India' s Gold Exchange Standard System before World War I and the Inflow of Gold

The aim of this article is to investigate the character of India's gold exchange standard system and to clarify the causes and mechanism of the inflow of gold into India before World War I. Previous studies have often assumed that India’s gold exchange standard system could have prevented gold from flowing into India. But that system was provided with the facility of settling external balances with gold, and actually not a small amount of gold flowed into India before World War I. On the other hand, it is not right to emphasize just the fact of inflow. India’s monetary system at the time had two features: One consisted of elements of the gold exchange standard system that could dispense with gold, and the other consisted of elements of the gold coin standard system that were accompanied by gold. It is important to examine the relations between the above two features. We will focus our concern on the mechanism of exchange banks’ arbitrage transactions of gold and the direction of exported Australian gold to make the relations clear and to offer an alternative understanding of India’s gold exchange standard system.