§ 2) argued that “gold wanted for exportation is almost invariably drawn from the reserves of banks, and is never likely to be taken from the outside circulation while the banks remain solvent. Where there is a State bank, the bank is usually entrusted with this duty. High rates of 7 or 8 per cent are not obtainable in India all the year round. The account of ‘public deposits’ in the Bank return includes other accounts too, as the Savings’ Bank balance, the Chancery Funds account, and others; and in consequence, till lately the public had but little knowledge of the real changes of the account of our Government, properly so called.
Such persons will have always seen business transacted a good deal despotically; they will have learnt the value of prompt decision and of consistent policy; they will have often seen that business is best managed when those who are conducting it could scarcely justify the course they are pursuing by distinct argument which others could understand. Under any system of banking there will always group themselves about the main bank or banks (in which is kept the reserve) a crowd of smaller money dealers, who watch the minutae of bills, look into special securities which busy bankers have not time for, and so gain a livelihood. They altogether over-estimate the demand for the article they deal in, or the work they do. Our statesmen, it is true, are much more blamed, but they have generally served a long apprenticeship to sharp criticism.
But when their stocks are falling low and there are apparently signs of demand in the _immediate_ future, how long can coinage be delayed safely? To answer this we need to know the maximum rate of output of the Mints, and the maximum rate of absorption of new currency so far experienced. I make it out to be, a serious breakdown there may embarrass the Exchange Banks in London, however intrinsically sound the position of these Banks may really be, in their efforts to assist the Indian market. That sum, therefore, I call the ‘apprehension minimum’ for the present times. If they were to start the busy season with a surplus of 500 or 600 lakhs over what was considered a safe minimum, the reasonable demands of prudence would have been fully satisfied. She also keeps a portion of her gold reserve in London—a practice made possible by the fact that for India London is not strictly a foreign centre. This is the time when the exchanges make it most advantageous to get gold in this way, and when there is least likely to be a demand for sovereigns as a medium of exchange.
In their past relations with the Presidency Banks in the matter of temporary loans, the Government of India have sometimes seemed to attach more importance to preventing the Banks from making any profit out of the loans than to any other aspect of the transaction. Such a Deputy-Governor would not be at all a ‘king’ in the City. The reserve of the London bankers being on deposit in the Bank of England, the Bank always lends a principal part of it.