845.515/493: Telegram

The Officer in Charge at New Delhi ( Merrell ) to the Secretary of State

399. LL16. For Stettinius from Ecker. Referring your LL8.33 Indian Government and Reserve Bank have 21,000,000 ounces silver in India and assure us they control no silver abroad. Local floating stocks negligible. Assuming bronze coinage continues as at present, combined monthly capacity of two Indian mints for silver is 9,000,000 ounces, if 6,000,000 used for rupees, which is greatest amount that equipment permits, and remainder for 8 and 4 anna coins. If mints operated to capacity silver stocks would be exhausted in September and therefore Government has reduced silver minting to less than 2,000,000 ounces monthly because it fears effect on morale that would follow suspension of all silver coinage. New mint at Lahore expected to be ready for full operation in October 1943. Unlikely that this would be used entirely for silver, but if it were would consume from 1½ to 6,000,000 ounces monthly depending on denominations.

Coinage needs for many months will be well in excess of capacity of three mints. Silver coins needed for three purposes: (1) 8 and 4 anna coins primarily to supply small change. Lack of small change now serious and is disrupting retail trade and causing suffering to the poorer classes. There is danger that resulting unrest might cause serious disturbances. (2) Reserve Bank issues 1 rupee note but climate makes this unsatisfactory for laborers and peasants. Furthermore, Indians are used to metallic rupee and lack of coins is having bad effect on public morale. (3) Indian traditionally turns to silver bullion and coin as saving medium. As result of present lack of silver peasants are hoarding commodities. Government assures us on basis of many reports from officials familiar with local conditions that if silver coins were again available large amounts of grain and other commodities would be released from hoarding.

Fetter has followed silver coinage situation closely and strongly supports Government view that present situation critical. He points out that in view of special Indian conditions use of silver coin to provide hoarding medium is desirable.

Bullion value of silver coin equal to monetary value at 200 rupees per hundred tolas at official exchange rate this equivalent to $1.61 a fine ounce. In May 1943 price reached 139 rupees but now 123 rupees. Unlikely that silver will reach melting price but Government fears that should price reach around 170 rupees coin would be withdrawn and go to open premium in terms of paper rupee. Government informs us that recent high price led to some withdrawals from circulation.

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High price of silver due in part to speculation but also a reflection of inflationary monetary situation. Officials while publicly minimizing inflationary danger are privately alarmed and recent vigorous tax measures indicate governmental concern.

Success of 100,000,000 reserve in controlling silver prices will depend in part on Indians handling of general monetary situation and in part on availability of sufficient silver coin to satisfy hoarding demand for silver. Reserve is worth trying and because of connection between silver, hoarding of commodities, and stability by Indian economy the use of silver reserve can be considered closely related to war effort. [Ecker.]

  1. Telegram No. 275, June 5, 7 p.m., supra.