Note 111 — Chapter II

It may be pointed out that although the Presidency banks had ceased to issue notes, yet under the agreements made with the Government in virtue of Act XXIV of 1861 the banks were employed by the Government “for superintending, managing and becoming agents for the issue, payment and exchange of promissory notes of the Government of India, and for the carrying on the business of an agency of issue” on a remuneration of ¾ per cent. per annum “on the daily average amount of Government currency notes outstanding and in circulation through the agency of the bank.” In the conflict that ensued between the Government of India and the Secretary of State as to the propriety of thus employing the banks, the former was in favour of the plan because it believed that it would help the extension and popularization of the notes, while the latter disliked the arrangement because it seemed to him to compromise the principle of complete separation between the business of issue and the business of banking. Neither of the two, however, grasped the fact that the profit on remittances on different centres owing to the prevalence of internal exchange was so great that the commission allowed to the banks was an insufficient inducement to cause them to promote the circulation of notes by providing facilities at their branches for the free encashment of them. So high was the internal exchange, and so reluctant seemed the banks to popularize the notes, that Government finally discharged them from being their agents for paper currency from January 2, 1866. See House of Commons Return, East Indian (Paper Money) 215 of 1862.