3. The second reserve is the Paper Currency Reserve held against the note issue. The constitution of this has been explained in Chapter III. The invested portion may not exceed a stated maximum, of which a part only may be held in sterling securities and the rest must be placed in rupee securities. The whole of the balance must be held in gold or silver bullion, rupees, or sovereigns. But the gold may be held either in London or in India. The actual form in which the Currency Reserve was held at the end of December 1912 was approximately as follows:— Sterling securities £2,500,000 Rupee securities 6,500,000 Gold in London 7,250,000 Gold in India 17,500,000 Rupees in India 8,500,000 Silver bullion in India or in transit 1,500,000 ─—————–──── £43,750,000 ─────—————– 4. The Government’s remaining reserve source of supply of cash in the form of rupees or sterling is the Cash Balances. Both the total of these and the proportions held in rupees and sterling respectively vary within wide limits from time to time. Their total amount fluctuates according to the volume of taxes coming in at different seasons of the year, the recency with which loans have been contracted for capital expenditure, the proximity of extraordinary expenditure impending, the receipts of windfalls of income (as, recently, from the opium revenue), the general prosperity of the country, and the degree of caution or optimism which, in the opinion of those responsible for the finances, the general situation warrants. The proportions held in rupees and sterling respectively depend even more on considerations of temporary convenience,—recent or impending capital transactions in London, the likelihood of sterling funds being wanted for the purchase of silver, and trade demands for Council Bills as a means of remittance. The totals of the cash balances at various dates are given below. CASH BALANCES(a)