Topic 2: Standards of Money & Current Monetary Issues Flashcards
When was the gold standard? What are it’s two functions?
Started in the UK, lasted from 1879-1914.
Mint Parity: Value currency in terms of gold
Convertibility: Costless conversion between gold and coin
What are some commodity standards?
Gold standard
Bimetallism
What is Gresham’s law?
That when one kind of money is overvalued, the other will disapear.
What is the gold exchange standard?
Like the gold standard, but reserves of gold are extended to include convertable notes. Existed in britain from 192-31
What was a problem with the gold standard that emerged in WWII?
- Monetary authorities had to buy gold to support price
- Didn’t want that gold to increase the stock of money
- Sold bond to strilize the money supply change
- This was expensive and made the rules of the game more complex
What was the monetary system from 1945 onwards?
- US dolalr still convertable to gold
- Other IMF countries fixed to the US or gold +- 1%
- Fixed but adjustable system, which invoked speculation.
- Ended in 1971
What was the debate over the 1844 Bank Charter Act?
The currency school argued that excessive issue of bank notes had caused inflation, and so the act, which gave the bank of england monopoly on note printing and required it keep 100% gold reserves was good policy.
The banking school opposed the act, arguing that banks create credit, and that money was endogenous to the banking system - determined by consumer demand to swap bank notes for gold.
