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The Indian Paper Currency Act, 1871

Act No. III (Act No. 3) of 1871 (Repealed)

Repealed by Act No. XX (Act No. 20) of 1882

Passed by the Governor General of India in Council.

(Received the assent of the Governor General on the 20th January 1871).

An Act to consolidate and amend the law relating to the Government Paper Currency.

Preamble

WHEREAS it is expedient to consolidate and amend the law relating to the Government Paper Currency; It is hereby enacted as follows:-

I. Preliminary

Short Title; Local Extent; Commencement

Section 1. This Act may be called The Indian Paper Currency Act, 1871;

It extends to the whole of British India;

And it shall come into force on the passing thereof.

Acts Repealed

Section 2. The Acts mentioned in the schedule hereto annexed are repealed.

All appointments made, rules prescribed, circles of issue established, notifications published, and notes issued under any such Act shall be deemed to be respectively made, prescribed, established, published, and issued under this Act.

II. The Department of Issue

Functions of Department of Issue

Section 3. There shall continue to be a Department of the public service, to be called the Department of Issue, whose function shall be the issue of promissory notes of the Government of India payable to bearer on demand, for such sums, not being less than five rupees, as the Governor General in Council from time to time directs.

Head commissioner

Section 4. At the head of such Department shall be an officer called the Head Commissioner of the department of Issue, and two other officers, called, respectively, the Commissioner of the Department of Issue at Madras and the Commissioner of the Department of Issue at Bombay.

Power to establish Circles of Issue

Section 5. The Governor General in Council may from time to time, by order published in the Gazette of India, establish Districts, to be called Circles of Issue, three of which circles shall include the Towns of Calcutta, Madras and Bombay, respectively, appoint in each circle some one town to be the place of issue of notes, as hereinafter provided, establish in such town an Office or Offices of Issue, and declare that, for the purposes of this Act, any such town (other than Calcutta, Madras or Bombay) shall be deemed to be situate within such Presidency as is specified in the order.

Deputy Commissioners

Section 6. For each Circle of Issue other than those which-include the Towns of Calcutta, Madras and Bombay, there shall be an officer called the Deputy Commissioner of Issue.

Subordination of commissioners and Deputy Commissioners

Section 7. For the purposes of this Act, the Commissioners at Madras and Bombay shall be subordinate to the Head Commissioner: the Deputy Commissioners in the Presidency of Bort William in Bengal shall be subordinate to the Head Commissioner; and the Deputy Commissioners in the Presidencies of Bort St. George and Bombay shall be subordinate to the Commissioners of Madras and Bombay, respectively.

Appointment, suspension, and removal of officers

Section 8. All officers under this Act shall be appointed, and may be suspended or removed, by the Governor General in Council.

III. Supply and Issue of Currency Notes

Head Commissioner to provide and distribute Currency notes; Notes where payable

Section 9. The Head Commissioner of Issue shall provide promissory notes of the Government of India payable to bearer on demand, of the denominations prescribed under this Act, and shall supply the Commissioners at Madras and Bombay, and the several Deputy Commissioners with such notes as they require for the purposes of this Act.

All such notes shall bear upon them the name of the town from which they are severally issued, and shall be payable only at the Office or Offices of Issue of such town and at the presidency town of the Presidency within which such town is situate.

Signatures to notes

Section 10. The name of the Head Commissioner, of either of the Commissioners, of a Deputy Commissioner, or of some other person authorized by the said Head Commissioner, or by either of the said Commissioners, to sign notes issued under this Act, shall be subscribed to every such note, and may be impressed thereon by machinery.

Names so impressed shall be taken to be valid signatures.

Issue of notes for silver; Proviso

Section 11. The Head Commissioner, the Commissioners, and the Deputy Commissioners shall, in their respective Circles of Issue, on the demand of any person, issue from the Office or Offices of Issue established in their respective Circles, promissory notes of the Government of India payable to bearer on demand, of the denominations prescribed under this Act, on the terms following:

(a) in exchange for the amount thereof in current silver coin of the Government of India, or,

(b) in exchange for the amount thereof in silver bullion or foreign silver coin at the rate of nine hundred and seventy-nine rupees per one hundred and eighty thousand grains of silver fit for coinage and of the standard fineness prescribed by the Indian Coinage Act, 1870:

Provided that in all places where there is no Mint of the Government of India, any such Head Commissioner, Commissioner, or Deputy Commissioner may refuse to issue notes in exchange for silver bullion or foreign coin under this section.

Issue of notes for gold

Section 12. The Governor General in Council may from time to time, by order published in the Gazette of India, direct that notes to an extent to be specified in the order, not exceeding one-fourth of the total amount of issues represented by coin and bullion as herein provided, shall be issued at such Offices of Issue as are named in the order, in exchange for gold coin of full weight of the Government of India or for foreign gold coin or gold bullion, at the rates and according to the rules and conditions fixed by such order.

