Century-old report that paved way for RBI
April 03, 2026
Although formed to study the woes of India’s currency and exchange rate systems, the Hilton Young Commission report became an enabler for the central bank
By Amol Agrawal, The author teaches at the National Institute of Securities Markets
This year marks the 100th anniversary of the landmark Hilton Young Commission report that paved the way for the Reserve Bank of India (RBI). In a twist of history, a commission formed to study the problems of India’s currency and exchange rate systems became famous for being the force that set up the RBI.
Prior to the commission, there were multiple proposals to establish a central bank in India, as discussed in the first volume on RBI history (1935-51).
The first was in 1773, when then Governor-General Warren Hastings established the General Bank of Bengal and Bahar. It served as tax collector, money changer, and liquidity provider during tight periods. However, the bank was wound up in two years following government orders. In 1807, Robert Rickards of the Bombay Presidency recommended a general bank to take care of rising public debt. In 1858, James Wilson proposed a National Banking Establishment “capable of gradually embracing the great banking operations in India”. In 1870, a Mr. Ellis of the Viceroy’s Council suggested a state bank modelled on the Bank of France and the Netherlands Central Bank.
The other suggestion was to create a central bank after merging the three banks of Bengal, Bombay, and Madras Presidencies. In 1913, the Royal Commission on Indian Finance and Currency was constituted. One of its members, John Maynard Keynes, proposed that the merged “Imperial Bank of India” shall undertake both central bank and commercial banking functions. However, it was shelved as the First World War (WWI) broke out after the report was submitted.
After WWI, three independent events led to the RBI’s formation. First, in 1920, the League of Nations was established to foster world peace. The League hosted the first financial conference in Brussels that year to promote economic stabilisation. One of the recommendations of the conference was this: “In countries where there is no central bank of issue, one should be established.” Following this, South Africa, Colombia, and Poland established their central banks in the 1920s.
Secondly, in 1921, the British government decided to amalgamate the three Presidency banks to form the Imperial Bank of India. Having worked closely with the Presidency banks during the war, the government saw the merits of amalgamation. However, the Imperial Bank was only given partial central banking functions—banker to the government and banker to banks. The government kept currency issuance and foreign exchange management with itself.
Third, in 1925, the British government appointed the Hilton Young Commission (formally called the Royal Commission on Indian Currency and Finance). The Indian industry complained that the exchange rate was overvalued, making domestic goods uncompetitive. In its study, the commission report made an interesting observation. It said that in other countries, a single central bank managed both credit and currency systems, but in India the two systems were under a “divided control” of the government and the Imperial Bank, causing a coordination failure leading to the economic problems expressed by the industry. Hence, it ended up recommending setting up a central bank although it was not part of its mandate.
The report that was tabled ignited debates between British officials and Indian nationalists. The report itself had a dissent note by the prominent Indian member, Purshottamdas Thakurdas. The RBI Bill had to be tabled thrice—1927, 1928, and 1933—before being approved in 1934.
The debates concerned three major issues. One, should the central bank be the Imperial Bank or a new entity? The nationalists preferred the Imperial Bank to serve as both the central bank and a commercial bank, as they were unsure of the new bank. However, the new global central banks set up in the 1920s functioned purely as central banks. The commission aligned with the new view and suggested that the Imperial Bank remain the great commercial bank, while central banking functions are shifted from this bank and the government to the RBI.
Two, should the central bank be owned by the state or private shareholders? Interestingly, the nationalists preferred state ownership, fearing that a bank owned by British capitalists would not serve Indian interests. Eventually, the government decided that the RBI will be a shareholders’ bank, with the government owning a tiny share. The share registers were kept at five centres: Bombay, Calcutta, Delhi, Madras, and Rangoon. To address nationalists’ concerns, it was decided that the RBI will have prominent Indian ownership. The face value of the share was kept at Rs 100 and was covered extensively by the press, leading to oversubscription by 100%. The RBI started as a private shareholder bank and was nationalised in 1949.
Three, how shall the RBI be governed? The commission recommended that a nine-member central board comprising managing governor and a deputy managing governor will govern it. Later, debates suggested a 16- or 24-member board ensuring representation of Indian nationals, industry association leaders, and cooperative banks. The authorities settled on a 15-member board comprising a governor, a deputy governor, four directors nominated by the Governor-General, eight directors representing the shareholders, and a government officer with no voting power.
