Colonial Currency and the Fall of Silver

How British India moved to a uniform silver rupee and government paper money, and how the global fall in silver prices in the late 19th century weakened the rupee.

Under British rule, India’s monetary system changed significantly.

A uniform rupee

In 1835, the East India Company introduced a uniform silver rupee across its territories, replacing many regional coins.

Paper money

The Paper Currency Act, 1861 gave the government the sole right to issue paper currency in India, replacing notes issued by private and presidency banks.

The silver standard

The rupee was based on silver. Its value depended on silver’s price relative to gold, the basis of the British pound.

The fall of silver

From the 1870s, many countries switched from silver to gold standards, and new silver mines increased supply. Silver prices fell sharply against gold. As a result:

The rupee lost value against the pound.
The Government of India’s payments in London, the home charges, cost more rupees.
Indian exports became cheaper, but imports and debts in sterling became costlier.

This period was known as the “fall of the rupee”.

Closing the mints

In 1893, the government closed the mints to free coinage of silver, so private individuals could no longer bring silver to be minted into rupees. This limited the supply of rupees and let the government manage the rupee’s value, eventually fixing it at 1 shilling 4 pence by around 1899.

The gold exchange standard

India moved to a gold exchange standard: the rupee circulated as silver coins and notes, but its value was managed in terms of gold through reserves held in London.

The London payment

In the 1870s, the Indian government must pay a fixed amount in pounds to London each year. As silver falls, it needs more and more rupees to buy the same pounds, straining its budget.

Thinking the rupee's value was always fixed

The rupee's value fell sharply with silver prices in the late 19th century before being managed.

Key takeaways

A uniform silver rupee was introduced in 1835.
The Paper Currency Act, 1861 gave the government sole note-issuing rights.
Falling silver prices from the 1870s weakened the rupee.
Mints were closed to free silver coinage in 1893, leading to a gold exchange standard.