Expense of melting and assaying bullion received for notes

Section 13. The Head Commissioner, Commissioners, and Deputy Commissioners may require any bullion or foreign coin received under section eleven or section twelve to be melted and assayed.

Any loss of weight caused by such melting or assay shall he borne by the person tendering the bullion or coin.

Certificates for bullion; Contents of certificate

Section 14. Every person so tendering bullion or foreign coin and depositing it in any Office of Issue shall, after the expiration of the time necessary for melting and assaying the same, be entitled to receive therefor a certificate signed by the person authorized to issue the notes aforesaid.

Such certificate shall

(a) acknowledge, the receipt of such bullion or foreign coin,

(b) state the amount of notes issued under this Act, or of such notes and cash, to which the holder is entitled in exchange for such bullion or coin,

(c) state the interval on the expiration of which, if the certificate he presented to such office, the holder shall be entitled to receive such amount.

Notes where legal tender

Section 15. Within any of the said Circles of Issue a note issued under this Act from any Office of Issue in such Circle, shall be a legal tender to the amount expressed in such note, in payment or on account of any revenue or other claim to the amount of five rupees and upwards due to the Government of India, any sum of five rupees and upwards due by the Government of India, or by any body corporate or person in British India:

Provided that no such note shall be deemed to be a legal tender by the Government of India at any Office of Issue.

IV. Reserve

Bullion received for notes to be kept as a reserve. Except amount fixed as minimum limit of circulation

Section 16. The whole amount of the coin and bullion received under this Act for notes shall be retained and secured as a reserve to pay such notes, with the exception of such an amount, not exceeding sixty millions of rupees, as the Governor General in Council, with the consent of the Secretary of State for India, from time to time fixes.

Investment of such amount and Appropriation of coin, bullion, and securities; Sale or exchange of bullion and foreign coin

Section 17. The amount so fixed shall be published in the Gazette of India, and the whole or such part thereof as the Governor General in Council from time to time fixes shall be invested in securities of the Government of India: the said coin, bullion and securities shall be appropriated and set apart to provide for the satisfaction and discharge of the said notes; and the said notes shall be deemed to have been issued on the security of such coin, bullion and securities, as well as on the general credit of the Government:

.Provided that any silver bullion or foreign coin received under this Act may be sold or exchanged for silver coin of the Government of India, and that any gold coin or bullion received under this Act may be sold or exchanged for silver coin or bullion to be so appropriated and set apart instead of the gold coin or bullion.

For the purposes of this section, silver bullion and coin shall be rated at ninety-eight rupees per eighteen thousand grains of standard fineness, and gold bullion and coin at the rates fixed by the Governor General in Council under section twelve.

Trustees of securities purchased under Act

Section 18. The Government securities so purchased shall be held by the Head Commissioner and the Master of the Mint at Calcutta in trust for the Secretary of State for India in Council.

Power to sell such securities

Section 19. The Head Commissioner may, at any time when ordered so to do by the Governor General in Council, sell and dispose of any portion of the above-mentioned limited amount of Government securities.

Power to replace them. For the purpose of effecting such sales, the Master of the Mint at Calcutta shall, on a request in writing from the Head. Commissioner, at all times sign and endorse such Government securities, and the said Head Commissioner, if so directed by the Governor General of India in Council, may purchase Government securities to replace such sales.

Interest on such securities to be entered in a separate account

Section 20. The interest accruing due on the securities purchased and held under this Act shall be entered in a separate account, to be annually rendered by the Head Commissioner to the Governor General in Council.

Profits of Notes Circulation. The amount of such interest shall from time to time, as it becomes due, be paid to the credit of the Government of India, under the bead of Profits of Notes Circulation,

Annual account. and an account showing the amount of such profits and of the charges and expenses incidental thereto, shall be made up and published annually in the Gazette of India.

V. Private Bills Payable to Bearer on Demand

Prohibition of issue of private bills or notes payable to bearer on demand

Section 21. No body corporate or person in British India shall draw, accept, make or issue any bill of exchange, hund , promissory note or engagement for the payment of money payable to hearer on demand, or borrow, owe, or take up any sum or sums of money on the bills, hund s or notes payable to bearer on demand, of any such body corporate or of any such person:

Exception in favour of cheques. Provided that cheques or drafts payable to bearer on demand or otherwise, may he drawn on hankers, shroffs, or agents, by their customers or constituents, in respect of deposits of money in the hands of such hankers, shroffs, or agents, and held by them at the credit and disposal of the persons drawing such cheques or drafts.

Penalty for issuing such bills or notes; Prosecutions; Recovery of fines

Section 22. Any body corporate or person committing any offence under section twenty-one shall, on conviction before a Magistrate of Police or a person exercising the full powers of a Magistrate, be punished with a fine equal to the amount of the bill, hund , note or engagement in respect whereof the offence is committed.

