The Role of Hundis in the Jaipur Kingdom in Pre-Colonial India

The Mughal currency system survived even after the decline of the Mughal Empire as it continued to be used by the regional states. The gradual decrease in the annual flow of silver led to paucity of this metal for its use as currency thereby causing enlarged use of the hundis. It goes without saying that use of metallic money served to overcome the restrictions of barter transactions whereas its absence threatened to obstruct the smooth operation of economic activities. Therefore, a system of credit was devised in developing market economies by which payments could be deferred or money claims could be transferred. It not only brought about an expansion in the existing volume of money but also led to an increase in its velocity. The volume of money transactions increased automatically when banking instruments, such as bills of exchange (hundis) or letters of credit began to be used in place of currency. In the medieval economy, the establishment of a widespread network of monetary exchange through hundi created the necessary conditions for the emergence of credit and regulated the functioning of banking. At the same time, the expansion and contraction in the volume of credit impinged upon actual monetary movements.