Let the Indian public learn that it is extravagant to use gold as a medium of exchange, foolish to lessen the utility of their reserves through suspicion of the London Money Market, and highly advantageous to their own trade and to the resources of their own money market to develop the use of notes; and their financial system may soon become wonderfully well adapted to the particular circumstances of their situation. The history of the last twelve years has been transitional. The authorities have been—wisely—building up the reserves they ought to have. This process has necessarily diverted funds from the Indian Money Market, and has naturally excited some measure of opposition. But the fruits of cautious growth may soon be reaped. CHAPTER VII INDIAN BANKING 1. In passing from Currency and the Finance of Government to the kindred topic of Banking, we come to a part of the subject where statistics and other information are much less freely available to the outside critic. The published figures are not adequate to tell us much of what we require to know, and the literature of Indian Banking is almost non–existent. I must run the risk, therefore, of sometimes falling into errors of fact, and hope that, if these errors provoke criticism, they will bring to light the true facts at the same time. 2. The Money Market and Banking System of India comprises the following as its four main constituents:— (i.) The Presidency Banks; (ii.) the European Exchange Banks; (iii.) the Indian Joint Stock Banks; and (iv.) the Shroffs, Marwaris, and other private bankers and money–lenders. The first two of these constitute what we may term the European Money Market, and the rest, under the leadership of Marwaris and Parsees, the Indian or Native Money Market,—up–country Banks such as the Allahabad Bank and the Alliance Bank of Simla, which are Indian Joint Stock Banks under European management, occupying, perhaps, an intermediate position. The local money markets, outside the main towns in which European business men have offices and where the bulk of the foreign trade is handled, are entirely in the hands of Indians. 3. How close a connexion exists between the two money markets—native and European—how nearly the rates ruling in one agree with those in the other, and how readily capital flows from one to the other, I am not clear. Some evidence bearing on these points was laid before the Fowler Committee of 1898, but such facts are now fifteen years old. In the pre–1899 period it was not uncommon in times of stringency for the bazaar rate to be appreciably lower than the Presidency Bank rate, and the connexion between the two money markets seems to have been very incomplete. The following quotation from a letter by Mr. J. H. Sleigh, Secretary and Treasurer of the Bank of Bombay, written in 1898 (reprinted in the Appendix to the Fowler Committee’s Report), is interesting:—