Monetary System


Monetary standard = criterion or reference point guiding these social arrangements and constituting the ultimate asset combining the twin functions of standard of value and means of payment. 

Monetary systems (p.28)

  1. Independent standards
    • Fiat Money
  2. Single commodity based standards -->
    • goods/monetary unit=goods/standard commodity x standard commodity/monetary unit
    • big (unintended innovation) reducing the resource costs of commodity money was the use of fiduciary money to make the ratio of gold deposits/money much smaller.
      • Monometallism
      • Gold specie standard
      • Gold bullion standard
      • Gold exchange standard
      • Limping gold standard (half independent standard)
  3. Multi commodity based standards
    • Bimetallism
    • Symmetallism
    • Composite commodity reserve standard
  4. Currency standards
    • Exchange standard
    • Currency basket
    • Balance of payments standard (half index standard)
  5. Index standards
    • Tabular standard
    • Goods standard
    • Earnings standard
    • Labour standard


History of Monetary standards:

  1. Early antiquity - only commodity money with occasional credit transactions.
  2. Classic antiquity Europe to 18th - Metallic money, bills of exchange & money lenders
  3. France & Russia early 19th - Central Bank
  4. Medieval Italian cities 13th onwards - Deposit banks but no central and no paper money
  5. US to 1913 & Scotland first half of 19th - Multiple note-issuing and deposit banks
  6. Colonies at Independence - central bank, modern deposit banks, & money lenders
  7. Western Europe from mid-19th to WWI - Central Bank, deposit banks and other financial institutions
  8. USA from 1970s, Europe from 1980s - All modern financial institutions.

Monetary regimes (p.40)

  1. Gold standard 1879-1914
  2. Gold Exchange Standards 1925-31
  3. Bretton Woods 1945-68
  4. Dollar Standard 1968-71
  5. The 'Non-System 1972-
  6. ERM 1979-98
  7. EMU 1999-


  • Gold-standard brought a remarkable degree of exchange rate stability with arbitration keeping exchange rates around the gold standard (within the bands of transport costs).


  • 4 desirables are inconsistent : 1. fixed exchange rates 2. free trade, 3. monetary autonomy 4. free capital movements. At best only 3/4 can be achieved
    • Under gold-standard monetary autonomy was sacrificed.
    • Under gold-exchange standard in the interwar years fixed exchange rates were sacrificed.
    • Bretton Woods sacrificed freedom of capital flows
    • Fiat money sacrifices fixed exchange rates.