Gulf Rupees - A History

Peter Symes

For many years the Indian rupee was the official currency in several areas that were controlled by the British and governed from India; areas such as East Africa, Southern Arabia and the Persian Gulf. While the Indian rupee was replaced in East Africa by the Rupee of the Government of the East African Protectorate in 1905 (and later by the Florin, and then the Shilling, of the East African Currency Board) and again by the Shilling of the East African Currency Board in Southern Arabia in 1951, within the states of the Persian Gulf the Indian rupee was still the official currency in 1959.

The rupees that were circulating in the Persian Gulf had been bought by the various Gulf states from the Reserve Bank of India and were no liability to the Reserve Bank, as it held the sterling reserves by which the rupees had originally been purchased. However, Indian rupees were being smuggled from India to the states of the Persian Gulf, where they were readily accepted in exchange for gold, which was in turn smuggled back into India. Gold has long been a medium of exchange in India and it was estimated in 1959 that the total amount of gold in private hands in India was about $US1.75 to 2 billion--roughly two thirds of the value of paper money in circulation. While it was legal to own and to trade in gold within India, it was illegal to import or export gold.

As the smuggled rupees, used to purchase the gold, were excess to the currency required for circulation within the Gulf states, they were repatriated to India through official channels and exchanged for pounds sterling. This meant that India was paying for the illegal importation of gold through its reserves of foreign exchange. For while the Reserve Bank held sterling reserves with which the Gulf states had purchased the rupees used for circulation, the smuggled rupees being repatriated were a liability for which no foreign reserves had been allocated.

While the smuggling had been a problem for many years, in 1957 and 1958 the problem rose to alarming proportions and took a large toll on India's reserves of foreign exchange. It was estimated that, in the eight years to 1956, $US245.7 million worth of rupees were smuggled out of India to the Persian Gulf, and in 1957 India paid out $US92.4 million in sterling to banks in the Persian Gulf.

The Indian government, in consultation with the governments of the states in the Persian Gulf and the Bank of England, decided to address the problem by introducing special currency notes for circulation in the Persian Gulf. These notes were introduced in 1959 and became known as 'External rupees' or 'Gulf rupees'. The following extract from the Reserve Bank of India Bulletin, May 1959, explains the measures taken by the Reserve Bank of India.

'The Reserve Bank of India (Amendment) Act 1959, providing the issue of special notes of the Reserve Bank and the Government of India (one rupee notes), which are intended for circulation in certain territories outside India, was passed by the Lok Sabha on April 29, 1959 and the Rajya Sabha on April 30 and received the President's assent on May 1, 1959.
'The Indian rupee has been serving as the traditional medium of exchange in the Gulf States of Kuwait, Bahrain, Qatar, the Trucial States and in parts of Muscat, for a long time, and by custom the Government of India and the Reserve Bank of India have been providing the currency for this circulation. Facilities have been provided to banks operating in the Gulf States to exchange Indian currency notes collected by them for sterling. However, this currency arrangement has, in the last few years, facilitated the conversion into sterling of large amounts of Indian notes smuggled out, representing proceeds of smuggled imports of gold and other commodities into India, which entailed a substantial drain on India's foreign exchange reserves. The notes were transferred through various channels to banks in the Gulf area, who tendered them to the Reserve Bank for redemption into sterling. There was no means of distinguishing currency taken out for legitimate trade transactions from currency taken out illegally for financing unauthorised transactions, chiefly gold imports.
'Until 1956, the volume of smuggling activity and the redemption of Indian currency into sterling was not large, but in 1957 and 1958, the return of notes and the resulting loss of foreign exchange assumed large proportions. In recent months, smuggling operations appeared to have subsided somewhat, but it was felt that if the present arrangement continued, there would be no safeguard against a resumption of the drain of foreign exchange arising out of increased smuggling.
'For these reasons, the Government of India decided to introduce a special series of India notes in replacement of the India notes now in circulation in the area. The amendment to the Reserve Bank of India Act was necessary, since the existing provisions did not provide for the issue of special notes which are not legal tender in India.
'The new series of special notes will be identical with the existing series except for their colour and for a slight modification of the legend on the obverse, indicating they are payable "at the office of Issue at Bombay" instead of "at any office of issue" as in the case of the existing notes. The special issue will be in the denominations of Rs. 5, Rs. 10 and Rs. 100, besides one rupee notes of the Government of India. There will be no change in the value of the rupee and the special notes will be as much a liability of the Reserve Bank of India and the Government of India as the notes issued for circulation in India. The special notes will be freely convertible into Indian rupees. They will also be freely convertible into sterling under the existing procedure, under which Gulf banks presented Indian currency notes in their possession to the Reserve Bank for redemption in sterling. The special notes will not be legal tender in India. There will also be no restriction on Indian rupee notes being brought into India by travellers.
'The initial stage of the operations is the exchange of existing Indian currency into the new notes. For this, a period of six weeks from May 11, 1959 to June 21, 1959 has been allowed. The Reserve Bank has provided adequate exchange facilities for the exchange of existing notes into special notes at all the banks functioning in the Gulf States and Muscat. Once the initial exchange is completed, further supplies of special notes will be obtainable by the Gulf banks under the existing arrangements for obtaining notes from India, namely, through payment of sterling. The facilities for the exchange of Indian currency notes into sterling provided prior to the issue of the special notes will be withdrawn with effect from June 22, 1959 and the redemption into sterling will be limited only to special notes issued in exchange for those now in circulation plus future issues against which sterling will be received. The issue of special notes will not involve any additional liability because they replace notes already in circulation, while future issues will not involve any uncovered liability as each rupee will be issued only against equivalent receipt in sterling.'

