When, in 1862, the right of note issue was taken away from the Presidency Banks, they were given as part recompense the use of the whole of that part of the Government balances which would otherwise have been received at the General Treasury, or at places where the Banks had branches, provided that sums in excess of a prescribed amount (70 lakhs in the case of the Bank of Bengal), if not held in cash, should be invested in Government paper and other authorised securities. Difficulties very soon arose (in 1863) through the Government’s requiring the use of its funds at a time when the Bank of Bengal could only sell out the securities in which it had invested them at a considerable loss. The system of virtually compelling the Banks to lock up the Government funds in securities, not easily saleable at all times, was plainly vicious, and in 1866 a new arrangement was made by which the Banks were permitted to use the whole of the balances, placed with them for the time being, for banking purposes. This seems to have worked satisfactorily up to 1874. In that year there was a famine in Bengal, and the Government had to buy rice in Burma and send it to Bengal for relief purposes. The rice had to be paid for in cash; but when the Government intimated to the Bank of Bombay that they would have to draw out about 30 lakhs (£300,000), their balance at the Bank then being about a crore (£1,000,000), the Bank was unable to let them have the money. In the correspondence which the Viceroy (Lord Northbrook) raised in regard to this, the Secretary of State (Lord Salisbury) suggested that the Government should release themselves from their engagement to leave their whole balances with the Banks and that they should retain the surplus in their own Treasury, or “lend it for short terms under suitable conditions as to interest and security.” This interesting suggestion, closely anticipating more recent proposals, was not acted on, the Indian authorities thinking it improper that the Government should appear to enter into competition with the Banks. But in 1876 the Reserve Treasury system was set up, the Government undertaking to leave, ordinarily, certain minimum amounts at the Banks and diverting the bulk of the rest of their funds into their own Reserve Treasury. In 1878 it proved inconvenient to divert from the Banks immediately the whole of the proceeds of a newly raised loan, and the Comptroller–General was told that he “would be at liberty, to the extent to which he could conveniently do so, to accommodate the Banks with temporary advances from the Reserve Treasury, provided they were willing to pay interest on such advances at the current rates.” No special security was taken from the Banks for the sums thus lent to them. For some time loans were freely given in this way. In 1889 the Government declared “that any assistance in relief of the Money Market which may be afforded by means of the Treasury Reserve can only be