Exchange-rate policy is never neutral. Examine this with reference to the 1s 6d vs 1s 4d debate in colonial India.

An exchange rate sets the price of a nation's money against the world, so it decides who gains and who pays. In the 1920s "ratio controversy", the Hilton Young Commission adopted 1s 6d per rupee [2] and Indian opinion demanded 1s 4d. The dispute showed that this was a political choice, not a technical one.

Distributional effects: who gained from a dear rupee

• Exporters lost: a £1 sale abroad fetched about 13⅓ rupees at 1s 6d against 15 rupees at 1s 4d. Jute and cotton exporters earned roughly 12.5% less.
• Domestic industry was squeezed: cheaper British imports undercut Indian mills in their own market.
• Farmers were hit twice: crop prices fell in rupee terms, but land revenue and debts stayed fixed.
• Sterling payers gained: fewer rupees met the same sterling obligations. This linked the ratio to the nationalist drain critique.
• The monetary standard itself was at stake: 1s 6d fixed the rupee's gold par at 8.47512 grains of fine gold [2].

Political dimension: who decides the rate

• The government had earlier tried to hold the rupee at 2s, which drew heavy public criticism [1].
• In 1924, when the rupee stood near 1s 4d, Purshotamdas Thakurdas sought a Bill to stabilise it at that level. The Finance Member opposed it and offered a commission instead [1].
• Thakurdas sat on that Commission and filed a minute of dissent [1]. The Indian Currency League then took the 1s 4d demand to the public, a clear case of economic nationalism.

The counter-view and its limits

• 1s 4d would also have redistributed income, from urban consumers (dearer imports) to producers. The League largely spoke for business.
• That supports the thesis: since no rate is neutral, the real issue was legitimacy. A colonial executive, not India's legislature, chose the winners [1].

Institutional legacy

• The same Commission recommended a "Reserve Bank of India" [3]. The Gold Standard and RBI Bill of 1927 [2] became law only as the RBI Act, 1934 [4].

The ratio debate shows that exchange rates move income between exporters and importers, farmers and creditors, and colony and metropole. Exchange-rate choices should therefore come from accountable, transparent institutions. That was the lesson behind giving the RBI a statutory footing, and it serves the Preamble's ideal of economic justice.