Hilton Young Commission

The Hilton Young Commission occupies a significant place in the historical evolution of India’s banking and monetary system. Formally known as the Royal Commission on Indian Currency and Finance, this commission laid the intellectual and institutional foundations for modern central banking in India. Its recommendations profoundly influenced the structure of India’s financial system and ultimately led to the establishment of the Reserve Bank of India, shaping the trajectory of banking, finance, and the Indian economy.

Background and Historical Context

The Hilton Young Commission was appointed in 1925 by the British Government to examine the prevailing currency and financial system of British India. During this period, India’s monetary framework was characterised by instability, dependence on silver and gold standards, fragmented banking, and limited institutional mechanisms for credit control.
The commission was chaired by Edward Hilton Young, a British statesman and financial expert. The appointment of the commission reflected growing recognition that India required a more organised and autonomous monetary authority to manage currency, banking regulation, and financial stability.

Objectives of the Hilton Young Commission

The primary objective of the Hilton Young Commission was to conduct a comprehensive review of India’s currency and financial arrangements and to recommend reforms suited to a large and complex economy.
Key objectives included:

• Examining the working of the gold exchange standard in India.
• Assessing the relationship between currency issuance and government finance.
• Evaluating the condition of banking institutions and credit availability.
• Exploring the feasibility of establishing a central banking institution.

The commission sought to align India’s monetary system with global best practices while addressing domestic economic realities.

Major Recommendations on Currency Management

One of the most important contributions of the Hilton Young Commission was its analysis of India’s currency system. The commission highlighted the limitations of the existing arrangements, where currency management was closely tied to government finances and lacked flexibility.
It recommended reforms to ensure better control over currency issuance and reserves, emphasising the need for a professional, independent authority to manage monetary functions. These recommendations aimed to reduce volatility, enhance confidence in the currency, and support trade and economic activity.

Recommendation for a Central Bank

The most far-reaching recommendation of the Hilton Young Commission was the proposal to establish a central bank for India. The commission argued that a central banking institution was essential to:

• Regulate the issue of banknotes.
• Act as banker to the government and commercial banks.
• Manage foreign exchange and gold reserves.
• Serve as a lender of last resort during financial stress.

This recommendation marked a decisive shift from ad hoc monetary management towards a structured and institutionalised system.

Impact on the Banking System

The commission observed that India’s banking sector was fragmented, with limited coordination and inadequate regulation. It noted the absence of a strong apex institution to supervise banks and stabilise the credit system.
By advocating the creation of a central bank, the Hilton Young Commission laid the groundwork for improved banking regulation, greater financial discipline, and enhanced public confidence in the banking system. These ideas later became integral to India’s banking reforms.

Influence on the Establishment of the Reserve Bank of India

The recommendations of the Hilton Young Commission directly influenced the establishment of the Reserve Bank of India in 1935. The RBI was designed largely in line with the commission’s vision of a central monetary authority with operational autonomy and professional management.
The RBI assumed responsibility for currency issuance, banking supervision, and monetary management, transforming India’s financial landscape. This institutional development remains one of the most enduring legacies of the Hilton Young Commission.

Significance in Finance and Monetary Policy

From a financial perspective, the commission’s work marked the beginning of systematic monetary policy thinking in India. By separating currency management from routine government finance, it introduced the principle of monetary discipline.
The framework proposed by the commission enabled more effective control over money supply, credit conditions, and financial stability. These principles continue to underpin India’s modern monetary policy framework.

Impact on the Indian Economy

At the macroeconomic level, the Hilton Young Commission contributed to long-term economic development by promoting institutional stability in finance. A well-managed currency and banking system is essential for trade, investment, and industrial growth.
Although its recommendations were implemented during the colonial period, their impact extended into post-independence India. The institutional foundations it laid supported economic planning, financial deepening, and integration with global markets.