) in current silver coin of the Government of India; (2) in standard silver bullion or foreign silver coin computed according to standard at the rate of 979 rupees per 1,000 tolas of standard silver fit for coinage; (3) in other notes of the Government of India, payable to bearer on demand of other amounts issued within the same circle; and (4) in gold coin of the Government of India, or for foreign gold coin or bullion, computed at such ratio and according to such rules and conditions as may be fixed by the Governor-General, provided that the notes issued against gold did not exceed one-fourth of the total amount of issues represented by coin and bullion. The whole of this amount was required by law to be retained as a reserve for the payment of notes issued with the exception of a fixed amount which was invested in Government securities, the interest thereon being the only source of profit to the Government. The limit to the sum to be so invested was governed “by the lowest amount to be estimated to which, according to all reasonable experience, the paper currency might be expected to fall.”¹⁰⁴ Estimating on this basis, the limit to the investment portion was fixed at 4 crores in 1861,¹⁰⁵ at 6 crores in 1871,¹⁰⁶ and at 8 crores in 1890.¹⁰⁷ But notwithstanding the growing increase in the investment portion, never was the fiduciary issue based [pg 56] thereon so great¹⁰⁸ as to abrogate the essential principle of the Indian Paper Currency Law, the object of which was to so regulate the volume of paper currency that it should always preserve its value by contracting and expanding in the same manner and to the same extent as its metallic counterpart.
¹⁰⁴ Cf. Sir Richard Temple’s speech introducing the Paper Currency Bill, dated March 25, 1870. _Supreme Legislative Council Proceedings_, Vol. IX. pp. 151–52.
¹⁰⁸ The following table shows the distribution of the paper currency reserve at three different periods: