30. The other two criticisms quoted above lead on to the general question of how the sterling resources should be held and how they should be divided between the several Reserves. The second of these questions is mainly a matter of book–keeping, but has nevertheless some importance. The Government of India’s present system has no logical basis, is exceedingly difficult to understand, and has often led, in consequence, to a good deal of misunderstanding. The ideal system should be as simple and logical as is compatible with leaving the authorities a free hand to shift and adjust as the necessities of the moment may require. The present system is the outcome partly of historical origins, partly of the authorities not having allowed themselves by law a perfectly free hand. The much criticised practice, for example, of holding six crores of coined rupees in the Gold Standard Reserve is probably due to the provision by which that portion of the Currency Reserve, which is held in London, can be held only in gold. If rupees have to be released hurriedly from the silver portion of the Gold Standard Reserve in India, the authorities have a completely free hand as to the form in which they make the corresponding addition to their sterling reserves in London; whereas, if they are released from the Currency Reserve, the corresponding transference in London must be made wholly in gold coin—a course which may sometimes be exceedingly inconvenient at the moment. 31. If the authorities allowed themselves more latitude as to the manner in which the Currency Reserve might be held, it would be a mere book–keeping transaction to transfer to this reserve the rupees now held in silver in the Gold Standard Reserve and to replace them by a corresponding transfer of gold; but such an arrangement would be more logical and easier to understand. 32. I think, therefore, that there might be considerable advantages in the adoption of some general scheme for the reserves such as the following:— (1) While it would be legal to hold the Gold Standard Reserve in _any_ form—gold, securities, bills of exchange, loans, or rupees—it should be normal in good times to hold, say, £11,000,000 in sterling securities and the rest in gold either in London or India, but preferably in London. (2) Power should be taken to invest a larger amount of the Currency Reserve than at present (say £7,500,000 sterling securities in addition to the rupee securities instead of £2,500,000 as at present), and to hold a prescribed maximum proportion (say one–third) of it in bills of exchange or on loan at short notice either in India or London. All this, after the necessary change of law, could be effected by a change in book–keeping; and in December 1912 the account would have stood as follows (compare the actual state of affairs as given on p. 131):—