Types of Fiat Standard

The fiat standard can consist of three different types, such as: utopian, involuntary and management currency standards. In actual practice, only the last two existing today are observed.

Utopian paper standard. For reasons of academic interest, this type is included for discussion.

The underlying philosophy behind the proposed adoption of this standard is that money today is desired primarily for what it will bring to the individual in the form of goods and services they will buy, and not for what it represents, either in specific weight. and gold or silver law. As envisioned by its proponents, the government seal and the attribute of legal tender are all that is needed for money issued under this standard to be acceptable. Thus, following this line of thought, it is argued that there is no need to accumulate gold reserves as is required in the case of the gold standard.

On the other hand, his main objection is that the money that is intended to be put into circulation is not defined in terms of any merchandise and, therefore, it is irredeemable. As such, critics point out that this standard presents the serious dangers of unlimited inflation.

The involuntary paper standard. When a nation, whether on a gold or silver standard, finds itself in dire straits of not being able to redeem its money, such a situation brings in its wake the consequent result of an involuntary paper standard.

This situation is observed many times as a result of a war. Thus, despite the government’s desire to redeem its paper money, circumstances prevent it from doing so. However, the government and the people still fervently cling to the hope that one day they can return the gold or silver standard, as the case may be.

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