Business & Economics

Ideas of India: Decentralized Currency and the East India Company

Shruti Rajagopalan and Shweta Banerjee discuss India’s monetary system before and after British control

The arrival of the East India Company changed India’s monetary system. Image Credit: National Numismatic Collection, National Museum of American History/Wikimedia Commons

Ideas of India is a podcast in which Mercatus Senior Research Fellow Shruti Rajagopalan examines the academic ideas that can propel India forward. You can subscribe to the podcast on AppleSpotifyGoogleOvercastStitcher or the podcast app of your choice.

This episode is the seventh installment of a series in which Shruti speaks with doctoral candidates and postdoctoral scholars about their research as they enter the job market and the world of academia. In this episode, Shruti talks with Shweta Banerjee about Indian currency before the arrival of the East India Company, how the company changed India’s monetary system, demonetization, free banking and more. Banerjee is a Vanier Doctoral Scholar at the University of Toronto. Her dissertation provides a historical view of financial infrastructure in India from 1750 to 1947. She is interested in exploring finance as a site of contestation between early modern and modern states and financiers or bankers. Before entering her Ph.D. program, she spent several years at the World Bank working on financial inclusion, digitization and rural livelihood programs in South Asia.

SHRUTI RAJAGOPALAN: Welcome to Ideas of India, where we examine the academic ideas that can propel India forward. My name is Shruti Rajagopalan, and I am a senior research fellow at the Mercatus Center at George Mason University. This is the 2022 job market series where I speak with young scholars entering the academic job market about their latest research. I spoke with Shweta Banerjee, Vanier Doctoral Scholar, Department of History, University of Toronto about her paper “Sarrafs and the East India Company’s Sphere of ‘General Circulation’ 1800 – 1835,” forthcoming in Critical Historical Studies.

We talked about the decentralized monetary system in the 17th century managed and mediated by the sarrafs and kothis and the sovereign mints of different South Asian monarchs, the system of uniform currency imposed by the East India Company and its various incentives, and the relevance of this imposition to the monetary system of contemporary India and much more.

For a full transcript of this conversation, including helpful links of all the references mentioned, click the link in the show notes or visit Discourse Magazine DOT COM.

Hi, Shweta, thank you so much for being here. This is such a pleasure.

SHWETA BANERJEE: Hi, thank you for having me.

RAJAGOPALAN: You basically study how the East India Company essentially forced out a competitive system of what economists would call free banking—this was obviously happening through paper notes issued, which are sarrafs and hundee and chits and everything that was going on in India at the time—and imposed a single bullion metal currency, which eventually led to a single paper currency.

Currencies in 17th- and 18th-Century India

RAJAGOPALAN: Before we get into your description of how that transition happened, can you give us some context about what was the monetary system in place in the late 17th, early 18th century in India, especially north India where you’re studying this region at the time? Both in terms of what the competing currencies looked like, both bullion and also paper notes, and this intricate network of issuing agencies and clearing houses or the kothis, which are essentially providing the scaffolding for what is a very sophisticated trading network that is going on at the time in India.

BANERJEE: I think it’s interesting to see how these two institutions, the mint and then the sarrafi pedhi the banking house shift in the 18th century in a post-Mughal world, that are manipulated or thwarted in many ways by the colonial state and different types of colonial states—but we can get into that later. One thing which is interesting or very clear about the mint is that in the Mughal system, besides Surat mint, all the other mints were quite tightly controlled.

The royal ateliers designed the coin, and it was an integral part of the sovereign’s household economy. The Mughal sovereign even had a traveling mint called the Urdu camp that traveled with him, as he went into his expeditions. Now, in the 18th century, in the post-Mughal state, we see this shift away from the royal atelier into the bazaar. There’s a greater intimacy of the sarrafi pedhi and the sarrafs as a professional class with the state.

At that time that that’s happening, where you see the mint moving into the bazaar, you also see a proliferation of the network, the agents, the gumashtas [agent] the proliferation of paper monetary media. Then finally you see the East India Company wanting very anxiously to move the mint away from the bazaar into the katcheri and making it an extension of the government bureau.

I think that is a very nice and neat story of the mint that I’m trying to lay out. The bank or the sarrafi pedhi doesn’t change hands so neatly. It’s a much more confusing, chaotic transition. I think, broadly speaking in the 18th century, what you have is no dearth of monetary media, especially not in the urban centers. You have an opening up of the production of money.

