The Many Promises of the Indian Rupee

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Through centuries, currency has existed in India, changing its shape and form. What does history tell us about demonetisation?

“I promise to pay the bearer the sum of five hundred rupees,” reads the motif of the 500 rupee note. This promise turned hollow overnight, as 86% of India’s cash stock was declared worthless by the Prime Minister.

With long queues at banks and ATMs across the country, demonetization has turned the base problem of fiat currency into a billion lived experiences. People have learned that money is a store of value only as long as the authorities consider it one. But the history of Indian currency has many moments where stores of value became stores of nothing – though not necessarily overnight.

Muhammad bin Tuqhlaq switched from a gold and silver based currency to one of brass and copper, in 1330 A.D. The coins were easily forged by skilled goldsmiths, however, and led to a flood of duplicates that dropped their value dramatically. By 1333 A.D., the new currencies were abolished.

It was in 1540 A.D. that the first official ‘Rupiya’ was minted – this time by Sher Shah Suri of the Sur dynasty. A tri-metal series of gold, silver and copper coins, it would become the standard currency of much of the subcontinent over the next few centuries.

The arrival of the British saw many attempts to impose the Pound Sterling over the local currencies. One such currency, called a dam, is said to have transmuted into the phrase ‘I couldn’t give a damn!’, used by the local British soldiers.

One popular store of value in the 1800s was the seashell, or ‘cowry’. Available in many shapes and sizes, it was a popular form of currency across nations in the Global South.

By the 1800s in India, the British East India Company moved to abolish them, helping trigger the 1817 Paik Rebellion in Orissa. With many poor across the Company’s territories unable to access coined money, they turned to their Zamindars, who enslaved them in debt for the transaction – similar to the gains made by commission agents today. As political economist A.K. Bagchi writes:

“The zamindar tried to meet the situation by demanding higher revenue from the peasants, and when that did not answer, by borrowing from the Mahajans. The peasants generally had to borrow from the moneylenders.”

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Eventually, the British would give up on the attempt to introduce the gold-based Pound Sterling, as most Indians preferred the silver-based rupee. In 1835, a Coinage Act was established for a standardized system.

The 20th century saw the rupee grow into a strong international currency, used across the British Empire, and even in Middle Eastern countries like Oman, Qatar and the states that became the United Arab Emirates. The rupee was first pegged to the pound, then to the dollar following independence.

In 1946, high-value denominations of the rupee (the 1000, 5000 and 1000 denominations) were demonetized, and later reintroduced in 1954. from a set of proven gold reserves. They were then banned again in 1978, though the then-governor of the RBI did not find the move to be very effective in terms of curbing corruption.

Across the world, currencies have been swapped out for new ones. But India may well have set a benchmark for shock demonetization. When the various Eurozone countries swapped out local currencies for the Euro, they were given lengthy timeframes to make the change – with some older currencies holding permanent value. The British pound, on shifting from shillings to a decimal system, allowed citizens time to transition.

The odd nature of fiat currency and online markets means that Zimbabwe’s discontinued 100 trillion-dollar note is now worth more than India’s 1000 rupee note – though at last measure, the latter was worth 92,233,720,368,547,760 of the former.

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(Image: 7MB) A 2005 Zimbabwean dollar, during a hyperinflation crisis

Never before has an entire nation, let alone one with a population of over a billion, been so suddenly demonetized. Historic examples of currency swaps saw a gradual period of transition – though much of the inconvenience was placed on the poor.

Today, despite the prevalence of paper money, value exists in various forms. Converting black money to white is still possible; from sim cards to PayTM wallets, those in the know will always find a way.

What constitutes a store of value changes with the times. India has already seen centuries of such change. The rupee is not going anywhere anytime soon.


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