To sum up, although the Hilton Young Commission’s report is largely forgotten, it still reads remarkably fresh. It describes not just the evolution of India’s monetary policy, but also the politics that followed—familiar to central bank watchers today.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.
This year marks the 100th anniversary of the landmark Hilton Young Commission report that paved the way for the Reserve Bank of India (RBI). In a twist of history, a commission formed to study the problems of India’s currency and exchange rate systems became famous for being the force that set up the RBI.
Prior to the commission, there were multiple proposals to establish a central bank in India, as discussed in the first volume on RBI history (1935-51).
The first was in 1773, when then Governor-General Warren Hastings established the General Bank of Bengal and Bahar. It served as tax collector, money changer, and liquidity provider during tight periods. However, the bank was wound up in two years following government orders. In 1807, Robert Rickards of the Bombay Presidency recommended a general bank to take care of rising public debt. In 1858, James Wilson proposed a National Banking Establishment “capable of gradually embracing the great banking operations in India”. In 1870, a Mr. Ellis of the Viceroy’s Council suggested a state bank modelled on the Bank of France and the Netherlands Central Bank.
The other suggestion was to create a central bank after merging the three banks of Bengal, Bombay, and Madras Presidencies. In 1913, the Royal Commission on Indian Finance and Currency was constituted. One of its members, John Maynard Keynes, proposed that the merged “Imperial Bank of India” shall undertake both central bank and commercial banking functions. However, it was shelved as the First World War (WWI) broke out after the report was submitted.
After WWI, three independent events led to the RBI’s formation. First, in 1920, the League of Nations was established to foster world peace. The League hosted the first financial conference in Brussels that year to promote economic stabilisation. One of the recommendations of the conference was this: “In countries where there is no central bank of issue, one should be established.” Following this, South Africa, Colombia, and Poland established their central banks in the 1920s.
Secondly, in 1921, the British government decided to amalgamate the three Presidency banks to form the Imperial Bank of India. Having worked closely with the Presidency banks during the war, the government saw the merits of amalgamation. However, the Imperial Bank was only given partial central banking functions—banker to the government and banker to banks. The government kept currency issuance and foreign exchange management with itself.
Third, in 1925, the British government appointed the Hilton Young Commission (formally called the Royal Commission on Indian Currency and Finance). The Indian industry complained that the exchange rate was overvalued, making domestic goods uncompetitive. In its study, the commission report made an interesting observation. It said that in other countries, a single central bank managed both credit and currency systems, but in India the two systems were under a “divided control” of the government and the Imperial Bank, causing a coordination failure leading to the economic problems expressed by the industry. Hence, it ended up recommending setting up a central bank although it was not part of its mandate.
The report that was tabled ignited debates between British officials and Indian nationalists. The report itself had a dissent note by the prominent Indian member, Purshottamdas Thakurdas. The RBI Bill had to be tabled thrice—1927, 1928, and 1933—before being approved in 1934.
The debates concerned three major issues. One, should the central bank be the Imperial Bank or a new entity? The nationalists preferred the Imperial Bank to serve as both the central bank and a commercial bank, as they were unsure of the new bank. However, the new global central banks set up in the 1920s functioned purely as central banks. The commission aligned with the new view and suggested that the Imperial Bank remain the great commercial bank, while central banking functions are shifted from this bank and the government to the RBI.
Two, should the central bank be owned by the state or private shareholders? Interestingly, the nationalists preferred state ownership, fearing that a bank owned by British capitalists would not serve Indian interests. Eventually, the government decided that the RBI will be a shareholders’ bank, with the government owning a tiny share. The share registers were kept at five centres: Bombay, Calcutta, Delhi, Madras, and Rangoon. To address nationalists’ concerns, it was decided that the RBI will have prominent Indian ownership. The face value of the share was kept at Rs 100 and was covered extensively by the press, leading to oversubscription by 100%. The RBI started as a private shareholder bank and was nationalised in 1949.
Three, how shall the RBI be governed? The commission recommended that a nine-member central board comprising managing governor and a deputy managing governor will govern it. Later, debates suggested a 16- or 24-member board ensuring representation of Indian nationals, industry association leaders, and cooperative banks. The authorities settled on a 15-member board comprising a governor, a deputy governor, four directors nominated by the Governor-General, eight directors representing the shareholders, and a government officer with no voting power.
To sum up, although the Hilton Young Commission’s report is largely forgotten, it still reads remarkably fresh. It describes not just the evolution of India’s monetary policy, but also the politics that followed—familiar to central bank watchers today.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.