Early Private and Semi-Governmental Banks (1770-1861 A.D.)
The European traders, especially those with the East India Company, were familiar with using paper currency to further paying for their trades. Previously in India, banking existed dating all the way back 500 B.C. as a commercial activity among the tradesmen of the time (Reserve Bank of India). Yet as the European traders began their commerce in India no form of paper currency existed. Private Banks were created, initially in the province of Bengal. The first such bank to implement paper money was established by Governor Warren Hastings in Calcutta around 1770 A.D. (Jhunjhunwalla Online). Following the first Private Bank, the Bank of Bengal was formed. The paper money printed by the Bank of Bengal was circulated on a much wider basis, as well as being accepted as payment for certain government dues. The Bank of Bengal was the first bank in India to have a government share in its working capital. The paper money the Bank of Bengal issued ranged in denominations from rupee (Rs.) 10 to rupee (Rs.) 1000 (Jhunjhunwalla Online). Bombay had a large commercial boom in the 19th century. This boom led to the Bank of Bombay being established, which was chartered in 1840. Bank of Bombay's charter meant the bank had the authority to issue and print its own paper money or notes. Bank of Bombay also enjoyed a government share in its capital. The notes issued by Bank of Bombay ranged in denominations ranging in value from Rs. 10 to Rs. 10,000. The majority of the notes issued by the Bank of Bombay included a signature portion which was cut off after being cashed (Indian Currency Collector). Bank of Madras was the final presidency bank to be formed, it was established in 1842. Bank of Madras was not approved by the government (Madras Presidency) for payment of government dues, which limited the circulation of their notes substantially. The notes ranged in values from Rs. 10 to Rs. 3,000 (Keynes p.38). There were several other private banks which issued their own notes during this time, yet their circulation was extremely limited due to lack of government support. These banks include The Bank of Hindostan, The Union Bank, The Commercial Bank, The Calcutta Bank in Bengal, The Bank of Western India, The Oriental Bank, The Commercial Bank of India in Bombay, The Madras Government Bank and The Asiatic Bank in Madras (Indian Currency Collector). "Government of India" (1861-1925 A.D.)
The governance of India was transferred from the East India Company to the British Crown after the conflicts of 1857-58. Sir James Wilson, the Finance Member of the Governor-General's Council also known as the Executive Council of the Viceroy, weighed the validity of state-run paper currency. As such, an administrative system was formed to control the issue, circulation and destruction of notes through Issue Offices' and treasuries, under Head Commissioner of Currency in 1859 (Jhunjhunwalla Online).
The Indian/British Government began guaranteeing payment on the notes introduced into circulation through the Indian Paper Money Act of 1861 (Indian Currency Collector). The Indian Paper Money Act of 1861 established "circles" to issue the Indian paper notes, and the circles had sub-circles under them. Initially, notes issued in one circle were not circulated outside of that specific circle, and the notes...