The introduction of the amendment to the Reserve Bank of India Act, to the Indian parliament, caused some consternation to the members of parliament, as it was proposed without any warning. The Government of India had tried to introduce the amendment with a degree of haste so that they could reduce the window of opportunity for people who might take advantage of the proposed issue of special notes, and increase the smuggling activity in the immediate future. However, following a delay of a day or so in which the opposition was allowed to review the measures, the amendment to the Act was passed with little difficulty.

The process of exchange appears to have been completed in the Gulf States with little trouble. It was estimated, at the time that the special notes were introduced, that the number of rupees circulating in the Gulf was between 300 to 500 million rupees, or $US63 to 105 million.

The 'special' notes, which came to be known as 'Gulf rupees' or 'External rupees', were in most details the same as the notes then circulating in India. However, there were, as mentioned in the Reserve Bank of India Bulletin, several differences: the notes were different colours; they were payable only at Bomaby (rather than 'at any office of issue'); and they carried a special serial number prefix of 'Z' over a number. Details of the notes are as follows. (The notes and the patterns on which they were designed are referred to by their reference number in the Standard Catalog of World Paper Money (SCWPM) published by Krause Publications.)

Denomination: 1 rupee.
Colour: Red.
SCWPM number: India No. R1.
Pattern of: India No. 75d.
First issued: 11 May 1959.
Signature: A. K. Roy (Secretary, Ministry of Finance).
Serial numbers: Serial number prefix in the range of Z/0 to Z/11, followed by a six digit number.

Denomination: 5 rupees.
Colour: Orange.
SCWPM number: India No. R2.
Pattern of: India No. 35a.
First issued: 11 May 1959.
Signature: H. V. R. Iyengar (Governor, Reserve Bank of India).
Serial numbers: Serial number prefix in the range of Z/0 to Z/3, followed by a six digit number.

Denomination: 10 rupees.
Colour: Red.
SCWPM number: India No. R3.
Pattern of: India No. 39c.
First issued: 11 May 1959.
Signature: H. V. R. Iyengar (Governor, Reserve Bank of India).
Serial numbers: Serial number prefix in the range of Z/0 to Z/14, followed by a six digit number.

Denomination: 100 rupees.
Colour: Green.
SCWPM number: India No. R4.
Pattern of: India No. 43b.
First issued: 11 May 1959.
Signature: H. V. R. Iyengar (Governor, Reserve Bank of India).
Serial numbers: Serial number prefix in the range of Z/0 to Z/4, followed by a six digit number.

Note: The range of serial number prefixes indicated for each denomination is not necessarily complete, it is simply the range observed to date.

In his book, Indian Paper Money Since 1950 (published in 1997), Kishore Jhunjhunwalla asserts that the 1-rupee note also occurs with the signatures of: H. M. Patel (pattern of SCWPM No.75c) and L. K. Jha (pattern of SCWPM Nos.75f and 75g); however, these varieties had not been reported prior to the publication of his book.

At the time the 'special' notes were introduced, the Reserve Bank of India realized that, while many notes were being returned from the Gulf States, a great number of Indian rupees were being repatriated from Saudi Arabia. The rupees were being taken to Saudi Arabia each year by Haj pilgrims and exchanged for Saudi Arabian riyals. Under arrangements in place with banks in Saudi Arabia, Indian rupees could be repatriated to the Reserve Bank of India in Bombay for conversion into pounds sterling. To ensure that no smuggled rupees could be returned from the Persian Gulf via the Saudi Arabian banks, the Reserve Bank of India introduced two special 'Haj notes' at the same time that the Gulf rupees were introduced.

