John Bullion's Empire by G. Balachandran

Author:G. Balachandran [Balachandran, G.]
Language: eng
Format: epub
Tags: Social Science, Ethnic Studies, General, Regional Studies
ISBN: 9781136790577
Google: HtuhAwAAQBAJ
Publisher: Routledge
Published: 2014-05-22T04:59:27+00:00

CONCLUSION

The first half of the 1920s was dominated, where Britain’s external economic policy was concerned, by her objective of returning sterling to the gold standard at the prewar parity. Since securing the necessary rise in sterling was expected to depress prices, incomes, and employment at home, British officials remained dependent on an expansionary world economy, and hence upon American monetary policy. Their best hope was that sterling appreciation would be achieved more through a U.S.-led inflation of world prices than through deflation at home. The financial reconstruction of Europe was another important British priority during these years, which she hoped would also be assisted by an expansionary world economy and greater U.S. involvement in financing stabilization schemes on the Continent. Until about 1923, the United States appeared reluctant to respond to inflationist pressures or to Europe’s financial needs, and all Britain could do during these years, apart from some intense lobbying, was to attempt to increase American gold receipts as a means of setting the desired expansion in motion.

Britain’s dependence on external sources of expansion continued, during these years, to dictate her policies in India. Until 1923, Indian gold imports were sought to be restricted to stimulate monetary expansion in the U.S.A. Thereafter, when American economic policies became expansionary, the colony’s counter-cyclical potential to expand its gold imports in a world boom, and thereby checking it, threatened Britain’s principal external policy objective. Thus gold flows to India were feared, or when they were especially large, lamented, because they were thought to represent a diversion of the expansionary impulses generated by the growth in US overseas lending.

Writing in July 1920, Hawtrey at the British Treasury was nervous that the inflationary world environment Britain sought might increase the demand for gold in India, and speculated on the need for deflation to reduce or reverse the flow. But it was also possible to so manage policy in India that any increase in world incomes and prices did not affect the colony, or in other words, insulate India from a global boom. Potentially, the low rupee which prevailed at the outset of the period covered by this chapter was a useful instrument for the purpose, if it could be made to appreciate rapidly enough. The resulting check on Indian prices and incomes could be expected to weaken the colony’s ability to intervene counter-cyclically in the gold market, and help to preserve the expansionary global environment needed to resolve Britain’s external and domestic balance problems smoothly. Hence the price stability argument which played such an important role in the policy discourse of the period.

But rupee appreciation was a double-edged weapon because it also reduced the nominal rupee price of gold. Therefore, unless it depressed prices as well as real incomes rapidly enough or strengthened expectations of a future decline in the nominal rupee price of gold, a policy of currency appreciation could also act perversely to increase the demand for gold in India. Hence Indian exchange rate policies during the 1920s were also affected by concerns relating to the speed of exchange appreciation and the timing of rupee stabilization.

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