Economic History via Numismatics

Gold, silver and copper have been used as money in India for over 2,000 years, and numismatics offers an interesting perspective on issues such as inflation and exchange rates. India’s modern currency, the ‘rupee’ dates back to the Mughal era, or rather, the reign of Sher Shah Suri, who introduced the first silver ‘rupiya’, a standardized coin weighing 11.4 grams (See Figure 1). This was adopted by the mughals and most of the other Indian rulers, and later on by the British, who introduced milled coinage to India. The earliest British coins minted in India were silver coins of a similar weight, issued in the name of the Mughal rulers, carried Urdu script and the date as per the Islamic calendar. ‘Uniform coinage’ was introduced in 1835 – rupee coins with image of William IIII a coin that we will have no problem recognizing today (See Figure 1). These coins were also 11.66 grams – not very different from Sher Shah’s rupee, and of 91.7% silver.

Figure 1: Silver Rupees of Islam Shah Suri & William IIII

For the next 104 years, up to 1939, the Indian rupee was a coin of uniform weight and purity – the only changes that happened were to the coin’s design – the ruler’s title or portrait kept evolving (See Figure 2). 

Figure 2: Silver Rupees of Bengal Presidency, William IIII, Victoria & George V

Inflation in India

The first devaluation of the Indian currency happened in 1939, when due to pressure of the World War 2, the silver content of the Indian rupee was reduced from 91.7% to 50%. Clearly, anyone holding the old silver rupees would be unlikely to exchange them for the new, half silver rupees – and the old coins quickly went out of circulation. A visual check between the two coins – their colour and luster indicates clearly which is full-silver and which is half-silver (See Figure 3). Just a few years later, in 1945, the Indian government – or rather, the British Indian government, decided to do away with silver in coinage entirely. The 1 rupee coins minted from 1946 onward were entirely nickel – easily checked with a magnet. Again, people caught on and ‘silver’coins – half silver actually – vanished from circulation. Also gone, along with silver, were constraints on government on ‘printing’ more money. A pre-1939 rupee in 2021 has a melt value of Rs 720, while a 1940-45 rupee has a melt value of Rs 390. In both cases, this works out to annual compound interest rate of over 8%, over three-quarters of a century, comfortably beating any fixed deposit!

Figure 3: Silver Rupee of George V & Half Silver Rupee of George VI

Measured against silver, the Indian rupee has lost almost 99.75% of its value since 1945. That’s inflation.

Exchange Rates: Then & Now

A whatsapp forward that keeps doing rounds is on the USD-INR exchange rates – that how it was 1:1 in 1947 and 1:73 today, lamenting the loss of value. Unlike today, when exchange rates are available in real time, reliable exchange rates of over 70 years back are hard to locate. Coinage offers a way out. An Indian rupee of 1945 was 11.66 grams, with 50% silver, or 5.83 grams. The U.S. dollar of the 1940s was a 26.73 gram coin, 90% silver – 24.05 grams. Thus, a U.S. dollar had as much silver as 4.1 Indian rupees – which can be taken as one measure of exchange. Various figures floating around indicate exchange rates ranging from 3.3-4.76 rupees to a dollar.

Figure 4: Half Silver Rupee (India) & Silver Morgan Dollar (US)