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A lot of colonies continued to employ British citizens in their government even after attaining independence. But how were these employees paid (in local currency, or in pounds)? Was it not considered a threat by the military, especially since many of them were employed by the air force and the army? In case of some military action against the wishes of the British, on which side would the loyalty of those officers expected to lie?

As an example of the huge trust placed on the British officers, the Indian Air Force continued to have a British head till 1954, before the Indian Air Marshal Subroto Mukherjee took over[1]. The Indian Navy also had British heads until 1958, as mentioned in wikipedia[2]. While I have only examples from India, I am assuming that this was true also for other British colonies.

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This question would be improved if you could replace the assertions with sources & citations. –  Mark C. Wallace Aug 7 '13 at 19:02
    
@MarkC.Wallace I have added sources and citations as you had suggested. Thank you for your suggestion! –  Arani Aug 7 '13 at 21:02
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Before the first US Mint established the late 1790's, the matter of legal currency in the new nation was left entirely up to the states. As a result, many states had their own currency.

Amongst the general public, the most popular form of currency in use was the Spanish Piece of Eight (aka: Dollar). When the Federal Government finally started minting their own coins, they were made the same size, and out of the same materials, as the Spanish Dollar. Mexico did the same with their pesos. As a result, all three were circulated as currency interchangably until 1857.

So most likely, all government employees were paid in Pieces of Eight, or one of the currently circulating monetary equivalents.

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So you mean all freed colonies would pay using their own currency. But the cost of living in the UK being much higher, did they not expect higher salaries than given to Indians? From what I have read, one of the main complaints of the Indian nationalists was that Indians were paid lower salaries than the Britishers even though they did the same work and held the same posts in their jobs. How was this complaint then redressed? –  Arani Aug 9 '13 at 19:15
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@Arani - I would suspect "Cost of Living" was just a dodge, as they weren't exactly commuting back to the UK every night after work. The real reason for pay disparity would have been a combination of market forces and racisim. Racial pay disparities were quite common in that era (For example, I know both the Panama Canal Company and the Transcontinental Railroad paid workers in part based on national origin). In the case of the former American colonies, everyone in question was of the same race, so I'd be surprised if that was an issue there. –  T.E.D. Aug 9 '13 at 19:54
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