Cash of the titans: How India’s paper money came to be
Open your wallet and sing Happy Birthday. Indian paper money is 160 years old this month. Our distinctive series of notes — which today bear the name of the Reserve Bank of India, feature a portrait of Mahatma Gandhi, and effortlessly represent rupees within India and abroad — didn’t exist before 1861.
Of course, we had money long before that. India is one of the first regions in the world to have used coins. Metal bits of various values, issued by local empires, kingdoms, princely states and colonial presidencies, have been circulating for more than 2,600 years. But notes — paper scraps that somehow have the power to make you rich or poor — are relatively recent. They were born with the Paper Currency Act of 1861, which gave the British colonial government the sole right to issue uniform currency notes for its territories in India (which included parts of present-day Pakistan, Bangladesh and Burma).
In a country where paper currency was a very small part of the monetary system, the notes represented not just a new way of doing business. They were a leap of faith.
The British Empire had attempted to impose a currency monopoly a century earlier, in another dominion, with disastrous consequences. In the 13 colonies of British America, where a trade deficit had already put American businesses at a disadvantage, a currency act in 1764 rendered money from local banks useless.
The colonies protested vehemently. “It was seen by some as one of the many triggers that sparked the American Revolution,” says Bazil Shaikh, former principal chief general manager and secretary of the Reserve Bank of India, and author of the 2020 book The Conjuror’s Trick, about the evolution of Indian paper money.
In India a century later, another revolution, the Uprising of 1857-58, had shaken the British. They were heavily in debt from quelling the uprising. “When the Crown took control of India from the East India Company, the question arose, ‘Who repays the debts?’ It was made clear that India would pay for its own suppression,” says Shaikh. “The profit from the introduction of a government paper currency was seen as one of the means of setting right India’s finances.”
Meanwhile, the colony was a mess. Business was still largely conducted in coins issued by the East India Company (EIC) and by princely states. Because the values of the coins differed widely, moving money around was cumbersome, and keeping accounts was complicated.
The local credit-voucher system, hundi, struggled to keep up with large-scale transactions. Local banks, which had been around since 1770, issued their own promissory notes for traders to convert to the local coin. But those could be circulated only within the bank’s immediate region, and were largely in use in big cities.
“At the time, there may have been as many as 100 types of rupees, with different values, circulating within regional circles,” says Mahesh Kalra, a numismatic history researcher and former curator at the Asiatic Society of Mumbai.
To set things right, the Crown appointed its first Finance Member (a kind of finance minister) to the Viceroy’s Executive Council. James Wilson, a Scottish economist, had already displayed a keen understanding of trans-national commerce. He’d founded The Economist and had written most of the weekly publication’s lead articles, establishing his reputation as an expert in market and monetary matters. He’d anticipated the decline of the EIC and founded what eventually became known as the Standard Chartered Bank.
Wilson arrived in Calcutta in December 1859, meeting revenue officials as he made his way to Lahore, and mentioning in his letters back home that India was “a fine country to tax”. A five-point plan was devised. The trading classes would be taxed, an annual budget would be determined for the first time in India’s history, a payments department would be set up and audited, public works and roads would be improved. And of course, while colonies such as Ceylon, the Straits Settlements (modern-day Singapore and parts of Malaysia), Hong Kong, Australia and Canada continued with bank notes, India was to have a consolidated government-issued national currency. Britain had been using paper money for more than 160 years by then.
Wilson’s decision to introduce income tax dismayed the landed classes, businessmen, even small traders. He had to convince them that it was a small price to pay in exchange for an efficient trading environment. The Paper Currency Act, however, faced little opposition.
“Paper notes were the currency of the future – its uniformity was the key to trade,” says Kalra. Indians understood right away that uniform, government-issued paper money would be more secure, reliable and convenient. It would boost the country’s ease of doing business.
“The power to issue banknotes brought with it substantial profits,” says Shaikh.
When a government issued notes, they received, in return, resources in the form of coins, goods or services. Unlike a gold or silver coin that could be melted down for its metals, paper money always cost less to make than its stated value. The difference between the cost of printing and managing the currency and the interest the government gained from the reserve resources would bring profits.