You have this very interesting—I think this phrase encapsulates the relationship between the media. It’s a Persian phrase called kaghaz-e-zar, kaghaz is paper and zar is metal. This relationship—and symbolically one represents the bank and the other one the sovereign—is the crux of the monetary landscape, if you will.

RAJAGOPALAN: One thing, before we get into the details of exactly the movement of the mint, which is what you track in your paper, I’m curious about the relationship between the sarrafs and that network and the mint. Like you said, there is paper, so there is lots of different monetary media, which are issued by different individuals and different houses. They’re all backed in some way by metal.

How does that function exactly? Because the number one question when you think about a monetary system is, especially when it comes to free banking, how do we prevent individual issuers from overissuing? That’s always the main question. How did that balance exactly work when it came to the bazaar, before we get into what the East India Company did?

BANERJEE: One thing that is very clear is that the post-Mughal states were greatly indebted to bankers, or sarrafs. The royal treasury, even if you look at the most famous of them all, Jagat Seth, for instance, the royal treasury came to be managed by key sarrafs who stayed in the Baroda state, who stayed in the Benares state; you see it in the Bengal state.

Even though there was no central bank of Baroda or whatever it is, there is a very clear intimacy in terms of these debt relations, out of which the hundee was the key representative of that. And also the production of metallic money—when I say production of metallic money moved to the bazaar, what I mean is that the mint was then granted as a contract to the highest bidder, someone trusted by the sovereign, for a period of two years or so.

This is not to say that the sarraf could print money in his own name. He published in the name of the king, but it was something that he took over as an amanath, as a trust, as a deposit from the sovereign. The other interesting thing was that the coin was published in the name of the Mughal sovereign, but also in the name of the Benares Raja. There was a dual nesting of power that showed this tributary relationship that had emerged in the 18th century.

The Fraud Problem

RAJAGOPALAN: The first question always is, how do we make sure that there is no fraud? How do we make sure that each coin that is issued is actually of the same value and no one is skimming off the top, so to speak? Then it’s the same question with the clearinghouses.

How do we make sure that the relationship between the paper media and what it is getting backed by, which is the metal in this case, whether it’s issued privately or whether it’s issued in the name of the crown, remains tight and there isn’t an over issuance? What were the checks and balances at the time, pre-East India Company, post the decline of the Mughals, that actually made the monetary system function in a completely decentralized way?

BANERJEE: I’ve looked at some of these minting contracts that were issued by the Baroda state, for example, to various sarrafs. The contract is very specific. It’s called kalambandi, and it will tell you, this is the merchant from whom you’re supposed to procure the metal in the bazaar. It will tell that when the metal is actually melted, you’re supposed to have the presence of a government representative.

The mint itself, if you imagine it like a karkhana [warehouse], so it has two or three rooms—one chaabi [key] of the room will be with the sarraf and one will be with the representative of the government. It’s literally a shared jurisdiction in that way. There have been instances—for instance, the Benares raja was not happy with the quality of a debased coin one year, and he reissued that contract with somebody else.

There was supervision like the khatas or the account books, the registers, if you will—they were sent to the royal court, and they oversaw that. And they looked at the data; they looked at how much mixing was done. They had their own sarrafs whom they would hire to go and make sure that there wasn’t too much debasement. Things like that were being done, and there was supervision.

Now, when it comes to the pedhi itself, it was more hands-off. I don’t think that it was so direct. You have instances, for instance in Rajasthan, the Jaipur raja, et cetera, where you have the rates of the hundees. Each hundee was issued at a certain rate, so the rates were compiled and then shown. Are these too high? The rajas were themselves participants in the hundee market. They were using these bankers to transfer their own tributes and revenue. They were very much impacted by the prices, et cetera. In terms of actually managing the amount of hundees these are being issued, that was left to the group of—

RAJAGOPALAN: The decentralized network.

BANERJEE: Yes. Mostly it was, for instance, in Benares, it was naupatta sabha [a council of nine bankers]. Similarly, each city, Ahmedabad had a very, very tight network of eight or nine key prominent bankers. Baroda had eight pothedars. Like that. They were the ones who would then decide. I think also there was an incentive. Your naushak or credit rating as a banker was impacted by the amount of hundees you were able to honor and dishonor. You would go under and you would lose your reputation if there was too much.

