The fourth argument against a gold currency is one of fact, and can be neither proved nor disproved except by an appeal to evidence whether or not gold currency has the tendency ascribed to it. But we may ask, is there no danger in a system of currency composed of paper convertible into rupees? Will the paper have no effect on the value of the rupee? The Commission, if it at all considered that question, which is very doubtful, was perhaps persuaded by the view commonly held, that as the paper currency was convertible it could not affect the value or the purchasing power of the rupee. In holding this view it was wrong; for, the convertibility of paper currency to the extent it is uncovered [pg 262] does not prevent it from lowering the value of the unit of account into which it is convertible, because by competition it reduces the demand for the unit of account and thus brings about a fall in its value. Thus the paper, although economical as a currency, is a danger to the value of the rupee. This danger would have been of a limited character if the rupee had been freely convertible into gold. But the danger of a convertible paper currency to the value of a unit of account becomes as great as that of an inconvertible paper currency if that unit is not protected against being driven below the metal of ultimate redemption by free convertibility into that metal.⁴⁰¹ The rupee is not protected by such convertibility, and as the Commission did not want that it should be so protected it should have realized that it was as seriously jeopardizing the prospects of the rupee being maintained at par with commodities in general, and therefore with gold, by urging the extension of a paper currency, be it ever so perfectly convertible, as it could have done by making the paper altogether inconvertible. But so obsessed was the Commission with considerations of economy, and so reckless was it with considerations of stability of value, that it actually proposed a change in the basis of the Indian paper currency from a fixed-issue system to that of a fixed-proportion system.⁴⁰² That, at the dictates of considerations of economy, the Commission should have neglected to take account of this aspect of the question, is only one more evidence of the very perfunctory manner in which it has treated the whole question of stability of purchasing power so far as the Indian currency was concerned. ⁴⁰¹ For an illuminating discussion on this topic, cf. _Money: Its Connection with Rising and Falling Prices_, by Prof. Cannan, 3rd ed., pp. 47–8. ⁴⁰² Report, Sec. 112. If there is any force in what has been urged above, then surely a gold currency is not a mere matter of “sentiment” and a “costly luxury,” but a necessity dictated by the supreme interest of steadying the Indian standard of value, and thereby to some extent, however slight, safeguarding [pg 263] the welfare of the Indian people from the untoward consequences of a rising price-level.