³⁵² In the course of his speech on the Indian Paper Currency (Temporary Amendment) Bill, dated March 17, 1920, the Finance Minister observed: “… from a practical point of view, it is desirable to leave the gold-standard reserve until the paper-currency reserve has been re-transferred, in case … the Secretary of State finds it impossible to keep himself in funds by Councils for his heavy home liabilities. He will then be able to use the gold-standard reserve, and we can credit the gold-standard reserve out here. There is a third point, and I think a conclusive one. When you operate against the paper-currency reserve you have to operate within the paper-currency reserve; when you operate against the gold-standard reserve it disappears; it melts, and we are under no obligation to replace it; whereas we are under a statutory obligation to replace the paper-currency reserve.”—_S.L.C.P._, Vol. LVIII, p. 1416. How can a reserve so small as this carry through the process of retirement to any sufficient extent? That it will not always do it the crisis of 1920 gives abundant proof. But the supporters of the exchange standard maintain that the smallness of the reserve is a matter of no consequence, for the reserve is kept only for the purpose of foreign remittances. That being the case, it is said the reserve need not be large. Granting that it is so, what must govern the magnitude of the reserve in order that it may prove adequate in any and every case? The only attempt made to enunciate a rule of guidance is that by Prof. Keynes. That rule he finds³⁵³ in the possible variations in the balance of trade of India. Now, does this make the problem of regulating the reserve more definite? As has been explained previously, the adverse balance of trade would be due to the depreciation of the currency, so that Mr. Keynes’s statement amounts to this, that the reserve should vary with the depth of the depreciation. But how is a Government to do this? Only by adverting to the movement of the price level. But in all its currency management the Government of India never pays any attention to the price problem. Indeed, as was pointed out above, its conception of the underlying causes of the fall of exchange is totally at variance with the only true conception, nothing but a firm grasp of which can enable it to avert a crisis. Being ignorant of the true conception it blindly goes on issuing currency until there occurs what is called an adverse balance of trade. All it aims at is to maintain a gold reserve, and so long as it has that reserve it [pg 233] ³⁵³ Op. cit., pp. 166–7. _TABLE XLIX_ _Distribution of the Gold-standard Reserve and its Proportion to Rupee Circulation (in Thousands of Pounds Sterling)_