What are the essential qualities of good Monetary Standards ?



Qualities of Good Monetary Standard

A sound monetary standard or system should possess the following qualities.

1. Simplicity:

The monetary system should be simple and easily understandable. A simple monetary system inspires public confidence.

2. Elasticity:


A good monetary system should be elastic. It should be capable of changing the money supply according to the requirements of the economy.

3. Economical:

The monetary system should be economical. It should not require heavy expenditure on its operation. An expensive monetary system is a burden on the country. In this regard, paper money is better than the metallic money.

4. Stability:

A good monetary system should ensure internal price stability and external exchange rate stability. Stable internal price level is necessary for the economic growth of the country and stability in the foreign exchange rates is essential for the development of foreign trade.

5. Convertibility:

A sound monetary system must possess the quality of convertibility of the currency into some expensive metal Convertible currency system serves to inspire public confidence and facilitate interna­tional payments.

6. Legality:


A good monetary system must possess legal sanction; it must be backed by the force of law. Legal tender money increases public confidence and ensures general acceptability.

7. Automatic Working:

A good monetary system should have built- in-flexibility. It should be capable of operating automatically without the government intervention. According to Prof. Caiman, gold standard was, “a fool-proof and knave-proof standard”. There was no scope for artificial change in gold standard.

8. Economic Development:

An ideal monetary system must be helpful for a country to achieve the objectives of economic development and maximisation of employment.

9. Other Qualities:

A monetary standard should also possess some other qualities like transferability, portability, cognizability, uniformity, divisibility, etc.

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