MONETARY STANDARDS.pptx

MEANING AND TYPES OF MONETARY STANDARD AS PER THE BOOK 'MONEY, BANKING, INTERNATIONAL TRADE AND PUBLIC FINANCE' OF M.L.SETH.

1. MONETARY STANDARDS. ECONOMICS-2. MUNAZZA, 1 ST YEAR, BA.LLB 2 ND SEMESTER [2022-23], SCHOOL OF LAW, UNIVERSITY OF MYSORE.

2. INDEX. 1. MEANING. 2. OBJECTIVES. 3. TYPES OF MONETARY STANDARD. 4. PRINCIPLES OF NOTE ISSUE. 5. SYSTEMS/METHODS OF NOTE-ISSUE. 6. QUALITIES OF MONETARY STANDARD. 7. CONCLUSION. 8. BIBLIOGRAPHY.

3. 1. MEANING: MONETARY STANDARD – - TYPE OF STANDARD MONEY USED IN A COUNTRY OR ADOPTED BY A COUNTRY’S MONETARY AUTHORITY. - LEGAL MONEY IN WHICH GOVERNMENT ITSELF DISCHARGES ITS OWN OBLIGATIONS OR DUTIES.

4. 2. OBJECTIVES: MONETARY STANDARD HAS 2 MAIN OBJECTIVES: 1] MAINTAIN STABILITY OF THE INTERNAL PRICE LEVEL. 2] MAINTAIN STABILITY OF THE EXTERNAL VALUE i.e., EXCHANGE VALUE IN TERMS OF FOREIGN CURRENCIES.

5. 3.TYPES: MONETARY STANDARD. METALLIC STANDARD. PAPER CURRENCY STANDARD. MONOMETALLISM. BIMETALLISM. GOLD & SILVER. FREE. MANAGED. SILVER. GOLD.

6. METALLIC STANDARD METAL COINS- STANDARD COINS. MONOMETALLISM. BIMETALLISM. GOLD & SILVER. SILVER GOLD. DIRECT. INDIRECT A] GOLD BULLION STANDARD. B] GOLD EXCHANGE STANDARD. C] GOLD PARITY STANDARD. D] GOLD RESERVE STANDARD.

7. Monometallism: Standard coins made of one metal – full bodied coins, unlimited legal tender. Merits: simplicity, public confidence, foreign trade. Demerits: not all countries, lack of elasticity, retards economic growth, lack of price stability.

8. Silver standard: Value of monetary standard in silver - fixed weight and fineness, unlimited legal tender, no restrictions on import by government. For a longer period – left by USA in 1873, India in 1835 - 1893, China in 1935.

9. GOLD STANDARD: Value of monetary standard in gold – not fixed as same for every country Orthodox Gold Standard, Traditional Gold Standard, or Full Gold Standard. Great Britain – first adopted in 1900’s and abandoned in 1931 after first world war, next by USA, and other countries. Features: terms in gold, gold sale –purchase by monetary authority, free coinage, no restrictions on imports & exports, simplicity, automatic working. Wastage of gold, ‘Fair Weather Friend’, no international co-operation, not essential for maintaining stability of internal prices & foreign exchange.

10. KINDS OF GOLD STANDARDS: [1] Direct Gold Standard: It referred to as Gold coin standard or Gold currency standard. [2] Indirect Gold Standard: of four types; - (1) The Gold Bullion Standard. - (2) The Gold Exchange Standard. - (3) The Gold Reserve Standard. - (4) The Gold Parity Standard.

11. (1) The Gold bullion standard: It is considered as revised version of gold currency standard – no circulation of coins, no free coinage, sale-purchase at fixed prices, no restrictions. token coins and paper notes – are convertible into old coins. It was adopted by Great Britain in 1925, France in 1936. Britain and India abandoned it in 1931, USA in 1933. It is uneconomical, has less public confidence, need of government intervention and breaks down at a time of crisis.

