½ Penny – ERR AustraliaandIndia - British

In 1916, both Australia and India, as integral parts of the British Empire, had their currency systems fundamentally anchored to the British Pound Sterling, but their practical monetary experiences during World War I were diverging. The core principle was the gold standard, where local currencies were legally defined as a fixed weight of gold and thus interchangeable with Sterling at a fixed rate. Australia operated on a "gold standard with a hole," where its pound (£A) was officially sterling but physical gold coin had largely been replaced by British silver and bronze and, more importantly, by banknotes. India's system was more complex, being a "gold exchange standard." The Indian Rupee's value was fixed not to a direct gold coin but to Sterling (at 1s 4d), with the Gold Standard Reserve held in London ensuring convertibility.

The war profoundly strained these systems. Both dominions saw the practical suspension of the gold standard, as Britain called upon their financial resources and gold reserves to fund the war effort. In Australia, this led to a sharp increase in the issuance of banknotes by the Commonwealth Treasury and trading banks, effectively creating a fiduciary paper currency. While the official peg to Sterling remained, inflationary pressures began to build. In India, the massive wartime expenditure by the British Government—financing its own armies and purchasing Indian goods—led to a huge influx of Sterling into the Indian monetary system. This increased the rupee's money supply without a corresponding increase in goods, stoking significant inflation and causing the rupee's market exchange rate to actually appreciate against sterling temporarily, contrary to official policy.

Consequently, by 1916, the shared imperial framework was masking distinct local pressures. Australia was grappling with the practical realities of a managed, inflationary currency divorced from gold, while maintaining a steadfast Sterling link for trade and debt purposes. India, meanwhile, was experiencing severe economic dislocation from its forced role as a financial reservoir for the Empire, with its currency system under immense internal strain from inflation and external strain from complex exchange management. For both, the war had set in motion monetary changes that would challenge the pre-war orthodoxy and reshape their financial relationships with Britain in the post-war era.