Indian currency and the imperial ledger: was the gold-exchange standard an elegant monetary machine, or the financial architecture of a subject economy?

John Maynard Keynes, answered from the texts and cited to the page.

The position in brief

The gold-exchange standard is the most economical arrangement yet devised for a country that needs the stability of gold without the expense of circulating it: reserves are held in the standard's currency abroad and convertibility is maintained at one remove.123 India demonstrates it working. The defects to be corrected are the location and management of the reserves and the absence of a central bank, not the principle.4

Sources

  1. The objective standard at which Ex- change Management aims may be an Exchange Standard; but not necessarily so. The characteristic of Exchange Management Moneys is to be found not in their Standard but in their Form. For countries which are small compared with their neighbours, or do not contain independent financial centres of international importance, an Kixchange Standard may be ideal.
    A Treatise on Money Vol I - The Pure Theory of Money, pp. 18–20
  2. The Gold-Exchange Standard may be said to exist when gold does not circulate in a country to an appreciable extent, when the local currency is not necessarily redeemable in gold, but when the Government or Central Bank makes arrangements for the provision of foreign remittances in gold at a fixed maximum rate in terms of the local currency, the reserves necessary to provide these remittances being kept to a…
    Indian Currency and Finance
  3. But in the essentials of the Gold-Exchange Standard—the use of a local currency mainly not of gold, some degree of unwillingness to supply gold locally in exchange for the local currency, but a high degree of willingness to sell foreign exchange for payment in local currency at a certain maximum rate, and to use foreign credits in order to do this—the two countries agree. 14.
    Indian Currency and Finance
  4. Meanwhile other variants of Managed Money were coming into vogue, particularly those which have been discussed under the generic name of Exchange Standards, of which the Indian Rupee has been the VOL. I C classic instance—the Indian Rupee being the subject of the leading theoretical discussions of this method of management and also of its actual operation on the largest scale.
    A Treatise on Money Vol I - The Pure Theory of Money, p. 18

Where the argument is made

  • Indian Currency and Finance (1913), especially "The Gold-Exchange Standard," "Council Bills and Remittance," "The Secretary of State's Reserves and the Cash Balances," "Indian Banking," and "The Indian Rate of Discount"
  • the two years at the India Office (1906–08) that produced it

How the argument was received

Technically influential — the gold-exchange standard became the model for much of the periphery — and politically the most exposed of these positions, written by a serving official of the administering power about the currency of a subject people.