One hypothesis is that gold coins became popular in India after the Kushan rule, which introduced the dinara to the country. This was later adopted by the Guptas. The Gupta Empire also issued silver and copper coins but gold coins were very common.

Monetary Standards During Sultanate Rule

Now, let’s fast forward by some 800 years to the period of the Delhi Sultanates. There was a radical change in monetary standards introduced in India with the coming of the Muslim rule after the twelfth century (at least in North India).

The early Sultans did not depart from the Hindu numismatic standards. The earliest conqueror of the North Indian plain was Muhammad Ghūri, in the late twelfth century. The gold coins issued during his reign adhered to the convention, with goddess Lakshmi on one side and the name of the ruler on the other. The manager of the mint at Delhi during the rule of Alauddin Khilji’s son was one Thakurra Pheru, a Hindu or a Jain, who left behind a book in Apabhramsa on the exchange rate and the details on metal composition in coins of different types.

But, despite the early continuity, there were some significant changes in the course of the thirteenth century. The Delhi Sultanate established a firm exchange rate between gold and silver of 1:10 – a bimetallic standard of sorts that we didn’t quite encounter in earlier classical literature. Also, this was a period of political and cultural upheaval. The Khilji and Tughlaq sultans were notorious for their raids on Hindu temples, which inevitably meant a great deal of gold acquisition and subsequent use of that gold by the mint to issue coins.

This monetary indiscipline in the thirteenth century put a strain on the 1:10 ratio between gold and silver. Gold dominated in the general circulation, because of which the unofficial exchange rate between gold and silver dropped to as low as 1:7, though the official rate was at 1:10. This is one of the early examples in monetary history where a fixed exchange rate came under stress and eventually collapsed because it was not accompanied by monetary discipline and austerity.

The greed of the Sultans is well documented by the fourteenth-century historian Ziauddin Barani, who talks of the token currency in copper and brass introduced by Muhammad Bin Tughlaq to arbitrarily replace silver. This had a disruptive effect on commercial activity, forcing Tughlaq to backtrack and revoke the token currency.

Tughlaq’s token currency was an innovation not inspired by thinking rooted in Indian realities but possibly a fad picked up from China at the time. In China, the Yuan dynasty was experimenting with “Chao”, a paper currency that is usually regarded as the world’s first fiat currency. It is not surprising that the “paper currency” model did not work very well in China, either, which was beset with inflation problems at the time.

The gold surplus in the sultanate period also found its way into many foreign countries including Iran and parts of Russia. A fifteenth-century Persian revenue manual suggests that the royal treasury at Tabriz had more gold sourced from India than from any other source.

Presumably, the sultanate was engaging in imports of luxury goods (furs, slaves, warhorses) from countries on the north-west using the gold surplus. It was clearly a policy that promoted certain trade patterns that suited the tastes of the sultans funded by Indian gold. But the chaos induced by monetary instability appears to have eventually led to the issue of fewer gold coins during the later Tughlaq period and a reversion to the mixed metal currencies and copper coins.

Monetary Policy In Mughal India

During the sixteenth century, under Mughal rule, greater standardisation set in after the chaos of the preceding few centuries. At the onset of Mughal rule, north India largely used copper currency known as sikandari. While southern India, less influenced by the monetary chaos in the north, stuck to the gold currency, with the gold coin going by the name pagoda in the Vijayanagar Empire.

Sher Shah Suri’s brief reign from 1540 to 1545 was pivotal in the history of the Indian monetary standard. He established a tri-metallic coinage with strict standards after centuries of debasement:

Rupaiya: silver coin (and the principal coin in the Empire)

Mohur: gold coin

Dam: copper coin

With the spread of the Mughal Empire in southern India in succeeding centuries, the rupee slowly replaced the gold pagoda in many provinces, but the pagoda continued to be dominant in the Tamil country.