Banknotes are introduced to overcome the weight of the coins to carry out transactions. Banknotes at first in the form of a receipt used as evidence of gold and silver deposits with a goldsmith. Receipt indirectly told that it could be converted into gold and silver coins are real. The financial system used around 1880 until the outbreak of World War I is known as the Gold Standard or the gold standard. Its main feature is that it is a system of fixed exchange rates that set based on the value of gold. Through this system, gold is required only as reserve assets. Paper money are convertible into gold at the issuing bank in a particular ratio. When the outbreak of World War I, a very large financial needs and can only be met with more spending money. In order to avoid undesirable effects on the domestic market, many countries canceling rules of the gold standard. In 1933 only five known Gold Bloc countries (France, Belgium, Netherlands, Italy and Switzerland) is still the gold standard practice. But in 1936 this system ends when there is devaluation of France and Switzerland.
Fiat money refers to money that is not pegged to commodity reserves. Fiat money given by the government to enforce the order fiat money as legal tender in the law where the debtor can pay off their debts with fiat money without having to worry not accepted. In 1971, the United States switched to fiat money. At this time, most economies of developed countries pledging their currencies to the US dollar (see Bretton Woods Conference). With this most western economies and the world at large switching to a system based on fiat money.
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Currency History.
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