RAJAGOPALAN: It’s quite interesting. This sounds a lot like the free banking system in Scotland and the reputational element, which is all the clearinghouses are the checks and balances in a competing system for each other. If someone misbehaves or defrauds, then immediately there’s a mechanism to kick them out of the network. There is a disciplining mechanism, even in a decentralized system where it’s not the sovereign that’s actually punishing any of the bankers who are issuing these notes.

East India Company Incentives

RAJAGOPALAN: Now the East India Company comes in, and obviously, they want to control the monetary system. Before you walk us through what you describe beautifully in your paper on how they switch and try to take control through this general circulation mechanism, what are the incentives for the East India Company to come and disrupt this monetary system and take it over with the homogenized system? What is going on at the time with them?

BANERJEE: The East India Company at first, they are, again, a participant in this landscape. They are themselves very dependent on credit from these bankers. They appoint Lala Kashmiri, for example, as the state banker and other bankers in Baroda, et cetera. They are dependent on the hundee network to transfer their own tributes, to transfer their own money. If they’re fighting a war in the Carnatic, it’s the Surat bankers who are transferring the money via Bombay, et cetera.

They are participants in this network. Then after Plassey and subsequently Diwani, you see a shift in the sense that they are now the company state. What that means, they are looking at themselves as zamindars, that is being awarded Bengal by the Mughal sovereign. Or they’re actually imagining themselves as something else, that Phillip Stone and others have looked at, that transformation of the company state itself.

Managing or governing money is a big part of becoming a state. That comes from both the idea of sovereignty as it’s being practiced in England, where credit is a public good. The Bank of England is functioning. The sovereign dabbles actively in credit, in raising credit from its subjects. Now, this is something that South Asian sovereigns don’t do; they take revenue, but they don’t borrow from their subjects. It’s not part of sovereignty. The sovereigns are supposed to be liquid, not in debt. I think that line, the company has no problem blurring because they are not a South Asian sovereign.

RAJAGOPALAN: Once again, when it comes to the interests of the Company, you’re saying that to enable the British crown’s ability to raise debt now in a new territory, which is India, the East India Company being the instrument to allow the crown to do that is their big benefit. That’s the big incentive because their charter comes from the crown. Is this a good way to think about it? Is that the quid pro quo that is taking place?

BANERJEE: I think there are multiple incentives. A, one has to transfer the revenue that they collect from South Asia into England. That’s the money transfer mechanism, and they don’t want to use the Indian Ocean network. They would rather use their banks and give them profit. The other is to raise debt itself. How do we borrow more money? The company is constantly in debt.

RAJAGOPALAN: Getting bailed out.

BANERJEE: Exactly.

RAJAGOPALAN: The British crown and the Parliament is constantly bailing out the East India Company. It might be one of the first big corporate bailouts in human history. Is this why they are making sure that they are not disenfranchised by the crown? This is the quid pro quo to pay back. That’s the way I read it.

BANERJEE: That is definitely one of them. Hastings himself at one point, Warren Hastings, said, “I want to establish my own bank,” because he’s making so much money personally. He doesn’t want to show it to the crown. As the parliamentary scrutiny over the company increases, especially with Burke and others in England, you see more interest in monetary governance and more centralization of monetary governance in South Asia.

RAJAGOPALAN: Now we are at an interesting juncture because you are telling us about the standardization of currency that is taking place in—it all starts in 1770, but this is really happening in 1835. This is before the mutiny. This is before the crown takes over what was previously a company state. This is well before the British crown has taken over company assets in India. The currency that is uniform is actually issued in the name of the British crown. To me it feels like this is the first moment of when the crown comes into some form of direct administration of the Indian subcontinent. Is that a good way to think about it? This is brought in through the monetary system?

BANERJEE: Yes, I think you’re right in the sense that when it comes to monetary governance, 1835 is more of a rupture than 1857, for sure. It’s a culmination of this process that’s been tried from 1770 onwards with really very mixed and very inadequate results. It’s constant work, and it’s constant failure also. Finally, when James Prinsep is leading this Uniform Currency Act in 1835, it’s almost as if it came three decades too late.

