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International Finance TY BMS Gold Standard Systems Prof. Dipak Abhyankar 9820321404 Note • Be sure that the speakers are on! Exchange Rate Regimes Dipak Abhyankar Barter System Advantage • No Government Intervention • No Paper Currency • No ‘managed’ inflation Barter System Limitations • Divisibility Barter System Limitations • Divisibility • Stocking Value for long Barter System Limitations • Divisibility • Stocking value for long • Fair price discovery Experiments …… Sea Shells Clay Tablets Precious Stones Gold and Silver Monometalism Bimetallism Gold Standard Systems Gold Specie Standard Actual Use of Gold Coins Gold Specie Standard Actual Use of Gold Coins Advantages People are using real value No certification required Exchange Rate is simple and stable = Gold Specie Standard Actual Use of Gold Coins • • • Limitations Larger Space requirement for stocking Inconvenient to Carry Risk of Theft Gold Specie Standard Gold Specie Standard Gold Bullion Standard Gold Bullion Standard Pegged Currency is ‘pegged’ with Gold with a specified quantity Gold Bullion Standard Pegged Unconditional Promise to convert Fiat Currency to Gold Gold Bullion Standard Pegged Advantages • Controlled Money Supply • Anti Inflationary • Exchange Rate is simple and stable • Carries advantages of Divisibility, Stocking of credits and easier pricing Gold Bullion Standard Pegged Disadvantages • Inflationary measures are not possible, and hence full employment and growth objectives are not achieved • Difficult to honor unconditional promise in war and crisis Gold Exchange Standard Currency A Pegged Currency B • Currency in Gold Exchange Standard is pegged with another currency with specified equation [Currency ‘B’] • That another Currency is pegged with gold [Currency ‘A’] • Currency ‘B’ is in Gold exchange standard • Currency ‘A’ is in Gold Bullion Standard Gold Standard Systems • Gold Specie Standard – `Actual Use of Gold Coins • Gold Bullion Standard – Paper (Fiat) Currency Pegged with Gold • Gold Exchange Standard – Paper (Fiat) Currency pegged with another currency which in turn is pegged with Gold • Money is a headache • and Money is the cure