On August 15, India will celebrate its 75th Independence Day amid the deadly COVID-19 pandemic. The country became a free bird from British colonial rule in 1947 after huge struggle and sacrifices.
But have you ever wondered how both the countries functioned immediately after partition? Pakistan didn’t have any central banking system then.
The unfortunate partition between both countries led to massive violence and that eventually resulted in the division of territories, powers and assets.
This didn’t stop there as India and Pakistan had to struggle over other issues related to currency and coinage, management of exchange and public debt, transfer of staff and property and division of profits, assets and liabilities.
The then interim government of India had appointed a special committee of the cabinet “to examine the administrative consequences of Partition and to take necessary steps for the transfer of power to the two Dominions”.
An interesting fact came up that India’s apex bank Reserve Bank of India was supplying currency to Pakistan and it acted as the central bank simultaneously till the State Bank of Pakistan was established.
So basically, Pakistan used the Indian rupee as its first currency and it had”Government of Pakistan” printed on it in English and “Hakumat-e-Pakistan” printed in Urdu on the white area of the note.
According to the RBI documents, “Under the arrangements agreed upon, the Bank was to be the currency authority in Pakistan and banker to the Central and Provincial Governments in Pakistan till the end of September 1948. It was also required to manage Pakistan’s exchange control and public debt till the end of March 1948.”
“The Bank was to have the sole right to issue notes in Pakistan up to September 30, 1948. While India notes were to continue to remain legal tender in Pakistan up to September 30, 1948, the Order provided for the issue by the Bank, from April 1, 1948, of notes in Pakistan, carrying the inscription ‘Government of Pakistan’ in English and Urdu,” the document further added.
The provisions further led to an agreement that the existing currency and coinage would remain common to both the territories up to March 31, 1948 and then in the next six months would be a transitional period which saw only Pakistan overprinted notes in Pakistan areas but India notes which are already there in Pakistan would continue to remain legal tender there.