Keynes, Ambedkar and the Problem of the Rupee

How two famous economists, John Maynard Keynes and B.R. Ambedkar, debated how India's currency should be managed in the early 20th century.

India’s currency system attracted two remarkable thinkers.

Keynes on Indian currency

John Maynard Keynes, early in his career, worked in the India Office in London. His first book, Indian Currency and Finance (1913), analysed India’s gold exchange standard.

Keynes argued:

The gold exchange standard was efficient: India didn’t need gold coins in circulation, saving resources.
India needed a central bank to manage currency and credit.

Keynes also served on the Chamberlain Commission on Indian currency in 1913-14.

Ambedkar’s critique

B.R. Ambedkar, who studied economics at Columbia University and the London School of Economics, wrote The Problem of the Rupee: Its Origin and Its Solution (1923), based on his doctoral thesis.

Ambedkar argued:

The gold exchange standard gave authorities too much discretion, which could lead to inflation and hurt ordinary Indians.
India should adopt a gold standard with limits on currency issue, to protect the rupee’s purchasing power.

He was especially concerned about price stability for the poor, whose wages lost value when prices rose.

The Hilton Young Commission

Both Keynes’s ideas and Ambedkar’s testimony influenced the Royal Commission on Indian Currency and Finance, known as the Hilton Young Commission (1926), which recommended establishing a central bank for India.

Legacy

The debate foreshadowed modern discussions about rules versus discretion in monetary policy and the importance of price stability.

The inflation worry

Ambedkar observed that when prices rose, workers' wages lagged behind, making them poorer. He argued that a currency system with strict limits would protect them from inflation.

Thinking Ambedkar was only a constitutional expert

He was also a trained economist whose work on the rupee shaped monetary debates.

Key takeaways

Keynes's first book, Indian Currency and Finance (1913), analysed India's gold exchange standard.
Ambedkar's The Problem of the Rupee (1923) worried about inflation and discretion.
Both influenced the 1926 Hilton Young Commission.
The debate anticipated modern rules-versus-discretion arguments.