05 December 2017

British imperialism and the making of colonial currency systems

Wadan Narsey
2016, Palgrave Macmillan, 356 pages,
ISBN 9781137553171

Reviewer: William A Allen, NIESR

Wadan Narsey has for many years been a prominent figure in Fijian politics, campaigning in a hostile environment for openness in government. His book is an updated and revised version of the Ph.D. thesis that he began at the University of Sussex in 1981 and finished in 1988. It discusses an important though somewhat neglected subject, namely the monetary affairs of the British Empire.

It is a difficult book to read, in two ways. First, it is badly written. It makes strong assertions but does not, to my mind, adequately support them with evidence, such as direct quotations from archive papers. And it is very badly edited – for example, a lot of works referred to are not listed in the references at the end. The updating has been cursory. If you want to understand how the Indian monetary system worked in the late 19th and early 20th centuries, Keynes’ treatise of 1913 provides a much clearer exposition.

Second, it makes many allegations of mismanagement, which may be summed up in the charge that the monetary affairs of British colonies were managed consistently in the interests of Britain and against the interests of the colonies. In this, it echoes charges made many years ago by Marcello de Cecco (1974).

There are far too many charges for this review to discuss them individually, and I will mention only some of the accusations that Narsey levels at the monetary management of colonial India.

One is that India was forced onto a silver standard early in the 19th century, when Britain had adopted gold, and was used as a kind of dumping ground for the surplus silver that emerged in Europe as bimetallism was abandoned in favour of gold after 1870. The Indian rupee depreciated against sterling (which was fixed to gold) as the price of silver fell in the late 19th century; the annual payments that India had to make to Britain were fixed in sterling, so the amount in rupees increased. It may be said that the Indian price level must have adjusted to the depreciating rupee; nevertheless the question why India was kept on silver after other countries had shifted to gold demands an answer.

Another charge is that colonial currency boards were required to invest assets equivalent to more than 100% of their liabilities in Great Britain. The requirement, Narsey says, was excessively onerous, and it would have been perfectly safe for some of the assets to be invested locally to stimulate development – as indeed was allowed in the currency board established in Britain under the Bank Charter Act of 1844, which permitted a fixed fiduciary issue, backed by government securities rather than gold. Moreover, the three Presidency banks, which were the preferential receivers of government deposits, were forbidden to lend except on high-quality short-term assets. As a result, the Indian government was unable to relieve periods of severe cash shortage in the Indian banking system, to the detriment of the Indian economy. Narsey provides frustratingly little evidence on the cash shortages in India, merely referring to Ambedkar (1947); Keynes (1913, ch VIII) provides evidence of large seasonal fluctuations in interest rates). Narsey puts the blame for the instability of Indian interest rates on the Bank of England and the Treasury, and claims that their motive was to accumulate gold in London so as to maximise the income of the London money market and reduce the risk of liquidity crises in London.

Thirdly, Narsey claims that the colonies were badly treated by Britain after the Second World War, in that they were unable to get their sterling balances down as quickly as the dominions. This allegation was countered long ago by careful analysis by Greaves (1954).

It is not news that Britain put its own interests first in dealing with its colonies, when there was a conflict. A Treasury official put it very bluntly in 1932, when discussing policy towards sterling:

‘The Mother Country cannot do more, nor can she do less, than to agree in general principle that subject to her own overriding necessities the interests of the Empire would at all times be borne in mind in the framing of general policy.’

(Quoted in Drummond, 1981).

Quite a lot has been written about the sterling area after 1931, but there is rather less about the period up to then, and there are unanswered questions about whether and to what extent Britain damaged its colonies through the monetary arrangements it set up. For all its flaws, Narsey’s book at least addresses the questions.


Ambedkar, B.R. (1947), History of Indian currency and banking, Thaker and Co, Bombay.

De Cecco, M. (1974), Money and empire: the international gold standard, 1890 – 1914, Blackwell, Oxford.

Drummond, I.M. (1981), The floating pound and the sterling area, 1931 – 1939, Cambridge University Press

Greaves, I. (1954), The colonial sterling balances, Princeton essays in international finance, no 20.

Keynes, J.M. (1913) Indian currency and finance, Macmillan and Co, London