The term monetary standard refers to the type of standard money used in a monetary system. Standard money is that money in which the monetary authority may ultimately discharge its own obligations.
The monetary standard is thus synonymous with the standard money. If a country’s standard money or monetary unit is stabilised in terms of gold, it is said to be on a gold standard; if it is stablised in terms of silver.
It is said to be on a silver standard; if it is stabilised in gold and silver both, it is said to be on a bimetallic standard; and if it is not stabilised in terms of any metal, it is said to be on an inconvertible standard.
In short, monetary standard refers to the nature and conditions of the issue of the standard money of a monetary system. In the words of Cathcart, “A monetary standard is the standard that is chosen by a society for its ultimate standard of value and which also, usually, serves as an asset of value promised on demand by debt-money issuers.”
Some authors defined monetary standard in a broader sense to include within its scope not only the selection of a unit of account, but also the laws and practices affecting a country’s money.
According to Shapiro, “The monetary standard of a nation involves the overall sets of laws and practices which control the quality and quantity of money in the system.”
Similarly, in the words of Kent, “A monetary standard can be defined as a monetary system built upon a specific standard of value.” Such definitions create awkward situation because they imply that every change in the monetary system changes the monetary standard.
Monetary standard has two aspects: national and international. Basically, monetary standard is national in character because it is intended to meet the internal requirements of an economy, i.e., to serve as a medium of exchange and a measure of value.
But, the monetary standard also assumes international character since it has to facilitate international payments.
Thus, a sound monetary standard should fulfill two objectives: (a) to maintain stability in the currency’s internal value or the price level and (b) to maintain stability in the currency’s external value, i.e., its value in terms of foreign currencies.