Tuesday, 4 May 2021

Did you know India printed currency for Pakistan?

India printed currency for Pakistan?

Is it true that Reserve Bank of India (RBI) printed the Pakistani currency for short time, and also helped them to set the foundation of the monetary system and central bank in Pakistan immediately after the independence from India in 1947.  Read on to know what actually transpired…..

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Many may not be aware that India printed the currency for Pakistan after India was divided into two nations, India and Muslim majority Pakistan. Did Reserve Bank of India print currency for Pakistan? The answer is, yes it did. At the end of the British rule after being ruled by the British Empire for almost 200 years, the partition of India into the two new Dominions of India and Pakistan in 1947, posed several political, economical and other delicate problems. And one of those was Pakistan didn’t have its own Central Bank.

After the talks between the leaders and following the acceptance in principle of partition, a special committee of the cabinet was set up, which was later replaced by the Partition Council. The Reserve Bank of India acted as an advisor to the expert committee set up to divide resources and institutions between India and Pakistan by providing them, data and technical expertise.

Still there was a great deal of disagreement. There were serious disagreements between the two Dominions on many issues. The Muslim members felt that the Pakistan government should have the right to appoint a deputy governor of the Reserve Bank of India; and it should also directly nominate two out of the four nominated directors on the RBI’s central board, among other demands.

The report was submitted on July 19, 1947 by the sub-committee of Expert Committee of Department of Finance which was approved by the Partition Committee. Finally a decision was made. Under the Pakistan (Monetary System & Reserve Bank) Order 1947 system issued on August 14, 1947, The Reserve bank of India took control of Pakistan’s monetary system. This order provided for the Reserve Bank of India to operate as the currency and monetary manager for Pakistan until September 30, 1948.

Muslim members also came up with some figures that during the World War II, Nasik Press was printing about eight million of pieces of currency notes per day and contemporary production was about 3.5 million pieces. They said that after partition India would not have required more than 2.5 million pieces per day and the requirement of Pakistan was going to be only 0.8 million pieces per day. Hence, in their point of view Nasik Press could and should print the currency notes for Pakistan as well.

An agreement was reached on the common Central Bank. It was also finally decided that there will be a common currency within both countries issued by Reserve Bank of India, until March 1948. Indian currency notes and coins were over-stamped with the ‘Government of Pakistan’ title, and were used as legal tender in the new state of Pakistan.

First batch of currency notes supply for Pakistan was issued on April 1, 1948 by RBI, so it is assumed that till then old 'Indian' currency was accepted in Pakistan. It took a while for India and Pakistan both to design and issue its own currency notes.

Problem was not only printing, but also designing the currency. The Master of Security Press, Nasik R.C.G. Chapman said that it would not take less than one and half year to design new currency notes. Time for printing and delivering the same into economy would have been in addition to it. ‘Muslim’ members were not happy with Chapman for this view and other views of his on this subject, but they had hardly any choice. So, finally Reserve Bank of India was directed to issue currency notes for both Indian as well as Pakistani Government.

Indian government had to compromise and accept the image of King of England on the currency notes even after independence, signed by CD Deshmukh, the then Governor of RBI. Pakistan had to compromise even further- they had to accept currency notes issued by ‘Reserve Bank of India’. Nasik Press had engraved ‘Government of Pakistan’ in English and ‘Hukumut-e-Pakistan’ in Urdu on the white portion of the currency notes for their circulation in Pakistan. First batch of currency notes supply for Pakistan was issued on April 1, 1948 by RBI, so it is assumed that till then old ‘Indian’ currency was accepted in Pakistan. It took a while for India and Pakistan both to design and issue its own currency notes.

After a series of disagreements and complicated issues, relations between the Pakistan authorities and the RBI were strained. This led to the termination of Reserve Bank of India’s role in Pakistan. RBI signed an agreement with the Pakistan government to terminate their relationship, and Pakistan assumed control of its finances from April 1948.

On April 1, 1948, the RBI and government of India issued provisional notes on behalf of the government of Pakistan exclusively for Pakistan. RBI ceased to function as the Central bank of Pakistan from July 1, 1948, and its functions were officially taken over by the newly established State Bank of Pakistan.

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