Monetary standard

 MERITS (1) ECONOMICAL:- Since under paper standard no gold coins are in circulation and no gold reserves are required to back paper notes, it is the most economical form of monetary standard. Even the poor countries can adopt it without any difficulty. (2) PROPER USE OF GOLD:- Wastage of gold is avoided and this precious metal becomes available for industrial, art and ornamental purpose. (3) ELASTIC MONEY SUPPLY:- Since paper money is not linked with any metal, the government or the monetary authority can easily change the money supply to meet the demand. (4) ENSURES FULL EMPLOYMENT AND ECONOMIC GROWTH:- Under this system, government is free to determine the monetary policy. It regulates the money in such a way that ensures full employment of the productive resources and promotes economic growth. (5) AVOIDS DEFLATION:- Under this system, a country avoids deflationary fall in prices and incomes which is the direct consequence of gold export. (6) USEFUL DURING EMERGENCY:- This syste...

 Different countries have adopted different methods of note issue. Important methods among them are:-  (1) SIMPLE DEPOSIT SYSTEM Under this system, the paper currency notes are fully backed by the reserves of gold or silver or both. It is based on the currency principle of note issue. It involves no danger of over issue of currency and commands maximum degree of public confidence. But this system has never been practised because it is very costly and has no elasticity of Money supply. (2)  FIXED FIDUCIARY SYSTEM Under this system the central bank is authorised to issue only a fixed amount of currency notes against government securities. All notes issued in excess of this limit should be fully backed by gold and silver reserves. Fiduciary issue means the issue of currency notes without the backing of gold and silver. This system was first introduced in England and India followed it between 1862 to 1920. MERITS:-  (1) It ensures convertibility of currency notes. (2) It...