Introduction

Summary

In July 1886 the government of British India asked its consul in Batavia, N. McNeill, for a review of monetary policies and economic conditions in the Netherlands Indies. The silver-based Indian rupee had depreciated continuously against the gold-based pound sterling since 1872. The depreciation increased the burden of India's financial commitments to Great Britain to such a degree that by 1878 the government of India considered the option of basing the Indian monetary system on gold, while retaining its silver currency. The advantages of basing the rupee on gold were not obvious, because India's growing trade in Asia was largely conducted in silver. A changeover to the gold standard could create a disadvantage for Indian producers in their competition with producers in countries with a silver standard.

At that time, Netherlands India was the only country in Asia where the gold standard had been introduced, in 1877. Unlike India, colonial Indonesia did not have its own currency; it used the Dutch guilder as its standard coin. The silver standard was not just abandoned in Indonesia because the Netherlands had done so. The gold standard had in fact been introduced in the Netherlands two years earlier. It was on the ardent advice of N.P. van den Berg, the president of the Java Bank (De Javasche Bank), the central bank of colonial Indonesia, that the gold standard was also introduced in Indonesia. Van den Berg's advocacy appears to have contradicted the general opinion on monetary standards in Asian countries. All Asian countries, except Indonesia, continued to adhere to the silver standard, despite the rapid depreciation of silver.

The Indian government chose to proceed along two paths to solve its monetary problems. It participated in international conferences to achieve an international agreement about measures to stem the depreciation of silver. It also had several committees to study monetary issues and the options open to India.