Monetary Systems and Standards
A key part of the evolution of money was the beginning of structured monetary systems and the evolution of a body to oversee monetary policy.
A monetary system is a set of rules that guide the supply of money in an economy.
The evolutions of monetary systems could be classified into:
Monometallism: In monometallism, one metal is adopted as the standard currency/money. The monetary system is made up of and relies entirely on one metal, like say the gold standard or the silver standard. So coins are made up of one metal only.
This means these coins are the legal tender for all day to day transactions. There is also unlimited manufacture of coins, free coinage.
Bimetallism: in the double standard or bimetallism system, two metals are adopted as standard money. There is a fixed legal ratio between the value of the two metals to ease exchange. The two metals were usually gold and silver. So, two types of standard coins are minted (gold and silver).
So under bimetallism, two types of metal coins are in circulation simultaneously in the economy. Both have free coinage. And using the legal ratio of exchange both are convertible into each other. One main advantage of this system is that the economy has a full-bodied currency. Silver can be used for smaller transactions and gold for bigger ones.
Paper currency: Under this monetary standard, the currency prevailing in the economy will be paper currency. In most cases, this currency system is managed by the Central Bank of the country.
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