Money appears in numerous forms. It does not require specific legal sanction to perform its functions. But, for effective operation of the economy, modern governments do give legal recognition to certain types of money, so they become legal tender, bearing special status for their general acceptability.
Among the legal tenders, a particular type is regarded as the “standard monetary unit” with which economic values are measured. The term “monetary standard” refers to the commodity that fixes the value of the standard unit, i.e., standard money.
In other words, the type of standard money used in a monetary system is referred to as “monetary standard”. Authors like Kent, however, define the term “monetary standard” in a broader sense to include within its scope all other regulations and arrangements of a monetary character, along with the designation of a standard of value. According to Kent, a monetary standard is “a monetary system based upon a specific standard of value.”
Analytically, however, the concept of monetary standard needs to be distinguished from the concept of standard of value. “Standard of value” implies the unit of money which measures the prices of goods and services, for example, the Rupee in India, the Dollar in the U.S.A., the Pound in England, etc. are standards of value.
Monetary standard, on the other hand, relates to the commodity by which the standard money unit is determined. In India, the monetary standard was Gold Parity Standard.
Since then, with the adoption of Special Drawing Rights (SDRs) Paper gold by the International Monetary Fund the Indian Rupee has been linked with a basket of 14 foreign currencies.
The monetary standard has two aspects: national and international. It is fundamentally national in character. It is meant for the internal need of the economy to provide a medium of exchange and a common measure of value. In its international implications, it is intended to facilitate international payments, in terms of external value of the currency.
A sound monetary standard aims at: (i) stability in the internal value of the currency through internal price stability, and (ii) stability of the external value of the currency through exchange rate stability.