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,
1ST YEAR, BA.LLB
2ND 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.
MONOMETALLIS
M. BIMETALLISM.
GOLD & SILVER.
FREE. MANAGED.
SILVER
.
GOLD.

6. METALLIC STANDARD
METAL COINS- STANDARD COINS.
MONOMETALLISM. BIMETALLISM.
GOLD & SILVER.
SILVER GOLD.
DIRECT
.
INDIREC
T
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 2nd 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, 35TH Revised Edition, Page No. 41-75.

23. THANK YOU…..