Chapter 6 Terminology Flashcards
Monetary System
Generally, a system by which a government
provides money in a country’s economy. Modern monetary systems usually consist of the national treasury, the mint, the
central banks and commercial banks.
International monetary system
A set of internationally agreed rules, conventions and supporting institutions that facilitate international trade, cross border
investment and generally the reallocation of capital between countries. It should
provide means of payment acceptable to buyers and sellers of different nationalities, including deferred payment.
Commodity Money System
A monetary system in which a commodity such as gold, silver or seashells is made the unit of value and physically used as money
Commodity Money System
Bank-issued notes have no inherent physical value, but which may be exchanged for a precious metal, such as gold or silver.
Fiat Money
Defined by a central bank and government law as legal tender even if it has no intrinsic value.
Silver Standard and the Global Silver Trade
In the early period of the Ming Dynasty, had
a high demand for silver due to its shift from paper money to coins. The Ming attempted to produce copper coins as a new form of currency, but production
was inconsistent. Hence silver became of high value because it was a valid currency that could be processed abroad and the Chinese valued silver to gold about two to one so that foreign traders
made huge profits.
The Demise of China and End of Silver Standard
Harsh intervention by Chinese government led to Opium Wars they lost. As a result, Chinese sovereignty was undermined, and it had to open ports for European Traders, cede territories
(e.g. Hong Kong, Tsingtao) and later on were occupied by Japan. In 1935, the silver standard was abandoned at China and Hong Kong…
Gold Standard
The Gold Standard is a monetary system in which the standard economic unit of account is based on
a fixed quantity of gold.
Central banks were willing to convert paper currency for a specified amount gold.
The same to establish trade balance: When a country ran a trade deficit, it experiences a gold out-flow (or gold inflow in case of trade surplus) Alternatively, central bank intervenes and adjusts interest rate accordingly.