The two notes specially prepared for the Haj pilgrims were 10- and 100-rupee notes. These notes were not legal tender in India, but could be converted at Bombay into Indian rupees or into pounds sterling under agreements in place with the Saudi Arabian banks. They were in most respects similar to the Indian notes then in circulation, but they had several differences

The following text is the remainder of the extract from the Reserve Bank of India Bulletin, May 1959, which describes the introduction of these notes:

'The Government of India have also arranged for the special issue by the Reserve Bank of special Haj Notes for supply to pilgrims proceeding on Haj to Saudi Arabia. It has been the practice to permit Haj pilgrims to take the quota of currency allowed to them in the form of Reserve Bank notes and Government of India one rupee notes for meeting expenses in Saudi Arabia. Indian notes, it may be mentioned, do not circulate in Saudi Arabia but they are exchanged in Saudi Arabia for local currency, and holders of Indian notes in Saudi Arabia send the currency back to India for conversion into foreign exchange. The issue of special Haj notes will ensure against the transfer of Indian notes now circulating in the Gulf areas and their presentation to the Reserve Bank through Saudi Arabia. These special Haj notes will be in denominations of Rs. 10 and Rs. 100. They will not be legal tender in India but will be convertible in Bombay into Indian rupees and also into sterling under the exchange procedure under which the Saudi Arabian banks collect and present these notes for redemption at the Reserve Bank of India, Bombay. The Haj notes will be distinguishable by their colour and the word "Haj" printed on them. They are payable "at the office of Issue at Bombay."'

The special Haj notes were first issued to Haj pilgrims on 3 May 1959 at the Mohamed Haji Saboo Siddick Musafirkhana in Bombay. (The 'Musafirkhana', literally a 'house for travellers', was a hostel for pilgrims waiting to catch boats from Bombay to Saudi Arabia.) From 6 May 1959 pilgrims were not permitted to carry Indian currency notes on their pilgrimage to Saudi Arabia, they had to carry Haj notes. The amount of money permitted to be carried by pilgrims on their journey to Saudi Arabia varied depending on their mode of travel. In 1959 Haj pilgrims travelling by boat were permitted to carry 1,200 rupees if travelling 'deck class' and 1,800 rupees if travelling 'first class'. Pilgrims travelling by air could take 1,700 rupees.

The details of the Haj notes are as follows.

Denomination: 10 rupees.
Colour: Blue.
SCWPM number: India No. R5.
Pattern of: India No. 39c.
First issued: 3 May 1959.
Signature: H. V. R. Iyengar (Governor, Reserve Bank of India).
Serial numbers: 'HA' followed by a six digit number.

Denomination: 100 rupees.
Colour: Red.
SCWPM number: India No. R6.
Pattern of: India No. 43b.
First issued: 3 May 1959.
Signature: H. V. R. Iyengar (Governor, Reserve Bank of India).
Serial numbers: 'HA' followed by a six digit number.

It appears that the Indian Haj notes were used only during the first year in which the Gulf rupees were introduced. This is deduced simply from the small number issued, or rather the small number available in the modern collector market, and the limited serial number range possible by the use of 'HA' as the sole prefix. Once the Gulf rupees had been put into circulation it would become harder for smugglers to purchase gold in the Gulf states with Indian rupees, which were no longer readily accepted by the banks. This would in turn mean that Indian rupees could be taken to Saudi Arabia in the following years, and the need for special Haj notes would no longer be necessary.

The Gulf rupees were used in the states of the Persian Gulf for a number of years before becoming redundant. The first Gulf state to introduce their own currency was Kuwait, which introduced the Kuwaiti Dinar on 1 April 1961 (two years after the Gulf rupees had been introduced). Four years later, on 16 October 1965, Bahrain introduced its own currency. Shortly after Bahrain had introduced its own currency, the Reserve Bank of India announced that they were withdrawing the established facilities for the conversion into sterling of Indian coins repatriated from the Gulf states. In order that the Gulf states, which had yet to introduce their own coins, might have a standard coinage to fill the vacuum caused by the withdrawal of the Indian coinage, the Government of Bahrain made their coinage available to the Gulf states. The coins were made available from the middle of January 1966.

Despite the official status of the 'External rupee' in the Gulf states, it would appear that transactions continued to be undertaken for many years in bullion coins--particularly the Maria Theresa dollars and British gold sovereigns. Following Bahrain's announcement that it intended to introduce its own currency, the following report appeared in The Economist (1 August, 1964):

'With its own currency, Bahrain hopes to acquire a fuller control over its money supply and avoid any possibility of being pulled into a forced devaluation by India. What is questionable is the extent to which the new measure can succeed in weaning residents of the area from their attachment to gold. The Gulf rupee, theoretically the local currency, and valued at 13.33 to the pound, circulates only in the form of small change and can be refused in payment. For all practical purposes, most private transactions are still based on gold in the form of British sovereigns and Maria Theresa thalers. This is true even in Kuwait, its dinar notwithstanding.'

