2. In existing conditions the rupee, being a token coin, is virtually a note printed on silver. The custom and convenience of the people justify this, so far as concerns payment in small sums. But in itself it is extravagant. When rupees are issued, the Government, instead of being able to place to reserve the whole nominal value of the coin, is able to retain only the difference between the nominal value and the cost of the silver.[16] For large payments, therefore, it is important to encourage the use of notes to the utmost extent possible,—from the point of view of economy, because by these means the Government may obtain a large part of the reserves necessary for the support of a Gold–Exchange Standard, and also because only thus will it be possible to introduce a proper degree of elasticity in the seasonal supply of currency. 3. By Acts of 1839–43 the Presidency Banks of Bengal, Bombay, and Madras were authorised to issue notes payable on demand; but the use of the notes was practically limited to the three Presidency towns.[17] These Acts were repealed in 1861, when the present Government Paper Currency was first instituted. Since that time no banks have been allowed to issue notes in India. Proposals for a Government Paper Currency were instituted in 1859 by Mr. James Wilson on his going out to India as the first Financial Member.[18] Mr. Wilson died before his scheme could be carried into effect, and the Act setting up the Paper Currency scheme, which became law in 1861, differed in some important respects from his original proposals.[19] The system was eventually set up under the influence of the very rigid ideas as to the proper regulation of note issue prevailing, as a result of the controversies which had culminated in the British Bank Act of 1844, amongst English economists of that time. According to these ideas, the proper principles of note issue were two—first, that the function of note issue should be entirely dissociated from that of banking; and second, that “the amount of notes issued on Government securities should be maintained at a fixed sum, within the limit of the smallest amount which experience has proved to be necessary for the monetary transactions of the country, and that any further amount of notes should be issued on coin or bullion.”[20] These principles were orthodox and all others “unsound.” “The sound principle for regulating the issue of a Paper Circulation,” wrote the Secretary of State, “is that which was enforced on the Bank of England by the Act of 1844.” In England, of course, bankers immediately set themselves to recover the economy and elasticity, which the Act of 1844 banished from the English system, by other means; and with the development of the cheque system to its present state of perfection they have magnificently succeeded. In foreign countries all kinds of new principles have been tried for the regulation of note issue, and some of them have been very successful. In India the creed of 1861