When an Indian traveller wished to go to sure Persian Gulf sheikhdoms within the Nineteen Fifties, there was no must top off on international foreign money earlier than the journey for the reason that Indian rupee was the authorized tender in these nations. For nearly all monetary transactions, the United Arab Emirates (then referred to as the Trucial States), Kuwait, Bahrain, Oman and Qatar used the rupee. The system was put in place by the British once they dominated India. However the association suited the Reserve Financial institution of India as nicely, because the Gulf nations would buy the rupees with pound sterling, towards which the Indian foreign money was pegged.
By advantage of the system, India had financial clout within the Persian Gulf states that had been nonetheless British protectorates and years away from a serious oil increase. Nevertheless, smugglers and different criminals noticed it as a chance to generate income from the common Indian’s want to hoard gold.
The modus operandi was fairly easy. Smugglers would ship younger males to the Gulf on ostensible enterprise journeys with wads of rupee notes. There, gold could be bought with the smuggled rupees and introduced again to India. This could inevitably create an extra of Indian foreign money within the Gulf, resulting in the additional rupees being bought again to the RBI, which misplaced invaluable international change.
As is the case now, gold smugglers had been very progressive of their strategies to bypass Indian Customs officers. A well known and often-repeated anecdote among the many first era of Malayali migrant staff within the Gulf tells the story of a person who was requested by an acquaintance to take a clock again to Bombay from a Gulf nation. The unsuspecting younger man carried the clock, inside which gold biscuits had been neatly hidden, and was arrested and prosecuted in India.
“Whereas the smuggling had been an issue for a few years, in 1957 and 1958 the issue rose to alarming proportions and took a big toll on India’s reserves of international change,” Peter Symes, an Australian researcher and skilled on paper cash, wrote in a 1999 article.
A New York Instances report from April 1959 said that India needed to pay the equal of $92.4 million in sterling for rupees introduced by merchants and banks within the Persian Gulf in 1957 alone. The report estimated that $69.3 million went to the area from India in change for smuggled gold within the first 9 months of 1957.
Launch of the Gulf rupee
By 1959, India confronted a serious international change disaster due to the thriving gold smuggling enterprise, dropping tons of of hundreds of thousands in sterling.
“To obviate or at the least mitigate malpractices, which such an association might give rise to, a separate collection of notes completely for circulation within the Gulf (Kuwait, Bahrain, Qatar, and the Trucial States) had been issued by the Indian Authorities and the Reserve Financial institution of India within the Nineteen Fifties,” in accordance with the RBI.
On Might 1, 1959, Indian President Rajendra Prasad gave his assent for the Reserve Financial institution of India (Modification) Act 1959, after it was handed by each homes of the Parliament. The legislation allowed the Indian authorities and RBI to subject particular notes that had been supposed to be circulated solely within the Gulf area. This foreign money, which had the identical worth because the Indian rupee, was referred to as the Gulf rupee or Exterior rupee.
“The Ministry of Finance drew up the reform after months of secret consultations and after acquiring the approval of the British Authorities, the Financial institution of England and the rulers of the sheikhdoms,” the New York Instances reported after the Lok Sabha handed the invoice.
Shrouded in secrecy, as was the case with the 2016 demonetisation in India, few members of the ruling celebration knew that this reform was being deliberate. The duty was entrusted to Morarji Desai, then the minister of finance. The invoice was launched within the Lok Sabha on April 27, 1959.
“The introduction of the modification to the Reserve Financial institution of India Act, to the Indian parliament, induced some consternation to the members of parliament, because it was proposed with none warning,” Symes wrote. “The Authorities of India had tried to introduce the modification with a level of haste in order that they might scale back the window of alternative for individuals who would possibly make the most of the proposed subject of particular notes and enhance the smuggling exercise within the speedy future. Nevertheless, following a delay of a day or so through which the opposition was allowed to overview the measures, the modification to the Act was handed with little problem.”
The Gulf rupee notes retained the modern design however had been totally different in color and carried the prefix “Z”. The notes had been issued one, ten and hundred denominations and had been redeemable solely on the Bombay workplace of subject.
Holders of standard Indian foreign money notes within the Gulf got six weeks to change them for the brand new foreign money or sterling. The transition to the brand new notes was pretty clean and common rupee notes had been not accepted within the Gulf. Revolutionary gold smugglers, nevertheless, discovered different methods to satiate the Indian urge for food for the valuable metallic. On the time of the passing of the invoice, Indians had been believed to be privately hoarding as much as $2 billion in gold.