But I think that’s also reading back into those three decades because even in 1800, you see the map of the company, there’s different dispersed presidencies that have huge tracts of land that are not under their governance. It’s very hard to imagine in 1800 something like the uniform currency. But in 1835, they can imagine it. I also argue in my dissertation that the Calcutta mint did not have the capacity to fulfill the coin requirements of the region up until industrialization and the mint becoming totally industrialized, which happened after 1830.

Mint as Locus of Control

RAJAGOPALAN: Yes. It’s taken us a long time to get into this particular paper that’s about to be published. Can you walk us through the mint as the locus, and both the physical location of the mint and also the control of the mint on how this transition takes place eventually toward this general circulation, which is being imposed on India?

BANERJEE: If you look at the Benares mint, which I think is a really great prism to understand how it worked, is that Benares itself, even today, when you go to the old city, you see a very clear distinction between the old city and the cantonment area. That goes back to the company time. The Benares bazaars were entrenched in the money production process. It was led by the sarrafi network and under supervision by the Benares raja. This contractual system was first made void by the company where it takes over direct supervision of Benares.

Then there’s a special reconfiguration of the production itself. The mint katcheri is designated. There’s armed military around the area. It’s a very different special power dynamic, if you will, as compared to the bazaar itself, where anybody could actually walk up to the mint and exchange. It was also free minting. There’s that, and then it’s not enough. They still are having to involve these sarrafs within the process of design and stuff. What they then do is turn to delegitimizing their skill, their expertise, and also casting them as corrupt. Corruption becomes a tactic.

RAJAGOPALAN: I found that deliciously ironic, that the East India Company is actually accusing other people of corruption—

BANERJEE: Corruption. Yes. [chuckles]

RAJAGOPALAN: —in that time, right? This is tragic, but there’s an irony buried in there somewhere.

BANERJEE: Yes, exactly. All the while, Hastings trying to move his earnings out without crown’s scrutiny. This whole thing is bizarre. This idea of the mint master, or the S.A. master not being a sarraf—I think that’s something because that image of who a mint master is stays with us for a very long time, up until 1950s almost. It’s a European man with scientific expertise.

Essentially, it’s a way of taking the mint—Polanyi would say disembedding; I want to move away from that term—but taking it, moving it away from the bazaar and the sarrafi networks. All the while not having their own expertise that can do this. All the while publishing in the name of Shah Alam, the Mughal emperor. There’s a lot of contradictions there, but essentially, the profits from the mint are something they go after first. Getting the profits from mint production, and then finally moving into a system where they are tightly controlled by Kolkata.

RAJAGOPALAN: Yes. No, and so, there’s something very interesting going on here. In public choice theory, we call this the theory of the Bootleggers and Baptists. When you’re trying to push through any particular reform—for instance, in the state of Georgia, where they have prohibition on Sundays, there’s two interest groups that form strange bedfellows. And one is the bootleggers because they can profit from it. One is the Baptists because they think one shouldn’t drink on Sundays, which is the day of the Lord, right?


RAJAGOPALAN: These strange bedfellows get together.

I see something very interesting going on in your story along those lines because you have people who are writing about the benefits of a homogenized currency in terms of reduction in fraud, in terms of a more reliable identification of media, and so on. This is the discussion that’s going on in England at the time, right?


RAJAGOPALAN: Then you have the bootleggers, which is basically the East India Company, and they just really want to benefit from seigniorage and the profits from controlling the mint. In effect, it is not at all about fraud because India doesn’t have a counterfeiting problem at that time. It doesn’t have a big fraud problem at that time. The decentralized network actually works quite beautifully.

Here you have this really bizarre thing, which is brought in under a completely different garb, completely different arguments, but those arguments are now brought in to impose general circulation to profit some very, very specific individuals of the Company. Did this get revealed at all? Were there people in England, were there people in the British Parliament, who were talking about this, saying, “Hey, the East India Company seems to be up to no good”?

BANERJEE: There was a lot of discussion in the British Parliament about East India Company corruption in general. The company suffered because of it. But in terms of monetary history, when I read the sources, even from late 19th century of British officials, they look back at this time as a period of reform. So they’ve bought the reform story that the company is telling.

Then our own academics and people writing in the 1920s, ’30s—Coyaji, Ambedkar—all of them are also looking back at this time as something that was inevitable. It was inevitable bringing of universal money. We go from tri-metallic to bi-metallic, bi-metallic to single standard. That is bound to happen in the course of civilizational progress. We have all drunk the Kool-Aid by the 20th century.