In 1966 a monetary union between Qatar and Dubai saw the introduction of the Qatar & Dubai riyal on 18 September. However, due to problems with the devaluation of the Indian rupee in June 1966, the Gulf rupees had been withdrawn from circulation in Qatar and Dubai in the days following the devaluation, and replaced with Saudi Riyals--which circulated until the Qatar & Dubai riyals could be introduced. The remaining emirates of the Trucial States, with the exception of Abu Dhabi, followed the lead set by Qatar and Dubai in response to the devaluation of the Indian rupee, and temporarily introduced Saudi riyals--subsequently adopting the use of the riyal of the Qatar & Dubai Currency Board.

Abu Dhabi declined to introduce the Saudi riyal, due to a long-standing boundary dispute with the Saudi Arabia. Instead, Abu Dhabi, the largest of the Trucial states, chose to adopt the Bahraini dinar as its sole legal tender. While there were different measures taken by different states, following the devaluation of the Indian rupee, it was this action by the Government of India that led to the end of the use of the Gulf rupee in the Persian Gulf. By the end of 1966 the Gulf rupee had ceased to be legal currency in all states of the Persian Gulf, with Muscat and Oman being the only country maintaining it as an official currency.

In Muscat and Oman, a national currency was not introduced until 7 May 1970. Until this time, various currencies circulated in Muscat and Oman, including: the dinars of Kuwait and Bahrain; local baizas of Muscat, Dhofar and Oman; Maria Theresa dollars; and Gulf rupees--although the Gulf rupees circulated principally in Muscat and the sea ports, and not to any great extent in Oman. However, while a myriad of currencies circulated throughout Muscat and Oman, it was the Gulf rupee of India that was referred to in most official documents and which was used as the principal currency in trade. Muscat had continued to use Gulf rupees, following the devaluation of the Indian rupee in 1966, because of the great amount of trade conducted with India. The Gulf rupees, still circulating in Muscat and Oman in 1970, were exchanged for the new 'Rials Saidi' of Muscat and Oman in a fourteen day period to 21 May 1970, following the introduction of the new currency. Therefore, Muscat and Oman was the last place where Gulf rupees circulated.

One of the interesting problems, associated with the discontinuation of the Gulf rupee as a circulating currency, was the claim by various Gulf states for the sterling with which the rupees were originally bought. In June 1965, four months before they introduced their own currency, a delegation from the Government of Bahrain met with officials of the Government of India in New Delhi to discuss the redemption of Gulf rupees to be withdrawn from circulation in Bahrain. The Indian Government undertook to redeem the rupees in sterling at the exchange rate current at the time the rupees were returned to the Reserve Bank of India in Bombay. India agreed to pay one third of the liability or 2 million, whichever was the less, to the Government of Bahrain by 30 April 1966. The balance of the liability was to be paid to the Government of Bahrain over a ten year period.

When reports began to circulate, in early 1966, that India was going to devalue the rupee, the Gulf states still using Gulf rupees became apprehensive of the economic consequences of a possible devaluation. Under the shadow of a possible devaluation, the leaders of the Gulf states began to look for some protection for the Gulf rupee. They suggested that a guarantee be sought from India, that the integrity of the Gulf rupee be maintained if the Indian rupee was devalued. The leaders of the Gulf states saw the responsibility of obtaining this guarantee lying with Britain. The ruler of Qatar openly stated that the onus was on Britain to take responsibility for the situation, as it was Britain who was responsible for the area's reliance on the rupee. It was suggested at this time that Britain all too often shied away from these difficult situations and, since the states stood to collectively lose around 4 million if the anticipated devaluation took place, it was thought that Britain should be prepared to foot the deficit should the Gulf states be disadvantaged. When the devaluation finally occurred, Britain did not step in to save the day. Consequently, following the introduction of the Qatar and Dubai riyal, the Qatar and Dubai Currency Board made a claim to the Reserve Bank of India for the total amount of sterling originally sent to cover the rupees held by Qatar and Dubai, and not the lesser value of what the Gulf rupees were actually worth.

Introduced as a measure to halt the illegal flow of currency from India to the Gulf region, the Gulf rupees are now part of the intriguing tapestry of currencies that have circulated in the Arabian Peninsula. In circulation for just over ten years, they are now difficult to obtain in high grades for all notes. The highest denomination, the 100-rupee note, is particularly difficult to obtain and, in light of the comment concerning 'small change' in the report by The Economist (see above), it is perhaps not surprising that these notes are now difficult to acquire. However, for those who aspire to collect all the notes that circulated in the Arabian Peninsula, the Gulf rupees are essential to their collection.



This article was completed in December 1999
© Peter Symes