Indian pilgrims additionally took rupee notes once they went on the Haj pilgrimage, the place they might freely change them for Saudi riyals. The Indian authorities had initially allowed Saudi banks and merchants to change these rupees for sterling in Bombay, however fears endured over smugglers utilizing this route to purchase international change.
In response to this risk, the Indian authorities started to subject particular Haj rupee notes for pilgrims going to Mecca and Medina. The notes in ten and hundred denomination had the phrase HAJ inscribed on the obverse. One other technique to distinguish them from regular rupee notes was the serial quantity that was prefixed with the letters “HA”.
The Haj rupee was exchanged at par to the Saudi riyal within the early Sixties. (A Saudi riyal is now value virtually 20 rupees.) Haji Siddique Mohammed, a 79-year previous retired railway worker from Mangalore, remembers utilizing the Haj rupee throughout a pilgrimage in 1963. “We obtained the Haj rupee from the Haj Committee of India, earlier than boarding the ship for Jeddah,” Mohammed advised this author. “I managed to protect a few notes, however they had been sadly misplaced after I moved out of my official quarters after retirement.”
Devaluation of the rupee
The particular notes for the Haj and the Gulf stayed in circulation till the mid-Sixties however had been slowly being phased out in some nations. This was at a time when Indian financial development was sluggish, and the Gulf nations had been within the early phases of a increase. Kuwait launched its personal foreign money as early as 1961 and some years later, Bahrain adopted go well with.
The top of the Gulf rupee was, nevertheless, precipitated by an essential improvement in India. In June 1966, Indian Finance Minister Sachindra Chaudhuri, with the blessings of Indira Gandhi, introduced a devaluation of the rupee. In a single day the change charge of the greenback rose to Rs 7.5 from Rs 4.76. Though this resolution stunned many, rumours had been doing the rounds for a number of months.
A World Financial institution workforce that had visited India in 1965 proposed the concept of devaluation of the rupee to get the financial system shifting. Media experiences of the time urged that devaluation was one of many West’s preconditions for rising assist for India’s fourth five-year plan. The choice prompted members of the opposition and the enterprise neighborhood to accuse the federal government of bowing to strain from the US and multilateral lending establishments.
The devaluation created a stir in West Asia, with some rulers asking the British authorities to intervene, for the reason that authentic association to depend on the Indian rupee was put in place by the British. Such requests had been turned down.
Qatar and Dubai withdrew the Gulf rupee from circulation inside months of the devaluation of the Indian rupee, with each states briefly utilizing Saudi riyals. They’d subsequently use Qatar and Dubai riyals, which had the identical worth of the pre-devaluation Indian rupee. A lot of the Trucial States adopted go well with, however Abu Dhabi determined to make use of the Bahraini dinar, which had an change charge of 10 Gulf rupees.
“Consequently, following the introduction of the Qatar and Dubai riyal, the Qatar and Dubai Foreign money Board made a declare to the Reserve Financial institution of India for the full quantity of sterling initially despatched to cowl the rupees held by Qatar and Dubai, and never the lesser worth of what the Gulf rupees had been really value,” Symes wrote.
The RBI would take care of every of the Gulf states individually when it got here to the settlement of the sterling reserves that it held.
The RBI-issued foreign money survived in Oman till 1970 and was principally accepted as authorized tender solely within the nation’s ports. In Might 1970, the Saidi rial (named in honour of the Home of Al Mentioned) was launched as a foreign money in Oman and changed the Gulf rupee. The brand new foreign money was exchanged at par with the sterling. Gulf rupees had been exchanged for 21 rupees to the riyal and had been redeemed in Bombay by the Omani authorities. The nation’s current foreign money the Omani rial turned the authorized tender in 1972.
The Haj and Gulf rupee notes had been withdrawn by the RBI within the early Seventies and are actually a much-sought after collector’s merchandise. Auctions performed by Spink & Son have managed to get bids from 120 kilos and VAT for a ten Gulf rupee be aware to 44,000 kilos for a 100 Haj rupee be aware. Collectors and fanatics warn of a number of faux notes being bought for prime costs on totally different e-commerce web sites.
5 many years after the Gulf and Haj rupees have ceased to exist, India continues to get pleasure from robust enterprise and cultural hyperlinks with Persian Gulf states however the thought of the nation getting again the financial clout that newly-independent India loved in West Asia doesn’t look practical.
Ajay Kamalakaran is a author and unbiased journalist, based mostly in Mumbai. He’s a Kalpalata Fellow for Historical past & Heritage Writings for 2021.