Paper currency:- Meaning and features

 MEANING


It refers to a monetary standard in which inconvertible paper money circulates as unlimited legal tender. Under paper money standard, although the standard money is made of paper, both currency and coins serve as standard money for purpose of payment.


The paper standard is known as MANAGED STANDARD because the quantity of Money in circulation is controlled and managed by the monetary authority with a view to maintain stability in prices and income within the country.

It is also called FIAT STANDARD because paper money is inconvertible in gold and still regarded as full legal tender.


After the breakdown of gold standard almost all countries of the world shifted to paper standard.


FEATURES

The paper standard has the following features:- 

1) Paper money circulates as standard money and accepted as unlimited legal tender in the discharge of obligations.

2) The unit of Money is not defined in terms of commodity.

3) The intrinsic value of the circulating money is particularly nil.

4) Paper money is not convertible in any commodity or gold.

5) The purchasing power of the monetary unit is not kept at par with any commodity.

6) Paper standard is national in character.

7) The foreign rate of exchange is determined on the basis of the parity of purchasing power of the currencies of different countries.


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