Disrupting Networks of Trust

RAJAGOPALAN: No, but this is so interesting to me because there are two narratives going on. This is a subcontinent, full of warring tribes, and they need to be civilized. There’s that narrative that the East India Company is selling to the British Parliament at that time. That’s going on for a long time. But at the same time, India is more sophisticated in its trading networks, in its trading routes and its monetary system, far more sophisticated than Europe at that time.

It’s bizarre that that becomes the target. When you unpack the story of all the incentives that you’re telling us about, it becomes clearer that this is really a story of capturing the rents and the profits that other people are making in the system because of this huge vacuum that has been left by the decline of the Mughal empire. Now there is the Company which is just waiting in the wings to be able to capture that profit that previously went to a different sovereign. This seems inevitable. The capture of the monetary system is one of the first few functions of the state, a state which is trying to establish itself.

Once India moves to this general circulation, there is a period of disruption that you talk about. They managed to capture the mint. The mint has been physically moved out of the market to the cantonment, but they are not able to capture the market networks, which are essentially based on very long-formed trust and relationships.

How does that disruption take place of the networks of the sarrafs? Because that is not as easy as just calling the mint master a corrupt official or having a case against them in the courts or something like that. This is a decentralized network; it’s going to take a lot to disrupt it. Most importantly, the people and the traders actually trust this network more than they trust the company. How does that happen? How does that transition happen?

BANERJEE: That transition actually happens—maybe it still hasn’t happened. It’s still incomplete, I would argue, in the sense that if you look at even up until the early 20th and mid-20th century, you have the shroff organization, shroff’s union, for instance, in Bombay negotiating with the government. Shroff’s essentially an anglicized way of writing sarraf. What you see is over the course of the 18th, 19th, 20th century, the sarrafi network adapting in many ways to what has been thrown at them, while continuing to make their niches and their market captures carry on.

Another thing is that in international exchange banks or in presidency banks, you see native bill departments, for instance. You see Marwari hundee leaders being hired. You see sarrafs branching out and becoming more anglicized within joint stock banks. You also see the hundee being used by princely states like Indore, like Baroda. Frankly, even the hundee was very much in conversation with the banknote. You see the bank memoizing the hundee.

Hundee is deposited in the Bank of Bombay, and then it’s memoized, and then it’s cashed in Calcutta. And finally, I think their masterstroke was this whole informal/formal distinction, which finally came after the late 19th century, early 20th century. Their success lay in that distinction. It’s something we still carry within our frame of looking at finance and economy.

Modern Monetary Practices

RAJAGOPALAN: Now I want to move us to contemporary times because you’ve also written about that. Now, of course, we’ve moved away from any kind of commodity-backed monetary system in most parts of the world, basically. The postcolonial Indian government never had any kind of commodity-backed standard to begin with; it was always paper money issued by fiat.

How have these colonial practices impacted what’s happening today? One, more generally, but I would also love if you could talk a little bit about some very modern developments. One is demonetization. How could we not talk about that? The other is this new emergence of competing currencies through cryptocurrency and now the government wants to capitalize on it. They want to ban cryptocurrency but simultaneously bring in what they’re calling the digital rupee, which is a digital currency not just not commodity-backed, but also not paper-backed.

How does one think about the relationship between or the impact of the colonial practices to what’s happening in modern monetary practice in India?

BANERJEE: It’s a very good question. I think the one clear way in which the colonial trajectory separated us out was the fact that—Joseph Vogl, for instance, has written about the emergence of the central bank in the context of England. There it emerged in a context with the growth of the parliament as an institution, with the financial public, with the crown, the bureaucracy and the mint. But there were these various institutions that grew at the same time.

In our case, we had the three presidency banks and their boards being completely run by the Department of Finance, who was then reporting directly to the court of directors and later with the crown, to the parliament, et cetera. There was—this idea of the Department of Finance controlling the banking and the money system in the colony is something we have inherited, and it’s the legacy we still deal with.

The Department of Finance, DEA [Department of Economic Affairs] is very powerful today in our system, and they control even the appointments of major banks, the directors and boards. When you look at the bifurcation of power between the RBI [Reserve Bank of India] and the Department of Finance, what you see is the power tilting in favor of the Department of Finance. This is a complete Company legacy.

