Monetary system
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A monetary system is anything that is accepted as a standard of value and measure of wealth in a particular region.[1]
However, the current trend is to use international trade and investment to alter the policy and legislation of individual governments. The best recent example of this policy is the European Union's creation of the euro as a common currency for many of its individual states. Modern currencies are linked to physical commodities (silver or gold).
Commodity money system
A commodity money system is a monetary system such as the gold standard in which a commodity such as gold is made the unit of value and physically used as money, any other money, such as paper notes, being theoretically convertible to it on demand. An historical alternative which was rejected in the Twentieth Century was bimetallism, also called the "double standard", under which both gold and silver were legal tender.[2]
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Fiat money
The alternative to a commodity money system is fiat money which is defined by a central bank and government law, or "fiat", which defines legal tender. Typically fiat money is paper currency or base metal coinage, but can also be simply data such as bank balances and records of credit or debit card purchases.
See also
References
- ^ Reference.com, definition of "monetary system"
- ^ Velde, Francois R., Following the Yellow Brick Road: How the United States Adopted the Gold Standard. Economic Perspectives, 4th Quarter, 2002. Available at SSRN: http://ssrn.com/abstract=377760 or doi:10.2139/ssrn.377760
External links and further reading
- Velde, Francois R. "Following the Yellow Brick Road: How the United States Adopted the Gold Standard" Economic Perspectives. Volume: 26. Issue: 2. 2002. also online here
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