“What can be more important than the future independence of India?”
Nehru sounded offended.
“Giving India a sound economy so that it can stand on its own feet as an independent country.” Sir Eric’s reply was smooth and urbane. “Avoiding the impending economic crisis would be a good first step in that regard.”
“Economic crisis?” Nehru and Sharpe replied in almost perfect chorus. “What economic crisis?”
“The one that presents us with the economic equivalent of being hanged tomorrow morning. And, like that notional event, it should concentrate our mind wonderfully. Do you know how our trade is managed under the Imperial Preference agreements signed at Ottawa?” Haohoa looked around and took the absence of response to be negative. “Well, we export raw materials to the motherland and import manufactured goods in their place. It’s a neatlyconceived system that means Britain has access to a guaranteed supply of raw materials and a guaranteed market for manufactured goods. Like all closed systems, it works very well as long as it remains a closed system. But, like all such systems, it cannot allow any degree of openness. It is either a completely closed system or it is no system at all. And Halifax’s ‘armistice’ has just blown a great hole in it.
“You see, we have virtually no industry here. We produce our own needs in cotton goods but that is all. Other than that, all our manufactured goods are imported from Britain. Now, if we remain at war with Germany and Britain does not, that supply of manufactured goods stops dead. Also, if Britain is at peace with Germany and we are at war, Britain cannot purchase our raw materials. I don’t think Halifax has realized the implications of that yet. What his armistice does is force Britain away from the Empire and ties its economy closer to Europe. That’s their problem, though. Ours is that we now have to sell our raw materials on the international market and buy our manufactured goods in the same place. And there is the problem. We have to buy manufactured goods with rupees. Now, what is a rupee worth?”
That was a question Sir Martyn could answer and he rattled off the rupee vs pound sterling exchange rate. “One shilling and fourpence.”
“You see, Martyn, that’s the problem. The rupee is valued against the pound sterling. Fifteen rupees equals one pound sterling. And that value is set by artificial fiat. Essentially, the pound sterling is a basket of Empire currencies and the value of each currency within that basket is what the British Government says it is. All those exchange rates are artificial; they are what the Government in London finds convenient. Since the rupee is only traded within a closed system, that doesn’t matter. That closed system doesn’t exist any more. So, I ask again, what is the Indian rupee actually worth?”
Sir Martyn and Pandit Nehru exchanged looks, both unwilling to say what they both knew to be the answer. Sir Eric waited for a moment before continuing. “I am afraid you are both right. The value of the rupee is what the international market says it is and that is less than the paper it is printed on. The only currency we have that is worth anything is the silver rupee and that is worth exactly the value of the silver it is made from. No more, no less. So we have to buy our manufactured goods. With what? Piles of dirty paper? For that is all our rupees are to the market. Most currency traders don’t even know what a rupee is. We would literally be better off selling the unprinted paper on the market than spoiling it by turning it into banknotes.
“The only way we can get currency that people will accept is to sell things to countries that have traded currencies. Like the American dollar. Only, what is it that we can sell to the Americans? We are barely selfsufficient in food, but we can sell tea. Americans drink coffee. We can also export raw jute, raw cotton and wheat. All three the Americans have in abundance from their own producers. We actually do export raw materials to the United States and Japan and we import manufactured goods from them and that is the one saving grace in the situation. Even better, the proportion of goods exported to and imported from those countries has actually increased over the last ten years. We export gold to the United States and that is our one hope of survival. It is also the one way we can retaliate against the British, for our gold sales were the major dollar earner for the Empire. They will kick us out of the Imperial Preference system and we will cut off the supply of dollars from gold sales. Britain will hurt but we will be in acute financial agony. Our reserves are already bleeding out as we buy the things we must have to survive as a country and soon, within six weeks in fact, they will be gone. And then we will be able to buy nothing.”
“I think there is a solution to this.” Pandit Nehru was appalled by what he was hearing, but in some ways it fitted well with his long-term plans for the country. “Not to mince words, the answer is socialism. The Indian princes have untold wealth, accumulated from centuries of exploitation. We can seize those funds and they will pay for the imports we need. And in doing so, we will be rectifying a grave injustice in the society of this country. Those princes roll in obscene wealth while the common people here starve.”
“India is marginally selfsufficient in food.” Haohoa was being his pedantic civil servant self. “But the specter of famine does still hang over the country. It takes just a few things to go wrong at the same time and we will see another great famine here. Be that as it may, the idea of confiscating the wealth of the princes is an attractive idea from many points of view, but it will not solve the basic problem that we face. The princely wealth is capital, not income. If we seize it and use it to pay for our necessary imports, then it will buy us some time. Eighteen months and then it will be gone, never to return. We will not even utilize its full value, for that wealth is mostly in the form of precious stones and other valuables. Turning them into cash we can use by selling them will flood the market for such things and severely depress their value. There is another point we must bear in mind. We can only develop the economy of this country by bringing in foreign investment. If we establish a reputation for seizing funds, then investors will fear for the safety of their money and go elsewhere. That would cripple us from the start. The princely wealth is indeed a tool we can use, but we must be careful how we do so; for it can easily break in our hands and leave us with nothing.”
There was a long, aching silence as the implications of Sir Eric’s summary of the impending economic catastrophe sank in.
“Then splitting away from Britain is impossible?”
To Sir Martyn, those words represented the end of a dream. From the expression on Nehru’s face, his dreams also had just been crushed.
“By no means.” Sir Eric decided that it was time to spread the good news a little. “What the current situation does mean is that we can’t split away from the Commonwealth. Our trade balance with Britain is tremendously disadvantageous, that is true. But that position has just ended. Our trade balance with the rest of the Commonwealth is very positive. In fact, the Commonwealth is the route by which our monies are transferred to Britain. As long as the Commonwealth remains in existence, we can continue to trade within it. Of course, Australia, and most especially New Zealand, will be much worse off. They have much the same position with regards to us as we do to Britain. Australia is headed for an even worse economic crisis than we are, And New Zealand? Well, I honestly believe that New Zealand cannot survive as an independent entity even within the Commonwealth.