RAJAGOPALAN: Yes, and that we don’t really have an independent central bank the way we think about in European countries or the way we think about the United States. The central bank in India is not as independent and was never designed to be independent.

BANERJEE: Yes. The central bank, the RBI, came after a century and a half of the Bank of Bengal and then the Imperial Bank, and what is today SBI [State Bank of India]. That institution had far more legs, had far more growth, had far more power when our RBI came into being. The idea of the central bank being totally independent, I feel like you can challenge that. It is, after all, an agent of universal money and an agent of nation-states. In a sense, I would argue that one could challenge that idea a bit because it came out of, as I said, this intimacy between the state and the merchant and the banker.

I don’t think the equivalent of the Department of Finance is so powerful in Sweden or anywhere else. It doesn’t work like that, but that is our company legacy. I feel like that’s a huge one that we are saddled with. When it comes to things like decisions about digital money or even cryptocurrency, et cetera, the internal conversations that are happening between these two main agents or main deciders is something that we never get a view into. It’s very arcane.

I know they argue that the RBI board has opened up to many scholars, and they do try to have discussions at that level. But in a sense, I feel like it’s a closed-file approach in many ways. That is something that we need to work on more as informed public, informed citizens.

RAJAGOPALAN: Yes, and I think whatever I have studied of the Ministry of Finance and the RBI relationship essentially is, we’ve left it to the goodwill of individuals. If you have Dr. Manmohan Singh and Dr. C. Rangarajan, it works beautifully because both of them understand the importance of these two institutions and the need to keep them separate.

That there is a greater benefit overall, eventually, to the Department of Finance by having a very strong, clear central bank which will protect monetary policy from government excess. Because we have that tendency post liberalization, there is also a countervailing force, which is the government wants to spend more money. It doesn’t want the reserve bank to actually tie their hands. And because it wants this fiscal dominance and doesn’t want its hands to be tied, there is a tendency to interfere more to try and have its own people.

If you have very independent people like we’ve seen in the recent past—we’ve seen this with Raghuram Rajan’s term not being renewed, Urjit Patel resigning before the end of his term, same with Viral Acharya and so on—now you see that when you don’t have the sensible people in the Ministry of Finance, you start getting this complicated and shaky relationship.

You’re right in that the company legacy is that the powers between the two are not so cleanly demarcated, the lines are blurred and the conversations are always happening behind closed doors. If the individuals are sensible, accountable, transparent, you get good outcomes. And if they’re not, you get a lot of drama and a lot of conflict and a lot of confusion.

BANERJEE: The postcolonial state is not going to give away power. It’s not in the instinct of the state. But our window is parliamentary scrutiny. I feel like that is something that is underutilized, and that is something that maybe we need to work on more. Because otherwise, we are stuck between these two very strong pillars, and essentially, again, like I keep saying, there is no other equivalent. I’m not sure, maybe Kenya and other colonies have that equivalent, but if you look at other countries in Europe or the United States, and you say, “What’s the equivalent Department of Finance?,” they don’t have a big role there.

RAJAGOPALAN: Absolutely. And the fact that the government also owns banks, post nationalization, doesn’t help the matter. They’ve created their own conduit, which was very strong for lots of spending off books and basically monetizing a large part of the deficit and so on.


RAJAGOPALAN: The other bizarre legacy—and I don’t know if I’m reading too much into your paper and trying to connect it to contemporary times, which is always fraught with problems for academics—is this kind of regime uncertainty that is brought in. The East India Company is trying to just disrupt existing systems willy-nilly and making these crazy announcements overnight, trying to derail the functioning of a particular mint.

That seems to me to be a very tight link to what happened with demonetization. Very few people in parliament—in this case, I believe even the Ministry of Finance was not that involved. It’s basically the prime minister’s office taking this sort of unilateral decision to completely change out a very large part of the paper money in circulation.

Is this also a sort of colonial and company legacy that you can draw a straight line from? Or is demonetization truly a crazy outlier event which is completely attributed to the Modi administration, and that’s an outlier event, and that’s not much so part of what one would have expected?

BANERJEE: Okay, this is an interesting question because when you look at demonetization in the Mughal period, for instance—and there was, in the sense that when the sovereign changed slowly, slowly, their coins went out of practice.

