What would be the effect on the Secretary of State if he were to lay himself under such an obligation? In order to be in a position to act as universal money–changer, and to be able to provide large quantities of sterling in London in the slack season, and large quantities of rupee funds in India in the busy season, it would be necessary for him to keep very much larger reserves than he does at present in both countries. It might even be necessary for him to remit gold backwards and forwards himself, thus bearing the whole expense of which the Exchange Banks were being relieved. At present the possible fluctuation of exchange between what may fairly be termed the “gold points” on either side of 1s. 4d., acts in some measure as a protection to the currency and lessens the reserves which it is necessary for the authorities to maintain; a falling exchange acts as a drag on remittance from India and a rising exchange as a drag on remittance from London, thus bringing the private interests of individuals and the natural forces acting on the market into greater harmony with the interests of the market as a whole, and with the efforts of the Secretary of State to maintain the stability of the system. If telegraphic exchange were fixed at 1s. 4d., the Indian Bank Rate would closely follow London’s, but it would be at the expense of forcing the Secretary of State enormously to increase his reserves. 7. I have taken this extreme case in order to make emphatic the principles involved in all such proposals. But no one is likely to propose the above as a practical policy. More moderate proposals of the same kind, however, deserve consideration. Some critics, for example, have suggested that the Secretary of State should never sell Council Bills in London below 1s. 4d. This would lessen to a certain extent the probable range of fluctuation in exchange and might, therefore, diminish the risk of loss involved in remitting to India when exchange is high; but the Secretary of State’s withdrawal from the market would not necessarily prevent exchange from falling below 1s. 4d. Moreover, in normal times the policy actually followed already approximates closely to this proposal; in the last three years the occasions on which Council Bills have been sold below 1s. 4d. have been very rare. And in exceptional times it may be some protection to the sterling reserves if Council Bills can be sold at a lower rate if necessary. I conclude, therefore, that the advantage of such a policy would not be great, probably not great enough to outweigh the cost.