.Every prosecution under this section shall be instituted by the Head Commissioner, Commissioner or Deputy Commissioner, as the case may be, of the Circle of Issue in which such bill, hund , note or engagement is drawn, accepted, made or issued.

All fines imposed under this section may be recovered, if for offences committed outside the local limits of the presidency towns, in the manner prescribed by the Code of Criminal Procedure, and, if for offences committed within those limits, in the manner prescribed by any Act regulating the Police of those towns in force for the time being.

VI. Miscellaneous

Monthly abstracts of accounts

Section 23. An abstract of the accounts of the Department of Issue showing

(a) the whole amount of notes in circulation,

(b) the amount of coin and bullion reserved, distinguishing gold from silver, and

shall be made up monthly in Calcutta, and published as soon as may be in the Gazette of India.

Description of notes in indictments

Section 24. All notes issued under this Act shall he deemed to be promissory notes of the Government of India, and may be described as promissory notes of the Government of India in all indictments, and in criminal and civil proceedings.

Supplementary powers of the Government of India

Section 25. The Governor General in Council may from time to time, by notification in the Gazette of India

(1) fix the amounts (not being less than five rupees) for which notes shall be issued under this Act,

(2) alter the limits of any of the said Circles of Issue,

(3) declare the places at which notes shall be issued under this Act,

(4) fix the rates, rules and conditions at and according to which gold may he taken in exchange for Government promissory notes issued under this Act,

(5) fix the charge for melting and assaying bullion and foreign coin received for such notes,

(6) fix the interval on the expiration of which holders of certificates under section fourteen shall be entitled to receive such notes,

(7) regulate any matters relative to Paper Currency which are not provided for by this Act,

(8) revoke or alter any notification previously made under this Act.

Every such notification shall come into force on the day therein in that behalf mentioned, and shall have effect as if it were enacted in this Act:

Provided that no notification under clause (4) of this section shall have effect until six months have elapsed from the date of its appearance in the Gazette of India.

Schedule - Enactments Repealed

Number and year of Act - Title

Act XIX of 1861 (Act 18 of 1861) - An Act to provide for a Government Paper Currency.

Act XXIV of 1861 (Act 24 of 1861) - An Act to enable the Banks of Bengal, Madras and Bombay to enter into arrangements with the Government, for managing the issue, payment and exchange of Government Currency Notes and certain business hitherto transacted by the Government Treasuries.

Act I of 1866 (Act 1 of 1866) - An Act to amend Act XIX of 1861 (to provide for a Government Paper Currency).

Act XXX of 1867 (Act 30 of 1867) - An Act to amend Act XIX of 1861 (to provide for a Government Paper Currency).

Act XV of 1870 (Act 15 of 1870) - An Act for the further amendment of Act No. XIX of 1861.(a) the whole amount of notes in circulation,

Explanatory Note

Overview

The Indian Paper Currency Act, 1871 was passed by the Governor General of India in Council and received assent on January 20, 1871. It replaced earlier laws governing government-issued paper currency, including the foundational Paper Currency Act of 1861. The Act consolidated and updated the legal framework for issuing, managing, and regulating paper currency in British India.

Purpose

The purpose of the Act was to bring uniformity and clarity to the laws relating to government promissory notes, ensure their secure issuance backed by reserves, and centralize the control of paper currency under a designated department. It also aimed to prohibit the circulation of private bearer instruments to maintain the government’s exclusive authority over currency issuance.

Key Provisions

The Act established the Department of Issue as the central authority responsible for printing and circulating government currency notes. At its head was the Head Commissioner, supported by Commissioners for Madras and Bombay and Deputy Commissioners for other Circles of Issue across British India. These officials oversaw the issuance of promissory notes and the operation of Offices of Issue in designated towns, with authority defined by their respective jurisdictions.

Currency notes issued under the Act were required to be payable to bearer on demand and in denominations not less than five rupees. The Act specified that such notes would be redeemable only at the place of issue and the corresponding presidency town. To ensure financial stability and public trust, the Act mandated that the notes be backed by reserves of coin, bullion, or government securities. It also prohibited the issuance of private bearer notes, reserving the exclusive right of currency issuance to the Government of India.

Significance

The 1871 Act was a foundational step in modernizing India’s currency system. It centralized the issuance of paper money, promoted financial discipline through reserve requirements, and enhanced public confidence by prohibiting unauthorized private currency. The Act paved the way for future developments in India’s monetary policy and institutional framework, including the eventual creation of the Reserve Bank of India.

Conclusion

Although repealed in 1882, the Indian Paper Currency Act, 1871 played a crucial role in standardizing and securing the paper currency system in British India. By consolidating earlier laws and introducing a centralized issuance mechanism, the Act laid important groundwork for the evolution of India’s modern financial and monetary system.