RAJAGOPALAN: The currency was, yes.

BANERJEE: Even though this circulated and it was never refused, the value of it reduced, so when you would exchange that, you would pay more to change it. Now, when the company comes in, for instance, they hate cowrie shells. The Mughals tolerated both, tolerated cowrie shells. But the company just didn’t tolerate it, and they start to ban it.

This idea of banning a monetary media and expecting that it will respect the ban—because monetary media has its own temporal longevities and it has its own life—this idea that you could ban it, and within a month, within a year, it will all be out of circulation, that is a company mindset. Because I think that the previous monarchs or sovereigns had a finer understanding of the temporal span of a particular monetary media.

RAJAGOPALAN: Also understanding that money is essentially a bottom-up process. What becomes a currency and what is accepted as currency, that is entirely based on trust, whether it’s paper money or bullion, and that can’t be dictated to overnight.

BANERJEE: Yes, it cannot change. And somewhere in the 20th century we, as human beings, stopped imagining the silver or the gold at the end of the banknote. It happened over the course of the 20th century, despite many efforts in the 19th century. This idea of the promise itself being enough happened when the nation-state became the sole arbiter of monetary value.

Now, to come into that kind of long-term trust and to say that this promise is void, which is what happened during demonetization, it’s actually anti-state itself because it disrupts this whole process of trust-building that has happened over a course of the century, even more. I still don’t understand why, as a state, you would do it because you are voiding your own promise.

RAJAGOPALAN: The same reason, actually, funnily enough, that the East India Company did it. They [Modi administration] thought they would essentially earn seigniorage. They thought that the black money wouldn’t come back in totality, the counterfeit money, the black money. I remember when demonetization happened—and I wrote about this in popular columns—they imagined that the amount that wouldn’t come back is about 30%.

That is 30% pure profit on the books for the state because this was money against which you were supposed to owe people, which they are now not going to ask you to pay up because they want to hide the black money. It’s just not going to come back. What we find is 99.98% of the money came back, which means they didn’t earn the seigniorage. It didn’t do what they expected it to do. I think even the motivations, funnily enough, are quite similar to the original motivations of the East India Company. I think there’s a delicious paper to be written here, which I really hope that you write.

BANERJEE: [laughs] Yes. I think that logic of economization, the logic of dirty money and clean money, and the fact that the central bank or the government can come in and clean, I think these are company legacies also.

RAJAGOPALAN: Yes. The company legacy—I think the biggest one that you pointed out is just ruling by fiat and diktat, which is, “Tonight we announced that this will no longer be possible from tomorrow.” They tried to do that in every aspect of Indian life. They tried to do that both in terms of the progressive reforms, as they called it, but they also tried to do that with the courts. They tried to do that with the monetary system. It’s quite interesting how that interaction took place. Some of it still mirrors today. There are certain aspects of the Indian state which still run like a colonial and Company state—at this instance, the Ministry of Finance. That is really fascinating.

What have you been up to during the pandemic? How was the archival research for this project done, over what period of time?

BANERJEE: Yes. Thankfully, by the time the lockdowns started, I had finished most of my archival work. So, I could use that time to write and be ensconced in the household.

RAJAGOPALAN: Where are some of these archives? Just out of curiosity.

BANERJEE: Yes. The colonial archive, of course, is in the National Archive of India. It’s in the British Library. It’s in the National Archive of the U.K. The noncolonial archive is in the Princely State Archives, the Bikaner State Archive, Colonial State Archives. Then I tried to also get some of the merchant archives, so it’s much more difficult to get, but I tried to get some from the nonstate and non-princely state also. Those were mostly from Gujarat.

And we’ve lost a lot, especially our nonstate archive. We’ve lost a lot. A lot of the archives are managed privately, and sometimes there’s not a clear procedure on how to get it, so there are issues there. Then a lot of us end up writing from the Colonial Archive only, but then that gives you a very teleologically obvious narrative. It’s important to both write against the grain of the archive but look for things outside of it.

RAJAGOPALAN: The work that you’re doing is fascinating, and I would love to read more as you start drawing more connections to contemporary times and also dig into what was going on at the time. Thank you so much for doing this, Shweta. This was such a pleasure.

BANERJEE: Thank you for having me. I really enjoyed our conversation.


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