If either the government or the people of a nation on one standard of money should borrow from a country on another standard, with the debt payable principal and interest in the money of the creditor country, serious exchange risks would be involved. When the home country’s money depreciates in terms of the money of the creditor country, whether it be on a gold, a silver, or a paper-money standard, prices, wages, and taxes do not rise proportionately to the rise in the debt charges. This is the principal reason why after the First World War there were so many defaults on international obligations. It was the principal reason, to take another type of example, why, a half century ago, British India decided to give up the1 silver standard and to go over to the gold standard. Every year India had heavy payments to make in England—the so-called home charges. These payments were on a gold basis; most of them were comparatively fixed. They covered such items as interest and annuities on the gold debt; salaries, pensions, and leave-of-absence allowances of British employees in the Indian service working in India or of employees who had returned to England from India and were there paid on a gold basis; purchases of supplies in England for the Indian service; and other expenses incurred for Indian governmental establishments.
The total of these home charges for 1892 was computed at £16 million.