12. (2) THE GOLD EXCHANGE STANDARD: The government gives an undertaking to convert internal currency at a fixed rate into foreign currency which is further convertible into gold. - The reserves are kept in the foreign countries. It was adopted by the underdeveloped countries. It is economical, elastic, gain to government, stability in exchange rates. It is complex, less public confidence, inflexibility, expensive, insecure, loss of monetary freedom, fear of loss to member countries.

13. (3) The gold reserve standard: After end of gold standard, the exchange rates between countries became highly unstable in the foreign trading. It was adopted for ensuring stability in exchange rates by Great Britain, USA and France as a Tripartile Monetary Agreement in 1936 and later on by Holland, Belgium, Switzerland and others. Due to 2 nd World War it came to an end. No link with gold, restrictions on import-export of gold, secrecy of reserves and exchange stability.

14. (4) The gold parity standard: It is the modern version of gold standard – with establishment of IMF in 1946 where every member of IMF defined value of its money in terms of gold and exchange value determined on basis of the declared gold value. Flexibility in exchange rates and local currencies had no link with gold.

15. Bimetallism: Two metals (gold & silver) are used as standard of value – full legal tender, Sometimes, both are unlimited legal tender but only one is free coinage. It is also called as Limping Standard. France, Switzerland, Belgium and Italy founded this in 1853. COINS. GOLD. SILVER. RATE. ADVANCED & FIXED.

16. PAPER CURRENCY STANDARD. NON-CONVERTIBLE INTO METAL. EASY IN MANAGEMENT. LOW COST. STABILITY IN REGULATION.

17. PAPER CURRENCY STANDARD: It is also referred as Managed Currency Standard – there are no standard coins and paper currency has unlimited legal tender and not convertible into any metal. Inconvertible paper money when introduced during an emergency is known as Fiat money, and if introduced during normal times is just referred as inconvertible paper money. The government intervenes actively as the controller of currency. After ending of gold standard in 1931, almost all countries adopted it. Stability, full employment of resources, elasticity, conducive and suitable for national emergencies.

18. 4. Principles of note – issue: CURRENCY PRINCIPLE. SECURITY ENSURES PUBLIC CONFIDENCE. - IT IS REFERRED AS SECURITY PRINCIPLE. LORD OVERTONE, TORRENS, WILLIMA WARD. NOTE ISSUING AUTHORITY HAS TO PROVIDE FOR 100% METALLIC COVER FOR ITS NOTE ISSUE. BANKING PRICIPLE. ELASTICITY. ECONOMICAL. IT IS REFERRED AS ELASTICITY PRINCIPLE. TOOKE, WILSON , FULLARTON. THE PAPER CURRENCY CAN BE EXPANDED OR CONTRACTED ACCORDING TO TRADE REQUIREMENTS OF THE COUNTRY.

19. 5. SYSTEMS/METHODS OF NOTE ISSUE: FIXED FIDUCIARY SYSTEM. PROPORTIONAL RESERVE SYSTEM. SIMPLE DEPOSIT SYSTEM. FIXED MAXIMUM FIDUCIARY SYSTEM. PERCENTAGE SYSTEM. GOVERNMENT BONDS DEPOSIT SYSTEM. MAXIMUM RESERVE SYSTEM.

20. 6. QUALITIES OF A GOOD MONETARY SYSTEM: SIMPLICITY. ELASTICITY. ECONOMY. CONVERTIBILITY. LEGALITY. AUTOMATIC WORKING. STABILITY IN THE INTERNAL AND EXTERNAL VALUE OF MONEY.

21. 7. CONCLUSION: There is no marked difference in the rules and working of silver standard and the gold standard. But there is generally a good deal of instability in the international and external values of money under silver standard. According to the leading economists of today, there is little possibility of the re-establishment of the gold standard in the future on account of the highly unstable international price of gold. The international exchange value of paper currency depends upon its purchasing power and trade conditions in the country.

22. 8. Bibliography: Money, Banking, International Trade and Public Finance by M. L. Seth, published by Lakshmi Narain Agarwal, Agra. ISBN: 978-93-86828-76-7, 35 TH Revised Edition, Page No. 41-75.

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