Gold Exchange Standard Quiz

Characteristics of the Gold Standard

• There is free and unlimited melting of gold
• Import and export of gold is freely allowed
• The monetary authority is under permanent obligation to buy and sell gold at the fixed price without limit

Characteristics of the Bimetallic Standard

• A bimetallic standard is based on two metals; it is the simultaneous maintenance of gold and silver standards
• There is free and unlimited coinage of both metals
• The mint ratio of the values of gold and silver at the mint is fixed by the government
• Two types of standard coins (ie., gold coins and silver coins) are in circulation at the same time
• Both the coins are full-bodied coins, with the face value and the intrinsic value being equal
• Both the coins are unlimited legal tenders and are convertible into each other

Characteristics of the Flat Standard

• A fiat money is adopted as the standard unit
• The fiat money is legal tender of value or monetary unit
• All other money issued by the government is redeemable in the standard fiat

Types of Flat Standard

Utopian Paper Standard or Pure Flat Standard

• Proposes the adoption of standard money that is desired, primarily because of what it can buy for the individual in goods and services
• The said money must have legal tender power
• This standard is more of a theory because it has not yet been put into use

Involuntary Paper Standard

• Adopted by a country that finds itself in a dilemma of not being able to redeem its currency in either gold or silver
• Often comes about during wartime

Managed Currency Standard

• Espouses the use of an inconvertible and irredeemable paper money that is issued against no gold or silver reserves
• The paper money is managed by the Central Bank to keep the price levels fairly stable
• People accept this paper money because the government has given it a legal tender power

Characteristics of the Gold Exchange Standard

• The monetary unit is defined in terms of certain weight and fineness of gold
• All gold coins are held as standard coins and considered unlimited legal tender
• All other types of money (paper money or token money) are freely convertible into gold or equivalent of gold
• There is unlimited coinage of gold at no cost

Classifications of Gold Standard

Automatic Gold Exchange

• Adopted by a country that cannot practically put up any gold reserves and therefore depends on the gold reserves of other countries

Bimetallic Standard

• A monetary system in which two metals provide the basis for the money in circulation and the issuer stands ready to buy or sell either of the two metals at stated prices