For the Crown, it was a subtle way to establish power. “Indeed, the issuance of a government paper money was also an exercise in triumphant symbolism,” says Shaikh. “Britain’s Bank of England notes carried the image of Britannia (the female personification of the British Isles) at the time. The notes issued for India were amongst the first to carry the portrait of a British monarch, Queen Victoria.”
Wilson’s Act came into force with the first notes of ₹10 and above printed in Britain (the first local press for paper money opened only in 1928). He didn’t live to see them. Wilson died of dysentery less than a year after he arrived in India and is buried in Kolkata. But his ideas changed India’s fortunes.
Shaikh refers to the introduction of paper money as a disruption. “It disrupted the idea of money,” he says. “It introduced the idea that money could take the form of a representative token rather than a metallic coin. It liberated money, and allowed for enhanced liquidity. The issue with paper money was knowing when to stop! How much could be safely issued without destabilising the economy?”
It’s a misstep several countries have made over the centuries, and maintaining a stable currency remains a challenge to financial policymakers all over the world.
For India, British rule brought with it relative political stability and rule of law (of a sort), which helped businesses flourish and strengthened confidence in the monetary system. But the introduction of paper money ushered in a psychological change that the British hadn’t anticipated.
“A uniform currency backed by a central bank is the thing that defines a state,” says Kalra. In a colony consolidated under one ruler, the common currency was a subtle but powerful social unifier — it helped us see ourselves as one nation and ultimately contributed to the idea that India could overthrow imperial rule.
“The history of money, in its transition from coins to convertible notes to fiat money, has reflected a movement from the real to the symbolic to the imaginary,” says Shaikh. As our money gets more abstract still — from credit cards and virtual banking to cryptocurrencies that bypass borders, central banks are working to introduce digital currencies of their own.
“Power shifts are taking place between the state, corporates, communities and individuals, and these influence money,” Shaikh says. “These developments hold promise but also evoke concerns for a reset in the social and economic organisation of society, for surveillance and for human freedoms.”
HEY, BIG SPENDER
Rezwan Razack’s enviable collection of banknotes makes up the world’s only museum dedicated to Indian paper money.
The way he tells it, the Bengaluru tycoon was born into money, and learnt early that it was valuable in more ways than one. As a schoolkid more than 50 years ago, he’d watch his parents and grandparents place the day’s collections in the family safe at night.
“I decided to explore that safe one day,” he recalls. “What I found were a handful of notes that said Reserve Bank of India but also bore the overprint “Pakistan”. I showed them to my grandfather who immediately started cursing.”
It turned out that the notes were interim currency issued for use in Pakistan just after Partition, before the State Bank of Pakistan was established. They were probably passed on by someone who had crossed the border with the money, but they had no value in India.
“I asked my grandfather if I could have them. He happily gave them to me, plus some other old notes,” he says. “Then, on a summer holiday at my uncle’s home in Coonoor, I found more old notes in my uncle’s desk and was allowed to keep them. And so my journey began.”
It’s more obsession than journey. Razack’s quest to collect Indian paper money, a relative rarity in a country of coin-collectors, has made him take trips to Bombay to meet old-note dealers in Fort and Kalbadevi in the 1990s. “Word got out that there’s a mad fellow who buys old paper money, and they’d reach out to me,” he says.
In the 2000s, he’d bid for rare specimens on eBay and other auction sites. And on trips to London, he’d spend weeks in the British Library “from opening time until they threw me out in the evening” poring over the Bank of England’s archives. In 2012, he co-wrote the Revised Standard Reference Guide to Indian Paper Money, a definitive handbook among collectors globally.
Paper notes, fragile, folded away, are harder to find than coins. Razack says his collection now includes some 4,500 unique bank and currency notes from across the subcontinent. There’s a promissory note from the Bank of Bengal, issued in 1812; uniface notes from colonial India; portrait notes of British monarchs and several rare prisoner-of-war coupons and other paper items that once stood for money.
At Rezwan Razack’s Museum of Indian Paper Money in Bengaluru, which opened in February 2020, the collection is now on permanent display. “It’s a different way to look at the story of India,” Razack says. “Most Indian homes have a box of old coins somewhere, but few hold on to old paper money.”