History Of The RUPEE – Explained!


Let’s talk about the Indian Rupee! The
word “Rupee” is derived from the ancient Sanskrit word “rupya” which means “Wrought
silver”. And that’s exactly what the rupee was for many thousands of years in the
subcontinent of India. We first started hearing about the word “Rupee” from
ancient scriptures written by someone called Panini (not the bread) who was an Indian ancient
scholar and he started talking about this word called “Rupee”. But moving on
further to more modern times or well relatively modern times back in those
days, to the age of Chanakya who was definitely a popular guy back in those
days. Chanakya (Kautilya) was the first prime-minister of Chandragupta Maurya –
one of the most prominent kings in India who sort of brought about India as a
single country, and he expanded the horizons of India massively compared to
what it used to be. And Chanakya back in those days referred to the rupee as
“rupyah-roop” in his original book called the ‘Arthshastra’ (The Book of Wealth) which I have right here.
Definitely an interesting read for flights but I wouldn’t say it’s a short
read. Probably a New York bestseller during those times. And Chanakya also
mentioned the existence of gold coins or “Suvarna roop” and copper coins or “Tamra Roop” and you have to remember throughout most of history, gold has always been
more valuable than Silver. So when it came to a form of currency that was more
accessible to the general public; a form of currency that could be used for low
value purchases, the people were definitely in search for something that
was more accessible like the rupee, like the silver coin. So this is one of the
reasons why the silver coin became such a popular form of currency in the state
of India. Kings knew what silver was. Kings valued silver, so they did carry
out a lot of their trade in these forms of currencies. And the rupee or the
silver coin remained a form of currency until even modern kingdoms like the
Mughal Empire, in which it was still recognized. So that’s a very short
summary of how the Indian rupee survived so many kingdoms in the subcontinent of
India. And of course when the Europeans started coming into the country and
forming their own they also accepted the rupee as a form
of currency in the West. Silver was recognized as a valuable precious metal,
although now we start getting into a bit of a dark past. One of the main reasons
why India lost so much of its financial power back in the days is because it’s
stuck to what was known as the silver standard; whereas, the whole world was
shifting gradually on to the gold standard which really worked well.
Governments from more prominent countries back in those days or rich
countries back in those days knew gold is available in limited quantities and
they knew that wherever they go in the world whatever kingdom they come into
contact with they all seem to value gold, so these governments concluded that if
we base our currencies on the gold standard which eventually did come about
then our currency will hopefully retain its value over a longer period of time,
and we will have something that is valuable in the country based on which
we can issue currency to the general public. And that’s exactly what started
happening in Europe and the US eventually. India’s stuck to what was
known as the silver standard. Believe it or not but during the British Raj, the
Indian rupee was pegged to the British Pound at one pound is equal to about 10
rupees at one point. And this lasted for about 50 years after which the British
revised this rate to 1 pound is equal to 15 rupees. So what’s the problem here? Now this would be fine as long as both countries value their currencies
similarly and the price of goods and services remained in a similar ratio to
their own currencies. But the issue was that the pan was in turn pegged to the
u.s. dollar at 4 dollars and 79 cents at some point which then started going down
and down and down. Another problem was that the British raised taxes in India
for their own benefit in the UK and of course the value of the Indian rupee
raised taxes fell eventually, and as the British tried to raise these taxes of
course the Indian man wasn’t able to pay these taxes that the British were
valuing in their gold based standard currency. So this was
one of the reasons why we started seeing so many revolutions and revolts against
the British towards the end of the 19th century and towards the beginning of the
20th century so as this ratio between the value of
gold and the value of silver started increasing over time,
India became poorer and poorer as a country as it held too many reserves of
silver in comparison to reserves of gold. Now it is widely recognized that India
has a massive appetite for gold but this appetite comes from a consumer level. Now an interesting fact is that during the Second World War there was a bit of a
shortage when it came to the supplies of silver. And the price of silver did
increase but it increased way past what the actual value of those rupee coins
were. And in place of those silver coins the British government introduced rupee
banknotes, that we still have today. Before 1957 one rupee could be broken
down into sixteen Anna’s and each Anna could be broken down into four paise. So
one rupee was equal to 64 paise. But the world started shifting towards a
decimal system and of course the Rupee was then divided into 100 paise
since 1957. Definitely much more easier to do calculations with. Now whether you
are personally impacted by this or not – I hope you weren’t – but in 2016 you have
definitely heard about the demonetization. And that’s where the Indian government,
the BJP government led by Narendra Modi decided to eradicate the highest
denomination notes from the system. Now a lot of people took this as a surprise.
They saw it as a completely unexpected move and a lot of economists actually
advised against it. But what a lot of people don’t know is that India has had
Demonetization rounds before – back in 1946 and 1978. The Indian governments
that were in place at those times also eradicated the highest denomination
rupee notes for the same reason. For the very same reason of being able to
control black money. Now it is widely recognized that a lot of drug dealers
and criminals tend to hold their fiat currencies in the highest denomination
notes because they tend to hold a lot of currency in their houses and of course
fiat currency is excellent when it comes to crime. So anyway there’s
definitely no firm conclusions regarding demonetization and if they have ever had
any positive impacts in India. Besides the monetization obviously when
you have a currency that has lost value so much over time you’re left with the
currency that has inflated phenomenally and India has traditionally had an
inflation rate of around 10 percent and even more at times and this is once
again a reason for why everyone should be aware of what inflation is and everybody
should be looking at more secure assets over the longer term and also looking
into diversification. Of course, I have a video on more secure assets, and also a
video on diversification! So make sure you check those out. Make sure you hit
the like button, the subscribe button and the bell button so you know when I
release my next video. Thanks a lot for watching and I hope you have a lovely
day!

Comments 2

  • The gold standard replacing the silver standard was not the "natural order of things" as you ridiculously suggest. It was a deliberate and massive wealth transfer to the bankers that began in Germany in 1870. http://professorfekete.com/articles/AEFTheSilverSaga.pdf

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