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...

  PRINCIPLE OF NOTE ISSUE To ensure a good note issue system, two principles of note issue have been advocated:-  (a) CURRENCY PRINCIPLE (b) BANKING PRINCIPLE (A) CURRENCY PRINCIPLE :-  It is based on the assumption that a sound system of note issue should command the greatest public confidence. This requires that the note issue should be backed by 100% gold or silver reserves. Or in other words, paper currency should be fully convertible into gold or silver. Thus, according to this principle, the supply of paper currency is subjected to the availability of metallic reserves and varies directly with the variations in the metallic reserves. MERITS:-  1) It has maximum public confidence 2) There is no danger of over issue of notes leading to inflation 3) It makes the paper currency sstems automatic and leaves nothing to the will of monetary authority. DEMERITS:- 1) It makes the monetary system inelastic as it does not allow the monetary authority to expand the supply a...

 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 particular...